As filed with the Securities and Exchange Commission on October 16, 2023.
Registration No. 333-
United States
Securities and Exchange Commission
Washington, D.C. 20549
Form S-1
Registration Statement
Under
The Securities Act of 1933
Hamilton Insurance Group, Ltd.
(Exact name of registrant as specified in its charter)
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| Bermuda | 6331 | 98-1153847 |
| (State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial
Classification Code Number) | (I.R.S. Employer
Identification Number) |
Wellesley House North, 1st Floor
90 Pitts Bay Road
Pembroke HM 08 Bermuda
Telephone: (441) 405-5200
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Corporation Service Company
80 State Street
Albany, NY 12207-2543
Tel: 1-800-927-9801 ext. 66899
(Name, address, including zip code, and telephone number, including area code, of agent for service)
With copies to:
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Michael Groll Matthew B. Stern Willkie Farr & Gallagher LLP 787 7th Avenue New York, New York 10019 (212) 728-8000 | Richard D. Truesdell, Jr. Derek J. Dostal Davis Polk & Wardwell LLP 450 Lexington Avenue New York, New York 10017 (212) 450-4000 |
Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement is declared effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box: ☐
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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| Large accelerated filer | ☐ | | Accelerated filer | ☐ |
| Non-accelerated filer | ☒ | | Smaller reporting company | ☐ |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION, DATED , 2023.
PRELIMINARY PROSPECTUS
Shares
Hamilton Insurance Group, Ltd.
Class B Common Shares
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This is an initial public offering of Class B common shares of Hamilton Insurance Group, Ltd., an exempted company limited by shares incorporated under the laws of Bermuda. We are offering Class B common shares and the selling shareholders identified in this prospectus are offering Class B common shares. The selling shareholders have also granted the underwriters an option to purchase up to additional Class B common shares. We will not receive any proceeds from the sale of Class B common shares by the selling shareholders.
Following this offering, we will have three classes of authorized common shares: Class A common shares, Class B common shares and Class C common shares. The rights of the holders of Class A common shares, Class B common shares and Class C common shares are identical, except with respect to voting and conversion. Subject to the voting cutback in our Bye-laws, each Class A common share and Class B common share is entitled to one vote per share. All Class C common shares have no voting rights, except as otherwise required by law. Following this offering, our Class A common shares and our Class C common shares will automatically convert into shares of our Class B common shares, on a share-for-share basis, upon transfers following this offering. See “Description of Share Capital” herein for further information.
Prior to this offering, there has been no public market for our Class B common shares. We currently expect that the initial public offering price of our Class B common shares will be between $ and $ per share. We intend to apply to list our Class B common shares on the New York Stock Exchange (the “NYSE”) under the symbol “HG.”
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Investing in our Class B common shares involves risk. See “Risk Factors” beginning on page 27 to read about factors you should consider before buying our Class B common shares. Neither the Securities and Exchange Commission (the “SEC”) nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
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| Per Share | | Total |
Initial public offering price | $ | | $ |
Underwriting discounts and commissions(1) | $ | | $ |
Proceeds, before expenses, to us | $ | | $ |
Proceeds, before expenses, to the selling shareholders | $ | | $ |
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(1)Please see the section entitled “Underwriting” for a description of compensation payable to the underwriters.
The underwriters have the option to purchase up to an additional Class B common shares from the selling shareholders at the initial public offering price, less the underwriting discounts and commissions, within 30 days of the date of this prospectus. We will not receive any of the proceeds from the sale of shares by the selling shareholders upon such exercise.
The underwriters expect to deliver the shares against payment in New York, New York on or about , 2023.
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Joint Bookrunners
Prospectus dated , 2023.
We, the selling shareholders and the underwriters have not authorized anyone to provide you with different information or to make any other representations, and we, the selling shareholders and the underwriters take no responsibility for, and can provide no assurance as to the reliability of, any information others may give you other than the information contained in this prospectus and any free writing prospectus that we may provide to you in connection with this offering. We and the selling shareholders are offering to sell, and seeking offers to buy, our Class B common shares only under circumstances and in jurisdictions where it is lawful to do so. Neither we, the selling shareholders nor any of the underwriters are making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than its date. Our business, financial condition, results of operations and prospects may have changed since that date.
For investors outside the United States: Neither we, the selling shareholders nor any of the underwriters have done anything that would permit this offering or the possession or distribution of this prospectus in any jurisdiction where action for those purposes is required, other than in the United States. Persons outside of the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offering of our Class B common shares and the distribution of this prospectus outside of the United States.
TABLE OF CONTENTS
MARKET, RANKING AND OTHER INDUSTRY DATA
The data included in this prospectus regarding markets, ranking and other industry information are based on published industry sources, and our own internal estimates are based on our management’s knowledge and experience in the markets in which we operate. Data regarding the industry in which we compete and our market position and market share within this industry are inherently imprecise and are subject to significant business, economic and competitive uncertainties beyond our control, but we believe they generally indicate size, position and market share within this industry. Our own estimates are based on information obtained from our customers, suppliers, trade and business organizations and other contacts in the markets in which we operate. We are responsible for all of the disclosure in this prospectus, and we believe these estimates to be accurate as of the date of this prospectus or such other date stated in this prospectus. While we believe that each of the publications used throughout this prospectus is prepared by reputable sources, neither we nor the underwriters have independently verified market and industry data from third-party sources. While we believe our internal company research and estimates are reliable, such research and estimates have not been verified by any independent source. In addition, assumptions and estimates of our and our industry’s future performance are necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in “Risk Factors.” These and other factors could cause our future performance to differ materially from our assumptions and estimates. See “Special Note Regarding Forward-Looking Statements.” As a result, you should be aware that market, ranking, and other similar industry data included in this prospectus, and estimates and beliefs based on that data, may not be reliable. Neither we nor the underwriters can guarantee the accuracy or completeness of any such information contained in this prospectus.
TRADEMARKS, SERVICE MARKS AND TRADE NAMES
We own or license the trademarks, service marks and trade names that we use in connection with the operation of our business, including our domain names. Solely for convenience, any trademarks, service marks and trade names referred to in this prospectus are presented without the ®, SM and ™ symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and trade names. All trademarks, service marks and trade names appearing in this prospectus are the property of their respective owners.
CERTAIN DEFINITIONS
Abbreviations and definitions of certain insurance, reinsurance, financial and other terms used in this prospectus are defined in the “Glossary of Selected Terms” section of this prospectus.
EXCHANGE CONTROLS
We intend to apply for and expect to receive consent under the Exchange Control Act 1972 (and its related regulations) from the Bermuda Monetary Authority (the “BMA”) for the issue and transfer of the common shares to and between residents and non-residents of Bermuda for exchange control purposes, provided that the common shares remain listed on an appointed stock exchange, which includes the NYSE. In granting such consent, neither the BMA nor any other relevant Bermuda authority or government body accepts any responsibility for our financial soundness or the correctness of any of the statements made or opinions expressed in this prospectus.
SERVICE OF PROCESS AND ENFORCEMENT OF CIVIL LIABILITIES
We are a Bermuda exempted company. As a result, the rights of holders of our common shares will be governed by Bermuda law and our memorandum of association and the Bye-laws. The rights of shareholders under Bermuda law may differ from the rights of shareholders of companies incorporated in other jurisdictions. Some of our directors and officers are not residents of the United States, and a substantial portion of our assets are located outside the United States. As a result, it may be difficult for investors to effect service of process on those persons in the United States or to enforce in the United States judgments obtained in U.S. courts against us or those persons based on the civil liability provisions of the U.S. securities laws. It is uncertain whether courts in Bermuda will enforce judgments obtained in other jurisdictions, including the United States, against us or our directors or officers under the securities laws of those jurisdictions or entertain actions in Bermuda against us or our directors or officers under
the securities laws of other jurisdictions. However, investors may serve us with process in the United States with respect to actions against us arising out of or in connection with the U.S. federal securities laws relating to offers and sales of the securities covered hereunder by serving Hamilton U.S. Services, LLC, our U.S. agent irrevocably appointed for that purpose.
BASIS OF PRESENTATION
Presentation of Financial Information
References to “Hamilton,” “Hamilton Group,” the “Company,” “we,” “us” and “our” refer to Hamilton Insurance Group, Ltd., together with its consolidated subsidiaries. Amounts in this prospectus and the consolidated financial statements included in this prospectus are presented in U.S. dollars rounded to the nearest thousand, unless otherwise noted. Certain amounts presented in tables are subject to rounding adjustments and, as a result, the totals in such tables may not sum. The accounting policies set out in the audited consolidated financial statements contained elsewhere in this prospectus have been consistently applied to all periods presented.
In 2022, we changed our fiscal year from November 30 to December 31.
Non-GAAP Measures
We present our results of operations in a way that we believe will be the most meaningful and useful to investors, analysts, rating agencies and others who use our financial information to evaluate our performance. Some of the measurements are considered non-generally accepted accounting principles (“non-GAAP”) financial measures under SEC rules and regulations. For example, in this prospectus, we present underwriting income (loss), a non-GAAP financial measure as defined in Item 10(e) of SEC Regulation S-K. We believe that non-GAAP financial measures, which may be defined and calculated differently by other companies, help explain and enhance the understanding of our results of operations. However, these measures should not be viewed as a substitute for those determined in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Where appropriate, reconciliations of our non-GAAP measures to the most comparable GAAP figures are included. For further discussion, see “Management's Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Measures.”
PROSPECTUS SUMMARY
This summary highlights certain significant aspects of our business and this offering. This is a summary of information contained elsewhere in this prospectus, is not complete and does not contain all of the information that you should consider before making your investment decision. You should carefully read the entire prospectus, including the information presented under the sections entitled “Risk Factors” and “Special Note Regarding Forward-Looking Statements” and the consolidated financial statements and the notes thereto, before making an investment decision. This summary contains forward-looking statements that involve risks and uncertainties.
Unless otherwise indicated or the context otherwise requires, references in this Prospectus Summary to “Hamilton,” the “Hamilton Group,” the “Company,” “we,” “our,” and “us” refer to Hamilton Insurance Group, Ltd., together with its consolidated subsidiaries. References to the “selling shareholders” refer to the selling shareholders named in this prospectus.
Our Company
Overview of Our Business
We are a global specialty insurance and reinsurance company founded in Bermuda in 2013. We harness multiple drivers to create shareholder value. These include diverse underwriting operations supported by proprietary technology and a team of over 500 full-time employees, a strong balance sheet, and a unique investment management relationship with Two Sigma Investments, LP (“Two Sigma”). We operate globally, with underwriting operations in Lloyd’s of London (“Lloyd’s”), Ireland, Bermuda, and the United States. We are led by an entrepreneurial and experienced management team that have almost tripled our gross premiums written over the last five years, from $571 million for the year ended November 30, 2018 to $1.6 billion for the year ended December 31, 2022, while also reducing our combined ratio by 22 percentage points. We believe the combined effects of organic premium growth, strategic acquisition, new market developments and continuous platform cost optimization leave us well positioned to capitalize on the favorable market conditions across the lines of business written by our established and scaled underwriting platforms.
We operate three principal underwriting platforms (Hamilton Global Specialty, Hamilton Select and Hamilton Re) that are categorized into two reporting business segments (International and Bermuda):
•International: Accounting for 57% of gross premiums written for the year ended December 31, 2022, International consists of business written out of our Lloyd’s syndicate and subsidiaries based in the United Kingdom, Ireland, and the United States, and includes the Hamilton Global Specialty and Hamilton Select platforms.
◦Hamilton Global Specialty focuses predominantly on commercial specialty and casualty insurance for medium to large-sized accounts and specialty reinsurance products written by Lloyd’s Syndicate 4000 and Hamilton Insurance DAC (“HIDAC”). Syndicate 4000, a leading Lloyd’s syndicate, generates a significant portion of premium from the U.S. Excess & Surplus (“E&S”) market and has ranked among the most profitable and least volatile syndicates at Lloyd’s over the last 10 years.
◦Hamilton Select, our recently launched U.S. domestic E&S carrier, writes casualty insurance for small to mid-sized clients in the hard-to-place niche of the U.S. E&S market. We believe it presents meaningful and profitable growth opportunities in the near to long term, further expanding our footprint in the U.S. E&S market.
•Bermuda: Accounting for 43% of our gross premiums written for the year ended December 31, 2022, Bermuda consists of the Hamilton Re platform, made up of Hamilton Re, Ltd. (“Hamilton Re”) and Hamilton Re US. Hamilton Re writes property, casualty and specialty reinsurance business on a global basis and also offers high excess Bermuda market specialty insurance products, predominantly for large U.S. commercial risks. Hamilton Re US writes casualty and specialty reinsurance business on a global basis.
Our evolution into a specialty insurance and reinsurance company reached a significant turning point in 2018 with the hiring of Pina Albo, our Group CEO and the start of our strategic business transformation (the “Strategic Transformation”). Ms. Albo is a 30+ year veteran in the insurance industry, having served as a member of the Board of Executive Management at Munich Re, where she had a 25-year career, as well as serving on the Board of RGA Reinsurance Company (a Fortune 500 public company) and recently being appointed as the first female Chair of the Association of Bermuda Insurers and Reinsurers. The Strategic Transformation commenced in 2018, when we set a new strategy and business priorities and was propelled by the appointment of an experienced management team focused on employing rigorous risk selection and creating sustainable underwriting profitability. The Strategic Transformation also included enhancing corporate governance, re-underwriting and repositioning our business to increase the focus on casualty and specialty insurance and reinsurance lines, decreasing volatility by reducing our expense ratio and exposure to legacy liabilities, and investing in business-enabling technology. The Strategic Transformation also involved focusing on both profitable organic and inorganic growth and was accelerated in 2019 when we acquired Pembroke Managing Agency and related entities, which included Pembroke Managing Agency (subsequently renamed Hamilton Managing Agency), Lloyd’s Syndicate 4000 and Ironshore Europe DAC (“IEDAC,” subsequently renamed Hamilton Insurance DAC or HIDAC) (all acquired entities hereinafter referred to as “PMA”). This acquisition doubled and diversified our premium base, increased our underwriting expertise and operational capabilities, and provided us with a fully-scaled Lloyd’s platform. As a result of the strategic actions taken in the context of the Strategic Transformation, in the five years since 2018, we increased gross premiums written at a compound annual rate of approximately 30%,1 reduced our combined ratio significantly, optimized the portfolio mix by increasing the contribution from specialty insurance and strengthened our balance sheet. While the Strategic Transformation is complete, we continuously review our portfolio to optimize underwriting returns and opportunities, and drive additional benefits by regular collaboration with our Group Underwriting Committee (“GUC”). We believe Hamilton is consequently well positioned to deliver growth and profitability in the current attractive market environment and across all market cycles.
Our proprietary technology has been a critical part of our Strategic Transformation by enabling the growth of our business and the execution of our strategy. This technology includes a catastrophe modeling and risk accumulation tool (Hamilton Analytics and Risk Platform or “HARP”), a global underwriting submission system (“Timeflow”), an efficient end-to-end specialty insurance underwriting workbench (Multi-line Insurance Toolkit or “MINT”), and a business intelligence and management information system (Hamilton Insights). Unlike many of our peers, we are not burdened by legacy systems and have modernized, cloud-based core platforms, which have enabled us to design and implement our proprietary systems to be a competitive advantage for our business.
The growth of our business is supported by a strong balance sheet. As of December 31, 2022, Hamilton had total assets of $5.8 billion, total invested assets of $3.3 billion and shareholders’ equity of $1.7 billion. Our total invested assets of $3.3 billion includes $1.3 billion of securities in our fixed maturity trading portfolio and short-term investments, or 39% of our total invested assets, with an average credit rating of Aa3 and of which 100% are investment grade. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition, Liquidity and Capital Resources—Cash and Investments” for further detail by investment class. We also enjoy a low debt-to-capital ratio of 7.9% at June 30, 2023, which compares favorably to our peers and provides us with meaningful financial flexibility to execute against our strategy. The Company had a net loss attributable to common shareholders of $98.0 million for the year ended December 31, 2022. Cumulatively, since the inception of the Company to December 31, 2022, our net income attributable to common shareholders was $561.6 million. The Company has demonstrated its ability to withstand catastrophe and other significant loss events across changing market cycles and we believe it is well placed to take advantage of the current hard market conditions. Our prudent reserving approach fortifies our financial position and has resulted in reserve releases every year since inception.2
Our Lloyd’s syndicate benefits from financial strength ratings of “A” (Excellent) from A.M. Best Rating Services, Inc. (“A.M. Best”), “A+” from S&P Global Ratings (“S&P Global”), “AA-” from Kroll Bond Rating Agency (“KBRA”) and “AA-” from Fitch Ratings Ltd. (“Fitch”), all of which are Nationally Recognized Statistical Rating Organizations (“NRSROs”) as defined by the SEC. Our other insurance and reinsurance subsidiaries hold an
1 Gross premiums written from 2018 to 2022 were $571 million, $731 million, $1,087 million, $1,447 million, and $1,647 million, respectively.
2 Excluding the U.S. GAAP accounting impact of a loss portfolio transfer purchased in 2020.
“A-” (Excellent) rating from A.M. Best and an “A” rating from KBRA, each with a positive outlook. We believe these ratings demonstrate the financial strength of our insurance and reinsurance platforms and facilitate our ability to capitalize on new opportunities with our policyholders, cedants and distribution partners.
Unique Investment Management Relationship with Two Sigma
Our diversified underwriting model is complemented by a unique and long-term investment management relationship with Two Sigma. Founded in 2001, Two Sigma is a premier investment manager with a strong track record and approximately $60 billion of assets under management across affiliates as of April 1, 2023. Driven by a differentiated application of technology and data science, Two Sigma has over 2,000 employees across affiliates, including an experienced and diverse team of over 1,000 employees in research and development.
Two Sigma manages $1.6 billion of our assets as of December 31, 2022 via our investment in the Two Sigma Hamilton Fund. The portion of our total invested assets managed by Two Sigma has declined from 80% in 2018 to 49% in 2022 and are expected to continue to decline naturally as our underwriting platforms and fixed income portfolio grow. The Two Sigma Hamilton Fund is a dedicated fund-of-one managed by Two Sigma with exposures to certain Two Sigma macro and equity strategies.3 The Two Sigma Hamilton Fund has been designed to provide low-correlated absolute returns, primarily by combining multiple hedged and leveraged systematic investment strategies with proprietary risk management, investment, optimization and execution techniques. The Two Sigma Hamilton Fund invests in a broad set of financial instruments and is primarily focused on liquid strategies in global equity, futures and foreign exchange (FX) markets, exchange-listed and over-the-counter (OTC) options (and their underlying instruments) and other derivatives. This liquidity profile fits well with our business, while also providing the benefit of access to a dedicated fund-of-one.
Two Sigma has broad discretion to allocate invested assets to different opportunities. Its current investments include Two Sigma Futures Portfolio, LLC (“FTV”), Two Sigma Spectrum Portfolio, LLC (“STV") and Two Sigma Equity Spectrum Portfolio, LLC (“ESTV”). The Two Sigma Hamilton Fund’s trading and investment activities are not limited to these systematic (and certain non-systematic) investment strategies and proprietary risk management, investment, optimization, and execution techniques (collectively, the “Techniques”) and the Two Sigma Hamilton Fund is permitted to pursue any investment strategy and/or Technique that Two Sigma determines in its sole discretion to be appropriate for the Two Sigma Hamilton Fund from time to time. In any given period, the performance of these individual portfolios may vary materially; however, the performance and risk profile of the Two Sigma Hamilton Fund is monitored at the overall fund level, rather than at the portfolio level. This is consistent with the manner in which investment management fees and performance incentive allocations are determined (i.e., fees and performance incentives are determined on by the overall performance of the fund, rather than the performance of each portfolio).
We have entered into a Commitment Agreement (defined below) with Two Sigma, which includes a bilateral rolling three-year commitment period that automatically renews each year, until a non-renewal notice is provided by either party. The historical returns of the funds managed by Two Sigma (including the Two Sigma Hamilton Fund) are not necessarily indicative of future results. Two Sigma Hamilton Fund produced returns, net of investment management fees and performance incentive allocations, of 4.6%, 17.7% and (4.6%) for each of the years ended December 31, 2022 and November 30, 2021 and 2020, respectively. Two Sigma Hamilton Fund produced returns, net of investment management fees and performance incentive allocations, of 2.1% and 10.6% for the six months ended June 30, 2023 and 2022, respectively. Hamilton pays arm’s-length management and incentive fees under this agreement. Our annualized return of 12.8% from 2014 to 2022 from the Two Sigma Hamilton Fund is net of these fees and incentive allocations. See “Risk Factors—Risks Related to Our Investment Strategy—We do not have control over the Two Sigma Hamilton Fund” for more information.
3 For the avoidance of doubt, Two Sigma serves as the investment manager of the Two Sigma Hamilton Fund. The Company is not a client of Two Sigma pursuant to the Investment Act of 1940, as amended.
Our ESG Principles
Good corporate citizenship underscores everything we do. Our environmental, social, and corporate governance (“ESG”) approach is based on being a responsible corporate and global citizen and was affirmed through two separate external assessments.
We apply a four-pillar philosophy across all areas of our business:
1.Accountability: We focus on employing equitable governance and oversight in an effort to ensure the best outcome for all of our stakeholders.
2.Social Impact: We have an inclusive culture underpinned by teamwork and collaboration. As part of that, we have had an engaged and active Diversity, Equity and Inclusion (“DEI”) Committee since 2018, made up of employee representatives from each of our key locations, across functions and seniority. We also have a diverse senior management team, with three of four of our group & underwriting platform CEOs being women. Notably, 45% of our Group Executive team and approximately 40% of our underwriting and claims leaders are female.
3.Underwriting: We are supportive of companies that are involved in the transition to alternative energy sources such as renewable energy, including wind and solar, and rolled out ESG-specific underwriting guidelines in the third quarter of 2022.
4.Investments: We strive to deploy our invested capital responsibly with established guidelines that are regularly monitored to align with our corporate values. Our investment managers are guided by the United Nations Principles for Responsible Investment.
Our Competitive Strengths
We believe that our corporate tagline, “In good company” embodies who we are as an organization. As a good corporate citizen, we strive to ensure that everyone we interact with – our clients and business partners, our people, our shareholders and the communities we serve – feel they are in good company with Hamilton. Our promise is enhanced by the strengths of our differentiated business model, which includes:
Scaled, diversified, and global specialty insurance and reinsurance operations
The scale we have built since inception provides significant competitive advantages in the global markets we serve. We have grown our book both organically when market conditions were favorable, through product expansion and increasing client and broker channel distribution and inorganically, through the strategic acquisition of PMA in 2019.
Our business mix is well-balanced between insurance and reinsurance, and is diversified across geographies, risks, clients and products, with a majority of our business coming from specialty and casualty lines. Since 2018, our portfolio has evolved from 32% to 57% insurance, with reinsurance declining from 68% to 43% based on premium volume. For the year ended December 31, 2022, we recorded $1.6 billion of gross premiums written through our three principal underwriting platforms, with access to key markets around the world.
We believe that the scale and breadth of our book of business, our multiple underwriting platforms and product offerings allows us to dynamically respond to and manage market cycles, thus providing for more consistent performance and reduced volatility. We expect our recently launched Hamilton Select platform will continue to add business diversification and growth in the profitable hard-to-place niche of the U.S. E&S market, as well as the other markets they serve. Hamilton Global Specialty and Hamilton Re will also provide growth prospects in the U.S. E&S market. Overall, we believe our disciplined approach to scale, risk assessment, and diversification enables us to deliver on our goals of long-term profitability.
Disciplined and data-driven underwriting approach
Our underwriting platforms are each led by teams of experienced underwriters who are specialized in their product areas and able to set terms and conditions in several lines of business. Their expertise is supplemented by our strong technical tools, which provide the insights that enable our underwriters to intelligently price and structure our products and portfolio, maintain diversification, and in turn deliver attractive risk-adjusted profitability. Our underwriters adhere to a disciplined underwriting philosophy and guidelines, seeking to underwrite only profitable risks. Our underwriters regularly review their books of business, to ensure they are growing in the most profitable areas and restructure or do not renew underperforming accounts, thus optimizing our business portfolio. They benefit from quarterly discussions with our GUC which also reviews underwriting results, suggests strategic portfolio shifts, reviews risk appetites and tolerances for new and existing products and considers emerging risks and mitigation strategies together with our underwriting and executive leadership. Our review and risk selection processes are enhanced by our business intelligence and global management information system, Hamilton Insights, which is being expanded to provide all our underwriters with real-time data and self-service report generation to inform their underwriting decisions. Examples of the portfolio enhancing measures undertaken in the context of our Strategic Transformation since 2018 include: the launching of Hamilton Select and Hamilton Re US, growth of professional insurance lines, the strategic purchase of a Loss Portfolio Transfer (“LPT”) in 2020 on certain casualty risks for Lloyd’s Years of Account (“YOA”) in 2016, 2017 and 2018 and exit/remediation of unprofitable lines of business (e.g., agriculture and property binder business). The platforms have also benefited from group-wide, third-party best practice reviews commissioned by our GUC and the fact that variable compensation is tied primarily to underwriting profitability.
We actively manage our risk exposure on a centralized basis in order to allocate capital efficiently and optimize our returns. For example, we monitor tolerances for natural catastrophe risks utilizing probable maximum loss (“PMLs”) for multiple regions and perils and we have reduced our PMLs as a result of proactive portfolio management. We believe our average annual current year natural catastrophe losses as measured as a percentage of tangible book value were lower than those of many of our peers as a direct result of these actions for the five-year period from 2018 to 2022. We now see an opportunity to strategically deploy PML capacity to gain access to well-priced property insurance and reinsurance business as well as other profitable non-property lines of business.
Our methodical and disciplined approach to underwriting, bolstered by our experienced underwriting talent, collaboration with our GUC, strong analytics platforms, and the actions taken as part of the Strategic Transformation have resulted in a reduction in our combined ratio by 22 percentage points since 2018. Our combined ratio for the year ended December 31, 2022, adjusted for Ukraine losses, was 96.4%. Additionally, the combined ratio for our International Segment for the year ended December 31, 2022, adjusted for Ukraine losses, was 92.5% and the combined ratio for our Bermuda Segment for the year ended December 31, 2022, adjusted for Ukraine losses, was 101.0%. In addition, through responsible management actions and technological efficiencies, we have reduced our expense ratio by 4 percentage points since 2019.
Separately, the Company’s combined ratio was 87.7% and 87.9% for the three months ended December 31, 2022 and March 31, 2023, respectively. The International Segment’s combined ratio was 90.9% and 89.1% for the three months ended December 31, 2022 and March 31, 2023, respectively and the Bermuda Segment’s combined ratio was 83.6% and 86.9% for the three months ended December 31, 2022 and March 31, 2023, respectively.
Proprietary technology infrastructure
Underpinning our business is sophisticated proprietary technology and analytics platforms. Unburdened by legacy systems, our technological capabilities enable operational efficiencies as we continue to scale and allow for nimble decision-making in a competitive marketplace.
We have built proprietary systems including HARP, a catastrophe modeling and portfolio accumulation management platform used for all our natural catastrophe-exposed risks. Reflecting decades of industry experience, HARP enables precise modifications and loads to be applied to vendor catastrophe model results to produce the Hamilton View of Risk (“HVR”), the basis upon which all of our catastrophe modeling and accumulation management is conducted. HARP produces rapid management information and portfolio analytics to aid decision-
making, and supports structural features such as reinstatement premium protections, cascading layers and trailing deductibles that many third-party systems are unable to handle. We believe HARP is one of the most sophisticated and user-friendly risk and exposure management systems in the industry.
The HVR enables us to manage natural catastrophe risk on a consistent basis, including pricing, underwriting, reserving, planning, capital modelling and accumulation management decisions. We believe that HVR is materially complete and appropriate to the current risk landscape. We accomplish this through vendor catastrophe models that serve as a baseline and our proprietary tools, the mainstay of which is HARP, that allow us to make a number of significant adjustments, and our model intelligence team that evaluates models and recommends changes. HVR utilizes a long-term trend in its baseline and adjusts it to consider a combination of short-term variability such as warm sea-surface temperature, non-modeled perils, secondary uncertainty and severity loads (such as missing exposures, loss adjustment expenses, and potential model miss). In aggregate, HVR produces loss estimates materially in excess of those provided by the baseline vendor models, but nonetheless may not be predictive of catastrophic events.
Our proprietary suite of technology also includes Timeflow (a global underwriting submission system), which enables us to digitize our submission intake process and orchestrate data entry across multiple systems, MINT (an underwriting workbench), which will, when fully deployed, enable our underwriters at Hamilton Select to fully digitize the quote/bind/endorsement process and Hamilton Insights (our business intelligence and management information system), used by underwriters to gain insights on our business and make informed decisions.
Differentiated asset management capabilities with Two Sigma to further enhance returns
We have a unique asset management strategy as our investment-grade fixed income investment portfolio is complemented by our separate portfolio managed by Two Sigma within the Two Sigma Hamilton Fund. Our ability to generate positive risk-adjusted yields through our complementary investment portfolios differentiates us from our peers who generally only have traditional investment allocations, concentrated primarily in investment-grade, long-only fixed income securities.
The Two Sigma Hamilton Fund is designed to provide low-correlated absolute returns and high liquidity. Two Sigma seeks to control risk systematically through the use of proprietary portfolio management and risk management systems and techniques. From 2014 to 2022, the Two Sigma Hamilton Fund produced an annualized return on invested assets of 12.8%, net of fees and incentive allocations. Our current allocation to the Two Sigma Hamilton Fund is approximately half of our invested assets. Our fixed income portfolio consists of traditional investment-grade fixed income securities which are conservative, fixed maturity and short-term investments (average credit rating of “Aa3” and duration of 3.2 years at December 31, 2022) and are managed by two other third-party investment managers. We believe that this balanced approach and unique access to the Two Sigma Hamilton Fund allows us to optimize our investment returns and drive additional shareholder returns that complement our underwriting operations.
Strong balance sheet with significant financial flexibility
As of December 31, 2022, we had consolidated GAAP shareholders’ equity of $1.7 billion, with limited intangibles. Our financial leverage ratio was 7.9% at June 30, 2023, which is meaningfully below many of our competitors. Our capital position is enhanced by a highly liquid investment strategy, with assets in the Two Sigma Hamilton Fund diversified across investment strategies, instruments and thousands of positions in liquid global markets. As of December 31, 2022, 99% of the Two Sigma Hamilton’s positions are level 1 assets as classified by ASC 820.
The Company had a net loss attributable to common shareholders of $98.0 million for the year ended December 31, 2022. Cumulatively, since the inception of the Company to December 31, 2022, our net income attributable to common shareholders was $561.6 million. The Company has demonstrated its ability to withstand catastrophe and other significant loss events across changing market cycles and we believe it is well placed to take advantage of the current hard market conditions.
Our balance sheet is supported by our robust reserve position, which is comfortably above the estimate of our external actuarial selected indications. Because we commenced operations in 2013, did not assume the loss and loss adjustment expense (“LAE”) reserves predating 2019 from the acquisition of PMA and purchased an LPT in 2020 on certain casualty risks for Lloyd’s YOA in 2016, 2017 and 2018, we have less exposure to legacy liabilities than many of our competitors. We have also posted favorable prior year reserve development since inception, averaging an annual release of 2.7 loss ratio points.4
Our Lloyd’s syndicate benefits from financial strength ratings of “A” (Excellent) from A.M. Best, “A+” from S&P Global, “AA-” from KBRA and “AA-” from Fitch, all of which are NRSROs as defined by the SEC. Our other insurance and reinsurance subsidiaries hold an “A-” (Excellent) rating from A.M. Best and an “A” rating from KBRA, each with a positive outlook. Maintaining strong ratings helps us demonstrate our financial strength to our policyholders, cedants and distribution partners and continues to unlock business.
Highly entrepreneurial and experienced leadership team fostering a distinctive and attractive culture
We consider ourselves a magnet for talent at all levels. Our executive officers are highly qualified and have an average of more than 20 years (and collectively over 230 years) of relevant experience in insurance and reinsurance. We are led by our Group Chief Executive Officer, Pina Albo, who has over 30 years of industry experience and was previously a Member of the Board of Executive Management of Munich Re, and the first North American woman to hold such a role. Several of our executive officers have long histories of working together at other organizations and have held senior management positions at large, established carriers. Members of our executive and management team have joined us from a number of reputable carriers such as AIG, AXIS, Chubb, CNA, Everest, Kinsale, Munich Re, Partner Re and Renaissance Re.
Our corporate tag-line, “In good company” underpins our employee value proposition and embodies our inclusive, entrepreneurial, and collaborative culture which drives our success in recruitment, development and retention of leading industry talent. Based on our most recent bi-annual engagement pulse survey, 84% of our workforce say that Hamilton is a great place to work, and 91% say we collaborate across teams to get the job done. Underscoring our culture is a strong commitment to DEI. Notably, 45% of our Group Executive team and approximately 40% of our underwriting and claims leads are female.
Our Strategy
We are a global specialty insurance and reinsurance company enhanced by data and technology, focused on producing sustainable underwriting profitability and delivering significant shareholder value. We intend to keep growing our diverse book of business by responding to changing market conditions, prudently managing our capital, and driving sustainable shareholder returns. The key pillars of our strategy include:
Prudently managing capital across different underwriting cycles
We seek to prudently manage our capital with the objective of effectively navigating different market conditions and generating strong underwriting margins throughout all market cycles. Our scaled and diversified platforms and product offerings, and our broad industry relationships provide significant opportunity to underwrite our chosen classes of property, casualty and specialty insurance and reinsurance as market opportunities arise. Leveraging our disciplined underwriting approach, balance sheet strength and flexibility, and real-time technology prowess, we can respond dynamically to capture opportunities as markets evolve.
We believe the current market conditions for insurance and reinsurance are favorable for all our underwriting platforms, and particularly favorable for property-exposed reinsurance lines. Given our broad product offering, we believe Hamilton Re is particularly well positioned to increase our writings across multiple lines of business and to negotiate attractive program structures as well as favorable terms and conditions. Hamilton Global Specialty is also capitalizing on current positive market conditions across its specialty insurance and reinsurance offerings. For example, our political violence team is currently growing its portfolio in an environment with much stronger pricing and improved terms and conditions, given much greater demand for that product. We have also entered new lines of
4 Excluding the U.S. GAAP accounting impact of a loss portfolio transfer purchased in 2020.
business where we see opportunity, such as the recent addition of marine hull. Hamilton Select is also benefiting from the increased flow of business and favorable market conditions in the U.S. E&S market where it is focused.
We believe our approach to managing capital across market cycles will allow us to grow our capital and fund the continued scaling of our business with our own resources. Our prudent approach to capital management may also allow us to return excess capital to investors over time, which may take the form of ordinary dividends, special dividends or share buybacks.
Driving sustainable underwriting profitability
One of our key strategic priorities is to produce sustainable underwriting profitability on the business we write and we believe we are well-positioned to do so following the Strategic Transformation. Our data-driven and disciplined underwriting processes position us to intelligently price and structure our products and our business portfolio. Our experienced underwriting, actuarial and catastrophe modeling teams rely on our strong technical tools and insights to inform underwriting decisions and drive additional benefits by regular collaboration with our GUC.
We maintain trusted and long-standing relationships with our clients and brokers, who we believe will continue to provide us with increased access to attractive business. Our disciplined underwriting approach has resulted in a reduction in our combined ratio by 22 percentage points since 2018 and improvement in our expense ratio every year since 2019. We expect to continue to leverage our robust underwriting processes, highly experienced teams, broad access to clients and brokers and real time analytics to address our clients’ needs and to garner attractive opportunities across all our underwriting platforms.
Pursuing disciplined and opportunistic growth across all Hamilton Platforms
We see growth opportunities in both the insurance and reinsurance markets in which we operate and intend to pursue disciplined growth across all our underwriting platforms. In recent years the E&S market has benefited from a strong rate environment and increased submissions as business has shifted into the non-admitted market from the admitted market. Non-admitted insurers are able to cover unique and hard-to-place risks because they have flexibility of rate and form and can accommodate the unique needs of insureds who are unable to obtain coverage from admitted carriers.
We access the attractive U.S. E&S insurance market via all three of our underwriting platforms.
•Hamilton Global Specialty writes E&S business on both its Lloyd’s and HIDAC platforms. It is an established specialty insurance market with specialized underwriting talent and strong broker and client relationships across the casualty, specialty and property insurance lines and is well positioned for growth in this market.
•Hamilton Re is also well positioned for scalable growth in the U.S. E&S insurance market given strong market conditions, with established teams in place for property insurance, excess casualty insurance and the newly-launched financial lines insurance.
•Hamilton Select, launched in 2021, further increases our access to the U.S. E&S insurance market at an opportune time. Hamilton Select plans to grow in the hard-to-place niche of the E&S market focused on small to medium sized risks, a segment which is expected to produce profitable results in all market cycles. Hamilton Select has a leadership and underwriting team with experience in its chosen hard-to-place niche from Kinsale as well as other recognized companies and also benefits from extensive distribution relationships in this attractive market segment.
We believe the access our three underwriting platforms have to U.S. E&S insurance business will allow us to build a robust and diversified book of business and achieve our profitable growth objectives throughout various market cycles.
Reinsurance business offers a particularly attractive opportunity given the favorable rating environment and reduction of capacity at this time in the cycle and is expected to accelerate growth opportunities for us in the near term. A number of factors, including economic and social inflation, combined with rising interest rates and increases
in the frequency and severity of natural catastrophe events in recent years, have created a supply/demand imbalance and are driving the most favorable market conditions seen in decades. We are a recognized market with deep client and broker relationships and have low counter-party credit concentration with many of our insurance partners, providing ample headroom for us to grow. We are well positioned to deploy capital quickly, efficiently and profitably through writing more reinsurance business, as well as retaining more of our own business.
Generating strong risk-adjusted returns for shareholders
Our strong, sustainable underwriting operations are complemented by our unique investment portfolio, which consists of (i) the Two Sigma Hamilton Fund, which has produced an annualized return of 12.8% from 2014 to 2022, net of fees and incentive allocation, and (ii) our investment grade fixed income portfolio which is currently benefiting from strong interest rates. We plan to continue to optimize our investment portfolio through a balanced allocation of invested assets and maintain the flexibility to adjust this allocation as needed. We believe our strategy of disciplined underwriting growth, balanced with our investment platform, will drive our ability to create shareholder value.
Our Market Opportunity
We believe we have significant opportunities to capture profitable risk-adjusted returns from sustained favorable property and casualty insurance and reinsurance market conditions due to our scale, disciplined underwriting, and financial and operating flexibility as well as our low counterparty credit concentration. The global macroeconomic and social environment continues to drive favorable demand for insurance and reinsurance products. Increased interest rates have resulted in mark-to-market losses in investment portfolios, causing several of our competitors to recognize balance sheet impairments, thereby reducing their underwriting capacity. In recent years, rate increases have been required to keep pace with the increased frequency and severity of natural catastrophe events globally, which has been impacted by changing weather patterns, inflation, increased geopolitical tensions and other risks that have grown or emerged. As a result, the global commercial insurance industry has seen 22 consecutive quarters of price increases. We believe that the combination of these factors, particularly those listed below, will continue to drive market opportunities for our business:
•Continued growth of the E&S market: We access the attractive U.S. E&S market via all three of our underwriting platforms and believe that such access to U.S. E&S business will allow us to build a robust and diversified book of business and achieve our profitable growth objectives throughout various market cycles. The non-admitted U.S. insurance market, also known as the U.S. E&S or surplus lines market, is experiencing a period characterized by surging growth and attractive rates and terms and conditions. E&S insurance focuses on insureds that generally cannot purchase insurance from standard market or admitted market insurers due to perceived risk related to their businesses. E&S carriers are generally permitted to craft the terms of the insurance contract to suit the particular risk they are assuming. Also, E&S carriers are, for the most part, free of rate regulation. More specifically:
◦Most states require an agent to seek coverage from the standard or admitted market and verify they were declined by that market before they may seek coverage from the surplus lines market through a licensed surplus lines broker. This process is often referred to as “diligent effort.” Additionally, some states use “export lists” to regulate the flow of business between the admitted and non-admitted markets. An export list outlines the types of insurance products and coverages the state allows to go to the surplus lines market without a diligent search of the standard market.
◦Standard market carriers are generally required to use approved insurance forms and to charge rates that have been authorized by or filed with state insurance departments; they are backed by a state guarantee fund. U.S. E&S business is not backed by any state’s guarantee fund, and in many states may only write coverage for an insured after they have been denied coverage by the standard market and signed declarations stating that the insured is aware that it will not have access to any state guarantee funds should these subsidiaries be unable to satisfy their obligations. Consequently, Hamilton Select, Hamilton Global Specialty and Hamilton Re may be able to provide more restrictive coverage and thereby limit exposure to loss by either excluding coverage or providing a sub-limit on
coverage. As coverage is not available in the standard market, non-admitted carriers may be able to charge premiums exceeding the standard market risk charge for a narrower scope of coverage. The non-admitted market coverage form is typically modified to address the specific risk characteristics of accounts that are pushed out of the admitted market, and the pricing is adjusted to reflect the elevated risk potential. The non-admitted market policy wording may be modified to further restrict and limit coverage, and the pricing may be surcharged to account for the elevated risk for these distressed commercial accounts. It is management’s belief that non-admitted business is expected to produce profitable results in all market cycles.
◦Recently, there has been a persistent flow of business from the admitted market into the non-admitted E&S channels, resulting generally in compound rate increases across the E&S market in the United States. In addition, the macroeconomic and social environment continues to drive demand for specialized insurance solutions due to both increasing and more complex risks. Based on publicly available industry data, the growth of the U.S. E&S market has outperformed the property & casualty industry average over the last five years. We have capitalized on this growth via the insurance products offered by both our Hamilton Global Specialty and Hamilton Re platforms for some time, and most recently, with the launch of our Hamilton Select platform. Hamilton Select operates exclusively in the U.S. E&S market, offering insurance to small to mid-sized hard-to-place commercial risks, an attractive niche of the E&S market.
•Greater demand for insurance and reinsurance from our clients because of the macroeconomic environment: Global economic and industrial development, greater product awareness and distribution, economic and social inflation and increases in natural catastrophes and geopolitical tensions, such as the conflict in Ukraine, continue to drive an increase in our clients’ need for insurance and reinsurance products underwritten by strong, trusted companies. While we are no longer covering the Ukraine/Russia conflict due to policy exclusions, opportunities have arisen in the lines of business that were impacted by the conflict, such as aviation, war and terror, and marine and energy. These lines of business are generally written on a worldwide basis and have seen higher pricing and more favorable terms and conditions since the Ukraine/Russia conflict started in February 2022.
•Hard market with attractive pricing and investment environment for the medium term: Significant annual industry-wide losses since Hurricanes Harvey, Irma and Maria in 2017, including the coronavirus (“COVID-19”) pandemic, the ongoing conflict in Ukraine and more recently Hurricane Ian in 2022, have led to significant year-on-year rate increases across multiple classes of business including property catastrophe, casualty and specialty lines. Many insurers that sustained increased losses have reevaluated their portfolios and exited certain classes of business, creating a shortfall of capacity in certain lines and new opportunities for us. We believe that the hard market conditions will continue to provide opportunities for us to capitalize on these favorable conditions as well as provide access to new business and clients, and achieve significant rate increases and improved terms and conditions, while allowing us to maintain disciplined risk selection. In addition, we believe that increased interest rates in our fixed income portfolio, as well as our exclusive access to Two Sigma investment strategies, will allow us to complement our underwriting income with attractive investment returns.
•Need for strong and experienced counterparties given limited capacity: Some of our competitors with sustained and increased underwriting losses or reduced balance sheet capacity have exited or reduced writing in selected lines of business, causing a supply dislocation in the market relative to the growing demand for risk capacity in certain lines such as property insurance and reinsurance. We are a valued, established and proven industry partner and, given the strength and flexibility of our balance sheet, the breadth of our product offerings, our low counterparty credit concentration and our recognized and experienced team, we have the ability to expand our business where opportunities arise. Our growing and extensive client and broker relationships, the clarity of our risk appetite and the consistency of our approach resonates well with our business partners and we believe will afford us increased access to attractive new business. In light of this, we believe we can continue our proven track record of being responsive to our clients’ needs, while maintaining disciplined underwriting and risk-adjusted returns for our shareholders.
Our Business
We operate three principal underwriting platforms, categorized into two reporting business segments: International and Bermuda. Our three underwriting platforms, with dedicated and experienced leadership, provide us with access to diversified and profitable key markets around the world. Across these global operations, we generated $1.6 billion of gross premiums written for the year ended December 31, 2022.
The following charts represent our gross premiums written by reporting segment, insurance and reinsurance mix, and class of business for the year ended December 31, 2022:
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Gross Premiums Written:
By Segment | Gross Premiums Written:
Insurance / Reinsurance | Gross Premiums Written:
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For a full description of our business, see the section entitled “Business” on page 149. International
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Gross Premiums Written:
Class of Business | Gross Premiums Written:
Insurance / Reinsurance |
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Our International Segment includes both the Hamilton Global Specialty and Hamilton Select platforms.
Hamilton Global Specialty focuses predominantly on commercial specialty and casualty insurance products for medium to large-sized accounts and specialty reinsurance for a variety of global insurance companies. Its business is distributed via Lloyd’s Syndicate 4000 and HIDAC in Ireland.
Hamilton Select, our recently launched U.S. domestic E&S carrier, writes casualty insurance for small to mid-sized commercial clients in the hard-to-place niche of the U.S. E&S market. Hamilton Select does not write any property business.
Across the International Segment, insurance business made up approximately 90% of gross premiums written, while specialty reinsurance makes up approximately 10% at December 31, 2022.
Property business written by Hamilton Global Specialty accounted for 13% of gross premiums written as of the year ended December 31, 2022. Our underwriting strategy is to minimize catastrophe exposure. The property book
is predominantly made up of U.S. E&S insurance business with a weighting in favor of the industrial and commercial sectors, binding authority business, comprising non-standard commercial and residential risks, and specialist sectors, including terrorism, power generation, engineering and nuclear risks. The property insurance book is written on both a direct and facultative basis, as well as through a specialist property binders division.
Casualty business within our International Segment accounted for 50% of gross premiums written as of the year ended December 31, 2022. Key casualty products include:
•Financial Lines: Our financial lines book targets corporate entities rather than retail exposure. It covers a broad range of financial institutions globally including, but not limited to, asset managers, funds, building societies, financial exchanges, retail and commercial banks, private equity and venture capital firms.
•Professional Lines: Our professional lines book covers international professional indemnity (“PI”), U.S. PI, medical malpractice and directors & officers (“D&O”). It is delivered through a mixture of multi-class facilities for small businesses or via bespoke products designed for more specialized risks.
•Environmental: We help manage risks in the areas of pollution liability – aimed at safeguarding business owners from pollution claims arising from a variety of environmental threats related to liability from managing, leasing or owning real estate assets, professional liability, contractors pollution liability, commercial general liability, and manuscript solutions.
•Excess Casualty: Our industry class offering is broad and includes Fortune 500/1,000 and other companies across a large spectrum. We also provide cover for U.S. construction companies for both practice and project-specific policies over a wide range of construction from mid-size commercial projects to major infrastructure projects. We target U.S.-domiciled entities with U.S. and global exposures.
•Cyber: Our cyber book is global and focused on financial institutions, utilities, retailers, and the healthcare and hospitality industries. It includes cyber liability as well as optional coverage including technology errors and omissions, payment card industry fines and penalties, cybercrime, and fraudulent instruction.
Specialty business within our International Segment accounted for 37% of gross premiums written as of the year ended December 31, 2022. Key specialty products include:
•Accident & Health (“A&H”): Our A&H book includes individual and group accidental death and disability, worldwide excess of loss, medical expenses and kidnap and ransom cover.
•War and Terrorism: Our war and terrorism book offers cover for physical loss or damage and business interruption from terrorism, riots strikes and civil commotion and from war. It is written on a worldwide basis. We also cover Political Risk / Political Violence (“PR/PV”) which covers confiscation and contract frustration and trade credit on a worldwide basis.
•Fine Art & Specie: Our fine art & specie book includes specie & fine art and high value cargo. It is written via a selective number of specialist partners and also through Hamilton’s consortium which writes on behalf of third-party capital, providing additional capacity as required.
•Marine/Energy: Our marine and energy book includes both traditional marine liability and energy liability. This product area includes international onshore and offshore energy business.
Bermuda
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Gross Premiums Written:
Class of Business | Gross Premiums Written:
Insurance / Reinsurance |
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Our Bermuda Segment encompasses the Hamilton Re platform on which we write property, casualty and specialty reinsurance business on a global basis as well as high excess insurance products, predominantly to large U.S.-based commercial clients. Hamilton Re US writes casualty and specialty reinsurance business predominantly for U.S.-domiciled insurers. Reinsurance business accounted for 86% of gross premiums written as of the year ended December 31, 2022, while insurance business accounted for 14%. Our reinsurance business is written on either a proportional or on an excess of loss basis.
Property business written by Hamilton Re accounted for 43% of gross premiums written as of the year ended December 31, 2022. The property reinsurance business provides proportional, aggregate, excess of loss and retrocessional products on a global basis, which generally cover natural and man-made catastrophes. Hamilton Re’s property insurance business provides both insurance and facultative coverage for business interruption, machinery breakdown, natural perils, and physical loss or damage globally, and predominantly to large U.S.-based commercial clients.
Casualty business in our Bermuda Segment is written by both Hamilton Re and Hamilton Re US and accounted for 37% of gross premiums written as of the year ended December 31, 2022. It is comprised of both insurance and reinsurance business. Casualty insurance business is written in Bermuda only, and exclusively on an excess of loss basis. Casualty reinsurance business is written by both the Hamilton Re and the Hamilton Re US teams and is written on a proportional and excess of loss basis covering worldwide exposures. Key casualty products include:
•General Liability: We protect a wide variety of general liability covers including premises, products completed operations and liquor liability. We offer treaty capacity globally on a proportional and excess of loss basis.
•Umbrella & Excess Casualty: We protect umbrella and excess casualty programs written on occurrence, claims-made or integrated-occurrence bases. We offer treaty capacity globally on a proportional and excess of loss basis.
•Professional Liability: We protect a wide variety of professional lines, including D&O, employment practices liability, lawyers’ professional liability, and errors and omissions liability. We offer treaty capacity on pro rata and excess of loss bases. Our coverage is worldwide with an emphasis on North America.
•Workers’ Compensation & Employers’ Liability: We protect workers’ compensation and employers’ liability cover globally on both a proportional and excess of loss basis.
•Personal Motor: Our product protects motor liability, property damage and personal accident for all types of motor policies. We offer treaty capacity on a proportional, excess of loss or retrocessional basis. Our current emphasis is in the United Kingdom.
Specialty business accounted for 20% of gross premiums written as of the year ended December 31, 2022. The book is comprised of reinsurance only and covers several sub-classes, written on both a proportional and excess of loss basis. Key specialty products include:
•Aviation & Space: Our aviation & space book covers airline, airport, aerospace, satellite launches and orbits, and general aviation risks globally on a proportional, excess of loss or retrocessional basis.
•Marine/Energy: Our marine and energy book covers a broad portfolio of global marine and energy risks, including marine hull, marine liability including international group, cargo, and upstream, midstream and downstream energy risks which are on a proportional, excess of loss or retrocessional basis.
•Crisis Management: Our crisis management book covers risks associated with war, terrorism and political violence. We also have the capacity to offer risks associated with contingency, piracy and kidnap and ransom cover. Our products can be provided globally on a proportional or excess of loss basis.
•Mortgage: We provide excess of loss reinsurance predominantly to government-sponsored entities of U.S. residential mortgages.
•Financial Lines: Financial lines reinsurance includes political risk, trade credit, surety and other credit-related products. We offer proportional, excess of loss, stop loss or retrocessional capacity on a worldwide basis.
Our Distribution Channels
Our insurance and reinsurance business is primarily sourced through wholesale and retail brokers worldwide, including Aon, Marsh McLennan, WTW, AJ Gallagher and a number of other U.S., Bermuda and London market wholesale brokers. Some of our products, such as those in our accident and health account, are also distributed through managing general agents (“MGAs”) and managing general underwriters (“MGUs”). We believe our distribution relationships are differentiated and strengthened by the knowledge and experience of our senior management team and the long history of industry partnerships they have developed over many years.
Our International Segment writes business through several large national and international brokers and a number of smaller specialized brokers. Our 10 largest brokers accounted for an aggregate of approximately 59% of gross premiums written in 2022, with the largest broker, Marsh McLennan, accounting for approximately 15% of gross premiums written. The second largest broker, Aon, accounted for approximately 10% of gross premiums written.
Our Bermuda Segment business is accessed through wholesale and reinsurance brokers. The largest broker, Marsh McLennan, accounted for approximately 41% of gross premiums written. The second-largest broker, Aon, accounted for approximately 30% of gross premiums written in 2022.
Outwards Reinsurance and Retrocession
We strategically purchase reinsurance and retrocession from third parties, which enhances our business by protecting capital and reducing our exposure to volatility from adverse claims events (either large single events or an accumulation of related losses). For example, we seek to limit our exposure to no more than 17.5% of our shareholders’ equity to a 1 in 100-year Atlantic Hurricane event (i.e., the largest single Atlantic Hurricane event in a calendar year with a probability of 1/100). We use outwards reinsurance and retrocession to help us achieve this target.
Based upon HVR, we have modelled that the probability of a single event exhausting the full limit of our core outwards excess of loss property catastrophe coverage for the remainder of 2023 is approximately 1%. We also have the ability to adjust our models for the potential increase in frequency of these events. Our catastrophe modeling and accumulation management in respect of natural catastrophe exposures is managed within our proprietary platform, HARP, and is performed using the HVR. The HVR incorporates bespoke loads and adjustments at various levels of granularity, which in aggregate represents a material load over and above the loss exposure produced from the unadjusted vendor models that we use. The adjustments include allowance for the potential for increased frequency
and severity of natural catastrophes over time, as well as for several other factors that could cause us to be exposed to increasing claims trends from natural catastrophes. See “––Our Competitive Strengths––Proprietary technology infrastructure” for additional information on the HVR.
Our reinsurance purchases include a variety of quota share and excess of loss treaties and facultative placements. In 2022, we ceded 32% of premium from the International Segment and 18% from the Bermuda Segment.
We carefully manage our counterparty credit risk by selecting outwards partners of adequate financial strength. For the outwards program placed for 2023, all of the effective outwards limit is ceded to reinsurers and retrocessionaires with a credit rating of “A-” (Excellent) by A.M. Best (or an equivalent rating by S&P Global), or better, or who are collateralized.
Our Organizational Structure and Corporate History
Hamilton Insurance Group, Ltd. (“HIG”), is a Bermuda-headquartered company, whose subsidiaries and syndicates underwrite insurance and reinsurance risks on a global basis through two reporting segments: International and Bermuda. Within the reporting segments there are three principal underwriting platforms: Hamilton Global Specialty, Hamilton Select and Hamilton Re.
HIG, the ultimate group holding company, was incorporated on September 4, 2013, under the laws of Bermuda. Our website address is www.hamiltongroup.com. Information contained on, or that can be accessed through, our website is not part of and is not incorporated by reference into this prospectus, and you should not consider information on our website to be part of this prospectus.
International
Our London operations are comprised of Hamilton Managing Agency Limited (“HMA”), a Lloyd’s managing agency, which manages our wholly aligned Syndicate 4000. Syndicate 4000 operates in the Lloyd’s market and underwrites property, casualty and specialty insurance and specialty reinsurance business on a subscription basis. Syndicate 3334, which was managed by HMA, was closed by way of a reinsurance to close into Syndicate 4000 at the end of December 31, 2021.
On August 20, 2019, Hamilton completed the acquisition of PMA that expanded our existing London operations and created our Irish footprint.
Prior to the acquisition, Hamilton Underwriting Limited (“HUL”), a former Lloyd’s managing agent, managed Lloyd’s Syndicate 3334. Following the acquisition, the acquired Lloyd’s managing agent was renamed HMA. In 2020, HUL was deregistered, Syndicate 3334 was placed into run-off, and all renewal business was written into the acquired Syndicate 4000. HMA is responsible for the management of the wholly-aligned Syndicate 4000 and a managed third-party syndicate.
Our Dublin operations consist of HIDAC, a Dublin-based insurer with a U.K. branch and extensive licensing in the United States, including excess and surplus lines and reinsurance licenses in all 50 states.
Hamilton Managing General Agency Americas, LLC (“HMGA Americas”) is licensed throughout the United States, and underwrites on behalf of Hamilton Group’s London, Dublin and Bermuda operations (solely in respect of Hamilton Re US), providing access from the United States to the Lloyd’s market, the Hamilton Group’s rated Irish carrier and the Hamilton Group’s Bermuda balance sheet, respectively.
Hamilton Select, a U.S. domestic excess and surplus lines carrier, was incorporated in Delaware on September 2, 2021 and is authorized to write excess and surplus lines in all 50 states. Hamilton Select’s certificate of authority was issued on December 20, 2021.
Hamilton Global Specialty’s principal place of business is located at 8 Fenchurch Place, London EC3M 4AJ, United Kingdom and our telephone number is +44 (0) 20-3595-1111. HIDAC’s principal place of business is 2 Shelbourne Building, Crampton Avenue, Ballsbridge, Dublin 4, D04 W3V6, Ireland and our telephone number is
+353 1 232 1900. Hamilton Select’s principal place of business is 10900 Nuckols Road, Suite 120, Glen Allen, Virginia 23060, United States and our telephone number is +1 (804) 905-9977.
Bermuda
Our Bermuda operations are led by Hamilton Re, a registered Class 4 insurer incorporated in Bermuda. Hamilton Re writes property, casualty, and specialty insurance and reinsurance business on a global basis. Hamilton Re has been able to secure and passport both certified reinsurer and reciprocal jurisdiction reinsurer status in various U.S. states, including our lead state of Delaware. Obtaining certified reinsurer status reduces the collateral requirements for reinsurers, while obtaining reciprocal jurisdiction reinsurer status eliminates reinsurance collateral requirements.
Hamilton Re US was formed pursuant to an arrangement between Hamilton Re and its Bermuda-incorporated affiliate, Hamilton ILS Holdings Limited (“Hamilton ILS”). The Company treats Hamilton Re US as a U.S. corporation for U.S. tax purposes and has filed an election for it to be treated as such with the U.S. Internal Revenue Service (“IRS”), and profits allocated to it are subject to applicable U.S. taxation. HMGA Americas is authorized to underwrite U.S. property, casualty and specialty reinsurance on behalf of Hamilton Re, solely in respect of Hamilton Re US.
Ada Capital Management Limited (“ACML”), an insurance agent incorporated and regulated in Bermuda, is authorized to underwrite on behalf of Ada Re, Ltd. (“Ada Re”). Ada Re is a non-consolidated special purpose insurer funded by investors and formed to provide fully collateralized reinsurance and retrocession to both the wholly owned operating platforms of Hamilton Re and third-party cedants.
Hamilton Re’s principal place of business is located at Wellesley House North, 1st Floor, 90 Pitts Bay Road, Pembroke HM 08 Bermuda and our telephone number is (441) 405-5200.
Our organizational structure is set forth below. Each entity is wholly owned by its immediate parent, unless indicated otherwise.
Summary Risk Factors
Investing in our Class B common shares involves substantial risk, and our ability to successfully operate our business is subject to numerous risks, including those that are generally associated with operating in the property, casualty and specialty insurance and reinsurance industries. The following list contains a summary of some, but not all, of these risks.
Risks Related to Our Business and Industry
•We operate in a highly competitive environment.
•Our business could be materially adversely affected if we do not accurately assess our underwriting risk.
•Our business is dependent upon insurance and reinsurance brokers and intermediaries, and the loss of important broker relationships could materially adversely affect our ability to market our products and services.
•A material portion of our business relies on the assessment and pricing of individual risks by third parties.
•The insurance and reinsurance business is historically cyclical and the pricing and terms for our products may decline or deteriorate, which would affect our profitability and ability to maintain or grow premiums.
•We may not be able to maintain our desired external financial strength credit ratings.
•We are subject to cybersecurity risks, including cyber-attacks, security breaches and other similar incidents with respect to our and our service providers’ information technology systems, which could result in regulatory scrutiny, legal liability or reputational harm, and we may incur increasing costs to minimize those risks.
Risks Related to the Market and Economic Conditions
•Conditions in the global economy and financial markets increase the possibility of adverse effects on our financial position and results of operations.
•We may be adversely impacted by inflation.
Risks Related to Our Strategy
•We depend on our key personnel to manage our business effectively and they may be difficult to replace.
•We have significant foreign operations that expose us to certain additional risks, including foreign currency risks and political risks.
Risks Related to Our Investment Strategy
•We do not have control over the Two Sigma Hamilton Fund.
•The Managing Member, Two Sigma and their respective affiliates may have potential conflicts of interest that could adversely affect us.
•The historical performance of Two Sigma (including the Two Sigma Hamilton Fund) should not be considered as indicative of the future results of the Two Sigma Hamilton Fund’s investment portfolio or of our future results.
Risks Related to the Regulatory Environment
•The regulatory framework under which we operate, and potential changes thereto could have a material adverse effect on our business.
•Our business is subject to certain laws and regulations relating to sanctions and foreign corrupt practices, the violation of which could adversely affect our operations.
•We are a holding company with no direct operations, and our insurance and reinsurance subsidiaries’ ability to pay dividends and other distributions to us is restricted by law.
Risks Related to this Offering and Ownership of Our Class B Common Shares
•Our costs will increase as a result of operating as a public company, and our management will be required to devote substantial time to complying with public company regulations.
•We will be required by Section 404 of the Sarbanes-Oxley Act to evaluate the effectiveness of our internal control over financial reporting. We have not identified any material weakness in our internal controls over financial reporting. If we were to identify a material weakness and were unable to remediate this material weakness, or fail to achieve and maintain effective internal controls, our operating results and financial condition could be impacted and the market price of our Class B common shares may be negatively affected.
•There is no existing market for our Class B common shares, and you cannot be certain that an active trading market will develop or a specific share price will be established.
•Investors may have difficulties in serving process or enforcing judgments against us in the United States.
See “Risk Factors” for a discussion of specific risks within these areas, and other factors you should consider before making an investment in our Class B common shares. Any of the factors set forth under “Risk Factors” may limit our ability to successfully execute our business strategy. You should carefully consider all of the information set forth in this prospectus and, in particular, should evaluate the specific factors set forth under “Risk Factors” in deciding whether to invest in our Class B common shares.
THE OFFERING
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Common shares offered by us | Class B common shares. |
Common shares offered by selling shareholders | Class B common shares (or Class B common shares if the underwriters exercise in full their option to purchase additional Class B common shares from the selling shareholders). |
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Underwriters’ option to purchase additional common shares from the selling shareholders | The selling shareholders have granted the underwriters a 30-day option to purchase up to additional Class B common shares at the initial public offering price, less underwriting discounts and commissions. |
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Common shares to be outstanding immediately after this offering | Class B common shares. |
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Use of proceeds | We estimate that the net proceeds to us from the sale of Class B common shares in this offering will be approximately $ million, assuming an initial public offering price of $ per common share (the midpoint of the estimated price range set forth on the cover page of this prospectus), and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any of the proceeds from the sale of our Class B common shares in this offering by the selling shareholders. We intend to use the net proceeds to us from this offering to make capital contributions to our insurance and reinsurance operating subsidiaries, for use by our three operating platforms which should enable us to take advantage of ongoing favorable market conditions in the markets in which we operate by writing more business pursuant to our strategy. See “Business–Our Strategy” and “Business–Our Market Opportunity.” |
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Dividend policy | We currently do not intend to declare any dividends on our Class B common shares in the foreseeable future. Our ability to pay dividends on our Class B common shares may be limited by the terms of any future debt or preferred securities we may issue or any future credit facilities we may enter into. See “Dividend Policy.” |
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Risk factors | See “Risk Factors” beginning on page 27 and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our Class B common shares. |
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Listing | We intend to apply to list our Class B common shares on the NYSE under the symbol “ HG.” |
Following this offering, we will have three classes of authorized common shares: Class A common shares, Class B common shares and Class C common shares. The rights of the holders of Class A common shares, Class B common shares and Class C common shares are identical, except with respect to voting and conversion. Subject to the voting cutback in our Bye-laws, each Class A common share and Class B common share is entitled to one vote per share. All Class C common shares have no voting rights, except as otherwise required by law. Following this offering, our Class A common shares and our Class C common shares will automatically convert into shares of our Class B common shares, on a share-for-share basis, upon transfers following this offering. See “Description of Share Capital” herein for further information.
Unless we indicate otherwise or the context otherwise requires, the number of Class B common shares outstanding and all other information in this prospectus:
• common shares outstanding as of , 2023;
•assumes an initial public offering price of $ per share, the midpoint of the estimated offering price range set forth on the cover of this prospectus;
•excludes 1,152,500 Class B common shares issuable under our 2013 equity incentive plan (the “2013 Equity Incentive Plan”) upon the exercise of warrants that are outstanding as of September 30, 2023, all of which have an exercise price of $10 per share and are currently exercisable;
•excludes 1,553,637 Class B common shares issuable upon the vesting of outstanding restricted stock units under our 2013 Equity Incentive Plan;
•excludes 1,156,100 Class B common shares issuable upon the vesting of outstanding performance restricted stock units assuming maximum performance under our 2013 Equity Incentive Plan; and
•excludes Class B common shares (plus an additional number of Class B common shares equal to 70%, on a fully diluted basis, of the Class B common shares sold by us in this offering) reserved for issuance under our 2023 equity incentive plan (the “2023 Equity Incentive Plan”), which shall include Class B common shares which are undelivered pursuant to awards outstanding under the 2013 Equity Incentive Plan (under which we will cease granting awards on the business day following the effective date of the registration statement of which this prospectus is a part) that are forfeited, cancelled, expired, settled in cash, or otherwise terminated. See “Executive Compensation.”
SELECTED CONSOLIDATED FINANCIAL DATA
Results of Operations
In 2022, the Company changed its fiscal year from November 30 to December 31. The following tables set forth our selected consolidated results of operations data and other financial information for each of the fiscal years in the five-year period ended December 31, 2022 and for the six months ended June 30, 2023 and 2022. The selected consolidated financial data below should be read in conjunction with our consolidated audited financial statements and related notes thereto and the other information in this prospectus.
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| Year Ended | | For the Years Ended |
| ($ in thousands, except shares and per share amounts) | December 31, | | November 30, |
| 2022 | | 2021 | | 2020 | | 2019 | | 2018 |
| Gross premiums written | $ | 1,646,673 | | | $ | 1,446,551 | | | $ | 1,086,540 | | | $ | 730,941 | | | $ | 571,482 | |
| Net premiums written | 1,221,864 | | | 1,085,428 | | | 729,323 | | | 489,467 | | | 408,672 | |
| Net premiums earned | 1,143,714 | | | 942,549 | | | 707,461 | | | 457,391 | | | 414,617 | |
| Net realized and unrealized gains (losses) on investments | 85,634 | | | 352,193 | | | 5,701 | | | 243,876 | | | 617,925 | |
Net investment income (loss)(1) | (20,764) | | | (43,217) | | | (38,600) | | | (39,629) | | | (53,082) | |
| Total realized and unrealized gains (losses) on investments and net investment income (loss) | 64,870 | | | 308,976 | | | (32,899) | | | 204,247 | | | 564,843 | |
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Third party fee income(2) | 11,631 | | | 21,022 | | | 15,625 | | | 5,988 | | | — | |
| Losses and loss adjustment expenses | 758,333 | | | 640,560 | | | 505,269 | | | 390,416 | | | 360,143 | |
| Acquisition costs | 271,189 | | | 229,213 | | | 168,327 | | | 108,277 | | | 95,827 | |
Other underwriting expenses(3) | 157,540 | | | 149,822 | | | 126,869 | | | 83,103 | | | 62,923 | |
Underwriting income (loss)(4) | (31,717) | | | (56,024) | | | (77,379) | | | (118,417) | | | (104,276) | |
| Net income (loss) | (29,935) | | | 249,839 | | | (185,517) | | | 35,397 | | | 418,423 | |
Net income (loss) attributable to non-controlling interest(5) | 68,064 | | | 61,660 | | | 24,930 | | | 67,825 | | | 232,004 | |
| Net income (loss) attributable to common shareholders | (97,999) | | | 188,179 | | | (210,447) | | | (32,428) | | | 186,419 | |
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| Diluted income (loss) per share attributable to common shareholders | $ | (0.95) | | | $ | 1.82 | | | $ | (2.05) | | | $ | (0.32) | | | $ | 1.82 | |
| Combined ratio | 102.8 | % | | 106.0 | % | | 110.9 | % | | 126.0 | % | | 125.2 | % |
| Return on average common shareholders' equity | (5.7) | % | | 11.1 | % | | (12.4) | % | | (1.8) | % | | 10.8 | % |
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(1)Net investment income (loss) is presented net of investment management fees.
(2)Third party fee income is a non-GAAP financial measure as defined in Item 10(e) of SEC Regulation S-K. The reconciliation to other income (loss), the most comparable GAAP financial measure, also included other income (loss), excluding third party fee income of $(0.3) million for the year ended December 31, 2022 and less than $0.1 million in each of the years ended November 30, 2021, and 2020. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Measures” for further details.
(3)Other underwriting expenses is a non-GAAP financial measure as defined in Item 10(e) of SEC Regulation S-K. The reconciliation to general and administrative expenses, the most comparable GAAP financial measure, also included corporate expenses of $20.1 million, $22.5 million, and $22.9 million for the years ended December 31, 2022 and November 30, 2021, and 2020, respectively. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Measures” for further details.
(4)Underwriting income (loss) is a non-GAAP financial measure as defined in Item 10(e) of SEC Regulation S-K. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Measures” for further details.
(5)Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Consolidated Results of Operations - Corporate and Other'” for further details.
SELECTED CONSOLIDATED FINANCIAL DATA
Results of Operations
The following table sets forth our selected results of operations data and other financial information for each of the six months ended June 30, 2023 and 2022. The selected consolidated financial data below should be read in conjunction with our unaudited interim condensed consolidated financial statements and related notes thereto and the other information in this prospectus.
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| For the Six Months Ended | | | | |
| ($ in thousands, except shares and per share amounts) | June 30, | | | | |
| 2023 | | 2022 | | | | | | | | | | |
| Gross premiums written | $ | 1,043,124 | | | $ | 904,610 | | | | | | | | | | | |
| Net premiums written | 733,206 | | | 637,677 | | | | | | | | | | | |
| Net premiums earned | 615,362 | | | 536,524 | | | | | | | | | | | |
| Net realized and unrealized gains (losses) on investments | 54,539 | | | 214,019 | | | | | | | | | | | |
Net investment income (loss)(1) | 9,650 | | | (16,929) | | | | | | | | | | | |
| Total realized and unrealized gains (losses) on investments and net investment income (loss) | 64,189 | | | 197,090 | | | | | | | | | | | |
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Third party fee income(2) | 5,452 | | | 6,133 | | | | | | | | | | | |
| Losses and loss adjustment expenses | 327,977 | | | 339,051 | | | | | | | | | | | |
| Acquisition costs | 141,995 | | | 129,060 | | | | | | | | | | | |
Other underwriting expenses(3) | 81,886 | | | 78,792 | | | | | | | | | | | |
Underwriting income (loss)(4) | 68,956 | | | (4,246) | | | | | | | | | | | |
| Net income (loss) | 94,290 | | | 180,525 | | | | | | | | | | | |
Net income (loss) attributable to non-controlling interest(5) | 6,011 | | | 83,387 | | | | | | | | | | | |
| Net income (loss) attributable to common shareholders | 88,279 | | | 97,138 | | | | | | | | | | | |
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| Diluted income (loss) per share attributable to common shareholders | $ | 0.84 | | | $ | 0.93 | | | | | | | | | | | |
| Combined ratio | 88.8 | % | | 100.8 | % | | | | | | | | | | |
| Return on average common shareholders' equity | 5.2 | % | | 5.4 | % | | | | | | | | | | |
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(1)Net investment income (loss) is presented net of investment management fees.
(2)Third party fee income is a non-GAAP financial measure as defined in Item 10(e) of SEC Regulation S-K. The reconciliation to other income (loss), the most comparable GAAP financial measure, also included other income (loss), excluding third party fee income of $Nil and $0.3 million for the six months ended June 30, 2023 and 2022, respectively. Refer to 'Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Measures' for further details.
(3)Other underwriting expenses is a non-GAAP financial measure as defined in Item 10(e) of SEC Regulation S-K. The reconciliation to general and administrative expenses, the most comparable GAAP financial measure, also included corporate expenses of $13.2 million and $10.2 million for the six months ended June 30, 2023 and 2022, respectively. Refer to 'Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Measures' for further details.
(4)Underwriting income (loss) is a non-GAAP financial measure as defined in Item 10(e) of SEC Regulation S-K. Refer to 'Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Measures' for further details.
(5)Refer to 'Management’s Discussion and Analysis of Financial Condition and Results of Operations—Consolidated Results of Operations - Corporate and Other' for further details.
SELECTED CONSOLIDATED FINANCIAL DATA
Balance Sheet Data
The following table sets forth our selected consolidated balance sheet data and other financial information as at June 30, 2023, December 31, 2022 and November 30, 2021, 2020, 2019 and 2018. The selected consolidated financial data below should be read in conjunction with our consolidated audited financial statements and unaudited interim condensed consolidated financial statements and respective related notes thereto and the other information in this prospectus.
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| As at | | As at | | As at | |
| ($ in thousands, except shares and per share amounts) | June 30, | | December 31, | | November 30, | |
| 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | 2018 | | | | | | | |
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| Total investments | $ | 2,656,322 | | | $ | 2,286,323 | | | $ | 2,464,622 | | | $ | 2,174,586 | | | $ | 1,973,938 | | | $ | 2,046,463 | | | | | | | | |
Cash and cash equivalents | 818,522 | | | 1,076,420 | | | 797,793 | | | 642,838 | | | 825,084 | | | 526,458 | | | | | | | | |
| Total investments and cash and cash equivalents | 3,474,844 | | | 3,362,743 | | | 3,262,415 | | | 2,817,424 | | | 2,799,022 | | | 2,572,921 | | | | | | | | |
| Total assets | 6,280,551 | | | 5,818,965 | | | 5,611,607 | | | 4,905,363 | | | 4,928,154 | | | 3,461,324 | | | | | | | | |
| Reserve for losses and loss adjustment expenses | 2,899,100 | | | 2,856,275 | | | 2,379,027 | | | 2,054,628 | | | 1,957,989 | | | 1,035,664 | | | | | | | | |
| Unearned premiums | 924,723 | | | 718,188 | | | 620,994 | | | 479,529 | | | 505,350 | | | 252,302 | | | | | | | | |
| Term loan, net of issuance costs | 149,772 | | | 149,715 | | | 149,875 | | | 149,682 | | | 149,488 | | | — | | | | | | | | |
| Total shareholders' equity | $ | 1,752,154 | | | $ | 1,664,183 | | | $ | 1,787,445 | | | $ | 1,596,750 | | | $ | 1,801,765 | | | $ | 1,822,569 | | | | | | | | |
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| Common shares outstanding | 103,683,894 | | | 103,087,859 | | | 102,540,769 | | | 102,454,307 | | | 102,218,585 | | | 101,670,378 | | | | | | | | |
| Tangible book value per common share | $ | 16.04 | | | $ | 15.30 | | | $ | 16.29 | | | $ | 14.46 | | | $ | 16.42 | | | $ | 17.72 | | | | | | | | |
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| Book value per common share | $ | 16.90 | | | $ | 16.14 | | | $ | 17.43 | | | $ | 15.58 | | | $ | 17.63 | | | $ | 17.93 | | | | | | | | |
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RISK FACTORS
An investment in our Class B common shares involves a certain degree of risk. In deciding whether to invest, you should carefully consider the following risk factors, as well as the financial and other information contained in this prospectus, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes. Any of the following risks could have an adverse or material effect on our business, financial condition, results of operations or prospects and cause the value of our Class B common shares to decline, which could cause you to lose all or part of your investment. Additional risks and uncertainties of which we are unaware, or that we currently deem immaterial, may also become important factors that affect us.
Risks Related to Our Business and Industry
We operate in a highly competitive environment.
Competition and consolidation in the insurance and reinsurance industry could adversely impact us. We compete with major U.S. and non-U.S. insurers and reinsurers, some of which have greater financial, marketing and management resources than we do. In addition, pension funds, endowments, investment banks, investment managers, hedge funds and other capital markets participants have been active in the insurance and reinsurance market, either through the formation of insurance and reinsurance companies or the use of other financial products intended to compete with traditional insurance and reinsurance. We may also face competition from non-traditional competitors, as well as start-up companies and others seeking access to this industry.
We expect competition to continue to increase over time. It is possible that new or alternative capital could cause reductions in prices of our products or reduce the duration or amplitude of attractive portions of the historical market cycles. New entrants or existing competitors, which may include government-sponsored funds or other vehicles, may attempt to replicate all or part of our business model and provide further competition in the markets in which we participate. We will also need to continue to invest significant time and resources in new technologies and new ways to deliver our products and services in order to maintain our competitive position. The tax policies of the countries where our customers operate, as well as government-sponsored or -backed insurance companies and catastrophe funds, may also affect demand for reinsurance, sometimes significantly.
Along with increased competition, there has also been significant consolidation in the insurance and reinsurance industry over the last several years, including among our competitors, customers and brokers. These consolidated enterprises may try to use their enhanced market power or better capitalization to negotiate price reductions for our products and services or obtain a larger market share through increased line sizes. If competitive pressures decrease the prices for our products, we would generally expect to reduce our future underwriting activities, resulting in lower premium volume and profitability. Reinsurance intermediaries may also continue to consolidate, potentially adversely impacting our ability to access business and distribute our products.
As the insurance industry consolidates, we expect competition for customers to become more intense, and sourcing and properly servicing each customer to become even more important. We could incur greater expenses relating to customer acquisition and retention, further reducing our operating margins. In addition, insurance companies that merge may be able to spread their risks across a consolidated, larger capital base so that they require less reinsurance. Any of the foregoing could adversely affect our business or results of operations.
Our losses and loss expense reserves may be inadequate to cover our actual losses.
We devote significant focus, attention and resources to assess the risks related to our businesses as accurately as we can. We establish losses and loss adjustment expenses, or LAE, reserves for the best estimate of the ultimate payment of all claims that have been incurred, or could be incurred in the future, and the related costs of adjusting those claims, as of the date of our financial statements. These values are unknown within our industry, so these items within our financial statements are always based on estimates, and our ultimate liability will almost certainly be greater, or less than, our estimate.
As part of the reserving process, we review historical data and consider the impact of such factors as:
•claims inflation, which is the sustained increase in cost of raw materials, labor, medical services and other components of claims costs;
•claims development patterns by line of business, as well as frequency and severity trends;
•pricing for our products;
•legislative activity;
•social and economic patterns; and
•litigation, judicial and regulatory trends.
These variables are affected by both internal and external events that could increase our exposure to losses, and we continually monitor our loss reserves using new information on reported claims and a variety of statistical techniques and modeling simulations. This process assumes that past experience, adjusted for the effects of current developments, anticipated trends and market conditions, is an appropriate basis for predicting future events. There is, however, no precise method for evaluating the impact of any specific factor on the adequacy of loss reserves, and actual results may deviate, perhaps substantially, from our reserve estimates. For instance, the following uncertainties may have an impact on the adequacy of our reserves:
•When a claim is received, it may take considerable time to appreciate fully the extent of the covered loss suffered by the insured, and consequently, estimates of loss associated with specific claims can increase over time. Consequently, estimates of loss associated with specified claims can change as new information emerges, which could cause the reserves for the claim to become inadequate;
•New theories of liability are enforced retroactively from time to time by courts;
•Changing jury sentiment;
•Volatility in the financial markets, economic events and other external factors may result in an increase in the number of claims and/or severity of the claims reported. In addition, elevated inflationary conditions would, among other things, cause loss costs to increase; or
•If claims were to become more frequent, even if we had no liability for those claims, the cost of evaluating such potential claims could escalate beyond the amount of the reserves we have established. As we enter new lines of business, or as a result of new theories of claims, we may encounter an increase in claims frequency and greater claims handling costs than we had anticipated.
If any of our reserves should prove to be inadequate, we will be required to increase our reserves resulting in a reduction in our net income and shareholders’ equity in the period in which the deficiency is identified. Future loss experience substantially in excess of established reserves could also have a material adverse effect on our future earnings and liquidity and/or our financial rating.
Unpredictable catastrophic events could adversely affect our results of operations and financial condition.
We write reinsurance contracts and insurance policies that cover unpredictable catastrophic events. These include natural catastrophes and other disasters, such as hurricanes, earthquakes, windstorms, floods, wildfires, and severe winter weather. We have exposure to major earthquakes and windstorms mainly in the United States, Europe, Japan, Australia and New Zealand. Catastrophes can also include man-made disasters, such as terrorist attacks and other destructive acts, war, political unrest, explosions, cyber-attacks, nuclear, biological, chemical or radiological events and infrastructure failures. We are also exposed to losses caused by these types of catastrophic events in lines of business beyond property, such as in marine and energy, aviation, crisis management, satellite, trade credit, political violence, political risk, accident and health as well as other specialty and casualty classes, including from pandemic risk.
The extent of catastrophe losses is a function of both the severity of the event and total amount of insured exposure affected by the event. We expect that increases in the value and concentration of insured property or insured employees, the effects of inflation, changes in weather patterns, such as climate change, and increased terrorism could increase the future frequency and/or severity of claims from catastrophic events. Claims from catastrophic events could materially adversely affect our results of operations and financial condition. Our ability to write new reinsurance contracts and insurance policies could also be impacted as a result of corresponding reductions in our capital levels.
Although we attempt to manage our exposure to such events through a multitude of approaches, including geographic diversification, geographic limits, individual policy limits, exclusions or limitations from coverage, purchase of reinsurance and expansion of supportive collateralized capacity, the availability of these management tools may be dependent on market factors and, to the extent available, may not respond in the way that we expect.
Our most material natural catastrophe accumulation risks are from Atlantic Hurricanes and U.S Mainland Earthquakes. As at December 31, 2022, our modeled 100-Year Occurrence Exceedance Probability for Atlantic Hurricanes was $187.8 million and our modeled 250-Year Occurrence Exceedance Probability for U.S. Mainland Earthquakes was $195.5 million. Our biggest concentration of exposure to U.S. Mainland Earthquakes is in California, while our exposure to Atlantic Hurricanes is material in many regions, including Florida, other Gulf Coast states, as well as the Mid-Atlantic and North-eastern regions of the U.S. For example, on August 30, 2023, Hurricane Idalia made landfall in Florida, pushing north through Georgia and the Carolinas on August 31, 2023. We also face natural catastrophe accumulation risks related to other natural catastrophes. For example, in early August 2023, a series of wildfires broke out in Hawaii, resulting in widespread damage and destruction in Maui. Events such as Hurricane Idalia and the wildfires in Hawaii as well as any similar events in the future could impact our cash flows and results of operations. We continue to assess our exposure to both events as part of our regular third quarter reserving process.
The full extent of the impacts of the ongoing Ukraine conflict on the reinsurance industry and on our business, financial condition and results of operations, including in relation to claims under our reinsurance policies, are uncertain and remain unknown.
The U.S. and global markets are currently experiencing volatility and disruption following the ongoing Ukraine conflict. In response to this invasion, the North Atlantic Treaty Organization (“NATO”) deployed additional military forces to eastern Europe. The United States, the United Kingdom, the European Union (“E.U.”) and other countries have announced various economic and trade sanctions, export controls and other restrictive actions against Russia, Belarus and related individuals and entities. These include, among other measures, the removal of certain financial institutions from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) payment system, the imposition of comprehensive sanctions on certain persons and entities (including financial institutions) in Russia and Belarus and new export control restrictions targeting Russia and Belarus (including measures that restrict the movement of U.S.-regulated aircraft into or within Russia). The Ukraine conflict and the resulting measures that have been taken, and could be taken in the future, by NATO, the United States, the United Kingdom, the European Union and other countries have created global security concerns that could have a lasting impact on regional and global economies. Although the severity and duration of the ongoing Ukraine conflict is impossible to predict, the active conflict could lead to market disruptions, including significant and prolonged volatility in commodity prices, credit and capital markets, as well as supply chain interruptions. Additionally, Russian military actions and the resulting sanctions could adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets.
Further, in December 2022, the members of the G7, including the United States and United Kingdom, joined the E.U. in prohibiting regulated persons from providing a range of services, including issuing maritime insurance, related to the maritime transport of crude oil of Russian Federation origin, unless purchasers bought the oil at or below a price cap. We will consider providing insurance for future shipments of seaborne Russian crude oil, in compliance with these restrictions and all other applicable economic and trade sanctions.
Although we will take measures designed to maintain compliance with applicable sanctions in connection with its activities, we cannot guarantee that we will be effective in preventing violations or allegations of violations.
Violations, or allegations of violations, could result in civil and criminal penalties, including fines, for the Company or for responsible employees and managers, as well as negative publicity or reputational harm.
Due to the widespread impact of the ongoing Ukraine conflict, which extends economically, geographically and financially, it is likely to directly or indirectly impact the markets in which we operate and some of the lines of business we write. It is possible that the conflict will create a domino effect, affecting the entirety of our business, including the ultimate premiums and costs of policies, through cost of materials and labor. The impact of some of or all these factors could cause significant disruption to our operations and materially impact our financial performance. We have already identified business lines which could suffer losses resulting from the ongoing sanctions.
In light of the evolving nature of the Ukraine conflict, there are a number of complexities and implications that will need to be evaluated and determined on an ongoing basis.
Any of the above mentioned factors, or any other negative impact on the global economy, capital markets or other geopolitical conditions resulting from the Ukraine conflict and subsequent sanctions, could have a material adverse effect on our business, financial condition and results of operations. The extent and duration of the Ukraine conflict, resulting sanctions and any related market disruptions are impossible to predict, but could be substantial, particularly if current or new sanctions continue for an extended period of time or if geopolitical tensions result in expanded military operations on a global scale. Most of the significant factors arising out of the ongoing Ukraine conflict are beyond our control and any such disruptions may also have the effect of heightening many of the other risks described in this “Risk Factors” section. If these disruptions or other matters of global concern continue for an extended period of time, our business, financial condition and results of operations may be materially adversely affected.
Global climate change may have a material adverse effect on our operating results and financial condition if we do not adequately assess and price for any increased frequency and severity of catastrophes resulting from these environmental factors.
There is widespread consensus in the scientific community that there is a long-term upward trend in global air and sea temperatures which is likely to increase the severity and frequency of severe weather events over the coming decades. Rising sea levels are also expected to add to the risks associated with coastal flooding in many geographical areas. Large-scale climate change could also increase both the frequency and severity of natural catastrophes and our loss costs associated with property damage and business interruption due to storms, floods, wildfires (including in California) and other weather-related events. In addition, global climate change could impair our ability to predict the costs associated with future weather events and could also give rise to new environmental liability claims in the energy, manufacturing and other industries we serve.
Given the scientific uncertainty of predicting the effect of climate cycles and global climate change on the frequency and severity of natural catastrophes and the lack of adequate predictive tools, we may not be able to adequately model the associated exposures and potential losses in connection with such catastrophes which could have a material adverse effect on our business, financial condition or operating results.
Our business could be materially adversely affected if we do not accurately assess our underwriting risk.
Our profitability is dependent on our ability to accurately assess the risks associated with the business we underwrite. We rely on the experience of our underwriting staff in assessing those risks, the accuracy of pricing tools and the clarity of our contract wording. If we misunderstand and/or inadequately quantify the nature and extent of the risks, we may fail to establish appropriate premium rates which could adversely affect our future financial results. In addition, our employees, including members of management and underwriters, make decisions and choices in the ordinary course of business that involve exposing us to risk. Such challenges of assessing risk and pricing premiums are often increased in our E&S business lines, where there may be more limited historical claims and underwriting data than in admitted insurance markets.
Specific risks around accumulating events for natural and non-natural perils are discussed in further detail within this section. Aside from this, an inadequate assessment of underwriting risk could arise from an incorrect
estimation of past and/or future inflationary trends, claims practices, or other factors, including social factors. We underwrite many lines of business across all underwriting platforms where the volume of relevant claims data is insufficient to accurately estimate the cost of future claims, and therefore underwriting and/or actuarial judgment is frequently applied. The risk of mispricing underwriting risk is heightened in many of our lines due this limited data. For example, data is often limited in many of our insurance and reinsurance lines across all underwriting platforms where policies are protecting low frequency and high severity events. Another example is that the E&S business that we write often has more limited relevant data for pricing than in admitted insurance markets.
Given the inherent uncertainty of our models, and of the exposure data that we rely upon to parameterize our models, the usefulness of such models as a tool to evaluate risk is subject to a high degree of uncertainty. Furthermore, it is likely that our models do not conceive of all possible exposures and accumulations that could arise from our underwriting operation. Therefore, we could experience actual losses that are materially different than our modelled estimates, and our financial results may be adversely impacted, perhaps significantly.
We use many models to simulate possible claims outcomes within the business, including pricing models, reserving models, accumulation models, natural catastrophe models and man-made catastrophe models.
For natural catastrophe risk, similar to our peers, we use third-party vendor analytic and modeling capabilities, including global property catastrophe models from Verisk, and Risk Management Solutions Inc., or RMS, and our own proprietary models, including our catastrophe modeling and portfolio management platform, known as HARP to calculate expected probable maximum losses, or PML, from various natural catastrophe scenarios. The models are dependent upon many broad economic and scientific assumptions, with examples including storm surge (the water that is pushed toward the shore by the force of a windstorm), demand surge (the localized increase in prices of goods and services that often follows a catastrophe) and zone density (the percentage of insured perils that would be affected in a region by a catastrophe). Third-party modeling software also does not provide information for all territories or perils (e.g., tsunami) in and for which the Hamilton Group writes business. Natural catastrophe modeling is inherently uncertain due to process risk (i.e., the probability and magnitude of the underlying event) and parameter risk (i.e., the probability of making inaccurate model assumptions).
For man-made catastrophe risk, third-party vendor analytics and model are typically less developed, and we use a wide range of external and internal model and insights. Similar to natural catastrophe models, we are dependent upon broad economic, scientific and policy coverage assumptions within these models, which leads to material inherent uncertainties in the accuracy of the modelled representation of claims outcomes.
We use these models and software to help us control risk accumulation, inform management and other stakeholders of capital requirements and to improve the risk/return profile or minimize the amount of capital required to cover the risks in each reinsurance contract in our overall portfolio of reinsurance contracts. We use best endeavors to understand the limitations of models, and the materiality of those models is communicated and incorporated within decision-making. However, given the inherent uncertainty of modeling techniques and the limited data available to calibrate the models, it is possible the models prove inadequate, and we may not accurately address a variety of matters that might be deemed to impact certain of our coverages. This could include the risk that we experience unanticipated and unmodelled loss accumulations, and that we suffer actual losses that are materially different from our PML estimates or other modelled representation of claims outcomes.
A material proportion of our business relies on the assessment and pricing of individual risks by third parties.
We authorize MGAs, general agents, coverholders and other producers to write business on our behalf from time to time within the underwriting authorities that we prescribe. We rely on the underwriting controls of these agents, coverholders and producers to write business within the underwriting authorities we provide. Although we monitor our underwriting on an ongoing basis, our monitoring efforts may not be adequate and our agents, coverholders and producers may exceed their underwriting authorities or otherwise breach obligations owed to us. There is also the risk that we may be held responsible for obligations that arise from the acts or omissions of third parties if they are deemed to have acted on our behalf. In addition, our agents, coverholders, producers, insureds or other third parties may commit fraud or otherwise breach their obligation to us. To the extent that our agents,
coverholders, producers, insureds or other third parties exceed their authorities, commit fraud or otherwise breach obligations owed to us, our operating results and financial condition may be materially adversely affected.
Our reliance on third-party assessment and pricing of individual risk extends to our reinsurance treaty business. Similar to other reinsurers, we do not separately evaluate each of the individual risks assumed under most reinsurance treaties. We are therefore largely dependent on the original underwriting decisions made by ceding companies. We are subject to the risk that the ceding companies may not have adequately evaluated the risks to be reinsured and that the premiums ceded to us may not adequately compensate us for the risks we assume and the losses we may incur. As a result of this reliance on ceding companies, our operating results and financial condition may be materially adversely affected.
The insurance and reinsurance business is historically cyclical and the pricing and terms for our products may decline, which would affect our profitability and ability to maintain or grow premiums.
The insurance and reinsurance industry has historically been cyclical by product and market. After experiencing a prolonged soft market cycle several years ago, we believe that the current insurance and reinsurance underwriting market is in a hard market phase for many lines of business, characterized by increasing prices and improving terms and conditions. This shift has likely been caused by recent withdrawals of alternative capital, the number of catastrophic events and continuing prior year adverse development. We cannot assure you that the higher premium rates will continue, and rates may decrease in the future. If demand for our products falls or the supply of competing capacity rises, our prospects for potential growth may be adversely affected. In particular, we might lose existing customers or suffer a decline in business during shifting market cycles, which we might not regain when industry conditions improve.
We believe the hard/soft market cycle dynamic is likely to persist, and that we may return to soft market conditions in the future. Additionally, it is possible that primary insurers’ increased access to capital, new technologies and other factors may reduce the duration or eliminate or significantly lessen the impact of any current or future hard reinsurance underwriting market. The cumulative impact of these risks could negatively impact our profitability and ability to maintain or grow premiums.
Our business is dependent upon insurance and reinsurance brokers and intermediaries, and the loss of important broker relationships could materially adversely affect our ability to market our products and services.
We market our insurance and reinsurance business worldwide primarily through insurance and reinsurance intermediaries, such as managing general agents, general agents and reinsurance brokers. We derive a significant portion of our business from a limited number of insurance and reinsurance intermediaries. Some of our competitors have higher financial strength ratings, offer a larger variety of products, set lower prices for insurance coverage, offer higher commissions and/or have had longer-term relationships with the brokers we use than we have. This may adversely impact our ability to attract and retain brokers to sell our insurance products or brokers may increasingly promote products offered by other companies. The failure or inability of brokers to market our insurance products successfully, or loss of all or a substantial portion of the business provided by these brokers, could have a material adverse impact on our business, financial condition and results of operations.
Emerging claim and coverage issues, or other litigation, could adversely affect us.
Unanticipated developments in the law as well as changes in social conditions could potentially result in unexpected claims for coverage under our insurance and reinsurance contracts. These developments and changes may adversely affect us, perhaps materially so. For example, we could be subject to developments that impose additional coverage obligations on us beyond our underwriting intent, or to increases in the number or size of claims to which we are subject.
For example, we believe our property results have been adversely impacted over recent periods by increasing primary claims-level fraud and abuses, as well as other forms of social inflation, and that these trends may continue, particularly in certain U.S. jurisdictions in which we focus, including Florida and Texas.
With respect to our casualty and specialty operations, these legal and social changes and their impact may not become apparent for some time after their occurrence. A recent example in the industry was losses arising out of a pandemic illness, which most insurers had not anticipated or had attempted to contractually exclude. Moreover, irrespective of the clarity and inclusiveness of policy language, we cannot be certain that a court or arbitration panel will enforce policy language or not issue a ruling adverse to us. Our exposure to these uncertainties could be exacerbated by the increased willingness of some market participants to dispute insurance and reinsurance contract and policy wording. Alternatively, potential efforts by us to exclude such exposures could, if successful, reduce the market’s acceptance of our related products. The full effects of these and other unforeseen emerging claim and coverage issues are extremely hard to predict. As a result, the full extent of our liability under our coverages may not be known for many years after a contract is issued. Furthermore, we expect that our exposure to this uncertainty may grow as our “long-tail” casualty reserves grow, because within some of these policies claims can be made for many years, making them more susceptible to these trends than our traditional property or catastrophe business, which is typically more “short-tail.” While we continually seek to improve the effectiveness of our contracts and claims capabilities, we may fail to mitigate our exposure to these growing uncertainties.
We, or agents we have appointed, may act based on inaccurate or incomplete information regarding the accounts we underwrite, or such agents may exceed their authority or commit fraud when binding policies on our behalf.
We, and our managing general agents, general agents and other agents who have the ability to bind our policies, rely on information provided by insureds or their representatives when underwriting insurance policies. While we may make inquiries to validate or supplement the information provided, we may make underwriting decisions based on incorrect or incomplete information. It is possible that we will misunderstand the nature or extent of the activities or facilities and the corresponding extent of the risks that we insure because of our reliance on inadequate or inaccurate information. If any such agents exceed their authority or engage in fraudulent activities, our financial condition and results of operations could be materially adversely affected.
We may not be able to maintain our desired external financial strength credit ratings.
Third-party rating agencies assess and rate the claims-paying ability of insurers and reinsurers based upon criteria established by the rating agencies. These ratings are often a key factor in the decision by an insured or a broker/intermediary whether to place business with a particular insurance or reinsurance provider. Hamilton Group considers A.M. Best to be the key rating agency for the insurance and reinsurance industries. An “A-” (Excellent) financial strength rating from A.M. Best has been the minimum rating required for access to key parts of Hamilton Group’s target market in the trading environment experience in recent years.
At the time of writing, Hamilton Group’s Financial Strength Rating from A.M. Best is “A-” (Excellent) with a “Positive” outlook, as affirmed on May 26, 2023. The business we write though our Lloyd’s syndicate benefits from the Financial Strength Rating of Lloyd’s of London, which is “A” (Excellent) with a “Stable” outlook, as affirmed on July 15, 2022. Furthermore, we have a financial strength rating of “A” from KBRA with a “Positive” outlook, as affirmed on July 6, 2022.
Our projections assume that these ratings from A.M. Best will be maintained or improved in the future. If this were not the case, and either Hamilton Group or Lloyd’s ratings from A.M. Best were to fall to “A-” with a “Negative” outlook or below, we may not be able to execute our business plan until such ratings were improved, and this could have a material adverse effect on our business, financial condition, results of operations and prospects.
We may require additional capital in the future, which may not be available or may only be available on unfavorable terms.
Our future capital requirements depend on many factors, including our ability to write new business successfully and to establish premium rates and reserves at levels sufficient to cover losses. To the extent that our available funds are insufficient to fund future operating requirements and cover claim losses, we may need to raise additional funds through financings or curtail our growth. Many factors will affect the amount and timing of our capital needs, including our growth rate and profitability, our claims experience, and the availability of reinsurance, market disruptions, and other unforeseeable developments. If we need to raise additional capital, equity or debt financing may not be available at all or may be available only on terms that are not favorable to us. In the case of
equity financings, dilution to our shareholders could result. In the case of debt financings, we may be subject to covenants that restrict our ability to freely operate our business. In any case, such securities may have rights, preferences and privileges that are senior to those of the Class B common shares offered hereby. If we cannot obtain adequate capital on favorable terms or at all, we may not have sufficient funds to implement our operating plans and our business, financial condition or results of operations could be materially adversely affected.
The covenants in our debt agreements limit our financial and operational flexibility, which could have an adverse effect on our financial condition.
We have incurred indebtedness and may incur additional indebtedness in the future. Our indebtedness primarily consists of letters of credit and a revolving credit facility. For more details on our indebtedness, see “Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources—Liquidity” herein. The agreements governing our indebtedness contain covenants that limit our ability and the ability of some of our subsidiaries to make particular types of investments or other restricted payments, sell or place a lien on our or their respective assets, merge or consolidate. Some of these agreements also require us or our subsidiaries to maintain specific financial ratios or contain cross-defaults to our other indebtedness. Under certain circumstances, if we or our subsidiaries fail to comply with these covenants or meet these financial ratios, the noteholders or the lenders could declare a default and demand immediate repayment of all amounts owed to them or, where applicable, cancel their commitments to lend or issue letters of credit or, where the reimbursement obligations are unsecured, require us to pledge collateral or, where the reimbursement obligations are secured, require us to pledge additional or a different type of collateral.
Operational risks, including human errors, the inherent uncertainty of models, and dependency on third party information technology systems and applications, which can fail or become unavailable or needs to be replaced, are inherent in our business.
Operational risks and losses can result from many sources, including fraud, errors by employees or third-party service providers, failure to document transactions properly or to obtain proper internal authorization, failure to comply with regulatory requirements or failures with respect to our or our service providers’ information technology systems.
We believe our modeling, underwriting and information technology and application systems are critical to our business and reputation. Moreover, our technology and applications have been an important part of our underwriting process and our ability to compete successfully. Such technology is and will continue to be a very important part of our underwriting process.
We also have licensed certain systems, data and technology from third parties. We cannot be certain that we will continue to have access to such systems, data and technology, or that of comparable service providers. Further, we cannot guarantee that our technology or applications, or the systems or technology we have licensed from third parties, will continue to operate as intended. In addition, we cannot be certain that we would be able to replace our current service providers without slowing our underwriting response time. As our operations evolve, we will need to continue to make investments in new and enhanced systems and technology, and we may encounter difficulties in integrating these new technologies into our business. A major defect or failure in our internal controls or information technology and application systems could result in interruption to our underwriting processes, management distraction, harm to our reputation, a loss or delay of revenues, increased regulatory scrutiny or risk of litigation, or increased expense.
We are subject to cybersecurity risks, including cyber-attacks, security breaches and other similar incidents with respect to our and our service providers’ information technology systems, which could result in regulatory scrutiny, legal liability or reputational harm, and we may incur increasing costs to minimize those risks.
Cybersecurity threats and incidents have increased in recent years in frequency, levels of persistence, sophistication and intensity, and we may be subject to heightened cyber-related risks. Our business depends on the proper functioning and availability of our information technology platform, including communications and data processing systems, our proprietary systems, and systems of our third-party service providers. We are also required to effect electronic transmissions with third parties, including brokers, clients, service providers and others with
whom we do business, as well as with our Board. In addition, we collect, store and otherwise process personal information (including sensitive personal information) of our clients, employees and service providers. We have implemented and maintain what we believe to be reasonable security measures, but we cannot guarantee that the controls and procedures we or third parties have in place to protect or recover our respective systems and the information stored on such systems will be effective, successful or sufficiently rapid to avoid harm to our business.
Cybersecurity threats are evolving in nature and becoming increasingly difficult to detect, and may come from a variety of sources, including organized criminal groups, “hacktivists,” terrorists, nation states and nation state-supported actors. These threats include, among other things, computer viruses, worms, malware, ransomware, denial of service attacks, defective software, credential stuffing, social engineering, phishing attacks, human error, fraud, theft, malfeasance or improper access by employees or service providers, and other similar threats. Cyber-attacks, security breaches, and other similar incidents, including with respect to third-party systems that have access to or process our, our clients’ or our employees’ personal, proprietary and confidential information, could expose us to a risk of loss, disclosure or misuse of such information, litigation and enforcement action, potential liability and reputational harm. In addition, cybersecurity incidents, such as ransomware attacks, that impact the availability, integrity, confidentiality, reliability, speed, accuracy or other proper functioning of our systems could have a significant impact on our operations and financial results. We may not be able to anticipate all cyber-attacks, security breaches or other similar incidents, detect or react to such incidents in a timely manner, or adequately remediate any such incident. While management is not aware of any cyber-attack, security breach or other similar incident that has had a material effect on our operations, there can be no assurances that such an incident that could have a material impact on us will not occur in the future.
Although we maintain processes, policies, procedures and technical safeguards designed to protect the security and privacy of personal, proprietary and confidential information, we cannot eliminate the risk of human error or guarantee our safeguards against employee, service provider or third-party malfeasance. It is possible that the measures we implement may not prevent improper access to, disclosure of or misuse of personal, proprietary or confidential information. Moreover, while we generally perform cybersecurity due diligence on our key service providers, we cannot ensure the cybersecurity measures they take will be sufficient to protect any information we share with them. Due to applicable laws, regulations, rules, standards and contractual obligations, we may be held responsible for cyber-attacks, security breaches or other similar incidents attributed to our service providers as they relate to the information we share with them. This could cause harm to our reputation, create legal exposure, or subject us to liability under laws that protect personal data, resulting in increased costs or loss of revenue.
Any cybersecurity incident, including system failure, cyber-attacks, security breaches, disruption by malware or other damage, with respect to our or our service providers’ information technology systems, could interrupt or delay our operations, result in a violation of applicable cybersecurity, privacy, data protection or other laws, regulations, rules, standards or contractual obligations, damage our reputation, cause a loss of customers or expose sensitive customer data, give rise to civil litigation, injunctions, damages, monetary fines or other penalties, subject us to additional regulatory scrutiny or notification obligations, and/or increase our compliance costs, any of which could adversely affect our business, financial conditions and results of operations.
Further, the cybersecurity, privacy and data protection regulatory environment is evolving, and it is likely that the costs of complying with new or developing regulatory requirements will increase. For example, we operate in a number of jurisdictions with strict cybersecurity, privacy, data protection and other related laws, regulations, rules and standards, which could be violated in the event of a significant cyber-attack, security breach or other similar incident affecting personal, proprietary or confidential information or in the event of noncompliance by our personnel with such obligations. For more information on risks related to the cybersecurity, privacy and data protection regulatory environment, see the section titled “––Risks Related to the Regulatory Environment––Our business is subject to cybersecurity, privacy and data protection laws, regulations, rules, standards and contractual obligations in the jurisdictions in which we operate, which we can increase the cost of doing business, compliance risks and potential liability.”
We cannot ensure that any limitations of liability provisions in our agreements with clients, service providers and other third parties with which we do business would be enforceable or adequate or otherwise protect us from any liabilities or damages with respect to any particular claim in connection with a cyber-attack, security breach or
other similar incident. In addition, while we maintain insurance that would mitigate the financial loss under such scenarios, providing what we believe to be appropriate policy limits, terms and conditions, we cannot guarantee that our insurance coverage will be adequate for all financial and non-financial consequences from a cybersecurity event, that insurance will continue to be available to us on economically reasonable terms, or at all, or that our insurer will not deny coverage as to any future claim.
We may fail, or be unable, to obtain, maintain, protect, defend or enforce our intellectual property rights, including for our proprietary technology platforms, data and brand, or we may be sued by third parties for alleged infringement, misappropriation or other violation of their intellectual property or proprietary rights.
Our success and ability to compete depend in part on our intellectual property, which includes our rights in our brand, our data, and our proprietary technology used in certain parts of our business. We primarily rely on copyright and trade secret laws, and confidentiality agreements, invention assignment agreements and other contractual arrangements with our employees, customers, service providers, partners and others, to protect our intellectual property rights. However, the steps we take to protect our intellectual property may be inadequate to deter infringement, misappropriation or other violation of our intellectual property, and may not be sufficient to ensure the validity of our intellectual property. Litigation brought to protect or enforce our intellectual property rights could be costly, time-consuming and distracting to management, and we may not prevail. Our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity, enforceability and scope of our intellectual property rights. Our failure to secure, protect and enforce our intellectual property rights could adversely affect our brand and adversely impact our business and our competitiveness in the marketplace.
We do not currently own any registered trademarks and we have not filed any trademark applications to date. While we may have unregistered rights in certain trademarks and trade names, it may be harder for us to rely on any such unregistered rights to prevent third parties from copying or using our trademarks or trade names without our permission. Trademarks and trade names distinguish our products and services from the products and services of others. We have identified unaffiliated third parties operating in the insurance industry using names that are similar to our name. If potential future customers are unable to distinguish our products and services from those of other companies, or if we are otherwise unable to establish brand recognition, we may not be able to compete effectively and our business may be adversely affected.
We have registered domain names we use in our business, such as www.hamiltongroup.com. If we lose the ability to use a domain name, whether due to trademark claims, failure to renew the applicable registration, or any other cause, we may be forced to market our services under a new domain name, which could diminish our brand or cause us to incur significant expenses to purchase rights to the domain name in question. We may be unable to prevent third parties from acquiring and using domain names that are similar to ours or that otherwise decrease the value of our brand.
Although we take steps to protect our intellectual property, we cannot be certain that the steps we have taken will be sufficient or effective to prevent the unauthorized access, use, copying, reverse engineering, infringement, misappropriation or other violation of our intellectual property, including by third parties who may use our intellectual property to develop products, services or technology that compete with ours. We also cannot guarantee that we have entered into confidentiality agreements with each party that may have or has had access to our trade secrets or proprietary technology or that we have executed adequate invention assignment agreements with all employees or third parties involved in the development of our intellectual property, including the proprietary technology used in certain parts of our business. In addition, we may be unable to detect the unauthorized use of our intellectual property rights. Policing unauthorized use of our intellectual property is difficult, expensive and time-consuming, and we may be required to spend significant resources to monitor and protect our intellectual property rights.
Our success depends also in part on our not infringing on, misappropriating or otherwise violating the intellectual property rights of others. Our competitors, as well as a number of other entities and individuals, may own or claim to own intellectual property relating to our industry or the Company. In the future, third parties may claim that we are infringing on, misappropriating or otherwise violating their intellectual property rights, and we
may be found to be infringing on, misappropriating or otherwise violating such rights. Any claims or litigation could cause us to incur significant expenses and, if successfully asserted against us, could require that we pay substantial damages, legal fees, settlement payments, ongoing royalty payments or other costs or damages, including treble damages if we are found to have willfully infringed certain types of intellectual property. Successful challenges against us also could prevent us from using certain technology or offering our products or services, require us to purchase costly licenses from third parties, which may not be available on commercially reasonable terms, or at all, or require that we comply with other unfavorable terms. Even if a license is available to us, it could be non-exclusive, thereby giving our competitors and other third parties access to the same technology licensed to us, and we may be required to pay significant upfront fees, milestone payments or royalties, which could increase our operating expenses. Any litigation, with or without merit, could be costly and time-consuming and divert the attention of our management and key personnel from our business operations. Moreover, other companies, including our competitors, may have the capacity to dedicate substantially greater resources to enforce their intellectual property rights and to defend claims that may be brought against them. Any of the foregoing could adversely affect our business, financial condition and results of operations.
If we fail to comply with our obligations under license or technology agreements with third parties, or if we cannot license rights to use technology or data on reasonable terms, we could be required to pay damages, lose license rights that are critical to our business or be unable to commercialize new products and services in the future.
We license from third parties certain intellectual property, technology and data that are important to our business and, in the future, we may enter into additional agreements that provide us with licenses to valuable intellectual property, technology or data. If we fail to comply with any of our obligations under our license or technology agreements with third parties, we may be required to pay damages and the licensor may have the right to terminate the license. Termination by the licensor (or other applicable counterparty) may cause us to lose valuable rights, and could disrupt our operations and harm our reputation. Our business may suffer if any current or future licenses or other grants of rights to us terminate, if the licensors (or other applicable counterparties) fail to abide by the terms of the license or other applicable agreement, if the licensors fail to enforce the licensed intellectual property against infringing third parties or if the licensed intellectual property rights are found to be invalid or unenforceable.
In the future, we may identify additional third-party intellectual property, technology and data we need, including to develop and offer new products and services. However, such licenses may not be available on acceptable terms or at all. Further, third parties from whom we currently license intellectual property, technology and data could refuse to renew our agreements upon their expiration or could impose additional terms and fees that we otherwise would not deem acceptable requiring us to obtain the intellectual property or technology from another third party, if any is available, or to pay increased licensing fees or be subject to additional restrictions on our use of such third party intellectual property or technology. Defense of any lawsuit or failure to obtain any of these licenses on favorable terms could prevent us from commercializing products or services, which could have a material adverse effect on our competitive position, business, financial condition and results of operations.
Increased public attention to environmental, social and governance matters may expose us to negative public perception, cause reputational harm, impose additional costs on our business or impact our share price.
In recent years, there has been an increased focus from shareholders, business partners, cedants, regulators, politicians, and the public in general on environmental, social and governance, or ESG, matters, including greenhouse gas emissions, carbon footprint and climate-related risks, renewable energy, fossil fuels, diversity, equity and inclusion, responsible sourcing and supply chain, human rights, and social responsibility. Increasing attention is being directed towards publicly-traded companies in particular regarding ESG matters. A failure, or perceived failure, to respond to investor or customer expectations related to ESG concerns, including negative perceptions regarding the scope or sufficiency and transparency of our ESG approach and reporting on ESG matters, could cause harm to our business and reputation. For example, our insureds and investment portfolio include a wide variety of industries, including potentially controversial industries. Damage to our reputation as a result of our provision of policies to certain insureds or investments relating to certain industries could result in decreased demand for our insurance products and could have a material adverse effect on our business, operational results and financial results,
as well as require additional resources to rebuild our reputation, competitive position and brand strength. Additionally, while we strive to manage our invested capital in a manner consistent with publicly-established ESG guidelines, we may not meet certain shareholders’ criteria for such investments or the performance of such investments may be adversely impacted by laws (including certain U.S. state laws) that limit or discourage government-affiliated asset managers from ESG-driven investments or differ from what it may have been if not managed in a manner consistent with ESG guidelines.
We may not successfully alleviate risk through reinsurance arrangements. Additionally, we may not collect all amounts due from our reinsurers under our existing reinsurance arrangements.
As part of our risk management, we are reliant on the purchase of reinsurance for our own account from third parties, including retrocession coverage (i.e., the reinsurance of reinsurance). The availability and cost of reinsurance protection is subject to market conditions, which are outside of our control. In addition, the coverage provided by our reinsurance arrangements may be inadequate to cover our future liabilities. As a result, we may not be able to successfully alleviate risk through these arrangements, which could have a material adverse effect on our results of operations and financial condition.
Purchasing reinsurance does not relieve us of our underlying obligations to policyholders or ceding companies, so any inability to collect amounts due from reinsurers could adversely affect our financial condition and results of operations. Inability to collect amounts due from reinsurers can result from a number of scenarios, including (1) reinsurers choosing to withhold payment due to a dispute or other factors beyond our control; and (2) reinsurers becoming unable to pay amounts owed to us as a result of a deterioration in their financial condition. While we regularly review the financial condition of our reinsurers and currently believe their condition is strong, it is possible that one or more of our reinsurers will be adversely affected by future significant losses or economic events, causing them to be unable or unwilling to pay amounts owed to us.
In addition, due to factors such as the price or availability of reinsurance coverage, we sometimes decide to increase the amount of risk we retain by purchasing less reinsurance. Such determinations have the effect of increasing our financial exposure to losses associated with such risks and, in the event of significant losses associated with a given risk, could have a material adverse effect on our financial condition and results of operations.
Our inability to obtain the necessary credit facilities could affect our ability to offer reinsurance in certain markets.
Hamilton Re is not licensed or admitted as an insurer or reinsurer in any jurisdiction other than Bermuda. Because the United States and some other jurisdictions do not permit insurance companies to take credit on their statutory financial statements for reinsurance obtained from unlicensed or non-admitted insurers unless appropriate security mechanisms are in place, our reinsurance clients in these jurisdictions typically require Hamilton Re to provide letters of credit or other collateral. Our credit facilities are used to post letters of credit. However, if our credit facilities are not sufficient or if we are unable to renew our credit facilities or arrange for other types of security on commercially affordable terms, Hamilton Re could be limited in its ability to write business for some of our clients.
Our business may be adversely affected if we fail to pay claims in an accurately and timely manner.
We must accurately, and in a timely manner, evaluate and pay claims that are made under our policies. Many factors affect our ability to pay claims accurately and timely, including the training and experience of our claims representatives, the effectiveness of our management, and our ability to develop or select and implement appropriate procedures and systems to support our claims functions and other factors. Our failure to pay claims accurately and timely could lead to regulatory and administrative actions or material litigation, undermine our reputation in the marketplace and materially and adversely affect our business, financial condition, results of operations, and prospects.
In addition, for some business, we rely on third-party administrators, or TPAs, to manage claims on our behalf. If we do not manage our TPAs effectively, or if our TPAs are unable to effectively handle our volume of claims, our
ability to handle an increasing workload could be adversely affected. In addition to potentially requiring that growth be slowed in the affected markets, our business could suffer from decreased quality of claims work, which, in turn, could adversely affect our operating margins.
Our reliance on intermediaries subjects us to their credit risk.
In accordance with industry practice, we generally pay amounts owed on claims under our insurance and reinsurance contracts to intermediaries, including agents and brokers, and these intermediaries, in turn, pay these amounts to the clients that have purchased insurance or reinsurance from us. In some jurisdictions, if an intermediary fails to make such payment, we may remain liable to the insured or ceding insurer for the deficiency. Likewise, in certain jurisdictions, when the insured or ceding company pays the premiums for these contracts to intermediaries for payment to us, these premiums are considered to have been paid and the insured or ceding company will no longer be liable to us for those amounts, whether or not we have actually received the premiums from the intermediary. Consequently, we assume a degree of credit risk associated with our insurance and reinsurance intermediaries.
Large non-recurring contracts and reinstatement premiums may increase the volatility of our financial results.
Our premiums are prone to significant volatility due to factors, including the timing of contract inception, as well as our differentiated strategy and capabilities which position us to pursue potentially non-recurring bespoke or large solutions for clients. In addition, after a large catastrophic event or circumstance, we may record significant amounts of reinstatement premium, which can cause quarterly, non-recurring fluctuations in both our written and earned premiums. These and other factors may increase the volatility of our financial results.
Our historical performance is not indicative of future performance.
Information regarding our past performance, financial or otherwise, is presented for informational purposes only and does not guarantee that we will achieve similar results in the future. You should not rely on our historical record of performance as being indicative of future performance in an investment in the Company or the returns we will, or are likely to, generate going forward.
Risks Related to the Market and Economic Conditions
Conditions in the global economy and financial markets increase the possibility of adverse effects on our financial position and results of operations.
The global economy and financial markets, including in the United States, the United Kingdom, Europe, China and other leading markets, continue to experience significant volatility and uncertainty as a result of numerous economic and geopolitical factors, including slowing or negative growth in certain economies, the level of inflation and deflation, the impact of fiscal and monetary policies and international trade disputes. The longer these economic conditions persist or accelerate, the greater the probability that these risks could have an adverse effect on our financial results. This may be evidenced in several ways, including, but not limited to, a potential reduction in our premium income, financial losses in our investment portfolio and decreases in revenue and net income.
Deterioration or volatility in the financial markets or general economic conditions could result in a prolonged economic downturn or trigger another recession and our operating results, financial position and liquidity could be materially and adversely affected. Further, unfavorable economic conditions could have a material adverse effect on certain of the lines of business we write, including, but not limited to, trade credit, political risks, professional lines and surety.
We may be adversely impacted by inflation.
Our operations, like those of other insurers and reinsurers, are susceptible to the effects of both economic and social inflation because premiums are established before the ultimate amounts of losses and loss adjustment expenses are known. Although we consider the potential effects of inflation when setting premium rates, our premiums may not fully offset the effects of inflation and may essentially result in our underpricing the risks we insure and reinsure. Our reserve for losses and loss adjustment expenses includes assumptions about future payments
for settlement of claims and claims-handling expenses, such as the value of replacing property and associated labor costs for the property business we write and litigation costs. To the extent inflation causes costs to increase above reserves established for claims, we will be required to increase our loss reserves with a corresponding reduction in our net income in the period in which the deficiency is identified, which may have a material adverse effect on our financial condition or results of operations. Unanticipated higher inflation could also lead to higher interest rates, which would negatively impact the value of our fixed income securities and potentially other investments.
In recent years, we have experienced an increase in loss costs as a result of relatively high inflation in several locations in which we have exposure. We have seen high inflation in many components of our claims payments, across all lines. The underlying drivers of increased claims costs include, but are not limited to consumer prices, retail prices, wages, property rebuild costs and energy prices. In response to the rising costs driven by inflation, we conducted a thorough assessment of loss cost inflation, which we used to update our pricing models and reserving and planning assumptions. This analysis suggests that the positive rate movement we have achieved has matched or exceeded loss cost trends when we account for current rates of inflation and forecasted rates of future inflation. However, there is a risk that our inflation assumptions and forecasts prove to be insufficient, or that the impact of those inflation drivers upon our future claim payments is inconsistent with our assumptions, and this risk could negatively impact our future earnings.
Our results of operations may fluctuate significantly from period to period and may not be indicative of our long-term prospects.
Our results of operations may fluctuate significantly from period to period. These fluctuations result from a variety of factors, including the fluctuations of the reinsurance and insurance market in response to supply and demand changes, the volume and mix of reinsurance and insurance products that we write, loss experience on our reinsurance and insurance liabilities, the performance of our investment portfolio and our ability to assess and integrate our risk management strategy effectively. In particular, we seek to underwrite products and make investments to achieve long-term results. As a result, our short-term results of operations may not be indicative of our long-term prospects.
We could be forced to sell investments to meet our liquidity requirements.
We invest the premiums we receive from our insureds until they are needed to pay policyholder claims. Consequently, we seek to manage the duration of our investment portfolio based on the duration of our losses and LAE reserves to provide sufficient liquidity and avoid having to liquidate investments to fund claims. Many of the risks we face, including, but not limited to, exposure to catastrophic events, inadequate reserves or investment losses, could potentially result in the need to sell investments to fund these liabilities. Depending on various economic or market factors, we may not be able to sell our investments at favorable prices or at all. Sales that do occur could result in significant realized losses depending on the conditions of the general market, interest rates and credit issues with individual securities.
We may be affected by adverse economic factors outside of our control, including recession or the perception that recession may occur and international socio-political events.
An economic recession or slowdown in economic activity may result from a new surge in the COVID-19 pandemic, from international events involving war or civil, political, or social unrest, or from other factors outside of our control. For example, we have experienced losses related to the conflict between Russia and Ukraine, and the conflict may expand, which could increase our potential exposures or have far-reaching impacts on the global economy. Additionally, governmental, business and societal responses to such events, such as restrictions on public gatherings, sanctions, trade restrictions, increased unemployment, and supply chain disruptions could worsen the impact of such events and could have an impact on our business and on our customers’ businesses. Any such events could increase our probability of losses. These events could also reduce the demand for insurance and reinsurance, which would reduce our premium volume and could have a material adverse effect on our business and results of operations.
Risks Related to Our Strategy
Hamilton Group may not be able to execute its strategy as planned or at all.
There can be no guarantee that Hamilton Group will be successful in accomplishing the tasks necessary to execute its proposed strategy, or that it will be able to execute the strategy within the time frame or in the manner outlined in this prospectus. If the Hamilton Group is unable to execute its strategy, Hamilton Group’s financial results may vary substantially from those projected in the prospectus.
We depend on our key personnel to manage our business effectively and they may be difficult to replace.
Our performance substantially depends on the efforts and abilities of our management team and other executive officers and key employees. Furthermore, much of our competitive advantage is based on the expertise, experience and know-how of our key management personnel. We do not have fixed-term employment agreements with many of our key employees or key person life insurance and the loss of one or more of these key employees could adversely affect our business, results of operations and financial condition. Our success also depends on the ability to hire and retain additional personnel. Difficulty in hiring or retaining personnel could adversely affect our results of operations and financial condition.
In addition, our ability to execute our business strategy is dependent on our ability to attract and retain a staff of qualified underwriters and service personnel. The location of our global headquarters in Bermuda may impede our ability to recruit and retain highly skilled employees in that jurisdiction for the roles that need to be resident in Bermuda. Under Bermuda law, non-Bermudians (other than spouses of Bermudians, holders of permanent residents’ certificates, naturalized British overseas territory citizens or persons who are exempted pursuant to the Incentives for Job Makers Act 2011, as amended) may not engage in any gainful occupation in Bermuda without a valid government work permit. Some members of our senior management are working in Bermuda under work permits that will expire over the next several years. The Bermuda government could refuse to extend these work permits, and no assurances can be given that any work permit will be issued or, if issued, renewed upon the expiration of the relevant term. If any of our senior officers or key contributors were not permitted to remain in Bermuda, or if we experienced delays or failures in obtaining permits for a number of our professional staff, our operations could be disrupted and our financial performance could be adversely affected as a result.
We may from time to time modify our business and strategic plan, and these changes could adversely affect us and our financial condition.
Risks associated with implementing or changing our business strategies and initiatives, including risks related to developing or enhancing our operations, controls and other infrastructure, may not have an impact on our publicly reported results until many years after implementation. Our failure to carry out our business plans may have an adverse effect on our long-term results of operations and financial condition.
In connection with the implementation of our corporate strategies, we face risks associated with the acquisition or disposition of businesses, the entry into new lines of business, the integration of acquired businesses and the growth and development of these businesses.
In pursuing our corporate strategy, we may acquire other businesses or dispose of or exit businesses we currently own. The success of this strategy is dependent upon our ability to identify appropriate acquisition and disposition targets, negotiate transactions on favorable terms, complete transactions and, in the case of acquisitions, successfully integrate them into our existing businesses. If a proposed transaction is not consummated, the time and resources spent in researching it could adversely result in missed opportunities to locate and acquire other businesses. If acquisitions are made, there can be no assurance that we will realize the anticipated benefits of such acquisitions, including, but not limited to, revenue growth, operational efficiencies or expected synergies. If we dispose of or otherwise exit certain businesses, there can be no assurance that we will not incur certain disposition related charges, or that we will be able to reduce overhead related to the divested assets.
From time to time, either through acquisitions or internal development, we may enter new lines of business or offer new products and services within existing lines of business. These new lines of business or new products and
services may present additional risks, particularly in instances where the markets are not fully developed. Such risks include the investment of significant time and resources; the possibility that these efforts will be not be successful; the possibility that the marketplace does not accept our products or services, or that we are unable to retain clients that adopt our new products or services; and the risk of additional liabilities associated with these efforts. In addition, many of the businesses that we acquire and develop will likely have significantly smaller scales of operations prior to the implementation of our growth strategy. If we are not able to manage the growing complexity of these businesses, including improving, refining or revising our systems and operational practices, and enlarging the scale and scope of the businesses, our business may be adversely affected. Other risks include developing knowledge of and experience in the new business, integrating the acquired business into our systems and culture, recruiting professionals and developing and capitalizing on new relationships with experienced market participants. External factors, such as compliance with new or revised regulations, competitive alternatives and shifting market preferences may also impact the successful implementation of a new line of business. Failure to manage these risks in the acquisition or development of new businesses could materially and adversely affect our business, financial condition and results of operations.
We have significant foreign reinsurance that exposes us to certain additional risks, including foreign currency risks and political risks.
Through our multinational insurance and reinsurance exposures, we conduct business in a variety of foreign (non-U.S.) currencies, the principal exposures being the British pound sterling, the Euro and the Japanese yen. As a result, a portion of our assets, liabilities, revenues and expenses are denominated in currencies other than the U.S. dollar and are therefore subject to foreign currency risks. Significant changes in foreign exchange rates may adversely affect our results of operations and financial condition. Our foreign exposures are also subject to legal, political and operational risks that may be greater than those present in the United States. As a result, our exposures to these foreign risks could fluctuate.
We are exposed to risks in connection with our management of alternative reinsurance platforms on behalf of investors in entities managed by Hamilton Strategic Partnerships.
Certain of our subsidiaries that are engaged in the management of alternative reinsurance platforms as part of our Hamilton Strategic Partnerships division may owe certain legal duties and obligations to third-party investors (including reporting obligations) and are subject to a variety of often complex laws and regulations relating to the management of those structures. Although we continually monitor our policies and procedures to ensure compliance, faulty judgments, simple errors or mistakes, or the failure of our personnel to adhere to established policies and procedures could result in our failure to comply with applicable laws or regulations which could result in significant liabilities, penalties or other losses and significantly harm our business and results of operations.
In addition, our third-party investors may decide not to renew their interests in the entities we manage, which could materially impact the financial condition of such entities. Certain of our third-party capital investors provide significant capital investment in respect of the entities we manage. The loss or alteration of this capital support could be detrimental to our financial condition and results of operations. Moreover, we can provide no assurance that we may be able to attract and raise additional third-party capital for our existing managed entities or for potential new managed entities and therefore we may forgo existing and/or potential attractive fee income and other income-generating opportunities.
Furthermore, notwithstanding any capital holdback, we may decide to return to our investors all or a portion of the third-party capital held by entities we manage as collateral prior to the maturity specified in the terms of the particular underlying transactional documents. A return of capital to our investors is final. As a result, if we release collateral early and capital is returned to our investors, we may not have sufficient collateral to pay any future claims associated with such losses in the event losses are significantly larger than we anticipated.
Risks Related to Our Investment Strategy
Our business, prospects, financial condition or results of operations may be adversely affected by reductions in the aggregate value of our investment portfolio.
Our operating results depend in part on the performance of our investment portfolio, including our investment in the Two Sigma Hamilton Fund. Our capital is invested by professional investment management firms, including by Two Sigma through its management of the Two Sigma Hamilton Fund. A material portion of our investment assets are managed by Two Sigma through the Two Sigma Hamilton Fund, as further described herein, and we derive a significant portion of our income from our investment in the Two Sigma Hamilton Fund. As a result, we have significant exposure to the investments in the Two Sigma Hamilton Fund, as well as to our other investment assets.
Our investments are subject to a variety of financial and capital market risks including, but not limited to, changes in interest rates, credit spreads, equity and commodity prices, foreign currency exchange rates, increasing market volatility and risks inherent to particular securities. Prolonged and severe disruptions in the public debt and equity markets, including, among other things, volatility of interest rates, widening of credit spreads, bankruptcies, defaults, significant ratings downgrades, geopolitical instability, and a decline in equity or commodity markets, may cause significant losses in our investment portfolio. Market volatility can make it difficult to value certain securities if their trading becomes infrequent. Depending on market conditions, we could incur substantial additional realized and unrealized investment losses in future periods. This could have a material effect on certain of our investments.
For instance, our investment portfolio (and, specifically, the valuations of investment assets it holds) has been, and is likely to continue to be, adversely affected as a result of market valuations impacted by significant events such as the COVID-19 pandemic and any other public health crisis, the Ukraine conflict and other global economic and geopolitical uncertainty regarding their outcomes. These include changes in interest rates, declining credit quality of particular investments, reduced liquidity, fluctuating commodity prices, international sanctions, and related financial market impacts from the sudden, continued slowdown in global economic conditions generally. Further, extreme market volatility, such as the markets are experiencing now as a result of the ongoing Ukraine conflict, may leave us unable to react to market events in a prudent manner consistent with our historical practices in dealing with more orderly markets.
Separately, the occurrence of large claims may force us to liquidate securities at an inopportune time, which may cause us to realize capital losses. Large investment losses could decrease our asset base and thereby affect our ability to underwrite new business. Additionally, such losses could have a material adverse impact on our shareholders’ equity, business and financial strength and debt ratings.
The aggregate performance of our investment portfolio also depends to a significant extent on the ability of our investment managers, including Two Sigma in the management of the Two Sigma Hamilton Fund, to select and manage appropriate investments. As a result, we are also exposed to operational risks which may include, but are not limited to, a failure of these investment managers to perform their services in a manner consistent with product mandates or our investment guidelines, technological and staffing deficiencies, inadequate disaster recovery plans, interruptions or impaired business operations.
As discussed further below, we are contractually required to maintain an investment in the Two Sigma Hamilton Fund pursuant to the Commitment Agreement (as defined below), which represents a material portion of our investment portfolio, and which Commitment Agreement remains in effect in accordance with its terms even if the Two Sigma Hamilton Fund incurs substantial losses or otherwise does not meet our investment objectives. This registration statement does not, and is not intended to, provide a comprehensive discussion of the risks and conflicts associated with our investment in the Two Sigma Hamilton Fund.
We maintain a fixed income portfolio which could be impacted by interest rate and credit risk.
We maintain a portfolio of more traditional investment assets, primarily composed of investment-grade fixed income securities, that are managed by third-party professionals other than Two Sigma through its management of the Two Sigma Hamilton Fund. As of December 31, 2022, the fair market value of our investment portfolio not managed by Two Sigma was $1.3 billion.
This fixed investment portfolio is subject to risks associated with potential declines in credit quality related to specific issuers or specific industries and a general weakening of the economy, which are typically reflected through credit spreads. Credit spread is the additional yield on fixed income securities and loans above the risk-free rate, typically referenced as the yield on U.S. treasury securities, that market participants require to compensate them for assuming credit, liquidity and/or prepayment risks. Credit spreads vary in response to the market’s perception of risk and liquidity in a specific issuer or specific sector. Additionally, credit spreads are influenced by the credit ratings, and the reliability of those ratings, published by external rating agencies. Although we have the ability to use derivative financial instruments to manage these risks, the effectiveness of such instruments varies with liquidity and other conditions that may impact derivative and bond markets. Adverse economic conditions or other factors could cause declines in the quality and valuation of our investment portfolios that would result in realized and unrealized losses. The concentration of our investment portfolios in any particular issuer, industry, collateral type, group of related industries, geographic sector or risk type could have an adverse effect on our investment portfolios and consequently on our results of operations and financial condition.
In addition, a rising interest rate environment, an increase in credit spreads or a decrease in liquidity could have an adverse effect on the value of our fixed income investment portfolio by decreasing the fair values of the fixed income securities. Longer-term assets may also be sold and reinvested in shorter-term assets that may have lower yields in anticipation of or in response to rising interest rates. Alternatively, a decline in market interest rates could have an adverse effect on investment income as we invest cash in new investments that may earn less than the portfolio’s average yield. In a low interest rate environment, borrowers may prepay or redeem securities more quickly than expected as they seek to refinance at lower rates. Sustained low interest rates could also lead to purchases of longer-term or riskier assets in order to obtain adequate investment yields, which could also result in a duration gap when compared to the duration of liabilities. Although we attempt to take measures to manage the risks of investing in changing interest rate environments, we may not be able to mitigate interest rate or credit spread sensitivity effectively.
We do not have control over the Two Sigma Hamilton Fund.
As discussed above, we maintain a significant investment in the Two Sigma Hamilton Fund, which is an investment fund managed by Two Sigma. Specifically, under the commitment agreement, dated July l, 2023 (the “Commitment Agreement”), Hamilton Re is required to maintain an investment in the Two Sigma Hamilton Fund in an amount up to the lesser of (i) $1.8 billion or (ii) 60% of Hamilton Insurance Group’s net tangible assets (such lesser amount, the “Minimum Commitment Amount”) for a three-year period commencing as of July l, 2023 (the “Initial Term”) and renewable annually for rolling three-year periods thereafter (each such three-year period, a “Commitment Period”), unless a notice of non-renewal is provided in accordance with the Commitment Agreement.
Pursuant to the Commitment Agreement, we may reduce the Minimum Commitment Amount or terminate the Commitment Agreement in certain circumstances. Subject to certain conditions, Hamilton Re is permitted to withdraw all or any portion of its capital account (A)(i) if non-routine circumstances result in the full depletion in its cash and cash equivalents for its day-to-day operations, (ii) it would be materially detrimental to it to delay making a withdrawal, and (iii) it cannot access any working capital or letter of credit facility it has; or (B) to the extent such withdrawal is required to prevent a downgrading or negative ratings action by A.M. Best with respect to Hamilton Re, to the extent based on a significant concern principally related to the continued management of our investment assets in the Two Sigma Hamilton Fund, or an order or direction from the BMA, and in the case of clause (B), only upon a resolution of our board of directors that (x) we have taken commercially reasonable efforts to avoid such withdrawal and that such a withdrawal is required to address the negative ratings action or BMA direction, and (y) that it is necessary to maintain Hamilton Re’s A.M. Best ratings of A- (financial strength) and a- (issuer credit rating) or to comply with such BMA direction, as the case may be, in order to continue its business operations. Hamilton Re or Two Sigma may also terminate the Commitment Agreement in the event of, among other things: (i) a transfer of voting interests in excess of 25% of Two Sigma (other than to affiliates or persons related to Two Sigma), to the extent such transfer results in a change of control or management of Two Sigma, (ii) certain dispositions or issuances of a material (i.e., 5% or greater) or non-passive position in the public equity of Hamilton Insurance Group or Hamilton Re by a Two Sigma competitor, (iii) a material change to Hamilton Insurance Group’s, Hamilton Re’s or Two Sigma’s business, including with respect to Two Sigma the cessation of management of a trading entity, or the return of a majority of client capital attributable to a trading entity, (iv) David
Siegel or John Overdeck ceasing to be involved in the management of Two Sigma, or (v) a change in law that is reasonably expected to have a material adverse effect on Hamilton Re or Two Sigma.
Two Sigma Principals, LLC is the managing member of Two Sigma Hamilton Fund (the “Managing Member”), is subject to the same Commitment Period, and has exclusive control over the management, operations and policies of the Two Sigma Hamilton Fund under the Two Sigma Hamilton Fund Limited Liability Company Agreement, dated July 1, 2023, as amended from time to time (the “LLCA”), including the authority to undertake on behalf of the Two Sigma Hamilton Fund all actions that, in its sole judgment, are necessary or desirable to carry out its duties and responsibilities.
These broad rights of the Managing Member include the power to delegate its authority under the LLCA. Pursuant to an amended and restated investment management agreement, dated July l, 2023, between the Two Sigma Hamilton Fund and Two Sigma (the “Two Sigma Hamilton Fund IMA”), the Managing Member has granted to Two Sigma the authority to direct the investments of the Two Sigma Hamilton Fund and other day-to-day business of the Two Sigma Hamilton Fund. Hamilton Re has no right to remove the Managing Member and does not have any right to participate in the management and conduct of the Two Sigma Hamilton Fund. Neither the Company nor Hamilton Re are a party to the Two Sigma Hamilton Fund IMA.
The revised investment management agreement with Two Sigma requires TS Hamilton Fund to incur a management fee of 2.5% of the non-managing members' equity in the net asset value of the TS Hamilton Fund per annum. Under the terms of the revised LLCA, the Managing Member is entitled to an incentive allocation equal to 30% of TS Hamilton Fund’s net profits, subject to high watermark provisions, and adjusted for withdrawals and any incentive allocation to the Managing Member. However, in the event there is a net loss during a quarter and a net profit during any subsequent quarter, the Managing Member is entitled to a modified incentive allocation whereby the regular incentive allocation will be reduced by 50% until subsequent cumulative net profits are credited in an amount equal to 200% of the previously allocated net losses.
The Managing Member is also entitled to receive an additional incentive allocation as of the end of each fiscal year (or on any date Hamilton Re withdraws all or a portion of its capital), in an amount equal to 25% of the Excess Profits. “Excess Profits” for any given fiscal year (or other such accounting period) means the net profits over 10% for such fiscal year, net of management fees and expenses and gross of incentive allocations, but only after recouping previously unrecouped net losses. To the extent Hamilton Re contributes capital other than at the beginning of a fiscal year or withdraws capital other than at the end of a fiscal year, the additional incentive allocation hurdle with respect to such capital is prorated.
The fees paid related to management of the Two Sigma Hamilton Fund are as follows:.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended | | Month Ended | | Years Ended | | |
| | | | December 31, | | December 31, | | November 30, | | |
| (Expressed in thousands of U.S. Dollars) | | | | 2022 | | 2021 | | 2021 | | 2020 | | |
| Management fees | | | | $ | 53,103 | | | $ | 4,318 | | | $ | 48,693 | | | $ | 49,468 | | | |
| | | | | | | | | | | | |
| Incentive fees | | | | 68,050 | | | — | | | 51,309 | | | 24,931 | | | |
| Additional incentive fees | | | | — | | | — | | | 10,320 | | | — | | | |
| Total incentive fees | | | | 68,050 | | | — | | | 61,629 | | | 24,931 | | | |
| | | | | | | | | | | | |
| Total | | | | 121,153 | | | 4,318 | | | 110,322 | | | 74,399 | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
The Two Sigma Hamilton Fund invests in various commingled investment vehicles. We are not Two Sigma’s “client” under the U.S. Investment Advisers Act of 1940, as amended, and Two Sigma does not manage capital invested in the Two Sigma Hamilton Fund by reference to our investment guidelines. Our investment guidelines relating to assets managed outside of the Two Sigma Hamilton Fund currently focus on investment primarily in fixed maturity and cash products. Depending on current and future events and market conditions and their impact on our investments, the investment guidelines are subject to change.
The Two Sigma Hamilton Fund is not, and is not expected to be, registered as an “investment company” under the 1940 Act or any comparable regulatory requirements. Therefore, investors in the Two Sigma Hamilton Fund, including Hamilton Re, do not and will not have the benefit of the protections afforded by such registration and regulation.
We face risks associated with our reliance on Two Sigma, as investment manager of the Two Sigma Hamilton Fund.
The success of the Two Sigma Hamilton Fund's investments is dependent on the ability of Two Sigma, and more specifically, on the other employees acting as the Two Sigma Hamilton Fund’s portfolio managers and book managers, to develop and implement investment strategies that achieve the Two Sigma Hamilton Fund's investment objective. If any of David M. Siegel or John A. Overdeck (collectively, the “Two Sigma Key Persons”), the portfolio managers or the book managers ceases to be involved in the management of Two Sigma or the Two Sigma Hamilton Fund, the Two Sigma Hamilton Fund could be adversely affected. There is no prohibition on any Two Sigma Key Person, portfolio manager or book manager resigning. In addition, the portfolio managers, the Two Sigma Key Persons and the book managers have material responsibilities within Two Sigma that are completely separate from their duties to the Two Sigma Hamilton Fund. There is no prohibition on an expansion or change to such other responsibilities. We have no special withdrawal rights if any of the Two Sigma Key Persons, the portfolio managers and/or the book managers were to cease to be involved in the management of the Managing Member and/or Two Sigma, or materially reduce their duties with respect to the Two Sigma Hamilton Fund; rather we would have the right to withdraw only in accordance with the withdrawal provisions detailed in the LLCA.
As described in the brochure of Two Sigma, dated March 31, 2023, accompanying its Form ADV filed with the SEC, there have been a variety of management and governance challenges at Two Sigma and related entities. The management committee of Two Sigma and related entities (the “Two Sigma Management Committee”) has been unable to reach agreement on a number of topics, including: (i) defining roles, authorities and responsibilities for a range of C-level officers, including for the various roles of the members of the Two Sigma Management Committee and Chief Investment Officers; (ii) organizational design and management structure of various teams; (iii) corporate governance and oversight matters; and (iv) succession plans. These disagreements can affect Two Sigma’s ability to retain or attract employees (including very senior employees) and could continue to impact the ability of employees to fully implement key research, engineering, or corporate business initiatives. If such disagreement were to continue, Two Sigma’s ability to achieve the Two Sigma Hamilton Fund mandate could be impacted over time.
The Two Sigma Hamilton Fund faces operational risks from Two Sigma’s management of the Two Sigma Hamilton Fund, including from misconduct by employees or service providers of Two Sigma, which could result in material losses to the Two Sigma Hamilton Fund and, by extension, the Company.
The Two Sigma Hamilton Fund is exposed to operational risks from Two Sigma and its employees and service providers, including from potential non-compliance with policies and regulations, employee misconduct, negligence and fraud, each of which could result in material losses to the Two Sigma Hamilton Fund. In recent years, a number of investment managers and other financial institutions have suffered material losses due to, for example, the actions of traders executing unauthorized trades or other employee misconduct.
For example, on October 6, 2023, Two Sigma informed its investors, including the Company, that it had determined that one of its researchers engaged in intentional misconduct by circumventing its modeling practices. While Two Sigma reported that this incident did not impact the accuracy of investor account statements, that any remediation as a result of this incident was not expected to have a negative impact on any investor account balances, including the Company’s, and that this incident (including any remediation) is not expected to impact its normal operations, Two Sigma noted that its review of its control functions including the full impact of this incident is still ongoing and the full impact of this incident is not yet known. The Company is also currently evaluating the impact of the foregoing incident on its investments with the Two Sigma Hamilton Fund, including the risk of known and unknown losses to the Two Sigma Hamilton Fund. Subsequently, Two Sigma informed the Company that, based on its preliminary estimate, the incident resulted in a positive impact on the Two Sigma Hamilton Fund.
It is not always possible to deter or fully prevent employee misconduct and the precautions Two Sigma takes to prevent and detect this activity may not always be effective. Any impact from the incident described above or other similar operational risks may result in material losses to the Two Sigma Hamilton Fund and, by extension, the Company.
The Two Sigma Hamilton Fund’s investment portfolio and its performance depends on the ability of its investment manager, Two Sigma, to select and manage appropriate investments.
Pursuant to the Two Sigma Hamilton Fund IMA, the Managing Member has granted Two Sigma discretion and authority to make all investment decisions on behalf of the Two Sigma Hamilton Fund, including the power to purchase, acquire, hold, invest, reinvest, sell or otherwise dispose of the Two Sigma Hamilton Fund’s interests in certain trading entities managed by Two Sigma for the purposes of implementing the Two Sigma Hamilton Fund’s investment objectives.
The trading strategies that Two Sigma utilizes on behalf of the Two Sigma Hamilton Fund at any time may encompass a variety of Techniques, both directly and derivatively, all of which may be based on any combination of systematic and discretionary analysis as determined by Two Sigma in its sole discretion. Our investment in the Two Sigma Hamilton Fund is subject to all of the risks associated with the purchase and sale of complex leveraged instruments, including without limitation, the difficulty of accurately predicting price movements in particular investment positions and the difficulty of assessing the impact that an unpredictable multitude of economic and other events may have on prices or the value of investments. Two Sigma utilizes a variety of speculative trading strategies which, if unsuccessful, could result in a complete loss of our investment in the Two Sigma Hamilton Fund. The Two Sigma Hamilton Fund’s trading and investment activities are not limited to these strategies and Techniques and the Two Sigma Hamilton Fund is permitted to pursue any investment strategy and/or Technique that Two Sigma determines in its sole discretion to be appropriate for the Two Sigma Hamilton Fund from time to time. We cannot assure shareholders as to how assets will be allocated to different investment opportunities, including long and short positions and derivatives trading, which could increase the level of risk associated with investment in the Two Sigma Hamilton Fund. The performance of our investment in the Two Sigma Hamilton Fund depends fundamentally on the ability of Two Sigma to select and manage appropriate investments for the Two Sigma Hamilton Fund’s investment portfolio. We cannot assure you that Two Sigma will be successful in meeting the Two Sigma Hamilton Fund’s investment objectives.
Irrespective of Two Sigma’s ability to manage the Two Sigma Hamilton Fund, our investment in the Two Sigma Hamilton Fund is highly speculative, entails substantial risks and is subject to various conflicts of interest. There is no guarantee, assurance or representation that the investment objectives of the Two Sigma Hamilton Fund will be achieved or that our investment in the Two Sigma Hamilton Fund will not result in significant losses, which consequently could significantly and negatively affect our business, results of operations and financial condition.
In addition, under the LLCA (subject to the terms of the Commitment Agreement), the Managing Member has the authority to dismiss from employment any and all agents, managers, consultants, advisors and other persons, including Two Sigma. If the Managing Member chooses to dismiss Two Sigma as the Two Sigma Hamilton Fund’s investment manager or to engage another investment manager following the expiration of its term, there is no assurance that the Managing Member will find or hire a suitable replacement. If the Managing Member were to hire a suitable replacement, there is no guarantee that any such replacement would provide the Two Sigma Hamilton Fund with comparable or better investment results than those that Two Sigma may provide to the Two Sigma Hamilton Fund or than those that Two Sigma has provided in the past to us.
The Two Sigma Hamilton Fund is required to indemnify and hold harmless the Managing Member and Two Sigma under certain circumstances pursuant to the LLCA or the Two Sigma Hamilton Fund IMA. As a result, in general, we do not expect to have recourse to Two Sigma for our losses and the value of capital accounts of Hamilton Re in the Two Sigma Hamilton Fund could be reduced in the event that Two Sigma (or its affiliates) incur losses, all of which could have a material and adverse impact on our financial conditions and results of operations.
We have a limited ability to withdraw our capital from the Two Sigma Hamilton Fund, and our investment in the Two Sigma Hamilton Fund is an illiquid investment.
In light of the fact that the Commitment Agreement and the LLCA limit our ability to withdraw our capital from the Two Sigma Hamilton Fund, and that there is no secondary market for interests in the Two Sigma Hamilton Fund, an investment in the Two Sigma Hamilton Fund is an illiquid investment. Hamilton Re is required to maintain the lesser of (a) $1.8 billion or (b) 60% of Hamilton Insurance Group’s net tangible assets in the Two Sigma Hamilton Fund for the Commitment Period, subject to certain circumstances and the liquidity options described below, with the Commitment Period ending on June 30, 2026. The Commitment Period will automatically renew for a new three-year Commitment Period unless Hamilton Re or the Managing Member provide advance notice of non-renewal prior to the one-year anniversary of the commencement of a Commitment Period.
The Managing Member may, in its discretion, but is not required to, permit or require Hamilton Re to withdraw all or any portion of its capital account(s) at other times or waive or reduce certain notice periods or allow a notice to be revoked. The Managing Member may also upon five days’ notice, compel the withdrawal of any portion of Hamilton Re’s direct or indirect investment in the Two Sigma Hamilton Fund in excess of the Minimum Commitment Amount and may withdraw all or any portion of its capital account at any time. However, Hamilton Re is permitted to withdraw all or any portion of its capital account if (A)(i) non-routine circumstances result in the full depletion in its cash and cash equivalents for its day-to-day operations, (ii) it would be materially detrimental to it to delay making a withdrawal, and (iii) it cannot access any working capital or letter of credit facility it has; or (B) such withdrawal is required to prevent a downgrading by A.M. Best or an order from the BMA, as described above under “––We do not have control over the Two Sigma Hamilton Fund.”
Additionally, because the Commitment Agreement requires that we invest a certain amount of capital in the Two Sigma Hamilton Fund and the LLCA does not permit us to replace the Managing Member or require that the Managing Member replace Two Sigma as the investment manager of the Two Sigma Hamilton Fund, we have limited flexibility to change our investment strategy or manage our investments outside of the Two Sigma Hamilton Fund or with a different investment manager, which could have a negative impact on our returns.
Should the Two Sigma Hamilton Fund be terminated by the Managing Member, all assets will be liquidated in accordance with the terms set out in the LLCA and we will no longer receive returns in connection with this investment. If the Two Sigma Hamilton Fund is terminated, there can be no assurance that we will be able to replace Two Sigma as our investment manager or achieve investment results comparable or better than those achieved by the Two Sigma Hamilton Fund. See also “—We do not have control over the Two Sigma Hamilton Fund.”
The Managing Member, Two Sigma and their respective affiliates have potential conflicts of interest that could adversely affect us.
The structure and operations of Two Sigma and its affiliates (and, by extension, how the Two Sigma Hamilton Fund and the trading entities the Two Sigma Hamilton Fund utilizes are constructed, managed and advised) give rise to a number of actual and potential conflicts of interest which may adversely affect us.
Two Sigma and its affiliates currently manage, and expect to continue to manage, other client and proprietary accounts, some of which have objectives that overlap with the objective of the Two Sigma Hamilton Fund, including investment vehicles that are owned primarily or entirely by Two Sigma proprietary capital. Two Sigma’s interests will at times conflict with our interests, which may potentially adversely affect our and the Two Sigma Hamilton Fund’s investment opportunities and returns.
Further, the Commitment Agreement provides that none of Two Sigma, the Managing Member or Two Sigma Hamilton Fund are responsible for any performance of their obligations thereunder to the extent such obligations would reasonably conflict with their fiduciary duties to other clients or investors in such clients or are reasonably expected to result in materially adverse legal or regulatory risk, as determined in any such party’s sole discretion on the advice of its internal or external counsel.
Two Sigma and its affiliates engage in other business ventures and investment opportunities that will not be allocated equitably among us and such other business ventures.
Two Sigma and its affiliates participate in various financial activities and have created multiple products that employ overlapping or substantially similar strategies and/or compete for limited trading and investment opportunities but are designed to achieve materially different expected risk-reward profiles. Two Sigma and its affiliates engage in a wide-range of investment and other financial activities, many of which are not offered to the Two Sigma Hamilton Fund. As Two Sigma and its affiliates continue to grow, they will need to continue to balance the following challenges: (i) a desire to increase the amount of proprietary capital invested; (ii) an increasingly diverse and numerous investor base; (iii) greater variation in the mandates and fee structures among the Two Sigma Hamilton Fund and the other Two Sigma clients; (iv) a shifting regulatory landscape; and (v) managing a larger and more diverse set of strategies and Techniques. Portfolios managed by Two Sigma affiliates will have material adverse impacts on each other and the trading in such portfolios will continue to reduce returns in other portfolios. As a result, Two Sigma’s offerings and expansions (and those of its affiliates) are expected to have a negative effect on the Two Sigma Hamilton Fund. Two Sigma and its affiliates are not and cannot be free from conflicts of interest in balancing these and related considerations.
Additionally, decisions made by Two Sigma on behalf of the Two Sigma Hamilton Fund have the potential to vary materially from the decisions made by Two Sigma and is affiliates on behalf of other clients, including during times of market stress and during liquidation events. Because Two Sigma or its affiliates employ the same or substantially similar strategies on behalf of many of their respective clients and because such clients often trade the same or similar instruments, the decisions made by Two Sigma or its affiliates, as applicable, on behalf of any individual client are likely to have a material impact on other clients. This impact is likely to be exacerbated during times of market stress and/or during liquidation events. For example, to the extent that Two Sigma decides to liquidate or “delever” all or any portion of another client’s portfolio for any reason, such liquidation or deleveraging is likely to adversely affect positions held by the Two Sigma Hamilton Fund or the Two Sigma Hamilton Fund’s ability to liquidate or delever the same or similar positions, whether or not Two Sigma has made the independent decision to liquidate or delever the Two Sigma Hamilton Fund’s portfolios.
The historical performance of Two Sigma (including the Two Sigma Hamilton Fund) should not be considered as indicative of the future results of the Two Sigma Hamilton Fund’s investment portfolio or of our future results.
The historical returns of the funds managed by Two Sigma (including the Two Sigma Hamilton Fund) are not necessarily indicative of future results. Results for the Two Sigma Hamilton Fund’s investment portfolio could differ materially from the results of other funds managed by Two Sigma. In addition, even if the Two Sigma Hamilton Fund’s investment portfolio generates investment income in a given period, our overall performance could be adversely affected by losses generated by our insurance and reinsurance operations or other market dynamics. Poor performance of the Two Sigma Hamilton Fund’s investment portfolio would cause a decline in our revenue and would therefore have a negative effect on our financial performance.
The risks associated with Two Sigma’s strategy in managing the Two Sigma Hamilton Fund’s investment portfolio could be substantially greater than the investment risks faced by other reinsurers with whom we compete.
We have a significant amount of financial exposure to the investment in the Two Sigma Hamilton Fund. As a result, our operating results depend materially on the performance of the Two Sigma Hamilton Fund’s investment portfolio. In addition, the Two Sigma Hamilton Fund’s investments are made through various commingled investment vehicles that are managed on behalf of multiple Two Sigma clients, and not structured in relation to our specific financial objectives or anticipated insurance and reinsurance liabilities. To the extent we are required to fund these or other liabilities in meaningful amounts and/or unexpectedly, we could be forced to liquidate investments at a significant loss or at prices that are not optimal, which could significantly and adversely affect our financial results.
The risks associated with Two Sigma’s investment strategy could be substantially greater than the risks associated with traditional investment strategies employed by many insurers and reinsurers with whom we compete. Two Sigma specializes in process-driven, systematic investment management generally implemented by performing quantitative analysis to build mathematical strategies that rely on patterns inferred from historical prices and other data in evaluating prospective investments. These strategies are implemented by employing the Techniques. Quantitative strategies and Techniques cannot fully match the complexity of the financial markets and therefore sudden unanticipated changes in underlying market conditions can significantly impact their performance. Further, as market dynamics shift over time, a previously highly successful strategy or Technique tends to become outdated, and Two Sigma, as the Two Sigma Hamilton Fund’s investment manager, may not recognize that fact before substantial losses are incurred. Even without becoming a completely outdated strategy or Technique, a given strategy’s or Technique’s effectiveness may decay in an unpredictable fashion for any number of reasons, including, but not limited to, an increase in the amount of assets managed, the sharing of such strategy or Technique with other clients or affiliates, the use of similar strategies or Techniques by other market participants and/or market dynamic shifts over time. Moreover, there are likely to be an increasing number of market participants who rely on strategies and Techniques that are similar to those used by Two Sigma, which may result in a substantial number of market participants taking the same action with respect to an investment and some of these market participants may be substantially larger than the Two Sigma Hamilton Fund. Should one or more of these other market participants begin to divest themselves of one or more positions, a “crisis correlation,” independent of any fundamentals and similar to the crises that occurred or could occur, thereby causing the Two Sigma Hamilton Fund to suffer material, or even total, losses.
Two Sigma relies on the use of technology and on data from third-party and other sources to make its forecasts and/or trading decisions, which could materially adversely affect our future results.
The Techniques and related analytics utilized by Two Sigma in managing the Two Sigma Hamilton Fund are fundamentally dependent on technology, including hardware, software and telecommunications systems. The data gathering and processing, research, forecasting, portfolio construction, order execution, trade allocation, risk management, operational, back office and accounting systems, among others, utilized by Two Sigma are all highly automated and computerized. Such automation and computerization is dependent upon an extensive amount of licensed software and third-party hardware and software. Such dependencies have and will likely continue to increase over time. The Two Sigma-licensed software and third-party hardware and software are known to have errors, omissions, imperfections and malfunctions, referred to as coding errors. Such coding errors in third-party hardware and software are generally entirely outside of the control of Two Sigma. Coding errors can and do occur and will result in, among other things, the execution of unanticipated trades, the failure to execute anticipated trades, the failure to properly allocate trades, the failure to properly gather, organize and/or process available or accurate data, the generation of erroneous and/or incomplete model forecasts, the failure to take certain hedging or risk reducing actions and/or the taking of actions which increase certain risk(s), all of which can and do have adverse (and materially adverse) effects on the Two Sigma Hamilton Fund and its returns. Two Sigma’s reliance on technology may expose the Two Sigma Hamilton Fund to other risks associated with the use of technology, such as software or hardware malfunction, security breach, virus or other operational risks.
Two Sigma is highly reliant on the gathering, cleaning, culling, mapping and analyzing of large amounts of both market and non-traditional (i.e., alternative) data from third-party and other sources in making its forecasts and/or trading decisions. It is not possible or practicable, however, to factor all relevant, available data into forecasts and/or trading decisions. Two Sigma will use its discretion to determine what data to gather with respect to any strategy or Technique and what subset of that data the strategies and Techniques it will take into account to produce forecasts which have an impact on ultimate trading decisions. There is no guarantee that any specific data or type of data will be utilized in generating forecasts or making investment and trading decisions on behalf of the Two Sigma Hamilton Fund, nor is there any guarantee that the data actually utilized in generating forecasts or making investment and trading decisions on behalf of the Two Sigma Hamilton Fund will be (i) the most accurate data available or (ii) free of errors.
Two Sigma will from time to time change its processes due to external and internal factors, which may lead to unpredictable outcomes.
There can be no guarantee that any of the numerous processes developed by Two Sigma to perform various functions for the Two Sigma Hamilton Fund (including, without limitation, processes related to data gathering, research, forecasting, portfolio construction, order execution, trade allocation, risk management, compliance, operations and accounting) will not change over time or, in some cases, may cease altogether (such changes or cessations, “Process Changes”). Except as restricted by rule, regulation, requirement or law, Two Sigma may make Process Changes in its sole and absolute discretion and without notifying the Two Sigma Hamilton Fund. Two Sigma may make Process Changes due to (i) external factors such as, without limitation, changes in law or legal/regulatory guidance, changes to industry practice, market factors or changes to external costs, (ii) internal factors such as, without limitation, personnel changes, changes to proprietary technology, security concerns or updated cost/benefit analyses or (iii) any combination of the foregoing. The effects of process changes are inherently unpredictable and sometimes do lead to unexpected outcomes which could have an adverse impact on the Two Sigma Hamilton Fund.
Effects of Process Changes are inherently unpredictable and may lead to unexpected outcomes which could ultimately have an adverse impact on the Two Sigma Hamilton Fund. In addition, certain Process Changes, for example certain Process Changes made due to changes in law or legal/regulatory guidance, may be made despite Two Sigma’s belief that such Process Changes will have an adverse impact on the Two Sigma Hamilton Fund.
In managing the Two Sigma Hamilton Fund’s investment portfolio, Two Sigma will trade on margin and use other forms of financial leverage, which could potentially adversely affect our results.
Two Sigma employs substantial leverage on behalf of the Two Sigma Hamilton Fund. Such leverage is achieved by borrowing funds from U.S. and non-U.S. brokers, banks, dealers and other lenders, purchasing or selling instruments on margin or with collateral and using options, futures, forward contracts, swaps and various other forms of derivatives and other instruments which have substantial embedded leverage.
If the Two Sigma Hamilton Fund can no longer utilize margin or post collateral under such lending arrangements, it could be required to liquidate a significant portion of its portfolio, and trading would be constrained, adversely affecting the Two Sigma Hamilton Fund’s performance.
Trading on leverage may result in greater risks, exposures, interest charges and costs, which may be explicit (e.g., in the case of loans) or implicit (e.g., in the case of many derivative instruments) and such charges or costs could be substantial. The use of leverage, both through direct borrowing and through the investment in various types of instruments across a wide variety of asset classes, can substantially increase the market exposure (and market risk) to which the Two Sigma Hamilton Fund is subject. Specifically, if the value of the Two Sigma Hamilton Fund’s portfolio fell below the margin or collateral level required by a prime broker or dealer, the prime broker or dealer would require additional margin deposits or collateral amounts. If the Two Sigma Hamilton Fund were unable to satisfy such a margin or collateral call by a prime broker or dealer, the prime broker or dealer could liquidate the Two Sigma Hamilton Fund’s positions in its account with the prime broker or for which the dealer is the counterparty and cause the Two Sigma Hamilton Fund to incur significant losses. The failure to satisfy a margin or collateral call, or the occurrence of other material defaults under margin, collateral or other financing agreements, could trigger cross-defaults under the Two Sigma Hamilton Fund’s agreements with other brokers, dealers, lenders, clearing firms or other counterparties, multiplying the adverse impact to the Two Sigma Hamilton Fund. In addition, because the use of leverage will allow the Two Sigma Hamilton Fund control of or exposure to positions worth significantly more than the margin or collateral posted for such positions, the amount that the Two Sigma Hamilton Fund may lose in the event of adverse price movements will be high in relation to the amount of this margin or collateral amount, and could exceed the value of the assets of the Two Sigma Hamilton Fund. Trading of futures, forward contracts, equity swaps and other derivatives, for example, generally involves little or no margin deposit or collateral requirement and therefore provides substantial implicit leverage. Accordingly, relatively small price movements in these instruments (and others) can result in immediate and substantial losses.
In the event of a sudden decrease in the value of the Two Sigma Hamilton Fund’s assets, the Two Sigma Hamilton Fund might not be able to liquidate assets quickly enough to satisfy its margin or collateral requirements. In that event, the Two Sigma Hamilton Fund would become subject to claims of financial intermediaries that extended “margin” loans or counterparty credit. Such claims could exceed the value of the assets of the Two Sigma Hamilton Fund. Trading of futures generally involves little or no margin deposit requirement and therefore provides substantial leverage. Accordingly, relatively small price movements in these instruments (and others) can result in immediate and substantial losses to the Two Sigma Hamilton Fund.
The banks, dealers, and counterparties (including prime brokers, futures commission merchants and central clearing houses) that provide financing to the Two Sigma Hamilton Fund can apply essentially discretionary margin, haircut, financing and collateral valuation policies. Changes by banks, dealers and counterparties in any of the foregoing may result in large margin calls, loss of financing and forced liquidations of positions at disadvantageous times or prices. There can be no assurance that the Two Sigma Hamilton Fund will be able to secure or maintain adequate financing.
Volatile markets could harm the performance of the Two Sigma Hamilton Fund’s investment portfolio, and as a result our liquidity and financial condition.
The prices of securities and other instruments can be highly volatile. Price movements of instruments in which the Two Sigma Hamilton Fund trades are influenced by, among other things, interest rates, changing supply and demand relationships, increased risk of default (by government and private issuers, service providers and counterparties), inability to purchase and sell assets or otherwise settle transactions, trade, fiscal, monetary and exchange control programs and policies of governments, and national and international political and economic events and policies.
In addition, governments from time to time intervene, directly and by regulation, in certain markets. Such intervention often is intended directly to influence prices and can, together with other factors, cause all of such markets to move rapidly in the same direction because of, among other things, interest rate fluctuations. The Two Sigma Hamilton Fund is also subject to the risk of the failure of any of the exchanges on which its positions trade or of their clearinghouses and subject to the risk of failure of its counterparties in the case of over-the-counter positions.
Challenging market, economic and geopolitical conditions can result in material losses within the Two Sigma Hamilton Fund, which could materially and adversely impact our financial condition.
Two Sigma’s use of hedging and derivative transactions in executing trades for the Two Sigma Hamilton Fund’s account may not be successful, which could materially adversely affect the Two Sigma Hamilton Fund’s and our investment results.
Two Sigma employs hedging for portions of the Two Sigma Hamilton Fund by taking long and short positions in related instruments. Hedging against a decline in the value of a portfolio position does not eliminate fluctuations in the values of such portfolio positions or prevent losses if the values of such positions decline, but establishes other positions designed to gain from those same developments, thus seeking to moderate the decline in the value of such portfolio position. Such hedging transactions also limit the opportunity for gain if the value of the portfolio position should increase. In the event of an imperfect correlation between a position in a hedging instrument and the portfolio position that it is intended to protect, the desired protection may not be obtained, and the Two Sigma Hamilton Fund may be exposed to risk of loss. In addition, it is not possible to hedge fully or perfectly against any risk, and hedging entails its own costs. Positions which would typically serve as hedges could actually move in the same direction as the instruments they were initially attempting to hedge, adding further risk (and losses) to the Two Sigma Hamilton Fund. Two Sigma may determine not to hedge against certain risks, and certain risks exist that cannot be hedged.
The Two Sigma Hamilton Fund is expected to engage in short selling, which would expose it to the potential for large losses.
The Two Sigma Hamilton Fund’s investment program includes a significant amount of short selling. Short selling transactions expose the Two Sigma Hamilton Fund to the risk of loss in an amount greater than the initial
investment, and such losses can increase rapidly and without effective limit. Short sales can, in certain circumstances, substantially increase the impact of adverse price movements on the Two Sigma Hamilton Fund’s portfolio. A short sale of an instrument involves the risk of a theoretically unlimited loss from a theoretically unlimited increase in the market price of the instrument, which could result in an inability to cover the short position. In addition, there can be no assurance that securities or other instruments necessary to cover a short position will be available for purchase. There is the risk that the instruments borrowed by the Two Sigma Hamilton Fund in connection with a short sale would need to be returned to the lender on short notice. If such request for return of instruments occurs at a time when other short sellers of the subject instrument are receiving similar requests, a “short squeeze” can occur, wherein the Two Sigma Hamilton Fund might be compelled, at the most disadvantageous time, to replace the borrowed instruments previously sold short with purchases on the open market, possibly at prices significantly in excess of the proceeds received earlier in originally selling the instruments short. Purchasing instruments to close out the short position can itself cause the price of the instruments to rise further, thereby exacerbating any loss.
Increased regulation or scrutiny of alternative investment advisors and certain trading methods such as short selling could affect Two Sigma’s ability to manage the Two Sigma Hamilton Fund’s investment portfolio or affect our business reputation.
The regulatory environment for investment managers is evolving, and changes in the regulation of managers could adversely affect the ability of Two Sigma to effect transactions in the Two Sigma Hamilton Fund’s investment portfolio that utilize leverage or to pursue its trading strategies in managing the Two Sigma Hamilton Fund’s investments. Two Sigma is regularly involved in trading activities that involve a number of U.S. and foreign securities law regimes. Violations of any such law (or allegations of such violations) could directly or indirectly result in severe restrictions on Two Sigma’s activities and, indirectly, do damage to the Two Sigma Hamilton Fund’s investment portfolio or the reputation of Two Sigma and, indirectly, the Company. In addition, the securities and futures markets are subject to comprehensive statutes, regulations and margin requirements. The SEC, other regulators and self-regulatory organizations and exchanges are authorized to take extraordinary actions in the event of market emergencies. The regulation of derivatives transactions and funds that engage in such transactions is an evolving area of law and is subject to modification by government and judicial action. Any future regulatory change could have a significant negative impact on our financial condition and results of operations.
For example, Two Sigma routinely engages in short selling for the Two Sigma Hamilton Fund’s account in managing its investments. Short sale transactions have been subject to increased regulatory scrutiny, including the imposition of restrictions on short selling certain securities and reporting requirements. Two Sigma’s ability to execute a short selling strategy in managing the Two Sigma Hamilton Fund’s investment portfolio may be materially and adversely impacted by temporary or new permanent rules, interpretations, prohibitions, and restrictions adopted in response to these adverse market events. Temporary restrictions or prohibitions on short selling activity may be imposed by regulatory authorities with little or no advance notice and may impact prior and future trading activities of the Two Sigma Hamilton Fund’s investment portfolio. Additionally, the SEC, its non-U.S. counterparts, other governmental authorities or self-regulatory organizations may at any time promulgate permanent rules or interpretations consistent with such temporary restrictions or that impose additional or different permanent or temporary limitations or prohibitions. The SEC might impose different limitations or prohibitions on short selling from those imposed by various non-U.S. regulatory authorities. These different regulations, rules or interpretations might have different effective periods.
Regulatory authorities could, from time to time, impose restrictions that adversely affect the Two Sigma Hamilton Fund’s ability to borrow certain securities in connection with short sale transactions. In addition, traditional lenders of securities are often less likely to lend securities under certain market conditions. As a result, Two Sigma may not be able to effectively pursue a short selling strategy due to a limited supply of securities available for borrowing. The Two Sigma Hamilton Fund may also incur additional costs in connection with short sale transactions effected in its investment portfolio, including in the event that Two Sigma is required to enter into a borrowing arrangement for the Two Sigma Hamilton Fund’s account in advance of any short sales. Moreover, the ability to continue to borrow a security is not guaranteed and our account will be subject to strict delivery requirements. The inability to deliver securities within the required time frame may subject us to mandatory close out by the executing broker-dealer. A mandatory close out may subject us to unintended costs and losses. Certain
action or inaction by third parties, such as executing broker-dealers or clearing broker-dealers, may materially impact our ability to effect short sale transactions in the Two Sigma Hamilton Fund’s investment portfolio.
Risks Related to Taxation—U.S. Tax Risks
For purposes of this discussion, the term “U.S. Person” means: (i) an individual citizen or resident of the United States, (ii) a partnership or corporation, created in or organized under the laws of the United States, or organized under the laws of any political subdivision thereof, (iii) an estate the income of which is subject to U.S. federal income taxation regardless of its source, or (iv) a trust if either (x) a court within the United States is able to exercise primary supervision over the administration of such trust and one or more U.S. Persons have the authority to control all substantial decisions of such trust, or (y) the trust has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. Person for U.S. federal income tax purposes or (z) any other person or entity that is treated for U.S. federal income tax purposes as if it were one of the foregoing. For purposes of this discussion, the term “U.S. Holder” means a U.S. Person other than a partnership who beneficially owns Class B common shares.
U.S. Tax Reform
The Tax Cuts and Jobs Act (the “2017 Act”) included certain provisions intended to eliminate certain perceived tax advantages of companies (including insurance companies) that have legal domiciles outside the United States, but have certain U.S. connections, and U.S. Persons investing in such companies. Among other things, the 2017 Act revised the rules applicable to passive foreign investment companies (“PFICs”) and controlled foreign corporations (“CFCs”) in ways that could affect the timing or amount of U.S. federal income taxes imposed on certain investors that are U.S. Persons and included a base erosion anti-abuse tax (the “BEAT”) that could make affiliate reinsurance between U.S. taxpaying and other non-U.S. members of the Company economically unfeasible. Further, it is possible that other legislation could be introduced and enacted by the current Congress or future Congresses that could have an adverse impact on the Company, the Company’s operations, or U.S. Holders. Additionally, tax laws and interpretations regarding whether a company is engaged in a U.S. trade or business or whether a company is a CFC or a PFIC or has related person insurance income (“RPII”) are subject to change, possibly on a retroactive basis. The U.S. Treasury Department recently issued final and proposed regulations intended to clarify the application of the insurance income exception to the classification of a non-U.S. insurer as a PFIC and provide guidance on a range of issues relating to PFICs, and recently issued proposed regulations that would expand the scope of the RPII rules. New regulations or pronouncements interpreting or clarifying such rules may be forthcoming as well. The Company cannot be certain if, when or in what form such regulations or pronouncements may be provided and whether such guidance will have a retroactive effect.
HIG and/or its non-U.S. subsidiaries may become subject to U.S. federal income taxation.
A non-U.S. corporation that is engaged in the conduct of a U.S. trade or business will be subject to U.S. federal income tax as described below, unless entitled to the benefits of an applicable tax treaty. Whether a trade or business is being conducted in the United States is an inherently factual determination. As the Internal Revenue Code of 1986, as amended (the “Code”), regulations and court decisions fail to definitively identify activities that constitute being engaged in a trade or business in the United States, the Company cannot be certain that the IRS will not contend successfully that, in addition to the Designated Corporate Members and HIDAC (as defined and discussed below in Certain Tax Considerations), HIG and/or its non-U.S. subsidiaries are or will be engaged in a trade or business in the U.S. A non-U.S. corporation deemed to be so engaged would be subject to U.S. income tax at regular corporate rates on the portion of its income that is treated as effectively connected with the conduct of that U.S. trade or business (“ECI”), as well as the branch profits tax on its dividend equivalent amount (generally, the ECI (with certain adjustments) deemed withdrawn from the United States), unless the corporation is entitled to relief under the permanent establishment provision of an applicable tax treaty. Any such U.S. federal income taxation could result in substantial tax liabilities and could have a material adverse effect on the results of operation of HIG and its non-U.S. subsidiaries.
Non-U.S. corporations not engaged in a trade or business in the United States are nonetheless subject to U.S. income tax imposed by withholding on certain “fixed or determinable annual or periodic gains, profits and income”
derived from sources within the United States (such as dividends and certain interest on investments), subject to exemption under the Code or reduction by applicable treaties.
The United States also imposes an excise tax on insurance and reinsurance premiums (“FET”) paid to non-U.S. insurers or reinsurers that are not eligible for the benefits of a U.S. income tax treaty that provides for an exemption from the FET with respect to risks (i) of a U.S. entity or individual, located wholly or partially within the United States and (ii) of a non-U.S. entity or individual engaged in a trade or business in the United States, located within the United States. The rates of tax are 4% for property casualty insurance premiums and 1% for reinsurance premiums.
U.S. Holders will be subject to adverse tax consequences if HIG is considered a PFIC for U.S. federal income tax purposes.
In general, a non-U.S. corporation will be a PFIC during a given year if (i) 75% or more of its gross income constitutes “passive income” (the “75% test”) or (ii) 50% or more of its assets produce (or are held for the production of) passive income (the “50% test”). If HIG were characterized as a PFIC during a given year, each U.S. Holder would be subject to a penalty tax at the time of the taxable disposition at a gain of, or receipt of an “excess distribution” with respect to, their shares, unless such person is a 10% U.S. Shareholder (as defined below) subject to tax under the CFC rules or such person made a “qualified electing fund” (“QEF”) election or, if the Class B common shares are treated as “marketable stock” in such year, such person made a mark-to-market election. In addition, if HIG were considered a PFIC, upon the death of any U.S. individual owning shares such individual’s heirs or estate would not be entitled to a “step-up” in the basis of the shares that might otherwise be available under U.S. federal income tax laws. In addition, a distribution paid by HIG to U.S. Holders that is characterized as a dividend and is not characterized as an excess distribution would not be eligible for reduced rates of tax as qualified dividend income if HIG were considered a PFIC in the taxable year in which such dividend is paid or in the preceding taxable year. A U.S. Person that is a shareholder in a PFIC may also be subject to additional information reporting requirements, including the filing of an IRS Form 8621.
For the above purposes, passive income generally includes interest, dividends, annuities and other investment income. The PFIC rules provide that income derived in the active conduct of an insurance business by a qualifying insurance corporation is not treated as passive income (the “insurance income exception”). The PFIC provisions also contain a look-through rule under which a non-U.S. corporation will be treated, for purposes of determining whether it is a PFIC, as if it “received directly its proportionate share of the income…” and as if it “held its proportionate share of the assets…” of any other corporation in which it owns at least 25% of the value of the stock (the “look-through rule”). Under the look-through rule, HIG should be deemed to own its proportionate share of the assets and to have received its proportionate share of the income of its non-U.S. insurance subsidiaries for purposes of the 75% test and the 50% test. However, the 2017 Act limits the insurance income exception to a non-U.S. insurance company that is a qualifying insurance corporation that would be taxable as an insurance company if it were a U.S. corporation and maintains insurance liabilities of more than 25% of such company’s assets for a taxable year (the “25% Test”) or maintains insurance liabilities that at least equal or exceed 10% of its assets, is predominantly engaged in an insurance business and satisfies a facts-and-circumstances test that requires a showing that the failure to exceed the 25% threshold is due to runoff- related or rating-related circumstances (the “10% Test,” and together with the 25% Test, the “Reserve Test”). The Company believes that HIG’s non-U.S. insurance subsidiaries have met this Reserve Test and will continue to do so in the foreseeable future, in which case HIG would not be expected to be a PFIC, although no assurance may be given that the Reserve Test will be met by HIG’s non-U.S. insurance subsidiaries in future years.
Further, the Treasury Department recently issued final and proposed regulations intended to clarify the application of the insurance income exception to the classification of a non-U.S. insurer as a PFIC and provide guidance on a range of issues relating to PFICs, including the application of the look-through rule, the treatment of income and assets of certain U.S. insurance subsidiaries for purposes of the look-through rule and the extension of the look-through rule to 25%-or-more-owned partnerships (the “2021 Regulations”). The 2021 Regulations define insurance liabilities for purposes of the Reserve Test, and tighten the Reserve Test as well as place a statutory cap on insurance liabilities, and provide guidance on the runoff-related and rating-related circumstances for purposes of the 10% Test. The 2021 Regulations, which set forth in proposed form certain requirements that must be met to satisfy
the “active conduct of an insurance business” test, also propose that a non-U.S. insurer with no or a nominal number of employees that relies exclusively or almost exclusively upon independent contractors (other than related entities) to perform its core functions will not be treated as engaged in the active conduct of an insurance business. Further, for purposes of applying the 10% Test, the 2021 Regulations: (i) generally limit the rating-related circumstances exception to a non-U.S. corporation: (a) if more than half of such corporation’s net written premiums for the applicable period are derived from insuring catastrophic risk, or (b) providing certain other insurance coverage that the Company is not expected to engage in, and (ii) reduce a corporation’s insurance liabilities by the amount of any reinsurance recoverable relating to such liability. The Company believes that, based on the implementation of its business plan and the application of the look-through rule and the exceptions set out under Section 1297 of the Code, none of the income and assets of HIG’s non-U.S. insurance company subsidiaries should be treated as passive pursuant to the 25% Test, and thus HIG should not be characterized as a PFIC under current law for the current taxable year or for foreseeable future years, but because of the legal uncertainties, as well as factual uncertainties with respect to the Company’s planned operations, there is a risk that HIG will be characterized as a PFIC for U.S. federal income tax purposes. In addition, because of the legal uncertainties relating to how the 2021 Regulations will be interpreted and the form in which the proposed 2021 Regulations may be finalized, no assurance can be given that HIG will not qualify as a PFIC under final IRS guidance or any future regulatory proposal or interpretation that may be subsequently introduced and promulgated. If HIG is considered a PFIC, it could have material adverse tax consequences for an investor that is subject to U.S. federal income taxation. Prospective investors should consult their tax advisors as to the effects of the PFIC rules and the possibility of making a “protective” QEF election or “mark-to-market” election.
U.S. Holders of 10% or more of HIG’s Class B common shares may be subject to U.S. income taxation under the CFC rules.
Each 10% U.S. Shareholder of a non-U.S. corporation that is a CFC during a taxable year and that owns shares in the CFC, directly or indirectly through non-U.S. entities, on the last day of the non-U.S. corporation’s taxable year that the non-U.S. corporation is a CFC, generally must include in its gross income for U.S. federal income tax purposes its pro rata share of the CFC’s “subpart F income,” and global intangible low taxed income (“GILTI”), even if the subpart F income or GILTI is not distributed. A non-U.S. corporation is considered a CFC if 10% U.S. Shareholders own (directly, indirectly through non-U.S. entities or by attribution by application of the constructive ownership rules of Section 958(b) of the Code (i.e., “constructively”)) more than 50% of the total combined voting power of all classes of stock of such non-U.S. corporation, or more than 50% of the total value of all stock of such corporation. For purposes of taking into account insurance income, which is a category of subpart F income, a CFC also includes a non-U.S. corporation that earns insurance income in which more than 25% of the total combined voting power of all classes of stock or more than 25% of the total value of all stock is owned by 10% U.S. Shareholders on any day of the taxable year of such corporation, if the gross amount of premiums or other consideration for the reinsurance or the issuing of insurance or annuity contracts exceeds 75% of the gross amount of all premiums or other consideration in respect of all risks. A 10% U.S. Shareholder is a U.S. Person who owns (directly, indirectly through non-U.S. entities or constructively) at least 10% of the total combined voting power or value of all classes of stock of the non-U.S. corporation.
The Company believes that because of the anticipated dispersion of ownership of HIG’s Class B common shares no U.S. Holder of HIG should be treated as owning (directly, indirectly through non-U.S. entities or constructively) 10% or more of the total voting power or value of HIG. However, because HIG’s Class B common shares may not be as widely dispersed as the Company believes due to, for example, the application of certain ownership attribution rules, no assurance may be given that a U.S. Person who owns directly, indirectly or constructively, HIG’s Class B common shares will not be characterized as a 10% U.S. Shareholder, in which case such U.S. Holder may be subject to taxation under the CFC rules.
U.S. Persons who own or are treated as owning Class B common shares may be subject to U.S. income taxation at ordinary income rates on their proportionate share of RPII of HIG’s non-U.S. subsidiaries.
If (i) a non-U.S. subsidiary of HIG is 25% or more owned (by vote or value) directly, indirectly through non-U.S. entities or constructively by U.S. Persons that hold shares of HIG directly or indirectly through foreign entities, (ii) the RPII (determined on a gross basis) of the non-U.S. subsidiary were to equal or exceed 20% of the non-U.S.
subsidiary’s gross insurance income in any taxable year and (iii) direct or indirect insureds (and persons related to those insureds) own directly or indirectly through entities 20% or more of the voting power or value of the non-U.S. subsidiary, then a U.S. Person who owns any shares of the non-U.S. subsidiary (directly or indirectly through non-U.S. entities, including by holding Class B common shares) on the last day of the taxable year would be required to include in its income for U.S. federal income tax purposes such person’s pro rata share of the non-U.S. subsidiary’s RPII for the entire taxable year, determined as if such RPII were distributed proportionately only to U.S. Persons at that date regardless of whether such income is distributed, in which case the U.S. Person’s investment could be materially adversely affected. Generally, RPII is any “insurance income” (as defined below) attributable to policies of insurance or reinsurance with respect to which the person (directly or indirectly) insured is an “RPII shareholder” (as defined below) or a related person to such RPII shareholder. The amount of RPII earned by the non-U.S. subsidiary (generally, premium and related investment income from the direct or indirect insurance or reinsurance of any RPII Shareholder or any person related to such RPII Shareholder) will depend on a number of factors, including the identity of persons directly or indirectly insured or reinsured by the non-U.S. subsidiary. The Company believes that the direct or indirect insureds of HIG’s non-U.S. subsidiaries (and related persons), whether or not U.S. Persons, should not directly or indirectly own 20% or more of either the voting power or value of the shares of HIG or its non-U.S. subsidiaries immediately after the consummation of this offering and the Company does not expect this to be the case in any taxable year for the foreseeable future (the “20% Ownership Exception”). Additionally, the Company does not expect the gross RPII of any non-U.S. subsidiary of HIG to equal or exceed 20% of its gross insurance income in any taxable year for the foreseeable future (the “20% Gross Income Exception”), but cannot be certain that this will be the case because some of the factors which determine the extent of RPII may be beyond the Company’s control. Further, recently proposed regulations could, if finalized in their current form, substantially expand the definition of RPII to include insurance income of HIG’s non-U.S. subsidiaries with respect to certain affiliate reinsurance transactions. If these proposed regulations are finalized in their current form, it could limit the Company’s ability to execute affiliate reinsurance transactions that would otherwise be undertaken for non-tax business reasons in the future and could increase the risk that the 20% Gross Income Exception would not be met for one or more of HIG’s non-U.S. subsidiaries in a particular taxable year, which could result in such RPII being taxable to U.S. Persons that own or are treated as owning Class B common shares. Prospective investors are urged to consult their tax advisors with respect to these rules.
U.S. tax-exempt organizations that own Class B common shares may recognize unrelated business taxable income.
U.S. tax-exempt entities will be required to treat certain subpart F insurance income, including RPII, that is includable in income by the tax-exempt entity as unrelated business taxable income. Prospective investors that are U.S. tax-exempt entities are urged to consult their tax advisors as to the potential impact of the unrelated business taxable income provisions of the Code.
U.S. Holders who dispose of Class B common shares may be subject to U.S. federal income taxation at the rates applicable to dividends on a portion of such disposition.
Subject to the discussion above relating to the potential application of PFIC rules, Code Section 1248 may apply to a disposition of Class B common shares. Code Section 1248 provides that if a U.S. Person sells or exchanges stock in a non-U.S. corporation and such person owned, directly, indirectly through certain non-U.S. entities or constructively, 10% or more of the voting power of the corporation at any time during the five-year period ending on the date of disposition when the corporation was a CFC, any gain from the sale or exchange of the shares will be treated as a dividend to the extent of the CFC’s earnings and profits (determined under U.S. federal income tax principles) during the period that the shareholder held the shares and while the corporation was a CFC (with certain adjustments). The Company believes that because of the anticipated dispersion of ownership of HIG’s Class B common shares, no U.S. Holder of the Class B common shares should be treated as owning (directly, indirectly through non-U.S. entities or constructively) 10% or more of the total voting power of HIG; to the extent that this is the case, the application of Code Section 1248 under the regular CFC rules should not apply to dispositions of the Class B common shares. However, because the Class B common shares may not be as widely dispersed as the Company believes due to, for example, the application of certain ownership attribution rules, no assurance may be given that a U.S. Holder will not be characterized as owning, directly, indirectly through certain non-U.S. entities or
constructively, 10% or more of the voting power of HIG, in which case such U.S. Holder may be subject to Code Section 1248 rules.
Additionally, Code Section 1248, in conjunction with the RPII rules, also applies to the sale or exchange of shares in a non-U.S. corporation if the non-U.S. corporation would be treated as a CFC for RPII purposes regardless of whether the shareholder owns, directly, indirectly through certain non-U.S. entities or constructively, 10% or more of the voting power of such non-U.S. corporation or the 20% Gross Income Exception or 20% Ownership Exception applies. Existing proposed regulations do not address whether Code Section 1248 would apply if a non-U.S. corporation is not a CFC but the non-U.S. corporation has a subsidiary that would be treated as a CFC for RPII purposes. The Company believes, however, that this application of Code Section 1248 under the RPII rules should not apply to dispositions of Class B common shares because it will not be directly engaged in the insurance business. The Company cannot be certain, however, that the IRS will not interpret the proposed regulations in a contrary manner or that the Treasury Department will not amend the proposed regulations to provide that these rules will apply to dispositions of Class B common shares. Prospective investors should consult their tax advisors regarding the effects of these rules on a disposition of Class B common shares.
Dividends from HIG may not satisfy the requirements for “qualified dividend income,” and therefore may not be eligible for the reduced rates of U.S. federal income tax applicable to such income.
Non-corporate U.S. Holders, including individuals, generally will be subject to U.S. federal income taxation at a current maximum rate of 37% (not including the Medicare contribution tax) upon their receipt of dividend income from HIG unless such dividends constitute “qualified dividend income” or QDI (as defined in the Code). QDI received by non-corporate U.S. Holders meeting certain holding requirements from domestic corporations or “qualified foreign corporations” is subject to tax at long-term capital gains rates (up to a maximum of 20%, not including the Medicare contribution tax). Dividends paid by HIG generally may constitute QDI if (i) the Class B common shares are readily tradeable on an established securities market in the United States, and (ii) HIG is not treated as a PFIC for the taxable year such dividends are paid and the preceding taxable year. Under current U.S. Treasury Department guidance, the Class B common shares would be treated as readily tradeable on an established securities market if they are listed on the NYSE, as we intend the Class B common shares to be after this offering. However, there can be no assurance that our Class B common shares will continue to be listed on the NYSE or that HIG will not be treated as a PFIC for any taxable year. Prospective investors are advised to consult their own tax advisors with respect to the application of these rules.
Information regarding a U.S. Holder’s identity may be reported to the relevant tax authority to ensure compliance with the U.S. Foreign Account Tax Compliance Act (“FATCA”) and similar regimes.
Under FATCA, the United States imposes a withholding tax of 30% on U.S.-source interest, dividends and certain other types of income which are received by a foreign financial institution (“FFI”), unless such FFI enters into an agreement with the IRS to obtain certain information as to the identity of the direct and indirect owners of accounts in such institution. Withholding on U.S.-source interest, dividends and certain other types of income applies currently, and proposed U.S. Treasury Regulations provide that this withholding will not apply to gross proceeds from any sale or other distribution of property that can produce U.S.-source interest or dividends and premiums on insurance contracts that do not have a cash value. Alternatively, a 30% withholding tax may be imposed on the above payments to certain passive non-financial foreign entities (“NFFE”) which do not (i) certify to each respective withholding agent that they have no “substantial U.S. owners” (i.e., a U.S. 10% direct or indirect shareholder), or (ii) provide such withholding agent with certain information as to the identity of such substantial U.S. owners. The Company believes and intends to take the position that HIG will be an NFFE, and not an FFI, although no assurance can be given that the IRS would not assert, or that a court would not uphold, a different characterization of HIG.
The United Kingdom has signed an intergovernmental agreement, or an IGA, with the United States (the “U.K. IGA”), Ireland has signed an IGA with the United States (the “Irish IGA”), and Bermuda has signed a Model 2 IGA with the United States (the “Bermuda IGA”) directing Bermuda FFIs to enter into agreements with the IRS to comply with FATCA. HIG and its non-U.S. subsidiaries intend to comply with the U.K. IGA, Irish IGA, and Bermuda IGA and/or FATCA, as applicable. Each of HIG and its non-U.S. subsidiaries will report all necessary
information regarding substantial U.S. owners to the relevant authority. Any substantial U.S. owner will be required to use commercially reasonable best efforts to provide such identifying information, subject to reasonable confidentiality provisions that do not prohibit the disclosure of information reasonably required by the Company, as is required to enable it to comply. Shareholders who fail to provide such information could be subject to (i) a forced sale of their Class B common shares; or (ii) a redemption of their Class B common shares. Should the Company determine that HIG is an FFI, HIG will report all necessary information regarding all U.S. Holders of the Class B common shares.
Risks Relating to Taxation—U.K. Tax Risks
Changes to the U.K. corporate tax treatment of the Company could adversely impact the Company’s tax liability.
As a general rule, a non-U.K. incorporated company will only be subject to U.K. corporation tax if it either (i) carries on a trade in the United Kingdom through a permanent establishment in the United Kingdom (in which case the profits attributable to that permanent establishment are subject to U.K. corporation tax at a current rate of 25%) or (ii) is centrally managed and controlled from the United Kingdom (in which case the company will be treated as a U.K. resident and its worldwide profits (and the apportioned income of any subsidiary caught by the U.K. “controlled foreign company” regime) will be subject to U.K. corporation tax). Central management and control for this purpose refers to the strategic decision-making functions of the company.
Assuming that HIG acts solely as a group holding company and is not engaged in any (re)insurance, or other, trade, the risk of carrying on a trade in the United Kingdom through a permanent establishment should not be relevant to it. The directors of HIG intend that it should operate its business in such a way that it is not centrally managed and controlled in the United Kingdom.
In relation to other non-U.K. incorporated subsidiaries of HIG, their directors intend to operate their respective businesses in such a manner that they (i) are not centrally managed and controlled in the United Kingdom and (ii) do not carry on a trade through a permanent establishment in the U.K. (with the exception of Hamilton Insurance Designated Activity Company, which has a U.K. branch and pays U.K. corporation tax on its U.K. profits).
Nevertheless, because neither case law nor U.K. statute completely defines the activities that constitute trading in the United Kingdom through a permanent establishment, His Majesty’s Revenue and Customs, or HMRC, might contend successfully that the Company or any of its non-U.K. incorporated subsidiaries are trading in the United Kingdom through a permanent establishment in the United Kingdom. If this were to be the case (other than with respect to the U.K. branch of Hamilton Insurance Designated Activity Company), the results of the Company’s operations could be materially adversely affected.
The United Kingdom has no comprehensive income tax treaty with Bermuda. There are circumstances in which companies that are neither resident in the United Kingdom nor entitled to the protection afforded by a double tax treaty between the United Kingdom and the jurisdiction in which they are resident may be exposed to income tax in the United Kingdom (other than by deduction or withholding) on the profits of a trade carried on in the United Kingdom even if that trade is not carried on through a permanent establishment. This risk is relevant for Hamilton Re as it carries on a (re)insurance trade and is resident for tax purposes in Bermuda. However, the directors of each Bermuda resident subsidiary of HIG intend to operate their respective businesses in such a manner that they will not fall within the charge to income tax in the United Kingdom (other than by deduction or withholding).
Nevertheless, HMRC might contend that a Bermuda resident subsidiary of HIG is carrying out a trade in the United Kingdom and if this were to be the case, the Company’s operations could be materially adversely affected.
The application of the United Kingdom’s Diverted Profits Tax could adversely impact the Company’s tax liability.
Diverted profits tax, or DPT, may apply in a situation where (i) an entity carries on activity in the United Kingdom in connection with the business of a non-U.K. resident company in circumstances where that entity does not constitute a U.K. permanent establishment of the non-U.K. company, (ii) it is reasonable to assume that their activities are designed to ensure that the non-U.K. resident company does not carry on a trade in the United Kingdom and (iii) one of the main purposes of the arrangements is the avoidance of U.K. corporation tax. DPT is
charged at a higher rate than U.K. corporation tax and will remain at a higher rate following the increase in line with the U.K. corporation tax rate on April 1, 2023. If it applies, the results of the Company’s operations could be materially adversely affected.
Provided there are no material changes in circumstances which impact a DPT charge during 2023, the Company will not notify HMRC of a potential liability to DPT for the current year.
U.K. transfer pricing regime and similar provisions could adversely impact the Company’s tax liability.
Any adverse adjustment under the U.K. transfer pricing regime, the anti-avoidance regime governing the transfer of corporate profits could adversely impact the Company’s tax liability.
The reinsurance arrangements between Hamilton Re and the Designated Corporate Members (as defined below) together with any other inter-company agreements involving U.K. resident subsidiaries of HIG or HIDAC London Branch are subject to the U.K. transfer pricing regime. Consequently, if the reinsurance or other services pursuant to these agreements are found not to be on arm’s-length terms and, as a result, a U.K. tax advantage is being obtained, an adjustment will be required to compute U.K. taxable profits for the relevant U.K. group entities, as if the reinsurance or other provision were on arm’s-length terms.
Under section 1305A Corporation Tax Act 2009, where any payment between group companies is, in substance, a payment of all or a significant part of the profits of the business of the payer company, and the main purpose or one of the main purposes is to secure a tax advantage for any person, the payer’s profits are calculated for U.K. corporation tax purposes as if the profit transfer had not occurred. According to the Technical Note published by HMRC on 19 March 2014, where a company has entered into reinsurance arrangements within a group (for example, quota share reinsurance) as part of ordinary commercial arrangements, this would not normally fall within the scope of this measure. This includes cases where the profitability of the ceding company is a factor taken into account in arriving at the premium to be paid. However, since each case will depend on its own facts, HMRC may successfully contend that certain intra-group reinsurance arrangements are caught by section 1305A Corporation Tax Act 2009, in which case there could be an adverse impact on the Company’s economic performance.
DPT may apply in circumstances where (i) there is a transaction or series of transactions between a U.K. company and another related company, (ii) as a result of the transaction(s) there is a material reduction in the U.K. corporation tax liability of the U.K. company and (iii) it was reasonable to assume at the time of the transaction(s) that the financial benefits of the tax reduction would not be outweighed by the non-tax benefits.
Changes to the United Kingdom’s domestic legislation regarding the imposition of interest withholding tax could adversely impact the Company’s tax liability.
The United Kingdom imposes a withholding tax on the payment of interest to certain persons including overseas companies. There are a number of exclusions from the requirement to make a deduction in respect of tax, including the “Quoted Eurobond Exemption,” which applies in respect of certain listed debt securities. The Company currently relies on this exemption and any changes to that regime could have an adverse effect on the Company’s tax liability.
Risks Relating to Taxation––Bermuda Tax Risks
Our financial results may be affected by measures taken in response to the OECD/ G20 Two-Pillar Solution to address the tax challenges arising from the digitalization of the economy.
On October 5, 2015, the OECD released the final reports under its action plan on Base Erosion and Profit Shifting (“BEPS,” the action plan being the “BEPS Action Plan”). The actions contained in the BEPS Action Plan include a number of areas that could impact us, such as updated transfer pricing guidance and a broadened definition of “permanent establishment,” (both of which, to a certain extent, have been anticipated in the U.K. by the introduction of DPT), and new restrictions on interest deductions.
On October 8, 2021, the OECD/G20 Inclusive Framework on BEPS (the “IF”) issued a statement on the agreement of a two-pillar solution to address the tax challenges arising from the digitalization of the economy. This
statement included the agreed components of the two pillars. Pillar One addresses the broader challenge of a digitalized economy and focuses on the allocation of group profits among taxing jurisdictions based on a market- based concept rather than historical “permanent establishment” concepts. Pillar One includes explicit exclusions for Regulated Financial Services (as defined therein), so is not expected to have a material impact on insurance and reinsurance groups. Pillar Two addresses the remaining BEPS risk of profit shifting to entities in low-tax jurisdictions by introducing a global minimum tax on large groups (groups with consolidated revenues of €750 million or more), which would require large groups to calculate the effective tax rate in each jurisdiction in which they operate and, where a group has an effective tax rate below 15% in any relevant jurisdiction, pay an additional top-up tax. In December 2021, the OECD issued Pillar Two model rules for domestic implementation of the global minimum tax and in December 2022, the Council of the E.U. reached an agreement on a Directive to implement the Pillar Two rules into E.U. law, which will require E.U. member states to transpose the rules into their national laws by December 31, 2023 with certain measures initially coming into effect from January 1, 2024. The proposals, in particular in relation to Pillar Two, are broad in scope and we are unable to determine at this time whether they would have a material adverse impact on our operations and results.
Legislation to adopt these standards has been enacted or is currently under consideration in a number of jurisdictions. As a result, Hamilton Group’s earnings may be subject to income tax, or intercompany payments may be subject to withholding tax, in jurisdictions where they are not currently taxed or may be taxed at higher rates of tax than currently taxed. The applicable tax authorities could also attempt to apply such taxes to past earnings and payments. Any such additional taxes could materially increase Hamilton Group’s effective tax rate. Also, the adoption of these standards may increase the complexity and costs associated with tax compliance and adversely affect Hamilton Group’s financial position and results of operations.
We may become subject to additional tax compliance in Bermuda and other countries should Bermuda be reinstated on the E.U.’s list of non-cooperative jurisdictions for tax purposes.
The Council of the European Union temporarily added Bermuda to the list of non-cooperative jurisdictions for tax purposes from March 2019 to May 2019, when Bermuda adopted economic substance legislation that the Council of the European Union deemed compliant with its requirements. The Council of the European Union also temporarily added Bermuda to its “grey list” from February 2022 until October 2022. The “grey list” is a list of jurisdictions that have made sufficient commitments to reform their tax practices but remain subject to close monitoring while they are executing on their commitments.
Bermuda taxation applicable to the Company
Under current Bermuda law, there is no income, corporate or profits tax, withholding tax, capital gains tax or capital transfer tax payable by the Company. The Company has obtained from the Bermuda Minister of Finance under the Exempted Undertaking Tax Protection Act 1966, as amended, an assurance that, in the event that Bermuda enacts legislation imposing tax computed on profits, income, any capital asset, gain or appreciation, or any tax in the nature of estate duty or inheritance, then the imposition of any such tax shall not be applicable to the Company or any of its operations or its shares, debentures or other obligations, until March 31, 2035. This assurance is subject to the proviso that it is not to be construed so as to prevent the application of any tax or duty to such persons as are ordinarily resident in Bermuda or to prevent the application of any tax payable in accordance with the provisions of the Bermuda Land Tax Act 1967, as amended, or otherwise payable in relation to any property leased to the Company. Given the limited duration of the Bermuda Minister’s assurance, it cannot be certain that the Company (or any of its Bermuda incorporated subsidiaries) will not be subject to any Bermuda tax after March 31, 2035.
Further, on August 8, 2023, the Bermuda Government issued the first of a series of public consultation papers as part of its considerations on the introduction a corporate income tax that would be taken into account in calculating the effective tax rate of Bermuda businesses under the OECD’s global anti-base erosion (GloBE) rules. Under the current proposal, Bermuda corporate income tax would apply only to “MNEs”, as defined in the GloBE rules, with EUR 750 million or more in total global revenue in at least two of the previous four accounting periods. The proposed Bermuda corporate income tax legislation is currently anticipated to be effective for tax years beginning on or after January 1, 2025. The Bermuda Government is considering if amendments are necessary to the existing tax assurance certificate regime to ensure that tax may be collected in Bermuda from entities which are subject to the
proposed Bermuda corporate income tax regime. Although we cannot predict when or if any new Bermuda corporate income tax law will be adopted or will become effective, the imposition of a Bermuda corporate income tax could, if applicable to the Company (or any Bermuda incorporated subsidiary of the Company), have a material adverse effect on the Company's financial condition and results of operations.
The Company pays annual Bermuda government fees. In addition, all entities employing individuals in Bermuda are required to pay a payroll tax and there are other sundry taxes payable, directly or indirectly, to the Bermuda government.
Risks Related to the Regulatory Environment
The regulatory framework under which we operate, and potential changes thereto could have a material adverse effect on our business.
Our activities are subject to extensive regulation under the laws and regulations of the United States, England and Wales, Ireland, China and Bermuda, and the other jurisdictions in which we operate.
Our operations in each of these jurisdictions are subject to varying degrees of regulation and supervision. The laws and regulations of the jurisdictions in which our insurance and reinsurance subsidiaries are domiciled require, among other things, that these subsidiaries maintain minimum levels of statutory capital, surplus and liquidity, meet solvency standards, submit to periodic examinations of their financial condition and restrict payments of dividends, distributions and reductions of capital in certain circumstances. Statutes, regulations and policies that our insurance and reinsurance subsidiaries are subject to may also restrict the ability of these subsidiaries to write insurance and reinsurance policies, make certain investments and distribute funds.
One specific supervisor of relevance is Lloyd’s of London, which supervises Syndicate 4000 and Syndicate 1947 (a third-party under HMA’s management). The operations of Syndicate 4000 and 1947 are supervised by Lloyd’s, with the Lloyd’s Franchise Board being required to approve Syndicate business plans, including maximum underwriting capacity, and may require changes to any business plan presented to it or additional capital to be provided to support underwriting. Lloyd’s also imposes various charges and assessments on its member companies. If Lloyd’s were to require material changes in the Syndicates’ business plans, or if charges and assessments payable by Syndicate 4000 to Lloyd’s were to increase significantly, these events could have an adverse effect on our ability to successfully execute our business strategy.
Hamilton Group devotes a significant amount of time to various regulatory requirements imposed in Bermuda, the United States, the United Kingdom, Ireland and various other jurisdictions around the globe. There remains significant uncertainty as to the impact that these various regulations and legislation will have on us. Such impacts could include constraints on our ability to move capital between subsidiaries or requirements that additional capital be provided to subsidiaries in certain jurisdictions, which may adversely impact our profitability. In addition, while we currently have excess capital and surplus under applicable capital adequacy requirements, such requirements or similar regulations, in their current form or as they may be amended in the future, may have a material adverse effect on our business, financial condition or results of operations.
Our reinsurance and insurance operating subsidiaries may not be able to maintain necessary licenses, permits, authorizations or accreditations in territories where we currently engage in business or obtain them in new territories, or may be able to do so only at significant cost. In addition, we may not be able to comply fully with, or obtain appropriate exemptions from, the wide variety of laws and regulations applicable to insurance or reinsurance companies or holding companies. In addition to insurance and financial industry regulations, our activities are also subject to relevant economic and trade sanctions, money laundering regulations, and anti-corruption laws which may increase the costs of regulatory compliance, limit or restrict our ability to do business or engage in certain regulated activities, or subject us to the possibility of regulatory actions or proceedings.
Although we have adopted compliance frameworks and controls designed to comply with applicable laws and regulations, there can be no assurance that we, our employees or our agents acting on our behalf are in full compliance with all applicable laws and regulations or their interpretation by the relevant authorities and given the complex nature of the risks, it may not always be possible for us to ascertain compliance with such laws and
regulations. Failure to comply with or to obtain appropriate authorizations and/or exemptions under any applicable laws or regulations, including those referred to above, could subject us to investigations, criminal sanctions or civil remedies, including fines, injunctions, loss of an operating license, reputational consequences, and other sanctions, all of which could have a material adverse effect on our business. Also, changes in the laws or regulations to which we or our subsidiaries are subject could have a material adverse effect on our business. In addition, in most jurisdictions, governmental and regulatory authorities have the power to interpret or amend applicable laws and regulations, and have discretion to grant, renew or revoke licenses and approvals we need to conduct our activities. Such governmental and regulatory authorities may require us to incur substantial costs in order to comply with such laws and regulations.
It is possible that individual jurisdiction or cross-border regulatory developments could adversely differentiate Bermuda, the jurisdiction in which we are subject to group supervision, or could exclude Bermuda-based companies from benefits such as market access, mutual recognition or reciprocal rights made available to other jurisdictions, which could adversely impact us. Any such development could significantly and negatively affect our operations.
Our business is subject to certain laws and regulations relating to sanctions and foreign corrupt practices, the violation of which could adversely affect our operations.
We must comply with all applicable economic sanctions and anti-bribery laws and regulations of the United States and non-U.S. jurisdictions where we operate. U.S. laws and regulations that may be applicable to us include economic trade sanctions laws and regulations administered by the Office of Foreign Assets Control, or OFAC, as well as certain laws administered by the U.S. Department of State. The sanctions laws and regulations of non-U.S. jurisdictions in which we operate may differ to some degree from those of the United States and these differences may additionally expose us to sanctions violations.
In addition, we are subject to the Foreign Corrupt Practices Act of 1977 and other anti-bribery laws that generally prohibit corrupt payments or improper gifts to non-U.S. governments or officials. It is possible that an employee or intermediary could fail to comply with applicable laws and regulations. In such event, we could be exposed to civil penalties, criminal penalties and other sanctions, including fines or other punitive actions. In addition, such violations could damage our business and our reputation. Such criminal or civil sanctions, penalties, other sanctions, and damage to our business and reputation could adversely affect our financial condition and results of operations.
Our business is subject to cybersecurity, privacy and data protection laws, regulations, rules, standards and contractual obligations in the jurisdictions in which we operate, which we can increase the cost of doing business, compliance risks and potential liability.
We are subject to complex and evolving cybersecurity, privacy and data protection laws, regulations, rules, standards and contractual obligations in the United States and other jurisdictions in which we operate, and legislators and regulators are increasingly focused on these issues. Ensuring that our collection, use, transfer, storage and other processing of personal information complies with such requirements can increase operating costs, impact the development of new products or services, and reduce operational efficiency.
In the United States, there are numerous federal, state and local cybersecurity, privacy and data protection laws, regulations and rules governing the collection, sharing, use, retention, disclosure, security, transfer, storage and other processing of personal information, including federal and state cybersecurity, privacy and data protection laws, data breach notification laws, and data disposal laws. For example, at the federal level, we are subject to, among other laws and regulations, the rules and regulations promulgated under the authority of the Federal Trade Commission (which has the authority to regulate and enforce against unfair or deceptive acts or practices in or affecting commerce, including acts and practices with respect to cybersecurity, privacy and data protection). In addition, in July 2023, the SEC adopted new cybersecurity rules for public companies that are subject to the reporting requirements of the Securities Exchange Act of 1934 (as amended, the “Exchange Act”). Under these new rules, registered companies must disclose a material cybersecurity incident within four days of management’s determination that the incident is material. Companies also must include enhanced cybersecurity risk assessment and management, strategy and governance disclosures, including disclosures regarding management’s role in overseeing
the registered company’s cybersecurity risk management and compliance program, in their annual reports. Further, the United States Congress has recently considered, and is currently considering, various proposals for comprehensive federal cybersecurity, privacy and data protection legislation, to which we may become subject if passed.
Cybersecurity, privacy and data protection and disclosure are also areas of increasing state legislative focus in the United States and we are, or may in the future become, subject to various state laws and regulations regarding cybersecurity, privacy and data protection. For instance, the New York Department of Financial Services (“NYDFS”) has adopted a cybersecurity regulation which requires entities subject to the jurisdiction of the NYDFS, among other things, to implement and maintain a cybersecurity program designed to identify and address cybersecurity risks that may threaten the security or integrity of personal information stored on the covered entity’s information systems. In July and November 2022, the NYDFS proposed amendments to the cybersecurity regulation, which, if adopted, would require new reporting, governance and oversight measures and enhanced cybersecurity safeguards, and would mandate notification to NYDFS in the event that a covered entity makes an extortion payment in connection with a cybersecurity event involving the covered entity. We cannot predict whether the amendments will be adopted, what form they will take, or what effect they would have on our business or compliance costs. In addition, the California Consumer Privacy Act, as amended by the California Privacy Rights Act (collectively, the “CCPA”), to which a portion of our business may be subject, provides California residents with enhanced privacy protections and rights with respect to the processing of their data, such as affording them the right to access and request deletion of their information and to opt out of certain sharing and sales of personal information. The CCPA also prohibits covered businesses from discriminating against California residents for exercising any of their CCPA rights. The CCPA provides for severe civil penalties and statutory damages for violations and a private right of action for certain data breaches that result in the loss of unencrypted personal information. This private right of action is expected to increase the likelihood of, and risks associated with, data breach litigation. Numerous other U.S. states also have enacted or are considering comprehensive privacy and data protection legislation that may apply to our operations. Moreover, laws in all 50 U.S. states require businesses to provide notice under certain circumstances to consumers whose personal information has been disclosed as a result of a data breach. These state statutes, and other similar state or federal laws that may be enacted in the future, may require us to modify our data processing practices and policies, incur substantial compliance-related costs and expenses, and otherwise suffer adverse impacts on our business.
It is anticipated that our operations in Bermuda will also become subject to data protection laws in the near future. The Personal Information Protection Act 2016 of Bermuda (“PIPA”) regulates how any individual, entity or public authority may use personal information. Although PIPA was passed on July 27, 2016, the sections that are currently in effect are limited to those that relate to the establishment and appointment of the PIPA commissioner (the “Privacy Commissioner”), the hiring of the Privacy Commissioner’s staff, and the general authority of the Privacy Commissioner to inform the public about PIPA. Following the Privacy Commissioner’s appointment, effective January 20, 2020, the Privacy Commissioner’s office has begun communications with the public and stakeholders regarding full implementation of PIPA. On October 30, 2020, the Privacy Commissioner issued guidance regarding privacy safeguarding of personal information by public companies; however, PIPA’s remaining provisions have not been fully implemented and regulations under PIPA have not yet been provided. The Privacy Commissioner has recommended that organizations in Bermuda start to conduct data due diligence across their existing business lines as a first stage towards PIPA compliance and, whilst the effective date has not yet been announced, it is currently anticipated to be announced this year and the Privacy Commissioner has recommended to the Bermuda Government that a period of six to nine months between announcement and the effective date of PIPA be granted to allow adequate time to prepare.
In addition, the BMA has recognized that cyber incidents can cause significant financial losses and/or reputational impacts across the insurance industry and has implemented the Insurance Sector Operation Cyber Risk Management Code of Conduct (the “Cyber Risk Code”) to ensure that those operating in the Bermuda insurance sector can mitigate such risks. The Cyber Risk Code prescribes the duties, requirements, standards, procedures and principles which all insurers, insurance managers and insurance intermediaries (agents, brokers and insurance market place providers) registered under the Insurance Act must comply. The Cyber Risk Code is designed to promote the stable and secure management of information technology systems of regulated entities and requires that
all registrants implement their own technology risk programs, determine what their top risks are and develop an appropriate risk response. This requires all registrants to develop a cyber risk policy which is to be delivered pursuant to an operation cyber risk management program and appoint an appropriately qualified member of staff or outsourced resource to the role of Chief Information Security Officer. The role of the Chief Information Security Officer is to deliver the operational cyber risk management program. It is expected that the cyber risk policy will be approved by the registrant’s board of directors at least annually. The BMA will assess a registrant’s compliance with the Cyber Risk Code in a proportionate manner relative to the nature, scale and complexity of its business. While it is acknowledged that some registrants will use a third party to provide technology services and that they may outsource their IT resources (for example, to an insurance manager where applicable), when so outsourced, the overall responsibility for the outsourced functions will remain with the registrant’s board of directors. Failure to comply with the requirements of the Cyber Risk Code will be taken into account by the BMA in determining whether a registrant is conducting its business in a sound and prudent manner as prescribed by the Insurance Act and may result in the BMA exercising its powers of intervention and investigation.
Further, our operations in foreign jurisdictions also may be subject to robust data protection laws. In the European Union and in the United Kingdom (“U.K.”), we are subject to the European Union General Data Protection Regulation (“GDPR”) and member state laws implementing the GDPR and the U.K. General Data Protection Regulation (“U.K. GDPR”), respectively, which impose stringent obligations regarding the collection, control, use, sharing, disclosure and other processing of personal data. While the GDPR and U.K. GDPR remain substantially similar for the time being, the U.K. government has announced that it would seek to chart its own path on data protection and reform its relevant laws, including in ways that may differ from the GDPR. While these developments increase uncertainty with regard to data protection regulation in the U.K., even in their current, substantially similar form, the GDPR and U.K. GDPR can expose businesses to divergent parallel regimes that may be subject to potentially different interpretations and enforcement actions for certain violations and related uncertainty. Failure to comply with the GDPR or the U.K. GDPR can result in significant fines and other liability, including, under the GDPR, fines of up to EUR 20 million (or GBP 17.5 million under the U.K. GDPR) or four percent (4%) of annual global revenue, whichever is greater. The cost of compliance, and the potential for fines and penalties for non-compliance, with GDPR and U.K. GDPR may have a significant adverse effect on our business and operations.
Legal developments in the European Economic Area (“EEA”) regarding the transfer of personal data from the EEA to third countries, including the United States, have created complexity and uncertainty regarding such processing, and similar complexities and uncertainties also apply to transfers from the U.K. to third countries. While we have taken steps to mitigate the impact on us, such as implementing lawful data transfer mechanisms (e.g., the European Commission’s standard contractual clauses (“SCCs”)), the efficacy and longevity of these mechanisms remains uncertain. Moreover, in 2021, the European Commission adopted new SCCs, which impose on companies additional obligations relating to personal data transfers out of the EEA, including the obligation to update internal privacy practices, conduct transfer impact assessments and, as required, implement additional security measures. The new SCCs may increase the legal risks and liabilities under E.U. laws associated with cross-border data transfers, and result in material increased compliance and operational costs. In July 2023, the European Commission adopted an adequacy decision concluding the new E.U.-U.S. data privacy framework (the “E.U.-U.S. DPF”) constitutes a lawful data transfer mechanism under E.U. law for participating U.S. entities; however, the E.U.-U.S. DPF may be in flux as such adequacy decision has been challenged, and is likely to face additional challenges at the Court of Justice of the European Union. Moreover, although the U.K. currently has an adequacy decision from the European Commission, such that SCCs are not required for the transfer of personal data from the EEA to the U.K., that decision will sunset in June 2025 unless extended and it may be revoked in the future by the European Commission if the U.K. data protection regime is reformed in ways that deviate substantially from the GDPR. Adding further complexity for international data flows, in March 2022, the U.K. adopted its own International Data Transfer Agreement for transfers of personal data out of the U.K. to so-called third countries, as well as an international data transfer addendum that can be used with the SCCs for the same purpose. In addition, in June 2023, the U.S. and U.K. announced a commitment in principle to establish a “data bridge” to extend the E.U.-U.S. DPF to the flow of U.K. personal data under the U.K. GDPR to participating entities in the U.S. Such data bridge could not only be challenged but also may be affected by any challenges to the E.U.-U.S. DPF. The E.U. has also proposed legislation that would regulate non-personal data and establish new cybersecurity standards, and other countries,
including the U.K., may similarly do so in the future. If we are otherwise unable to transfer data, including personal data, between and among countries and regions in which we operate, it could affect the manner in which we provide our products and services, the geographical location or segregation of our relevant systems and operations, and could adversely affect our financial results. While we have implemented new controls and procedures designed to comply with the requirements of the GDPR, U.K. GDPR and the cybersecurity, privacy and data protection laws of other jurisdictions in which we operate, such procedures and controls may not be effective in ensuring compliance or preventing unauthorized transfers of personal data.
Moreover, while we strive to publish and prominently display privacy policies that are accurate, comprehensive, and compliant with applicable laws, regulations, rules and standards, we cannot ensure that our privacy policies and other statements regarding our practices will be sufficient to protect us from claims, proceedings, liability or adverse publicity relating to cybersecurity, privacy or data protection. The publication of our privacy policies and other documentation that provide promises and assurances about cybersecurity, privacy and data protection can subject us to potential government or legal investigation or action if they are found to be deceptive, unfair, or misrepresentative of our actual practices.
Our compliance efforts are further complicated by the fact that cybersecurity, privacy and data protection laws, regulations, rules and standards around the world are rapidly evolving, may be subject to uncertain or inconsistent interpretations and enforcement, and may conflict among various jurisdictions. Such cybersecurity, privacy and data protection requirements, and new or modified requirements that may be adopted in the future, may increase our compliance costs. Any failure or perceived failure to comply with our privacy policies, or applicable cybersecurity, privacy and data protection laws, regulations, rules, standards or contractual obligations, or any compromise of security that results in unauthorized access to, or unauthorized loss, destruction, use, modification, acquisition, disclosure, release or transfer of personal information, may lead to significant fines, judgments, awards, penalties, sanctions, reputational harm, increased regulatory scrutiny, litigation, requirements to modify or cease certain operations or practices, the expenditure of substantial costs, time and other resources, proceedings or actions against us, governmental investigations, enforcement actions, or other liability. Any of the foregoing could distract our management and technical personnel, increase our costs of doing business, adversely affect the demand for our products and services, and ultimately result in the imposition of liability, any of which could have a material adverse effect on our business, financial condition and results of operations.
Changes in accounting practices and future pronouncements may materially affect our reported financial results.
Developments in accounting practices may require us to incur considerable additional expenses to comply, particularly if we are required to prepare information relating to prior periods for comparative purposes or to apply the new requirements retroactively. The impact of changes in current accounting practices and future pronouncements cannot be predicted but may affect the calculation of net income, shareholders’ equity and other relevant financial statement line items.
Our insurance subsidiaries are required to comply with statutory accounting principles, or SAP. SAP and various components of SAP are subject to constant review by the National Association of Insurance Commissioners, or NAIC, and its task forces and committees, as well as state insurance departments, in an effort to address emerging issues and otherwise improve financial reporting. Various proposals are pending before committees and task forces of the NAIC, some of which, if enacted and adopted on a state level, could have negative effects on insurance industry participants. The NAIC continuously examines existing laws and regulations. We cannot predict whether or in what form such reforms will be enacted and, if so, whether the enacted reforms will positively or negatively affect us.
We are a holding company with no direct operations, and our insurance and reinsurance subsidiaries’ ability to pay dividends and other distributions to us is restricted by law.
As an insurance holding company with no business operations of our own, our ability to pay dividends to shareholders and meet our debt payment obligations largely depends on dividends, other distributions, and other permitted payments from our subsidiaries, Hamilton Re, Hamilton UK Holdings Limited and Hamilton UK Holdings II (collectively with HMA, “Hamilton U.K.”), HIDAC and Hamilton Select. The subsidiary payment of
dividends, other distributions or other permitted payments is subject to local corporate and regulatory restrictions. The payment of dividends to the holding company by Hamilton Re is subject to Bermuda corporate and insurance regulatory restrictions; the payment of dividends to the holding company by Hamilton U.K. is subject to United Kingdom insurance regulatory restrictions; the payment of dividends to the holding company by HIDAC is subject to Irish corporate and insurance regulatory restrictions; and the payment of dividends to the holding company by Hamilton Select is subject to Delaware insurance regulatory restrictions. These regulatory bodies in each jurisdiction require insurance companies to maintain specified levels of capital and surplus. Dividend payments are further limited to that part of available policyholder surplus that is derived from net profits on our business. The insurance regulators have broad powers to prevent the reduction of capital and surplus to inadequate levels, and there is no assurance that dividends up to the maximum amounts calculated under any applicable formula would be permitted. Moreover, insurance regulators that have jurisdiction over the payment of dividends by our insurance subsidiaries may in the future adopt provisions more restrictive than those currently in effect. Management expects that, absent extraordinary catastrophe losses, such restrictions should not affect the ability to declare and pay dividends sufficient to support the holding company’s general corporate needs.
The continued operation and growth of our business will require substantial capital. Accordingly, after the completion of this offering, we do not intend to declare and pay cash dividends on our Class B common shares in the foreseeable future. See the section entitled “Dividend Policy.” Any determination to pay dividends in the future will be at the discretion of our Board of Directors and will depend upon results of operations, financial condition, contractual restrictions pursuant to our debt agreements, our indebtedness, restrictions imposed by applicable law and other factors our Board of Directors deems relevant. Consequently, investors may need to sell all or part of their holdings of our Class B common shares after price appreciation, which may never occur, as the only way to realize any future gains on their investment. Investors seeking immediate cash dividends should not purchase our Class B common shares.
We face risks related to changes in Bermuda law and regulations, and the political environment in Bermuda.
We are incorporated in Bermuda and many of our operating companies are domiciled in Bermuda. Therefore, changes in Bermuda law and regulation may have an adverse impact on our operations, such as the imposition of tax liability, increased regulatory supervision or changes in regulation. In addition, we are subject to changes in the political environment in Bermuda, which could make it difficult to operate in, or attract talent to, Bermuda. In addition, Bermuda, which is currently an overseas territory of the United Kingdom, may consider changes to its relationship with the United Kingdom in the future. These changes could adversely affect Bermuda or the international reinsurance market focused there, either of which could adversely impact us commercially.
Risks Related to This Offering and Ownership of Our Class B Common Shares
Our costs will increase as a result of operating as a public company, and our management will be required to devote substantial time to complying with public company regulations.
As a public company, we will be subject to the reporting requirements of the Exchange Act, the requirements of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act” or “SOX”), and the listing standards of the NYSE. These requirements will place a strain on our management, systems and resources and we will incur significant legal, accounting, insurance and other expenses that we have not incurred as a private company. The Exchange Act will require us to file annual, quarterly and current reports with respect to our business and financial condition within specified time periods and to prepare a proxy statement with respect to our annual meeting of shareholders. The Sarbanes-Oxley Act will require that we maintain effective disclosure controls and procedures, and internal controls over financial reporting. The NYSE will require that we comply with various corporate governance requirements. To maintain and improve the effectiveness of our disclosure controls and procedures and internal controls over financial reporting, and comply with the Exchange Act and the NYSE requirements, significant resources and management oversight will be required. This may divert management’s attention from other business concerns and lead to significant costs associated with compliance, which could have a material adverse effect on us and the price of our Class B common shares.
We expect these reporting and corporate governance rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly, although we are currently unable to estimate these costs with any degree of certainty. These laws and regulations could also make it more difficult or costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. These laws and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors or its committees or as our executive officers. Advocacy efforts by stockholders and third parties may also prompt even more changes in governance and reporting requirements. We cannot predict or estimate the amount of additional costs we may incur or the timing of these costs. Furthermore, if we are unable to satisfy our obligations as a public company, we could be subject to delisting of our common shares, fines, sanctions and other regulatory action, and potentially civil litigation. Any such action could harm our reputation and the confidence of investors in, and clients of, our Company and could negatively affect our business and cause the price of our Class B common shares to decline.
We will be required by Section 404 of the Sarbanes-Oxley Act to evaluate the effectiveness of our internal control over financial reporting. We have not identified any material weakness in our internal controls over financial reporting. If we were to identify a material weakness and were unable to remediate this material weakness, or fail to achieve and maintain effective internal controls, our operating results and financial condition could be impacted and the market price of our Class B common shares may be negatively affected.
As a public company with SEC reporting obligations, we will be required to document and test our internal control procedures to satisfy the requirements of Section 404(a) of the Sarbanes-Oxley Act, which will require annual assessments by management of the effectiveness of our internal controls over financial reporting beginning with the annual report for our fiscal year ended December 31, 2023.
Our management is responsible for establishing and maintaining adequate internal controls over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. GAAP. We and our independent registered public accounting firm will have tested the effectiveness of our internal controls over financial reporting, but we cannot assure you that we will be able to avoid the identification of material weaknesses in the future.
In addition, we may not be able to conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404(a) of Sarbanes-Oxley. If we conclude that our internal controls over financial reporting are not effective, we cannot be certain as to the timing of completion of our evaluation, testing and remediation actions or their effect on our operations. Even if we conclude that our internal controls over financial reporting are effective, our independent registered public accounting firm may conclude that there are material weaknesses with respect to our internal controls over financial reporting. Moreover, any material weaknesses or other deficiencies in our internal controls over financial reporting may impede our ability to file timely and accurate reports with the SEC. Any of the above could cause investors to lose confidence in our reported financial information, we could become subject to litigation or investigations by the NYSE, the SEC or other regulatory authorities, or our Class B common shares listed on the NYSE could be suspended or terminated, which could require additional financial and management resources, and could have a negative effect on the trading price of our Class B common shares.
There is no existing market for our Class B common shares, and you cannot be certain that an active trading market will develop or a specific share price will be established.
Prior to this offering, there has been no public market for our Class B common shares. We intend to apply to list our Class B common shares on the NYSE under the symbol “HG.” We cannot predict the extent to which investor interest in our Company will lead to the development of a trading market on such exchange or otherwise or how liquid that market might become. If an active and liquid trading market does not develop, you may have difficulty selling your Class B common shares at an attractive price, or at all. The initial public offering price for our Class B common shares will be determined by negotiations among us, the selling shareholders and the underwriters, and may not be indicative of the price that will prevail in the trading market following this offering. The market price for our
Class B common shares may decline below the initial public offering price, and our share price is likely to be volatile.
There are provisions in our Bye-laws that may reduce the voting rights of the Class B common shares.
Our Bye-laws generally provide that the Class A and Class B shareholders have one vote per common share held by them and are entitled to vote together as a single class on all matters on which shareholders are entitled to vote generally, except as otherwise required by law or by our Bye-laws to vote as separate classes. For example, only holders of our Class B common shares may vote for the election or removal of directors, other than for directors who are appointed by certain shareholders pursuant to the Shareholders Agreement and our Bye-laws. However, the voting power of all shares may be reduced to ensure that shareholders or groups of shareholders and their affiliates are not permitted to exercise more than 9.5% of the total voting power conferred by the common shares (or, in the case of holders of our Class B common shares when voting as a class (for example, in respect of the election or removal of directors other than for directors who are appointed by certain shareholders pursuant to the Shareholders Agreement and our Bye-laws), such voting power may be reduced to ensure that shareholders or groups of shareholder and their affiliates are not permitted to exercise more than a maximum of 14.92% of the total combined voting power conferred by the Class B common shares) to avoid certain adverse tax, legal or regulatory consequences (each, “a share voting limitation violation”). Under these provisions, some shareholders may have the right to exercise their voting rights limited to less than one vote per common share that they own. Moreover, these provisions could have the effect of reducing the voting power of some shareholders who would not otherwise be subject to the limitation by virtue of their direct Class B common share ownership.
In addition, our Board of Directors may, in its absolute discretion, make adjustments to the voting power of its shares to the extent necessary or advisable in order (i) to prevent (or reduce the magnitude of) a share voting limitation violation and (ii) to avoid adverse tax, legal or regulatory consequences to the Company, any subsidiary of the Company or any shareholder or its affiliates.
Our Bye-laws provide a mechanism under which we shall, before a vote of the shareholders on any matter, in certain circumstances reallocate a proportion of the voting rights held by or attributed to certain shareholders among other shareholders so as to ensure that those certain shareholders and their affiliates are not deemed to own shares possessing voting power comprising more than 9.5% of the total combined voting power (or, in the case of holders of our Class B common shares in respect of the election or removal of directors other than for directors who are appointed by certain shareholders pursuant to the Shareholders Agreement and our Bye-laws, a maximum of 14.92% of the total combined voting power). In addition, our Board of Directors can adjust the voting power of shares to avoid adverse tax, legal or regulatory consequences to us, any of our subsidiaries, or any direct or indirect holder of shares or its affiliates. We are not obligated to provide notice to a shareholder of any adjustment to its voting power that results (or may result) from the application of the voting cutback.
The multiple class structure of our common shares may limit investors’ ability to influence corporate matters.
Each Class A common share and Class B common share is entitled to one vote per share, while the Class C common shares have no voting rights, except as otherwise required by law. However, our Class C common shares will automatically convert into shares of our Class B common shares, on a share-for-share basis, upon transfers following this offering (unless transferred to a permitted transferee as provided in our Bye-laws). In addition, our Bye-laws provide that, upon request from a holder of Class C common shares to the Company and upon approval of such request by our Board of Directors, such Class C common shares shall be redesignated as Class B common shares. If holders of our non-voting Class C common shares effectuate transfers that result in conversion of Class C common shares to Class B common shares or if Class C common shares are redesignated as Class B common shares upon request from a holder of Class C common shares and approval by our Board of Directors, this will have the effect of decreasing the voting power of the holders of our Class B common shares, which may limit the ability of holders of Class B common shares to influence corporate matters.
Our operating results and share price may be volatile, or may decline regardless of our operating performance, and you could lose all or part of your investment.
Our quarterly operating results are likely to fluctuate in the future as a publicly traded company. In addition, securities markets worldwide have experienced, and are likely to continue to experience, significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could subject the market price of our Class B common shares to wide price fluctuations regardless of our operating performance. You should consider an investment in our Class B common shares to be risky, and you should invest in our Class B common shares only if you can withstand a significant loss and wide fluctuation in the market value of your investment. The market price of our Class B common shares could be subject to significant fluctuations after this offering in response to the factors described in this “Risk Factors” section and other factors, many of which are beyond our control. Events that could adversely affect the market price of our share price include:
•changes in market conditions, including conditions which negatively impact the rates at which insurance can be written;
•changes in the market valuations of similar companies;
•short sales, hedging, or other derivative transactions in our Class B common shares;
•strategic actions by us or our competitors, including the introduction of new products and services, or announcements of acquisition targets;
•sales, or anticipated sales, of large blocks of our shares, including by our directors, executive officers and principal shareholders;
•additions or departures of our Board of Directors, senior management, or other key personnel;
•regulatory changes affecting our operations, including increased solvency and other requirements;
•legal and political developments in the geographical markets in which we operate or may operate in the future;
•litigation and governmental investigations;
•exposure to capital and credit market risks that adversely affect our investment portfolio or our capital resources;
•changes to our credit ratings; and
•other events or factors, including those from natural disasters, war, acts of terrorism or responses to these events.
The securities markets have from time to time experienced extreme price and volume fluctuations that often have been unrelated or disproportionate to the operating performance of particular companies. As a result of these factors, investors in our Class B common shares may not be able to resell their Class B common shares at or above the initial offering price. These broad market fluctuations, as well as general market, economic and political conditions, such as recessions, loss of investor confidence or interest rate changes, may negatively affect the market price of our Class B common shares. In addition, the stock markets, including the NYSE, have experienced extreme price and volume fluctuations that have affected and continue to affect the market prices of equity securities of many companies. If any of the foregoing occurs, it could cause our Class B common share price to fall and may expose us to securities class action litigation that, even if unsuccessful, could be costly to defend, divert management’s attention and resources or harm our business.
Sales of outstanding Class B common shares into the market in the future could cause the market price of our common shares to drop significantly, even if our business is doing well.
Upon completion of this offering, we will have outstanding an aggregate of approximately shares of Class B common shares. Of these outstanding Class B common shares, all of the shares to be sold in this offering will be freely tradeable without restriction or further registration under the Securities Act, unless such Class B common shares are held by our directors, executive officers or any of our affiliates, as that term is defined in Rule 144 under the Securities Act. All remaining Class B common shares outstanding following this offering will be “restricted securities” within the meaning of Rule 144 under the Securities Act. Restricted securities may not be sold in the public market unless the sale is registered under the Securities Act or an exemption from registration is available. We have granted registration rights to certain holders of our common shares pursuant to the Registration Rights Agreement (as defined below). Any Class B common shares registered pursuant to the Registration Rights Agreement will be freely tradeable in the public market following a 180-day lock-up period as described below. Sales of our Class B common shares in the public market after this offering, or the perception that these sales could occur, could cause the market price of our Class B common shares to decline and may make it more difficult for us to sell equity or equity-linked securities in the future at a time and at a price that we deem necessary or appropriate.
In connection with this offering, our directors, executive officers, and certain of our shareholders have each agreed to enter into “lock-up” agreements with the underwriters and thereby are subject to a lock-up period, meaning that they and their permitted transferees will not be permitted to sell any Class B common shares for 180 days after the date of this prospectus, subject to certain customary exceptions, without the prior consent of the representatives of the underwriters. Although we have been advised that there is no present intention to do so, the representatives may, in their sole discretion, release all or any portion of the Class B common shares from the restrictions in any of the lock-up agreements described above. See the section entitled “Underwriting” for more information. Possible sales of these Class B common shares in the market following the waiver or expiration of such agreements could exert significant downward pressure on our Class B common share price.
Also, in the future, we may issue our securities in connection with investments or acquisitions. The amount of Class B common shares issued in connection with an investment or acquisition could constitute a material portion of our then outstanding Class B common shares.
We may change our underwriting guidelines or our strategy without shareholder approval.
Our management has the authority to change our underwriting guidelines or our strategy without notice to our shareholders and without shareholder approval. As a result, we may make significant changes to our operations which could result in our pursuing a strategy or implementing underwriting guidelines that may be materially different from the strategy or underwriting guidelines described in this prospectus.
Investors in this offering will suffer immediate and substantial dilution.
The initial public offering price is higher than the net shareholders’ tangible book value per share of our Class B common shares based on the total value of our tangible assets less our total liabilities divided by our Class B common shares outstanding immediately following this offering. Therefore, if you purchase Class B common shares in this offering, you will experience immediate and substantial dilution in net tangible book value per share after consummation of this offering. You may experience additional dilution upon future equity issuances. Also, to the extent warrants to purchase our Class B common shares are exercised, there will be further dilution. See the section entitled “Dilution.”
The issuance of additional common shares will dilute all other shareholdings.
After this offering, we will have an aggregate of common shares authorized but unissued, including Class B common shares reserved for issuance under our equity incentive plans or pursuant to outstanding warrants exercisable for our Class B common shares, and not including options granted to our directors, employees and consultants, or otherwise. We may issue all of these common shares or other equity or debt securities convertible into or exercisable or exchangeable for shares of our Class B common shares without any action or approval by our shareholders. If we issue such additional common shares in the future, investors purchasing Class B common shares
in this offering will experience additional dilution. Also, to the extent outstanding options to acquire Class B common shares or warrants to purchase our Class B common shares are exercised, there will be further dilution.
Anti-takeover provisions in our Bye-laws could delay management changes or limit share price.
As the Company is incorporated under the laws of Bermuda, it is subject to Bermuda law. The English Takeover Code (the “Takeover Code”) will not apply to the Company. Subject to limited exceptions, Bermuda law does not contain any provisions similar to those applicable in other jurisdictions which are designed to regulate the way in which takeovers are conducted. It is therefore possible that an offeror may gain control of the Company in circumstances where non-selling shareholders do not receive, or are not given the opportunity to receive, the benefit of any control premium paid to selling shareholders. The Bye-laws contain certain anti-takeover provisions, although these will not provide the full protections afforded by the Takeover Code. These provisions provide for:
•requiring advance notice for shareholder proposals and nominations for persons to serve as directors and placing limitations on shareholders to submit resolutions to a shareholder vote and requisition special general meetings;
•a large number of authorized but unissued shares which may be issued by the Board of Directors without further shareholder action;
•requiring majority of the Board of Directors voting in the affirmative and directors representing less than fifteen percent of the entire Board of Directors voting in opposition to enter into or consummate any transaction or series of transactions involving a merger, amalgamation, consolidation, exchange, scheme of arrangement, recapitalization or similar business combination transaction, other than any merger or consolidation solely between or among any two or more of the Company’s wholly-owned subsidiaries that are not material subsidiaries; and
•requiring majority of the Board of Directors voting in the affirmative and directors representing less than fifteen percent of the entire Board of Directors voting in opposition to enter into or consummate any transaction or series of transactions involving any sale, pledge, transfer or other disposition of all or substantially all of the consolidated assets of the Company and its subsidiaries.
Takeover protections in the Bye-laws may discourage takeover offers which would be considered favorable and that could in turn adversely affect the value of the Class B common shares. Even in the absence of a takeover attempt, these provisions may adversely affect the value of the Class B common shares if they are viewed as discouraging takeover attempts in the future.
If securities or industry analysts publish inaccurate or unfavorable research about our business, our Class B common share price and trading volume could decline.
The trading market for our Class B common shares will depend, in part, on the research and reports that securities or industry analysts publish about us or our business and our industry. If one or more of the analysts who cover our business downgrades our Class B common shares or publishes inaccurate or unfavorable research about our business, our Class B common share price would likely decline. If one or more of these analysts ceases coverage of us or fails to publish reports on us regularly, demand for our Class B common shares could decrease, which could cause our Class B common share price and trading volume to decline.
Investors may have difficulties in serving process or enforcing judgments against us in the United States.
We are incorporated under the laws of Bermuda, and a substantial portion of our assets are located outside the United States. As a result, it may not be possible to enforce court judgments of U.S. courts, including judgments predicated upon civil liability provisions of the U.S. federal securities law. For enforcement of any judgment against the Company or its directors or officers, or for the settlement of any dispute, it may be necessary to institute legal proceedings outside the United States, and no assurances can be given that any such proceedings can be initiated. No claim may be brought in Bermuda against the Company or its directors and officers in the first instance for violation of U.S. federal securities laws. If such proceedings are initiated, there may be doubt as to the enforceability in non-
U.S. jurisdictions, either in original actions or for enforcement of judgments of U.S. courts, for liabilities predicated upon U.S. federal securities laws. See “Enforcement of Civil Liabilities Under U.S. Federal Securities Laws” for further discussion.
Because we have no current plans to pay cash dividends on our Class B common shares for the foreseeable future, you may not receive any return on investment unless you sell your Class B common shares for a price greater than that which you paid for it.
Any decision to declare and pay dividends in the future will be made at the sole discretion of our Board of Directors and will depend on, among others, our results of operations, financial condition, cash requirements, contractual restrictions and other factors that our Board of Directors may deem relevant, including applicable law. In addition, our ability to pay dividends may be limited by covenants of any existing and future outstanding indebtedness we or our subsidiaries incur. As a result, you may not receive any return on an investment in our Class B common shares unless you sell our Class B common shares for a price greater than that which you paid for it.
Members of the Board of Directors may be permitted to participate in decisions in which they have interests that are different from those of the shareholders.
Under Bermuda law, directors are not required to recuse themselves from voting on matters in which they have an interest. The Company’s directors may have interests that are different from, or in addition to, the interests of the shareholders. So long as the directors disclose their interests in a matter under consideration by the Board of Directors in accordance with Bermuda law, they may be entitled to count towards the quorum, participate in the deliberation on and vote in respect of that matter.
Shareholders may have more difficulty protecting their interests than shareholders in other jurisdictions.
The rights of shareholders under Bermuda law are not as extensive as the rights of shareholders under legislation or judicial precedent in many other jurisdictions. Class actions and derivative actions are generally not available to shareholders under Bermuda law. However, Bermuda courts ordinarily would be expected to follow English case law precedent, which would permit a shareholder to commence an action in the name of a company to remedy a wrong done to a company where the act complained of is alleged to be beyond the corporate power of a company, is illegal or would result in the violation of that company’s memorandum of association or bye-laws. Furthermore, consideration would be given by a Bermuda court to acts that are alleged to constitute a fraud against the minority shareholders or where an act requires the approval of a greater percentage of the Company’s shareholders than actually approved it. The winning party in such an action generally would be able to recover a portion of attorneys’ fees incurred in connection with such action. The Bye-laws provide that holders of our common shares waive all claims or rights of action that they might have, individually or in the Company’s right, against any director or officer for any act or failure to act in the performance of such director’s or officer’s duties, except with respect to any fraud or dishonesty of such director or officer.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain matters we discuss in this prospectus may constitute forward-looking statements. You can identify forward-looking statements because they contain words such as “believes,” “expects,” “may,” “will,” “target,” “should,” “could,” “would,” “seeks,” “intends,” “plans,” “contemplates,” “estimates,” or “anticipates,” or similar expressions which concern our strategy, plans, projections or intentions. These forward-looking statements are included throughout this prospectus, including in the sections entitled “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Business,” and relate to matters such as our industry, growth strategy, goals and expectations concerning our market position, future operations, margins, profitability, capital expenditures, liquidity and capital resources and other financial and operating information. By their nature, forward-looking statements: speak only as of the date they are made; are not statements of historical fact or guarantees of future performance; and are subject to risks, uncertainties, assumptions, or changes in circumstances that are difficult to predict or quantify. Our expectations, beliefs, and projections are expressed in good faith and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs and projections will be achieved and actual results may vary materially from what is expressed in or indicated by the forward-looking statements.
There are a number of risks, uncertainties, and other important factors that could cause our actual results to differ materially from the forward-looking statements contained in this prospectus. Such risks, uncertainties, and other important factors include, among others, the risks, uncertainties and factors set forth above under “Risk Factors,” and the following:
•our results of operations and financial condition could be adversely affected by unpredictable catastrophic events, global climate change or emerging claim and coverage issues;
•our business could be materially adversely affected if we do not accurately assess our underwriting risk, our reserves are inadequate to cover our actual losses, our models or assessments and pricing of risks are incorrect or we lose important broker relationships;
•the insurance and reinsurance business is historically cyclical and the pricing and terms for our products may decline, which would affect our profitability and ability to maintain or grow premiums;
•we have significant foreign operations that expose us to certain additional risks, including foreign currency risks and political risk;
•we do not control the allocations to and/or the performance of the Two Sigma Hamilton Fund’s investment portfolio, and its performance depends on the ability of its investment manager, Two Sigma, to select and manage appropriate investments and we have a limited ability to withdraw our capital accounts;
•the Managing Member, Two Sigma and their respective affiliates have potential conflicts of interest that could adversely affect us;
•the historical performance of Two Sigma is not necessarily indicative of the future results of the Two Sigma Hamilton Fund’s investment portfolio or of our future results;
•our ability to manage risks associated with macroeconomic conditions resulting from the global COVID-19 pandemic or any other public health crisis, current or anticipated military conflict, including the ongoing Ukraine conflict, terrorism, sanctions, rising energy prices, inflation and interest rates and other geopolitical events globally;
•our ability to compete successfully with more established competitors and risks relating to consolidation in the reinsurance and insurance industries;
•downgrades, potential downgrades or other negative actions by rating agencies;
•our dependence on key executives, including the potential loss of Bermudian personnel as a result of Bermuda employment restrictions, and inability to attract qualified personnel, in particular in very competitive hiring conditions;
•our dependence on letter of credit facilities that may not be available on commercially acceptable terms;
•our potential need for additional capital in the future and the potential unavailability of such capital to us on favorable terms or at all;
•the suspension or revocation of our subsidiaries’ insurance licenses;
•the potential characterization of us and/or any of our subsidiaries as a passive foreign investment company, or PFIC;
•risks associated with our investment strategy being greater than those faced by competitors;
•changes in the regulatory environment and the potential for greater regulatory scrutiny of the Group going forward as a result of the outsourcing arrangements;
•a cyclical downturn of the reinsurance industry;
•operational failures, failure of information systems or failure to protect the confidentiality of customer information, including by service providers, or losses due to defaults, errors or omissions by third parties and affiliates;
•we are a holding company with no direct operations, and our insurance and reinsurance subsidiaries’ ability to pay dividends and other distributions to us is restricted by law;
•risks relating to our ability to identify and execute opportunities for growth or our ability to complete transactions as planned or realize the anticipated benefits of our acquisitions or other investments;
•our potentially becoming subject to U.S. federal income taxation;
•our potentially becoming subject to U.S. withholding and information reporting requirements under the U.S. Foreign Account Tax Compliance Act, or FATCA, provisions;
•our costs will increase as a result of operating as a public company, and our management will be required to devote substantial time to complying with public company regulations;
•if we were to identify a material weakness and were unable to remediate this material weakness, or fail to achieve and maintain effective internal controls, our operating results and financial condition could be impacted and the market price of our Class B common shares may be negatively affected;
•there is no existing market for our Class B common shares, our share price may be volatile and anti-takeover provisions contained in our organizational documents could delay management changes; and
•investors may have difficulties in serving process or enforcing judgments against us in the United States.
There may be other factors that could cause our actual results to differ materially from the forward-looking statements, including factors disclosed under the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus. You should evaluate all forward-looking statements made in this prospectus in the context of these risks and uncertainties.
We caution you that the risks, uncertainties, and other factors referenced above may not contain all of the risks, uncertainties and other factors that are important to you. In addition, we cannot assure you that we will realize the results, benefits, or developments that we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our business in the way expected. All forward-looking statements in this prospectus apply only as of the date made and are expressly qualified in their entirety by the cautionary statements included in this prospectus. We undertake no obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances.
USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of Class B common shares in this offering will be approximately $ assuming an initial public offering price of $ per common share (the midpoint of the estimated price range set forth on the cover of this prospectus), after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any of the proceeds from the sale of our Class B common shares in this offering by the selling shareholders.
Each $1.00 increase (decrease) in the assumed initial public offering price of $ per common share (the midpoint of the estimated price range set forth on the cover of this prospectus) would increase (decrease) the net proceeds to us from this offering, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, by approximately $ million, assuming that the number of Class B common shares offered by us, as set forth on the cover page of this prospectus, remains the same. We may also increase or decrease the number of Class B common shares we are offering. Each increase (decrease) of Class B common shares in the number of Class B common shares sold in this offering by us and the selling shareholders, as set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by approximately $ million, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, assuming that the number of Class B common shares offered by us, as set forth on the cover page of this prospectus, remains the same. We do not expect that a change in the offering price or the number of Class B common shares by these amounts would have a material effect on our intended uses of the net proceeds from this offering, although it may affect the amount of time prior to which we may need to seek additional capital.
We intend to use the net proceeds to us from this offering to make capital contributions to our insurance and reinsurance operating subsidiaries, for use by our three operating platforms which should enable us to take advantage of ongoing favorable market conditions in the markets in which we operate by writing more business pursuant to our strategy. See “Business–Our Strategy” and “Business–Our Market Opportunity.”
This expected use of net proceeds from this offering represents our intentions based on our current plans and business conditions, which could change in the future as our plans and business conditions evolve. As a result, our management will have broad discretion over the uses of the net proceeds from this offering and investors will be relying on the judgment of our management regarding the application of the net proceeds from this offering.
DIVIDEND POLICY
We have not declared or paid any dividends on Class B common shares to date. We anticipate that we will retain our future earnings to finance the further development and expansion of our business and do not intend to declare or pay cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of our Board of Directors, subject to applicable laws, and will depend on our financial condition, results of operations, capital requirements, general business conditions and future agreements and financing instruments, business prospects, and such other factors that our Board of Directors deems relevant. Our future ability to pay cash dividends on our Class B common shares may also be limited by the terms of any future debt securities, preferred shares or credit facilities.
DILUTION
If you invest in our Class B common shares in this offering, your ownership interest in us will be diluted to the extent of the difference between the initial public offering price per share of our Class B common shares and the pro forma as adjusted net tangible book value (deficit) per share of our Class B common shares after this offering. Dilution results from the fact that the per share offering price of the Class B common shares sold by us in the offering is substantially in excess of the book value per share attributable to the Class B common shares held by existing shareholders.
Our historical net tangible book value as of June 30, 2023 was approximately $1,663 million, or $16.04 per common share. Historical net tangible book value represents the amount of total tangible assets less total liabilities of Hamilton, and historical net tangible book value per share represents net tangible book value divided by the number of Class B common shares outstanding. We will not receive any proceeds from the sale by the selling shareholders of our Class B common shares in this offering and such sale will not have a dilutive effect on our existing shareholders or new investors.
After giving effect to the sale by us of Class B common shares in this offering at an assumed initial public offering price of $ per share, the midpoint of the estimated offering price range set forth on the cover of this prospectus, our pro forma as adjusted net tangible book value as of , 2023 would have been $ , or $ per common share. This amount represents an immediate increase in net tangible book value of $ per share to existing shareholders and an immediate dilution in net tangible book value of $ per share to new investors purchasing shares in this offering at the assumed initial public offering price.
The following table illustrates this dilution on a per share basis (after deducting estimated underwriting discounts and commissions and offering expenses payable by us):
| | | | | | | | | | | |
| Assumed initial public offering price per common share | $ | | $ |
Pro forma net tangible book value per share as of , 2023 | $ | | $ |
Increase in tangible book value per common share attributable to new investors | $ | | $ |
Pro forma as adjusted net tangible book value per common share after this offering | $ | | $ |
Dilution in pro forma as adjusted net tangible book value per common share to new investors | $ | | $ |
Dilution is determined by subtracting pro forma as adjusted net tangible book value per common share after the offering from the initial public offering price per common share.
Assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same, a $1.00 increase or decrease in the assumed initial public offering price of $ per common share, the midpoint of the estimated offering price range set forth on the cover page of this prospectus, would increase or decrease the pro forma as adjusted net tangible book value attributable to our existing shareholders by $ per common share.
The following table summarizes, as of , 2023, the differences between our existing shareholders and new investors with respect to the number of shares of Class B common shares purchased, the total consideration paid and the average price per share paid by existing shareholders and to be paid by the new investors purchasing Class B common shares in this offering, at the assumed initial public offering price of Class B common shares of $ per Class B common share, the midpoint of the price range set forth on the cover page of this prospectus:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in millions, except per share amounts) | | Number | | % | | Amount | | % | | Avg/Share |
| Existing shareholders | | | | % | | $ | | % | | $ |
| Investors in this offering | | | | % | | | | % | | |
| Total | | | | 100 | % | | | | 100 | % | | |
Each $1.00 increase or decrease in the initial public offering price per Class B common share from the midpoint of the estimated price range set forth on the cover page of this prospectus would increase or decrease total consideration paid by new investors in this offering and total consideration paid in this offering by all investors by approximately $ million, assuming that the number of Class B common shares offered, as set forth on the cover page of this prospectus, remains the same. Each 1,000,000 increase or decrease in the number of Class B common shares sold at the midpoint of the estimated price range set forth on the cover of this prospectus would increase or decrease the total consideration paid by new investors in this offering by approximately $ million.
Sales by the selling shareholders in this offering will reduce the number of shares held by existing shareholders to , or approximately % of the total common shares outstanding after this offering, and will increase the number of Class B common shares held by new investors to , or approximately % of the total common shares outstanding after this offering, in each case assuming that the number of Class B common shares sold by the selling shareholders, as set forth on the cover of this prospectus, remains the same.
The information above excludes 3,862,237 common shares that may be issued pursuant to outstanding awards under our 2013 Equity Incentive Plan, including 1,152,500 Class B common shares issuable upon the exercise of outstanding warrants, and common shares (plus an additional number of Class B common shares equal to 70%, on a fully diluted basis, of the Class B common shares sold by us in this offering) reserved for issuance under our 2023 Equity Incentive Plan, or % of the authorized, issued, and outstanding common shares as of the completion of this offering. To the extent that common shares are issued in connection with awards outstanding under our 2013 Equity Incentive Plan, including pursuant to the exercise of outstanding warrants to purchase our common shares, or that equity awards are granted under our 2023 Equity Incentive Plan, investors in this offering will experience further dilution.
CAPITALIZATION
The following table sets forth our equity capitalization as of June 30, 2023:
•on a historical basis for the Company; and
•on an as-adjusted basis to give effect to our issuance and sale of our Class B common shares in this offering at an assumed initial public offering price of $ per common share (the midpoint of the estimated price range set forth on the cover of this prospectus), after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We will not receive any of the proceeds from the sale of our Class B common shares in this offering by the selling shareholders.
You should read this table in conjunction with the information contained in “Use of Proceeds” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” as well as the historical consolidated financial statements and the notes thereto included elsewhere in this prospectus.
The as-adjusted information set forth in the table below is illustrative only and will be adjusted based on the terms of this offering determined at pricing.
| | | | | | | | | | | | | | |
(In thousands) | | As of June 30, 2023(1) | | As-adjusted following consummation of this offering(2) |
Shareholders’ equity: | | | | |
Common shares | | | | |
Class A, of par value $0.01 per share; authorized June 30, 2023: 53,993,690 actual and authorized, as-adjusted following the consummation of this offering; issued and outstanding June 30, 2023: 30,520,078 actual and issued and outstanding, as-adjusted following the consummation of this offering | | $ | 305 | | | |
Class B, of par value $0.01 per share; authorized June 30, 2023: 50,480,684 actual and authorized, as-adjusted following the consummation of this offering; issued and outstanding June 30, 2023: 42,638,190 actual and issued and outstanding, as-adjusted following the consummation of this offering | | 426 | | | |
Class C, of par value $0.01 per share; authorized June 30, 2023: 30,525,626 actual and authorized, as-adjusted following the consummation of this offering; issued and outstanding June 30, 2023: 30,525,626 actual and issued and outstanding, as-adjusted following the consummation of this offering | | 305 | | | |
Additional paid-in capital | | 1,124,566 | | | |
Accumulated other comprehensive loss | | (4,441) | | | |
Retained earnings | | 630,993 | | | |
Total shareholders’ equity and equity capitalization | | $ | 1,752,154 | | | |
| | | | |
__________________
(1)In September 2023, the Board of Directors and the shareholders approved an increase of authorized share capital of the Company from $1.35 million to $1.5 million by the creation of an additional 15 million shares with a par value of $0.01 per share for a total of 150 million shares, consisting of (i) Class A common shares, $0.01 par value per Class A common share; (ii) 65,480,684 Class B common shares, $0.01 par value per Class B common share, (iii) 30,525,626 Class C common shares, $0.01 par value per Class C common share and (iv) unclassified shares.
(2)The “As-adjusted following consummation of this offering” column reflects the changes in the capital of the Company on a pro forma basis following the consummation of this offering. A $1.00 increase (decrease) in the assumed initial public offering price of $ per common share (the midpoint of the estimated price range set forth on the cover of this prospectus) would increase (decrease) the net proceeds that we receive from this offering, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, by approximately $ million, assuming that the number of Class B common shares offered by us, as set forth on the cover page of this prospectus, remains the same. Similarly, each increase (decrease) of Class B common shares in the number of Class B common shares sold in this offering by us, as set forth on the cover page of this prospectus, would increase (decrease) the net proceeds to us from this offering by approximately $ million, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us, assuming that the number of Class B common shares offered by us, as set forth on the cover page of this prospectus, remains the same.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the “Selected Consolidated Financial Data” and our financial statements and related notes thereto included elsewhere in this prospectus. In addition to historical information, this discussion contains forward-looking statements that involve risks, uncertainties and assumptions that could cause actual results to differ materially from management’s expectations. Factors that could cause such differences are discussed in the sections entitled “Special Note Regarding Forward-Looking Statements” and “Risk Factors”. We are not undertaking any obligation to update any forward-looking statements or other statements we may make in the following discussion or elsewhere in this document even though these statements may be affected by events or circumstances occurring after the forward-looking statements or other statements were made. Therefore, no reader of this document should rely on these statements being current as of any time other than the time at which this document is declared effective by the SEC.
Our Company
Overview of Our Business
We are a global specialty insurance and reinsurance company founded in Bermuda in 2013. We harness multiple drivers to create shareholder value. These include diverse underwriting operations supported by proprietary technology and a team of over 500 full-time employees, a strong balance sheet, and a unique investment management relationship with Two Sigma. We operate globally, with underwriting operations in Lloyd’s, Ireland, Bermuda, and the United States. We are led by an entrepreneurial and experienced management team that have almost tripled our gross premiums written over the last five years, from $571 million for the year ended November 30, 2018 to $1.6 billion for the year ended December 31, 2022, while also reducing our combined ratio by 22 percentage points. We believe the combined effects of organic premium growth, strategic acquisition, new market developments and continuous platform cost optimization leave us well positioned to capitalize on the favorable market conditions across the lines of business written by our established and scaled underwriting platform.
We operate three principal underwriting platforms (Hamilton Global Specialty, Hamilton Select and Hamilton Re) that are categorized into two reporting business segments (International and Bermuda):
•International: Accounting for 57% of gross premiums written for the year ended December 31, 2022, International consists of business written out of our Lloyd’s syndicate and subsidiaries based in the United Kingdom, Ireland, and the United States, and includes the Hamilton Global Specialty and Hamilton Select platforms.
◦Hamilton Global Specialty focuses predominantly on commercial specialty and casualty insurance for medium to large-sized accounts and specialty reinsurance products written by Lloyd’s Syndicate 4000 and HIDAC. Syndicate 4000, a leading Lloyd’s syndicate, generates a significant portion of premium from the U.S. E&S market and has ranked among the most profitable and least volatile syndicates at Lloyd’s over the last 10 years.
◦Hamilton Select, our recently launched U.S. domestic E&S carrier, writes casualty insurance for small to mid-sized clients in the hard-to-place niche of the U.S. E&S market. We believe it presents meaningful and profitable growth opportunities in the near to long term, further expanding our footprint in the U.S. E&S market.
•Bermuda: Accounting for 43% of our gross premiums written for the year ended December 31, 2022, Bermuda consists of the Hamilton Re platform, made up of Hamilton Re and Hamilton Re US. Hamilton Re writes property, casualty and specialty reinsurance business on a global basis and also offers high excess Bermuda market specialty insurance products, predominantly for large U.S. commercial risks. Hamilton Re US writes casualty and specialty reinsurance business on a global basis.
Our evolution into a specialty insurance and reinsurance company reached a significant turning point in 2018 with the hiring of Pina Albo, our Group CEO and the start of the Strategic Transformation. Ms. Albo is a 30+ year
veteran in the insurance industry, having served as a member of the Board of Executive Management at Munich Re, where she had a 25-year career, as well as serving on the Board of Reinsurance Group of America, Incorporated (a Fortune 500 public company) and recently being appointed as the first female Chair of the Association of Bermuda Insurers and Reinsurers. The Strategic Transformation commenced in 2018, when we set a new strategy and business priorities and was propelled by the appointment of an experienced management team focused on employing rigorous risk selection and creating sustainable underwriting profitability. The Strategic Transformation also included enhancing corporate governance, re-underwriting and repositioning our business to increase the focus on casualty and specialty insurance and reinsurance lines, decreasing volatility by reducing our expense ratio and exposure to legacy liabilities and investing in business-enabling technology. The Strategic Transformation also involved focusing on both profitable organic and inorganic growth and was accelerated in 2019 when we acquired Pembroke Managing Agency and related entities, which included Pembroke Managing Agency (subsequently renamed Hamilton Managing Agency), Lloyd’s Syndicate 4000 and Ironshore Europe DAC (subsequently renamed Hamilton Insurance DAC or HIDAC). This acquisition doubled and diversified our premium base, increased our underwriting expertise and operational capabilities, and provided us with a fully-scaled Lloyd’s platform. As a result of the strategic actions taken in the context of the Strategic Transformation, in the five years since 2018, we increased gross premiums written at a compound annual rate of approximately 30%,5 reduced our combined ratio significantly, optimized the portfolio mix by increasing the contribution from specialty insurance, and strengthened our balance sheet. While the Strategic Transformation is complete, we continuously review our portfolio to optimize underwriting returns and opportunities, and drive additional benefits by regular collaboration with our GUC. We believe Hamilton is consequently well positioned to deliver growth and profitability in the current attractive environment and across all market cycles.
Our proprietary technology has been a critical part of our Strategic Transformation by enabling the growth of our business and the execution of our strategy. This technology includes HARP, Timeflow, MINT, and Hamilton Insights. Unlike many of our peers, we are not burdened by legacy systems and have modernized, cloud-based core platforms, which have enabled us to design and implement our proprietary systems to be a competitive advantage for our business.
The growth of our business is supported by a strong balance sheet. As of December 31, 2022, Hamilton had total assets of $5.8 billion, total invested assets of $3.3 billion and shareholders’ equity of $1.7 billion. Our total invested assets of $3.3 billion includes $1.3 billion of securities in our fixed maturity trading portfolio and short-term investments, or 39% of our total invested assets, with an average credit rating of Aa3 and of which 100% are investment grade. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition, Liquidity and Capital Resources—Cash and Investments” for further detail by investment class. We also enjoy a low debt-to-capital ratio of 7.9% at June 30, 2023, which compares favorably to our peers and provides us with meaningful financial flexibility to execute against our strategy. The Company had a net loss attributable to common shareholders of $98.0 million for the year ended December 31, 2022. Cumulatively, since the inception of the Company to December 31, 2022, our net income attributable to common shareholders was $561.6 million. The Company has demonstrated its ability to withstand catastrophe and other significant loss events across changing market cycles and we believe it is well placed to take advantage of the current hard market conditions. Our prudent reserving approach fortifies our financial position and has resulted in reserve releases every year since inception.6
Our Lloyd’s syndicate benefits from financial strength ratings of “A” (Excellent) from A.M. Best, “A+” from S&P Global, “AA-” from KBRA and “AA-” from Fitch, all of which are NRSROs as defined under the Exchange Act. Our other insurance and reinsurance subsidiaries hold an “A-” (Excellent) rating from A.M. Best and an “A” rating from KBRA, each with a positive outlook. We believe these ratings demonstrate the financial strength of our insurance and reinsurance platforms and facilitate our ability to capitalize on new opportunities with our policyholders, cedants and distribution partners.
5 Gross premiums written from 2018 to 2022 were $571 million, $731 million, $1,087 million, $1,447 million, and $1,647 million, respectively.
6 Excluding the U.S. GAAP accounting impact of a loss portfolio transfer purchased in 2020.
Unique Investment Management Relationship with Two Sigma
Our diversified underwriting model is complemented by a unique and long-term investment management relationship with Two Sigma. Founded in 2001, Two Sigma is a premier investment manager with a strong track record and approximately $60 billion of assets under management across affiliates as of April 1, 2023. Driven by a differentiated application of technology and data science, Two Sigma has over 2,000 employees across affiliates, including an experienced and diverse team of over 1,000 employees in research and development.
Two Sigma manages $1.6 billion of our assets as of December 31, 2022 via our investment in the Two Sigma Hamilton Fund. The portion of our total invested assets managed by Two Sigma has declined from 80% in 2018 to 49% in 2022 and are expected to continue to decline naturally as our underwriting platforms and fixed income portfolio grow. The Two Sigma Hamilton Fund is a dedicated fund-of-one managed by Two Sigma with exposures to certain Two Sigma macro and equity strategies.7 The Two Sigma Hamilton Fund has been designed to provide low-correlated absolute returns, primarily by combining multiple hedged and leveraged systematic investment strategies with proprietary risk management investment organization and execution techniques. The Two Sigma Hamilton Fund invests in a broad set of financial instruments and is primarily focused on liquid strategies in global equity, futures and forex (FX) markets, exchange-listed and over-the-counter (OTC) options (and their underlying instruments) and other derivatives. This liquidity profile fits well with our business, while also providing the benefit of access to a dedicated fund-of-one.
Two Sigma has broad discretion to allocate invested assets to different opportunities. Its current investments include FTV, STV and ESTV. The Two Sigma Hamilton Fund’s trading and investment activities are not limited to these strategies and Techniques and the Two Sigma Hamilton Fund is permitted to pursue any investment strategy and/or Technique that Two Sigma determines in its sole discretion to be appropriate for the Two Sigma Hamilton Fund from time to time. In any given period, the performance of these individual portfolios may vary materially; however, the performance and risk profile of the Two Sigma Hamilton Fund is monitored at the overall fund level, rather than at the portfolio level. This is consistent with the manner in which investment management fees and performance incentive allocations are determined (i.e., fees and performance incentives are determined on by the overall performance of the fund, rather than the performance of each portfolio).
We have entered into a Commitment Agreement with Two Sigma, which includes a bilateral rolling three-year commitment period that automatically renews each year, until a non-renewal notice is provided by either party. The historical returns of the funds managed by Two Sigma (including the Two Sigma Hamilton Fund) are not necessarily indicative of future results. Two Sigma Hamilton Fund produced returns, net of investment management fees and performance incentive allocations, of 4.6%, 17.7% and (4.6%) for each of the years ended December 31, 2022 and November 30, 2021 and 2020, respectively. Hamilton pays arm’s-length management and incentive fees under this agreement. Our annualized return of 12.8% from 2014 to 2022 from the Two Sigma Hamilton Fund is net of these fees and incentive allocations. See “Risk Factors—Risks Related to Our Investment Strategy—We do not have control over the Two Sigma Hamilton Fund” for more information.
Our ESG Principles
Good corporate citizenship underscores everything we do. Our ESG approach is based on being a responsible corporate and global citizen and was affirmed through two separate external assessments.
We apply a four-pillar philosophy across all areas of our business:
1.Accountability: We focus on employing equitable governance and oversight in an effort to ensure the best outcome for all of our stakeholders.
2.Social Impact: We have an inclusive culture underpinned by teamwork and collaboration. As part of that, we have had an engaged and active DEI Committee since 2018, made up of employee representatives from each of our key locations, across functions and seniority. We also have a diverse senior management team,
7 For the avoidance of doubt, Two Sigma serves as the investment manager of the Two Sigma Hamilton Fund. The Company is not a client of Two Sigma pursuant to the Investment Act of 1940, as amended.
with three of four of our group & underwriting platform CEOs being women. Notably, 45% of our Group Executive team and approximately 40% of our underwriting and claims leaders are female.
3.Underwriting: We are supportive of companies that are involved in the transition to alternative energy sources such as renewable energy, including wind and solar, and rolled out ESG-specific underwriting guidelines in the third quarter of 2022.
4.Investments: We strive to deploy our invested capital responsibly with established guidelines that are regularly monitored to align with our corporate values. Our investment managers are guided by the United Nations Principles for Responsible Investment.
Critical Accounting Estimates
The Company’s Consolidated Financial Statements have been prepared in accordance with U.S. GAAP and include certain amounts that are inherently uncertain and judgmental in nature. As a result, management is required to make best estimates and assumptions that affect the reported amounts.
The following discussion addresses those accounting policies and estimates that we believe are most critical to our operations and require the most difficult, subjective and complex judgment. Actual events that differ significantly from the underlying assumptions and estimates used in these statements may result in materially favorable or unfavorable adjustments to prior estimates that affect our results of operations, financial condition and liquidity. The sensitivity estimates that follow are based on the Company’s assessment of reasonably likely outcomes.
These critical accounting estimates should be read in conjunction with the Notes to the Consolidated Financial Statements, including Note 2, Summary of Significant Accounting Policies to the Consolidated Financial Statements, for a full understanding of the Company’s accounting policies.
Reserve for Losses and Loss Adjustment Expenses
Overview
The estimated reserve for losses and loss adjustment expenses (“loss reserves”) represents management’s best estimate of the unpaid portion of the Company’s ultimate liability for losses and loss adjustment expenses for insured and reinsured events that have occurred at or before the balance sheet date, based on its assessment of facts and circumstances known at that particular point in time. Loss reserves reflect both claims that have been reported to the Company (“case reserves”) and claims that have been incurred but not reported to the Company (“IBNR”).
Loss reserves are complex estimates, not an exact calculation of liabilities. Management reviews loss reserve estimates at each quarterly reporting date and considers all significant facts and circumstances known at that particular point in time. As additional experience and other data becomes available and/or laws and legal interpretations change, management may adjust previous estimates. Adjustments are recognized in the period in which they are determined and may impact that period's underwriting results either favorably (when current estimates are lower than previous estimates) or unfavorably (when current estimates are higher than previous estimates).
Gross loss reserves for each of the reportable segments, segregated between case reserves and IBNR, by reserve class as at June 30, 2023 and December 31, 2022, respectively, are shown below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 | | | | |
| ($ in thousands) | International | | Bermuda | | Total | | International | | Bermuda | | Total | | | | | | | | | | | | |
| Case reserves: | | | | | | | | | | | | | | | | | | | | | | | |
| Property | $ | 77,435 | | | $ | 177,595 | | | $ | 255,030 | | | $ | 118,224 | | | $ | 189,840 | | | $ | 308,064 | | | | | | | | | | | | | |
| Casualty | 221,784 | | | 124,118 | | | 345,902 | | | 230,134 | | | 134,194 | | | 364,328 | | | | | | | | | | | | | |
| Specialty | 137,220 | | | 53,548 | | | 190,768 | | | 100,882 | | | 48,864 | | | 149,746 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Total case reserves | 436,439 | | | 355,261 | | | 791,700 | | | 449,240 | | | 372,898 | | | 822,138 | | | | | | | | | | | | | |
| IBNR: | | | | | | | | | | | | | | | | | | | | | | | |
| Property | 93,941 | | | 161,029 | | | 254,970 | | | 144,357 | | | 193,944 | | | 338,301 | | | | | | | | | | | | | |
| Casualty | 743,622 | | | 521,827 | | | 1,265,449 | | | 649,402 | | | 471,196 | | | 1,120,598 | | | | | | | | | | | | | |
| Specialty | 348,276 | | | 213,657 | | | 561,933 | | | 327,328 | | | 225,650 | | | 552,978 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Total IBNR | 1,185,839 | | | 896,513 | | | 2,082,352 | | | 1,121,087 | | | 890,790 | | | 2,011,877 | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Total other | 18,847 | | | 6,201 | | | 25,048 | | | 12,083 | | | 10,177 | | | 22,260 | | | | | | | | | | | | | |
| Total reserves | $ | 1,641,125 | | | $ | 1,257,975 | | | $ | 2,899,100 | | | $ | 1,582,410 | | | $ | 1,273,865 | | | $ | 2,856,275 | | | | | | | | | | | | | |
Case Reserves
With respect to insurance business, the Company is generally notified of losses by brokers and/or insureds. The Company’s claims personnel use this and other relevant information to estimate ultimate covered losses arising from the claim, including the cost of claims adjustment administration and settlement, including any legal or other fees. These estimates reflect the judgment of the Company’s claims personnel based on their experience and knowledge, the nature of the specific claim and, where appropriate, the advice of legal counsel, third party claims administrators and loss adjusters. In syndicated markets, such as Lloyd’s, the Company’s case reserves may also be based in part on information provided by the lead insurer.
With respect to reinsurance business, the Company is typically notified of losses by brokers and/or ceding companies. For excess of loss contracts, the Company is typically notified of insured losses on specific contracts in the form of an individual loss notification and records a case reserve for the estimated ultimate liability arising from the claim. For contracts written on a proportional basis, the Company typically receives aggregated claims information in the form of a loss bordereaux and records a case reserve for the estimated ultimate liability arising from the claim based on that information. Proportional reinsurance contracts typically require that losses in excess of pre-defined amounts be separately notified so that the Company can adequately evaluate them. The Company’s claims department evaluates each specific loss notification received and, based on their knowledge and experience, may record additional case reserves when a ceding company’s reserve for a claim is considered inadequate. The Company also undertakes cedant audits, using outsourced legal and industry experience where necessary. This allows the Company to review different cedants’ claims handling practices, understand the level of prudence employed by different cedants and ensure that reserves are consistent with exposures, adequately established, and properly reported in a timely manner.
IBNR
IBNR estimates are necessary due to the potential development on reported claims and the reporting time lag between when a loss event occurs and when it is actually reported (the “reporting lag”). Reporting lags may arise from a number of factors, including but not limited to the nature of the loss, the use of intermediaries and the complexity of the claims adjusting process. The lack of specific information means the Company must make estimates. IBNR is calculated by deducting incurred losses (i.e. paid losses and case reserves) from management’s best estimate of the ultimate losses. Unlike case reserves, which are established at the contract level, IBNR reserves are generally established at an aggregate level and cannot be identified as reserves for a particular loss event or contract.
Reserving Methodology
When conducting actuarial analysis, management organizes the Company’s recorded reserves into exposure groupings based on reasonably homogeneous loss development characteristics, underwriting years and reserving classes. Management periodically reviews the exposure groupings and may make changes to the groupings over time as the Company’s business changes.
The actuarial methodologies used to perform the quarterly reserving analysis that determines our estimate of the ultimate reserve for losses and loss adjustment expenses for each exposure group include:
•Initial expected loss ratio (“IELR”) method: The IELR method calculates an estimate of ultimate losses by applying an estimated loss ratio to an estimate of ultimate earned premium for each underwriting year. The estimated loss ratio may be based on pricing information and/or industry data and/or historical claims experience revalued to the year under review;
•Bornhuetter-Ferguson method: The Bornhuetter-Ferguson method uses as a starting point an assumed IELR and blends in the loss ratio, which is implied by the claims experience to date using benchmark loss development patterns on paid claims data or reported claims data. Although the method tends to provide less volatile indications at early stages of development and reflects changes in the external environment, it can be slow to react to emerging loss development and may, if the IELR proves to be inaccurate, produce loss estimates which take longer to converge with the final settlement value of loss; and
•Loss development method: The loss development method uses actual loss data and the historical development profiles on older underwriting years to project more recent, less developed years to their ultimate position.
Our actuaries may use other approaches in addition to those described, and supplement these methods with judgement where they deem appropriate, depending upon the characteristics of the class of business and available data.
For certain significant events, such as natural catastrophes or large man-made catastrophic events, traditional actuarial methods may not be suitable for estimating losses for reasons that may include lack of claims data or the existence of additional risks related to the specific event circumstances. For example, the estimates of loss reserves related to hurricanes and earthquakes can be affected by factors including, but not limited to, the inability to access portions of impacted areas, infrastructure disruptions, the complexity of the loss scenario, legal and regulatory uncertainties, complexities involved in estimating business interruption losses and additional living expenses, the impact of demand surge, fraud, and the limitations on available information. For hurricanes, additional complex coverage factors may include determining whether damage was caused by flooding or wind, evaluating general liability and pollution exposures and mold damage. Other recent examples include possible claims arising from the COVID-19 pandemic and the Ukraine conflict, where additional risks included material uncertainties around whether insured loss events had occurred, the timing of such events, and uncertainty over how contract wording applies in the case of insurance and reinsurance policies.
The timing of events can also affect the level of information available to the Company to estimate loss reserves for that reporting period, and therefore the reserving methods adopted. For example, for events occurring near the end of a reporting period, greater reliance may be placed on information derived from catastrophe models, and, where available and relevant, additional quantitative and qualitative exposure analyses, reports and communications of ground up losses from ceding companies, and development patterns for historically similar events. Due to the inherent uncertainty in estimating losses from such events, these estimates are subject to variability, which increases with the severity and complexity of the underlying event.
In addition to the Company’s quarterly reserving process, an independent actuarial review is carried out semi-annually by a leading independent actuarial consulting firm in order to provide additional insight into the reserving process, specific industry trends and the overall level of the Company’s loss reserves. Management reviews the information provided in the independent actuarial review in determining its own best estimate of reserves.
Management believes that it is prudent in its reserving assumptions and methodologies. However, we cannot be certain that our ultimate loss payments will not vary, perhaps materially, from the initial estimates made. We note that the process of estimating required reserves, by its very nature, involves uncertainty and therefore the ultimate claims may fall outside the actuarial range. The level of uncertainty can be influenced by many factors, including but not limited to unknown future in claim value inflation, the existence of coverage with long duration reporting patterns, changes in the speed of claims data being received and processed, contractual uncertainties for unusual claim events, as well as the other factors described above.
If we determine that adjustments to an earlier estimate are appropriate, such adjustments are recorded in the reporting period in which they are identified and may have a significant favorable or unfavorable impact on that period’s results of operations. We regularly review and update these estimates using the most current information available.
Management’s Best Estimate
The Company’s recorded reserves at each reporting date reflect management’s best estimate of ultimate reserve for losses and loss adjustment expenses at that date. Management completes quarterly reserve studies for each exposure group for its Bermuda and International segments. Management analyzes significant variances between internal and external actuarial estimates, as well as any relevant additional market, underwriting or claims data that may be available and relevant for setting management’s best estimate of ultimate reserves. As a result of these considerations, the selected reserve estimate may be higher or lower than the external actuarial indicated estimate.
The Company’s best estimates are point estimates within a range of reasonable actuarial estimates. To provide an indication of the possible size of this range we have compared the point estimate for net losses and loss adjustment expenses recorded by the Company with a range of reasonable actuarial estimates at December 31, 2022 for each reportable segment in the following table:
| | | | | | | | | | | | | | | | | |
| December 31, 2022 |
| ($ in thousands) | Recorded Point Estimate | | High | | Low |
| International | $ | 696,263 | | | $ | 856,809 | | | $ | 577,845 | |
| Bermuda | 982,149 | | | $ | 1,187,459 | | | $ | 854,248 | |
| Net reserve for losses and loss adjustment expenses | $ | 1,678,412 | | | | | |
It is important to note that the ‘High’ and ‘Low’ estimates above are not intended to be “worst-case” or “best-case” scenarios, and it is possible that final settlements of the reserves for these losses and loss adjustment expenses could fall outside of these ranges.
It is not appropriate to add together the ranges of each reportable segment in an effort to determine a high and low range around the Company’s total reserve for losses and loss adjustment expenses.
Prior Year Reserve Development
Prior year reserve development arises from changes to estimates for losses and loss adjustment expenses related to loss events that occurred in previous periods. Favorable prior year reserve development indicates that current estimates are lower than previous estimates, while unfavorable prior year reserve development indicates that current estimates are higher than previous estimates. The following tables present net prior year reserve development by reportable segment:
| | | | | | | | | | | | | | | | | |
| Net (favorable) unfavorable prior year reserve development |
| ($ in thousands) | International | | Bermuda | | Total |
| | | | | |
| | | | | |
| | | | | |
| Year ended December 31, 2022 | $ | (26,833) | | | $ | 6,230 | | | $ | (20,603) | |
| Year ended November 30, 2021 | 12,600 | | | (821) | | | 11,779 | |
| Year ended November 30, 2020 | $ | (11,776) | | | $ | (29,205) | | | $ | (40,981) | |
| | | | | | | | | | | | | | | | | |
| Net (favorable) unfavorable prior year reserve development |
| ($ in thousands) | International | | Bermuda | | Total |
| Six months ended June 30 2023 | $ | (11,686) | | | $ | 9,205 | | | $ | (2,481) | |
| Six months ended June 30, 2022 | $ | (11,404) | | | $ | (20,079) | | | $ | (31,483) | |
For a detailed discussion of net (favorable) unfavorable prior year reserve development by reportable segment for the years ended December 31, 2022, November 30, 2021 and 2020 and for the six months ended June 30, 2023 and 2022, see “Consolidated Results of Operations” and “Consolidated Interim Results of Operations.”
Claim Tail Analysis
One of the key selection characteristics for loss exposure groupings is the historical duration of the claims settlement process. Business in which claims are reported and settled relatively quickly are commonly referred to as short-tail lines, for example, property classes. On the other hand, business in which claims tend to take longer to be reported and settled are commonly referred to as long-tail lines, for example, casualty classes.
Although estimates of ultimate losses for short-tail business are usually inherently more certain than for medium and long-tail business, significant judgment is still required. Additionally, the inherent uncertainties relating to catastrophe events add further complexity to potential exposure estimation. Further, the Company uses MGAs and other producers for certain business, which can delay the receipt of loss information.
Although the Company uses similar actuarial methodologies for both short-tail and long-tail lines in respect of non-headline loss events, the faster reporting of experience for the short-tail lines allows management to have greater confidence in its estimates of ultimate losses for short-tail lines at an earlier stage than for long-tail lines. As a result, the Company’s estimates of ultimate losses for shorter tail lines, with the exception of loss estimates for headline loss events, generally exhibit less volatility than those for the longer tail lines. For longer tail lines, management utilizes exposure-based methods to estimate the Company’s ultimate losses, especially for immature years. For both short and long-tail lines, management supplements these general approaches with analytically based judgments.
Sensitivity Analysis
While management believes that the reserve for losses and loss adjustment expenses at December 31, 2022 is adequate, new information, events or circumstances may result in ultimate losses that are materially greater or less than initially recorded.
The tables below summarize, by reportable segment, the effect of reasonably likely scenarios on the key actuarial assumptions used to estimate the Company’s reserve for losses and loss adjustment expenses at December 31, 2022. The scenarios shown in the tables illustrate the effect of:
•Changes to the expected loss ratio selections used at December 31, 2022, which represent loss ratio point increases or decreases to the expected loss ratios used. A higher expected loss ratio results in a higher ultimate loss estimate, and vice versa; and
•Changes to the loss development patterns used in the Company’s reserving process at December 31, 2022, which represent claims reporting that is either slower or faster than the reporting patterns used. Accelerating a loss reporting pattern (i.e., shortening the claim tail) results in lower ultimate losses, as the estimated proportion of losses already incurred would be higher, and vice versa.
Management believes that the illustrated sensitivities are indicative of the materiality of these key actuarial assumptions to management’s best estimate of loss and loss adjustment expense reserves. The degree of stress applied to the expected loss ratio and loss development patterns were selected to be illustrative, and should not be considered to be “best case” or “worst case” for these assumptions. As such, it is important to recognize that future variations may be more or less than the amounts shown in the table below.
The effect of reasonably likely changes in the two key assumptions used to estimate the gross reserve for losses and loss adjustment expenses at December 31, 2022 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in thousands) | | Sensitivity of Gross Reserve for Losses and Loss Adjustment Expenses
At December 31, 2022 |
| Assumptions | | Higher Expected Loss Ratios | | Slower Loss Development Patterns | | Lower
Expected Loss Ratios | | Faster Loss Development Patterns |
| Reserving class selected assumptions: | | | | | | | | |
| Property | | 5 | % | | +1 Q | | (5) | % | | -1 Q |
| Specialty | | 5 | % | | +1 Q | | (5) | % | | -1 Q |
| Casualty | | 5 | % | | +2 Q | | (5) | % | | -2 Q |
| | | | | | | | |
| International Segment | | | | | | | | |
| Increase (decrease) in loss reserves: | | | | | | | | |
| Property | | $ | 5,271 | | | $ | 10,575 | | | $ | (5,188) | | | $ | (10,084) | |
| Specialty | | 22,046 | | | 40,452 | | | (20,394) | | | (52,552) | |
| Casualty | | 23,475 | | | 49,443 | | | (20,416) | | | (66,714) | |
| | | | | | | | |
| Bermuda Segment | | | | | | | | |
| Increase (decrease) in loss reserves: | | | | | | | | |
| Property | | $ | 14,286 | | | $ | 10,388 | | | $ | (12,350) | | | $ | (6,742) | |
| Specialty | | 12,942 | | | 5,801 | | | (12,942) | | | (5,901) | |
| Casualty | | 31,067 | | | 25,299 | | | (34,221) | | | (23,729) | |
The results show the cumulative increase (decrease) in loss reserves across all years. Each of the impacts set forth is estimated individually, without consideration for any correlation among key assumptions or among reserve classes. Therefore, it would be inappropriate to take each of the amounts and add them together in an attempt to estimate total volatility. Additionally, it is noted that in some instances, for example, the projection of catastrophe estimates, development patterns are not appropriate as more bespoke techniques are used.
Premiums Written and Earned
Gross Premiums Written
Revenues primarily consist of insurance and reinsurance premiums generated by the Company’s underwriting operations. Recognition of gross premiums written varies by policy or contract type.
For a portion of the Company’s insurance business, a fixed premium specified in the policy is recorded when the policy incepts. This premium may be adjusted if underlying insured values change. Management actively monitors underlying insured values and any resulting premium adjustments are recognized in the period in which they are determined. Gross premiums written on a fixed premium basis accounted for 28.6%, 29.7% and 28.8% of the Company’s gross premiums written for the years ended December 31, 2022, November 30, 2021 and 2020, respectively. Some of this business is written through MGAs, third parties granted authority to bind risks on the Company’s behalf in accordance with defined underwriting guidelines.
The remainder of the Company’s insurance business is written on a line slip or proportional basis, where the Company assumes an agreed proportion of the premiums and losses of a particular risk or group of risks along with other unrelated insurers. As premiums for this business are not identified in the policy, estimated premiums are recorded at the inception of the policy based on information provided by clients through brokers. Management reviews these premium estimates on a quarterly basis and any premium estimate adjustments are recognized in the period in which they are determined. Gross premiums written on a line slip or proportional basis accounted for
28.4%, 27.1% and 26.9% of the Company’s gross premiums written for the years ended December 31, 2022, November 30, 2021 and 2020, respectively.
The Company’s reinsurance business generally provides cover to cedants on an excess of loss or on a proportional basis. In most cases, cedants seek protection for business that they have not yet written when they enter into agreements and therefore cedants must estimate the underlying premiums that they will cede to the Company.
For proportional reinsurance contracts, the Company shares proportionally in both the premiums and losses of the cedant and pays the cedant a commission to cover the cedant’s acquisition costs. Gross premiums written are recognized on a quarterly basis as the underlying contracts incept over the term of the contract, based on estimates received from ceding companies. Management reviews these premium estimates on a quarterly basis and evaluates their reasonability in light of actual premiums reported by the cedants and brokers, supplemented by the Company’s own estimates based on experience and familiarity with each market.
As a result of this review process, any adjustments to premium estimates are recognized in the period in which they are determined. Changes in premium estimates could be material to gross premiums written in the period. Changes in premium estimates could also be material to net premiums earned in the period in which they are determined as any adjustment may be substantially or fully earned. Gross premiums written for proportional reinsurance contracts, including adjustments to premium estimates established in prior years, accounted for 19.0%, 18.1% and 16.9% of the Company’s gross premiums written for the years ended December 31, 2022, November 30, 2021 and 2020, respectively.
For excess of loss reinsurance contracts, the Company is typically exposed to loss events in excess of a predetermined dollar amount or loss ratio and receives a fixed or an initial minimum deposit premium. For excess of loss reinsurance contracts, minimum deposit premiums are generally considered to be the best estimate of premiums at the inception of the contract. The minimum deposit premium is typically adjusted at the end of the contract period to reflect changes in the underlying risks in force during the contract period. Any adjustments to minimum or deposit premiums are recognized in the period in which they are determined. Gross premiums written for excess of loss reinsurance contracts accounted for 24.0%, 25.1% and 27.4% of the Company’s gross premiums written for the years ended December 31, 2022, November 30, 2021 and 2020, respectively.
Many of the Company’s excess of loss reinsurance contracts also include provisions for automatic reinstatement of coverage in the event of a loss that has exhausted the initial amount of cover provided. Reinstatement premiums are recognized as written premium when a loss event occurs where coverage limits for the remaining life of the contract are reinstated under the contract.
Net Premiums Earned
Premiums are earned evenly over the period in which the Company is exposed to the underlying risk. Changes in circumstances subsequent to contract inception can impact the term of each earning period. For example, when exposure limits for a contract are reached, any associated unearned premiums are recognized as fully earned.
Fixed premium insurance policies and excess of loss reinsurance contracts are generally written on a “losses occurring” or “claims made” basis. Consequently, premiums are earned evenly over the contract term, which is typically 12 months.
Line slip or proportional insurance policies and proportional reinsurance contracts are generally written on a “risks attaching” basis, covering claims that relate to the underlying policies written during the terms of these contracts. As the underlying business incepts throughout the contract term which is typically one year, and the underlying business typically has a one-year coverage period, these premiums are generally earned over a 24-month period.
Ceded Reinsurance and Unpaid Losses and Loss Adjustment Expenses Recoverable
Overview
In the normal course of business, the Company seeks to reduce the potential amount of loss arising from claim events by reinsuring certain levels of risk with other reinsurers. On a consolidated basis, ceded premiums written represented 25.8%, 25.0% and 32.9% of gross premiums written for the years ended December 31, 2022, November 30, 2021 and 2020, respectively.
Ceded reinsurance contracts do not relieve the Company of its primary obligation to policyholders. In the event that the Company’s reinsurers are unable to meet their obligations under these reinsurance agreements or are able to successfully challenge losses ceded by the Company under the contracts, the Company will not be able to realize the full value of the unpaid losses and loss adjustment expense recoverable balance and will be liable for such defaulted amounts.
The Company enters into proportional or quota share treaties, whereby the Company cedes a portion of its premiums and losses related to a certain class or classes of business to a reinsurer, and into excess of loss or facultative reinsurance agreements, whereby the Company is reinsured for a specific event or exposure, often for amounts in excess of a predetermined dollar amount.
The Company’s reinsurance business also obtains reinsurance whereby another reinsurer contractually agrees to indemnify it for all or a portion of the reinsurance risks underwritten. Such arrangements, where one reinsurer provides reinsurance to another reinsurer, are usually referred to as retrocessional reinsurance arrangements and help to reduce exposure to large losses and manage risk. In addition, the Company’s reinsurance business participates in “common account” retrocessional arrangements for certain pro rata treaties. Such arrangements reduce the effect of individual or aggregate losses to all companies participating on such treaties, including the reinsurers and the ceding company.
On February 6, 2020, the Company entered into an LPT agreement, under which the insurance liabilities arising from certain casualty risks for the YOA 2016, 2017 and 2018 were retroceded to a third party in exchange for total premium of $72.1 million. This transaction was accounted for as retroactive reinsurance under which cumulative ceded losses exceeding the LPT premium are recognized as a deferred gain liability and amortized into income over the settlement period of the ceded reserves in proportion to cumulative losses collected over the estimated ultimate reinsurance recoverable. The amount of the deferral is recalculated each reporting period based on updated ultimate loss estimates. Consequently, cumulative adverse development subsequent to the signing of the LPT may result in significant losses from operations until periods when the deferred gain is recognized as a benefit to earnings.
Additionally, in 2021, the Company sponsored an industry loss index-triggered catastrophe bond through the issuance of Series 2020-1 Class A Principal-at-Risk Variable Rate Notes by Easton Re Pte, Ltd. (“Easton Re”). Easton Re provides the Company's operating platforms with multi-year risk transfer capacity of $150 million to protect against named storm and earthquake risk in the United States. The risk period for Easton Re is from January 1, 2021 to December 31, 2023.
Estimation Methodology
Amounts for unpaid losses and loss adjustment expenses recoverable from reinsurers are estimated in a manner consistent with the reserve for losses and loss adjustment expenses associated with the related assumed business and the contractual terms of the reinsurance agreement. Estimating unpaid losses and loss adjustment expenses recoverable can be more subjective than estimating the underlying reserve for losses and loss adjustment expenses, discussed above. In particular, unpaid losses and loss adjustment expenses recoverable may be affected by deemed inuring reinsurance, industry losses reported by various statistical reporting services, and the magnitude of the Company’s recorded IBNR reserves, amongst other factors. Amounts for unpaid losses and loss adjustment expenses recoverable are recorded as assets, predicated on the reinsurers’ ability to meet their obligations under the reinsurance agreements.
The majority of the balance that the Company has estimated and accrued as unpaid losses and loss adjustment expenses recoverable will not be due for collection until some point in the future. The amounts recoverable that will ultimately be collected are subject to uncertainty due to the ultimate ability and willingness of reinsurers to pay the Company’s claims at a future point in time, for reasons including insolvency or elective run-off, contractual dispute and various other reasons.
To help mitigate these risks, the Company maintains a list of approved reinsurers, performs credit risk assessments for potential new reinsurers, regularly monitors the financial condition of approved reinsurers with consideration for events which may have a material impact on their creditworthiness and monitors concentrations of credit risk. This assessment considers a wide range of individual attributes, including a review of the counterparty’s financial strength, industry position and other qualitative factors. If reinsurers do not meet certain specified requirements, they are required to provide the Company with collateral.
Fair Value of Investments
Fixed Maturity and Short-Term Investments Trading Portfolio
The Company elects the fair value option for all of the fixed maturity securities and short-term investments in its trading portfolio and certain other investments and recognizes the changes in net realized and unrealized gains (losses) on investments in its consolidated statements of operations.
The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the “exit price”). Instruments that the Company owns are marked to bid prices. Fair value measurements are not adjusted for transaction costs.
Fair value measurement accounting guidance also establishes a fair value hierarchy that prioritizes the inputs to the respective valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). An asset or liability’s classification within the fair value hierarchy is based on the lowest level of significant input to its valuation. The three levels of the fair value hierarchy are:
•Level 1 – Inputs that reflect unadjusted quoted prices in active markets for identical assets and liabilities that the Company has the ability to access at the measurement date;
•Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active; and
•Level 3 – Inputs that are both significant to the fair value measurement and unobservable.
The Company’s fixed maturity and short-term investments trading portfolio are primarily priced using pricing services, such as index providers and pricing vendors, as well as broker quotations. In general, the pricing vendors provide pricing for a high volume of liquid securities that are actively traded. For securities that do not trade on an exchange, the pricing services generally utilize market data and other observable inputs in matrix pricing models to determine prices. Observable inputs include benchmark yields, reported trades, broker-dealer quotes, issuer spreads, bids, offers, reference data and industry and economic events. Index pricing generally relies on market traders as the primary source for pricing; however, models are also utilized to provide prices for all index eligible securities. The models use a variety of observable inputs such as benchmark yields, transactional data, dealer runs, broker-dealer quotes and corporate actions. Prices are generally verified using third party data. Securities which are priced by an index provider are generally included in the index. In general, broker-dealers value securities through their trading desks based on observable inputs. The methodologies used include mapping securities based on trade data, bids or offers, observed spreads, and performance on newly issued securities. Broker-dealers also determine valuations by observing secondary trading of similar securities. Prices obtained from broker quotations are considered non-binding; however, they are based on observable inputs and by observing secondary trading of similar securities obtained from active, non-distressed markets. The Company considers these Level 2 inputs as they are corroborated with other market observable inputs.
All of the Company’s fixed maturities and short-term investments in its trading portfolio are considered to be valued using Level 2 inputs in the fair value hierarchy.
Goodwill and Intangible Assets
Intangible assets at June 30, 2023 include Lloyd’s syndicate capacity, coverholder and broker relationships, managing general agency contracts and insurance licenses, all arising from prior business acquisitions. Intangible assets with indefinite useful lives are not amortized. Intangible assets with a finite life are amortized over the estimated useful lives of the assets.
Indefinite lived intangible assets are tested for impairment on an annual basis or more frequently if events or changes in circumstances indicate that the carrying amount may not be recoverable. Finite lived intangible assets are reviewed for indicators of impairment on an annual basis or more frequently if events or changes in circumstances indicate that the carrying amount may not be recoverable, and tested for impairment if appropriate.
If intangible assets are not recoverable from their undiscounted cash flows and deemed to be impaired, they are written down to their estimated fair value with a corresponding impairment expense recorded in the Company’s consolidated statement of operations. Based on our latest assessment, there was no impairment of its intangible assets of $88.8 million recorded at June 30, 2023.
Goodwill represents the excess of the purchase price over the fair value of net assets acquired in a business combination and is tested for impairment on an annual basis or more frequently if events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company had previously recorded goodwill in connection with the acquisition of PMA. In the years ended December 31, 2022 and November 30, 2021 and 2020, respectively, the Company recorded impairment charges of $24.1 million, $0.9 million and $Nil, respectively, primarily arising from the annual goodwill impairment assessment. In each of the six months ended June 30, 2023 and 2022, the Company recorded impairment charges of $Nil. As at each of June 30, 2023 and December 31, 2022, there was $Nil goodwill recorded on the balance sheet.
For further discussion on goodwill and intangible assets, see Notes 2(n), and 8 in the Consolidated Financial Statements.
Change in Year End
On January 17, 2022, the Company changed its fiscal year from November 30 to December 31. As a result, our comparative prior periods consist of the one-month transition period ended December 31, 2021, and the twelve-month periods from December 1, 2020 to November 30, 2021 and December 1, 2019 to November 30, 2020. The one-month transition period ended December 31, 2021 and the comparative one-month period ended December 31, 2020 are presented in our results of operations tables under the header “Change in Financial Year — Stub Period Results.”
Consolidated Results of Operations
The following is a comparison of selected data for our consolidated results of operations for the years ended December 31, 2022 and November 30, 2021 and 2020 and book value per share and balance sheet data as at December 31, 2022 and November 30, 2021 and 2020.
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| ($ in thousands, except per share amounts) | December 31, 2022 | | November 30, 2021 | | November 30, 2020 |
| Gross premiums written | $ | 1,646,673 | | | $ | 1,446,551 | | | $ | 1,086,540 | |
| Net premiums written | $ | 1,221,864 | | | $ | 1,085,428 | | | $ | 729,323 | |
| Net premiums earned | $ | 1,143,714 | | | $ | 942,549 | | | $ | 707,461 | |
Third party fee income(1) | 11,631 | | | 21,022 | | | 15,625 | |
| | | | | |
| Claims and Expenses | | | | | |
| Losses and loss adjustment expenses | 758,333 | | | 640,560 | | | 505,269 | |
| Acquisition costs | 271,189 | | | 229,213 | | | 168,327 | |
Other underwriting expenses(2) | 157,540 | | | 149,822 | | | 126,869 | |
Underwriting income (loss)(3) | (31,717) | | | (56,024) | | | (77,379) | |
| | | | | |
| Net realized and unrealized gains (losses) on investments | 85,634 | | | 352,193 | | | 5,701 | |
Net investment income (loss)(4) | (20,764) | | | (43,217) | | | (38,600) | |
| Total realized and unrealized gains (losses) on investments and net investment income (loss) | 64,870 | | | 308,976 | | | (32,899) | |
| | | | | |
| Net gain on sale of equity method investment | 6,991 | | | 54,557 | | | — | |
Other income (loss), excluding third party fee income(1) | (315) | | | (11) | | | 97 | |
| Net foreign exchange gains (losses) | 6,137 | | | 6,442 | | | (9,540) | |
Corporate expenses(2) | 20,142 | | | 22,472 | | | 22,905 | |
| Impairment of goodwill | 24,082 | | | 936 | | | — | |
| Amortization of intangible assets | 12,832 | | | 13,431 | | | 12,489 | |
| Interest expense | 15,741 | | | 14,897 | | | 18,910 | |
| Income tax expense | 3,104 | | | 12,365 | | | 11,492 | |
| Net income (loss) | (29,935) | | | 249,839 | | | (185,517) | |
Net income (loss) attributable to non-controlling interest(5) | 68,064 | | | 61,660 | | | 24,930 | |
| Net income (loss) attributable to common shareholders | $ | (97,999) | | | $ | 188,179 | | | $ | (210,447) | |
| Diluted income (loss) per share attributable to common shareholders | $ | (0.95) | | | $ | 1.82 | | | $ | (2.05) | |
| | | | | |
| Key Ratios | | | | | |
| Attritional loss ratio - current year | 51.8 | % | | 51.1 | % | | 55.0 | % |
| Attritional loss ratio - prior year development | (0.3) | % | | (0.9) | % | | (3.5) | % |
| Catastrophe loss ratio - current year | 16.3 | % | | 15.7 | % | | 22.2 | % |
| Catastrophe loss ratio - prior year development | (1.5) | % | | 2.1 | % | | (2.3) | % |
| Loss and loss adjustment expense ratio | 66.3 | % | | 68.0 | % | | 71.4 | % |
| Acquisition cost ratio | 23.7 | % | | 24.3 | % | | 23.8 | % |
| Other underwriting expense ratio | 12.8 | % | | 13.7 | % | | 15.7 | % |
| Combined ratio | 102.8 | % | | 106.0 | % | | 110.9 | % |
| | | | | |
| | | | | | | | | | | | | | | | | |
| Return on average common shareholders' equity | (5.7) | % | | 11.1 | % | | (12.4) | % |
| | | | | |
| As at |
| Book Value | December 31, 2022 | | November 30, 2021 | | November 30, 2020 |
| Tangible book value per common share | $ | 15.30 | | | $ | 16.29 | | | $ | 14.46 | |
| Change in tangible book value per common share | (4.1) | % | | 12.7 | % | | (11.9) | % |
| Book value per common share | $ | 16.14 | | | $ | 17.43 | | | $ | 15.58 | |
| | | | | |
| | | | | |
| Change in book value per common share | (5.6) | % | | 11.9 | % | | (11.6) | % |
| | | | | |
| Balance Sheet Data | | | | | |
| Total assets | $ | 5,818,965 | | | $ | 5,611,607 | | | $ | 4,905,363 | |
| Total shareholders' equity | $ | 1,664,183 | | | $ | 1,787,445 | | | $ | 1,596,750 | |
__________________
(1)Third party fee income is a non-GAAP financial measure as defined in Item 10(e) of SEC Regulation S-K. The reconciliation to other income (loss), the most comparable GAAP financial measure, also included other income (loss), excluding third party fee income of $(0.3) million for the year ended December 31, 2022 and less than $0.1 million in each of the years ended November 30, 2021, and 2020. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Measures” for further details.
(2)Other underwriting expenses is a non-GAAP financial measure as defined in Item 10(e) of SEC Regulation S-K. The reconciliation to general and administrative expenses, the most comparable GAAP financial measure, also included corporate expenses of $20.1 million, $22.5 million, and $22.9 million for the years ended December 31, 2022 and November 30, 2021, and 2020, respectively. Refer to 'Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Measures' for further details.
(3)Underwriting income (loss) is a non-GAAP financial measure as defined in Item 10(e) of SEC Regulation S-K. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Measures” for further details.
(4)Net investment income (loss) is presented net of investment management fees.
(5)Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Consolidated Results of Operations —Corporate and Other” for further details.
The following significant items impacted the consolidated results of operations for the years ended December 31, 2022 and November 30, 2021 and 2020:
Gross premiums written Gross premiums written were $1.6 billion, $1.4 billion and $1.1 billion for the years ended December 31, 2022 and November 30, 2021 and 2020, respectively. The increase in gross premiums written in each successive year was primarily driven by expansion into additional classes, notably casualty insurance and reinsurance, increased participation on existing business and rate increases across multiple classes of business.
Underwriting results The combined ratio was 102.8% and 106.0% for the years ended December 31, 2022 and November 30, 2021, respectively. The decrease was primarily driven by a lower percentage contribution from catastrophe losses as described further below under “Impact of catastrophe events” and a decrease in our other underwriting expense ratio. The decrease in the combined ratio from 110.9% for the year ended November 30, 2020 to 106.0% for the year ended November 30, 2021 was driven by a lower percentage contribution from both current year attritional losses and catastrophe losses.
Losses and Loss Adjustment Expenses
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in thousands) | | Current
year | | % of net premiums earned | | Prior year development | | % of net premiums earned | | Losses and loss adjustment expenses | | % of net premiums earned |
| December 31, 2022 | | | | | | | | | | | | |
| Attritional losses | | $ | 592,676 | | | 51.8 | % | | $ | (3,216) | | | (0.3) | % | | $ | 589,460 | | | 51.5 | % |
| Catastrophe losses | | 186,260 | | | 16.3 | % | | (17,387) | | | (1.5) | % | | 168,873 | | | 14.8 | % |
| Total | | $ | 778,936 | | | 68.1 | % | | $ | (20,603) | | | (1.8) | % | | $ | 758,333 | | | 66.3 | % |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| November 30, 2021 | | | | | | | | | | | | |
| Attritional losses | | $ | 481,292 | | | 51.1 | % | | $ | (8,126) | | | (0.9) | % | | $ | 473,166 | | | 50.2 | % |
| Catastrophe losses | | 147,489 | | | 15.7 | % | | 19,905 | | | 2.1 | % | | 167,394 | | | 17.8 | % |
| Total | | $ | 628,781 | | | 66.8 | % | | $ | 11,779 | | | 1.2 | % | | $ | 640,560 | | | 68.0 | % |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| November 30, 2020 | | | | | | | | | | | | |
| Attritional losses | | $ | 389,517 | | | 55.0 | % | | $ | (24,859) | | | (3.5) | % | | $ | 364,658 | | | 51.5 | % |
| Catastrophe losses | | 156,733 | | | 22.2 | % | | (16,122) | | | (2.3) | % | | 140,611 | | | 19.9 | % |
| Total | | $ | 546,250 | | | 77.2 | % | | $ | (40,981) | | | (5.8) | % | | $ | 505,269 | | | 71.4 | % |
| | | | | | | | | | | | |
Attritional loss ratio - current year for the year ended December 31, 2022 was 51.8% compared to 51.1% for the year ended November 30, 2021, an increase of 0.7 percentage points. The modest increase is largely attributable to changes in business mix during 2022. The attritional loss ratio - current year for the year ended November 30, 2021 was 51.1% compared to 55.0% for the year ended November 30, 2020, a decrease of 3.9 percentage points. The higher attritional loss ratio for the year ended November 30, 2020, primarily related to higher losses in property classes of business.
Attritional loss ratio - prior year for the year ended December 31, 2022 was a favorable 0.3% compared to a favorable 0.9% for the year ended November 30, 2021, an increase of 0.6 percentage points. The increase was primarily driven by unfavorable prior year development in discontinued casualty classes in the Bermuda segment, partially offset by favorable development across all classes of business in the International segment. In addition, casualty business protected by the LPT benefited from favorable development of $5.1 million and $1.9 million in amortization of the associated deferred gain, for a total net positive earnings impact of $7.0 million. The attritional loss ratio - prior year for the year ended November 30, 2021 was a favorable 0.9% compared to a favorable 3.5% for the year ended November 30, 2020, an increase of 2.6 percentage points. The increase was primarily driven by lower favorable development across all classes of business in the year ended November 30, 2021. In addition, casualty business protected by the LPT experienced unfavorable development of $32.6 million, partially offset by $18.0 million in amortization of the associated deferred gain, for a total net negative earnings impact of $14.6 million. See “Critical Accounting Estimates—Ceded Reinsurance and Unpaid Losses and Loss Adjustment Expenses Recoverable” for further discussion of the LPT.
Impact of catastrophe events Catastrophe losses (current year and prior year development) were $168.9 million, $167.4 million and $140.6 million for the years ended December 31, 2022 and November 30, 2021 and 2020, respectively. Catastrophe losses for the year ended December 31, 2022 were driven by the Ukraine conflict ($79.6 million), Hurricane Ian ($77.5 million), Australian East Coast floods ($16.6 million), KwaZulu-Natal floods ($8.3 million), and Typhoon Nanmadol ($4.3 million), partially offset by favorable prior year development of $17.4 million. Catastrophe losses (current and prior year development) for the year ended November 30, 2021, were driven by Hurricane Ida ($67.9 million), the Bernd European floods ($38.1 million), Winter Storm Uri ($34.4 million), and COVID-19 ($7.1 million), in addition to unfavorable prior year development of $19.9 million. Catastrophe losses for the year ended November 30, 2020 were driven by COVID-19 ($76.3 million), the Midwest Derecho ($26.0 million), Hurricane Laura ($23.8 million), Hurricane Zeta ($11.8 million), Hurricane Sally ($10.7 million), and the
Tennessee tornadoes ($8.2 million), partially offset by favorable prior year development of $16.1 million.
Total Realized and Unrealized Gains (Losses) on Investments and Net Investment Income (Loss)
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| ($ in thousands) | December 31, 2022 | | November 30, 2021 | | November 30, 2020 |
Total realized and unrealized gains (losses) on investments and net investment income (loss) - TSHF(1) | $ | 145,237 | | | $ | 327,028 | | | $ | (61,217) | |
| Total realized and unrealized gains (losses) on investments and net investment income (loss) - other | (80,367) | | | (18,052) | | | 28,318 | |
| $ | 64,870 | | | $ | 308,976 | | | $ | (32,899) | |
| | | | | |
| Net income (loss) attributable to non-controlling interest - TSHF | $ | 68,064 | | | $ | 61,660 | | | $ | 24,930 | |
| | | | | |
__________________
(1)Prior to non-controlling interest performance incentive allocation.
Total realized and unrealized gains (losses) on investments and net investment income (loss) - TSHF, prior to non-controlling interest, returned income of $145.2 million, $327.0 million and a loss of $61.2 million for the years ended December 31, 2022 and November 30, 2021 and 2020, respectively. This includes the fund's returns, net of investment management fees.
Total realized and unrealized gains (losses) on investments and net investment income (loss) - TSHF, net of non-controlling interest, returned income of $77.2 million, $265.4 million and a loss of $86.1 million for the years ended December 31, 2022 and November 30, 2021 and 2020, respectively. This includes the fund's returns, net of investment management fees and performance incentive allocations. The aggregate incentive allocation to which the investment manager is entitled is included in “Net income attributable to non-controlling interests” in our GAAP financial statements.
Two Sigma Hamilton Fund (“TSHF”) produced returns, net of investment management fees and performance incentive allocations, of 4.6%, 17.7% and (4.6%) for each of the years ended December 31, 2022 and November 30, 2021 and 2020, respectively.
TSHF, through its investments in Two Sigma Futures Portfolio, LLC (FTV), Two Sigma Spectrum Portfolio, LLC (STV) and Two Sigma Equity Spectrum Portfolio, LLC (ESTV), (together, the “Two Sigma Funds”), seeks to achieve absolute dollar-denominated returns on a substantial capital base, primarily by combining multiple hedged and leveraged systematic investment strategies with proprietary risk management and execution techniques. These systematic strategies include, but are not limited to, technical and statistically-based, fundamental-based, event-based, market condition-based and spread-based strategies as well as contributor-based and/or sentiment-based strategies and blended strategies. FTV primarily utilizes systematic strategies to gain broad macro exposure to FX, fixed income, equity and credit indices and commodities, predominantly by trading futures, spots, forwards, options, swaps, cash bonds and exchange traded products. STV primarily utilizes systematic strategies to trade U.S.-listed equity securities and related instruments and derivatives. ESTV primarily utilizes systematic strategies to trade non-U.S.-listed equity securities and related instruments and derivatives.
For the year ended December 31, 2022, TSHF received positive contributions from single name equities trading in STV which was partially offset by losses in macro-economic trading within FTV. Gains were led by U.S. single name equities in STV followed by non-U.S. equities in ESTV. In macro-economic activities, FTV delivered positive results from equities trading, which was outweighed by losses from fixed income trading, commodities trading, and currencies trading.
For the year ended November 30, 2021, TSHF was positive in each of the three underlying Two Sigma Funds. Gains were led by trading in FTV, followed by U.S. single name equities in STV, and then by non-U.S. equities in ESTV. In FTV, positive results were received from commodities and equities trading, which was partially offset by negative results from currencies and fixed income.
For the year ended November 30, 2020, TSHF’s return was negative with losses driven by Macro trading in FTV, offset partially by gains in single name equities trading in STV and ESTV. Gains were led by U.S. single name equities, and then by non-U.S. equities. In FTV, the fund delivered negative results from fixed income, currencies, commodities and equities trading.
Total realized and unrealized gains (losses) on investments and net investment income (loss) - other, returned a loss of $80.4 million, $18.1 million and income of $28.3 million for the years ended December 31, 2022 and November 30, 2021 and 2020, respectively. This is primarily comprised of returns on our fixed maturity securities trading portfolio.
During the year ended December 31, 2022, the negative mark-to market impact of rising interest rates and other macroeconomic factors offset investment yield, giving rise to non-credit related net investment losses. During the year ended November 30, 2021, there was a net loss on the fixed maturity securities trading portfolio due to the negative mark-to-market impact of rising interest rates. During the year ended November 30, 2020, positive net investment income was earned on the fixed maturities portfolio primarily related to decreasing interest rates. The years ended November 30, 2021 and 2020 were also impacted by a loss on equity method investment of $7.3 million and $9.0 million, respectively, related to our interest in Attune, recorded under the equity method of accounting, prior to its sale on September 20, 2021.
Net gain on sale of equity method investment On September 20, 2021, a purchaser acquired Attune, a joint venture in which the Company had a one-third interest. Proceeds of sale were settled on closing, and the net gain on sale of equity method investment of $54.6 million was recorded in the statement of operations for the year ended November 30, 2021. In the year ended December 31, 2022, escrow funds of $7.0 million were received and recorded in the statement of operations, recognizing an incremental net gain on sale of equity method investment relating to the same transaction.
Impairment of goodwill In the years ended December 31, 2022, November 30, 2021 and 2020, the Company recorded impairment charges of $24.1 million, $0.9 million and $Nil, respectively, primarily arising from the annual goodwill impairment assessment. As at December 31, 2022 and November 30, 2021, there was $Nil and $24.9 million of goodwill recorded on the balance sheet.
Segment Information
We have determined our reportable business segments based on the information used by management in assessing performance and allocating resources to underwriting operations. We have identified two reportable business segments - International and Bermuda. Each of our identified reportable segments has a Chief Executive Officer who is responsible for the overall profitability of their segment and who regularly reports and is directly accountable to the chief operating decision maker: the Chief Executive Officer of the consolidated group.
We evaluate reportable segment performance based on their respective underwriting income or loss. Underwriting income or loss is calculated as net premiums earned less losses and loss adjustment expenses, acquisition costs, and other underwriting expenses (net of third party fee income). General and administrative expenses not incurred by the reportable segments are included in corporate and other expenses as part of the reconciliation of net underwriting income or loss to net income or loss attributable to common shareholders. As we do not manage our assets by reportable segment, investment income and assets are not allocated to reportable segments.
Our core business is underwriting and our underwriting results are reflected in our reportable segments: (1) International, which is comprised of property, specialty and casualty insurance and reinsurance classes of business originating from the Company’s London, Dublin, and Hamilton Select operations; and (2) Bermuda, which is comprised of property, specialty and casualty insurance and reinsurance classes of business originating from Hamilton Re Bermuda and Hamilton Re US and subsidiaries. We consider many factors, including the nature of each segment’s products, client types, production sources, distribution methods and the regulatory environment, in determining the aggregated operating segments.
Corporate includes net realized and unrealized gains (losses) on investments, net investment income (loss), net gain on sale of equity method investment, other income (loss) not incurred by the reportable segments, net foreign exchange gains (losses), general and administrative expenses not incurred by the reportable segments, impairment of goodwill, amortization of intangible assets, interest expense, and income tax expense (benefit).
International Segment
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Years Ended | | |
| ($ in thousands) | December 31, 2022 | | November 30, 2021 | | November 30, 2020 | | | | | | |
| Gross premiums written | $ | 933,241 | | | $ | 892,292 | | | $ | 661,541 | | | | | | | |
| Net premiums written | $ | 635,773 | | | $ | 640,816 | | | $ | 465,365 | | | | | | | |
| Net premiums earned | $ | 623,047 | | | $ | 557,139 | | | $ | 416,957 | | | | | | | |
| Third party fee income | 11,430 | | | 20,672 | | | 15,625 | | | | | | | |
| | | | | | | | | | | |
| Claims and Expenses | | | | | | | | | | | |
| Losses and loss adjustment expenses | 335,484 | | | 352,859 | | | 271,447 | | | | | | | |
| Acquisition costs | 170,571 | | | 154,969 | | | 110,266 | | | | | | | |
| Other underwriting expenses | 108,239 | | | 112,055 | | | 95,434 | | | | | | | |
| Underwriting income (loss) | $ | 20,183 | | | $ | (42,072) | | | $ | (44,565) | | | | | | | |
| | | | | | | | | | | |
| Attritional losses - current year | $ | 317,199 | | | $ | 280,922 | | | $ | 209,266 | | | | | | | |
| Attritional losses - prior year development | (29,800) | | | 674 | | | (7,856) | | | | | | | |
| Catastrophe losses - current year | 45,118 | | | 59,337 | | | 73,957 | | | | | | | |
| Catastrophe losses - prior year development | 2,967 | | | 11,926 | | | (3,920) | | | | | | | |
| Losses and loss adjustment expenses | $ | 335,484 | | | $ | 352,859 | | | $ | 271,447 | | | | | | | |
| | | | | | | | | | | |
| Attritional loss ratio - current year | 50.9 | % | | 50.4 | % | | 50.2 | % | | | | | | |
| Attritional loss ratio - prior year development | (4.8) | % | | 0.1 | % | | (1.9) | % | | | | | | |
| Catastrophe loss ratio - current year | 7.2 | % | | 10.7 | % | | 17.7 | % | | | | | | |
| Catastrophe loss ratio - prior year development | 0.5 | % | | 2.1 | % | | (0.9) | % | | | | | | |
| Losses and loss adjustment expense ratio | 53.8 | % | | 63.3 | % | | 65.1 | % | | | | | | |
| Acquisition cost ratio | 27.4 | % | | 27.8 | % | | 26.4 | % | | | | | | |
| Other underwriting expense ratio | 15.5 | % | | 16.4 | % | | 19.1 | % | | | | | | |
| Combined ratio | 96.7 | % | | 107.5 | % | | 110.6 | % | | | | | | |
Gross Premiums Written
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Years Ended | | | | | | |
| ($ in thousands) | December 31, 2022 | | November 30, 2021 | | November 30, 2020 | | | | | | |
| Property | $ | 127,424 | | | $ | 197,471 | | | $ | 191,984 | | | | | | | |
| Casualty | 463,397 | | | 323,192 | | | 185,636 | | | | | | | |
| Specialty | 342,420 | | | 371,629 | | | 283,921 | | | | | | | |
| | | | | | | | | | | |
| Total | $ | 933,241 | | | $ | 892,292 | | | $ | 661,541 | | | | | | | |
For the year ended December 31, 2022, gross premiums written increased by $40.9 million, or 4.6%, from $892.3 million for the year ended November 30, 2021 to $933.2 million for the year ended December 31, 2022, primarily driven by growth and improved pricing across most casualty and specialty insurance classes of business. This was partially offset by decreases in property reinsurance classes of business as a result of strategic withdrawals.
For the year ended November 30, 2021, gross premiums written increased by $230.8 million, or 34.9%, from $661.5 million for the year ended November 30, 2020 to $892.3 million for the year ended November 30, 2021, primarily driven by premium growth and improved pricing across most classes of business and an increase in business written through various distribution channels.
Net Premiums Earned
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| ($ in thousands) | December 31, 2022 | | November 30, 2021 | | November 30, 2020 |
| Property | $ | 111,134 | | | $ | 141,872 | | | $ | 95,366 | |
| Casualty | 248,588 | | | 175,230 | | | 112,292 | |
| Specialty | 263,325 | | | 240,037 | | | 209,299 | |
| | | | | |
| Total | $ | 623,047 | | | $ | 557,139 | | | $ | 416,957 | |
For the year ended December 31, 2022, net premiums earned increased by $65.9 million, or 11.8%, from $557.1 million for the year ended November 30, 2021 to $623.0 million for the year ended December 31, 2022, reflecting growth in net premiums written on our casualty business, particularly for environmental and cyber books of business. We also saw growth in our specialty business driven by growth in fine art & specie and marine & energy books. This was partially offset by a decrease in our property reinsurance classes of business as a result of strategic withdrawals.
For the year ended November 30, 2021, net premiums earned increased by $140.2 million, or 33.6%, from $417.0 million for the year ended November 30, 2020 to $557.1 million for the year ended November 30, 2021, reflecting an increase in net premiums written on our property insurance and reinsurance business and growth in additional casualty classes of business including financial lines, professional lines and cyber.
Third Party Fee Income
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| ($ in thousands) | December 31, 2022 | | November 30, 2021 | | November 30, 2020 |
| Third party fee income | $ | 11,430 | | | $ | 20,672 | | | $ | 15,625 | |
Third party fee income is primarily comprised of fees earned by the International segment for management services provided to third party syndicates and consortia. In both instances, the Company charges a fee to third parties and recognizes fee income in line with the provision of services to which the fees relate. Consortium fees may also include a profit commission.
Third party fee income of $11.4 million for the year ended December 31, 2022 decreased by $9.2 million, or 44.7%, compared to $20.7 million for the year ended November 30, 2021. The decrease was primarily comprised of $3.7 million related to a reduction in the number of third party syndicates under management, $1.4 million related to a decrease in consortium fees and an aggregate decrease of $4.7 million in one-off or discontinued fees relating to projects with a finite term.
Third party fee income of $20.7 million for the year ended November 30, 2021 increased by $5.0 million, or 32.3%, compared to $15.6 million for the year ended November 30, 2020. The increase was primarily driven by $4.0 million of additional income for one-off fees relating to projects with a finite term, $2.6 million of additional consortium fees, partially offset by a reduction in third party management fees.
Losses and Loss Adjustment Expenses
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in thousands) | | Current
year | | % of net premiums earned | | Prior year development | | % of net premiums earned | | Losses and loss adjustment expenses | | % of net premiums earned | |
| December 31, 2022 | | | | | | | | | | | | | |
| Attritional losses | | $ | 317,199 | | | 50.9 | % | | $ | (29,800) | | | (4.8) | % | | $ | 287,399 | | | 46.1 | % | |
| Catastrophe losses | | 45,118 | | | 7.2 | % | | 2,967 | | | 0.5 | % | | 48,085 | | | 7.7 | % | |
| Total | | $ | 362,317 | | | 58.1 | % | | $ | (26,833) | | | (4.3) | % | | $ | 335,484 | | | 53.8 | % | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| November 30, 2021 | | | | | | | | | | | | | |
| Attritional losses | | $ | 280,922 | | | 50.4 | % | | $ | 674 | | | 0.1 | % | | $ | 281,596 | | | 50.5 | % | |
| Catastrophe losses | | 59,337 | | | 10.7 | % | | 11,926 | | | 2.1 | % | | 71,263 | | | 12.8 | % | |
| Total | | $ | 340,259 | | | 61.1 | % | | $ | 12,600 | | | 2.2 | % | | $ | 352,859 | | | 63.3 | % | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| November 30, 2020 | | | | | | | | | | | | | |
| Attritional losses | | $ | 209,266 | | | 50.2 | % | | $ | (7,856) | | | (1.9) | % | | $ | 201,410 | | | 48.3 | % | |
| Catastrophe losses | | 73,957 | | | 17.7 | % | | (3,920) | | | (0.9) | % | | 70,037 | | | 16.8 | % | |
| Total | | $ | 283,223 | | | 67.9 | % | | $ | (11,776) | | | (2.8) | % | | $ | 271,447 | | | 65.1 | % | |
| | | | | | | | | | | | | |
Year Ended December 31, 2022 versus Year Ended November 30, 2021
The loss ratio for the year ended December 31, 2022 was 53.8%, compared to 63.3% for the year ended November 30, 2021, a decrease of 9.5 percentage points. The decrease was driven by favorable prior year development on attritional losses and a lower level of catastrophe losses.
The attritional loss ratio - current year for the year ended December 31, 2022 was 50.9% compared to 50.4% for the year ended November 30, 2021, an increase of 0.5 percentage points. The modest increase in the current year attritional loss ratio primarily arose from changes in business mix.
The attritional loss ratio - prior year for the year ended December 31, 2022 was a favorable 4.8% compared to an unfavorable 0.1% for the year ended November 30, 2021, a decrease of 4.9 percentage points. We experienced favorable prior year development for the year ended December 31, 2022 of $29.8 million across most classes of business. In addition, casualty business protected by the LPT benefited from favorable development of $5.1 million and $1.9 million in amortization of the associated deferred gain, for a total net positive earnings impact of $7.0 million. This compared to unfavorable prior year development for the year ended November 30, 2021 of $0.7 million, primarily driven by casualty business protected by the LPT, which experienced unfavorable development of $32.6 million, partially offset by $18.0 million in amortization of the associated deferred gain (for a total net negative earnings impact of $14.6 million) and favorable prior year development on the remainder of the book of business. See “Critical Accounting Estimates—Ceded Reinsurance and Unpaid Losses and Loss Adjustment Expenses Recoverable” for further discussion of the LPT.
Catastrophe losses - current year and prior year of $48.1 million for the year ended December 31, 2022 were primarily driven by the Ukraine conflict ($22.5 million), Hurricane Ian ($15.3 million), the KwaZulu-Natal floods ($4.6 million), and the Australian East Coast floods ($2.7 million), in addition to unfavorable prior year development of $3.0 million. Catastrophe losses - current year and prior year of $71.3 million for the year ended November 30, 2021 were primarily driven by Hurricane Ida ($32.3 million), Winter Storm Uri ($13.5 million), COVID-19 ($7.1 million), and the Bernd European Floods ($6.4 million), in addition to unfavorable prior year development of $11.9 million.
Year Ended November 30, 2021 versus Year Ended November 30, 2020
The loss ratio for the year ended November 30, 2021 was 63.3%, compared to 65.1% for the year ended November 30, 2020, a decrease of 1.8 percentage points. The decrease was primarily driven by a lower catastrophe loss percentage, partially offset by unfavorable prior year development on attritional losses.
The attritional loss ratio - current year for the year ended November 30, 2021 was 50.4% compared to 50.2% for the year ended November 30, 2020, an increase of 0.2 percentage points. The modest increase in the current year attritional loss ratio resulted from certain specific losses, partially offset by the positive impact from remediation efforts undertaken in certain property classes of business.
The attritional loss ratio - prior year for the year ended November 30, 2021 was an unfavorable 0.1% compared to a favorable 1.9% for the year ended November 30, 2020, an increase of 2.0 percentage points. The increase in the year ended November 30, 2021 was driven by lower level of favorable prior year development in property classes of business and unfavorable development of $14.6 million on our casualty business protected by the LPT. This compared to favorable prior year development for the year ended November 30, 2020 of $7.9 million, primarily driven by favorable development in casualty insurance classes of business. See “Critical Accounting Estimates—Ceded Reinsurance and Unpaid Losses and Loss Adjustment Expenses Recoverable” for further discussion of the LPT.
Catastrophe losses - current year and prior year of $71.3 million for the year ended November 30, 2021 were primarily driven by Hurricane Ida ($32.3 million), Winter Storm Uri ($13.5 million), COVID-19 ($7.1 million), and the Bernd European Floods ($6.4 million), in addition to unfavorable prior year development of $11.9 million. Catastrophe losses - current year and prior year development of $70.0 million in the year ended November 30, 2020, were primarily driven by COVID-19 ($34.0 million), the Midwest Derecho ($10.7 million), Hurricane Laura ($10.6 million), Hurricane Zeta ($9.6 million), Hurricane Sally ($7.0 million) and the Tennessee tornadoes ($2.1 million), partially offset by favorable prior year development of $3.9 million.
Acquisition Costs
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Years Ended | | | | | | | |
| Acquisition Costs | | % of Net Premiums Earned | | | | | | | | | | | |
| ($ in thousands) | December 31, 2022 | | November 30, 2021 | | November 30, 2020 | | December 31, 2022 | | November 30, 2021 | | November 30, 2020 | | '22 vs '21 point Δ | | '21 vs '20 point Δ | | | | | | | |
| Property | $ | 39,606 | | | $ | 48,697 | | | $ | 25,611 | | | 35.6 | % | | 34.3 | % | | 26.9 | % | | 1.3 | | | 7.4 | | | | | | | | |
| Casualty | 53,768 | | | 43,084 | | | 29,558 | | | 21.6 | % | | 24.6 | % | | 26.3 | % | | (3.0) | | | (1.7) | | | | | | | | |
| Specialty | 77,197 | | | 63,188 | | | 55,097 | | | 29.3 | % | | 26.3 | % | | 26.3 | % | | 3.0 | | | — | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Total | $ | 170,571 | | | $ | 154,969 | | | $ | 110,266 | | | 27.4 | % | | 27.8 | % | | 26.4 | % | | (0.4) | | | 1.4 | | | | | | | | |
For the year ended December 31, 2022, the acquisition cost ratio was 27.4%, compared to 27.8% for the year ended November 30, 2021, a decrease of 0.4 percentage points. The modest decrease was primarily driven by changes in the mix of business.
For the year ended November 30, 2021, the acquisition cost ratio was 27.8% compared to 26.4% for the year ended November 30, 2020, an increase of 1.4 percentage points. The increase was primarily driven by reinstatement premiums paid on catastrophe impacted property classes of business.
Other Underwriting Expenses and Other Underwriting Expense Ratios
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| ($ in thousands) | December 31, 2022 | | November 30, 2021 | | November 30, 2020 |
| Other underwriting expenses | $ | 108,239 | | | $ | 112,055 | | | $ | 95,434 | |
| Other underwriting expense ratio | 15.5 | % | | 16.4 | % | | 19.1 | % |
Other underwriting expenses are general and administrative costs incurred by our reportable segments.
Other underwriting expenses were $108.2 million for the year ended December 31, 2022, a decrease of $3.8 million, or 3.4%, compared to $112.1 million for the year ended November 30, 2021. The decrease was primarily driven by a reduction in professional service fees and technology costs related to systems implementation and integration, as consulting fees declined with the completion of various projects.
Other underwriting expenses were $112.1 million for the year ended November 30, 2021, an increase of $16.6 million, or 17.4%, compared to $95.4 million for the year ended November 30, 2020. The increase was primarily driven by an increased headcount as we built out additional underwriting teams supporting the corresponding increase in premium volume and technology costs related to systems implementation and integration.
The other underwriting expense ratios for the years ended December 31, 2022, November 30, 2021, and November 30, 2020 decreased over the same period at 15.5%, 16.4% and 19.1%, as a result of the growth in premium base and our continued focus on expense management.
Bermuda Segment
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Years Ended | | |
| ($ in thousands) | December 31, 2022 | | November 30, 2021 | | November 30, 2020 | | | | | | |
| Gross premiums written | $ | 713,432 | | | $ | 554,259 | | | $ | 424,999 | | | | | | | |
| Net premiums written | $ | 586,091 | | | $ | 444,612 | | | $ | 263,958 | | | | | | | |
| Net premiums earned | $ | 520,667 | | | $ | 385,410 | | | $ | 290,504 | | | | | | | |
| Third party fee income | 201 | | | 350 | | | — | | | | | | | |
| | | | | | | | | | | |
| Claims and Expenses | | | | | | | | | | | |
| Losses and loss adjustment expenses | 422,849 | | | 287,701 | | | 233,822 | | | | | | | |
| Acquisition costs | 100,618 | | | 74,244 | | | 58,061 | | | | | | | |
| Other underwriting expenses | 49,301 | | | 37,767 | | | 31,435 | | | | | | | |
| Underwriting income (loss) | $ | (51,900) | | | $ | (13,952) | | | $ | (32,814) | | | | | | | |
| | | | | | | | | | | |
| Attritional losses - current year | $ | 275,477 | | | $ | 200,370 | | | $ | 180,251 | | | | | | | |
| Attritional losses - prior year development | 26,584 | | | (8,800) | | | (17,003) | | | | | | | |
| Catastrophe losses - current year | 141,142 | | | 88,152 | | | 82,776 | | | | | | | |
| Catastrophe losses - prior year development | (20,354) | | | 7,979 | | | (12,202) | | | | | | | |
| Losses and loss adjustment expenses | $ | 422,849 | | | $ | 287,701 | | | $ | 233,822 | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Attritional loss ratio - current year | 52.9 | % | | 52.0 | % | | 62.0 | % | | | | | | |
| Attritional loss ratio - prior year development | 5.1 | % | | (2.3) | % | | (5.9) | % | | | | | | |
| Catastrophe loss ratio - current year | 27.1 | % | | 22.8 | % | | 28.6 | % | | | | | | |
| Catastrophe loss ratio - prior year development | (3.9) | % | | 2.1 | % | | (4.2) | % | | | | | | |
| Losses and loss adjustment expense ratio | 81.2 | % | | 74.6 | % | | 80.5 | % | | | | | | |
| Acquisition cost ratio | 19.3 | % | | 19.3 | % | | 20.0 | % | | | | | | |
| Other underwriting expense ratio | 9.4 | % | | 9.7 | % | | 10.8 | % | | | | | | |
| Combined ratio | 109.9 | % | | 103.6 | % | | 111.3 | % | | | | | | |
Gross Premiums Written
| | | | | | | | | | | | | | | | | | | | | | | |
| For the Years Ended | | |
| ($ in thousands) | December 31, 2022 | | November 30, 2021 | | November 30, 2020 | | | | | | |
| Property | $ | 309,051 | | | $ | 281,795 | | | $ | 227,325 | | | | | | | |
| Casualty | 262,795 | | | 154,927 | | | 116,155 | | | | | | | |
| Specialty | 141,586 | | | 117,537 | | | 81,519 | | | | | | | |
| | | | | | | | | | | |
| Total | $ | 713,432 | | | $ | 554,259 | | | $ | 424,999 | | | | | | | |
For the year ended December 31, 2022, gross premiums written increased by $159.2 million, or 28.7%, from $554.3 million for the year ended November 30, 2021 to $713.4 million for the year ended December 31, 2022. The increase was primarily driven by volume growth and rate increases in casualty reinsurance classes of business.
For the year ended November 30, 2021, gross premiums written increased by $129.3 million or 30.4% from $425.0 million for the year ended November 30, 2020 to $554.3 million for the year ended November 30, 2021. The increase was primarily driven by increases in each of the property, casualty and specialty reinsurance classes of business, largely due to expansion into new classes of business and distribution channels, improved pricing, additional participation on select targets, and strategic portfolio restructuring activities.
Net Premiums Earned
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| ($ in thousands) | December 31, 2022 | | November 30, 2021 | | November 30, 2020 |
| Property | $ | 233,426 | | | $ | 196,258 | | | $ | 108,689 | |
| Casualty | 175,647 | | | 95,271 | | | 109,886 | |
| Specialty | 111,594 | | | 93,881 | | | 71,929 | |
| | | | | |
| Total | $ | 520,667 | | | $ | 385,410 | | | $ | 290,504 | |
For the year ended December 31, 2022, the Bermuda segment's net premiums earned increased by $135.3 million, or 35.1% from $385.4 million for the year ended November 30, 2021 to $520.7 million for the year ended December 31, 2022, reflecting increases in casualty reinsurance classes of business including professional liability, general liability and umbrella & excess casualty. We also saw additional business and a hardening market in our property classes.
For the year ended November 30, 2021, the Bermuda segment's net premiums earned increased by $94.9 million, or 32.7%, from $290.5 million for the year ended November 30, 2020 to $385.4 million for the year ended November 30, 2021. The increase reflected $53.1 million of new business on our property reinsurance and casualty reinsurance classes including professional liability, general liability and umbrella & excess casualty and a higher contribution of gross premiums earned from current and prior underwriting years on our specialty class.
Losses and Loss Adjustment Expenses
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in thousands) | Current
year | | % of net premiums earned | | Prior year development | | % of net premiums earned | | Losses and loss adjustment expenses | | % of net premiums earned | |
| December 31, 2022 | | | | | | | | | | | | |
| Attritional losses | $ | 275,477 | | | 52.9 | % | | $ | 26,584 | | | 5.1 | % | | $ | 302,061 | | | 58.0 | % | |
| Catastrophe losses | 141,142 | | | 27.1 | % | | (20,354) | | | (3.9) | % | | 120,788 | | | 23.2 | % | |
| Total | $ | 416,619 | | | 80.0 | % | | $ | 6,230 | | | 1.2 | % | | $ | 422,849 | | | 81.2 | % | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| November 30, 2021 | | | | | | | | | | | | |
| Attritional losses | $ | 200,370 | | | 52.0 | % | | $ | (8,800) | | | (2.3) | % | | $ | 191,570 | | | 49.7 | % | |
| Catastrophe losses | 88,152 | | | 22.8 | % | | 7,979 | | | 2.1 | % | | 96,131 | | | 24.9 | % | |
| Total | $ | 288,522 | | | 74.8 | % | | $ | (821) | | | (0.2) | % | | $ | 287,701 | | | 74.6 | % | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| November 30, 2020 | | | | | | | | | | | | |
| Attritional losses | $ | 180,251 | | | 62.0 | % | | $ | (17,003) | | | (5.9) | % | | $ | 163,248 | | | 56.1 | % | |
| Catastrophe losses | 82,776 | | | 28.6 | % | | (12,202) | | | (4.2) | % | | 70,574 | | | 24.4 | % | |
| Total | $ | 263,027 | | | 90.6 | % | | $ | (29,205) | | | (10.1) | % | | $ | 233,822 | | | 80.5 | % | |
| | | | | | | | | | | | |
Year Ended December 31, 2022 versus Year Ended November 30, 2021
The loss ratio for the year ended December 31, 2022 was 81.2%, compared to 74.6% for the year ended November 30, 2021, an increase of 6.6 percentage points. The increase was primarily driven by unfavorable attritional prior year development on discontinued classes of business.
The attritional loss ratio - current year for the year ended December 31, 2022 was 52.9% compared to 52.0% for the year ended November 30, 2021, an increase of 0.9 percentage points. The modest increase in the current year attritional loss ratio primarily arose from a greater relative volume of casualty business, which has a relatively higher attritional loss ratio but lower volatility, compared to other classes of business.
The attritional loss ratio - prior year for the year ended December 31, 2022 was an unfavorable 5.1% compared to a favorable 2.3% for the year ended November 30, 2021, an increase of 7.4 percentage points. We experienced unfavorable prior year development for the year ended December 31, 2022 of $26.6 million, primarily driven by unfavorable prior year reserve development across discontinued casualty classes of business. This compared to favorable attritional loss prior year development for the year ended November 30, 2021 of $8.8 million, primarily driven by favorable prior year reserve development in specialty and property classes of business.
Catastrophe losses - current year and prior year of $120.8 million for the year ended December 31, 2022 were primarily driven by Hurricane Ian ($62.2 million), the Ukraine conflict ($57.1 million), Australian East Coast floods ($13.9 million), Typhoon Nanmadol ($4.3 million) and KwaZulu-Natal floods ($3.7 million), partially offset by favorable prior year development of $20.4 million. Catastrophe losses - current year and prior year of $96.1 million for the year ended November 30, 2021 were primarily driven by Hurricane Ida ($35.6 million), the Bernd European floods ($31.7 million), and Winter Storm Uri ($20.9 million), in addition to unfavorable prior year development of $8.0 million.
Year Ended November 30, 2021 versus Year Ended November 30, 2020
The loss ratio for the year ended November 30, 2021 was 74.6%, compared to 80.5% for the year ended November 30, 2020, a decrease of 5.9 percentage points. The decrease was primarily driven by a lower current year attritional loss ratio of 52.0% for the year ended November 30, 2021, compared to 62.0% for the year ended November 30, 2020.
The attritional loss ratio - current year for the year ended November 30, 2021 was 52.0% compared to 62.0% for the year ended November 30, 2020, a decrease of 10.0 percentage points. The higher attritional loss ratio - current year for the year ended November 30, 2020 primarily related to losses in property classes of business.
The attritional loss ratio - prior year for the year ended November 30, 2021 was a favorable 2.3% compared to a favorable 5.9% for the year ended November 30, 2020, an increase of 3.6 percentage points. Favorable development for the year ended November 30, 2021 of $8.8 million primarily related to loss reserve releases in the specialty and property classes of business, partially offset by unfavorable development on casualty classes of business. This compared to favorable prior year development for the year ended November 30, 2020 of $17.0 million, which was also primarily driven by favorable prior year reserve development in specialty and property classes of business.
Catastrophe losses - current year and prior year of $96.1 million for the year ended November 30, 2021 were primarily driven by Hurricane Ida ($35.6 million), the Bernd European floods ($31.7 million), and Winter Storm Uri ($20.9 million), in addition to unfavorable prior year development of $8.0 million. Catastrophe losses of $70.6 million for the year ended November 30, 2020 were driven by COVID-19 ($42.3 million), the Midwest Derecho ($15.3 million), Hurricane Laura ($13.2 million), the Tennessee tornadoes ($6.1 million), Hurricane Sally ($3.7 million) and Hurricane Zeta ($2.2 million), partially offset by favorable prior year development of $12.2 million.
Acquisition Costs
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Years Ended | | | | | | | |
| Acquisition Costs | | % of Net Premiums Earned | | | | | | | | | | | |
| ($ in thousands) | December 31, 2022 | | November 30, 2021 | | November 30, 2020 | | December 31, 2022 | | November 30, 2021 | | November 30, 2020 | | '22 vs '21 point Δ | | '21 vs '20 point Δ | | | | | | | |
| Property | $ | 36,686 | | | $ | 28,303 | | | $ | 16,187 | | | 15.7 | % | | 14.4 | % | | 14.9 | % | | 1.3 | | | (0.5) | | | | | | | | |
| Casualty | 35,643 | | | 11,431 | | | 20,556 | | | 20.3 | % | | 12.0 | % | | 18.7 | % | | 8.3 | | | (6.7) | | | | | | | | |
| Specialty | 28,289 | | | 34,510 | | | 21,318 | | | 25.3 | % | | 36.8 | % | | 29.6 | % | | (11.5) | | | 7.2 | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| Total | $ | 100,618 | | | $ | 74,244 | | | $ | 58,061 | | | 19.3 | % | | 19.3 | % | | 20.0 | % | | — | | | (0.7) | | | | | | | | |
For the year ended December 31, 2022, the acquisition cost ratio remained flat at 19.3%, compared to 19.3% for the year ended November 30, 2021, reflecting offsetting factors, such as a change in the mix of business and the impact of reinstatement premiums.
For the year ended November 30, 2021, the acquisition cost ratio was 19.3% compared to 20.0% for the year ended November 30, 2020, a decrease of 0.7 percentage points, reflecting the change in business mix year-on-year.
Other Underwriting Expenses and Other Underwriting Expense Ratios
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| ($ in thousands) | December 31, 2022 | | November 30, 2021 | | November 30, 2020 |
| Other underwriting expenses | $ | 49,301 | | | $ | 37,767 | | | $ | 31,435 | |
| Other underwriting expense ratio | 9.4 | % | | 9.7 | % | | 10.8 | % |
Other underwriting expenses are general and administrative costs incurred by our reportable segments.
Other underwriting expenses increased, by $11.5 million or 30.5%, and $6.3 million or 20.2%, respectively, over the years ended December 31, 2022 and November 30, 2021 and 2020 as a result of additional headcount supporting the increase in premium volume driven by our expansion into new classes of business.
The other underwriting expense ratios for the years ended December 31, 2022 and November 30, 2021 and 2020 decreased over the same period at 9.4%, 9.7% and 10.8%, as a result of the growth in premium base and our continued focus on expense management.
Corporate and Other
Total realized and unrealized gains (losses) on investments and net investment income (loss)
The components of total realized and unrealized gains (losses) on investments and net investment income (loss) are as follows:
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| ($ in thousands) | December 31, 2022 | | November 30, 2021 | | November 30, 2020 |
Total realized and unrealized gains (losses) on investments and net investment income (loss) - TSHF(1) | $ | 145,237 | | | $ | 327,028 | | | $ | (61,217) | |
| Total realized and unrealized gains (losses) on investments and net investment income (loss) - other | (80,367) | | | (18,052) | | | 28,318 | |
| $ | 64,870 | | | $ | 308,976 | | | $ | (32,899) | |
| | | | | |
| Net income (loss) attributable to non-controlling interest - TSHF | $ | 68,064 | | | $ | 61,660 | | | $ | 24,930 | |
__________________
(1)Prior to non-controlling interest performance incentive allocation.
Total realized and unrealized gains (losses) on investments and net investment income (loss) - TSHF, prior to non-controlling interest, returned income of $145.2 million, $327.0 million and a loss of $61.2 million for the years ended December 31, 2022 and November 30, 2021 and 2020, respectively. This includes the fund's returns, net of investment management fees.
Total realized and unrealized gains (losses) on investments and net investment income (loss) - TSHF, net of non-controlling interest, returned income of $77.2 million, $265.4 million and a loss of $86.1 million for the years ended December 31, 2022 and November 30, 2021 and 2020, respectively. This includes the fund's returns, net of investment management fees and performance incentive allocations. The aggregate incentive allocation to which the investment manager is entitled is included in “Net income attributable to non-controlling interests” in our GAAP financial statements.
Two Sigma Hamilton Fund produced returns, net of investment management fees and performance incentive allocations, of 4.6%, 17.7% and (4.6%) for each of the years ended December 31, 2022 and November 30, 2021 and 2020, respectively.
For the year ended December 31, 2022, TSHF received positive contributions from single name equities trading in STV which was partially offset by losses in macro-economic trading within FTV. Gains were led by U.S. single name equities in STV followed by non-U.S. equities in ESTV. In macro-economic activities, FTV delivered positive results from equities trading, which was outweighed by losses from fixed income trading, commodities trading, and currencies trading.
For the year ended November 30, 2021, TSHF was positive in each of the three underlying Two Sigma Funds. Gains were led by trading in FTV, followed by U.S. single name equities in STV, and then by non-U.S. equities in ESTV. In FTV, positive results were received from commodities and equities trading, which was partially offset by negative results from currencies and fixed income.
For the year ended November 30, 2020, TSHF’s return was negative with losses driven by Macro trading in FTV, offset partially by gains in single name equities trading in STV and ESTV. Gains were led by U.S. single name equities, and then by non-U.S. equities. In FTV, the fund delivered negative results from fixed income, currencies, commodities and equities trading. Total realized and unrealized gains (losses) on investments and net investment income (loss) - other, returned a loss of $80.4 million, $18.1 million and income of $28.3 million for the years ended December 31, 2022 and November 30, 2021 and 2020, respectively. This is primarily comprised of returns on our fixed maturity securities trading portfolio.
During the year ended December 31, 2022, the negative mark-to-market impact of rising interest rates and other macroeconomic factors offset investment yield, giving rise to non-credit related net investment losses. During the year ended November 30, 2021, there was a net loss on the fixed maturity securities trading portfolio due to the negative mark-to-market impact of rising interest rates. During the year ended November 30, 2020, positive net investment income was earned on the fixed maturities portfolio primarily related to decreasing interest rates. The years ended November 30, 2021 and 2020 were also impacted by a loss on equity method investment of $7.3 million and $9.0 million, respectively, related to our interest in Attune, recorded under the equity method of accounting, prior to its sale on September 20, 2021.
Net Gain on Sale of Equity Method Investment
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| ($ in thousands) | December 31, 2022 | | November 30, 2021 | | November 30, 2020 |
| Net gain on sale of equity method investment | $ | 6,991 | | | $ | 54,557 | | | $ | — | |
On September 20, 2021, a purchaser acquired Attune, a joint venture in which the Company had a one-third interest. Proceeds of sale were settled on closing, and the net gain on sale of equity method investment of $54.6 million was recorded in the statement of operations for the year ended November 30, 2021. In the year ended December 31, 2022, escrow funds of $7.0 million were received and recorded in the statement of operations, recognizing an incremental net gain on sale of equity method investment relating to the same transaction.
Other Income (Loss)
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| ($ in thousands) | December 31, 2022 | | November 30, 2021 | | November 30, 2020 |
| Other income (loss), excluding third party fee income | $ | (315) | | | $ | (11) | | | $ | 97 | |
Other income (loss), excluding third party fee income, consists of varying insignificant items in each period.
Net Foreign Exchange Gains (Losses)
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| ($ in thousands) | December 31, 2022 | | November 30, 2021 | | November 30, 2020 |
| Net foreign exchange gains (losses) | $ | 6,137 | | | $ | 6,442 | | | $ | (9,540) | |
Our functional currency is the U.S. dollar. We may conduct routine underwriting operations or invest a portion of our cash and other investable assets in currencies other than U.S. dollars. Consequently, we may incur foreign exchange gains and losses in our results of operations.
Foreign exchange gains for the years ended December 31, 2022 and November 30, 2021 of $6.1 million and $6.4 million, respectively, primarily arose from the strengthening of the U.S. dollar against the British pound, Euro and Yen. Foreign exchange losses for the year ended November 30, 2020 of $9.5 million primarily arose from the weakening of the U.S. dollar against the same currencies.
Corporate Expenses
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| ($ in thousands) | December 31, 2022 | | November 30, 2021 | | November 30, 2020 |
| Corporate expenses | $ | 20,142 | | | $ | 22,472 | | | $ | 22,905 | |
Corporate expenses are general and administrative costs incurred outside of our reportable segments. We may periodically reassess allocations between corporate and other underwriting expenses to better reflect the nature of the
underlying expense. Corporate expenses for the years ended December 31, 2022 and November 30, 2021 and 2020 of $20.1 million, $22.5 million and $22.9 million, respectively, primarily consist of certain executive and Board compensation costs and professional fees.
Impairment of Goodwill
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| ($ in thousands) | December 31, 2022 | | November 30, 2021 | | November 30, 2020 |
| Impairment of goodwill | $ | 24,082 | | | $ | 936 | | | $ | — | |
In the years ended December 31, 2022, November 30, 2021 and 2020, the Company recorded impairment charges of $24.1 million, $0.9 million and $Nil, respectively, primarily arising from the annual goodwill impairment assessment. As at December 31, 2022 and November 30, 2021, there was $Nil and $24.9 million of goodwill recorded on the balance sheet.
Amortization of Intangible Assets
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| ($ in thousands) | December 31, 2022 | | November 30, 2021 | | November 30, 2020 |
| Amortization of intangible assets | $ | 12,832 | | | $ | 13,431 | | | $ | 12,489 | |
Amortization of intangible assets of $12.8 million, $13.4 million and $12.5 million, for the years ended December 31, 2022 and November 30, 2021 and 2020, respectively, relates to internally developed software and intangible assets acquired in a business combination. The intangible assets acquired in a business combination represent the excess of the purchase price over the acquired net assets that was allocated to coverholder and broker relationships, value of business acquired and MGA contracts at the acquisition date and is subsequently being amortized over their estimated useful lives.
Interest Expense
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| ($ in thousands) | December 31, 2022 | | November 30, 2021 | | November 30, 2020 |
| Interest expense | $ | 15,741 | | | $ | 14,897 | | | $ | 18,910 | |
Interest expense of $15.7 million, $14.9 million and $18.9 million for the years ended December 31, 2022 and November 30, 2021 and 2020, respectively, relates to interest payments and certain administrative fees associated with our term loan and letter of credit facilities. The higher interest expense in the year ended November 30, 2020 also included incremental interest costs associated with our temporary draw-down of $100.0 million under our revolving letter of credit facility in the initial stages of the COVID-19 pandemic.
Income Tax Expense
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| ($ in thousands) | December 31, 2022 | | November 30, 2021 | | November 30, 2020 |
| Income tax expense | $ | 3,104 | | | $ | 12,365 | | | $ | 11,492 | |
The Company's subsidiaries and branches operate in jurisdictions that are subject to tax, specifically, the United Kingdom, Ireland and the United States. Our Bermuda domiciled subsidiaries are not subject to Bermuda income tax under current Bermuda law. Our effective income tax rate may therefore fluctuate significantly, depending on the relative contribution of each jurisdiction to pre-tax income or loss within the Company in any given period. In addition, certain of our taxable jurisdictions currently benefit from historical net operating losses and, for income tax purposes, are able to offset these against current period operating income. Tax expense of $3.1 million, $12.4 million and $11.5 million for the years ended December 31, 2022 and November 30, 2021 and 2020, respectively, primarily relates to withholding taxes on investment income from Two Sigma Hamilton Fund.
Change in Financial Year — Stub Period Results
The following is a comparison of selected data for our consolidated results of operations for the one month periods ended December 31, 2021 and 2020 and book value per share and balance sheet data as at December 31, 2021 and 2020.
| | | | | | | | | | | |
| For the One Month Ended |
| ($ in thousands, except per share amounts) | December 31, 2021 | | December 31, 2020 |
| Gross premiums written | $ | 121,813 | | | $ | 88,521 | |
| Net premiums written | $ | 97,921 | | | $ | 74,126 | |
| Net premiums earned | $ | 98,631 | | | $ | 67,498 | |
| Third party fee income | 1,349 | | | 1,849 | |
| | | |
| Claims and Expenses | | | |
| Losses and loss adjustment expenses | 56,650 | | | 44,925 | |
| Acquisition costs | 23,992 | | | 17,534 | |
| Other underwriting expenses | 13,857 | | | 12,107 | |
| Underwriting income (loss) | $ | 5,481 | | | $ | (5,219) | |
| | | |
| Net realized and unrealized gains (losses) on investments | (33,526) | | | 91,813 | |
| Net investment income (loss) | (3,222) | | | (4,570) | |
| Total realized and unrealized gains (losses) on investments and net investment income (loss) | $ | (36,748) | | | $ | 87,243 | |
| | | |
| Net income (loss) | (35,890) | | | 78,616 | |
Net income (loss) attributable to non-controlling interest | (3) | | | 15,195 | |
| Net income (loss) attributable to common shareholders | $ | (35,887) | | | $ | 63,421 | |
| Diluted income (loss) per share attributable to common shareholders | $ | (0.35) | | | $ | 0.61 | |
| | | |
| | | |
| Key Ratios | | | |
| Attritional loss ratio - current year | 48.0 | % | | 42.5 | % |
| Attritional loss ratio - prior year development | — | % | | — | % |
| Catastrophe loss ratio - current year | 9.4 | % | | — | % |
| Catastrophe loss ratio - prior year development | — | % | | 24.0 | % |
| Loss and loss adjustment expense ratio | 57.4 | % | | 66.5 | % |
| Acquisition cost ratio | 24.3 | % | | 26.0 | % |
| Other underwriting expense ratio | 12.7 | % | | 15.2 | % |
| Combined ratio | 94.4 | % | | 107.7 | % |
| | | |
| Return on average common shareholders' equity | (2.0) | % | | 3.9 | % |
| | | |
| As at |
| Book Value | December 31, 2021 | | December 31, 2020 |
| Tangible book value per common share | $ | 15.95 | | | $ | 15.11 | |
| Book value per common share | $ | 17.09 | | | $ | 16.23 | |
| | | |
| | | |
| | | |
| | | |
| Balance Sheet Data | | | |
| Total assets | $ | 5,442,674 | | | $ | 4,858,096 | |
| Total shareholders' equity | $ | 1,752,601 | | | $ | 1,660,949 | |
The following significant items impacted the consolidated results of operations for the one-month periods ended December 31, 2021 and 2020:
Gross premiums written Gross premiums written were $121.8 million and $88.5 million for the one month ended December 31, 2021 and 2020, respectively. The increase in gross premiums written for the one month ended December 31, 2022 and November 30, 2021 was primarily driven by expansion into additional classes, increased participation on existing business and rate increases across multiple classes of business.
Underwriting results The combined ratio was 94.4% and 107.7% for the one month ended December 31, 2021 and December 31, 2020, respectively. The decrease was primarily driven by a lower level of catastrophe losses and a decrease in our other underwriting expense ratio.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in thousands) | | Current year | | % of net premiums earned | | Prior year development | | % of net premiums earned | | Losses and loss adjustment expenses | | % of net premiums earned |
| December 31, 2021 | | | | | | | | | | | | |
| Attritional losses | | $ | 47,327 | | | 48.0 | % | | $ | — | | | — | % | | $ | 47,327 | | | 48.0 | % |
| Catastrophe losses | | 9,323 | | | 9.4 | % | | — | | | — | % | | 9,323 | | | 9.4 | % |
| Total | | $ | 56,650 | | | 57.4 | % | | $ | — | | | — | % | | $ | 56,650 | | | 57.4 | % |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| December 31, 2020 | | | | | | | | | | | | |
| Attritional losses | | $ | 28,698 | | | 42.5 | % | | $ | — | | | — | % | | $ | 28,698 | | | 42.5 | % |
| Catastrophe losses | | — | | | — | % | | 16,227 | | | 24.0 | % | | 16,227 | | | 24.0 | % |
| Total | | $ | 28,698 | | | 42.5 | % | | $ | 16,227 | | | 24.0 | % | | $ | 44,925 | | | 66.5 | % |
| | | | | | | | | | | | |
The loss ratio for the month ended December 31, 2021 was 57.4%, compared to 66.5% for the month ended December 31, 2020, a decrease of 9.1 percentage points. The decrease was primarily driven by a lower level of catastrophe losses, partially offset by a higher level of current year attritional losses.
Catastrophe losses - current year and prior year of $9.3 million for the month ended December 31, 2021 were primarily driven by windstorm event PCS 2176 ($7.9 million) and COVID-19 ($1.5 million). Catastrophe losses - current year and prior year of $16.2 million for the month ended December 31, 2020 were primarily driven by Hurricanes Laura, Sally and Zeta ($16.0 million).
Total realized and unrealized gains (losses) on investments and net investment income (loss) consisted of a loss of $36.7 million and income of $87.2 million for the one month ended December 31, 2021 and 2020, respectively.
Two Sigma Hamilton Fund produced returns, net of investment management fees and performance incentive allocations, of (2.1%) and 4.3% for the one month ended December 31, 2021 and 2020, respectively.
Consolidated Interim Results of Operations
The following is a comparison of selected data for our consolidated results of operations for the six months ended June 30, 2023 and 2022 and book value per share and balance sheet data as at June 30, 2023 and 2022.
| | | | | | | | | | | | | | |
| For the Six Months Ended | | | |
| ($ in thousands, except per share amounts) | June 30, 2023 | | June 30, 2022 | | | |
| Gross premiums written | $ | 1,043,124 | | | $ | 904,610 | | | | |
| Net premiums written | $ | 733,206 | | | $ | 637,677 | | | | |
| Net premiums earned | $ | 615,362 | | | $ | 536,524 | | | | |
Third party fee income(1) | 5,452 | | | 6,133 | | | | |
| | | | | | |
| Claims and Expenses | | | | | | |
| Losses and loss adjustment expenses | 327,977 | | | 339,051 | | | | |
| Acquisition costs | 141,995 | | | 129,060 | | | | |
Other underwriting expenses(2) | 81,886 | | | 78,792 | | | | |
Underwriting income (loss)(3) | 68,956 | | | (4,246) | | | | |
| | | | | | |
| Net realized and unrealized gains (losses) on investments | 54,539 | | | 214,019 | | | | |
Net investment income (loss)(4) | 9,650 | | | (16,929) | | | | |
| Total realized and unrealized gains (losses) on investments and net investment income (loss) | 64,189 | | | 197,090 | | | | |
| | | | | | |
| | | | | | |
Other income (loss), excluding third party fee income(1) | — | | | 257 | | | | |
| Net foreign exchange gains (losses) | (5,387) | | | 13,476 | | | | |
Corporate expenses(2) | 13,154 | | | 10,154 | | | | |
| | | | | | |
| Amortization of intangible assets | 5,075 | | | 6,697 | | | | |
| Interest expense | 10,718 | | | 7,153 | | | | |
| Income tax expense | 4,521 | | | 2,048 | | | | |
| Net income (loss) | 94,290 | | | 180,525 | | | | |
Net income (loss) attributable to non-controlling interest(5) | 6,011 | | | 83,387 | | | | |
| Net income (loss) attributable to common shareholders | $ | 88,279 | | | $ | 97,138 | | | | |
| Diluted income (loss) per share attributable to common shareholders | $ | 0.84 | | | $ | 0.93 | | | | |
| | | | | | |
| Key Ratios | | | | | | |
| Attritional loss ratio - current year | 50.1 | % | | 49.5 | % | | | |
| Attritional loss ratio - prior year development | (0.6) | % | | (3.4) | % | | | |
| Catastrophe loss ratio - current year | 3.6 | % | | 19.5 | % | | | |
| Catastrophe loss ratio - prior year development | 0.2 | % | | (2.4) | % | | | |
| Loss and loss adjustment expense ratio | 53.3 | % | | 63.2 | % | | | |
| Acquisition cost ratio | 23.1 | % | | 24.0 | % | | | |
| Other underwriting expense ratio | 12.4 | % | | 13.6 | % | | | |
| Combined ratio | 88.8 | % | | 100.8 | % | | | |
| | | | | | |
| Return on average common shareholders' equity | 5.2% | | 5.4 | % | | | |
| | | | | | | | | | | | | | |
| As at | | | |
| Book Value | June 30, 2023 | | June 30, 2022 | | | |
| Tangible book value per common share | $ | 16.04 | | | $ | 16.90 | | | | |
Change in tangible book value per common share(6) | 4.8 | % | | 6.0 | % | | | |
| Book value per common share | $ | 16.90 | | | $ | 17.99 | | | | |
| | | | | | |
| | | | | | |
Change in book value per common share(7) | 4.7 | % | | 5.3 | % | | | |
| | | | | | |
| Balance Sheet Data | | | | | | |
| Total assets | $ | 6,280,551 | | | $ | 6,077,809 | | | | |
| Total shareholders' equity | $ | 1,752,154 | | | $ | 1,854,154 | | | | |
________________
(1)Third party fee income is a non-GAAP financial measure as defined in Item 10(e) of SEC Regulation S-K. The reconciliation to other income (loss), the most comparable GAAP financial measure, also included other income (loss), excluding third party fee income of $Nil and $0.3 million for the six months ended June 30, 2023 and 2022, respectively. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Measures” for further details.
(2)Other underwriting expenses is a non-GAAP financial measure as defined in Item 10(e) of SEC Regulation S-K. The reconciliation to general and administrative expenses, the most comparable GAAP financial measure, also included corporate expenses of $13.2 million and $10.2 million for the six months ended June 30, 2023 and 2022, respectively. Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Measures” for further details.
(3)Underwriting income (loss) is a non-GAAP financial measure as defined in Item 10(e) of SEC Regulation S-K. Refer to 'Management’s Discussion and Analysis of Financial Condition and Results of Operations—Non-GAAP Measures' for further details.
(4)Net investment income (loss) is presented net of investment management fees.
(5)Refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Consolidated Interim Results of Operations—Corporate and Other'” for further details.
(6)Change in tangible book value per share represents the change for the six months ended June 30, 2023 and 2022, respectively.
(7)Change in book value per share represents the change for the six months ended June 30, 2023 and 2022, respectively.
The following significant items impacted the consolidated results of operations for the six months ended June 30, 2023 and 2022:
Gross premiums written Gross premiums written were $1,043.1 million and $904.6 million for the six months ended June 30, 2023 and 2022, respectively. The increase in gross premiums written was primarily driven by growth in both our casualty and specialty classes, including increased participation on existing business, and increased rates as a result of the hardening market across multiple classes of business.
Underwriting results The combined ratio was 88.8% and 100.8% for the six months ended June 30, 2023 and 2022, respectively. The decrease was primarily driven by a lower percentage contribution from catastrophe losses as described further below under “Impact of catastrophe events” and decreases in both our acquisition cost and other underwriting expense ratios.
Losses and Loss Adjustment Expenses
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in thousands) | | Current
year | | % of net premiums earned | | Prior year development | | % of net premiums earned | | Losses and loss adjustment expenses | | % of net premiums earned |
| June 30, 2023 | | | | | | | | | | | | |
| Attritional losses | | $ | 308,452 | | | 50.1 | % | | $ | (3,638) | | | (0.6) | % | | $ | 304,814 | | | 49.5 | % |
| Catastrophe losses | | 22,006 | | | 3.6 | % | | 1,157 | | | 0.2 | % | | 23,163 | | | 3.8 | % |
| Total | | $ | 330,458 | | | 53.7 | % | | $ | (2,481) | | | (0.4) | % | | $ | 327,977 | | | 53.3 | % |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| June 30, 2022 | | | | | | | | | | | | |
| Attritional losses | | $ | 265,672 | | | 49.5 | % | | $ | (18,449) | | | (3.4) | % | | $ | 247,223 | | | 46.1 | % |
| Catastrophe losses | | 104,862 | | | 19.5 | % | | (13,034) | | | (2.4) | % | | 91,828 | | | 17.1 | % |
| Total | | $ | 370,534 | | | 69.0 | % | | $ | (31,483) | | | (5.8) | % | | $ | 339,051 | | | 63.2 | % |
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Attritional loss ratio - current year for the six months ended June 30, 2023 was 50.1% compared to 49.5% for the six months ended June 30, 2022, an increase of 0.6 percentage points. The modest increase is largely attributable to changes in business mix across both our International and Bermuda segments.
Attritional loss ratio - prior year for the six months ended June 30, 2023 was a favorable 0.6% compared to a favorable 3.4% for the six months ended June 30, 2022, an increase of 2.8 percentage points. The attritional loss ratio - prior year for the six months ended June 30, 2023 was primarily driven by favorable prior year development in specialty classes in the Bermuda segment and property classes in the International segment, partially offset by unfavorable development in our Bermuda property and casualty classes. The attritional loss ratio - prior year for the six months ended June 30, 2022 was primarily driven by favorable prior year development in specialty classes in the Bermuda segment, casualty classes in the International segment and favorable development in property classes for both segments.
Impact of catastrophe events Catastrophe losses (current year and prior year development) were $23.2 million and $91.8 million for the six months ended June 30, 2023 and 2022, respectively. Catastrophe losses for the six months ended June 30, 2023 were driven by severe convective storms in June 2023 ($14.6 million), the wind and thunderstorm events which impacted states in both the Southern and Midwest U.S. during March 2023 ($7.4 million), and unfavorable prior year development of $1.2 million. Catastrophe losses for the six months ended June 30, 2022 were driven by the Ukraine conflict ($79.6 million), Australian East Coast floods ($15.4 million), KwaZulu-Natal floods ($10.0 million) and favorable prior year development of $13.0 million.
Total Realized and Unrealized Gains (Losses) on Investments and Net Investment Income (Loss)
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| For the Six Months Ended | | |
| ($ in thousands) | June 30, 2023 | | June 30, 2022 | | |
Total realized and unrealized gains (losses) on investments and net investment income (loss) - TSHF(1) | $ | 40,045 | | | $ | 262,498 | | | |
| Total realized and unrealized gains (losses) on investments and net investment income (loss) - other | 24,144 | | | (65,408) | | | |
| $ | 64,189 | | | $ | 197,090 | | | |
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| Net income (loss) attributable to non-controlling interest - TSHF | $ | 6,011 | | | $ | 83,387 | | | |
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__________________
(1)Prior to non-controlling interest performance incentive allocation.
Total realized and unrealized gains (losses) on investments and net investment income (loss) - TSHF, prior to non-controlling interest, returned income of $40.0 million and $262.5 million for the six months ended June 30, 2023 and 2022, respectively. This includes the fund's returns, net of investment management fees.
Total realized and unrealized gains (losses) on investments and net investment income (loss) - TSHF, net of non-controlling interest, returned income of $34.0 million and $179.1 million for the six months ended June 30, 2023 and 2022, respectively. This includes the fund's returns, net of investment management fees and performance incentive allocations. The aggregate incentive allocation to which the investment manager is entitled is included in “Net income attributable to non-controlling interests” in our GAAP financial statements.
TSHF produced returns, net of investment management fees and performance incentive allocations, of 2.1% and 10.6% for the six months ended June 30, 2023 and 2022, respectively.
For the six months ended June 30, 2023, TSHF received positive contributions from single name equities trading which was partially offset by losses experienced from macroeconomic trading in FTV. In STV and ESTV, both non-U.S. and U.S. portfolios have contributed positively. In FTV, losses were driven by fixed income and commodities, with equities and currencies trading contributing positive results.
For the six months ended June 30, 2022, TSHF was positive in each of the underlying Two Sigma Funds. Gains were led by U.S. single name equities in STV, followed by non-U.S. equities in ESTV, and then by FTV trading. In FTV, the fund delivered positive results from equities and commodities trading, which was partially offset by negative results from currencies and fixed income.
Total realized and unrealized gains (losses) on investments and net investment income (loss) - other returned income of $24.1 million and a loss of $65.4 million for the six months ended June 30, 2023 and 2022, respectively. The returns are primarily driven by higher interest rates and higher yielding assets during 2023 as a result of portfolio reinvestments during the 2022 rising interest rate environment.
International Segment
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| For the Six Months Ended | |
| ($ in thousands) | June 30, 2023 | | June 30, 2022 | | | |
| Gross premiums written | $ | 524,909 | | | $ | 429,740 | | | | |
| Net premiums written | $ | 319,067 | | | $ | 262,258 | | | | |
| Net premiums earned | $ | 326,151 | | | $ | 293,894 | | | | |
| Third party fee income | 5,302 | | | 5,884 | | | | |
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| Claims and Expenses | | | | | | |
| Losses and loss adjustment expenses | 157,967 | | | 157,779 | | | | |
| Acquisition costs | 84,452 | | | 80,657 | | | | |
| Other underwriting expenses | 58,002 | | | 55,445 | | | | |
| Underwriting income (loss) | $ | 31,032 | | | $ | 5,897 | | | | |
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| Attritional losses - current year | $ | 168,153 | | | $ | 140,481 | | | | |
| Attritional losses - prior year development | (12,241) | | | (15,750) | | | | |
| Catastrophe losses - current year | 1,500 | | | 28,702 | | | | |
| Catastrophe losses - prior year development | 555 | | | 4,346 | | | | |
| Losses and loss adjustment expenses | $ | 157,967 | | | $ | 157,779 | | | | |
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| Attritional loss ratio - current year | 51.6 | % | | 47.8 | % | | | |
| Attritional loss ratio - prior year development | (3.8) | % | | (5.3) | % | | | |
| Catastrophe loss ratio - current year | 0.4 | % | | 9.8 | % | | | |
| Catastrophe loss ratio - prior year development | 0.2 | % | | 1.4 | % | | | |
| Losses and loss adjustment expense ratio | 48.4 | % | | 53.7 | % | | | |
| Acquisition cost ratio | 25.9 | % | | 27.4 | % | | | |
| Other underwriting expense ratio | 16.2 | % | | 16.9 | % | | | |
| Combined ratio | 90.5 | % | | 98.0 | % | | | |
Gross Premiums Written
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| For the Six Months Ended | |
| ($ in thousands) | June 30, 2023 | | June 30, 2022 | | | |
| Property | $ | 67,096 | | | $ | 61,175 | | | | |
| Casualty | 212,427 | | | 203,070 | | | | |
| Specialty | 245,386 | | | 165,495 | | | | |
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| Total | $ | 524,909 | | | $ | 429,740 | | | | |
Gross premiums written increased by $95.2 million, or 22.1%, from $429.7 million for the six months ended June 30, 2022 to $524.9 million for the six months ended June 30, 2023, primarily driven by growth in specialty classes, hardening rates on certain property classes, partially offset by a reduction in property reinsurance and casualty reinsurance as the result of strategic business decisions.
Net Premiums Earned
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| For the Six Months Ended |
| ($ in thousands) | June 30, 2023 | | June 30, 2022 |
| Property | $ | 48,369 | | | $ | 59,360 | |
| Casualty | 128,321 | | | 117,282 | |
| Specialty | 149,461 | | | 117,252 | |
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| Total | $ | 326,151 | | | $ | 293,894 | |
For the six months ended June 30, 2023, net premiums earned increased by $32.3 million, or 11.0%, from $293.9 million for the six months ended June 30, 2022 to $326.2 million for the six months ended June 30, 2023, reflecting growth in our specialty business driven by growth in political violence in our war & terror product, fine art & specie and marine & energy books and growth in our casualty business, particularly for professional lines and U.S. casualty excess and surplus lines. This was partially offset by decreases across certain classes of business in property reinsurance as the result of strategic business decisions.
Third Party Fee Income
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| For the Six Months Ended |
| ($ in thousands) | June 30, 2023 | | June 30, 2022 |
| Third party fee income | $ | 5,302 | | | $ | 5,884 | |
For the six months ended June 30, 2023, fee income decreased modestly by $0.6 million, or (9.9)%, from $5.9 million for the six months ended June 30, 2022 to $5.3 million for the six months ended June 30, 2023.
Losses and Loss Adjustment Expenses
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| ($ in thousands) | | Current
year | | % of net premiums earned | | Prior year development | | % of net premiums earned | | Losses and loss adjustment expenses | | % of net premiums earned | |
| June 30, 2023 | | | | | | | | | | | | | |
| Attritional losses | | $ | 168,153 | | | 51.6 | % | | $ | (12,241) | | | (3.8) | % | | $ | 155,912 | | | 47.8 | % | |
| Catastrophe losses | | 1,500 | | | 0.4 | % | | 555 | | | 0.2 | % | | 2,055 | | | 0.6 | % | |
| Total | | $ | 169,653 | | | 52.0 | % | | $ | (11,686) | | | (3.6) | % | | $ | 157,967 | | | 48.4 | % | |
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| June 30, 2022 | | | | | | | | | | | | | |
| Attritional losses | | $ | 140,481 | | | 47.8 | % | | $ | (15,750) | | | (5.3) | % | | $ | 124,731 | | | 42.5 | % | |
| Catastrophe losses | | 28,702 | | | 9.8 | % | | 4,346 | | | 1.4 | % | | 33,048 | | | 11.2 | % | |
| Total | | $ | 169,183 | | | 57.6 | % | | $ | (11,404) | | | (3.9) | % | | $ | 157,779 | | | 53.7 | % | |
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Six Months Ended June 30, 2023 versus Six Months Ended June 30, 2022
The loss ratio for the six months ended June 30, 2023 was 48.4%, compared to 53.7% for the six months ended June 30, 2022, a decrease of 5.3 percentage points. The decrease was primarily driven by a lower level of catastrophe losses.
The attritional loss ratio - current year for the six months ended June 30, 2023 was 51.6% compared to 47.8% for the six months ended June 30, 2022, an increase of 3.8 percentage points. The increase in the current year attritional loss ratio primarily arose from a change in the business mix arising from the growth in our specialty business.
The attritional loss ratio - prior year for the six months ended June 30, 2023 was a favorable 3.8% compared to a favorable 5.3% for the six months ended June 30, 2022, an increase of 1.5 percentage points. The current year favorable results are primarily driven by reserve releases on our property and specialty classes of business. In addition, casualty business protected by the LPT experienced unfavorable development of $1.3 million which was offset by $3.4 million in amortization of the associated deferred gain, for a total net positive earnings impact of $2.1 million.
Catastrophe losses - current year and prior year of $2.1 million for the six months ended June 30, 2023 were primarily driven by the severe convective storms in June 2023 ($1.5 million) and unfavorable prior year development of $0.6 million. Catastrophe losses - current year and prior year of $33.0 million for the six months ended June 30, 2022 were primarily driven by the Ukraine conflict ($22.5 million), KwaZulu-Natal floods ($4.0 million), Australian East Coast floods ($2.3 million), and unfavorable prior year development of $4.3 million.
Acquisition Costs
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| For the Six Months Ended | | | | | | | | | |
| Acquisition Costs | | % of Net Premiums Earned | | | | | | | | | |
| ($ in thousands) | June 30, 2023 | | June 30, 2022 | | June 30, 2023 | | June 30, 2022 | | 23 vs '22 point Δ | | | | | | | |
| Property | $ | 16,469 | | | $ | 18,018 | | | 34.0 | % | | 30.4 | % | | 3.6 | | | | | | | | |
| Casualty | 22,896 | | | 27,835 | | | 17.8 | % | | 23.7 | % | | (5.9) | | | | | | | | |
| Specialty | 45,087 | | | 34,804 | | | 30.2 | % | | 29.7 | % | | 0.5 | | | | | | | | |
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| Total | $ | 84,452 | | | $ | 80,657 | | | 25.9 | % | | 27.4 | % | | (1.5) | | | | | | | | |
For the six months ended June 30, 2023, the acquisition cost ratio was 25.9%, compared to 27.4% for the six months ended June 30, 2022, a decrease of 1.5 percentage points. The decrease was primarily driven by higher volumes of business written in casualty insurance lines that benefit from favorable overriding commission offset and changes in the business mix.
Other Underwriting Expenses and Other Underwriting Expense Ratios
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| For the Six Months Ended | | | | | |
| ($ in thousands) | June 30, 2023 | | June 30, 2022 | | | | | |
| Other underwriting expenses | $ | 58,002 | | | $ | 55,445 | | | | | | |
| Other underwriting expense ratio | 16.2 | % | | 16.9 | % | | | | | |
Other underwriting expenses are general and administrative costs incurred by our reportable segments.
Other underwriting expenses were $58.0 million for the six months ended June 30, 2023, an increase of $2.6 million, or 4.6%, compared to $55.4 million for the six months ended June 30, 2022. The increase was primarily driven by increased headcount as we built out underwriting teams supporting the corresponding increase in premium volume.
The other underwriting expense ratios for the six months ended June 30, 2023 and 2022 decreased over the same period to 16.2% from 16.9%, respectively, as a result of the growth in our premium base and our continued focus on expense management.
Bermuda Segment
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| For the Six Months Ended | |
| ($ in thousands) | June 30, 2023 | | June 30, 2022 | | | | |
| Gross premiums written | $ | 518,215 | | | $ | 474,870 | | | | | |
| Net premiums written | $ | 414,139 | | | $ | 375,419 | | | | | |
| Net premiums earned | $ | 289,211 | | | $ | 242,630 | | | | | |
| Third party fee income | 150 | | | 249 | | | | | |
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| Claims and Expenses | | | | | | | |
| Losses and loss adjustment expenses | 170,010 | | | 181,272 | | | | | |
| Acquisition costs | 57,543 | | | 48,403 | | | | | |
| Other underwriting expenses | 23,884 | | | 23,347 | | | | | |
| Underwriting income (loss) | $ | 37,924 | | | $ | (10,143) | | | | | |
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| Attritional losses - current year | $ | 140,299 | | | $ | 125,191 | | | | | |
| Attritional losses - prior year development | 8,603 | | | (2,699) | | | | | |
| Catastrophe losses - current year | 20,506 | | | 76,160 | | | | | |
| Catastrophe losses - prior year development | 602 | | | (17,380) | | | | | |
| Losses and loss adjustment expenses | $ | 170,010 | | | $ | 181,272 | | | | | |
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| Attritional loss ratio - current year | 48.5 | % | | 51.6 | % | | | | |
| Attritional loss ratio - prior year development | 3.0 | % | | (1.1) | % | | | | |
| Catastrophe loss ratio - current year | 7.1 | % | | 31.4 | % | | | | |
| Catastrophe loss ratio - prior year development | 0.2 | % | | (7.2) | % | | | | |
| Losses and loss adjustment expense ratio | 58.8 | % | | 74.7 | % | | | | |
| Acquisition cost ratio | 19.9 | % | | 19.9 | % | | | | |
| Other underwriting expense ratio | 8.2 | % | | 9.6 | % | | | | |
| Combined ratio | 86.9 | % | | 104.2 | % | | | | |
Gross Premiums Written
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| For the Six Months Ended | | |
| ($ in thousands) | June 30, 2023 | | June 30, 2022 | | | | | | |
| Property | $ | 243,569 | | | $ | 243,709 | | | | | | | |
| Casualty | 188,818 | | | 122,618 | | | | | | | |
| Specialty | 85,828 | | | 108,543 | | | | | | | |
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| Total | $ | 518,215 | | | $ | 474,870 | | | | | | | |
For the six months ended June 30, 2023, gross premiums written increased by $43.3 million, or 9.1%, from $474.9 million for the six months ended June 30, 2022 to $518.2 million for the six months ended June 30, 2023. The increase was primarily driven by increases related to expanded participation and improved pricing on the renewed casualty reinsurance and property insurance lines and new business, partially offset by non-recurring reinstatement premiums recorded in the prior year and the strategic decision to exit certain property reinsurance business.
Net Premiums Earned
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| For the Six Months Ended |
| ($ in thousands) | June 30, 2023 | | June 30, 2022 |
| Property | $ | 103,867 | | | $ | 109,606 | |
| Casualty | 131,540 | | | 71,190 | |
| Specialty | 53,804 | | | 61,834 | |
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| Total | $ | 289,211 | | | $ | 242,630 | |
For the six months ended June 30, 2023, net premiums earned increased by $46.6 million, or 19.2% from $242.6 million for the six months ended June 30, 2022 to $289.2 million for the six months ended June 30, 2023, primarily driven by continued growth across the majority of our casualty classes, including general liability, professional liability and umbrella & excess casualty. This was partially offset by strategic withdrawals from certain property reinsurance classes of business and non-recurring reinstatement premiums recorded in the prior year.
Losses and Loss Adjustment Expenses
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| ($ in thousands) | Current
year | | % of net premiums earned | | Prior year development | | % of net premiums earned | | Losses and loss adjustment expenses | | % of net premiums earned | |
| June 30, 2023 | | | | | | | | | | | | |
| Attritional losses | $ | 140,299 | | | 48.5 | % | | $ | 8,603 | | | 3.0 | % | | $ | 148,902 | | | 51.5 | % | |
| Catastrophe losses | 20,506 | | | 7.1 | % | | 602 | | | 0.2 | % | | 21,108 | | | 7.3 | % | |
| Total | $ | 160,805 | | | 55.6 | % | | $ | 9,205 | | | 3.2 | % | | $ | 170,010 | | | 58.8 | % | |
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| June 30, 2022 | | | | | | | | | | | | |
| Attritional losses | $ | 125,191 | | | 51.6 | % | | $ | (2,699) | | | (1.1) | % | | $ | 122,492 | | | 50.5 | % | |
| Catastrophe losses | 76,160 | | | 31.4 | % | | (17,380) | | | (7.2) | % | | 58,780 | | | 24.2 | % | |
| Total | $ | 201,351 | | | 83.0 | % | | $ | (20,079) | | | (8.3) | % | | $ | 181,272 | | | 74.7 | % | |
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Six Months Ended June 30, 2023 versus Six Months Ended June 30, 2022
The loss ratio for the six months ended June 30, 2023 was 58.8%, compared to 74.7% for the six months ended June 30, 2022, a decrease of 15.9 percentage points. The decrease was primarily driven by a lower level of catastrophe losses.
The attritional loss ratio - current year for the six months ended June 30, 2023 was 48.5%, compared to 51.6% for the six months ended June 30, 2022, a decrease of 3.1 percentage points. The decrease in the current year attritional loss ratio was primarily driven by a strong rate environment across all property lines and specialty reinsurance compared to the six months ended June 30, 2022 which also included two specific large attritional losses.
The attritional loss ratio - prior year for the six months ended June 30, 2023 was an unfavorable 3.0%, compared to a favorable 1.1% for the six months ended June 30, 2022, an increase of 4.1 percentage points. The increase in the attritional loss ratio - prior year is primarily due to an increased frequency of small weather-related events and unfavorable development on two specific prior year attritional losses in the property and specialty lines, partially offset by reductions in loss estimates in our specialty classes of business.
Catastrophe losses - current year and prior year of $21.1 million for the six months ended June 30, 2023 were primarily driven by severe convective storms in June 2023 ($13.1 million), wind and thunderstorm events which impacted states in both the Southern and Midwest U.S. during March 2023 ($7.4 million) and unfavorable prior year development of $0.6 million. Catastrophe losses - current year and prior year of $58.8 million for the six months ended June 30, 2022 were primarily driven by the Ukraine conflict ($57.1 million), Australia East Coast floods ($13.1 million), and the KwaZulu-Natal floods ($6.0 million), partially offset by favorable prior year development of $17.4 million.
Acquisition Costs
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| For the Six Months Ended | | | | |
| Acquisition Costs | | % of Net Premiums Earned | | | | | | |
| ($ in thousands) | June 30, 2023 | | June 30, 2022 | | June 30, 2023 | | June 30, 2022 | | 23 vs '22 point Δ | | | | |
| Property | $ | 13,645 | | | $ | 18,744 | | | 13.1 | % | | 17.1 | % | | (4.0) | | | | | |
| Casualty | 28,892 | | | 13,373 | | | 22.0 | % | | 18.8 | % | | 3.2 | | | | | |
| Specialty | 15,006 | | | 16,286 | | | 27.9 | % | | 26.3 | % | | 1.6 | | | | | |
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| Total | $ | 57,543 | | | $ | 48,403 | | | 19.9 | % | | 19.9 | % | | — | | | | | |
For the six months ended June 30, 2023, the acquisition cost ratio was 19.9%, compared to 19.9% for the six months ended June 30, 2022. While the overall acquisition ratio remained flat, this was a result of offsetting movements in the underlying classes, primarily as the result of a change in business mix in property lines and the impact of higher reinstatement premiums earned by specialty lines in the prior period.
Other Underwriting Expenses and Other Underwriting Expense Ratios
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| For the Six Months Ended | |
| ($ in thousands) | June 30, 2023 | | June 30, 2022 | |
| Other underwriting expenses | $ | 23,884 | | | $ | 23,347 | | |
| Other underwriting expense ratio | 8.2 | % | | 9.6 | % | |
For the six months ended June 30, 2023, other underwriting expenses increased by $0.5 million, or 2.3% from $23.3 million for the six months ended June 30, 2022 to $23.9 million for the six months ended June 30, 2023.
The other underwriting expense ratio for the six months ended June 30, 2023 and 2022 decreased over the same period to 8.2% from 9.6%, respectively, as a result of the growth in premium base and our continued focus on expense management.
Corporate and Other
Total Realized and Unrealized Gains (Losses) on Investments and Net Investment Income (Loss)
The components of total realized and unrealized gains (losses) on investments and net investment income (loss) are as follows:
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| For the Six Months Ended | | |
| ($ in thousands) | June 30, 2023 | | June 30, 2022 | | |
Total realized and unrealized gains (losses) on investments and net investment income (loss) - TSHF(1) | $ | 40,045 | | | $ | 262,498 | | | |
| Total realized and unrealized gains (losses) on investments and net investment income (loss) - other | 24,144 | | | (65,408) | | | |
| $ | 64,189 | | | $ | 197,090 | | | |
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| Net income (loss) attributable to non-controlling interest - TSHF | $ | 6,011 | | | $ | 83,387 | | | |
__________________
(1)Prior to non-controlling interest performance incentive allocation.
Total realized and unrealized gains (losses) on investments and net investment income (loss) - TSHF, prior to non-controlling interest, returned income of $40.0 million and $262.5 million for the six months ended June 30, 2023 and 2022, respectively. This includes the fund's returns, net of investment management fees.
Total realized and unrealized gains (losses) on investments and net investment income (loss) - TSHF, net of non-controlling interest, returned income of $34.0 million and $179.1 million for the six months ended June 30, 2023 and 2022, respectively. This includes the fund's returns, net of investment management fees and performance incentive allocations. The aggregate incentive allocation to which the investment manager is entitled is included in “Net income attributable to non-controlling interests” in our GAAP financial statements.
Two Sigma Hamilton Fund produced returns, net of investment management fees and performance incentive allocations, of 2.1% and 10.6% for the six months ended June 30, 2023 and 2022, respectively.
For the six months ended June 30, 2023, TSHF received positive contributions from single name equities trading which was partially offset by losses experienced from macroeconomic trading in FTV. In STV and ESTV, both non-U.S. and U.S. portfolios have contributed positively. In FTV, losses were driven by fixed income and commodities, with equities and currencies trading contributing positive results.
For the six months ended June 30, 2022, TSHF was positive in each of the underlying Two Sigma Funds. Gains were led by U.S. single name equities in STV, followed by non-U.S. equities in ESTV, and then by FTV trading. In FTV, the fund delivered positive results from equities and commodities trading, which was partially offset by negative results from currencies and fixed income.
Total realized and unrealized gains (losses) on investments and net investment income (loss) - other, returned income of $24.1 million and a loss of $65.4 million for the six months ended June 30, 2023 and 2022, respectively. The returns are primarily driven by higher interest rates and higher yielding assets during 2023 as a result of portfolio reinvestments during the 2022 rising interest rate environment.
Other Income (Loss)
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| For the Six Months Ended |
| ($ in thousands) | June 30, 2023 | | June 30, 2022 |
| Other income (loss), excluding third party fee income | $ | — | | | $ | 257 | |
Other income (loss), excluding third party fee income, consists of varying insignificant items in each period.
Net Foreign Exchange Gains (Losses)
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| For the Six Months Ended |
| ($ in thousands) | June 30, 2023 | | June 30, 2022 |
| Net foreign exchange gains (losses) | $ | (5,387) | | | $ | 13,476 | |
Foreign exchange losses of $5.4 million for the six months ended June 30, 2023 primarily arose from the weakening of the U.S. Dollar against the British Pound, Euro and Yen. Foreign exchange gains of $13.5 million for the six months ended June 30, 2022 primarily arose from the strengthening of the U.S. dollar against the same currencies.
Corporate Expenses
| | | | | | | | | | | | |
| For the Six Months Ended | |
| ($ in thousands) | June 30, 2023 | | June 30, 2022 | |
| Corporate expenses | $ | 13,154 | | | $ | 10,154 | | |
Corporate expenses for the six months ended June 30, 2023 were $13.2 million compared to $10.2 million for the six months ended June 30, 2022, an increase of $3.0 million. The increase was primarily driven by higher salary and share based compensation expenses.
Amortization of Intangible Assets
| | | | | | | | | | | |
| For the Six Months Ended |
| ($ in thousands) | June 30, 2023 | | June 30, 2022 |
| Amortization of intangible assets | $ | 5,075 | | | $ | 6,697 | |
Amortization of intangible assets of $5.1 million and $6.7 million, for the six months ended June 30, 2023 and 2022, respectively, relates to internally developed software and intangible assets acquired in a business combination. Amortization expense continues to decrease over time as there have been no subsequent additions to acquired assets and the shorter-lived assets become fully amortized.
Interest Expense
| | | | | | | | | | | |
| For the Six Months Ended |
| ($ in thousands) | June 30, 2023 | | June 30, 2022 |
| Interest expense | $ | 10,718 | | | $ | 7,153 | |
Interest expense of $10.7 million and $7.2 million for the six months ended June 30, 2023 and 2022, respectively, relates to interest payments and certain administrative fees associated with our term loan and letter of credit facilities. The increase in interest expense is primarily driven by the increase in the Secured Overnight Financing Rate (“SOFR”), which underlies the floating rate associated with the term loan.
Income Tax Expense
| | | | | | | | | | | |
| For the Six Months Ended |
| ($ in thousands) | June 30, 2023 | | June 30, 2022 |
| Income tax expense | $ | 4,521 | | | $ | 2,048 | |
Tax expense of $4.5 million and $2.0 million for the six months ended June 30, 2023 and 2022, respectively, primarily relates to withholding taxes on investment income from Two Sigma Hamilton Fund.
Key Operating and Financial Metrics
The Company has identified the following metrics as key measures of the Company’s performance:
Book Value per Common Share
Management believes that book value is an important indicator of value provided to common shareholders and aligns the Company’s and most investors’ long term objectives. We calculate book value per common share as total common shareholders’ equity divided by the total number of common shares outstanding at the point in time.
Book value per common share was $16.14 at December 31, 2022, a $1.29 or 7.4% decrease from the Company’s book value per common share of $17.43 at November 30, 2021. The decrease was primarily driven by
the Company’s net losses attributable to common shareholders reported for the year ended December 31, 2022 and for the month ended December 31, 2021.
| | | | | | | | | | | | | | | | | | | | |
| As at | | |
| ($ in thousands, except for share and per share amounts) | December 31, 2022 | | November 30, 2021 | | | | | | | | | |
| Closing common shareholders' equity | $ | 1,664,183 | | | $ | 1,787,445 | | | | | | | | | | |
| Closing common shares outstanding | 103,087,859 | | | 102,540,769 | | | | | | | | | | |
| Book value per common share | $ | 16.14 | | | $ | 17.43 | | | | | | | | | | |
Book value per common share was $16.90 at June 30, 2023, a $0.76 or 4.7% increase from the Company’s book value per common share of $16.14 at December 31, 2022. The increase was primarily driven by the Company’s net income attributable to common shareholders reported for the six months ended June 30, 2023.
| | | | | | | | | | | | | | | | | | | | |
| As at | | |
| ($ in thousands, except for share and per share amounts) | June 30, 2023 | | December 31, 2022 | | | | | | | | | |
| Closing common shareholders' equity | $ | 1,752,154 | | | $ | 1,664,183 | | | | | | | | | | |
| Closing common shares outstanding | 103,683,894 | | | 103,087,859 | | | | | | | | | | |
| Book value per common share | $ | 16.90 | | | $ | 16.14 | | | | | | | | | | |
Tangible Book Value per Common Share
Management believes that tangible book value is an indicator of value provided to common shareholders and aligns the Company’s and most investors’ long term objectives. We calculate tangible book value per common share as total common shareholders’ equity, less goodwill and intangible assets, divided by the total number of common shares outstanding at the point in time.
Tangible book value per common share was $15.30 at December 31, 2022, a $0.99 or 6.1% decrease from the Company’s tangible book value per common share of $16.29 at November 30, 2021. The decrease was primarily driven by the Company’s net losses attributable to common shareholders reported for the year ended December 31, 2022 and for the month ended December 31, 2021.
| | | | | | | | | | | | | | | | | | | | | |
| As at | | |
| ($ in thousands, except for share and per share amounts) | December 31, 2022 | | November 30, 2021 | | | | | | | | | | |
| Closing common shareholders' equity | $ | 1,664,183 | | | $ | 1,787,445 | | | | | | | | | | | |
| Goodwill and intangible assets | 86,958 | | | 117,012 | | | | | | | | | | | |
| Closing common shareholders’ equity, less goodwill and intangible assets | $ | 1,577,225 | | | $ | 1,670,433 | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Closing common shares outstanding | 103,087,859 | | | 102,540,769 | | | | | | | | | | | |
| Tangible book value per common share | $ | 15.30 | | | $ | 16.29 | | | | | | | | | | | |
Tangible book value per common share was $16.04 at June 30, 2023, a $0.74 or 4.8% increase from the Company’s tangible book value per common share of $15.30 at December 31, 2022. The increase was primarily driven by the Company’s net income attributable to common shareholders reported for the six months ended June 30, 2023.
| | | | | | | | | | | | | | | | | | | | | |
| As at | | |
| ($ in thousands, except for share and per share amounts) | June 30, 2023 | | December 31, 2022 | | | | | | | | | | |
| Closing common shareholders' equity | $ | 1,752,154 | | | $ | 1,664,183 | | | | | | | | | | | |
| Goodwill and intangible assets | 88,770 | | | 86,958 | | | | | | | | | | | |
| Closing common shareholders’ equity, less goodwill and intangible assets | $ | 1,663,384 | | | $ | 1,577,225 | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Closing common shares outstanding | 103,683,894 | | | 103,087,859 | | | | | | | | | | | |
| Tangible book value per common share | $ | 16.04 | | | $ | 15.30 | | | | | | | | | | | |
Return on Average Common Shareholders' Equity
Management believes that return on average common shareholders’ equity or ROACE is an important indicator of the Company’s profitability and financial efficiency. We calculate it by dividing net income (loss) attributable to common shareholders by average common shareholders' equity for the corresponding period.
ROACE was (5.7)% for the year ended December 31, 2022 compared to 11.1% and (12.4)% for the years ended November 30, 2021 and 2020, respectively. The decrease in the ROACE for the year ended December 31, 2022 compared to the year ended November 30, 2021 was primarily driven by the Company's net loss attributable to common shareholders reported for the year ended December 31, 2022 compared to net income attributable to common shareholders reported for the year ended November 30, 2021. The net loss for the year ended December 31, 2022 was primarily driven by the impact of catastrophe losses incurred on the Ukraine conflict and Hurricane Ian and the negative impact of a rising interest rate environment on our trading portfolio.
| | | | | | | | | | | | | | | | | |
| For the year ended |
| ($ in thousands) | December 31, 2022 | | November 30, 2021 | | November 30, 2020 |
| Net income (loss) attributable to common shareholders | $ | (97,999) | | | $ | 188,179 | | | $ | (210,447) | |
| Average common shareholders' equity for the period | $ | 1,708,392 | | | $ | 1,692,098 | | | $ | 1,699,258 | |
| | | | | |
| | | | | |
| Return on average common shareholders' equity | (5.7) | % | | 11.1 | % | | (12.4) | % |
ROACE was 5.2% for the six months ended June 30, 2023 compared to 5.4% for six months ended June 30, 2022, respectively. The modest decrease in the ROACE for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 was primarily driven by the lower net income attributable to common shareholders reported for the six months ended June 30, 2023 as compared to six months ended June 30, 2022.
| | | | | | | | | | | |
| For the Six Months Ended |
| ($ in thousands) | June 30, 2023 | | June 30, 2022 |
| Net income (loss) attributable to common shareholders | $ | 88,279 | | | $ | 97,138 | |
| Average common shareholders' equity for the period | $ | 1,708,169 | | | $ | 1,803,378 | |
| | | |
| | | |
| Return on average common shareholders' equity | 5.2 | % | | 5.4 | % |
Non-GAAP Measures
We present our results of operations in a way that we believe will be the most meaningful and useful to investors, analysts, rating agencies and others who use our financial information to evaluate its performance. Some of the measurements are considered non-GAAP financial measures under SEC rules and regulations. In this prospectus, we present underwriting income (loss), a non-GAAP financial measure as defined in Item 10(e) of SEC
Regulation S-K. We believe that non-GAAP financial measures, which may be defined and calculated differently by other companies, help explain and enhance the understanding of our results of operations. However, these measures should not be viewed as a substitute for those determined in accordance with U.S. GAAP. Where appropriate, reconciliations of our non-GAAP measures to the most comparable GAAP figures are included below.
Underwriting Income (Loss)
We calculate underwriting income (loss) on a pre-tax basis as net premiums earned less losses and loss adjustment expenses, acquisition costs and other underwriting expenses (net of third party fee income). We believe that this measure of our performance focuses on the core fundamental performance of the Company’s reportable segments in any given period and is not distorted by investment market conditions, corporate expense allocations or income tax effects.
The table below reconciles underwriting income (loss) for the years ended December 31, 2022 and November 30, 2021, 2020, 2019 and 2018 to net income (loss), the most comparable GAAP financial measure, in the same periods:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended | | For the Years Ended |
| December 31, | | November 30, |
| ($ in thousands) | 2022 | | 2021 | | 2020 | | 2019 | | 2018 |
| Underwriting income (loss) | $ | (31,717) | | | $ | (56,024) | | | $ | (77,379) | | | $ | (118,417) | | | $ | (104,276) | |
| Total realized and unrealized gains (losses) on investments and net investment income (loss) | 64,870 | | | 308,976 | | | (32,899) | | | 204,247 | | | 564,843 | |
| Net gain on sale of equity method investment | 6,991 | | | 54,557 | | | — | | | — | | | — | |
| Other income (loss), excluding third party fee income | (315) | | | (11) | | | 97 | | | (2,613) | | | (542) | |
| Net foreign exchange gains (losses) | 6,137 | | | 6,442 | | | (9,540) | | | (99) | | | 1,960 | |
| Corporate expenses | (20,142) | | | (22,472) | | | (22,905) | | | (22,040) | | | (22,293) | |
| Impairment of goodwill | (24,082) | | | (936) | | | — | | | (1,925) | | | — | |
| Amortization of intangible assets | (12,832) | | | (13,431) | | | (12,489) | | | (5,411) | | | (2,584) | |
| Interest expense | (15,741) | | | (14,897) | | | (18,910) | | | (11,448) | | | (9,290) | |
| Income tax expense | (3,104) | | | (12,365) | | | (11,492) | | | (6,897) | | | (9,395) | |
| Net income (loss) | $ | (29,935) | | | $ | 249,839 | | | $ | (185,517) | | | $ | 35,397 | | | $ | 418,423 | |
The table below reconciles underwriting income (loss) for the one month periods ended December 31, 2021 and 2020 to net income (loss), the most comparable GAAP financial measure, in the same periods:
| | | | | | | | | | | | | | | | | | | | | |
| For the One Month Ended | | | | |
| ($ in thousands) | December 31, 2021 | | December 31, 2020 | | | | | | | | | | |
| Underwriting income (loss) | $ | 5,481 | | | $ | (5,219) | | | | | | | | | | | |
| Total realized and unrealized gains (losses) on investments and net investment income (loss) | (36,748) | | | 87,243 | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Other income (loss), excluding third party fee income | 782 | | | 973 | | | | | | | | | | | |
| Net foreign exchange gains (losses) | 16 | | | 933 | | | | | | | | | | | |
| Corporate expenses | (1,825) | | | (3,081) | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Amortization of intangible assets | (1,200) | | | (1,028) | | | | | | | | | | | |
| Interest expense | (1,061) | | | (541) | | | | | | | | | | | |
| Income tax expense | (1,335) | | | (664) | | | | | | | | | | | |
| Net income (loss) | $ | (35,890) | | | $ | 78,616 | | | | | | | | | | | |
The table below reconciles underwriting income (loss) for the six months ended June 30, 2023 and 2022 to net income (loss), the most comparable GAAP financial measure, in the same periods:
| | | | | | | | | | | | | | | | | | | | | |
| For the Six Months Ended | | | | |
| ($ in thousands) | June 30, 2023 | | June 30, 2022 | | | | | | | | | | |
| Underwriting income (loss) | $ | 68,956 | | | $ | (4,246) | | | | | | | | | | | |
| Total realized and unrealized gains (losses) on investments and net investment income (loss) | 64,189 | | | 197,090 | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Other income (loss), excluding third party fee income | — | | | 257 | | | | | | | | | | | |
| Net foreign exchange gains (losses) | (5,387) | | | 13,476 | | | | | | | | | | | |
| Corporate expenses | (13,154) | | | (10,154) | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Amortization of intangible assets | (5,075) | | | (6,697) | | | | | | | | | | | |
| Interest expense | (10,718) | | | (7,153) | | | | | | | | | | | |
| Income tax expense | (4,521) | | | (2,048) | | | | | | | | | | | |
| Net income (loss) | $ | 94,290 | | | $ | 180,525 | | | | | | | | | | | |
Third Party Fee Income
Third party fee income includes income that is incremental and/or directly attributable to our underwriting operations. It is primarily comprised of fees earned by the International segment for management services provided to third party syndicates and consortia. We believe that this measure is a relevant component of our underwriting income (loss).
The table below reconciles third party fee income for the years ended December 31, 2022 and November 30, 2021, 2020, 2019 and 2018 to other income, the most comparable GAAP financial measure, in the same periods:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended | | For the Years Ended |
| December 31, | | November 30, |
| ($ in thousands) | 2022 | | 2021 | | 2020 | | 2019 | | 2018 |
| Third party fee income | $ | 11,631 | | | $ | 21,022 | | | $ | 15,625 | | | $ | 5,988 | | | $ | — | |
| Other income (loss), excluding third party fee income | (315) | | | (11) | | | 97 | | | (2,613) | | | (542) | |
| Other income (loss) | $ | 11,316 | | | $ | 21,011 | | | $ | 15,722 | | | $ | 3,375 | | | $ | (542) | |
The table below reconciles third party fee income for the one month periods ended December 31, 2021 and 2020 to other income, the most comparable GAAP financial measure, in the same periods:
| | | | | | | | | | | | | | | | | | | | | |
| For the One Month Ended | | | | |
| ($ in thousands) | December 31, 2021 | | December 31, 2020 | | | | | | | | | | |
| Third party fee income | $ | 1,349 | | | $ | 1,849 | | | | | | | | | | | |
| Other income (loss), excluding third party fee income | 782 | | | 973 | | | | | | | | | | | |
| Other income (loss) | $ | 2,131 | | | $ | 2,822 | | | | | | | | | | | |
The table below reconciles third party fee income for the six months ended June 30, 2023 and 2022 to other income, the most comparable GAAP financial measure, in the same periods:
| | | | | | | | | | | | | | | | | | | | | |
| For the Six Months Ended | | | | |
| ($ in thousands) | June 30, 2023 | | June 30, 2022 | | | | | | | | | | |
| Third party fee income | $ | 5,452 | | | $ | 6,133 | | | | | | | | | | | |
| Other income (loss), excluding third party fee income | — | | | 257 | | | | | | | | | | | |
| Other income (loss) | $ | 5,452 | | | $ | 6,390 | | | | | | | | | | | |
Other Underwriting Expenses
Other underwriting expenses include those general and administrative expenses that are incremental and/or directly attributable to our underwriting operations. While this measure is presented in Note 11 to the Consolidated Financial Statements 'Segment Reporting', it is considered a non-GAAP financial measure when presented elsewhere.
Corporate expenses include holding company costs necessary to support our reportable segments. As these costs are not incremental and/or directly attributable to our underwriting operations, these costs are excluded from other underwriting expenses, and therefore, underwriting income (loss). General and administrative expenses, the most comparable GAAP financial measure to other underwriting expenses, also includes corporate expenses.
The table below reconciles other underwriting expenses for the years ended December 31, 2022 and November 30, 2021, 2020, 2019 and 2018 to general and administrative expenses, the most comparable GAAP financial measure, in the same periods:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended | | For the Years Ended |
| December 31, | | November 30, |
| ($ in thousands) | 2022 | | 2021 | | 2020 | | 2019 | | 2018 |
| Other underwriting expenses | $ | 157,540 | | | $ | 149,822 | | | $ | 126,869 | | | $ | 83,103 | | | $ | 62,923 | |
| Corporate expenses | 20,142 | | | 22,472 | | | 22,905 | | | 22,040 | | | 22,293 | |
| General and administrative expenses | $ | 177,682 | | | $ | 172,294 | | | $ | 149,774 | | | $ | 105,143 | | | $ | 85,216 | |
The table below reconciles other underwriting expenses for the one month periods ended December 31, 2021 and 2020 to general and administrative expenses, the most comparable GAAP financial measure, in the same periods:
| | | | | | | | | | | | | | | | | | | | | |
| For the One Month Ended | | | | |
| ($ in thousands) | December 31, 2021 | | December 31, 2020 | | | | | | | | | | |
| Other underwriting expenses | $ | 13,857 | | | $ | 12,107 | | | | | | | | | | | |
| Corporate expenses | 1,825 | | | 3,082 | | | | | | | | | | | |
| General and administrative expenses | $ | 15,682 | | | $ | 15,189 | | | | | | | | | | | |
The table below reconciles other underwriting expenses for the six months ended June 30, 2023 and 2022 to general and administrative expenses, the most comparable GAAP financial measure, in the same periods:
| | | | | | | | | | | | | | | | | | | | | |
| For the Six Months Ended | | | | |
| ($ in thousands) | June 30, 2023 | | June 30, 2022 | | | | | | | | | | |
| Other underwriting expenses | $ | 81,886 | | | $ | 78,792 | | | | | | | | | | | |
| Corporate expenses | 13,154 | | | 10,154 | | | | | | | | | | | |
| General and administrative expenses | $ | 95,040 | | | $ | 88,946 | | | | | | | | | | | |
Other Underwriting Expense Ratio
Other underwriting expense ratio is a measure of the other underwriting expenses (net of third party fee income) incurred by the Company and is expressed as percentage of the net premium earned.
Loss Ratio
Catastrophe Loss Ratio – current year is the catastrophe losses incurred by the company relating to the current year divided by net premium earned.
Catastrophe Loss Ratio – prior year development is the catastrophe losses incurred by the company relating to prior years divided by net premium earned.
Attritional Loss Ratio – current year is the attritional losses incurred by the company relating to the current year divided by net premium earned.
Attritional Loss Ratio – prior year development is the attritional losses incurred by the company relating to prior years divided by net premium earned.
Combined Ratio
Combined Ratio – is a measure of our underwriting profitability and is expressed as the sum of the losses and loss adjustment expense ratio, acquisition cost ratio and other underwriting expense ratio. A combined ratio under 100% indicates an underwriting profit, while a combined ratio over 100% indicates an underwriting loss.
Financial Condition, Liquidity and Capital Resources
Financial Condition
Investment philosophy
The Company maintains two segregated investment portfolios: a fixed maturity and short-term investments trading portfolio and an investment in Two Sigma Hamilton Fund. Each of these are discussed separately below.
The Company maintains a high quality and liquid fixed maturity and short-term investments portfolio that is structured to focus primarily on the preservation of capital and the availability of liquidity to meet the Company’s claims obligations, to be well diversified across market sectors, and to generate relatively attractive returns on a risk-adjusted basis over time. Notwithstanding the foregoing, the Company’s investments are subject to market-wide risks and fluctuations, as well as to risks inherent in particular securities.
The Company also invests in Two Sigma Hamilton Fund, a Delaware limited liability company. In 2013, Hamilton Re entered into a commitment with Two Sigma Hamilton Fund to maintain approximately 93% of its investable assets in Two Sigma Hamilton Fund for the Commitment Period, subject to certain circumstances and the liquidity options described below, with the Commitment Period ending on December 31, 2025. The Commitment Period consists of a 3-year rolling term that automatically renews on an annual basis unless Hamilton Re or the Managing Member provide advance notice of non-renewal. The commitment is subject to a waiver that permits Hamilton Re to maintain an investment in Two Sigma Hamilton Fund equal to a minimum of 95% of the consolidated net tangible assets of Hamilton Group. The waiver is applicable to December 31, 2023, is intended to automatically renew annually and may be revoked by the Managing Member in its sole discretion upon 90 days’ prior written notice. Two Sigma is a United States Securities and Exchange Commission registered investment adviser specializing in quantitative analysis. The Two Sigma Hamilton Fund investment strategy is focused on delivering non-market correlated investment income and total return through all market cycles while maintaining appropriate portfolio liquidity and credit quality to meet the requirements of customers, rating agencies and regulators.
A modification of the terms of the TS Hamilton Fund’s limited liability company agreement, dated December 23, 2013 and as amended from time to time (the “LLCA”) came into effect on July 1, 2023. See Note 12, Subsequent Events in our unaudited condensed consolidated financial statements for the three and six months ended June 30, 2023 for further detail.
Cash and Investments
At June 30, 2023 and December 31, 2022, total cash and investments was $3.6 billion and $3.5 billion, respectively. However, a significant portion of the total cash and investments balances held were invested in Two Sigma Hamilton Fund as collateral for the investments held by the underlying trading vehicles, as shown in the tables below under the “Two Sigma Hamilton Fund” discussion.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| As at | |
| ($ in thousands) | June 30, 2023 | | December 31, 2022 | | | |
| Fixed maturity investments, at fair value | $ | 1,451,249 | | | 41 | % | | $ | 1,259,476 | | | 36 | % | | | | | |
| Short-term investments, at fair value | 336,587 | | | 9 | % | | 286,111 | | | 8 | % | | | | | |
| 1,787,836 | | | 50 | % | | 1,545,587 | | | 44 | % | | | | | |
| Investments in Two Sigma Funds, at fair value | 868,486 | | | 24 | % | | 740,736 | | | 21 | % | | | | | |
| Total investments | 2,656,322 | | | 74 | % | | 2,286,323 | | | 65 | % | | | | | |
| Cash and cash equivalents | 818,522 | | | 23 | % | | 1,076,420 | | | 31 | % | | | | | |
| Restricted cash | 106,696 | | | 3 | % | | 130,783 | | | 4 | % | | | | | |
| Total cash | 925,218 | | | 26 | % | | 1,207,203 | | | 35 | % | | | | | |
| Total cash & investments | $ | 3,581,540 | | | 100 | % | | $ | 3,493,526 | | | 100 | % | | | | | |
Total cash and investments remained consistent with prior year end. Within the total cash and investments, there were increases in fixed maturity investments as we deployed more cash into the fixed maturity portfolio to take advantage of rising interest rates and an increase in the Two Sigma Hamilton Fund investment, primarily driven by positive investment returns for the six months ended June 30, 2023. The Two Sigma Hamilton Fund represents $1.7 billion and $1.8 billion of the total cash and investments of $3.6 billion and $3.5 billion, respectively, as at June 30, 2023 and December 31, 2022.
Fixed Maturity and short-term Investments - Trading portfolio
The Company’s fixed maturity and short-term investments trading portfolio at June 30, 2023 and December 31, 2022 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| 2023 |
| ($ in thousands) | Amortized
Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair
Value |
| Fixed maturities: | | | | | | | |
| U.S. government treasuries | $ | 576,679 | | | $ | 220 | | | $ | (24,309) | | | $ | 552,590 | |
| U.S. states, territories and municipalities | 4,733 | | | — | | | (386) | | | 4,347 | |
| Non-U.S. sovereign governments and supranationals | 16,865 | | | 575 | | | (1,411) | | | 16,029 | |
| Corporate | 753,782 | | | 214 | | | (39,265) | | | 714,731 | |
| Residential mortgage-backed securities - Agency | 152,133 | | | — | | | (14,648) | | | 137,485 | |
| Residential mortgage-backed securities - Non-agency | 4,954 | | | 11 | | | (749) | | | 4,216 | |
| | | | | | | |
| Commercial mortgage-backed securities - Non-agency | 10,222 | | | — | | | (1,241) | | | 8,981 | |
| Other asset-backed securities | 13,253 | | | 2 | | | (385) | | | 12,870 | |
| Total fixed maturities | 1,532,621 | | | 1,022 | | | (82,394) | | | 1,451,249 | |
| Short-term investments | 335,668 | | | 919 | | | — | | | 336,587 | |
| | | | | | | |
| | | | | | | |
| Total | $ | 1,868,289 | | | $ | 1,941 | | | $ | (82,394) | | | $ | 1,787,836 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 2022 |
| ($ in thousands) | Amortized
Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair
Value |
| Fixed maturities: | | | | | | | |
| U.S. government treasuries | $ | 498,841 | | | $ | 99 | | | $ | (27,089) | | | $ | 471,851 | |
| U.S. states, territories and municipalities | 4,741 | | | — | | | (434) | | | 4,307 | |
| Non-U.S. sovereign governments and supranationals | 14,191 | | | 363 | | | (1,602) | | | 12,952 | |
| Corporate | 690,900 | | | 363 | | | (43,786) | | | 647,477 | |
| Residential mortgage-backed securities - Agency | 111,234 | | | — | | | (14,824) | | | 96,410 | |
| Residential mortgage-backed securities - Non-agency | 5,147 | | | — | | | (772) | | | 4,375 | |
| | | | | | | |
| Commercial mortgage-backed securities - Non-agency | 10,283 | | | — | | | (1,064) | | | 9,219 | |
| Other asset-backed securities | 13,347 | | | 1 | | | (463) | | | 12,885 | |
| Total fixed maturities | 1,348,684 | | | 826 | | | (90,034) | | | 1,259,476 | |
| Short-term investments | 285,130 | | | 986 | | | (5) | | | 286,111 | |
| | | | | | | |
| | | | | | | |
| Total | $ | 1,633,814 | | | $ | 1,812 | | | $ | (90,039) | | | $ | 1,545,587 | |
The fair value of the Company’s fixed maturities and short-term investments trading portfolio increased from $1.5 billion at December 31, 2022 to $1.8 billion at June 30, 2023 due to increases in both short-term investments and the fixed maturity portfolio.
During the current year, we made additional investments in the fixed income portfolio from operating cash flows to take advantage of the rising interest rate environment. These incremental investments were in addition to unrealized gains incurred as rising interest rates slowed and mark-to-market losses decreased.
Within the June 30, 2023 short-term investments balance, $326.1 million is held within Two Sigma Hamilton Fund. The cash and short-term investment balances within Two Sigma Hamilton Fund are not managed by the Company, nor can they be removed from Two Sigma Hamilton Fund as they support the underlying investment strategies within the three trading vehicles. See discussion below for further details on assets within Two Sigma Hamilton Fund.
The fair values and weighted-average credit ratings of our fixed maturity trading portfolio and short-term investments by type at June 30, 2023 and December 31, 2022 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 | | | |
| ($ in thousands) | Fair Value | | % of Total | | Weighted average credit rating | | Fair Value | | % of Total | | Weighted average credit rating | | | | | | | $ Change |
| Fixed maturities: | | | | | | | | | | | | | | | | | | |
| U.S. government treasuries | $ | 552,590 | | | 31 | % | | Aaa | | $ | 471,851 | | | 30 | % | | Aaa | | | | | | | $ | 80,739 | |
| U.S. states, territories and municipalities | 4,347 | | | — | % | | Aa2 | | 4,307 | | | — | % | | Aa2 | | | | | | | 40 | |
| Non-U.S. sovereign governments and supranationals | 16,029 | | | 1 | % | | Aa1 | | 12,952 | | | 1 | % | | Aa1 | | | | | | | 3,077 | |
| Corporate | 714,731 | | | 40 | % | | A2 | | 647,477 | | | 42 | % | | A2 | | | | | | | 67,254 | |
| Residential mortgage-backed securities - Agency | 137,485 | | | 7 | % | | Aaa | | 96,410 | | | 6 | % | | Aaa | | | | | | | 41,075 | |
| Residential mortgage-backed securities - Non-agency | 4,216 | | | — | % | | Aaa | | 4,375 | | | — | % | | Aaa | | | | | | | (159) | |
| | | | | | | | | | | | | | | | | | |
| Commercial mortgage-backed securities - Non-agency | 8,981 | | | 1 | % | | Aa1 | | 9,219 | | | 1 | % | | Aa1 | | | | | | | (238) | |
| Other asset-backed securities | 12,870 | | | 1 | % | | Aa3 | | 12,885 | | | 1 | % | | Aa3 | | | | | | | (15) | |
| Total fixed maturities | 1,451,249 | | | 81 | % | | Aa3 | | 1,259,476 | | | 81 | % | | Aa3 | | | | | | | 191,773 | |
| Short-term investments | 336,587 | | | 19 | % | | Aaa | | 286,111 | | | 19 | % | | Aaa | | | | | | | 50,476 | |
| Total fixed maturities and short-term investments | $ | 1,787,836 | | | 100 | % | | Aa2 | | $ | 1,545,587 | | | 100 | % | | Aa2 | | | | | | | $ | 242,249 | |
| | | | | | | | | | | | | | | | | | |
| Fixed maturity and short-term investment credit quality summary: | | | | | | | | | | | | | | | | | | |
| Investment grade | | | 100.0 | % | | | | | | 100.0 | % | | | | | | | | | |
| Non-investment grade | | | — | % | | | | | | — | % | | | | | | | | | |
| Total | | | 100.0 | % | | | | | | 100.0 | % | | | | | | | | | |
The average credit quality, the average yield to maturity and the expected average duration of the Company’s fixed maturities and short-term investments trading portfolio at June 30, 2023 and December 31, 2022 were as follows:
| | | | | | | | | | | | | |
| June 30, 2023 | | December 31, 2022 | | |
| Average credit quality | Aa3 | | Aa3 | | |
| Average yield to maturity | 5.9 | % | | 4.7 | % | | |
| Expected average duration (in years) | 3.3 | | 3.2 | | |
At each of June 30, 2023 and December 31, 2022, approximately 100.0% of the Company’s fixed maturity and short-term investments trading portfolio were rated investment grade (Baa2 or higher) by third party rating services. There were no non-investment grade securities in the fixed maturity and short-term trading portfolio. The average credit quality of the Company’s fixed maturities and short-term investments trading portfolio at each of June 30, 2023 and December 31, 2022 was Aa3.
The average yield to maturity on the Company’s fixed maturities and short-term investments trading portfolio increased to 5.9% at June 30, 2023 from 4.7% at December 31, 2022.
The expected average duration of the Company’s fixed maturities and short-term investments trading portfolio increased modestly to 3.3 years at June 30, 2023 from 3.2 years at December 31, 2022.
Contractual Maturities Summary
The following table presents contractual maturities of fixed maturity securities within the Company’s fixed maturity trading portfolio at December 31, 2022. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
| | | | | | | | | | | |
| 2022 |
| ($ in thousands) | Amortized Cost | | Fair
Value |
| Due less than one year | $ | 95,866 | | | $ | 93,786 | |
| Due after one through five years | 928,450 | | | 870,874 | |
| Due after five through ten years | 180,152 | | | 168,901 | |
| Due after ten years | 4,205 | | | 3,026 | |
| Mortgage-backed | 126,664 | | | 110,004 | |
| Asset-backed | 13,347 | | | 12,885 | |
| Total | $ | 1,348,684 | | | $ | 1,259,476 | |
Two Sigma Hamilton Fund
Although Two Sigma has broad discretion to allocate invested assets to different opportunities, the current strategy is focused on highly diversified liquid positions in global equities, futures and foreign exchange markets. Through its investments in FTV, STV and ESTV, the Two Sigma Hamilton Fund seeks to achieve absolute dollar denominated returns on a substantial capital base primarily by combining multiple hedged and leveraged systematic investment strategies with proprietary risk management and execution techniques. These systematic strategies include, but are not limited to, technical and statistically-based, fundamental-based, event-based, market condition-based and spread-based strategies as well as contributor-based and/or sentiment-based strategies and blended strategies. FTV primarily utilizes systematic strategies to gain broad macro exposure to FX, fixed income, equity and credit indices and commodities, predominantly by trading futures, spots, forwards, options, swaps, cash bonds and exchange traded products. STV primarily utilize systematic strategies to trade U.S.-listed equity securities and related instruments and derivatives. ESTV primarily utilize systematic strategies to trade non-U.S.-listed equity securities and related instruments and derivatives. At June 30, 2023, the Company owns a 18.7%, 16.0% and 8.5% interest in each of the FTV, STV and ESTV funds, respectively.
Two Sigma Hamilton Fund invests in STV, FTV and ESTV (together with any other trading vehicles used by the Two Sigma Hamilton Fund in the future, the “Two Sigma Funds”), which are stated at their estimated fair values, which generally represent the Company’s proportionate interest in the members’ equity of the Two Sigma Funds as reported by the respective funds based on the net asset value (“NAV”) provided by the fund administrator. The Company accounts for its investment in Two Sigma Funds under the variable interest model at NAV as a practical expedient for fair value in the consolidated balance sheets.
The Company’s investments in Two Sigma Funds at June 30, 2023 and December 31, 2022 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | 2022 | | |
| ($ in thousands) | Cost | | Net
Unrealized Gains (Losses) | | Fair
Value | | Cost | | Net
Unrealized Gains (Losses) | | Fair
Value | | | | | | |
| Two Sigma Futures Portfolio, LLC (FTV) | $ | 372,754 | | | $ | (24,683) | | | $ | 348,071 | | | $ | 438,625 | | | $ | (95,213) | | | $ | 343,412 | | | | | | | |
| Two Sigma Spectrum Portfolio, LLC (STV) | 256,642 | | | 39,773 | | | 296,415 | | | 171,135 | | | 57,982 | | | 229,117 | | | | | | | |
| Two Sigma Equity Spectrum Portfolio, LLC (ESTV) | 168,016 | | | 55,984 | | | 224,000 | | | 121,340 | | | 46,867 | | | 168,207 | | | | | | | |
| Total | $ | 797,412 | | | $ | 71,074 | | | $ | 868,486 | | | $ | 731,100 | | | $ | 9,636 | | | $ | 740,736 | | | | | | | |
The increase in the total fair value of the Company’s investments in Two Sigma Funds from $740.7 million at December 31, 2022 to $868.5 million at June 30, 2023 is primarily driven by collateral management within the Two Sigma Hamilton Fund. The total net assets managed in the Two Sigma Hamilton Fund represents our investment in and exposure to the Two Sigma Funds’ investment strategies. However, as part of Two Sigma’s collateral management processes, any capital not required to be held within one of the specific trading vehicles is held in cash or short-term investments within the Two Sigma Hamilton Fund as shown in the following table. The cash and short-term investment balances are not managed by the Company, nor can they be removed from the Two Sigma Hamilton Fund as they support the underlying investment strategies within the three trading vehicles.
The following table represents the total assets and total liabilities of the Two Sigma Hamilton Fund at June 30, 2023 and December 31, 2022. Creditors or beneficial interest holders of the Two Sigma Hamilton Fund have no recourse to the general credit of the Company as the Company’s obligation is limited to the amount of its committed investment.
| | | | | | | | | | | | | | |
| ($ in thousands) | 2023 | | 2022 | | | |
| Assets | | | | | | |
| Cash and cash equivalents | $ | 470,833 | | | $ | 800,239 | | | | |
| Short-term investments | 326,092 | | | 264,104 | | | | |
| Investments in Two Sigma Funds, at fair value | 868,486 | | | 740,736 | | | | |
| | | | | | |
| Interest and dividends receivable | 1,983 | | | 2,076 | | | | |
Total assets | 1,667,394 | | | 1,807,155 | | | | |
| | | | | | |
| Liabilities | | | | | | |
| Accounts payable and accrued expenses | 174 | | | 291 | | | | |
| | | | | | |
| Withdrawal payable | 4,497 | | | 145,738 | | | | |
| Payable for investments purchased | 18,250 | | | 48,095 | | | | |
Total liabilities | 22,921 | | | 194,124 | | | | |
Total net assets managed by TS Hamilton Fund | $ | 1,644,473 | | | $ | 1,613,031 | | | | |
Total net assets in the Two Sigma Hamilton Fund was $1.6 billion at each of June 30, 2023 and December 31, 2022.
Liquidity and Capital Resources
Liquidity
Liquidity is a measure of a company’s ability to generate cash flows sufficient to meet the short-term and long-term cash requirements of its business operations. The Company manages liquidity at the holding company and operating subsidiary level.
Management believes that its significant cash flows from operations and high quality liquid investment portfolio will provide sufficient liquidity for the foreseeable future. At June 30, 2023 and December 31, 2022, total unrestricted cash and cash equivalents were $0.8 billion and $1.1 billion, respectively, and total restricted cash and cash equivalents were $106.7 million and $130.8 million, respectively.
Holding Company
As a holding company, Hamilton Insurance Group, Ltd. has no operations of its own and its assets consist primarily of investments in its subsidiaries. Accordingly, Hamilton Insurance Group, Ltd.’s future cash flows depend on the availability of dividends or other statutorily permissible distributions, such as returns of capital, from its subsidiaries. The ability to pay such dividends and/or distributions is limited by the applicable laws and regulations of the various countries and states in which the Company’s subsidiaries operate (refer to Note 19, Statutory Requirements in the Consolidated Financial Statements for further details), as well as the need to maintain capital levels to adequately support insurance and reinsurance operations, and to preserve financial strength ratings issued by independent rating agencies.
During the six months ended June 30, 2023 and 2022, Hamilton Insurance Group, Ltd. received $7.0 million and $25.0 million, respectively, of distributions from its subsidiaries. Hamilton Insurance Group, Ltd.’s primary use of funds is interest payments on debt and credit facilities, capital investments in subsidiaries, and payment of corporate operating expenses. Management believes the dividend distribution capacity of Hamilton Insurance Group, Ltd.’s subsidiaries, which was estimated at $394.9 million at December 31, 2022, will provide Hamilton Insurance Group, Ltd. with sufficient liquidity for the foreseeable future.
Operating Subsidiaries
Hamilton Insurance Group, Ltd.’s operating subsidiaries primarily derive cash from the net inflow of premiums less claim payments related to underwriting activities and from net investment income. Historically, these cash receipts have been sufficient to fund the operating expenses of these subsidiaries, as well as to fund dividend payments to Hamilton Insurance Group, Ltd. The subsidiaries’ remaining cash flows are generally invested into the investment portfolio. The remaining cash flows have also been used to fund common share repurchases and to fund acquisitions in recent years.
The operating subsidiaries’ insurance and reinsurance business inherently provides liquidity, as premiums are received in advance (sometimes substantially in advance) of the time losses are paid. However, the amount of cash required to fund loss payments can fluctuate significantly from period to period, due to the low frequency and high severity nature of certain types of business written. As such, cash flows from operating activities may vary significantly between periods.
As discussed above, the payment of dividends by operating subsidiaries is, under certain circumstances, limited by the applicable laws and regulations in the various jurisdictions in which the subsidiaries operate. In addition, insurance laws require the insurance subsidiaries to maintain certain measures of solvency and liquidity. Management believes that each of the Company’s insurance subsidiaries and branches exceeded the minimum solvency, capital and surplus requirements in their applicable jurisdictions at December 31, 2022. Certain of the subsidiaries and branches are required to file Financial Condition Reports (“FCR”), with their regulators, which provide details on solvency and financial performance. Where required, these FCRs are posted on the Company’s website.
The regulations governing the Company’s principal operating subsidiaries’ ability to pay dividends and to maintain certain measures of solvency and liquidity and requirements to file FCRs are discussed in detail in Note 19, Statutory Requirements to the Company’s Consolidated Financial Statements.
Consolidated Cash Flows
Consolidated cash flows from operating, investing and financing activities in the years ended December 31, 2022 and November 30, 2021 and 2020 were as follows:
| | | | | | | | | | | | | | | | | |
| For the years ended |
| ($ in thousands) | December 31, 2022 | | November 30, 2021 | | November 30, 2020 |
| Total cash provided by (used in): | | | | | |
| Operating activities | $ | 190,927 | | | $ | 226,529 | | | $ | 2,690 | |
| Investing activities | 133,102 | | | 137,824 | | | (180,125) | |
| Financing activities | (69,617) | | | (67,996) | | | (26,724) | |
| Effect of exchange rate changes on cash | (11,335) | | | (1,508) | | | 2,702 | |
| Net increase (decrease) in cash and cash equivalents | $ | 243,077 | | | $ | 294,849 | | | $ | (201,457) | |
Cash inflows from insurance and reinsurance operations typically include premiums, net of acquisition costs, and reinsurance recoverables. Cash outflows principally include payments of losses and loss expenses, payments of premiums to reinsurers and operating expenses. Cash provided by operating activities fluctuates due to timing differences between the collection of premiums and reinsurance recoverables and the payment of losses and loss expenses, and the payment of premiums to reinsurers. Net cash provided by operating activities of $190.9 million in the year ended December 31, 2022, decreased from $226.5 million in the year ended November 30, 2021. Net cash provided by operating activities of $226.5 million in the year ended November 30, 2021 increased from $2.7 million in the year ended November 30, 2021.
Net cash provided by (used in) investing activities was $133.1 million, $137.8 million and $(180.1) million in the years ended December 31, 2022 and November 30, 2021 and 2020, respectively, primarily driven by the timing of investing activities and the net proceeds of turnover in our fixed maturity and short-term investments.
Net cash used in financing activities was $69.6 million, $68.0 million and $26.7 million in the years ended December 31, 2022 and November 30, 2021 and 2020, respectively. In each year, the primary driver of these outflows was incentive allocations paid to Two Sigma Hamilton Fund.
The Company believes that annual positive cash flows from operating activities will be sufficient to cover claims payments, absent a series of additional large catastrophic loss activity. However, should claim payment obligations accelerate beyond the Company’s ability to fund payments from operating cash flows, the Company would utilize cash and cash equivalent balances and/or liquidate a portion of the Company’s trading investment portfolio and/or access certain credit facilities. The Company’s trading portfolio is heavily weighted towards conservative, high quality and highly liquid securities. Management expects that, if necessary, the full value of cash and fixed income and short-term investments at December 31, 2022 could be available in one to three business days under normal market conditions; of this amount, $130.8 million in its trading portfolio related to restricted assets, which primarily support the Company’s obligations in regulatory jurisdictions where it operates as a non-admitted carrier (refer to Note 3, Investments in the Consolidated Financial Statements for further details).
In addition, if necessary, the Company generally has two options related to liquidating a portion of the investment portfolio in the Two Sigma Hamilton Fund, subject to Hamilton Re’s minimum investment commitment, which are as follows:
•Monthly liquidity - Subject to certain conditions, Hamilton Re may request a whole or partial withdrawal of its capital account, no later than fifteen days prior to the end of a calendar month, effective as of the last day of such calendar month.
•Daily liquidity - Subject to certain limited circumstances, including the need to meet obligations pursuant to Hamilton Re’s underwriting operations, Hamilton Re may request a withdrawal of all or a portion of its capital account upon at least one business day’s written notice of such withdrawal request date to the Managing Member. Claim payments pertaining to any such large catastrophic event would be paid out over a period spanning many months.
Consolidated cash flows from operating, investing and financing activities in the six months ended June 30, 2023 and 2022 were as follows:
| | | | | | | | | | | |
| For the Six Months Ended |
| ($ in thousands) | June 30, 2023 | | June 30, 2022 |
| Total cash provided by (used in): | | | |
| Operating activities | $ | 75,854 | | | $ | 136,249 | |
| Investing activities | (351,922) | | | 172,223 | |
| Financing activities | (8,195) | | | (69,913) | |
| Effect of exchange rate changes on cash | 2,278 | | | (5,991) | |
| Net increase (decrease) in cash and cash equivalents | $ | (281,985) | | | $ | 232,568 | |
Net cash provided by (used in) operating activities was $75.9 million and $136.2 million in the six months ended June 30, 2023 and 2022, respectively.
Net cash provided by (used in) investing activities was $(351.9) million and $172.2 million in the six months ended June 30, 2023 and 2022, respectively, primarily driven by the timing of investing activities and the net proceeds of turnover in our fixed maturity and short-term investments.
Net cash provided by (used in) financing activities was $(8.2) million and $(69.9) million in the six months ended June 30, 2023 and 2022, primarily driven by the repurchase of shares in each period. Outflows in the six months ended June 30, 2023 also included incentive allocations paid to Two Sigma Hamilton Fund.
Management expects that, if necessary, the full value of cash, fixed income and short-term investments at June 30, 2023 could be available in one to three business days under normal market conditions except for $473.3 million of restricted cash and investments which primarily support the Company’s obligations in regulatory jurisdictions where it operates as a non-admitted carrier (refer to Note 3, Investments in the Unaudited Condensed Consolidated Financial Statements for further details) and $219.2 million of restricted cash and investments which primarily support the Company’s letter of credit facilities (refer to Note 9, Debt and Credit Facilities in the Unaudited Condensed Consolidated Financial Statements for further details).
Capital Resources
Management monitors the Company’s capital adequacy on a regular basis and seeks to adjust its capital according to the needs of the business. In particular, the Company requires capital sufficient to meet or exceed the capital adequacy ratios established by rating agencies for maintenance of appropriate financial strength ratings and the capital adequacy tests performed by regulatory authorities. From time to time, rating agencies and regulatory authorities may make changes in their models and methodologies, which could increase the amount of capital the Company requires. The Company may seek to raise additional capital or return capital to shareholders through common share repurchases and cash dividends (or a combination of such methods). In the normal course of operations, management may from time to time evaluate additional share or debt issuances given prevailing market conditions and capital management strategies. In addition, the Company enters into agreements with financial institutions to obtain letter of credit facilities for the benefit of its operating subsidiaries to support their business operations. Management believes that the Company holds sufficient capital to allow it to take advantage of market opportunities and to maintain its financial strength ratings and comply with various local statutory regulations.
The following table summarizes consolidated total capital at December 31, 2022 and November 30, 2021:
| | | | | | | | | | | |
| As at |
| ($ in thousands) | December 31, 2022 | | November 30, 2021 |
| Term loan, net of issuance costs | $ | 149,715 | | | $ | 149,875 | |
| Shareholders' equity | 1,664,183 | | | 1,787,445 | |
| Total | $ | 1,813,898 | | | $ | 1,937,320 | |
The Company’s total capital was $1.8 billion at December 31, 2022, a 6.4% decrease compared to $1.9 billion at November 30, 2021. The major factor contributing to the decrease in total capital during the period ended December 31, 2022 was:
•A comprehensive loss of $133.9 million, which was primarily related to the Company’s net losses for the year ended December 31, 2022 and the one month ended December 31, 2021 (see Consolidated Results of Operations), partially offset by $10.6 million of share based compensation expense.
The following table summarizes consolidated total capital at June 30, 2023 and December 31, 2022:
| | | | | | | | | | | | | |
| As at |
| ($ in thousands) | June 30, 2023 | | December 31, 2022 | | |
| Term loan, net of issuance costs | $ | 149,772 | | | $ | 149,715 | | | |
| Shareholders' equity | 1,752,154 | | | 1,664,183 | | | |
| Total | $ | 1,901,926 | | | $ | 1,813,898 | | | |
The Company’s total capital was $1.9 billion at June 30, 2023, a 4.9% increase compared to $1.8 billion at December 31, 2022. The major factor contributing to the increase in total capital during the six months ended June 30, 2023 was:
•A comprehensive income of $88.3 million, which primarily related to the Company’s net income for the six months ended June 30, 2023.
Debt
On June 23, 2022, the Company renewed its unsecured $150 million term loan credit arrangement, as amended from time to time (the “Facility”), with various lenders as arranged by Wells Fargo Securities, LLC. All or a portion of the loan issued under the renegotiated Facility bears interest at either (a) the Base Rate plus the Applicable Margin or (b) the Adjusted Term Secured Overnight Financing Rate (“SOFR”) plus the Applicable Margin, at the Company's discretion. In the event of default, an additional 2% interest in excess of (a) or (b) will be levied, not to exceed the highest rate permissible under applicable law, and certain types of loans may not be available for borrowing by the Company under the Facility. The Facility matures on June 23, 2025, unless accelerated pursuant to the terms of the Facility, and it contains usual and customary representations, warranties, conditions and covenants for bank loan facilities of this type. The Facility also contains certain financial covenants which cap the ratio of consolidated debt to capital and require that the Company maintain a certain minimum consolidated net worth. The net worth requirement is recalculated effective as of the end of each fiscal quarter. As of December 31, 2022, the outstanding loan balance was $150.0 million, the fair value was $150.8 million, the unamortized issuance costs were $0.2 million, and the Company was in compliance with all covenants.
Debt issuance costs are amortized over the period of time during which the Facility is outstanding, as an offset to investment income. The Company amortized debt issuance costs of $0.1 million or less in each of the six months ended June 30, 2023 and 2022.
Common Shares
The Company’s authorized and issued share capital at June 30, 2023 and December 31, 2022 is comprised as follows:
| | | | | | | | | | | | | |
| ($ in thousands, except share and per share amounts) | | | | | |
| Authorized: | | | | | |
135,000,000 shares of $0.01 par value each | | | | | |
| | | | | |
| | | | | |
| | | | | |
| Issued, outstanding and fully paid: | June 30, 2023 | | December 31, 2022 | | |
| Class A common shares (2023 and 2022: 30,520,078) | $ | 305 | | | $ | 305 | | | |
| Class B common shares (2023: 42,638,190 and 2022: 42,042,155) | 426 | | | 420 | | | |
| Class C common shares (2023 and 2022: 30,525,626) | 305 | | | 305 | | | |
| Total | $ | 1,036 | | | $ | 1,030 | | | |
In general, holders of Class A common shares and Class B common shares have one vote for each common share held. However, each holder of Class A common shares and Class B common shares is limited to voting (directly, indirectly or constructively, as determined for U.S. federal income tax purposes) that number of common shares equal to 9.5% of the total combined voting power of all classes of shares of the Company (or, in the case of a class vote by the holders of our Class B common shares, such as in respect of the election or removal of directors other than for directors who are appointed by certain shareholders pursuant to the Shareholders Agreement and our Bye-laws, a maximum of 14.92% of the total combined voting power). In addition, our Board of Directors may, in its absolute discretion, make adjustments to the voting power of its shares to the extent necessary or advisable in order (i) to prevent (or reduce the magnitude of) a share voting limitation violation and (ii) to avoid adverse tax, legal or regulatory consequences to the Company, any subsidiary of the Company or any shareholder or its affiliates. Upon the closing of this offering, our Bye-laws will provide for the conversion of shares from (i) Class A common shares to Class B common shares automatically upon any transfer, whether or not for value, except for transfers to a permitted transferee and (ii) from Class C common shares to Class B common shares automatically upon any transfer, whether or not for value, except for transfers to a permitted transferee. Each of the Class B common shares will continue to remain a Class B common share upon any transfer of such Class B common share, whether or not for value.
Credit Facilities
The Company has several available letter of credit facilities and a revolving loan facility provided by commercial banks. The letter of credit facilities are utilized to provide collateral to reinsureds of Hamilton Re and its affiliates to the extent required under reinsurance agreements and to support capital requirements at Lloyd’s.
On June 23, 2022, the Company and Hamilton Re amended and restated their unsecured credit agreement with a syndication of lenders (the “Unsecured Facility”). Under the Unsecured Facility, the lenders have agreed to provide up to an aggregate of $415 million of letter of credit capacity for Hamilton Re, up to $150 million of which may be utilized for revolving loans to be issued to the Company. Letters of credit issued under the facility bear interest at a rate of 150 basis points, while revolving loans if issued are subject to a fee of SOFR plus a margin of 185 basis points. To the extent such loans are issued, the available letter of credit capacity shall decrease proportionally, such that the aggregate credit exposure for the lenders under the credit agreement is $415 million. Amounts unutilized under the facility are subject to a fee of 22.5 basis points. Capacity is provided by Wells Fargo, National Association, Truist Bank, BMO Harris Bank N.A., Commerzbank AG, New York Branch, HSBC Bank USA, N. A., and Barclays Bank PLC. Unless renewed or otherwise terminated in accordance with its terms, the Unsecured Facility is scheduled to terminate on June 23, 2025. At June 30, 2023, there were no loan amounts outstanding under this facility.
On August 13, 2021, Hamilton Re and HIDAC entered into a committed letter of credit facility agreement with Bank of Montreal (“BMO”), with the Company as guarantor, under which BMO agreed to make available a secured letter of credit facility of $50 million for a term that expired on August 13, 2023. The facility bears a fee of 40 basis
points for letters of credit issued and 15 basis points on any unutilized portion of the facility. This facility was renewed under the same terms and conditions on August 11, 2023 for an additional term expiring on August 13, 2024.
On October 27, 2022, Hamilton Re amended its letter of credit facility agreement with UBS AG (“UBS”) under which UBS and certain of its affiliates agreed to make available to Hamilton Re a secured letter of credit facility of $100 million for a term that will expire on October 27, 2023. The facility bears a fee of 140 basis points on the total available capacity.
In addition, Hamilton Re is the borrower under a $205 million unsecured letter of credit facility agreement that it utilizes to provide Funds at Lloyd's (“FAL”) (“FAL LOC Facility”) to support the FAL requirements of Syndicate 4000. Capacity is provided by Barclays Bank PLC, ING Bank N.V., London Branch, and Bank of Montreal, London Branch. The facility bears a fee of 162.5 basis points on the borrowed amount.
The Company’s obligations under its credit facilities require the Company, Hamilton Re and the other parties thereto to comply with various financial and reporting covenants. All applicable entities were in compliance with all such covenants at June 30, 2023.
The Company anticipates renewing its existing credit facilities at their stated expiry dates on materially similar terms to the expiring.
Certain of the Company's credit facilities are secured by pledged interests in the Two Sigma Hamilton Fund or the Company's fixed income security portfolio or cash. The Company’s credit facilities at June 30, 2023, and associated securities pledged, were as follows:
| | | | | | | |
| ($ in thousands) | 2023 | | |
| | | |
| | | |
| | | |
| Available letter of credit and revolving loan facilities - commitments | $ | 921,168 | | | |
| Available letter of credit and revolving loan facilities - in use | 673,809 | | | |
| | | |
| Security pledged under letter of credit and revolving loan facilities: | | | |
| Pledged interests in TS Hamilton Fund | $ | 225,302 | | | |
| Pledged interests in fixed income portfolio | 213,029 | | | |
| Cash | 6,201 | | | |
Financial Strength Ratings
The Company’s principal insurance and reinsurance operating subsidiaries are assigned financial strength ratings from internationally recognized rating agencies, including A.M. Best and Kroll Bond Rating Agency. These ratings are publicly announced and are available directly from the agencies, and on the Company’s website.
Financial strength ratings represent the opinions of the rating agencies on the overall financial strength of a company and its capacity to meet the obligations of its insurance and reinsurance contracts. Independent ratings are one of the important factors that establish a competitive position in insurance and reinsurance markets. The rating agencies consider many factors in determining the financial strength rating of an insurance company, including the relative level of statutory surplus necessary to support the business operations of the company. These ratings are based on factors considered by the rating agencies to be relevant to policyholders, agents and intermediaries and are not directed toward the protection of investors. Ratings are not recommendations to buy, sell or hold securities.
On May 26, 2023, Hamilton Insurance Group, Ltd. received a positive outlook from A.M. Best, an internationally recognized agency, and affirmation of its Financial Strength Rating of “A-” (Excellent) and the Long-Term Issuer Credit Ratings of “a-” (Excellent) of Hamilton Re and Hamilton Insurance DAC, each a wholly owned subsidiary of Hamilton.
Paid and unpaid losses and loss adjustment expenses recoverable
In the normal course of business, the Company seeks to reduce the potential amount of loss arising from claim events by reinsuring certain levels of risk with other reinsurers. See “Critical Accounting Estimates—Ceded Reinsurance and Unpaid Losses and Loss Adjustment Expenses Recoverable” for a detailed discussion of the Company’s risks related to ceded reinsurance agreements and the Company’s process to evaluate the financial condition of its reinsurers.
At June 30, 2023 and December 31, 2022, the distribution of the Company’s paid and unpaid losses and loss adjustment expenses recoverable categorized by credit rating was as follows:
| | | | | | | | | | | | | | | | | |
| | | % of total paid and unpaid losses and loss adjustment expenses recoverable |
Classification | | | June 30, 2023 | | December 31,
2022 | | |
Collateralized | | | 32.0 | % | | 33.8 | % | | |
A- or better | | | 67.4 | % | | 65.6 | % | | |
Below A- | | | 0.6 | % | | 0.6 | % | | |
| Total | | | 100.0 | % | | 100.0 | % | | |
At June 30, 2023 and December 31, 2022, the Company’s paid and unpaid losses and loss adjustment expenses recoverable balance was $1.3 billion at each period end. At June 30, 2023, 32.0% is fully collateralized by reinsurers, 67.4% is recoverable from reinsurers rated A- or better by major rating agencies and 0.6% is recoverable form reinsurers rated lower than A- by major rating agencies (December 31, 2022 - 33.8%, 65.6% and 0.6%, respectively).
At June 30, 2023 and December 31, 2022, the three largest balances by reinsurer accounted for 31% (fully collateralized), 20% and 12% and 31% (fully collateralized), 17% and 11%, respectively, of paid and unpaid losses and loss adjustment expenses recoverable.
Reserve for unpaid losses and loss adjustment expenses
The Company establishes loss reserves using actuarial models, historical insurance industry loss ratio experience and loss development patterns to estimate its ultimate liability of all losses and loss adjustment expenses incurred with respect to premiums earned on the contracts at a given point in time. Loss reserves do not represent an exact calculation of the liability. Estimates of ultimate liabilities are contingent on many future events and the eventual actual outcome of these events may be substantially different from the assumptions underlying the reserve estimates. The Company believes that the recorded reserve for losses and loss adjustment expenses represents management’s best estimate of the cost to settle the ultimate liabilities based on information available at December 31, 2022.
See “Critical Accounting Estimates—Reserve for Losses and Loss Adjustment Expenses” below for a detailed discussion of losses and loss expenses.
See Note 10, Reserve for Losses and Loss Adjustment Expenses to the Consolidated Financial Statements for the reconciliation of the gross and net reserve for losses and loss adjustment expenses and for a discussion of prior year reserve development.
Contractual Obligations and Commitments
At December 31, 2022, contractual obligations and commitments by period due were:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Payment Due by Year |
| ($ in thousands) | | Total | | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years |
Debt(1) | | $ | 150,000 | | | $ | — | | | $ | 150,000 | | | $ | — | | | $ | — | |
Estimated interest payments(1) | | 22,231 | | | 8,991 | | | 13,240 | | | — | | | — | |
| Total debt obligations | | 172,231 | | | 8,991 | | | 163,240 | | | — | | | — | |
Losses and loss adjustment expenses(2) | | 2,856,275 | | | 867,867 | | | 914,522 | | | 431,887 | | | 641,999 | |
Operating lease obligations(3) | | 8,878 | | | 2,845 | | | 4,419 | | | 1,614 | | | — | |
| Total | | $ | 3,037,384 | | | $ | 879,703 | | | $ | 1,082,181 | | | $ | 433,501 | | | $ | 641,999 | |
_________________
(1)Estimated debt payments have been calculated in the above table with reference to the interest rate in effect at December 31, 2022. Refer to Note 12, Debt and Credit Facilities in the Consolidated Financial Statements for further details.
(2)Losses and loss adjustment expenses are presented gross of estimated recoveries. The amount and timing of associated cash flows are subject to significant judgement based on the best information currently available and actual settlement may vary significantly from the estimates presented above. Refer to “Critical Accounting Estimates—Losses and Loss Adjustment Expenses” for further detail.
(3)Refer to Note 17, Commitments and Contingencies in the Consolidated Financial Statements for further detail on our lease commitments.
Transactions with Related Parties
The discussion of transactions with related parties is included in Note 18, Related Party Transactions in the Company’s Consolidated Financial Statements.
Qualitative and Quantitative Disclosures About Market Risk
Overview
We believe the Company’s exposure to market related risk arises primarily from: interest rate risk, credit spread risk, foreign currency risk and inflation.
We performed a sensitivity analysis to estimate the effects that market risk exposures could have on the future earnings, fair values or cash flows at December 31, 2022 and November 30, 2021. Although this exercise focuses on identifying risk exposures that only impact the market value of assets, it is important to recognize that these risks are significantly mitigated by the Company’s investment strategy, which is designed to result in an economic valuation of assets and liabilities that is generally offsetting.
The sensitivity analysis performed at December 31, 2022 and November 30, 2021 presents hypothetical changes in cash flows, earnings and fair values of market sensitive instruments which were held by the Company on those dates in response to changes in valuation inputs selected by the Company. This risk management discussion and the estimated amounts generated from the following sensitivity analysis represent forward-looking statements of market risk assuming certain future market conditions occur. Actual future results may differ materially from these projections due to actual developments in the global financial markets that are inconsistent with our current assumptions. The analysis methods used by the Company to assess and mitigate risk should not be considered indicators of future events of losses.
Interest Rate Risk
The fair value of our fixed maturity and short-term investments trading portfolio fluctuates with changes in interest rates. As a result, the Company is exposed to interest rate risk with respect to both our overall net economic asset position, and from an accounting standpoint, as the assets are carried at fair value.
We manage interest rate risk by structuring our fixed maturity and short-term investments portfolio so that the economic impact of a general interest rate shift on the portfolio is comparable to the corresponding impact on the
related liabilities. The Company believes that duration matching our financial assets and underwriting liabilities mitigates the overall interest rate risk on an economic basis. While this matching of duration reduces the economic impact of interest rate changes on the Company, changes in interest rates do impact our shareholders’ equity because our liabilities are carried at their nominal value, and are not adjusted for changes in interest rates.
The following tables summarize the aggregate hypothetical increase (decrease) in the fair value of the Company’s fixed maturity and short-term investments trading portfolio from an immediate parallel shift in the treasury yield curve, assuming credit spreads remain constant, and reflecting the use of an immediate time horizon, since this presents the worst-case scenario:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in thousands) | | Interest Rate Shift in Basis Points |
| December 31, 2022 | | -100 | | -50 | | Base | | 50 | | 100 |
| Fair value of fixed income securities and short-term investments | | $ | 1,589,719 | | | $ | 1,567,448 | | | $ | 1,545,587 | | | $ | 1,524,092 | | | $ | 1,502,992 | |
| | | | | | | | | | |
| | | | | | | | | | |
| Percentage change in fair value | | 2.9 | % | | 1.4 | % | | — | % | | (1.4) | % | | (2.8) | % |
| Net increase (decrease) in fair value | | $ | 44,132 | | | $ | 21,861 | | | $ | — | | | $ | (21,495) | | | $ | (42,595) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in thousands) | | Interest Rate Shift in Basis Points |
| November 30, 2021 | | -100 | | -50 | | Base | | 50 | | 100 |
| Fair value of fixed income securities and short-term investments | | $ | 1,737,425 | | | $ | 1,718,324 | | | $ | 1,699,234 | | | $ | 1,680,161 | | | $ | 1,661,090 | |
| | | | | | | | | | |
| | | | | | | | | | |
| Percentage change in fair value | | 2.2 | % | | 1.1 | % | | — | % | | (1.1) | % | | (2.2) | % |
| Net increase (decrease) in fair value | | $ | 38,191 | | | $ | 19,090 | | | $ | — | | | $ | (19,073) | | | $ | (38,144) | |
Credit Spread Risk
The Company considers the impact of credit spread movements on the fair value of our fixed maturity and short-term investments trading portfolio. As credit spreads widen, the fair value of our fixed maturity and short-term investments trading portfolio decreases, and vice versa.
The following tables summarize the aggregate hypothetical increase (decrease) in the fair value of the Company’s fixed maturity investments and short-term investments trading portfolio from an immediate parallel shift in credit spreads, assuming the treasury yield curve remains constant, reflecting the use of an immediate time horizon since this presents the worst-case scenario:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in thousands) | | Credit Spread Shift in Basis Points |
| December 31, 2022 | | -100 | | -50 | | Base | | 50 | | 100 |
| Fair value of fixed income securities and short-term investments | | $ | 1,569,513 | | | $ | 1,557,501 | | | $ | 1,545,587 | | | $ | 1,533,742 | | | $ | 1,522,005 | |
| | | | | | | | | | |
| | | | | | | | | | |
| Percentage change in fair value | | 1.5 | % | | 0.8 | % | | — | % | | (0.8) | % | | (1.5) | % |
| Net increase (decrease) in fair value | | $ | 23,926 | | | $ | 11,914 | | | $ | — | | | $ | (11,845) | | | $ | (23,582) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in thousands) | | Credit Spread Shift in Basis Points |
| November 30, 2021 | | -100 | | -50 | | Base | | 50 | | 100 |
| Fair value of fixed income securities and short-term investments | | $ | 1,722,970 | | | $ | 1,711,188 | | | $ | 1,699,234 | | | $ | 1,687,124 | | | $ | 1,674,850 | |
| | | | | | | | | | |
| | | | | | | | | | |
| Percentage change in fair value | | 1.4 | % | | 0.7 | % | | — | % | | (0.7) | % | | (1.4) | % |
| Net increase (decrease) in fair value | | $ | 23,736 | | | $ | 11,954 | | | $ | — | | | $ | (12,110) | | | $ | (24,384) | |
Investment in Two Sigma Funds
We hold investments in the following Two Sigma Funds: FTV, STV and ESTV. Our investments in these Two Sigma Funds are stated at their estimated fair values, which generally represent the Company’s proportionate interest in the members’ equity of the Two Sigma Funds as reported by the respective funds based on the NAV provided by the fund administrator. The Company accounts for its investment in Two Sigma Funds under the
variable interest model at NAV as a practical expedient for fair value in the consolidated balance sheets. Increases or decreases in such fair value are recorded within net realized and unrealized gains (losses) on investments in the Company’s consolidated statements of operations. The Company records contributions and withdrawals related to its investments in the funds on the transaction date.
Assuming a hypothetical 10% and 30% increase or decrease in the value of our investments in Two Sigma Funds as of December 31, 2022, the carrying value of these investments would have increased or decreased by approximately $74.1 million and $222.2 million, pre-tax, respectively.
Foreign Currency Risk
The Company’s functional currency for consolidated reporting is the U.S. dollar. We routinely write business in currencies other than U.S. dollars and invest a portion of our cash and investments in those currencies. All of the Company’s operating entities have U.S. dollar functional currencies. As a result, we may experience foreign exchange gains and losses in our consolidated financial statements.
The Company is primarily impacted by the foreign currency risk exposures from its underwriting operations and fixed maturity and short-term investments trading portfolio, and may, from time to time, enter into foreign currency forward and option contracts to minimize the effect of fluctuating foreign currencies on the value of non-U.S. dollar denominated assets and liabilities. Generally, the Company will match its projected non-U.S. dollar foreign currency underwriting related assets and liabilities with investments and cash in the same currencies to manage our exposure to foreign currency fluctuations and reduce the volatility of foreign exchange gains and losses on our results of operations.
See Note 2(k) Foreign Exchange in the Consolidated Financial Statements for additional information.
The following tables summarize the estimated effects of a hypothetical 10% movement in the value of the U.S. dollar against select foreign currencies would have had on the carrying value of our net assets:
| | | | | | | | | | | | | |
| December 31, 2022 |
| ($ in millions) | -10% | | | | +10% |
| | | | | |
| | | | | |
| GBP | $ | 6.7 | | | | | $ | (6.7) | |
| JPY | 0.6 | | | | | (0.6) | |
| EUR | 4.9 | | | | | (4.9) | |
| CAD | (4.0) | | | | | 4.0 | |
| AUD | $ | (1.1) | | | | | $ | 1.1 | |
Effects of Inflation
Historically, inflation has not had a material effect on the Company’s consolidated results of operations. However, global economic inflation has recently increased and there is a risk that it will remain elevated for an extended period. Inflation is subject to many macroeconomic factors beyond our control, including global banking policy, political risks, supply chain issues, and the continuing impact of the COVID-19 pandemic. An inflationary economy may result in higher claims and claims expenses, negatively impact the performance of our fixed income security investment portfolio, or increase our operating expenses, among other unfavorable effects. The ultimate effects of an inflationary or deflationary period are subject to high uncertainty and cannot be accurately estimated until the actual costs are known.
In the wake of a catastrophe loss there is a risk of specific inflationary pressures in the local economy, which is considered in our catastrophe loss models. Similarly, the Company incorporates the anticipated effects of inflation in our ultimate estimate of the reserves for unpaid losses and loss adjustment expenses on certain long-tail lines of business. As with general economic inflation, the actual effects of inflation on reserves for losses and loss adjustment expenses and results of operations cannot be accurately known until all of the underlying claims are ultimately settled.
For a discussion of the impact of increases and decreases in interest rates on the Company’s fixed maturity and short-term investments trading portfolio, see above.
In recent years, we have experienced an increase in loss costs as a result of relatively high inflation in several locations in which we have exposure. We have seen high inflation in many components of our claims payments across all lines. The underlying drivers of increased claims costs include, but are not limited to consumer prices, retail prices, wages, property rebuild costs and energy prices. In response to the rising costs driven by inflation, we conducted a thorough assessment of loss cost inflation, which we used to update our pricing models and reserving and planning assumptions. This analysis suggests that the positive rate movement we have achieved has matched or exceeded loss cost trends when we account for current rates of inflation and forecasted rates of future inflation. However, there is a risk that our inflation assumptions and forecasts prove to be insufficient or may be different from the actual impact of those inflation drivers upon our future claim payments, which could negatively impact our future earnings.
Long-term Incentive Compensation
Compensation benefits include employee participation in a plan known as the Value Appreciation Pool (“VAP”). The VAP is intended to align long-term Company and shareholder interests by rewarding employees with 10% of any increase in the multiple of the Company's estimated fair market value to GAAP shareholders' equity between the December 1, 2020 VAP inception date, and either an interim trigger event or ultimate plan maturity on November 30, 2025. The VAP will settle in two tranches: the first settlement upon either plan maturity or the occurrence of a trigger event, and the second twelve months later. As of December 31, 2022, no expense was recognized related to the VAP and the fair value of the compensation cost was estimated at each reporting date using both a market approach and an income approach and the resulting intrinsic value expensed over the period for which the employee is required to provide services in exchange for the award, with any changes in the intrinsic value recorded in compensation expense by a cumulative catch-up adjustment. The VAP is subject to graded vesting of its two settlement tranches. Forfeitures are recognized as they occur.
With effect from March 10, 2023, the Company revised the VAP to include an Underpin, such that if the ratio of the Company's estimated fair market value to GAAP shareholders' equity on the trigger event date is less than 1.15, the value of the award will be calculated with reference to a minimum ratio of 1.15 in order to provide for a minimum payment in respect of the award. In the event that the Underpin comes into effect, the VAP will settle in two equal tranches: the first settlement upon the first anniversary of the trigger event, and the second twelve months later. There was no impact on the Company’s results of operations, financial position or cash flows as a result of the revision, and all other terms and conditions remain materially unchanged.
On May 15, 2023, the Company completed an initial confidential filing and became a public entity. As a result, we remeasured the VAP using a fair value based method in accordance with the guidance in ASC 718, Compensation – Stock Compensation and recorded an accrual of $4.4 million, of which $4.2 million was recorded as an adjustment to retained earnings in "Share compensation expense". The fair value of the compensation cost will be estimated at each reporting date and expensed over the period for which the employee is required to provide services in exchange for the award, with any changes in the fair value recorded in compensation expense by a cumulative catch-up adjustment.
In the event that the Underpin comes into effect, management estimates the minimum fair value of the VAP at the offering date to be approximately $ million subject to vesting conditions.
Recent Accounting Pronouncements
At December 31, 2022, there were no recently issued accounting pronouncements that have not yet been adopted that management expects could have a material impact on the Company’s results of operations, financial condition or liquidity. See Note 2(s), Recent Accounting Pronouncements in the Consolidated Financial Statements.
OUR INDUSTRY
Property & Casualty Insurance & Reinsurance
Insurance is a contract or an agreement in which one party, the insured, pays regular payments, called premiums, to another party, the insurer, who promises to pay money or provide financial protection if the insured suffers a specified loss, injury, death, or damage by a contingency or a peril.
Reinsurance is a form of insurance that an insurance company buys from another insurance company to reduce its risk of paying a large claim or aggregation of claims. The practice allows insurers to transfer portions of their risk portfolios to other parties by some form of agreement to reduce the likelihood of paying a large obligation or a series of obligations resulting from one or more insurance claims. Companies that seek reinsurance are called ceding companies or cedants. The reinsurer agrees to pay for the loss that the ceding company suffers when it pays on the original insurance contract. Note that reinsurance does not discharge the cedant from its liability to policyholders; rather, it reimburses the cedant for covered losses.
Property & Casualty Industry
The property and casualty (“P&C”) industry is a general term for all insurance and reinsurance business, except for life insurance and reinsurance. P&C provides protection from covered loss events, such as damage to property or liability claims by third parties. Property insurance provides protection against risks to property such as fire, theft, or other physical damages such as those caused by natural catastrophe events. Property losses are generally short-tailed, which means that they are usually known and reported within a relatively short period of time after the underlying loss event has occurred. Casualty insurance generally refers to insurance that covers liability for third-party injuries, negligent acts or omissions. Casualty losses are generally medium to long-tailed, which means there can be a delay between the occurrence of a loss and the time it is paid by the insurer. In addition to the property-casualty distinction, P&C insurance can be classified into personal lines, where insurance is provided to individuals, and commercial lines, where insurance is provided to businesses.
Standard and Specialty Market
The P&C insurance industry can be divided between Standard and Specialty insurance markets. Standard or Admitted insurance products generally cover more homogenous risks and offer more standardized coverages. Admitted insurance providers must follow certain regulations, including, but not limited to, restrictions or prior approvals for changes to premium rates or coverage forms. In turn, policyholders of Admitted insurance carriers receive protection from the state guaranty fund in the event of insolvency of that insurance carrier. Although there is no standard definition of “Specialty insurance,” the Specialty or Non-Admitted insurance market, also known as the E&S market, provides products with more flexible policy forms and rates as compared to the Standard market. Insurance customers seek coverage from the Specialty market given the ability of this market to provide coverage that meets their unique risk characteristics, where the Admitted market does not or will not provide that coverage. Within the P&C industry, we operate primarily in the Specialty insurance market.
Market Size
The global market for P&C insurance generated approximately $1.8 trillion in premiums during 2021, according to McKinsey. The U.S. P&C industry is the largest insurance market in the world and generated approximately $793 billion in premiums during 2021, according to S&P Global.
The global market for P&C reinsurance, a subset of the global market for P&C insurance, is estimated at approximately $184 billion during 2020 according to A.M. Best.
In 2021, the U.S. non-admitted (or E&S) market was approximately $83 billion in annual gross premiums written and represented 10.4% of the total U.S. P&C industry premium, and 20.4% of U.S. P&C commercial lines premium, according to A.M. Best. Lloyd’s is the largest market in the world for U.S. non-admitted business, making up approximately 17% of the total premium written in 2021, also according to A.M. Best.
BUSINESS
Our Company
Overview of Our Business
We are a global specialty insurance and reinsurance company founded in Bermuda in 2013. We harness multiple drivers to create shareholder value. These include diverse underwriting operations supported by proprietary technology and a team of over 500 full-time employees, a strong balance sheet, and a unique investment management relationship with Two Sigma. We operate globally, with underwriting operations in Lloyd’s, Ireland, Bermuda, and the United States. We are led by an entrepreneurial and experienced management team that have almost tripled our gross premiums written over the last five years, from $571 million for the year ended November 30, 2018 to $1.6 billion for the year ended December 31, 2022, while also reducing our combined ratio by 22 percentage points. We believe the combined effects of organic premium growth, strategic acquisition, new market developments and continuous platform cost optimization leave us well positioned to capitalize on the favorable market conditions across the lines of business written by our established and scaled underwriting platforms.
We operate three principal underwriting platforms (Hamilton Global Specialty, Hamilton Select and Hamilton Re) that are categorized into two reporting business segments (International and Bermuda):
•International: Accounting for 57% of gross premiums written for the year ended December 31, 2022, International consists of business written out of our Lloyd’s syndicate and subsidiaries based in the United Kingdom, Ireland, and the United States, and includes the Hamilton Global Specialty and Hamilton Select platforms.
◦Hamilton Global Specialty focuses predominantly on commercial specialty and casualty insurance for medium to large-sized accounts and specialty reinsurance products written by Lloyd’s Syndicate 4000 and HIDAC. Syndicate 4000, a leading Lloyd’s syndicate, generates a significant portion of premium from the U.S. E&S market and has ranked among the most profitable and least volatile syndicates at Lloyd’s over the last 10 years.
◦Hamilton Select, our recently launched U.S. domestic E&S carrier, writes casualty insurance for small to mid-sized clients in the hard-to-place niche of the U.S. E&S market. We believe it presents meaningful and profitable growth opportunities in the near to long term, further expanding our footprint in the U.S. E&S market.
◦Our International segment had gross premiums written of $176 million, $277 million, $662 million, $892 million and $933 million for the years ended November 30, 2018 through November 30, 2021 and December 31, 2022, respectively, with a corresponding combined ratio of 136%, 153%, 111%, 108% and 97% for the same periods.
•Bermuda: Accounting for 43% of our gross premiums written for the year ended December 31, 2022, Bermuda consists of the Hamilton Re platform, made up of Hamilton Re and Hamilton Re US. Hamilton Re writes property, casualty and specialty reinsurance business on a global basis and also offers high excess Bermuda market specialty insurance products, predominantly for large U.S. commercial risks. Hamilton Re US writes casualty and specialty reinsurance business on a global basis.
◦Our Bermuda segment had gross premiums written of $396 million, $454 million, $425 million, $554 million and $713 million for the years ended November 30, 2018 through November 30, 2021 and December 31, 2022, respectively, with a corresponding combined ratio of 122%, 110%, 111%, 104% and 110% for the same periods.
Our evolution into a specialty insurance and reinsurance company reached a significant turning point in 2018 with the hiring of Pina Albo, our Group CEO and the start of our Strategic Transformation. Ms. Albo is a 30+ year veteran in the insurance industry, having served as a member of the Board of Executive Management at Munich Re, where she had a 25-year career, as well as serving on the Board of Reinsurance Group of America, Incorporated (a
Fortune 500 public company) and recently being appointed as the first female Chair of the Association of Bermuda Insurers and Reinsurers. The Strategic Transformation commenced in 2018, when we set a new strategy and business priorities and was propelled by the appointment of a management team focused on employing rigorous risk selection and creating sustainable underwriting profitability. The Strategic Transformation also included enhancing underwriting governance, re-underwriting and repositioning our business to increase the focus on casualty and specialty insurance and reinsurance lines, decreasing volatility and investing in business enabling technology. The Strategic Transformation was accelerated in 2019 when we acquired Pembroke Managing Agency and related entities, which included Pembroke Managing Agency (subsequently renamed Hamilton Managing Agency), Lloyd’s Syndicate 4000 and Ironshore Europe DAC (subsequently renamed Hamilton Insurance DAC or HIDAC). This acquisition doubled and diversified our premium base, increased our underwriting expertise and operational capabilities, and provided us with a fully-scaled Lloyd’s platform. As a result of the strategic actions taken in the context of the Strategic Transformation, in the five years since 2018, we increased gross premiums written at a compound annual rate of approximately 30%,8 reduced our combined ratio, optimized the portfolio mix by increasing the contribution from specialty insurance and strengthened our balance sheet. While the Strategic Transformation is complete, we continuously review our portfolio to optimize underwriting returns and opportunities, and drive additional benefits by regular collaboration with our GUC. We believe Hamilton is consequently well positioned to deliver growth and profitability in the current attractive market environment and across all market cycles.
Our proprietary technology has been a critical part of our Strategic Transformation by enabling the growth of our business and the execution of our strategy. This technology includes HARP, Timeflow, MINT, and Hamilton Insights. Unlike many of our peers, we are not burdened by legacy systems and have modernized, cloud based core platform which has enabled us to design and implement our proprietary systems to be a competitive advantage for our business.
The growth of our business is supported by a strong balance sheet. As of December 31, 2022, Hamilton had total assets of $5.8 billion, total invested assets of $3.3 billion and shareholders’ equity of $1.7 billion. Our total invested assets of $3.3 billion includes $1.3 billion of securities in our fixed maturity trading portfolio and short-term investments, or 39% of our total invested assets, with an average credit rating of Aa3 and of which 100% are investment grade. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition, Liquidity and Capital Resources—Cash and Investments” for further detail by investment class. We also enjoy a low debt-to-capital ratio of 7.9% at June 30, 2023, which compares favorably to our peers and provides us with meaningful financial flexibility to execute against our strategy. The Company had a net loss attributable to common shareholders of $98.0 million for the year ended December 31, 2022. Cumulatively, since the inception of the Company, our net income attributable to common shareholders was $561.6 million. The Company has demonstrated its ability to withstand catastrophe and other significant loss events across changing market cycles and we believe it is well placed to take advantage of the current hard market conditions. Our prudent reserving approach fortifies our financial position and has resulted in reserve releases every year since inception.9
Our Lloyd’s syndicate benefits from financial strength ratings of “A” (Excellent) from A.M. Best, “A+” from S&P Global, “AA-” from KBRA and “AA-” from Fitch, all of which are NRSROs as defined under the Exchange Act. Our other insurance and reinsurance subsidiaries hold an “A-” (Excellent) rating from A.M. Best and an “A” rating from KBRA, each with a positive outlook. We believe these ratings demonstrate the financial strength of our insurance and reinsurance platforms and facilitate our ability to capitalize on new opportunities with our policyholders, cedants and distribution partners.
Unique Investment Management Relationship with Two Sigma
Our diversified underwriting model is complemented by a unique and long-term investment management relationship with Two Sigma. Founded in 2001, Two Sigma is a premier investment manager with a strong track record and approximately $60 billion of assets under management across affiliates as of April 1, 2023. Driven by a differentiated application of technology and data science, Two Sigma has over 2,000 employees across affiliates, including an experienced and diverse team of over 1,000 employees in research and development.
8 Gross premiums written from 2018 to 2022 were $571 million, $731 million, $1,087 million, $1,447 million, and $1,647 million, respectively.
9 Excluding the U.S. GAAP accounting impact of a loss portfolio transfer purchased in 2020.
Two Sigma manages $1.6 billion of our assets as of December 31, 2022 via our investment in the Two Sigma Hamilton Fund. The portion of our total invested assets managed by Two Sigma has declined from 80% in 2018 to 49% in 2022 and are expected to continue to decline naturally as our underwriting platforms and fixed income portfolio grow. The Two Sigma Hamilton Fund is a dedicated fund-of-one managed by Two Sigma with exposures to certain Two Sigma macro and equity strategies.10 The Two Sigma Hamilton Fund has been designed to provide low-correlated absolute returns, primarily by combining multiple hedged and leveraged systematic investment strategies with proprietary risk management investment optimization and execution techniques. The Two Sigma Hamilton Fund invests in a broad set of financial instruments and is primarily focused on liquid strategies in global equity, FX markets, exchange-listed and OTC options (and their underlying instruments) and other derivatives. This liquidity profile fits well with our business, while also providing the benefit of access to a dedicated fund-of-one.
Two Sigma has broad discretion to allocate invested assets to different opportunities. Its current investments include FTV, STV and ESTV. The Two Sigma Hamilton Fund’s trading and investment activities are not limited to these strategies and Techniques and the Two Sigma Hamilton Fund is permitted to pursue any investment strategy and/or Technique that Two Sigma determines in its sole discretion to be appropriate for the Two Sigma Hamilton Fund from time to time. In any given period, the performance of these individual portfolios may vary materially; however, the performance and risk profile of the Two Sigma Hamilton Fund is monitored at the overall fund level, rather than at the portfolio level. This is consistent with the manner in which investment management fees and performance incentive allocations are determined (i.e., fees and performance incentives are determined on by the overall performance of the fund, rather than the performance of each portfolio).
We have entered into a Commitment Agreement with Two Sigma, which includes a bilateral rolling three-year commitment period that automatically renews each year, until a non-renewal notice is provided by either party. The historical returns of the funds managed by Two Sigma (including the Two Sigma Hamilton Fund) are not necessarily indicative of future results. Two Sigma Hamilton Fund produced returns, net of investment management fees and performance incentive allocations, of 4.6%, 17.7% and (4.6%) for each of the years ended December 31, 2022 and November 30, 2021 and 2020, respectively. Hamilton pays arm’s-length management and incentive fees under this agreement. Our annualized return of 12.8% from 2014 to 2022 from the Two Sigma Hamilton Fund is net of these fees and incentive allocations. See “Risk Factors—Risks Related to Our Investment Strategy—We do not have control over the Two Sigma Hamilton Fund” for more information.
Our ESG Principles
Good corporate citizenship underscores everything we do. Our ESG approach is based on being a responsible corporate and global citizen and was affirmed through two different external assessments.
We apply a four-pillar philosophy across all areas of our business:
1.Accountability: We focus on employing equitable governance and oversight in an effort to ensure the best outcome for all of our stakeholders.
2.Social Impact: We have an inclusive culture underpinned by teamwork and collaboration. As part of that, we have had an engaged and active DEI Committee since 2018, made up of employee representatives from each of our key locations, across functions and seniority. We also have a diverse senior management team, with three of four of our group & underwriting platform CEOs being women. Notably, 45% of our Group Executive team and approximately 40% of our underwriting and claims leaders are female.
3.Underwriting: We are supportive of companies that are involved in the transition to alternative energy sources such as renewable energy, including wind and solar, and rolled out ESG-specific underwriting guidelines in the third quarter of 2022.
10 For the avoidance of doubt, Two Sigma serves as the investment manager of the Two Sigma Hamilton Fund. The Company is not a client of Two Sigma pursuant to the Investment Act of 1940, as amended.
4.Investments: We strive to deploy our invested capital responsibly with established guidelines that are regularly monitored to align with our corporate values. Our investment managers are guided by the United Nations Principles for Responsible Investment.
Our Competitive Strengths
We believe that our corporate tagline, “In good company” embodies who we are as an organization. As a good corporate citizen, we strive to ensure that everyone we interact with – our clients and business partners, our people, our shareholders and the communities we serve – feel they are in good company with Hamilton. Our promise is enhanced by the strengths of our differentiated business model, which include:
Scaled, diversified, and global specialty insurance and reinsurance operations
The scale we have built since inception provides significant competitive advantages in the global markets we serve. We have grown our book both organically when market conditions were favorable, through product expansion and increasing client and broker channel distribution and inorganically, through the strategic acquisition of PMA in 2019.
Our business mix is well-balanced between insurance and reinsurance, and is diversified across geographies, risks, clients and products, with a majority of our business coming from specialty and casualty lines. Since 2018, our portfolio has evolved from 32% to 57% insurance, with reinsurance declining from 68% to 43% based on premium volume. For the year ended December 31, 2022, we recorded $1.6 billion of gross premiums written through our three principal underwriting platforms, with access to key markets around the world.
We believe that the scale and breadth of our book of business, our multiple underwriting platforms and product offerings allows us to dynamically respond to and manage market cycles, thus providing for more consistent performance and reduced volatility. We expect our recently launched Hamilton Select platform will continue to add business diversification and growth in the profitable hard-to-place niche of the U.S. E&S market, as well as the other markets they serve. Hamilton Global Specialty and Hamilton Re will also provide growth prospects in the U.S. E&S market. Overall, we believe our disciplined approach to scale, risk assessment, and diversification enables us to deliver on our goals of long-term profitability.
Disciplined and data-driven underwriting approach
Our underwriting platforms are each led by teams of experienced underwriters who are specialized in their product areas and able to set terms and conditions in several lines of business. Their expertise is supplemented by our strong technical tools, which provide the insights that enable our underwriters to intelligently price and structure our products and portfolio, maintain diversification, and in turn deliver attractive risk-adjusted profitability. Our underwriters adhere to a disciplined underwriting philosophy and guidelines, seeking to underwrite only profitable risks. Our underwriters regularly review their books of business, to ensure they are growing in the most profitable areas and restructure or do not renew underperforming accounts, thus optimizing our business portfolio. They benefit from quarterly discussions with our GUC which also reviews underwriting results, suggests strategic portfolio shifts, reviews risk appetites and tolerances for new and existing products and considers emerging risks and mitigation strategies together with our underwriting and executive leadership. Our review and risk selection processes are enhanced by our business intelligence and global management information system, Hamilton Insights, which is being expanded to provide all our underwriters with real-time data and self-service report generation to inform their underwriting decisions. Examples of the portfolio enhancing measures undertaken in the context of our Strategic Transformation since 2018 include: the launching of Hamilton Select and Hamilton Re US, growth of professional insurance lines, the strategic purchase of LPT in 2020 on certain casualty risks for Lloyd’s YOA in 2016, 2017 and 2018 and exit/remediation of unprofitable lines of business (e.g., agriculture and property binder business). The platforms have benefited from group wide, third party best practice reviews commissioned by our GUC and the fact that variable compensation is tied primarily to underwriting profitability.
We actively manage our risk exposure on a centralized basis, in order to allocate capital efficiently and optimize our returns. For example, we monitor tolerances for natural catastrophe risks utilizing PMLs for multiple regions and perils and we have reduced our PMLs as a result of proactive portfolio management. We believe our average annual
current year natural catastrophe losses as measured as a percentage of tangible book value were lower than those of many of our peers as a direct result of these actions for the five-year period from 2018 to 2022. We now see an opportunity to strategically deploy PML capacity to gain access to well-priced property insurance and reinsurance business as well as other profitable non-property lines of business.
Our methodical and disciplined approach to underwriting, bolstered by our experienced underwriting talent, collaboration with our GUC, strong analytics platforms, and the actions taken as part of the Strategic Transformation, have resulted in a reduction in our combined ratio by 22 percentage points since 2018. Our combined ratio for the year ended December 31, 2022, adjusted for Ukraine losses, was 96.4%. Additionally, the combined ratio for our International Segment for the year ended December 31, 2022, adjusted for Ukraine losses, was 92.5% and the combined ratio for our Bermuda Segment for the year ended December 31, 2022, adjusted for Ukraine losses, was 101.0%. In addition, through responsible management actions and technological efficiencies, we have reduced our expense ratio by 4% since 2019.
Separately, the Company’s combined ratio was 87.7% and 87.9% for the three months ended December 31, 2022 and March 31, 2023, respectively. The International Segment’s combined ratio was 90.9% and 89.1% for the three months ended December 31, 2022 and March 31, 2023, respectively and the Bermuda Segment’s combined ratio was 83.6% and 86.9% for the three months ended December 31, 2022 and March 31, 2023, respectively.
Proprietary technology infrastructure
Underpinning our business is sophisticated proprietary technology and analytics platforms. Unburdened by legacy systems, our technological capabilities enable operational efficiencies as we continue to scale and allow for nimble decision-making in a competitive marketplace.
We have built proprietary systems including HARP, a catastrophe modeling and portfolio accumulation management platform used for all our natural catastrophe-exposed risks. Reflecting decades of industry experience, HARP enables precise modifications and loads to be applied to vendor catastrophe model results to produce the HVR, the basis upon which all of our catastrophe modeling and accumulation management is conducted. HARP produces rapid management information and portfolio analytics to aid decision-making, and supports structural features such as reinstatement premium protections, cascading layers and trailing deductibles that many third-party systems are unable to handle. We believe HARP is one of the most sophisticated and user-friendly risk and exposure management systems in the industry.
The HVR enables us to manage natural catastrophe risk on a consistent basis, including pricing, underwriting, reserving, planning, capital modelling and accumulation management decisions. We believe that HVR is materially complete and appropriate to the current risk landscape. We accomplish this through vendor catastrophe models that serve as a baseline and our proprietary tools, the mainstay of which is HARP, that allow us to make a number of significant adjustments, and our model intelligence team that evaluates models and recommends changes. HVR utilizes a long-term trend in its baseline and adjusts it to consider a combination of short-term variability such as warm sea-surface temperature, non-modeled perils, secondary uncertainty and severity loads (such as missing exposures, loss adjustment expenses, and potential model miss). In aggregate, HVR produces loss estimates materially in excess of those provided by the baseline vendor models, but nonetheless may not be predictive of catastrophic events.
Our proprietary suite of technology also includes Timeflow (a global underwriting submission system), which enables us to digitize our submission intake process and orchestrate data entry across multiple systems, MINT (an underwriting workbench), which will, when fully deployed, enable our underwriters at Hamilton Select to fully digitize the quote/bind/endorsement process and Hamilton Insights (our business intelligence and management information system), used by underwriters to gain insights on our business and make informed decisions.
Differentiated asset management capabilities with Two Sigma to further enhance returns
We have a unique asset management strategy as our investment-grade fixed income investment portfolio is complemented by our separate portfolio managed by Two Sigma within the Two Sigma Hamilton Fund. Our ability to generate positive risk-adjusted yields through our complementary investment portfolios differentiates us from our
peers who generally only have traditional investment allocations, concentrated primarily in investment-grade, long-only fixed income securities.
The Two Sigma Hamilton Fund is designed to provide low-correlated absolute returns and high liquidity. Two Sigma seeks to control risk systematically through the use of proprietary portfolio management and risk management systems and techniques. From 2014 to 2022, the Two Sigma Hamilton Fund produced an annualized return on invested assets of 12.8%, net of fees and incentive allocations. Our current allocation to the Two Sigma Hamilton Fund is approximately half of our invested assets. Our fixed income portfolio consists of traditional investment-grade fixed income securities which are conservative, fixed maturity and short-term investments (average rating of “Aa3” and duration of 3.2 years at December 31, 2022) and are managed by two other third-party investment managers. We believe that this balanced approach and unique access to the Two Sigma Hamilton Fund allows us to optimize our investment returns and drive additional shareholder returns that complement our underwriting operations.
Strong balance sheet with significant financial flexibility
As of December 31, 2022, we had consolidated GAAP shareholders’ equity of $1.7 billion, with limited intangibles. Our financial leverage ratio was 7.9% at June 30, 2023, which is meaningfully below many of our competitors. Our capital position is enhanced by a highly liquid investment strategy, with assets in the Two Sigma Hamilton Fund diversified across investment strategies, instruments and thousands of positions in liquid global markets. As of December 31, 2022, 99% of the Two Sigma Hamilton’s positions are level 1 assets as classified by ASC 820.
The Company had a net loss attributable to common shareholders of $98.0 million for the year ended December 31, 2022. Cumulatively, since the inception of the Company to December 31, 2022, our net income attributable to common shareholders was $561.6 million. The Company has demonstrated its ability to withstand catastrophe and other significant loss events across changing market cycles and we believe it is well placed to take advantage of the current hard market conditions.
Our balance sheet is supported by our robust reserve position, which is comfortably above the estimate of our external actuarial selected indications. Because we commenced operations in 2013, did not assume the loss and LAE reserves predating 2019 from the acquisition of PMA and purchased an LPT in 2020 on certain casualty risks for Lloyd’s YOA in 2016, 2017 and 2018, we have less exposure to legacy liabilities than many of our competitors. We have also posted favorable prior year reserve development since inception, averaging an annual release of 2.7 loss ratio points.11
Our Lloyd’s syndicate benefits from financial strength ratings of “A” (Excellent) from A.M. Best, “A+” from S&P Global, “AA-” from KBRA and “AA-” from Fitch, all of which are NRSROs as defined by the SEC. Our other insurance and reinsurance subsidiaries hold an “A-” (Excellent) rating from A.M. Best and an “A” rating from KBRA, each with a positive outlook. Maintaining strong ratings helps us demonstrate our financial strength to our policyholders, cedants and distribution partners and continues to unlock business.
Highly entrepreneurial and experienced leadership team fostering a distinctive and attractive culture
We consider ourselves a magnet for talent at all levels. Our executive officers are highly qualified and have an average of more than 20 years (and collectively over 230 years) of relevant experience in insurance and reinsurance. We are led by our Group Chief Executive Officer, Pina Albo, who has over 30 years of industry experience and was previously a Member of the Board of Executive Management of Munich Re, and the first North American woman to hold such a role. Several of our executive officers have long histories of working together at other organizations and have held senior management positions at large, established carriers. Members of our executive and management team have joined us from a number of reputable carriers such as AIG, AXIS, Chubb, CNA, Everest, Kinsale, Munich Re, Partner Re and Renaissance Re.
11 Excluding the U.S. GAAP accounting impact of a loss portfolio transfer purchased in 2020.
Our corporate tag-line, “in good company” underpins our employee value proposition and embodies our inclusive, entrepreneurial, and collaborative culture which drives our success in recruitment, development and retention of leading industry talent. Based on our most recent bi-annual engagement pulse survey, 84% of our workforce say that Hamilton is a great place to work, and 91% say we collaborate across teams to get the job done. Underscoring our culture is a strong commitment to DEI. Notably, 45% of our Group Executive team and approximately 40% of our underwriting and claims leads are female.
Our Strategy
We are a global specialty insurance and reinsurance company enhanced by data and technology, focused on producing sustainable underwriting profitability and delivering significant shareholder value. We intend to keep growing our diverse book of business by responding to changing market conditions, prudently managing our capital, and driving sustainable shareholder returns. The key pillars of our strategy include:
Prudently managing capital across different underwriting cycles
We seek to prudently manage our capital with the objective of effectively navigating different market conditions and generating strong underwriting margins throughout all market cycles. Our scaled and diversified platforms and product offerings, and our broad industry relationships provide significant opportunity to underwrite our chosen classes of property, casualty and specialty insurance and reinsurance as market opportunities arise. Leveraging our disciplined underwriting approach, balance sheet strength and flexibility, and real-time technology prowess, we can respond dynamically to capture opportunities as markets evolve.
We believe the current market conditions for insurance and reinsurance are favorable for all of our underwriting platforms, and particularly favorable for property-exposed reinsurance lines. Given our broad product offering, we believe Hamilton Re is particularly well positioned to increase our writings across multiple lines of business and negotiate attractive program structures as well as favorable terms and conditions. Hamilton Global Specialty is also capitalizing on current positive market conditions across its specialty insurance and reinsurance offerings. For example, our political violence team is currently growing its portfolio in an environment with much stronger pricing and improved terms and conditions given much greater demand for that product. We have also entered new lines of business where we see opportunity, such as the recent addition of marine hull. Hamilton Select is also benefiting from the increased flow of business and favorable market conditions in the U.S. E&S market where it is focused.
We believe our approach to managing capital across market cycles will allow us to grow our capital and fund the continued scaling of our business with our own resources. Our prudent approach to capital management may also allow us to return excess capital to investors over time, which may take the form of ordinary dividends, special dividends or share buybacks.
Driving sustainable underwriting profitability
One of our key strategic priorities is to produce sustainable underwriting profitability on the business we write and we believe we are well-positioned to do so following the Strategic Transformation. Our data-driven and disciplined underwriting processes position us to intelligently price and structure our products and our business portfolio. Our experienced underwriting, actuarial and catastrophe modeling teams rely on our strong technical tools and insights to inform underwriting decisions and drive additional benefits by regular collaboration with our GUC.
We maintain trusted and long-standing relationships with our clients and brokers, who we believe will continue to provide us with increased access to attractive business. Our disciplined underwriting approach has resulted in a reduction in our combined ratio by 22 percentage points since 2018 and improvement in our expense ratio every year since 2019. We expect to continue to leverage our robust underwriting processes, highly experienced teams, broad access to clients and brokers and real time analytics to address our clients’ needs and to garner attractive opportunities across all our underwriting platforms.
Pursuing disciplined and opportunistic growth of Hamilton Platforms
We see growth opportunities in both the insurance and reinsurance markets in which we operate and intend to pursue disciplined growth across all our underwriting platforms. In recent years the E&S market has benefited from a strong rate environment and increased submissions as business has shifted into the non-admitted market from the admitted market. Non-admitted insurers are able to cover unique and hard-to-place risks because they have flexibility of rate and form and can accommodate the unique needs of insureds who are unable to obtain coverage from admitted carriers.
We access the attractive U.S. E&S market via all three of our underwriting platforms.
•Hamilton Global Specialty writes E&S business on both its Lloyd’s and HIDAC platforms. It is an established specialty insurance market with specialized underwriting talent and strong broker and client relationships across the casualty, specialty and property insurance lines and is well positioned for growth in this market.
•Hamilton Re is also well positioned for scalable growth in the U.S. E&S insurance market given strong market conditions, with established teams in place for property insurance, excess casualty insurance and the newly-launched financial lines insurance.
•Hamilton Select, launched in 2021, further increases our access to the U.S. E&S insurance market at an opportune time. Hamilton Select plans to grow in the hard-to-place niche of the E&S market focused on small to medium sized risks, a segment which is expected to produce profitable results in all market cycles. Hamilton Select has a leadership and underwriting team with experience in its chosen hard-to-place niche from Kinsale as well as other recognized companies and also benefits from extensive distribution relationships in this attractive market segment. We believe the access our three underwriting platforms have to U.S. E&S insurance business will allow us to build a robust and diversified book of business and achieve our profitable growth objectives throughout various market cycles.
Reinsurance business offers a particularly attractive opportunity given the favorable rating environment and reduction of capacity at this time in the cycle and is expected to accelerate growth opportunities for us in the near term. A number of factors, including economic and social inflation, combined with rising interest rates and increases in the frequency and severity of natural catastrophe events in recent years, have created a supply/demand imbalance and are driving the most favorable market conditions seen in decades. We are a recognized market with deep client and broker relationships and have low counter-party credit concentration with many of our insurance partners, providing ample headroom for us to grow. We are well positioned to deploy capital quickly, efficiently and profitably through writing more reinsurance business, as well as retaining more of our own business.
Generating strong risk-adjusted returns for shareholders
Our strong, sustainable underwriting operations are complemented by our unique investment portfolio, which consists of (i) the Two Sigma Hamilton Fund, which has produced an annualized return of 12.8% from 2014 to 2022, net of fees and incentive allocation, and (ii) our investment grade fixed income portfolio which is currently benefiting from strong interest rates. We plan to continue to optimize our investment portfolio through a balanced allocation of invested assets and maintain the flexibility to adjust this allocation as needed. We believe our strategy of disciplined underwriting growth, balanced with our investment platform, will drive our ability to create shareholder value.
Our Market Opportunity
We believe we have significant opportunities to capture profitable risk-adjusted returns from sustained favorable property and casualty insurance and reinsurance market conditions due to our scale, disciplined underwriting, and financial and operating flexibility as well as our low counterparty credit concentration. The global macroeconomic and social environment continues to drive favorable demand for insurance and reinsurance products. Increased interest rates have resulted in mark-to-market losses in investment portfolios, causing several of our competitors to recognize balance sheet impairments thereby reducing their underwriting capacity. In recent years,
rate increases have been required to keep pace with the increased frequency and severity of natural catastrophe events globally, which has been impacted by changing weather patterns, inflation, increased geopolitical tensions and other risks that have grown or emerged. As a result, the global commercial insurance industry has seen 22 consecutive quarters of price increases. We believe that the combination of these factors, particularly those listed below, will continue to drive market opportunities for our business:
•Continued growth of the E&S market: We access the attractive U.S. E&S market via all three of our underwriting platforms and believe that such access to U.S. E&S business will allow us to build a robust and diversified book of business and achieve our profitable growth objectives throughout various market cycles. The non-admitted U.S. insurance market, also known as the U.S. E&S or surplus lines market, is experiencing a period characterized by surging growth and attractive rates and terms and conditions. E&S insurance focuses on insureds that generally cannot purchase insurance from standard market or admitted market insurers due to perceived risk related to their businesses. E&S carriers are generally permitted to craft the terms of the insurance contract to suit the particular risk they are assuming. Also, E&S carriers are, for the most part, free of rate regulation. More specifically:
◦Most states require an agent to seek coverage from the standard or admitted market and verify they were declined by that market before they may seek coverage from the surplus lines market through a licensed surplus lines broker. This process is often referred to as “diligent effort.” Additionally, some states use “export lists” to regulate the flow of business between the admitted and non-admitted markets. An export list outlines the types of insurance products and coverages the state allows to go to the surplus lines market without a diligent search of the standard market.
◦Standard market carriers are generally required to use approved insurance forms and to charge rates that have been authorized by or filed with state insurance departments; they are backed by a state guarantee fund. U.S. E&S business is not backed by any state’s guarantee fund, and in many states may only write coverage for an insured after they have been denied coverage by the standard market and signed declarations stating that the insured is aware that it will not have access to any state guarantee funds should these subsidiaries be unable to satisfy their obligations. Consequently, Hamilton Select , Hamilton Global Specialty and Hamilton Re may be able to provide more restrictive coverage and thereby limit exposure to loss by either excluding coverage or providing a sub-limit on coverage. As coverage is not available in the standard market, non-admitted carriers may be able to charge premiums exceeding the standard market risk charge for a narrower scope of coverage. The non-admitted market coverage form is typically modified to address the specific risk characteristics of accounts that are pushed out of the admitted market, and the pricing is adjusted to reflect the elevated risk potential. The non-admitted market policy wording may be modified to further restrict and limit coverage, and the pricing may be surcharged to account for the elevated risk for these distressed commercial accounts. It is management’s belief that non-admitted business is expected to produce profitable results in all market cycles.
◦Recently, there has been a persistent flow of business from the admitted market into the non-admitted E&S channels, resulting generally in compound rate increases across the E&S market in the United States. In addition, the macroeconomic and social environment continues to drive demand for specialized insurance solutions due to both increasing and more complex risks. Based on publicly available industry data, the growth of the U.S. E&S market has outperformed the property & casualty industry average over the last five years. We have capitalized on this growth via the insurance products offered by both our Hamilton Global Specialty and Hamilton Re platforms for some time, and most recently, with the launch of our Hamilton Select platform. Hamilton Select operates exclusively in the U.S. E&S market, offering insurance to small to mid-sized hard-to-place commercial risks, an attractive niche of the E&S market.
•Greater demand for insurance and reinsurance from our clients because of the macroeconomic environment: Global economic and industrial development, greater product awareness and distribution, economic and social inflation and increases in natural catastrophes and geopolitical tensions, such as the conflict in Ukraine, continue to drive an increase in our clients’ need for insurance and reinsurance products
underwritten by strong, trusted companies. While we are no longer covering the Ukraine/Russia conflict due to policy exclusions, opportunities have arisen in the lines of business that were impacted by the conflict, such as aviation, war and terror, and marine and energy. These lines of business are generally written on a worldwide basis and have seen higher pricing and more favorable terms and conditions since the Ukraine/Russia conflict started in February 2022.
•Hard market with attractive pricing and investment environment for the medium term: Significant annual industry-wide losses since Hurricanes Harvey, Irma and Maria in 2017, including the COVID-19 pandemic, the ongoing conflict in Ukraine and more recently Hurricane Ian in 2022, have led to significant year-on-year rate increases across multiple classes of business including property catastrophe, casualty and specialty lines. Many insurers that sustained increased losses have reevaluated their portfolios and exited certain classes of business, creating a shortfall of capacity in certain lines and new opportunities for us. We believe that the hard market conditions will continue to provide opportunities for us to capitalize on these favorable conditions as well as provide access to new business and clients, and achieve significant rate increases and improved terms and conditions, while allowing us to maintain disciplined risk selection. In addition, we believe that increased interest rates in our fixed income portfolio, as well as our exclusive access to Two Sigma investment strategies, will allow us to complement our underwriting income with attractive investment returns.
•Need for strong and experienced counterparties given limited capacity: Some of our competitors with sustained and increased underwriting losses or reduced balance sheet capacity have exited or reduced writing in selected lines of business, causing a supply dislocation in the market relative to the growing demand for risk capacity in certain lines such as property insurance and reinsurance. We are a valued, established and proven industry partner and, given the strength and flexibility of our balance sheet, the breadth of our product offerings, our low counterparty credit concentration and our recognized and experienced team, we have the ability to expand our business where opportunities arise. Our growing and extensive client and broker relationships, the clarity of our risk appetite and the consistency of our approach resonates well with our business partners and we believe will afford us increased access to attractive new business. In light of this, we believe we can continue our proven track record of being responsive to our clients’ needs, while maintaining disciplined underwriting and risk-adjusted returns for our shareholders.
Our Business
We operate three principal underwriting platforms categorized into two reporting business segments: International and Bermuda. Our three underwriting platforms, with dedicated and experienced leadership, provide us with access to diversified and profitable key markets around the world. Across these global operations, we generated $1.6 billion of gross premiums written for the year ended December 31, 2022.
The following charts represent our gross premiums written by reporting segment, insurance and reinsurance mix, and class of business for the year ended December 31, 2022.
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Gross Premiums Written:
By Segment | Gross Premiums Written:
Insurance / Reinsurance | Gross Premiums Written:
Class of Business |
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Our Products
We classify our business into two reporting segments: International and Bermuda; and from there, three principal underwriting platforms: Hamilton Global Specialty, Hamilton Select and Hamilton Re. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” for additional information relating to our reporting segments.
The table below presents gross premiums written in each of our reporting segments for each of the most recent three years.
| | | | | | | | | | | | | | | | | |
| December 31, 2022 | | November 30, 2021 | | November 30, 2020 |
| International | $ | 933,241 | | | $ | 892,292 | | | $ | 661,541 | |
| Bermuda | 713,432 | | | 554,259 | | | 424,999 | |
| Total gross premiums written | $ | 1,646,673 | | | $ | 1,446,551 | | | $ | 1,086,540 | |
International comprises 57% of the total 2022 gross premiums written and includes HMA, as managing agent to Hamilton Syndicate 4000 (wholly aligned syndicate), HIDAC, and Hamilton Select.
Bermuda comprises 43% of the total 2022 gross premiums written and includes Hamilton Re and Hamilton Re US.
International
Our International Segment includes both the Hamilton Global Specialty and Hamilton Select platforms. Hamilton Global Specialty focuses predominantly on commercial specialty and casualty insurance and reinsurance products for medium to large-sized accounts and specialty reinsurance for a variety of global insurance companies. Its business is distributed via Lloyd’s Syndicate 4000 and HIDAC in Ireland. Hamilton Select, our recently launched U.S. domestic E&S carrier, writes casualty insurance for small to mid-sized commercial clients in the hard-to-place niche of the U.S. E&S market. Hamilton Select does not write any property business. Across the International Segment, insurance business made up approximately 90% of gross premiums written, while specialty reinsurance makes up approximately 10% at December 31, 2022. The International Segment is supported by over 100 underwriters.
The portfolio of business written within our International Segment is broadly diversified with low volatility and focuses on medium to large-sized accounts. The 2023 syndicate business forecast approved by Lloyd’s gives Syndicate 4000 capacity of £490 million. In addition to the capacity at Lloyd’s, Hamilton Global Specialty writes business using its Irish subsidiary company, HIDAC. Hamilton Select, our U.S. E&S platform, also operates under our International Segment and focuses on small to mid-sized hard-to-place accounts.
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Gross Premiums Written:
Class of Business | Gross Premiums Written:
Insurance / Reinsurance |
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Our International Segment includes:
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| For the Years Ended |
| ($ in thousands) | December 31, 2022 | | November 30, 2021 | | November 30, 2020 |
| Property | $ | 127,424 | | | $ | 197,471 | | | $ | 191,984 | |
| Casualty | 463,397 | | | 323,192 | | | 185,636 | |
| Specialty | 342,420 | | | 371,629 | | | 283,921 | |
| Total gross premiums written | $ | 933,241 | | | $ | 892,292 | | | $ | 661,541 | |
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
($ in thousands) | December 31, 2022 | | November 30, 2021 | | November 30, 2020 |
| Insurance | | | | | |
| Fixed | $ | 370,653 | | | $ | 344,384 | | | $ | 235,456 | |
| Proportional | 466,987 | | | 392,331 | | | 292,528 | |
| Total insurance | 837,640 | | | 736,715 | | | 527,984 | |
| Reinsurance |
| |
| |
|
| XOL | $ | 27,488 | | | $ | 69,045 | | | $ | 76,024 | |
| Proportional | 68,113 | | | 86,532 | | | 57,533 | |
| Total reinsurance | 95,601 | | | 155,577 | | | 133,557 | |
| Total gross premiums written | $ | 933,241 | | | $ | 892,292 | | | $ | 661,541 | |
Property Lines
Property business written by Hamilton Global Specialty accounted for 13% of gross premiums written as of the year ended December 31, 2022. Our underwriting strategy is to minimize catastrophe exposure. The property book is predominantly made up of U.S. E&S insurance business with a weighting in favor of the industrial and commercial sectors, binding authority business, comprising non-standard commercial and residential risks, and specialist sectors, including terrorism, power generation, engineering and nuclear risks. The property insurance book is written on both a direct and facultative basis, as well as through a specialist property binders division. The property products include:
Property (Direct & Facultative): We offer all risks coverage, business interruption, machinery breakdown, natural perils, and physical loss or damage. This is a global account with a concentration of business in North America. The balance of business is written in Australasia, Latin America, the Middle East and South Africa.
Property Binders: We target small and medium-sized enterprises low-hazard commercial portfolios, mostly low attritional coastal appetite, personal lines business, excluding habitational risk, difference in conditions – flood and earthquake portfolios and specialty financial institution lines including mortgage impairment and lender-placed property. The portfolio is predominantly written for risks across the United States/North America.
Casualty Lines
Casualty business within Hamilton Global Specialty accounted for 50% of gross premiums written as of the year ended December 31, 2022. Our casualty products include:
Financial Lines: Our financial lines book targets corporate entities rather than retail exposure. We write a diversified portfolio across a broad range of financial institutions including asset managers, funds, building societies, financial exchanges, retail and commercial banks, private equity/venture capital firms, stockbrokers, private banks, development banks, merchant/investment banks, insurance companies and trust companies. This is a global account with a concentration of business in the United Kingdom, the United States, Canada, the Caribbean, Australia and a key presence in emerging markets.
Professional Lines: Our professional lines book covers international PI, U.S. PI, medical malpractice and D&O. We target a diversified portfolio for which the cornerstone is a strong international PI account supported by carefully selected commercial D&O. Key areas include specialist engineers, lawyers and miscellaneous business. We deliver our professional lines through a mixture of multi-class facilities for small businesses or via bespoke products designed for more specialized risks, such as auction houses, protection & indemnity (P&I) club managers and classification societies. This is a global account with a concentration of business in the United Kingdom, United States, Canada and the Caribbean.
Environmental: We help manage risks in the areas of pollution liability aimed at safeguarding business owners from pollution claims arising from a variety of environmental threats related to liability from managing, leasing or owning real estate assets, professional liability, contractors’ pollution liability, commercial general liability, and manuscript solutions. With our global presence, we have the capability to underwrite cross-border transactions and deals and the ability to underwrite risks in various international jurisdictions including Canada, the United Kingdom, Europe, Asia, Latin American and the Caribbean.
Excess Casualty: Our industry class offering is broad and includes medium to large companies. We also provide cover for U.S. construction companies for both practice and project-specific policies over a wider range of construction from mid-size commercial projects through to major infrastructure projects. We target U.S.-domiciled entities with U.S. and global exposures.
Mergers & Acquisitions: Our mergers & acquisitions book offers warranty and indemnity insurance, which covers unknown and unforeseen loss arising from breaches of the warranties under an acquisition agreement, as well as contingent risk insurance, which covers known and quantifiable loss arising out of specific (low-risk) issues identified during a transaction diligence process. We work with private equity houses, financial institutions, global corporates and management teams of all sizes and have broad appetite for all target companies, business or assets. We have a global presence and capabilities to underwrite cross-border transactions and deals with operations in various international jurisdictions. At present, our focus is on U.K., European and Asia Pacific targets. A typical transaction enterprise value for primary terms is between $70 million and $700 million.
Cyber: Our cyber book is global and focused on financial institutions, utilities, retailers and the healthcare and hospitality industries. It includes cyber liability, as well as optional coverage, including technology errors and omissions, payment card industry fines and penalties, cybercrime and fraudulent instruction. Our cyber liability provides affirmative coverage for hardware and software replacement costs, voluntary shutdown and ransom events. Optional coverage includes: technology errors and omissions, payment card industry fines and penalties, cybercrime, telephone fraud and electronic fraudulent instruction. Expert underwriting enables the team to cover a diverse and wide-ranging spread of industries and territories with a particular focus on financial institutions, utilities, retailers and the healthcare and hospitality industries. We provide global coverage with a concentration of business in the United States, Europe and the Middle East.
Specialty Lines
Specialty business within Hamilton Global Specialty accounted for 37% of gross premiums written as of the year ended December 31, 2022. Our specialty products include:
Accident & Health: Our A&H book includes individual and group accidental death and disability, worldwide excess of loss, medical expenses and kidnap and ransom cover. The book is split into three parts: personal accident (“PA”), PA catastrophe, and medical expense reimbursement. The team also writes sports and non-sports coverage in various locations around the world (75% of gross premiums written is written through binders, the majority of which the A&H team leads and are on a prior-submit basis, open market gross premiums written is 10%, with treaty being 15%). The A&H team is a recognized market leader and provides protection for both groups and individuals covering a broad variety of trades, company sizes and a diverse spread of occupational classes. This is a global account with a concentration of business in the United Kingdom, the United States, Canada and the Caribbean and a significant presence in the European Union.
Political Risk/ Political Violence: Our PR/PV book includes cover for confiscation and contract frustration, trade credit and war and terrorism, and it is written on a worldwide basis. We offer protection against frustration of,
or default on, contracts with governments, state-owned entities and private entities, and protection for overseas investments or simpler assets operated abroad against risks of confiscation and political violence and for risks of currency inconvertibility and non-transfer in remitting funds. We target financial institutions and banks, overseas investors, traders, exporters, telecommunications companies, drilling / oil companies and contractors / infrastructure projects. This is a global account, except for territories subject to sanctions.
Fine Art & Specie: Our fine art & specie book includes a variety of fine art & specie risks and high value cargo. Fine art risks include private and corporate collections, museums, exhibitions, galleries, auction houses and musical instruments. Specie risks include bullion, excess vault, safe deposit boxes, excess securities investor protection corporation/Canadian investor protection fund and mining risks. High value cargo includes classic car collections, specialist motor, motor sport and wine collections. The team writes business on a worldwide basis via a selective number of specialist partners and also through Hamilton’s consortium which writes on behalf of third-party capital, providing additional capacity as required.
Marine/Energy: Our marine and energy book includes both traditional marine liability and energy liability. This product area includes international onshore and offshore energy business. Coverage is provided on an excess basis to a broad range of operations such as marine (vessel operators and charterers, ship repairers, terminal operators, port authorities and pollution) and energy (on and offshore, upstream and midstream operators, drilling contractors, service contractors and pipeline operators). This is a worldwide book, with a focus on North America and Europe.
War & Terrorism: We underwrite predominantly physical loss or damage and business interruption for the following: terrorism and sabotage, riots, strikes, civil commotion, malicious damage, full political perils, terrorism liability, aviation war liability, marine war and cargo war, and events coverage due to a terrorism act or threat. We cater to business sectors across the spectrum including real estate, retail, banks and finance, hospitality and leisure, construction, manufacturing, power utilities, energy, specie and fine art, schools and educational institutions, telecommunications, transportation, marine and cargo, and municipalities. The team underwrites business on a worldwide basis and also leads a consortium for U.S.-based terrorism business with over half a billion dollars of capacity.
Kidnap & Ransom: We started this class of business in 2021 with a dedicated team with over 45 years’ combined underwriting experience. We offer coverage for the following types of events: kidnap, extortion, detention, disappearance, hostage crisis, product extortion, threat, virtual kidnap, business interruption, child abduction, political evacuation and repatriation, workplace violence, and product extortion recall and destruction. We partner with Crisis24 which has 30 years of experience and infrastructure in 45 countries, and Holman Fenwick Willan LLP, an international law firm widely recognized as the leading global law firm managing and resolving incidents in complex and hostile environments. The team underwrites business on a worldwide basis.
Space: We cover mainly geo communication satellites but also imaging and weather satellites and cargo missions to the International Space Station. The business is 80% launch and 20% in orbit. We target satellites, covering their entire lifespan from launch to in-orbit testing and during their commercial exploitation. These include telecommunication satellites in geostationary orbit as well as observation, navigation, meteorological, scientific and government satellites.
U.S. Energy: We help manage risks in the areas of excess liability coverage for a minimum attachment of $5 million for upstream energy, select midstream energy, downstream energy and renewable energy. We target classes such as contracting/servicing, engineering/consulting, down hole exposures and manufacturing/distributors and rentals. This class only underwrites energy-oriented risk in the United States.
Upstream Energy: We specialize in onshore and offshore oil and gas exploration and production (“E&P”). We offer package-based policies including first-party property damage, operators’ extra expense, third-party liability and business interruption. The team also considers the specialist areas of the Gulf of Mexico named windstorm and construction business. Our target market includes a wide range of operators within the upstream energy sector. This includes E&P companies of all sizes, state oil companies, multinationals and independent operators. The team’s target scope also extends to both drilling and service contractors within the oil and gas industry. This is a global
account with a concentration of business in the key offshore oil and gas regions including the North Sea, Gulf of Mexico, Asia Pacific, Australasia and offshore West Africa.
Surety Reinsurance: We focus on the Latin American market with facultative surety bonds, proportional and non-proportional treaties. We are a facultative reinsurer not limited to inwards reinsurance treaty relationships and can consider regional principals and complex contracts.
Treaty Reinsurance: We target marine treaty, energy treaty with upstream, midstream and downstream available, war and terror treaty, aviation treaty and ancillary interests. We offer all forms of pro rata and excess of loss treaty. This is a global account with a worldwide remit, with key exposures in the United States, Europe and Japan.
Hamilton Select
As a non-admitted carrier, Hamilton Select can restrict coverage and thereby limit exposure to loss by either excluding coverage or providing a sub-limit on coverage. As coverage is not available in the standard market, non-admitted carriers may be able to charge premiums exceeding the standard market broad coverage risk charge for a narrower scope of coverage. The starting basis for non-admitted policy forms and rates are typically the admitted market policy forms and rates. The non-admitted market coverage form is typically modified to address the specific risk characteristics of accounts that are pushed out of the admitted market, and the pricing is adjusted to reflect the elevated risk potential. The non-admitted market policy wording is typically modified to further restrict and limit coverage, and the pricing is surcharged to account for the elevated risk for these distressed commercial accounts.
Hamilton Select offers the following products in the United States to small to mid-sized hard-to-place and distressed accounts:
Allied Medical: We offer coverage for long-term care facilities such as independent living and assisted living, social services such as adoption and foster care, counseling, drug & alcohol rehab, adult day care, shelters and halfway houses, group homes for people with developmental or physical disabilities, and miscellaneous healthcare facilities, such as home health care, staffing (non-physician), physical therapy, hospice agencies and cannabis dispensaries.
Management Liability: We write primary and excess private company and not-for-profit director’s and officer’s liability, employment practices liability and fiduciary liability for diverse types of operations.
Medical Professionals: Our risk appetite includes physicians/surgeons, dentists and other medical providers such as chiropractors, podiatrists, nurse practitioners, and physicians’ assistants. Accounts falling into this space typically include those providers that have had licensing issues, substance abuse issues, adverse loss history, patient boundary/ethics issues, have been non-renewed due to practice/services offered or have had gaps in coverage.
Professional Liability: The clients we target include architects, engineers, accountants, insurance agents, lawyers, and real estate professionals, who work across a wide variety of industries. Professional liability insurance protects against claims related to professional negligence.
Excess Casualty: We write supported or unsupported excess over general liability, employers’ liability, automobile liability, liquor liability, incidental foreign liability, owners and contractors protective liability (“OCP”) and more. Our risk appetite includes contractors, products manufacturing / importing, and various other areas including restaurants/bars/nightclubs, entertainment, security firms and hospitality (bakeries and shops).
Energy: We target contractors, exploration and production companies, manufacturers, distributors, professional services, and renewables within the energy industry. We provide general liability, professional liability, time element pollution and related coverages on both a primary and excess basis. Our excess coverage is available supported or unsupported and can include underlying auto liability and employers liability.
General Liability: We write general liability including products/completed operations for a broad selection of owners, landlords, and tenants liability (“OL&T”)/premises-driven risks. Our risk appetite includes habitational, hospitality, lessor’s risk only, and mercantile & other classes.
Products Liability & Contractors: We will write general liability or products liability on an occurrence and claims-made form for a broad selection of risks. Our products liability risks include manufacturers, importers, and distributors of commercial, industrial and consumer goods. Our contractors liability risks include commercial, residential, and industrial operations on a practice policy, project specific, or OCP form.
Small Business Casualty: We focus on a broad selection of industries from construction to OL&T risks. Our target classes include general and trade contractors, as well as premises-driven accounts including real estate, hospitality, and habitational businesses.
Lloyd’s Regulation
General. The operations of Syndicate 4000 and Syndicate 1947 are managed by Hamilton Managing Agency Limited (“HMAL”), which is subject to regulation and supervision of the Prudential Regulation Authority (“PRA”), the Financial Conduct Authority (“FCA”) and the Council of Lloyd’s. HMAL is the managing agent for Syndicate 4000 and Hamilton Corporate Member Limited is a Lloyd’s corporate member that provides underwriting capacity to Syndicate 4000. The FCA and PRA both regulate insurers, insurance intermediaries and Lloyd’s itself. Lloyd’s establishes its own bylaws and regulations, including requirements made under those bylaws for all managing agents to maintain that are designed to meet applicable regulatory requirements.
Solvency Requirements. Underwriting capacity of a member of Lloyd’s must be supported by providing a deposit (referred to as “Funds at Lloyd’s”) in the form of cash, securities or letters of credit in an amount determined in accordance with Lloyd’s requirements and the Solvency II regime. The amount of such deposit is calculated for each member through the completion of a prescribed capital adequacy exercise. Under these requirements, Lloyd’s must demonstrate that each member has sufficient assets to meet its underwriting liabilities plus a required solvency margin, and adjustments to a syndicate’s Funds at Lloyd’s may be required at any time.
Intervention Powers. The Council of Lloyd’s has wide discretionary powers to regulate members’ underwriting at Lloyd’s. It may, for instance, change the basis on which syndicate expenses are allocated or vary the Funds at Lloyd’s or the investment criteria applicable to the provision of Funds at Lloyd’s. Exercising any of these powers might affect the return on an investment of the corporate member in a given underwriting year. Further, the annual business plans of a syndicate are subject to the review and approval by Lloyd’s.
Each member of Lloyd’s is required to contribute a percentage of that member’s underwriting capacity for the relevant year of account to the Lloyd’s central fund (the “Central Fund”). If a member of Lloyd’s is unable to pay its debts to policyholders, such debts may be payable by the Central Fund, which in many respects acts as an equivalent to a state guaranty fund in the U.S. If Lloyd’s determines that the Central Fund needs to be increased, it has the power to assess premium levies on current Lloyd’s members. The Council of Lloyd’s has discretion to call or assess up to an additional 5% of a member’s underwriting capacity in any one year as a Central Fund contribution. Our syndicate capacity for the 2023 underwriting year is £490.0 million of gross premiums written.
Lloyd’s Brussels. Lloyd’s Brussels is authorized and regulated by the NBB and regulated by the FSMA. Lloyd’s Brussels is an authorized insurance company licensed to write non-life risks across the EEA and the U.K. and also maintains 19 branches across Europe. The use of Lloyd’s Brussels provides HMAL with access to the European market to write non-life insurance risks.
Principles for doing business at Lloyd’s (the “Principles”): Replacing the Lloyd’s Minimum Standards (the previous regime which set out the Lloyd’s regulatory requirements for Lloyd’s managing agents) and effective from Q3 2022, the Principles set out the fundamental responsibilities expected of all managing agents, including HMAL and is the basis against which Lloyd’s will review and categorize all syndicates and managing agents in terms of their capacity and performance.
Bermuda
Our Bermuda Segment encompasses the Hamilton Re platform on which we write property, casualty and specialty reinsurance business on a global basis as well as high excess insurance products, predominantly to large U.S.-based commercial clients. Hamilton Re US writes casualty and specialty reinsurance business predominantly
for U.S.-domiciled insurers. Reinsurance business accounted for 86% of gross premiums written as of the year ended December 31, 2022, while insurance business accounted for 14%. Our reinsurance business is written on either a proportional or on an excess of loss basis. The Bermuda Segment is supported by over 20 underwriters.
| | | | | |
Gross Premiums Written:
Class of Business | Gross Premiums Written:
Insurance / Reinsurance |
| |
Our Bermuda Segment includes:
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
| ($ in thousands) | December 31, 2022 | | November 30, 2021 | | November 30, 2020 |
| Property | $ | 309,051 | | | $ | 281,795 | | | $ | 227,325 | |
| Casualty | 262,795 | | | 154,927 | | | 116,155 | |
| Specialty | 141,586 | | | 117,537 | | | 81,519 | |
| Total gross premiums written | $ | 713,432 | | | $ | 554,259 | | | $ | 424,999 | |
| | | | | | | | | | | | | | | | | |
| For the Years Ended |
($ in thousands) | December 31, 2022 | | November 30, 2021 | | November 30, 2020 |
| Insurance | | | | | |
| Fixed | $ | 99,838 | | | $ | 85,366 | | | $ | 77,188 | |
| Proportional | — | | | — | | | — | |
| Total insurance | $ | 99,838 | | | $ | 85,366 | | | $ | 77,188 | |
| Reinsurance |
| |
| |
|
| XOL | $ | 367,349 | | | $ | 294,205 | | | $ | 221,434 | |
| Proportional | 246,245 | | | 174,688 | | | 126,377 | |
| Total reinsurance | $ | 613,594 | | | $ | 468,893 | | | $ | 347,811 | |
| Total gross premiums written | $ | 713,432 | | | $ | 554,259 | | | $ | 424,999 | |
Property Lines
Our Property business includes property reinsurance, comprised of excess of loss and proportional reinsurance, which generally covers natural and man-made catastrophes. We also write property insurance, which is predominantly provided to large U.S. commercial companies. Property business written by Hamilton Re accounted for 43% of gross premiums written as of the year ended December 31, 2022. The property reinsurance business provides proportional, aggregate, excess of loss and retrocessional products on a global basis, which generally cover natural and man-made catastrophes. Hamilton Re’s property insurance business provides both insurance and
facultative coverage for business interruption, machinery breakdown, natural perils, and physical loss or damage globally, and predominantly to large U.S.-based commercial clients. Key property products include:
•Property Reinsurance: The property reinsurance business provides proportional, aggregate, excess of loss and retro products which generally cover natural and man-made catastrophes. We provide a worldwide territorial scope and offer capacity with reinstatable or single-shot limits.
•Property Insurance: We offer all-risks coverage, business interruption, machinery breakdown, natural perils, and physical loss or damage, predominantly to large U.S.-based commercial risks. The cover is written globally, with a concentration of business in North America.
Casualty Lines
Our Casualty business in our Bermuda Segment is written by both Hamilton Re and Hamilton Re US and accounted for 37% of gross premiums written as of the year ended December 31, 2022. It is comprised of both insurance and reinsurance business. Casualty insurance business is written in Bermuda only and exclusively on an excess of loss basis. This cover is generally provided to large U.S. commercial companies, rail companies, energy companies and financial institutions on a worldwide basis. Casualty reinsurance business is written on a proportional and excess of loss basis covering worldwide exposures. The lines of business offered for Casualty reinsurance include general liability, umbrella/excess liability, D&O, errors & omissions (E&O) and environmental.
Casualty Reinsurance
Casualty reinsurance is written by both the Bermuda and U.S. teams and is written on a proportional and excess of loss basis covering worldwide exposures. Cover provided includes:
•General Liability: We protect a wide variety of general liability covers including premises, products completed operations and liquor liability. We offer treaty capacity globally on a proportional and excess of loss basis.
•Umbrella & Excess Casualty: We protect umbrella and excess casualty programs written on occurrence, claims-made or integrated-occurrence bases. We offer treaty capacity globally on a proportional and excess of loss basis.
•Professional Liability: We protect a wide variety of professional lines, including director’s and officer’s liability, employment practices liability, lawyers’ professional liability, and errors and omissions liability. We offer treaty capacity on pro rata and excess of loss bases. Our coverage is worldwide with an emphasis on North America.
•Workers’ Compensation & Employers’ Liability: We protect workers’ compensation and employers’ liability cover globally on both a proportional and excess of loss basis.
•Personal Motor: Our reinsurance product protects motor liability, property damage and personal accident for all types of motor policies. We offer treaty capacity on proportional, excess of loss or retrocessional basis. Our current emphasis is in the United Kingdom.
•Commercial Motor: We offer commercial motor reinsurance to protect motor liability, property damage and personal accident liability for commercial vehicles. We provide treaty capacity on a proportional and excess of loss basis, predominantly in North America.
•Healthcare: Our product protects programs such as medical malpractice, hospital professional liability, long-term care, managed care, errors and omissions, and physicians’ liability. We offer cover globally on both a proportional and excess of loss basis, with limited reinstatements.
•Multiline: We provide reinsurance for any combination of general liability, motor, professional lines, healthcare, umbrella and excess casualty, and workers’ compensation/employers’ liability. We will also consider programs that support business that forms part of our property and specialty lines. We offer treaty
capacity globally on both a proportional basis and excess of loss basis, with a preference for limited reinstatements.
Casualty Insurance
The Casualty insurance business provides cover on an excess of loss basis only.
•Excess Casualty: Excess liability insurance is provided predominantly to large U.S. commercial companies, rail companies and energy companies. We write business on a worldwide basis, supporting a wide range of industries, including, but not limited to, chemicals, construction, consumer goods, energy, food and beverage, hospitality, manufacturing – consumer and industrial, OL&T, rail and transportation, retail, and utilities.
•Financial Lines Insurance: The financial lines insurance is predominantly directors and officers, errors and omissions and transactional liability cover provided predominantly to financial institutions and large U.S. commercial companies on a worldwide basis.
Specialty Reinsurance
Our Specialty business is reinsurance only, made up of several sub-classes. Specialty business accounted for 20% of gross premiums written as of the year ended December 31, 2022. The book is comprised of reinsurance only and covers several sub-classes, including marine and energy, space, aviation, construction and political violence, war and terror, written on both a proportional and excess of loss basis. Key specialty products include:
•Aviation & Space: Our aviation & space book covers airline, airport, aerospace, satellite launches and orbits, and general aviation risks globally on a proportional, excess of loss or retrocessional basis.
•Marine & Energy: Our marine & energy book covers a broad portfolio of global marine and energy risks, including marine hull, marine liability including international group, cargo, and upstream, midstream and downstream energy risks which are on a proportional, excess of loss or retrocessional basis.
•Crisis Management: Our crisis management book covers risks associated with war, terrorism and political violence. We also have the capacity to offer risks associated with contingency, piracy and kidnap and ransom cover. Our products can be provided globally on a proportional or excess of loss basis.
•Mortgage: We provide excess of loss reinsurance predominantly to government-sponsored entities of U.S. residential mortgages.
•Financial Lines: Financial lines reinsurance includes political risk, trade credit, surety and other credit-related products. We offer proportional, excess of loss, stop loss or retrocessional capacity on a worldwide basis.
•Accident & Health: We offer coverage for personal accident, life and travel portfolios on a risk and catastrophe basis. Our global coverage can be structured on a proportional or excess of loss basis.
•Multiline: We offer multiline reinsurance coverage across multiple specialty lines – generally marine and energy, aviation and crisis management covers. We offer coverage globally on a proportional, excess of loss or retrocessional basis.
Marketing and Distribution of our International and Bermuda Businesses
The knowledge, experience and relationships of our senior management team provide us with global access to insurance and reinsurance brokers, agents and clients. We believe we have strong market relationships with the world’s top insurance and reinsurance brokers and agents, including Aon, Marsh McLennan, WTW and a number of U.S., Bermuda and London market wholesale brokers. We also have close relationships with a number of mid-tier and smaller specialty brokers. Some of our products, such as those in our A&H account, are also distributed through MGAs and MGUs. We believe our distribution relationships are differentiated and strengthened by the knowledge
and experience of our senior management team and the long history of industry partnerships they have developed over many years. These relationships facilitate our strategic expansion into additional lines of business that we find attractive and consistent with our core strengths and expertise.
Hamilton writes insurance business on a non-admitted (E&S) basis through wholesale brokers, surplus lines brokers and reinsurance brokers.
Gross premiums written by broker, showing individually where premiums were 10% or more of the total in any of the last three years, were as follows:
| | | | | | | | | | | | | | | | | |
| 2022 | | 2021 | | 2020 |
| Marsh McLennan | 25 | % | | 24 | % | | 24 | % |
| Aon | 18 | % | | 19 | % | | 20 | % |
| WTW | 5 | % | | 11 | % | | 10 | % |
| All others/direct | 52 | % | | 46 | % | | 46 | % |
| Total | 100 | % | | 100 | % | | 100 | % |
The International Segment, excluding Hamilton Select, includes a variety of business across many clients on a worldwide basis, which provides us with a broad spread of risk. We are not dependent on any single client for our business and have a wide variety of distribution channels. These distribution channels include our MGAs in the United States, HMGA Americas, third-party coverholders and both Lloyd’s and non-Lloyd’s brokers.
Our International Segment includes business from several large national and international brokers and a number of smaller specialized brokers. Our 10 largest brokers accounted for an aggregate of approximately 59% of gross premiums written in 2022, with the largest broker, Marsh McLennan, accounting for approximately 15% of gross premiums written. The second largest broker, Aon, accounted for approximately 10% of gross premiums written.
Our Bermuda Segment business is accessed through wholesale and reinsurance brokers. The largest broker, Marsh McLennan, accounted for approximately 41% of gross premiums written. The second-largest broker, Aon, accounted for approximately 30% of gross premiums written in 2022.
Reinsurance
We strategically purchase reinsurance and retrocession from third parties. This enhances our business by protecting capital and reducing our exposure to volatility from adverse claims events (either large single events or an accumulation of related losses). For example, we seek to limit our exposure to no more than 17.5% of our shareholders’ equity to a 100-Year Occurrence Exceedance Probability for Atlantic Hurricanes or a 250-Year Occurrence Exceedance Probability for U.S. Mainland Earthquakes. We use outwards reinsurance and retrocession to help us achieve this target.
Based upon the HVR, we estimate that the probability of exhausting our core outwards property catastrophe coverage is approximately 1%. We also have the ability to adjust our models for the potential increase in frequency of these events. Our pricing and accumulation management in respect of natural catastrophe exposures is managed within our proprietary platform, HARP, and is performed using the HVR. The HVR incorporates bespoke loads and adjustments at various levels of granularity, which in aggregate represents a material load over and above the loss exposure produced from the unadjusted vendor models that we use. The adjustments include allowance for the potential for increased frequency and severity of natural catastrophes over time, as well as for several other factors that could cause us to be exposed to increasing claims trends from natural catastrophes. See “––Our Competitive Strengths––Proprietary technology infrastructure” for additional information on the HVR.
Our reinsurance purchases include a variety of quota share and excess of loss treaties and facultative placements, depending on the class of business. In 2022, we ceded 32% of premium from the International Segment and 18% from the Bermuda Segment.
We carefully manage our counterparty credit risk by selecting outwards partners of adequate financial strength. For the outwards program placed for 2023, all of the effective outwards limit is ceded to reinsurers and retrocessionaires with a credit rating of “A-” (Excellent) by A.M. Best (or an equivalent rating by S&P Global), or better, or who are collateralized.
Reserves
The estimated reserve for losses and loss adjustment expenses (“loss reserves”) represents management’s best estimate of the unpaid portion of the Company’s ultimate liability for losses and loss adjustment expenses for insured and reinsured events that have occurred at or before the balance sheet date, based on its assessment of facts and circumstances known at that particular point in time. Case reserves and claims that have been incurred but not reported to the Company (“IBNR”).
Loss reserves are complex estimates, not an exact calculation of liabilities. Management reviews loss reserve estimates at each quarterly reporting date and considers all significant facts and circumstances known at that particular point in time. As additional experience and other data becomes available and/or laws and legal interpretations change, management may adjust previous estimates. Adjustments are recognized in the period in which they are determined and may impact that period's underwriting results either favorably (when current estimates are lower than previous estimates) or unfavorably (when current estimates are higher than previous estimates).
Investments
Our investment strategy is focused on delivering a combination of stable investment income and low-correlated absolute returns. The goal is to produce a total return throughout all market cycles while maintaining appropriate liquidity and credit quality to support our underwriting activities and meet the requirements of customers, rating agencies and regulators.
We maintain two segregated investment portfolios: a fixed maturity and short-term investment portfolio and an investment in the Two Sigma Hamilton Fund. The investment portfolio allocation as at December 31, 2022, is 49% in the Two Sigma Hamilton Fund, 39% in fixed income and short-term investments and 12% in cash and cash equivalents.
The fixed income portfolio is structured to focus primarily on the preservation of capital and the availability of liquidity to meet our claims obligations. The strategy is to maintain a portfolio that is well-diversified across market sectors and to generate attractive returns on a risk-adjusted basis over time. This portfolio is also used to provide security for our credit facilities. The fixed income investment portfolio is managed by two external investment managers - DWS Investment Management Americas, Inc. (“DWS”) and Conning Asset Management Limited (“Conning”) - with approximately 50% allocated to each. There are no provisions in the investment management agreements with DWS and Conning that would prevent the Company’s ability to liquidate its holdings in the fixed income portfolios if additional liquidity were required. The agreements each contain standard commercial terms related to fixed income portfolio management and customary fees. Subject to the investment objectives, restrictions and guidelines, DWS and Conning are appointed as the discretionary manager of all cash, securities and other assets within the respective portfolios. The agreement with DWS is effective until canceled by either party with not less than 30 days’ prior written notice to the other party. The agreements with Conning are effective until canceled by the Company with not less than 30 days’ or 60 days’ prior written notice to Conning, depending on the specific portfolios under management, or by Conning with not less than 90 days’ prior written notice to the Company.
Additionally, the Two Sigma Hamilton Fund was developed as a highly customized set of exposures to certain macro and equity strategies and designed to provide an uncorrelated market return profile with moderate volatility and high liquidity, while governed by a rigorous and proprietary risk management framework.
The Investment Committee of our Board of Directors establishes our investment policy and guidelines. The Investment Committee monitors our investment results and performance against our investment objectives, guidelines, benchmarks, and risk appetite contained in the investment policy. Our investment policy contains
guidelines on permitted assets and prohibited asset classes, minimum criteria for credit quality, duration benchmarks, liquidity requirements and ESG parameters.
We manage interest rate risk by structuring our fixed income portfolio so that the economic impact of an interest rate shift on the portfolio is comparable to the corresponding impact on the related liabilities. We believe that duration matching of our financial assets and underwriting liabilities mitigates the overall interest rate risk on an economic basis. As at December 31, 2022, the average duration of our fixed income and short-term portfolio is 3.2 years with an average credit quality of Aa3, with 89% between Aaa and A3, and only 11% between Baa1 and Ba2.
Claims
We have experienced claims teams embedded within each underwriting platform, consisting of over 35 in-house claims professionals, many of whom are attorneys. Most of our claims are handled by our in-house claims team, but third-party administrators are also utilized in certain instances, primarily for the handling of certain legacy business lines.
Effective claims management allows for timely and accurate review, processing and payment of valid claims, a directive which is at the heart of the contracts entered into between Hamilton and its policyholders. Further, effective claims management ensures we do not pay claims which are not covered or excluded, all of which contributes to the preservation of Hamilton’s capital base and overall level of service provided by Hamilton.
The key responsibilities of the claims teams include:
•The management of individual claims, which includes processing, analyzing, establishing case reserves and paying valid claims under the insurance and reinsurance contracts entered into by Hamilton. This can include the appointment of third-party experts such as forensic accountants, adjusters or consultants.
•Leading the process of collecting and coordinating relevant information to enable the estimation of catastrophe losses and, in conjunction with the actuarial and underwriting teams, continue to regularly monitor and update these estimates.
•The management of coverage disputes, including the appointment of outside experts where appropriate.
•Reporting to management on a regular basis and regularly reviewing outstanding claims in coordination with our underwriting and actuarial teams.
Competition
The property, casualty and specialty business consists of many markets and sub-markets around the world. Each market is characterized by distinct customer needs and products and services to meet those needs, as well as specific economic and structural features. We face competition in our underwriting divisions from other insurers, reinsurers and MGAs. Competition is based on many factors, including pricing, coverage and structural terms, general reputation, financial strength, relationships with brokers, ratings assigned by independent rating agencies, response times including speed of claims payment and the experience and reputation of the members of the underwriting and claims teams. Given the diversity of our product offerings, our competition is broad and certain competitors may be specific to only a subset of our product offerings. Some of our competitors include American Financial Group, Inc., Arch Capital Group Ltd; AXIS Capital Holdings Limited; Beazley plc; Cincinnati Financial Corporation; Everest Re Group, Ltd; The Hanover Insurance Group, Inc.; Hiscox Ltd; James River Group Holdings, Ltd; Kinsale Capital Group, Inc.; Lancashire Holdings Limited; Markel Corporation; Palomar Holdings, Inc.; RLI Corp; RenaissanceRe Holdings Ltd.; Skyward Specialty Insurance Group, Inc.; various Lloyd’s syndicates and W.R. Berkley Corporation.
Regulation
The business of reinsurance and insurance is regulated in all countries in which we operate, although the degree and type of regulation varies significantly from one jurisdiction to another. As a holding company, the Company is generally not directly subject to such regulations, but its various insurance and reinsurance operating subsidiaries are subject to regulation, as summarized under “Certain Regulatory Considerations.”
Technology and Data
Our proprietary technology platform and the digitization of our operations enhances the operational efficiency and data analytic insights across our business as we scale. Our technology team is comprised of professionals with experience in insurance and financial markets technology, and with significant digital transformation experience. This team is led by our Hamilton Group Chief Technology and Data Officer, who has worked in both start-up and large data analytics companies, bringing strong leadership experience in innovation, agile culture enablement, and digital transformation.
Our proprietary systems include:
•HARP is our proprietary catastrophe modeling and portfolio accumulation management platform for all catastrophe-exposed risks. HARP supports structural features that many off-the-shelf platforms are unable to handle, such as reinstatement premium protections, cascading layers, and trailing deductibles. We believe HARP is one of the most sophisticated and user-friendly risk management systems in the industry. It enables us to provide much appreciated rapid turnaround to our brokers. Additionally, having our own internally developed platform, with a dedicated team, means we can enhance and update HARP as required, in-house.
•Timeflow is our global underwriting submission and orchestration system utilized across all of our business. This system benefits from integrated robotic process automation, which has enabled our underwriting and underwriting operations teams to digitize our submission process in a rapid fashion. This has enabled us to significantly improve our quote response time to brokers across the Hamilton Group by reducing manual steps involved in submission processing and duplicate data entry.
•MINT is our no-code-based system which fully digitizes the rate, quote, and bind endorsement process, in a single system enabling our underwriters to process the large volume of submissions. MINT allows Hamilton teams to quickly update and roll out new products as required to respond to market changes. MINT has advanced capabilities such as auto-generated application programming interfaces built by our staff which enable us to integrate with internal and external platforms to capture all underwriting data for business processing and analytic insights.
•Hamilton Insights is our key management information system. It is a self-service, real-time portal, allowing teams across Hamilton to seamlessly access data and customize reports in order to inform decision-making. The data can be filtered by many categories, including distributor, customer segment, line of business, cedant, specific industry, individual underwriter, and specific risk features, amongst other things and provides key underwriting performance metrics.
In addition, Hamilton has implemented modern back-office core systems which improve efficiency such as sequel eclipse/claims, SICS and Imageright. These core systems are integrated with our proprietary systems to enable straight through processing and SOX compliance, as well as enabling us to scale our business without a proportionate increase in operational costs. These back-office core systems adhere to cyber compliance and disaster recovery standards in a hybrid setup across the cloud and a datacenter.
Employees
We consider ourselves a magnet for talent with the ability to attract, develop and retain professionals from some of the leading companies in the industry and provide them with an environment in which they can thrive.
We have over 500 full-time employees. We have good working relations with our employees and aim to be an employer of choice. We strive to create a culture committed to fostering a rich diversity of thought, background and perspectives. We embrace diversity, equity and inclusion initiatives as a way to improve workplace culture and demonstrate the importance of valuing our employees as people, not just as workers. In addition, we offer and maintain a competitive benefits package designed to support the well-being of our employees, including, but not limited to, medical insurance, a 401(k) plan (or equivalent in our various locations), paid time off, life insurance and wellness support, including employee assistance programs.
We also support the learning and development of our employees and provide opportunities to further their education and professional development.
Facilities
Our primary executive offices are located in Pembroke, Bermuda and London, United Kingdom. In addition, we lease office space in Dublin, Ireland; Richmond, Virginia; Miami, Florida; and New York, New York.
MANAGEMENT
Executive Officers and Directors of Hamilton
The following table sets forth, as of the date of this prospectus, information regarding individuals who are expected to serve as our directors and executive officers at the time of this offering.
| | | | | | | | | | | | | | |
| Name | | Age | | Position |
| David Brown | | 66 | | Director, Chair |
| D. Pauline Richards | | 75 | | Director |
H. Hawes Bostic, III | | 50 | | Director |
| Marvin Pestcoe | | 62 | | Director |
| Russell Fradin | | 67 | | Director |
| Stephen W. Pacala | | 66 | | Director |
| William C. Freda | | 71 | | Director |
| Everard Barclay Simmons | | 51 | | Director |
Antonio Ursano, Jr. | | 58 | | Director |
| Pina Albo | | 60 | | Director, Chief Executive Officer |
| Gemma Carreiro | | 42 | | Group General Counsel, Secretary |
| Craig Howie | | 59 | | Group Chief Financial Officer & Group Chief Investment Officer |
| Venkat Krishnamoorthy | | 54 | | Group Chief Technology Officer & Group Chief Data Officer |
| Chad Cundliffe | | 49 | | Group Treasurer |
| Keith Bernhard | | 51 | | Group Chief Audit Officer |
| Brian Deegan | | 46 | | Group Chief Accounting Officer |
| Daniel Fisher | | 53 | | Group Head of Human Resources, Communications & Culture |
| Alex Baker | | 42 | | Group Chief Risk Officer |
| Adrian Daws | | 42 | | Chief Executive Officer, Hamilton Global Specialty |
| Megan Thomas | | 50 | | Chief Executive Officer, Hamilton Re |
| Anita Kuchma | | 59 | | Chief Executive Officer, Hamilton Select |
David Brown has been on our Board of Directors since 2013 and currently serves as the chair of the Board of Directors. He also has served as non-executive chair of Hamilton Re since 2015. Mr. Brown previously served as the Chief Executive Officer at Flagstone Reinsurance Holdings Ltd. from September 2005 until its sale in November 2012. Mr. Brown was also the Chief Executive Officer of Centre Solutions from 1994 to 1997, and was a partner with Ernst & Young, Bermuda until 1993. In addition, Mr. Brown has experience serving on the boards of various organizations. Mr. Brown has served as Deputy Chair at the Bermuda Stock Exchange since 2020 (and previously held the role of Chair from 2000 to 2020), as Chair of the Board of Argus Insurance Group since February 2020, as a director of MIAX Pearl Exchange since April 2021 and as Chairman of Bermuda Commercial Bank since July 2021. Mr. Brown is also a member of the Institute of Chartered Accountants of Bermuda and a fellow of the Institute of Chartered Accountants in England and Wales. We believe Mr. Brown’s business and leadership experience in the reinsurance industry and his expertise in accounting qualifies him to serve on the Company’s Board of Directors.
D. Pauline Richards has served as a director of the Company since 2013 and as chair of the audit committee since February 2020. She has also served as a director at Trebuchet Group Holdings Limited since May 2007. Ms. Richards previously served as the Chief Operating Officer at Armour Group Holdings Limited in the insurance run-off business from July 2008 to May 2021. Prior to joining Armour, she was Director of Development of Saltus Grammar School, a private co-educational facility in Bermuda from 2003 to 2008 and Chief Financial Officer at Lombard Odier Darier Hentsch (Bermuda), a Banking and Trust Company from 2001 to 2003. Ms. Richards currently holds the position of director on a variety of boards, including Enovert Energy, a U.K.-based waste management company, and Wyndham Hotels and Resorts and is a member of the Institute of Chartered Accountants of Bermuda. Ms. Richards has consulted for, and worked with, a number of other Bermuda-based insurance and
financial services companies, including AON Group of Companies and Frank B. Hall (Bermuda) Limited. We believe Ms. Richards’s extensive financial and business experience in insurance and other industries qualifies her to serve on the Company’s Board of Directors.
H. Hawes Bostic, III has served as a director of the Company since 2022 and chair of our investment committee as of May 2023. He is also a Partner at Magnitude Capital, where he has been a member of the investment team since 2005. Previously, Mr. Bostic traded equity derivatives and convertible bonds for KBC Financial Products from 1999 to 2002 and worked as a trader at the D.E. Shaw group from 1998 to 1999. Mr. Bostic began his career in business consulting in 1995. In addition, since 2018, Mr. Bostic has served on the board of The In Kind Project, a non-profit that provides community programming in the arts for children of all backgrounds. He graduated with a Bachelor of Arts in English Literature from the University of Virginia and is a CFA Charterholder. We believe Mr. Bostic’s investing expertise and business leadership experience qualifies him to serve on the Company’s Board of Directors. Mr. Bostic was appointed as a director of the Company pursuant to the Magnitude Investor’s right under the Shareholders Agreement to appoint a director to the Board of Directors.
Marvin Pestcoe has served as a director of the Company since 2020 and chair of our underwriting & risk Committee as of May 2023. He also currently serves as non-executive chair of Hamilton Select. Mr. Pestcoe served as Executive Chair and Chief Executive Officer of Langhorne Re from January 2019 to April 2021 and continued as a director of Langhorne Re until March 2023. He is also currently a director at Catalina Insurance and a director and member of the Audit Committee of Aisix Solutions (formerly Minerva Intelligence). Mr. Pestcoe previously held senior positions in PartnerRe (2001 to 2017) and Swiss Re New Markets (1997 to 2001), and has over 35 years of experience in insurance, reinsurance and investments including a range of executive roles and leadership positions that focused on profit center management, investments, corporate strategy, data analysis and risk management. Mr. Pestcoe is also a Fellow of the Casualty Actuarial Society and a member of the American Academy of Actuaries. We believe Mr. Pestcoe’s expertise in insurance, reinsurance and investing and business leadership experience qualifies him to serve on the Company’s Board of Directors.
Russell Fradin has served as a director of the Company since 2016 and as chair of our compensation and personnel committee since 2022. He has also served as an operating partner of Clayton, Dubilier & Rice, a private equity company, since 2016. Mr. Fradin is also a Lead Director of Best Buy, the Chair of Tranzact, the Chair of Capco, a member of the Board of Governors of the International Tennis Hall of Fame and President of the Woodridge Lake Conservancy. Mr. Fradin served as President and Chief Executive Officer at SunGard Data Systems until its acquisition in November 2015. He also previously served as Chairman and Chief Executive Officer of Aon Hewitt, as Chief Executive Officer of the BISYS Group from 2004 to 2006, held a range of senior executive positions at Automatic Data Processing from 1996 to 2003, and as a senior partner at McKinsey & Company from 1978 to 1996. Mr. Fradin holds a Masters of Business Administration degree from Harvard Business School and a Bachelor of Science degree in Economics and Finance from The Wharton School at the University of Pennsylvania. We believe Mr. Fradin’s extensive experience in investing and business leadership positions qualifies him to serve on the Company’s Board of Directors and as chair of our compensation and personnel committee.
Stephen W. Pacala has served as a director of the Company since 2013. He has also served as a Professor and Director at Princeton University since 1992. From 1982 to 1992 he served as an associate professor at the University of Connecticut. Mr. Pacala is also a member of President Biden’s Council of Advisors on Science and Technology, the American Academy of Arts and Sciences, and the National Academy of Sciences. Mr. Pacala is a previous recipient of the MacArthur Award, Mercer Award and the David Starr Jordan Prize. Mr. Pacala holds a Bachelor of Arts degree from Dartmouth College and a Ph.D. in biology from Stanford University. We believe Mr. Pacala’s extensive experience in climate-related matters and in leadership positions qualifies him to serve on the Company’s Board of Directors.
William C. Freda has served as a director of the Company since 2014 and chair of the finance and governance committee as of May 2023. As senior partner and vice chair of Deloitte, LLP, Mr. Freda served Deloitte’s most significant clients and maintained key relationships, acting as a strategic liaison to the marketplace as well as to professional and community organizations. He joined Deloitte in 1974 and served on a wide range of multinational engagements for many of Deloitte’s largest and most strategic clients. Mr. Freda’s many senior positions at Deloitte included Chair of the Risk Committee and the Audit Committee of Deloitte Touche Tohmatsu Limited’s Board of
Directors, Managing Partner of Deloitte’s US Client Initiatives, and member of the US Executive Committee. Mr. Freda is a graduate of Bentley University. He is a member of the Board of Directors of Guardian Life Insurance Company and State Street Corporation. We believe Mr. Freda’s key insight and perspective on risk management, international expansion and client relationships gained through his extensive experience interacting with audit committees, boards of directors and senior management qualifies him to serve on the Company’s Board of Directors.
Everard Barclay Simmons has served as a director of the Company since August 2023. Mr. Simmons is Chair and CEO at advisory firm Rose Investment Limited and Chair of the Bermuda Public Funds Investment Committee with responsibility for advising on the investment of Bermuda’s pension funds. He was formerly an investment banker with Goldman Sachs in New York and returned to Bermuda in 2006 as Managing Partner of a Bermuda law firm where he worked until 2019. Mr. Simmons is a graduate of the University of Kent at Canterbury, where he graduated with a law degree, the Inns of Court School of Law where he qualified as a barrister, and Harvard Business School where he graduated with a Master in Business Administration. He is a member of the boards of Petershill Partners plc and Argus Group Holdings Limited and is a former Chair of Butterfield Bank. We believe Mr. Simmons’ extensive financial and business experience in leadership positions qualifies him to serve on the Company’s Board of Directors.
Antonio Ursano, Jr. has served as a director of the Company since October 15, 2023. He is also the Managing Partner and Co-Founder of Insurance Advisory Partners LLC. Mr. Ursano previously served as the Group Chief Financial Officer of Hamilton from September 2019 to July 2021. Prior to joining Hamilton, he was President of TigerRisk Partners, LLC from 2015 to 2021, Chief Executive Officer of Willis Capital Markets Advisory from 2009 to 2015 and Vice Chairman and Global Head of the Financial Institutions Group at Ban of America Securities from 1999 to 2009. Mr. Ursano has over 36 years of experience in the insurance industry and in investment banking. We believe that Mr. Ursano’s extensive experience in the insurance and reinsurance industry and in investment banking and business leadership experience qualifies him to serve on the Company’s Board of Directors. Mr. Ursano was appointed as a director of the Company pursuant to Hopkins Holdings, LLC’s right under the Shareholders Agreement to appoint a director to the Board of Directors. Mr. Ursano has indicated to the Company that he intends to serve as a director on the Board of Directors of the Company on an interim basis while Hopkins Holdings identifies a director to replace Mr. Ursano. See “Certain Relationships and Related Party Transactions—IAP Engagement Letter.”
Pina Albo has served as Chief Executive Officer of Hamilton and a member of its Board of Directors since January 2018. Ms. Albo started her career as a lawyer in Toronto, Canada, followed by a 25-year career at Munich Re in increasingly senior positions leading to her last position as Member of the Board of Executive Management where her responsibilities included P&C business and operations in Europe and Latin America. Since 2019, Ms. Albo currently sits on the Board of Directors for Reinsurance Group of America, Incorporated and in January 2023, was appointed as the first female Chair of the Association of Bermuda Insurers and Reinsurers. Since 2018, she has also served as an ambassador for the Insurance Supper Club, an international organization that aims to improve networking opportunities for women across the finance and insurance industries. Ms. Albo has been recognized for contributions to the insurance industry and has received numerous awards including the Association of Professional Insurance Women’s “Woman of the Year” (2011) and was designated “Top Influencer” in Insurance Business America’s List of “Hot 100” (2014) and placed on Intelligent Insurer’s list of “Top 100 Women in Re/insurance” (2014 and 2015). Ms. Albo holds a Maîtrise en Droit, International and European Community Law, from L’Université d’Aix-Marseille III, Aix-en-Provence, France; a Juris Doctor from Osgoode Hall Law School, York University, Toronto, Canada; and a Bachelor of Arts degree in Languages from the University of Winnipeg, Manitoba, Canada. We believe Ms. Albo’s extensive experience in the insurance industry and in leadership positions qualifies her to serve on the Company’s Board of Directors.
Gemma Carreiro has served as Group General Counsel and Secretary of Hamilton since 2017. Ms. Carreiro previously served as Co-Chair of the Policy Committee of the Association of Bermuda Insurers & Reinsurers from 2020 to 2022. Prior to joining Hamilton, she served as Secretary to the Board of PartnerRe Ltd. and General Counsel to its Bermuda subsidiaries. Prior to joining PartnerRe, she was an attorney at Conyers Dill & Pearman Limited, specializing in corporate law with a particular focus on insurance and reinsurance regulatory matters. Ms. Carreiro holds a Bachelor of Arts (Law) from Napier University, Scotland and a Post Graduate Diploma in Law from The University of Law, the United Kingdom.
Craig Howie has served as Group Chief Financial Officer of Hamilton since 2021. Prior to joining Hamilton, Mr. Howie served as Executive Vice President, Chief Financial Officer at Everest Re Group from 2012 to 2020. Mr. Howie has over 34 years of global (re)insurance industry experience. Prior to joining Everest, Mr. Howie spent over 23 years at Munich Re America where he held a number of senior finance positions. Mr. Howie holds a Bachelor of Science degree in Accounting, Summa Cum Laude from Drexel University and a Master of Business Administration, Finance and Taxation from Villanova University. Mr. Howie is also a Certified Public Accountant.
Venkat Krishnamoorthy joined Hamilton in 2019 as Group Chief Technology Officer and Group Chief Data Officer. Mr. Krishnamoorthy joined Hamilton from Coleman Research where he was Chief Technology Officer where he led its digital transformation and new SAAS product development between February 2015 and July 2019. Prior to joining Coleman Research, Mr. Krishnamoorthy was VP, Digital Technology, at McGraw-Hill Higher Education between Nov 2012 and Feb 2015. Mr. Krishnamoorthy also worked at Interactive Data Corporation as Head of Software Development and Operations (May 2011 to November 2012), Thomson Reuters as Head of Platform Development and various roles (February 1999 to March 2011), and CIBC World Markets as Executive Director (November 1994 to Feb 1999). Mr. Krishnamoorthy has provided leadership in the build out of many global technology platforms in the finance and education industry which have operated with multi-jurisdictional cyber security policies. He has further led IT governance, IT Operations and security operations globally for his past employers. Mr. Krishnamoorthy holds a Bachelor of Science degree from Government College of Engineering and a Master of Computer Science degree from New Jersey Institute of Technology. Venkat serves in the ACORD board as director. ACORD is responsible for setting digital standards for insurance and reinsurance companies globally.
Chad Cundliffe has served in various roles at Hamilton since 2014, including Group Chief Accounting Officer, Group Chief Investment Officer, and is currently Hamilton’s Group Treasurer and Chief Financial Officer of Hamilton Re. Prior to 2014, he worked at XL Group plc from 2004 to 2014 in various senior roles, including Senior Vice President, Accounting Policy and SEC Reporting Officer. Prior to XL Group plc, Mr. Cundliffe worked for PricewaterhouseCoopers from 1996 to 2004 in Bermuda and Canada. Mr. Cundliffe is a Chartered Accountant and a member of the Chartered Professional Accountants of Bermuda and the Chartered Professional Accountants of Alberta, Canada. Mr. Cundliffe holds a Bachelor of Commerce degree from the University of Alberta.
Keith Bernhard has served as Group Chief Audit Officer of Hamilton since 2014. Mr. Bernhard has more than 20 years of experience in audit and risk management. Between 2007 and 2014, Mr. Bernhard served as Director of Internal Audit for Max Capital, Alterra Capital and Markel Corporation. Prior to joining Max Capital, Mr. Bernhard served as Senior Manager, Risk Advisory Services at KPMG in Bermuda from 2004 to 2007. Prior to joining KPMG, Mr. Bernhard served as Senior Audit Manager at TransGrid from 2003 to 2004, and before that held several positions including Senior Manager, Enterprise Risk Services at Deloitte from 1994 to 2002. Mr. Bernhard is a Chartered Accountant, Certified in Risk Management Assurance, a member of the Institute of Risk Management and the New Zealand Society for Risk Management and previously held the position of President of the Bermuda Chapter of the Institute of Internal Auditors.
Brian Deegan joined Hamilton in 2020 and has served as Group Chief Accounting Officer since 2021. Prior to joining Hamilton, Mr. Deegan was Global Head of Finance and Treasury at Tokio Millennium Re (2012 to 2019), and Chief Financial Officer for Tokio Millennium Re (UK) Ltd. (2017 to 2019). Prior to joining Tokio, Mr. Deegan served in several positions at Lancashire Insurance Group from 2006 to 2012, including Senior Vice President, Controller. Mr. Deegan is a Fellow of the Institute of Chartered Accountants in Ireland and a member of the Chartered Professional Accountants of Bermuda. Mr. Deegan holds a Bachelor of Commerce degree and a Masters in Accounting from University College Dublin.
Daniel Fisher has served as Group Head of Human Resources, Communications & Culture since 2018. From 2017 to 2018, Mr. Fisher was the Global Head of Human Resources at the International Swaps & Derivatives Association (ISDA). Prior to working at ISDA, Mr. Fisher worked at Munich Re for 13 years, including as Global Head of Human Resources Strategy (2015 to 2017) and as Senior Vice President and Regional Head of Human Resources, North America (2009 to 2015), and Director of Human Resources for Munich Re’s UK and Ireland division (2003 to 2009). Mr. Fisher has also worked as a consultant with KPMG (2001 to 2003). Mr. Fisher holds a Bachelor of Arts degree from the London School of Economics and a Master of Science degree in Human Resource
Management from the University of Manchester’s School of Management. Mr. Fisher is also a Fellow of the Chartered Institute of Personnel & Development.
Alex Baker has served as Chief Risk Officer since 2022. Mr. Baker joined Hamilton in 2016, serving as Chief Risk Officer and Chief Actuary at Hamilton Global Specialty before being promoted to his Group role. Prior to joining Hamilton, Mr. Baker was the Chief Actuary of Chubb’s Lloyd’s Managing Agency (2013 to 2016), a Capital Modelling Actuary for Chubb Europe (2011 to 2013) and a Capital Modelling Actuary at Chaucer Syndicates (2009 to 2011). Mr. Baker also worked as a Senior Consultant at PricewaterhouseCoopers (2003 to 2009). Mr. Baker achieved Fellow of the Institute of Actuaries (FIA) qualifications from the Institute of Actuaries in 2006 and a Masters in Mathematics from Oxford University in 2002.
Adrian Daws has served as Chief Executive Officer at Hamilton Global Specialty since 2020. Mr. Daws was previously Active Underwriter of Syndicate 400, and before that Active Underwriter of Syndicate 3334 at Hamilton Re. Before joining Hamilton Re, Mr. Daws was head of the Specialty Division at CNA Hardy and worked at Trenwick and Limit as a Financial Institutions Underwriter.
Megan Thomas has served as Chief Executive Officer of Hamilton Re since 2020. Prior to joining Hamilton, Ms. Thomas was the Chief Underwriting Officer of Reinsurance for AXIS Capital (2018 to 2020). Ms. Thomas also worked at AIG for over 12 years, including as Chief Underwriting Officer, Liability Lines (2014 to 2018) and Senior Vice President, Catastrophe Excess Liability (2009 to 2014). Ms. Thomas holds a Bachelor of Law degree from Bond University and a Bachelor of Agricultural Economics degree from the University of Queensland. Ms. Thomas also holds a Graduate Diploma of Legal Studies from Queensland University of Technology and a Graduate Diploma of Business from the University of New England, Armidale, Australia. She has been admitted to the Bar in both New York and in Queensland.
Anita Kuchma has served as Chief Executive Officer of Hamilton Select Insurance Inc. since 2022. Prior to joining Hamilton, Ms. Kuchma worked at Munich Re America for the past 16 years, including as Chief Operating Officer of the Reinsurance Division (2019 to 2022) and Head of Finance and Underwriting Operations, Specialty Markets (2016 to 2018) and Deputy Chief Financial Officer/Head of Planning & Controlling (2009 to 2016), Ms. Kuchma holds an Associate in Reinsurance (ARe) and is a Managed Healthcare Professional with Health Insurance Association of America. Ms. Kuchma also holds a Bachelor of Science in Finance and a Master of Business Administration in Finance with highest honors, each from La Salle University, and a Master of Science in Business Intelligence and Analytics from Saint Joseph’s University.
Composition of the Board of Directors of Hamilton
Our business and affairs are managed under the direction of our Board of Directors.
Upon the closing of this offering, our Bye-laws will provide that our Board of Directors shall consist of not less than 11 directors or more than 15 directors as the Board of Directors may determine from time to time. It is expected that upon the closing of this offering, our Board of Directors will consist of 11 directors.
In connection with this offering, the Company will enter into the Shareholders Agreement (as defined below) with Sango Hoken Holdings, LLC (“Sango Holdings”), Hopkins Holdings, LLC (“Hopkins Holdings”), the Blackstone Investor and the Magnitude Investor, each of whom are existing shareholders who are expected to, together with their affiliates, after giving effect to the offering, continue to own at least five percent (5%) of our issued and outstanding common shares. The Shareholders Agreement (as defined below) provides that each of Sango Holdings, Hopkins Holdings, the Blackstone Investor and the Magnitude Investor will have the right to appoint one director if such shareholder continues to hold a prescribed number of common shares. Each of Sango Holdings, Hopkins Holdings and the Blackstone Investor must hold at least five million Class A common shares, while the Magnitude Investor must hold at least seven and a half million Class B common shares to continue to have the appointment right. See “Certain Relationships and Related Party Transactions—Shareholders Agreement.” The remaining directors will be elected by the holders of our Class B common shares (“Class B Directors”) for a term expiring at the next annual general meeting or until their successors are elected or appointed or their office is otherwise vacated.
Currently, H. Hawes Bostic, III and Antonio Ursano, Jr. are the appointed directors on the Board of Directors and David Brown, William C. Freda, Stephen Pacala, D. Pauline Richards, Russell Fradin, Marvin Pestcoe, Everard Barclay Simmons and Pina Albo are the directors on the Board of Directors elected by the holders of our Class B common shares. The former Hopkins Holdings and Sango Holdings appointed directors, John A. Overdeck and David M. Siegel, resigned from the Board of Directors effective on October 15, 2023 because of the conflicts of interest between their roles at Two Sigma and their roles as directors of the Company. Following the resignation of Mr. Overdeck, Hopkins Holdings appointed Mr. Ursano as its appointed director. Mr Ursano has indicated to the Company that he intends to serve as a director on the Board of Directors of the Company on an interim basis while Hopkins Holdings identifies a director to replace Mr. Ursano. Following the resignation of Mr. Siegel, Sango Holdings will retain its right to appoint one director if it holds at least five million Class A common shares. The former Blackstone Investor director resigned from the Board of Directors effective on October 15, 2023. Following the resignation of the Blackstone Investor director, the Blackstone Investor will retain its right to appoint one director if it holds at least five million Class A common shares.
On October 15, 2023, the Board of Directors nominated two candidates to serve as Class B Directors and, subject to the election by the holders of our Class B common shares at a special general meeting scheduled to be held on or about October 24, 2023, such nominees will begin to serve on the Board of Directors as of such date.
Prior to the completion of this offering, our Board of Directors undertook a review of the independence of our directors and considered whether any director has a material relationship with us that could compromise that director’s ability to exercise independent judgment in carrying out that director’s responsibilities. Our Board of Directors has affirmatively determined that David Brown, William C. Freda, H. Hawes Bostic, III, Stephen Pacala, D. Pauline Richards, Russell Fradin, Marvin Pestcoe and Everard Barclay Simmons are each an “independent director,” as defined under the Exchange Act and the rules of the NYSE. In making these determinations, our Board of Directors considered the current and prior relationships that each director has with our Company and all other facts and circumstances our Board of Directors deemed relevant in determining their independence, including the beneficial ownership of our share capital by each director, and the transactions involving them described in the section titled “Certain Relationships and Related Party Transactions.” Accordingly, in accordance with the listing standards of the NYSE, a majority of our directors are independent.
Leadership Structure of the Board of Directors of Hamilton
Our Bye-laws provide that our Board of Directors may appoint such officers as it may determine which provides the Board of Directors with the flexibility to combine or separate the positions of Chairperson of the Board and Chief Executive Officer in accordance with its determination that utilizing one or the other structure would be in the best interests of our Company. Upon completion of this offering, David Brown will continue to serve as Chairperson of the Board.
Our Board of Directors has concluded that our current leadership structure is appropriate at this time. However, our Board of Directors will continue to periodically review our leadership structure and may make such changes in the future as it deems appropriate.
Role of Board of Directors of Hamilton in Risk Oversight
Our Board of Directors is responsible for overseeing our risk management process. Our Board of Directors focuses on our general risk management strategy, the most significant risks facing us, and oversees the implementation of risk mitigation strategies by management. Our Chief Executive Officer and other executive officers will regularly report to the non-executive directors and the audit committee to ensure effective and efficient oversight of our activities and to assist in proper risk management and the ongoing evaluation of management controls. Internal audit will report functionally and administratively in accordance with our current reporting line and directly to the audit committee. We believe that the leadership structure of our Board of Directors provides appropriate risk oversight of our activities.
While our full Board of Directors has responsibility for risk management oversight generally, it has delegated primary oversight of cybersecurity risks to our audit committee. Management, including our Chief Technology Officer and Chief Data Officer and our Global Head of IT Operations & Chief Information Security Officer, are
responsible for the implementation of various measures to prevent, timely detect and mitigate cyber attacks and data breaches, such as conducting vulnerability assessments, managing cyber incidents and coordinating with our legal and compliance teams. In the event that management identifies significant risk exposures with respect to cybersecurity, it will present such exposure to our audit committee. In addition, management provides quarterly reports on cybersecurity risks to our audit committee and, with this input from management, our audit committee assesses our cybersecurity risks and the measures implemented to prevent and mitigate those risks.
Committees of the Board of Directors of Hamilton
Upon the listing of our Class B common shares on the NYSE, our Board of Directors will have an audit committee, a compensation and personnel committee, a nominating and corporate governance committee, an investment committee and an underwriting and risk committee, each of which will operate under a charter that has been approved by our Board of Directors. In addition, from time to time, special committees may be established at the direction of the Board of Directors when necessary to address specific issues. Upon the listing of our Class B common shares on the NYSE, copies of each committee’s charter will be posted on our website, www.hamiltongroup.com. The reference to our website address does not constitute incorporation by reference of the information contained at or available through our website, and you should not consider it to be a part of this prospectus.
Audit Committee
Upon listing of our Class B common shares on the NYSE, the audit committee will consist of Ms. D. Pauline Richards, Mr. William C. Freda and Mr. Marvin Pestcoe, all of whom the Board of Directors has determined satisfy the requirements for “independence” under Rule 10A-3 of the Exchange Act and the applicable corporate governance and listing standards established by the NYSE. Ms. D. Pauline Richards will serve as the chair of the audit committee. Our Board of Directors has determined that Ms. D. Pauline Richards qualifies as an “audit committee financial expert” as such term is defined in Item 407(d)(5) of Regulation S-K under the Securities Act.
The purpose of the audit committee will be to prepare the audit committee report required by the SEC to be included in our proxy statement and to assist our Board of Directors with respect to its oversight of (1) our risk management policies and procedures; (2) the audits and integrity of our financial statements, and the effectiveness of internal control over financial reporting; (3) our compliance with legal and regulatory requirements; (4) the qualifications, performance and independence of the outside auditors; (5) the performance of our internal audit function; (6) the evaluation of related party transactions; (7) pre-approving audit and non-audit services and fees; and (8) establishment and maintenance procedures for the receipt, retention and treatment of complaints regarding accounting, internal accounting controls, auditing matters, or federal and state rules and regulations, and the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters.
Compensation and Personnel Committee
Upon listing of our Class B common shares on the NYSE, the compensation and personnel committee will consist of Mr. Russell Fradin, Mr. William C. Freda and Mr. Stephen Pacala, all of whom the Board of Directors has determined satisfy the criteria for “independence” under the applicable listing standards established by the NYSE. Mr. Russell Fradin will serve as chair of the compensation and personnel committee. The purpose of the compensation committee is to assist our Board of Directors in discharging its responsibilities relating to (1) setting our compensation philosophy and compensation of our executive officers and directors, (2) monitoring our equity-based and certain incentive compensation plans, (3) preparing the compensation committee report required to be included in our proxy statement or annual report under the rules and regulations of the SEC when such disclosure is required by SEC rules and (4) appointing and overseeing any compensation consultants.
Nominating and Corporate Governance Committee
Upon listing of our Class B common shares on the NYSE, the nominating and corporate governance committee will consist of Mr. William C. Freda, Mr. Stephen Pacala and Mr. David Brown, all of whom the Board of Directors has determined satisfy the criteria for “independence” under the applicable listing standards established by the
NYSE. Mr. William C. Freda will serve as the chair of the nominating and corporate governance committee. The nominating and corporate governance committee will be responsible for, among other things, reviewing board structure, composition and practices and making recommendations on these matters to our Board of Directors, reviewing, soliciting and making recommendations to our Board of Directors and shareholders with respect to candidates for election to the Board of Directors, overseeing our Board of Directors’ performance and self-evaluation process, reviewing the compensation payable to board and committee members and providing recommendations to our Board of Directors in regard thereto, and developing and reviewing a set of corporate governance principles.
Compensation and Personnel Committee Interlocks and Insider Participation
None of the members of our compensation and personnel committee is or has at any time during the past year been an officer or employee of the Company. None of our executive officers serves as a member of the compensation and personnel committee or board of directors of any other entity that has an executive officer serving as a member of our Board of Directors or compensation and personnel committee.
Code of Business Conduct & Ethics
Prior to the completion of this offering, our Board of Directors will adopt a code of business conduct and ethics that applies to all of our employees, officers and directors, including our Chief Executive Officer, Chief Financial Officer and other executive and senior officers. This code will be a “code of ethics,” as defined in Item 406(b) of Regulation S-K under the Securities Act. Upon completion of this offering, the code will be available on our website, www.hamiltongroup.com. We will make any legally required disclosures regarding amendments to, or waivers of, provisions of our code of ethics on our internet website. The reference to our website address does not constitute incorporation by reference of the information contained at or available through our website, and you should not consider it to be a part of this prospectus.
Insider Trading Policy
We have implemented an insider trading policy applicable to our officers and directors and employees with access to material non-public information, as well as such persons’ family members, which generally prohibits such persons from conducting transactions involving the purchase or sale of our securities during a blackout period. For this purpose, the term “blackout period” is defined in our insider trading policy as a quarterly period beginning at the close of the market two weeks before the end of each fiscal quarter and ending at the close of business on the second full trading day following the date of public disclosure of the financial results for such fiscal quarter or year. Pursuant to our insider trading policy, we may also impose “special” blackout periods, including when there are non-public developments that would be considered material for insider trading law purposes. Our insider trading policy also strictly prohibits and trading on material non-public information, regardless of whether such a transaction occurs during a blackout period.
HAMILTON INSURANCE GROUP, LTD.
EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
This compensation discussion and analysis (CD&A) describes the philosophy, objectives, process, components and additional aspects of our executive compensation program for the fiscal year ended December 31, 2022. This CD&A is intended to be read in conjunction with the compensation tables that immediately follow this section, which provide historical compensation information for our following named executive officers (NEOs):
| | | | | | | | |
Giuseppina (Pina) Albo | | Chief Executive Officer |
Craig Howie | | Chief Financial Officer |
Megan Thomas | | Chief Executive Officer, Hamilton Re |
Adrian Daws | | Chief Executive Officer, Hamilton Global Specialty |
Peter Skerlj (1) | | Chief Risk Officer |
__________________
(1)Mr. Skerlj’s employment with the Company terminated on January 2, 2023.
I.PRIMARY OBJECTIVES
The primary objectives of our executive compensation program are to:
•Attract, motivate, reward and retain executives who contribute to our long-term success;
•Motivate executives to achieve key goals by having the largest portion of compensation be variable, at-risk pay tied to achievement of such goals;
•Link pay to performance over both the short and long terms; and
•Align executive officers’ interests with those of the Company and our shareholders over the long term, generally through the use of equity as a significant component of compensation.
In light of these objectives, our compensation plans are designed to reward our executive officers for generating performance that achieves Company and individual goals, and for increasing the value of the Company. When we fall short of achieving Company and individual goals, our executive officers’ compensation reflects that performance accordingly. We review our compensation program regularly to ensure that total compensation is fair, reasonable and competitive.
The compensation reported in this CD&A is not necessarily indicative of how we will compensate our NEOs following the consummation of this offering. We expect to review, evaluate and modify our compensation framework in connection with becoming a publicly traded company, which may result in our future compensation programs varying from our historical practices.
II.COMPENSATION PHILOSOPHY
Our compensation philosophy is performance-based and focuses on aligning the financial interests of our executive officers with those of our shareholders. Key components of our compensation philosophy are as follows:
Attract, motivate and retain key talent needed to contribute to our long-term success: We recruit talent with diverse experience, expertise, capabilities and backgrounds to lead the profitable growth of our business and to
execute our strategy. We reference the amounts and components of executive officer compensation in the companies in our compensation peer sets in recruiting our executive officers and determining competitive pay levels.
Provide a significant portion of total pay in variable pay that aligns actual payments with performance outcomes (pay for performance): We structure the compensation of our executive officers to have a significant portion that is variable and at-risk based on Company performance, given the executives’ greater ability to influence the achievements of the enterprise as a whole. The variable components include annual cash incentives and long-term equity incentives. As actual variable compensation earned is tied directly to the achievement of financial, strategic and business goals and our equity value, with upside potential when executives exceed target goals, the higher allocation to variable pay fosters a pay for performance culture.
Provide rewards for attainment of tangible objectives (pay for performance), while also considering the external context: We have designed our executive compensation program to incentivize our executive officers to achieve goals that advance our strategic and business objectives and increase shareholder value by closely linking Company performance and their individual performance to the compensation they earn. We specify clear and measurable quantitative and qualitative goals that, in combination and if achieved, are designed to elevate our results and returns to shareholders. We strive for our reward offerings to be market competitive, aligned with market practice and considerate of shareholder interests. We target total direct compensation at the median range of comparable positions at the companies in our compensation peer sets.
Align executive officers’ interests with those of the Company and its shareholders: Equity-based and other long-term incentive compensation constitutes a significant portion of our executive officers’ overall compensation. We use equity as the primary form for long-term incentive opportunities in order to motivate and reward executive officers to (i) achieve multiyear strategic goals and (ii) deliver sustained long-term value to shareholders. Using equity for long-term incentives creates strong alignment between the interests of executive officers and those of our shareholders, as it provides executive officers with a common interest with shareholders in share price performance and it fosters an ownership culture among executive officers by making them shareholders with a personal stake in the value they are being motivated to create.
Reward talent through a fair, competitive and reasonable process: We believe that our executive compensation program should incentivize our executive officers to achieve our business goals and enable us to attract and retain executives whose talents, expertise, leadership and contributions are expected to build and sustain growth in long-term shareholder value. To achieve these objectives, we regularly review our compensation policies and overall program design to ensure that they are aligned with the interests of our shareholders and our business goals, and that the total compensation paid to our executives is fair, reasonable and competitive for our size and stage of development.
COMPENSATION PROGRAM GOVERNANCE
We assess the effectiveness of our executive compensation program from time to time and review risk mitigation and governance matters, which include maintaining the following best practices:
| | | | | | | | | | | |
| What We Do |
| ü | Pay for Performance | | The majority of total executive compensation opportunity is variable and at-risk. |
| ü | Independent Compensation Consultant | | We have engaged an independent compensation consultant to provide information for use in compensation committee decision-making. |
| ü | Clawback | | Effective upon the completion of this offering, all incentive compensation will be subject to clawback if we are required to restate our financial statements due to material noncompliance with a financial reporting requirement or that corrects an error that is not material to previously issued financial statements but would result in a material misstatement if the error were corrected or left uncorrected. |
| ü | Share Ownership Guidelines | | Effective upon the completion of this offering, executive officers will be required to maintain meaningful levels of share ownership. |
| ü | Caps on Annual Bonuses and Equity Grants | | Our annual cash incentive plan and equity awards have upper limits on the amounts of cash and equity that may be earned. |
| ü | Double Trigger Change-in-Control Severance and Acceleration | | The Company has entered into employment agreements with NEOs that provide certain financial benefits if there is both a change in control and a qualifying termination of employment (a “double trigger”). A change in control alone will not trigger severance pay or accelerated vesting of annual equity awards. |
| ü | Peer Data | | We utilize compensation peer sets comprised of companies based on industry sector, revenue and market capitalization as a reference for compensation decisions, and these peer sets are reviewed on an annual basis. |
What We Don’t Do |
| û | No Perks | | We do not provide any perquisites to executive officers. |
| û | No Excise Tax Gross-Ups | | We do not provide excise tax gross-ups on change-in-control payments. |
| û | No Hedging or Pledging of Company Shares | | We do not permit our executive officers and directors to pledge or hedge their Company shares. |
| û | No Guaranteed Performance Bonuses | | We do not provide guaranteed performance bonuses to our NEOs at any minimum levels of payment under our annual cash incentive plan. |
III.COMPENSATION DETERMINATION PROCESS
ROLE OF THE COMMITTEE
The Compensation and Personnel Committee, or the compensation committee, establishes our compensation philosophy and objectives, determines the structure, components and other elements of executive compensation, and reviews and approves the compensation of the NEOs.
The compensation committee structures the executive compensation program to accomplish our articulated compensation objectives in light of the compensation philosophy described above.
In accordance with its charter, the compensation committee establishes total compensation for the CEO. The compensation committee reviews and evaluates the performance of the CEO and develops base salary and incentive compensation recommendations. Our CEO does not play any role with respect to any matter affecting her own
compensation and is not present when the compensation committee discusses and formulates the compensation recommendation.
With the input of the CEO, the compensation committee also establishes the compensation for all of the other executive officers.
ROLE OF THE CEO
The compensation committee works with our CEO to set the target compensation of each of our executive officers, including other NEOs. As part of this process, the CEO evaluates the market competitiveness of the various components of compensation and the performance of the other executive officers annually and makes recommendations to the compensation committee regarding the compensation of each executive officer in the first quarter of the applicable fiscal year.
The CEO’s input is particularly important in connection with base salary adjustments and the determination of each executive officer’s individual goals under the annual cash incentive plan. The compensation committee gives significant weight to the CEO’s recommendations in light of her greater familiarity with the day-to-day performance of her direct reports and the importance of incentive compensation in driving the execution of managerial initiatives developed and led by the CEO. Nevertheless, the compensation committee makes the ultimate determination regarding the compensation for the executive officers.
ROLE OF MANAGEMENT
The compensation committee also works with members of our management team, including human resources, finance and legal professionals. Management supports the compensation committee by assisting in plan design, providing information on corporate and individual performance and management’s perspective and recommendations on compensation matters. The compensation committee does not delegate any of its functions to others in setting the compensation of our NEOs.
EXECUTIVE COMPENSATION COMPETITIVE MARKET INFORMATION
In making determinations about executive compensation, the compensation committee believes that obtaining relevant market data is important, because it serves as a reference point for making decisions and provides very helpful external context. When making decisions about the structure and component mix of our executive compensation program, the compensation committee takes into consideration the structure and components of, and the amounts paid under, the executive compensation programs of other comparable companies, as derived from surveys, public filings and other sources.
The compensation committee, with the assistance of a compensation consultant and considering peer sets used previously, developed peer sets in early 2022. Because our business includes insurance, insurance infrastructure, reinsurance and specialty insurance, the peer sets include companies with businesses that encompass one or more of those segments. Also, because we have executive officers located in the United States, the United Kingdom and Bermuda, the compensation consultant developed peer sets for the positions in each of these geographic markets. For Bermuda, the number of prospective peer companies was low, so the peer set used for positions in Bermuda included both Bermuda and U.S. companies.
The market data is used as a reference point and to provide information on the range of competitive pay levels and current compensation practices in our industry. The compensation committee determined that the appropriate market reference was the median (50th percentile). Executive officers’ total compensation may deviate from the level referenced in order to attract or retain key individuals or reflect their respective skills, experience or performance.
We believe that the compensation practices of these peer sets provided us with appropriate compensation reference points for establishing the compensation of our NEOs for the fiscal year ended December 31, 2022. Consistent with best practices for corporate governance, the compensation committee intends to review our competitive market information annually.
IV.COMPENSATION PROGRAM COMPONENTS
2022 COMPONENTS IN GENERAL
The compensation committee selected the components of compensation set forth in the chart below to achieve our executive compensation program objectives. The compensation committee regularly reviews all components of the program to verify that each executive officer’s total compensation is consistent with our compensation philosophy and objectives and that the component is serving a purpose in supporting the execution of our strategy. The majority of each executive officer’s compensation is variable and at-risk, with a meaningful portion that is performance based.
Long-term incentive equity awards are prospective in nature and intended to tie a substantial portion of an executive’s pay to creating long-term shareholder value. In the fiscal year ended December 31, 2022, the compensation committee structured the long-term incentive opportunity with performance stock units, or PSUs, and time-based vesting restricted stock units, or RSUs, in order to motivate executive officers to achieve multi-year strategic goals and deliver sustained long-term value to shareholders, and to reward them for doing so.
| | | | | | | | | | | | | | |
| Element | | Description | | Additional Detail |
Base Salary | | Fixed cash compensation. Determined based on each executive officer’s role, individual skills, experience, performance and competitive market conditions. | | Base salaries are intended to provide stable compensation to executive officers, allow us to attract and retain skilled executive talent and maintain a stable leadership team. |
Short-Term Incentives: Annual Cash Incentive Opportunities | |
The pool is 60% based on financial objectives and 40% based on non-financial goals. Variable cash compensation based on the level of achievement of pre-determined annual corporate and individual goals. Cash incentives are capped at a maximum of 200% of each NEO’s target opportunity. | |
Annual cash incentive opportunities are designed to ensure that executive officers are motivated to achieve our annual goals and reward them for doing so, as well as to attract and retain executive officers. |
Long-Term Incentives: Annual Equity-Based Compensation | |
Variable equity-based compensation. PSUs: Restricted stock units that vest based on achievement of performance goals. RSUs: Restricted stock units that vest based on the passage of time. Value Appreciation Pool (VAP): One-time incentive arrangement tied to an increase in the value of the Company’s goodwill, vests if there is a trigger event such as an IPO, a change in control or at the end of a five-year period in 2025. | |
Equity-based compensation is designed to motivate and reward executive officers to achieve our multi-year strategic goals and to deliver sustained long-term value to shareholders, as well as to attract and retain executive officers.
Links with shareholder value creation; aligns with shareholders. |
2022 TARGET PAY MIX
Consistent with the compensation committee’s pay-for-performance philosophy, a meaningful majority of annual target total compensation is variable, at-risk pay. The compensation committee considers compensation to be “at-risk” if it is subject to operating performance or if its value depends on our share price.
The following graphic shows the allocation of annual target total compensation payable to the CEO and the average allocation to the other NEOs. The compensation committee allocated compensation among base salary, target annual cash incentive plan amounts and the grant date fair value of long-term incentives in the form of PSUs
and RSUs. The values and allocations were determined by the compensation committee with reference to, and consistent with, the allocations among such elements at the companies in our compensation peer sets.
__________________
(1)NEO Average excludes CEO compensation.
Each compensation element is discussed in more detail below and set forth in more detail in the 2022 Summary Compensation Table and 2022 Grants of Plan-Based Awards table below.
BASE SALARY
Base salaries provide fixed compensation to executive officers and help to attract and retain the executive talent needed to lead the business and maintain a stable leadership team. Base salaries are individually determined according to each executive officer’s areas of responsibility, role and experience, and vary among executive officers based on a variety of considerations, including skills, experience, achievements and the competitive market for the position.
| | | | | | | | |
NEO | | 2022
Base Salary ($) |
Giuseppina Albo | | 1,300,000 | |
Craig Howie | | 600,000 | |
Megan Thomas (1) | | 560,000 | |
Adrian Daws (2) | | 377,242 | |
Peter Skerlj (1) | | 430,000 | |
__________________
(1)All amounts paid to Ms. Thomas and Mr. Skerlj were paid in Bermudian dollars (BMD). The BMD is pegged to the U.S. dollar at a rate of 1:1.
(2)All amounts paid to Mr. Daws were paid in British pound sterling. For purposes of this CD&A, all amounts paid to Mr. Daws were converted to U.S. dollars using the 2022 average exchange rate, $1.2369 per GBP, except where otherwise indicated.
ADJUSTMENTS TO BASE SALARY
From time to time, the compensation committee will consider base salary adjustments for executive officers. The main considerations for a salary adjustment are similar to those used in initially determining base salaries but may also include a change of role or responsibilities, recognition for achievements, regulatory or contractual requirements, budgetary constraints or market trends.
ANNUAL CASH INCENTIVE PLAN
The annual cash incentive plan for executive officers is a cash-based plan that rewards executive officers, including our NEOs, for the achievement of key annual objectives. The structure of the annual cash plan incentivizes NEOs to achieve annual financial and non-financial objectives that the compensation committee views as critical to the execution of our business strategy.
There is a bonus pool under the annual cash incentive plan that is funded based on our achievement against the financial measure of profitability as measured by our combined ratio and the non-financial measures of strategic growth, technology enablement and being a magnet for talent, as more specifically described below. If achievement relative to these measures does not reach at least the threshold level, then the bonus pool will not be funded, and the NEOs would not be entitled to any payout, regardless of his or her individual performance.
To the extent that the bonus pool is funded, the NEOs are entitled to payouts under the annual cash incentive plan based on the level of achievement relative to the financial and non-financial measures, subject to the compensation committee’s discretion to decrease or increase the overall funding percentage and/or to decrease or increase any individual bonus payout.
TARGET OPPORTUNITIES
The compensation committee determines a target cash incentive opportunity for each NEO under the annual cash incentive plan by taking the individual’s base salary and multiplying it by the individual’s target incentive percentage. The target incentive percentages for the fiscal year ended December 31, 2022 for each NEO were as follows:
| | | | | | | | |
NEO | | 2022 Target Cash Incentive Opportunity
(as a % of Base Salary) |
| Giuseppina Albo | | 125 | |
| Craig Howie | | 100 | |
| Megan Thomas | | 100 | |
| Adrian Daws | | 100 | |
| Peter Skerlj | | 100 | |
FINANCIAL MEASURE (60%)
For the fiscal year ended December 31, 2022, 60% of the amount of the bonus pool funding for our annual cash incentive plan was based on underwriting profitability as measured by our combined ratio (as described below). The compensation committee selected this measure because it focuses executives on this critical business priority.
We use the combined ratio as our measure of underwriting profitability. This ratio is a relative measurement that describes, for every $100 of net premiums earned, the amount of losses and loss adjustment expenses, and the amount of other underwriting expenses, that would be taken from the premium. A combined ratio of less than 100% indicates that the insurance company’s underwriting activities are profitable and a combined ratio of over 100% indicates an underwriting loss. The appropriate combined ratio target for a company depends upon its mix of business as the underwriting environment varies across countries and products, as does the degree of litigation activity, all of which affect the combined ratio. In addition, investment returns, local taxes, cost of capital, regulation, product type and competition can have an effect on pricing and consequently on profitability, as reflected in underwriting income and associated ratios.
For the financial measure, the compensation committee set the target for combined ratio at a level that it considered rigorous and challenging and that took into account the relevant risks and opportunities of the Company’s business but that does not fail to incentivize proper underwriting discipline. In particular, the compensation committee reviewed our 2022 annual operating budget that resulted from our detailed budgeting
process and evaluated various factors that might affect whether the target could be achieved, including the risks to achieving certain preliminary objectives that were necessary pre-requisites to achieving the budget targets.
Considering these factors, the compensation committee set the 2022 target for combined ratio at 98.5%, a 750 basis point improvement over 2021 actual performance, and set the threshold level of performance at 114.6%, a level that required a high level of performance, and the maximum level of performance at 91.8%, a level that required exceptionally strong performance and represented a significant challenge.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Financial Measure | | Weighting (%) | | Threshold (%) | | Target (%) | | Maximum (%) |
Combined Ratio | | 60 | | | 114.6 | | | 98.5 | | | 91.8 | |
| Funding Percentage (as a % of target funding) | | | | 0 | | | 100 | | | 200 | |
NON-FINANCIAL MEASURES (40%)
For the fiscal year ended December 31, 2022, 40% of the amount of the bonus pool funding for our annual cash incentive plan is based on non-financial measures. The components of these measures are as follows:
•Strategic Growth – actions to sharpen our strategic focus, align our organizational structure with the refined strategy and focused execution in line with communicated priorities in order to grow in the right lines of business at the right time in the cycle while continuing to optimize portfolio composition.
•Technology Enablement – actions to enhance technology capabilities, continue to build facilitating business platforms, capture data and improve analytics.
•Magnet for Talent – actions to attract, develop and retain talent within the organization and create a vibrant entrepreneurial culture that fosters communication, collaboration, diversity, equity and inclusion (DEI), alignment with our corporate values and the execution of our environmental, social, and governance (ESG) strategy.
For these non-financial measures, the 2022 targets were aggressive and set at challenging levels such that the attainment of target performance for each category of goals was not assured at the time they were set and required a high level of effort and execution on the part of the executive officers and others in order to achieve the goals. The compensation committee believes that each of these goals is strongly aligned to the creation of shareholder value.
| | | | | | | | |
| Non-Financial Measures | | Weighting (%) |
| Strategic Growth | | 20 | |
| Technology Enablement | | 10 | |
| Magnet for Talent | | 10 | |
For the non-financial measures, the compensation committee evaluates the degree or level of achievement in each of the categories relative to each particular business priority.
BONUS POOL FUNDING
The compensation committee determined the bonus pool funding level based on the level of actual performance relative to the goals. In order to motivate performance and underscore the importance of achieving, or closely approaching, the financial measure goal at this critical time in our development, the compensation committee set the funding level at 0% for achievement below the threshold level of performance. For performance between the threshold level and the target level, the funding level increases from 0% for threshold performance to 100% of the target opportunity for achieving target performance. For performance between the target level and the maximum level, the funding level ranges from 100% of the target opportunity to 200% of the target opportunity. Achievement above the maximum level is capped at the maximum funding level of 200% of target. For performance between the threshold and maximum, the bonus funding level will be determined by linear interpolation.
For the non-financial measures, the compensation committee similarly determines achievement relative to each particular measure based on its qualitative rating of where performance fell on a scale of “does not meet” to “exceed” and translates that performance level to a corresponding bonus funding level ranging from 0% to 200%.
2022 ACHIEVEMENT OF FINANCIAL AND NON-FINANCIAL MEASURES
For the fiscal year ended December 31, 2022, we had a combined ratio of 102.8%, largely attributable to reserve estimates for potential claims relating to the conflict in Ukraine, Hurricane Ian and losses on legacy business. We made significant progress regarding each of the non-financial measures, partially exceeding or, in some cases significantly exceeding, the goals in each category. More specifically, we achieved significant growth, launched our Hamilton Select operation with exceptional speed, earned a rating outlook upgrade from both A.M. Best and Kroll Bond Rating Agency, and reduced the volatility in the portfolio significantly; we upgraded our technology and introduced new business-enhancing technology and analytic platforms; and we improved our employee engagement score, reduced voluntary employee turnover, achieved key DEI goals and began to implement our ESG strategy. The following table sets forth the Company’s achievement relative to the financial and non-financial goals and the corresponding overall bonus pool funding level of 98.8%:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Performance Measures | | Weighting (%) | | Threshold (%) | | Target (%) | | Maximum (%) | | Actual Result
(%) | | Performance Achievement (%) | | Weighted Payout (%) |
Financial Measure: Combined Ratio | | 60 | | | 114.6 | | | 98.5 | | | 91.8 | | | 102.8 | | | 48 | | | 28.8 | |
| Funding Percentage (as a % of target funding) | | | | 0 | | 100 | | | 200 | | | | | | | |
| Non-Financial Measures: | | | | | | | | | | | | | | |
| Strategic Growth | | 20 | | | — | | | — | | | — | | | — | | | 200 | | | 40 | |
| Technology Enablement | | 10 | | | — | | | — | | | — | | | — | | | 150 | | | 15 | |
| Magnet for Talent | | 10 | | | — | | | — | | | — | | | — | | | 150 | | | 15 | |
Aggregate Weighted Funding Percentage: | | | | | | | | | | | | | | 98.8 | |
PAYOUT DETERMINATIONS
As described above, the compensation committee verifies achievement relative to the target for the financial measure and the non-financial measures to determine the respective performance levels. The compensation committee then adds the amounts for the two components together to determine the bonus pool funding. The compensation committee then takes this bonus pool funding level, together with each NEO’s individual annual performance review, and determines the payout, which may be more or less than the NEO’s target, ranging from a minimum of 0% and up to a maximum (assuming 100% funding of the bonus pool) of 200%.
The total payout under our annual cash incentive plan for each NEO for 2022 is reflected in the following table:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| NEO | | 2022
Base Salary
($) | | 2022 Target Cash Incentive Opportunity (as a % of Base Salary) (%) | | Target
Incentive
($) | | Bonus Pool Funding
(%) | | Individual Performance
(%) | | Total 2022
Cash Incentive
Payout
Amount
($) |
| Giuseppina Albo | | 1,300,000 | | | 125 | | | 1,625,000 | | | 99 | | | 100 | | | 1,625,000 | |
Craig Howie | | 600,000 | | | 100 | | | 600,000 | | | 95 | | | 107 | | | 640,000 | |
Megan Thomas | | 560,000 | | | 100 | | | 560,000 | | | 95 | | | 94 | | | 525,000 | |
Adrian Daws (1) | | 377,242 | | | 100 | | | 377,242 | | | 95 | | | 123 | | | 464,816 | |
Peter Skerlj | | 430,000 | | | 100 | | | 430,000 | | | 95 | | | — | | | 100,000(2) |
__________________
(1)All amounts paid to Mr. Daws were paid in British pound sterling. The base salary amount was converted to U.S. dollars using the 2022 average exchange rate, $1.2369 per GBP. The total 2022 cash incentive payout amount was converted using the exchange rate on March 24, 2023, the date of payment, of $1.2232 per GBP.
(2)Pursuant to Mr. Skerlj’s separation agreement, Mr. Skerlj was entitled to a pro rata bonus, which resulted in a bonus payout of $100,000. See “Executive Compensation Tables—Potential Payments Upon a Termination or Change in Control” below for a discussion of Mr. Skerlj’s separation agreement.
LONG-TERM INCENTIVES
The third and largest component of the executive compensation program is long-term incentive equity grants. Long-term incentive equity awards are prospective in nature and intended to tie a substantial portion of an executive’s pay to creating long-term shareholder value. The compensation committee has designed the long-term incentive opportunity to motivate and reward executive officers to achieve multi-year strategic goals and to deliver sustained long-term value to shareholders. The long-term incentives create a strong link between payouts and performance, and a strong alignment between the interests of executive officers and the interests of our shareholders. Long-term equity incentives also promote retention, because executive officers will only receive value through the vesting schedule if they remain employed by us over the required term, and they foster an ownership culture among our executive officers by making them shareholders with a personal stake in the value they are intended to create.
LONG-TERM INCENTIVE TARGET OPPORTUNITIES
The employment agreements with each of our NEOs set forth annual targets for grants of RSUs and PSUs. The target levels are expressed as dollar amounts, equal to a certain percentage of base annual salary. The number of shares covered by the awards is calibrated by dividing the applicable target dollar amount by the per share fair market value of our shares as of the last day of the prior financial year ($14.82 for the grants made during the fiscal year ended December 31, 2022). In February 2022, the compensation committee authorized grants of awards to our NEOs under our 2013 Equity Incentive Plan at their respective annual grant targets. In affirming and establishing these grant levels, the compensation committee considered the following:
•the values of, allocations to, and proportion of total compensation represented by, the long-term incentive opportunities at the companies in our compensation peer sets;
•individual performance, criticality, and expected future contributions of the NEO;
•time in role, skills and experience; and
•retention.
EQUITY VEHICLES AND 2022 MIX: PSUs AND RSUs
The 2022 mix of long-term incentives granted to the NEOs is shown in the following table:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Equity Vehicle | | 2022 Allocation | | Vesting Period | | Performance Metric | | Rationale for Use |
PSUs | | 50% | | 3-year cliff | | 3-year Annualized Underwriting Return on Capital (UROC) | | •Focuses on underwriting results, core profitability and risk management •Prioritizes increasing shareholder value •Promotes long-term focus and retention |
RSUs | | 50% | | 3 years: 1/3 per year | | Value of stock at vesting | | •Aligns with shareholders •Promotes retention •Provides value even during periods of share price or market underperformance |
The compensation committee structured the mix of equity vehicles and the relative weight assigned to each type of award to motivate performance against long-term goals through PSUs, and to ensure some amount of value delivery through the RSUs. These are complementary because they have upside potential but deliver some value even if the share price does not increase, while also reinforcing an ownership culture and commitment to us.
PSU PERFORMANCE METRIC
The compensation committee selected the PSU performance metric of 3-year annualized underwriting return on capital because it focuses our executive officers on the key goals of underwriting results, core profitability and risk management, while addressing or reducing volatility from investment results, non-underwriting activities and catastrophe impacts. More specifically, in striving for a more consistent metric over time, the determination of underwriting return on capital incorporates certain adjustments, including adding a notional investment credit to support underwriting and smoothing catastrophe losses and reserve movements across time periods. Underwriting return on capital also incorporates risk-adjusted returns, which relate to underwriting and risk management practices. The use of 3-year annualized results promotes a focus on long-term performance.
Underwriting return on capital is determined by a fraction, the numerator of which consists of 1) GAAP underwriting profit, plus 2) a catastrophe loss bank adjustment, plus 3) a reserve adjustment, plus 4) a loss portfolio transfer adjustment, plus 5) investment income on insurance float; and the denominator of which consists of risk-adjusted underwriting capital.
The compensation committee approves underwriting return on capital for each of the three years in the performance period, and then compounds and annualizes them.
TARGET, THRESHOLD AND MAXIMUM PERFORMANCE LEVELS
Similar to the annual cash incentive plan, for the PSUs, the compensation committee defines payout levels representing the number of PSUs to be earned by executive officers based on the level of actual performance relative to the target.
The compensation committee believes that it has set the performance goal at a rigorous and challenging level so as to require significant effort and achievement by our executive officers, and that such goal has been established in light of our internal forecast as well as the macroeconomic and industry environments.
If the Company’s 3-year annualized underwriting return on capital falls between the threshold and maximum levels, the payout percentage will be determined by linear interpolation.
Ultimately, the compensation committee will approve the performance achievement percentages and the determination of the number of PSUs earned based on the outcome of the formula.
2022 GRANTS OF PSUs AND RSUs
The following table summarizes the grants to our NEOs made on February 23, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| NEO | | 2022
Base Salary
($) | | 2022 Target Long-Term Incentive Opportunity (as a % of Base Salary) (%) | | Target Long-Term Incentive Value
($) | | PSUs
($) | | PSUs
(#) | | RSUs
($) | | RSUs
(#) |
| Giuseppina Albo | | 1,300,000 | | | | 200 | | | 2,600,000 | | | 1,300,000 | | | 87,719 | | | 1,300,000 | | | 87,719 | |
| Craig Howie | | 600,000 | | | | 150 | | | 900,000 | | | 450,000 | | | 30,364 | | | 450,000 | | | 30,364 | |
| Megan Thomas | | 560,000 | | | | 125 | | | 700,000 | | | 350,000 | | | 23,617 | | | 350,000 | | | 23,617 | |
| Adrian Daws | | 377,242 | | (1) | | 125 | | | 473,200 | | | 236,600 | | | 15,965 | | | 236,600 | | | 15,965 | |
| Peter Skerlj | | 430,000 | | | | 100 | | | 430,000 | | | 215,000 | | | 14,507 | | | 215,000 | | | 14,507 | |
__________________
(1)The base salary amount was converted to U.S. dollars using the 2022 average exchange rate, $1.2369 per GBP.
2020 PSUs WITH PERFORMANCE PERIOD COMPLETED AS OF 2022 YEAR END
In 2020, the compensation committee granted PSUs with performance-based vesting requirements for the three-year performance period of 2020-2022 based on underwriting return on capital, which had the following performance curve:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2020 Performance Measure | | Below Threshold (%) | | Threshold (%) | | Target
(%) | | Maximum (%) | | Maximum or Above
(%) | | Actual
(%) |
| Underwriting Return on Capital | | <(2.5) | | (2.5) | | | 3 | | | 7 | | | >7.0 | | (1.7) | |
| Payout Percentage of Target Shares | | 0 | | | 0 | | | 100 | | | 200 | | | 200 | | | 9.4 | |
The compensation committee determined that the annualized underwriting return on capital for the 2020-2022 period was -1.7%, and correspondingly approved a performance payout at 9.4% of target. The compensation committee then multiplied this payout percentage by the number of PSUs originally granted to determine the numbers of PSUs earned, which were as follows:
| | | | | | | | |
NEO (1) | | Earned PSUs
(#) |
| Giuseppina Albo | | 4,799 | |
| Peter Skerlj | | 2,407 | |
__________________
(1)Mr. Howie, Ms. Thomas and Mr. Daws became executive officers subsequent to, and were not eligible for, the grant of the 2020-2022 PSUs.
2021 GRANTS OF PSUs AND RSUs
Similar to 2020 and 2022, in 2021, the compensation committee made grants of PSUs and RSUs to our NEOs in office at that time in order to motivate and reward them to achieve multi-year strategic goals and to deliver sustained long-term value to shareholders. The compensation committee had similarly selected the performance metric of 3-year annualized underwriting return on capital. After the end of the 2021 – 2023 performance period, the targets and achievement relative to such targets will be disclosed.
The compensation committee intends to make grants of long-term incentive awards annually and might also grant long-term incentive awards when an individual is promoted to a senior executive position to recognize the increase in the scope of his or her role and responsibilities. From time to time, the compensation committee might make special awards to recognize major accomplishments, or selective awards in situations involving a leadership transition. The compensation committee might also make grants to newly hired executive officers.
LEGACY SIGN-ON BONUS TO MR. HOWIE
In 2021, in connection with recruiting Mr. Howie to join the Company, we entered into an employment agreement with him that, among other things, included a one-time award of 250,000 units of the Company’s value appreciation pool and $1,200,000 of “initial hire grants” (in cash or an equivalent amount of shares at his election), $600,000 of which was payable on the first payroll date after July 1, 2021, and $600,000 of which was payable on the first payroll date after July 1, 2022. Mr. Howie received the second instalment in 2022. The sign-on award and grants were intended to make Mr. Howie whole for amounts he forfeited from his previous employer when he joined the Company.
POST-EMPLOYMENT COMPENSATION
QUALIFIED RETIREMENT PLANS
We offer a tax-qualified 401(k) defined contribution plan covering all of our U.S. employees, including our U.S.-based NEOs. Eligible employees may make voluntary pre-tax and post-tax contributions to the 401(k) plan and are eligible for matching company contributions in an amount equal to 100% of the first 6% of the employee’s eligible compensation contributed to the plan. The 401(k) plan also permits discretionary company contributions. All contributions to the 401(k) plan are subject to certain limitations under the Internal Revenue Code.
Ms. Albo receives an additional cash payment equal to 4% of her base salary, which, together with the 6% company matching contribution to the 401(k) plan, approximates the 10% retirement benefit contribution she received under a previous Bermuda employment agreement.
NEOs based in the U.K. are eligible to participate in the defined contribution pension scheme and receive a contribution of 10% of pensionable earnings plus a 2.5% match, aligned with all our U.K.-based employees. All employees in the U.K., including our NEOs, may elect to take cash in lieu of pension subject to compliance with applicable law.
NEOs in Bermuda receive a 10% retirement benefit contribution aligned with our Bermuda-based employees.
TERMINATION AND CHANGE IN CONTROL PROVISIONS
The compensation committee believes that the long-term interests of shareholders are best served by providing reasonable protection to address potential change in control transactions in which NEOs may otherwise be distracted by their potential loss of employment in the event of a successful transaction.
Under the terms of our 2013 Equity Incentive Plan, vesting is accelerated for the unvested portion of awards due to a change in control if, within 12 months following the change in control, the NEO’s employment is either terminated by the Company without cause or by the NEO for good reason. For PSUs, performance conditions would be deemed achieved based on the greater of actual performance or target at the time of the change in control, with the number of shares also to be fully vested. These are called “double trigger” arrangements (i.e., benefits under these arrangements are only triggered by the consummation of a change in control followed by the NEO’s termination of employment under certain specified circumstances within 12 months following the change in control).
In addition, under the terms of our 2013 Equity Incentive Plan, if a change in control occurs and awards are not assumed or continued by the successor or surviving corporation, the unvested portion of any outstanding awards will generally vest on the date of the change in control, and the compensation committee has the discretion to settle such awards with cash.
We do not provide excise tax “gross-ups” to any of our executive officers related to change-in-control payments.
SEVERANCE ARRANGEMENTS
We provide severance benefit protection to our NEOs through our individual employment agreements with each such individual (in addition to the special provisions in connection with a change in control). The compensation committee believes these severance payments and benefits are important from a recruiting perspective to provide some level of protection to our executive officers from having their employment terminated without cause or constructively terminated in connection with a change in control, or from experiencing a life-changing disability, and that the amounts are reasonable when compared with similar arrangements adopted by comparable companies. See “Executive Compensation Tables—Potential Payments Upon a Termination or Change in Control” below for further information.
HEALTH AND WELFARE AND OTHER BENEFITS
We offer a broad range of benefits, which might include medical, dental, vision, life, and disability plans to our employees, including our NEOs. We pay all or most of the cost of medical plan coverage for all employees, including our NEOs, although we are not obligated to pay any increases in the cost of coverage after such NEO’s employment commencement date. We pay a majority of the employee share of Bermudian government payroll and social insurance taxes for all employees based in Bermuda, including our NEOs, which we believe is common practice at other Bermuda-based public companies.
We believe the benefits described above are necessary and appropriate to provide a competitive compensation package to our NEOs and are entirely aligned with benefits provided to all of our employees in the respective locations.
V.ADDITIONAL COMPENSATION POLICIES AND PRACTICES
CLAWBACK POLICY
The Company adopted a clawback policy designed to recoup any erroneously awarded compensation resulting from certain accounting restatements. If the Company is required to prepare an accounting restatement because of either (i) the material noncompliance of the Company with any financial reporting requirement under the securities laws, including any required accounting restatement to correct an error in previously issued financial restatements that is material to the previously issued financial statements, or (ii) an error that is not material to previously issued financial statements, but would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period, then all incentive compensation paid or credited to each current or former executive officer for the restated period (up to three years) will be recalculated based on the restated results. To the extent the recalculated incentive compensation is less than the incentive compensation actually paid or credited to such executive officer for that period, the excess amount must be forfeited or returned to the Company.
In the event of an executive officer’s failure to repay any erroneously awarded compensation due under the clawback policy, the Company would enforce the clawback policy and pursue other remedies to the fullest extent permitted by law, unless certain conditions are met and the compensation committee determines that recovery would be impracticable.
EXECUTIVE STOCK OWNERSHIP GUIDELINES
We believe that the Company and our shareholders are best served when executive officers manage the business with a long-term perspective. As such, the Company will implement executive share ownership guidelines, as we believe stock ownership is an important tool to strengthen the alignment of interests among our executive officers and our shareholders, to reinforce executive officers’ commitment to us and to demonstrate our commitment to sound corporate governance. The guidelines require that within five years of being appointed to a covered position,
the CEO hold a minimum of six times, and the other executive officers hold a minimum of three times (as detailed below) the value of their annual base salary in Company shares.
| | | | | | | | |
Position | | Multiple of Base Salary |
Chief Executive Officer | | 6x |
Other Executive Officers | | 3x |
For this purpose, RSUs (whether or not vested) and Company shares directly or beneficially owned by the executive, or the executive’s immediate family members, will count for purposes of satisfying the ownership requirement, but not PSUs. After the initial five-year phase-in period, compliance with the ownership requirement will be measured as of the last trading day of each calendar year.
ANTI-HEDGING AND ANTI-PLEDGING POLICY
The Company adopted an insider trading policy effective upon the consummation of this offering that will prohibit employees (including our NEOs) and directors from engaging in any hedging transactions (including transactions involving options, puts, calls, prepaid variable forward contracts, equity swaps, collars and exchange funds or other derivatives) that are designed to hedge or speculate on any change in the market value of the Company’s equity securities. It will also explicitly prohibit employees (including our NEOs) and directors from effecting short sales of the Company’s equity securities, which are inherently speculative in nature and contrary to the best interests of the Company and its shareholders. The Company’s insider trading policy will also prohibit employees (including our NEOs) and directors from pledging the Company’s securities in any circumstance, including by purchasing Company securities on margin or holding the Company’s securities in a margin account.
COMPENSATION RISK MANAGEMENT
The compensation committee has undertaken a risk assessment of the Company’s compensation programs to determine whether these programs are appropriately designed and to ensure that they do not motivate individuals or groups to take risks that are reasonably likely to have a material adverse effect on the Company. Following this comprehensive review of the design, administration, and controls of these programs, the compensation committee was satisfied that the Company’s programs are well structured with strong governance and oversight mechanisms in place to minimize and mitigate potential risk and that any risks arising from the Company’s compensation programs are not reasonably likely to have a material adverse effect on the Company.
ACCOUNTING CONSIDERATIONS
We follow Financial Accounting Standards Board ASC Topic 718 for our stock-based compensation awards. In accordance with ASC Topic 718, stock-based compensation cost is measured at the grant date, or with respect to performance-based awards, the service inception date, based on the estimated fair value of the awards using a variety of assumptions. This calculation is performed for accounting purposes and, as applicable, reported in the compensation tables, even though recipients may never realize any value from their awards. We record this expense on an ongoing basis over the requisite employee service period. Accounting rules also require us to record cash compensation as an expense at the time the obligation is incurred.
COMPENSATION COMMITTEE 2023 EXECUTIVE COMPENSATION PROGRAM DECISIONS
In line with market data, and individual and Company performance the compensation committee set the base salaries of our continuing NEOs effective as of April 1, 2023, as set forth in the following table:
| | | | | | | | | | | | | | |
NEO | | 2022
Base Salary
($) | | 2023
Base Salary
($) |
Giuseppina Albo | | 1,300,000 | | | 1,300,000 | |
Craig Howie | | 600,000 | | | 600,000 | |
Megan Thomas | | 560,000 | | | 590,000 | |
Adrian Daws (1) | | 377,242 | | | 440,350 | |
__________________
(1)The 2023 base salary amount was converted using the exchange rate of $1.2232.
In line with market data, and individual and Company performance, the compensation committee approved target cash incentive opportunities for each of our continuing NEOs under the annual cash incentive plan as set forth in the following table:
| | | | | | | | | | | | | | |
NEO | | 2022 Target Cash Incentive Opportunity (as a % of Base Salary) (%) | | 2023Target Cash Incentive Opportunity
(as a % of Base Salary) |
| Giuseppina Albo | | 125 | | | 160 | |
| Craig Howie | | 100 | | | 150 | |
| Megan Thomas | | 100 | | | 125 | |
| Adrian Daws | | 100 | | | 125 | |
In line with market data, and individual and Company performance, the compensation committee approved target long-term incentive grants under our 2013 Equity Incentive Plan for each of our continuing NEOs as set forth in the following table:
| | | | | | | | | | | | | | |
NEO | | 2022 Target Long-Term Incentive Opportunity (as a % of Base Salary) (%) | | 2023 Target Long-Term Incentive Opportunity
(as a % of Base Salary)
(%) |
| Giuseppina Albo | | 200 | | | 250 | |
| Craig Howie | | 150 | | | 200 | |
| Megan Thomas | | 125 | | | 150 | |
| Adrian Daws | | 125 | | | 150 | |
In recognition of individual and Company performance in connection with strategic and business accomplishments, as well as to provide additional opportunity in case of a change in control and to provide further retention incentive, in March 2023 the compensation committee approved additional grants under the value appreciation pool, as described below:
| | | | | | | | |
NEO | | Additional VAP Units Granted |
| Craig Howie | | 50,000 | |
| Megan Thomas | | 25,000 | |
| Adrian Daws | | 50,000 | |
ONE-TIME RECOGNITION GRANT TO GIUSEPPINA ALBO
The compensation committee does not generally intend to provide one-time grants except in a judicious and limited manner as warranted by rare circumstances. The compensation committee views any such grants to the NEOs as a special and exceptional non-recurring event to meet the Company’s needs for a specific purpose or during a specific period.
In recognition of the success of Ms. Albo over the past five years in overseeing the turnaround of the Company and leading the executive officers to generate significant growth, expand into new product areas, improve external ratings outlooks and reduce portfolio volatility, the compensation committee granted 33,489 fully-vested shares to Ms. Albo in March 2023.
Effective upon the completion of this offering, Ms. Albo’s holdings, including these shares, will be subject to the Company’s share ownership guidelines, which, as discussed above, require the CEO to hold a multiple of her base salary (6x) in Hamilton equity, to further strengthen the alignment of interests between the executive officers and our shareholders. Effective upon the completion of this offering, Ms. Albo’s grants will also be subject to a clawback policy that requires executive officers to return any erroneously awarded compensation resulting from certain accounting restatements.
AMENDED AND RESTATED EMPLOYMENT AGREEMENT WITH GIUSEPPINA ALBO
In anticipation of this offering and to ensure her continued service up to and for a sufficient period following this offering, we entered into an amended and restated employment agreement with Ms. Albo, effective as of the consummation of this offering (the “2023 Employment Agreement”), replacing Ms. Albo’s prior employment agreement, which had been in effect since January 22, 2018 (as last amended and restated on June 24, 2022). The terms of the 2023 Employment Agreement are summarized below, and provide for compensation terms that are substantially identical to the 2023 compensation metrics disclosed elsewhere in this “Executive Compensation” section and Ms. Albo's current employment agreement as described under “Executive Compensation Tables—Employment Agreements” below, except for the changes indicated below:
•Provides for an initial term commencing on the effective date of this registration statement and ending on the third anniversary of such date, and will renew automatically for successive one-year periods thereafter unless either party provides six (6) months’ written notice of termination prior to the expiration of the initial term or each successive renewal term.
•For the fiscal year ending December 31, 2023, establishes a target incentive equity award equal to 250% of Ms. Albo’s base salary (increased from 200% of Ms. Albo’s base salary). Of this award, 50% will be issued as PSUs that will cliff-vest on January 1, 2026, based on the Company’s achievement of performance metrics established by the compensation committee (with the payout percentage ranging from 0% to 200% for maximum performance) and 50% will be issued as RSUs that vest over a three (3)-year vesting period, subject to Ms. Albo’s continued employment with the Company through the applicable vesting date.
•Modifies the cash component of Ms. Albo’s severance benefits by providing that, upon a termination of Ms. Albo’s employment (i) by the Company without cause, (ii) by her resignation for good reason, or (iii) due to non-renewal of the term of her employment agreement by the Company, she would be entitled to a continuation of base salary for the longer of (x) the remainder of the then-current employment term and (y) twenty-four (24) months following the termination date. See “Executive Compensation Tables—Potential Payments upon a Termination or Change in Control” below for further information regarding Ms. Albo’s severance benefits.
•Eliminates the limit on Ms. Albo’s equity ownership in the Company, which previously prohibited Ms. Albo from beneficially owning equity of the Company valued at more than 10 times the sum of her then-current (i) base salary and (ii) target annual bonus, subject to certain exceptions, which limit would have otherwise expired upon completion of this offering.
•Provides for the reimbursement of the reasonable legal fees and costs she incurred in connection with the negotiation and documentation of the 2023 Employment Agreement.
See “Executive Compensation Tables—Employment Agreements” below for further information regarding certain terms of Ms. Albo’s prior employment agreement.
SPECIAL IPO GRANTS TO GIUSEPPINA ALBO
The Board recognized Ms. Albo’s pivotal role in the improvement of the Company’s business performance since she became CEO in 2018, namely:
•the designing and leading of the Strategic Transformation which improved profitability, strengthened the Company’s balance sheet, reduced earnings volatility and legacy liabilities and drove and continues to drive profitable growth;
•the setting and ongoing execution of the Company’s business priorities; and
•the building of a seasoned management team.
In order to recognize these accomplishments, to secure her employment following this offering and to provide further incentivization following the completion of this offering, the compensation committee intends to grant a number of PSUs to Ms. Albo, effective as of the effective date of the registration statement, worth $3.75 million based on our initial public offering price. The award will vest on the third anniversary of the grant date, subject to Ms. Albo’s continued service through such date, except as discussed below. The number of PSUs that will be earned and vest will be determined based on the percentage increase in the price of our Class B common shares during the three-year period following this offering, as calculated in accordance with the award agreement evidencing the PSUs, ranging from 0% of the PSUs being earned and vesting if there is no (or negative) change in the value of our Class B common shares during the measurement period up to 100% of the PSUs being earned and vesting if the price of our Class B common shares doubles during the measurement period, with the number of PSUs that vest being determined based on linear interpolation for increases between 0% and 100%. If, prior to the third anniversary of the grant date, (i) a change in control occurs or (ii) Ms. Albo’s employment is terminated (a) due to death, (b) due to disability, (c) by the Company without cause, or (d) by her resignation for good reason, then Ms. Albo would earn and vest in a number of PSUs based on the appreciation in the price of our Class B common shares during the period following this offering and ending on the termination date or the date of the change in control, as applicable.
In addition to the foregoing PSU grant and for the reasons set out above, the compensation committee intends to grant RSUs to Ms. Albo, effective as of the effective date of the registration statement, worth $1.75 million based on our initial public offering price. The award will vest on the third anniversary of the grant date, subject to Ms. Albo’s continued service through such date, except as discussed below. If, prior to the third anniversary of the grant date, (i) a change in control occurs or (ii) Ms. Albo’s employment is terminated (a) due to death, (b) due to disability, (c) by the Company without cause, or (d) by her resignation for good reason, then such RSUs would fully vest upon such termination or immediately prior to, and contingent upon, the change in control, as applicable.
DISCRETIONARY IPO BONUS POOL
In connection with this offering, our Board of Directors has established a discretionary bonus pool of up to $4,000,000 from which certain employees of the Company and its subsidiaries, including the NEOs and other members of management, selected by the compensation committee based upon the recommendation of our CEO, may be eligible to receive a one-time bonus allocation. It is expected that any such bonuses would be approved by the compensation committee following the completion of this offering, as would the time and form of payment of such bonuses.
EXECUTIVE COMPENSATION TABLES
Summary Compensation Table
The following table sets forth information required under SEC rules concerning the compensation paid to our NEOs by the Company in respect of our fiscal year ended December 31, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name and Principal Position | | Year | | Salary
($) | | Bonus
($) | | Stock Awards(1) ($) | | Non-Equity Incentive Plan Compensation(2) ($) | | All Other Compensation (3) ($) | | Total
($) |
Pina Albo Chief Executive Officer | | 2022 | | 1,300,000 | | | — | | | | 2,599,992 | | | 1,625,000 | | | 148,999 | | | 5,673,991 | |
Craig Howie Chief Financial Officer | | 2022 | | 600,000 | | | 600,000 | | (4) | | 899,988 | | | 640,000 | | | 18,300 | | | 2,758,288 | |
Megan Thomas Chief Executive Officer of Hamilton Re | | 2022 | | 560,000 | | | — | | | | 700,008 | | | 525,000 | | | 123,541 | | | 1,908,549 | |
Adrian Daws(5) Chief Executive Officer of Hamilton Global Specialty | | 2022 | | 377,242 | | | — | | | | 473,202 | | | 464,816 | | | 38,343 | | | 1,353,602 | |
Peter Skerlj(6) Chief Risk Officer | | 2022 | | 430,000 | | | — | | | | 429,988 | | | 100,000 | | | 102,024 | | | 1,062,012 | |
__________________
(1)The amounts disclosed in the Stock Awards column represent the aggregate grant date fair value of time-based RSUs and PSUs, computed in accordance with FASB Accounting Standards Codification Topic 718, excluding the effect of estimated forfeitures. Amounts disclosed in this column relating to RSUs and PSUs reflect the fair market value of a Class B common share on the last day of the prior financial year ($14.82) multiplied by the number of shares underlying each award and assuming issuance at target for the PSUs. Assumptions, factors and methodologies used in our computations pursuant to ASC Topic 718 are set forth in Note 14 to our consolidated financial statements included elsewhere in this prospectus. The value of the PSU awards at the grant date assuming that the maximum level of performance conditions was achieved was as follows: $2,599,992 for Ms. Albo, $899,988 for Mr. Howie, $700,008 for Ms. Thomas, $473,202 for Mr. Daws and $429,988 for Mr. Skerlj. Regardless of the value on the grant date, the actual value depends on the market value of our Class B common shares on a date in the future when the RSUS and PSUs vest. The actual values in the Stock Awards column, as determined by the fair market value at grant of $14.82 multiplied by the number of units awarded, results in a small rounding difference when compared to the target values.
(2)The amounts shown in the Non-Equity Incentive Plan Compensation column are comprised of amounts paid in respect of our annual cash incentive plan, as determined by the compensation committee. Payments pursuant to the annual cash incentive plan are generally made early in the year following the year in which they are earned.
(3)The amounts shown in this column include (i) contributions by the Company to retirement plans or cash payments in lieu of contributions as follows: $130,167 for Ms. Albo, $18,300 for Mr. Howie, $56,000 for Ms. Thomas, $38,343 for Mr. Daws, and $43,000 for Mr. Skerlj; and (ii) payments of the employee’s share of Bermudian government payroll and social insurance taxes: $18,832 for Ms. Albo, $67,541 for Ms. Thomas, and $59,024 for Mr. Skerlj.
(4)This amount represents the second installment of an “initial hire grant” for Mr. Howie. See “Compensation Discussion and Analysis—Legacy-Sign-On Bonus to Mr. Howie” for the details of this payment.
(5)The U.S. dollar amounts in the table above for Mr. Daws were converted from British pound sterling (“GBP”) using the 2022 average exchange rate, $1.2369 per GBP, for his salary and all other compensation and the exchange rate on March 24, 2023, $1.2232 per GBP, for his 2022 non-equity incentive plan compensation.
(6)Mr. Skerlj’s employment with the Company terminated as of January 2, 2023.
Grants of Plan-Based Awards in 2022
The Company granted non-equity incentive awards and share-based awards to our NEOs in 2022 under our annual cash incentive plan and the 2013 Equity Incentive Plan, respectively. The following table sets forth
information about the non-equity incentive awards and equity-based awards granted by the Company to each of our NEOs in 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) | | Estimated Future Payouts Under Equity Incentive Plan Awards(2) | | All Other Stock Awards: Number of Shares of Stock or Units(3) | | Grant Date Fair Value of Stock and Option Awards(4) |
| | | | Threshold | | Target | | Maximum | | Threshold | | Target | | Maximum | | |
| Name | | Grant Date | | ($) | | ($) | | ($) | | (#) | | (#) | | (#) | | (#) | | ($) |
| Pina Albo | | | | 0 | | | 1,625,000 | | | 3,250,000 | | | — | | | — | | | — | | | — | | | |
| | 02/23/2022 | | — | | | — | | | — | | | — | | | — | | | — | | | 87,719 | | | 1,299,996 | |
| | 02/23/2022 | | — | | | — | | | — | | | 0 | | | 87,719 | | | 175,438 | | | — | | | 1,299,996 | |
| Craig Howie | | | | 0 | | | 600,000 | | | 1,200,000 | | | — | | | — | | | — | | | — | | | — | |
| | 02/23/2022 | | — | | | — | | | — | | | — | | | — | | | — | | | 30,364 | | | 449,994 | |
| | 02/23/2022 | | — | | | — | | | — | | | 0 | | | 30,364 | | | 60,728 | | | — | | | 449,994 | |
| Megan Thomas | | | | 0 | | | 560,000 | | | 1,120,000 | | | — | | | — | | | — | | | — | | | — | |
| | 02/23/2022 | | — | | | — | | | — | | | — | | | — | | | — | | | 23,617 | | | 350,004 | |
| | 02/23/2022 | | — | | | — | | | — | | | 0 | | | 23,617 | | | 47,234 | | | — | | | 350,004 | |
| Adrian Daws | | | | — | | | 377,242 | | | 754,484 | | | — | | | — | | | — | | | — | | | — | |
| | 02/23/2022 | | — | | | — | | | — | | | — | | | — | | | — | | | 15,965 | | | 236,601 | |
| | 02/23/2022 | | — | | | — | | | — | | | 0 | | | 15,965 | | | 31,930 | | | — | | | 236,601 | |
| Peter Skerlj | | | | 0 | | | 430,000 | | | 860,000 | | | — | | | — | | | — | | | — | | | — | |
| | 02/23/2022 | | — | | | — | | | — | | | — | | | — | | | — | | | 14,507 | | | 214,994 | |
| | 02/23/2022 | | — | | | — | | | — | | | 0 | | | 14,507 | | | 29,014 | | | — | | | 214,994 | |
__________________
(1)The amounts disclosed in these columns reflect the target and maximum annual cash incentive opportunities of our NEOs for 2022. The amounts of the annual cash incentive opportunities depend on the annual base salary in effect at year end for each NEO. Below or at threshold performance on the financial metrics results in 0% payout. See “Compensation Discussion and Analysis—Compensation Program Components—Annual Cash Incentive Plan” for a detailed description of our annual cash incentive plan, including the criteria for determining the amounts payable. Actual 2022 annual cash incentive plan results are reported in the “Non-Equity Incentive Plan Compensation” column of the Summary Compensation Table. The maximum award is 200% of target. Linear interpolation is used to determine the applicable payout amount between threshold and target and between target and maximum for results based on financial performance.
(2)Amounts disclosed in this column reflect the number of shares that may be realized under the PSUs granted to our NEOs in 2022 based on the 3-year annualized underwriting return on capital for the three-year performance period. If performance falls below or at the level necessary to achieve the threshold amount, then the PSUs will be forfeited, and no shares will be issued. See “Compensation Discussion and Analysis—Compensation Program Components—Long-Term Incentives—PSU Performance Metric” for a detailed description of the performance conditions for the PSUs.
(3)Amounts disclosed in this column reflect the number of RSUs granted to our NEOs in 2022. The RSUs granted as part of the annual equity grant vest over three years; one-third of the RSUs will vest on January 1 of each year for three years after the grant date, subject to continued service.
(4)The amounts shown in this column represent the grant date fair value of RSUs and PSUs, computed in accordance with ASC Topic 718, excluding the effect of estimated forfeitures. Amounts disclosed in this column relating to RSUs and PSUs reflect the fair market value of a Class B common share on the date of grant multiplied by the number of shares underlying each award and assuming issuance at target for the PSUs. Assumptions, factors and methodologies used in our computations pursuant to ASC Topic 718 are set forth in Note 14 to our consolidated financial statements included elsewhere in this prospectus. Regardless of the value on the grant date, the actual value depends on the market value of our Class B common shares on a date in the future when the RSUS and PSUs vest.
Executive Employment Agreements
Certain of the compensation paid to our NEOs reflected in the Summary Compensation Table was provided pursuant to employment agreements with us or one of our subsidiaries, which are summarized below. These employment arrangements establish the minimum terms and conditions of the executives’ employment, which are summarized below. For a discussion of the severance pay and other benefits to be provided to our NEOs in
connection with a termination of employment and/or a change in control under arrangements with each of our NEOs, see “—Potential Payments Upon Termination or Change in Control” below.
Giuseppina Albo
On June 24, 2022, we entered into an amended and restated employment agreement with Ms. Albo, who currently serves as our Chief Executive Officer. The initial term of Ms. Albo’s employment agreement commenced on January 22, 2018, and ended on February 1, 2023, and renews automatically for successive one-year periods thereafter unless either party provides six months’ written notice prior to the expiration of the initial term or each successive renewal term.
The employment agreement with Ms. Albo provides for an annual base salary of $1,300,000, a target annual cash bonus opportunity equal to 125% of annual base salary, with the actual annual cash bonus ranging from 0% to 200% of target based on achievement of the annual business plan for the applicable fiscal year, and an annual target incentive equity award, all of which will be reviewed annually for increase, but not decrease. For the fiscal year ended December 31, 2022, the target value for Ms. Albo’s incentive equity awards was 200% of her base salary, 50% of which was issued as restricted stock units that vest over a three-year vesting period and 50% of which was issued as performance stock units, which are earned based on the achievement of designated performance metrics and vest on the third anniversary of the January 1st of the year of grant.
The Company also pays the costs of health insurance coverage for Ms. Albo and her spouse and eligible dependents, although the Company has the option not to pay for such costs in excess of the costs determined as of her employment commencement date on January 22, 2018. In addition, for any time period during which Ms. Albo is subject to Bermuda payroll taxes (including the period from January 1, 2022, through August 31, 2022), the Company pays the employee portion of Bermuda payroll taxes in excess of 1.7% of Ms. Albo’s total annual remuneration, which portion remains her responsibility. Effective as of September 1, 2022, Ms. Albo is paid through Hamilton U.S. Services, LLC, pursuant to an intercompany payroll administration agreement, and is not currently subject to Bermuda payroll tax.
The employment agreement with Ms. Albo was further amended and restated effective as of the consummation of this offering. See “Compensation Discussion and Analysis—Additional Compensation Policies and Practices—Amended and Restated Employment Agreement with Giuseppina Albo” for a detailed description of the changes to the employment agreement with Ms. Albo.
Craig Howie
On April 27, 2021, we entered into an employment agreement with Mr. Howie, who serves as our Chief Financial Officer, with an employment commencement date of July 1, 2021. The employment agreement with Mr. Howie provides for an annual base salary of $600,000, a target annual cash bonus opportunity equal to 100% of annual base salary and an annual target incentive equity award equal to 133% of annual base salary (150% for the fiscal year ended December 31, 2022), all of which will be reviewed annually for increase, but not decrease. The employment agreement with Mr. Howie also provides for a one-time award of 250,000 units of the Company’s value appreciation pool and for $1,200,000 of “initial hire grants” (in cash or an equivalent amount of shares at his election), $600,000 of which was payable on the first payroll date after July 1, 2021, and $600,000 of which was payable on the first payroll date after July 1, 2022.
Megan Thomas
On September 1, 2020, we entered into an employment agreement with Megan Thomas, who currently serves as Chief Executive Officer of Hamilton Re. The employment agreement with Ms. Thomas provides for an annual base salary of $500,000 ($560,000 as at December 31, 2022), a target annual cash bonus opportunity equal to 100% of annual base salary and an annual target incentive equity award equal to 100% of annual base salary (125% for the fiscal year ended December 31, 2022) all of which will be reviewed annually for increase, but not decrease. The Company also pays the costs of health insurance coverage for Ms. Thomas and her eligible dependents, although the Company has the option not to pay for such costs in excess of the costs determined as of her employment
commencement date on October 5, 2020, and the employee portion of Bermuda payroll taxes in excess of 1.7% of Ms. Thomas’ total annual remuneration, which portion remains her responsibility.
Adrian Daws
Effective on December 8, 2020, we entered into an employment agreement with Adrian Daws, who currently serves as Chief Executive Officer of Hamilton Global Specialty. The employment agreement with Mr. Daws provides for an annual base salary of £280,000 (£310,000 as at December 31, 2022), a target annual cash bonus opportunity equal to 100% of annual base salary and an annual target incentive equity award equal to 100% of annual base salary (125% for the fiscal year ended December 31, 2022), all of which will be reviewed annually for increase, but not decrease. The Company also pays the cost of private health insurance coverage for Mr. Daws.
Peter Skerlj
On January 4, 2021, we entered into an amended and restated employment agreement with Peter Skerlj, who served as our Chief Risk Officer until January 2, 2023. The employment agreement with Mr. Skerlj provided for an annual base salary of $430,000, a target annual cash bonus opportunity equal to 100% of annual base salary and an annual target incentive equity award equal to 100% of annual base salary. The Company also paid the costs of health insurance coverage for Mr. Skerlj and his eligible dependents, although the Company had the option not to pay for such costs in excess of the costs determined as of his employment commencement date on December 23, 2013, and the employee portion of Bermuda payroll taxes in excess of 1.7% of Mr. Skerlj’s total annual remuneration, which portion remained his responsibility.
Outstanding Equity Awards at December 31, 2022
The following table sets forth information about the outstanding equity awards to acquire our Class B common shares held by each of our NEOs as of December 31, 2022.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | Option Awards | | Stock Awards |
| | | Number of Securities Underlying Unexercised Options | | Option Exercise Price | | Option Expiration Date | | Number of Shares or Units That Have Not Vested (2) | | Market Value of Shares or Units That Have Not Vested (3) | | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (4) | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested (5) |
| | | | | | Exercis-able (1) | | Unexercis-able | | | | | | |
| Name | | Award Type | | Grant Date | | (#) | | (#) | | ($) | | | | (#) | | ($) | | (#) | | ($) |
| Pina Albo | | RSU | | 10/09/2020 (6) | | — | | | — | | | — | | | — | | | 17,017 | | | 233,469 | | | — | | | — | |
| | RSU | | 03/30/2021 (7) | | — | | | — | | | — | | | — | | | 49,070 | | | 673,240 | | | — | | | — | |
| | RSU | | 02/23/2022 (8) | | — | | | — | | | — | | | — | | | 87,719 | | | 1,203,505 | | | — | | | — | |
| | RSU | | 03/09/2018 (11) | | — | | | — | | | — | | | — | | | 24,891 | | | 341,505 | | | — | | | — | |
| | PSU | | 03/30/2021 (9) | | — | | | — | | | — | | | — | | | — | | | — | | | 73,605 | | | 1,009,861 | |
| | PSU | | 02/23/2022 (10) | | — | | | — | | | — | | | — | | | — | | | — | | | 87,719 | | | 1,203,505 | |
| | VAP | | 12/01/2020 (13) | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Craig Howie | | RSU | | 02/23/2022 (8) | | — | | | — | | | — | | | — | | | 30,364 | | | 416,594 | | | — | | | — | |
| | PSU | | 02/23/2022 (10) | | — | | | — | | | — | | | — | | | — | | | — | | | 30,364 | | | 416,594 | |
| | VAP | | 07/01/2021 (12) | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Megan Thomas | | RSU | | 11/05/2020 (6) | | — | | | — | | | — | | | — | | | 6,667 | | | 91,467 | | | — | | | — | |
| | RSU | | 03/30/2021 (7) | | — | | | — | | | — | | | — | | | 25,915 | | | 355,558 | | | — | | | — | |
| | RSU | | 02/23/2022 (8) | | — | | | — | | | — | | | — | | | 23,617 | | | 324,025 | | | — | | | — | |
| | PSU | | 03/30/2021 (9) | | — | | | — | | | — | | | — | | | — | | | — | | | 18,873 | | | 258,938 | |
| | PSU | | 02/23/2022 (10) | | — | | | — | | | — | | | — | | | — | | | — | | | 23,617 | | | 324,025 | |
| | VAP | | 12/01/2020 (12) | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Adrian Daws | | RSU | | 02/07/2020 (6) | | — | | | — | | | — | | | — | | | 9,144 | | | 125,456 | | | — | | | — | |
| | RSU | | 03/30/2021 (7) | | — | | | — | | | — | | | — | | | 9,630 | | | 132,124 | | | — | | | — | |
| | RSU | | 02/23/2022 (8) | | — | | | — | | | — | | | — | | | 15,965 | | | 219,040 | | | — | | | — | |
| | PSU | | 03/30/2021 (9) | | — | | | — | | | — | | | — | | | — | | | — | | | 14,445 | | | 198,185 | |
| | PSU | | 02/23/2022 (10) | | — | | | — | | | — | | | — | | | — | | | — | | | 15,965 | | | 219,040 | |
| | VAP | | 12/01/2020 (12) | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
| Peter Skerlj | | Option | | 3/20/2014 | | 35,000 | | | — | | | 10.00 | | | 3/20/2024 | | — | | | — | | | — | | | — | |
| | RSU | | 02/07/2020 (6) | | — | | | — | | | — | | | — | | | 2,846 | | | 39,043 | | | — | | | — | |
| | RSU | | 03/30/2021 (7) | | — | | | — | | | — | | | — | | | 10,821 | | | 148,460 | | | — | | | — | |
| | RSU | | 02/23/2022 (8) | | — | | | — | | | — | | | — | | | 14,507 | | | 199,036 | | | — | | | — | |
| | PSU | | 03/30/2021 (9) | | — | | | — | | | — | | | — | | | — | | | — | | | 16,231 | | | 222,689 | |
| | PSU | | 02/23/2022 (10) | | — | | | — | | | — | | | — | | | — | | | — | | | 14,507 | | | 199,036 | |
| | VAP | | 12/01/2021 (12) | | — | | | — | | | — | | | — | | | — | | | — | | | — | | | — | |
__________________
(1)Amounts disclosed in this column reflect the number of options granted to our NEOs that are subject to time-based vesting and that had vested as of December 31, 2022. The options expire ten years from the date of grant.
(2)Amounts disclosed in this column reflect the number of unvested RSUs granted that were subject to time-based vesting and that had not vested as of December 31, 2022. See “Executive Compensation Tables—Potential Payments Upon Termination or Change in Control” for a summary of the treatment of RSUs upon death, disability, termination or change in control.
(3)Amounts disclosed in this column reflect the market value of the RSUs using the fair market value of a Class B common share on December 31, 2022, $13.72, multiplied by the number of shares underlying each award.
(4)Amounts disclosed in this column reflect the number of unvested PSUs that are subject to performance-based vesting conditions as of December 31, 2022. See “Executive Compensation Tables—Potential Payments Upon Termination or Change in Control” for a summary of the treatment of PSUs upon death, disability, termination or change in control.
(5)Amounts disclosed in this column reflect the market value of the unvested PSUs using the fair market value of a Class B common share on December 31, 2022, $13.72, multiplied by the number of shares underlying each award.
(6)The RSUs granted to our NEOs in 2020 vest one-third per year on January 1 of 2021, 2022, and 2023, respectively, subject to the NEO’s continued service through each vesting date.
(7)The RSUs granted to our NEOs in 2021 vest one-third per year on January 1 of 2022, 2023, and 2024, respectively, subject to the NEO’s continued service through each vesting date.
(8)The RSUs granted to our NEOs in 2022 vest one-third per year on January 1 of 2023, 2024, and 2025, respectively, subject to the NEO’s continued service through each vesting date.
(9)The PSUs granted to our NEOs in 2021 are earned based on our annualized underwriting return on capital for the 3-year performance period ending on December 31, 2023. The amounts reflect achievement at target as of December 31, 2022.
(10)The PSUs granted to our NEOs in 2022 are earned based on our annualized underwriting return on capital for the 3-year performance period ending on December 31, 2024. The amounts reflect achievement at target as of December 31, 2022.
(11)The one-time RSU award made to Ms. Albo in 2018 vested 20% per year on January 1, 2019, 2020, 2021, 2022, and 2023, respectively, subject to the NEO’s continued service through each vesting date.
(12)The VAP units (which are not equivalent to Class B common shares) granted to our NEOs vest, in the case of a trigger event (initial public offering, change in control, or major sale), 50% on the one-year anniversary of the trigger event and 50% one year thereafter. VAP units vest, in the case of plan maturity (December 31, 2025), 50% on plan maturity and 50% one year thereafter. In both cases, the units earned maybe settled in cash and/or our Class B common shares at the discretion of the compensation committee. The number of VAP units earned is based on our goodwill growth from the launch of the VAP (November 2020) until a trigger event or plan maturity (December 31, 2025), except that, in the case of a trigger event, the VAP units earned will be based on a minimum price to book ratio of 1.15. The potential payout of VAP awards is $0 as of December 31, 2022. The total number of units held by the NEOs as at December 31, 2022 are as follows: Ms. Albo: 900,000; Mr. Howie: 250,000; Ms. Thomas: 175,000; Mr. Daws: 150,000; and Mr. Skerlj: 130,000 (Mr. Skerlj’s units were forfeited upon his departure in January 2023).
2013 Equity Incentive Plan
We adopted our 2013 Equity Incentive Plan, originally effective December 23, 2013, and last amended effective March 31, 2021, pursuant to which we are authorized to grant equity awards to our employees, including our NEOs, directors and consultants. As of September 30, 2023, there were 4,269,850 shares of our Class B common shares available for issuance under the 2013 Equity Incentive Plan, of which 3,862,237 have been awarded or are subject to awards that were granted and outstanding as of September 30, 2023. Recent awards under the 2013 Equity Incentive Plan have been granted as RSUs, which generally vest over a three-year period with one-third vesting each year, and PSUs, which generally cliff vest after three years based upon performance against specified performance targets. See “Compensation Discussion and Analysis—Long-Term Incentives” for a detailed description of our long-term equity grants and “Executive Compensation Tables— Potential Payments Upon Termination or Change in Control” for a detailed description of the treatment of outstanding equity awards in connection with a termination of employment and/or a change in control of our NEOs.
No new awards will be granted under the 2013 Equity Incentive Plan following the effectiveness of our 2023 Equity Incentive Plan in connection with this offering. See “Executive Compensation Tables—2023 Equity Incentive Plan” for a detailed description of our 2023 Equity Incentive Plan.
Value Appreciation Pool
To further align the incentives of our executive officers with our long-term strategic objectives, in December 2020, the compensation committee approved a value appreciation pool (VAP) plan to reward all employees, including executive officers, for the creation of franchise value, as defined in the VAP. The VAP creates a pool based on a percentage of the growth in goodwill value created between the beginning of the VAP to the date when it is triggered or matures. VAP participants receive units that represent their proportionate interests in the pool created under the VAP.
The compensation committee utilized a measure based on the creation of franchise value for the VAP because it is the most direct alignment with the value received by, and experience of, our shareholders. Increasing the goodwill value of the Company is tied to the successful execution of our strategy and our underwriting performance.
Performance Metric. The VAP pool is funded based on 10% of the increase in the goodwill value of the Company from November 30, 2020 (which was the fiscal year end for 2020) to the date of a triggering event or maturity at the end of five years (December 31, 2025). The triggering events are an initial public offering, including that contemplated by this prospectus, a change in control of the Company, or a major sale by existing shareholders. If the value of the Company upon our IPO, or other trigger event, is less than a price/book ratio of 1.15, then, for the
purpose of the VAP, the value of the Company will be deemed to be a price/book ratio of 1.15. This equates to an approximate liability of $50 million dependent upon the book value of the Company at the date of the triggering event.
Vesting. Upon a triggering event, any units that vest will do as follows: 50% will vest one year after a triggering event (including this IPO), and 50% will vest two years after the triggering event. If the plan runs to maturity, any units that vest will do as follows, 50% will vest on plan maturity, and 50% will vest one year after maturity. VAP unit holders must be employed on the vesting date in order to receive any payout in respect of their VAP units, except in certain limited circumstances agreed by the compensation committee. The extended vesting period is designed to support our employee retention goals.
Form of Payout. The compensation committee may elect to deliver the amount owed to VAP unit holders in shares and/or in cash, in its sole discretion.
Options Exercised and Stock Vested in 2022
The following table sets forth information about the value realized by each of our NEOs as a result of RSUs that vested and PSUs that were earned during the fiscal year ended December 31, 2022. No NEO exercised any stock options during such year.
| | | | | | | | | | | | | | |
| | Stock Awards |
| Name | | Number of Shares Acquired on Vesting (1) (#) | | Value Realized on Vesting (2) ($) |
| Pina Albo | | 71,241 | | | 1,050,516 | |
| Craig Howie | | — | | | — | |
| Megan Thomas | | 19,624 | | | 290,833 | |
| Adrian Daws | | 20,424 | | | 302,679 | |
| Peter Skerlj | | 13,266 | | | 193,949 | |
__________________
(1)The amounts shown in this column represent the number of RSUs that vested and PSUs that were earned for each NEO during 2022.
(2)The amounts shown in this column reflect the value realized upon vesting of the RSUs and the earning of PSUs for each NEO, as calculated based on the price of our Class B common shares on the vesting date, multiplied by the number of shares vested or earned on such date.
Pension Benefits
We do not currently sponsor or maintain any defined benefit pension benefit or retirement benefit plans providing specified retirement payments and benefits for our employees.
Nonqualified Defined Contribution and Other Nonqualified Deferred Compensation Plans
We do not currently sponsor or maintain any nonqualified defined contribution or other nonqualified deferred compensation plans for the benefit of our employees.
Potential Payments Upon Termination or Change in Control
As of December 31, 2022, our NEOs were eligible to receive severance upon certain terminations of employment in accordance with their employment agreements, in each case, as described below.
Each employment agreement imposes restrictive covenants, including intellectual property assignment, confidentiality, non-disparagement, non-competition, and non-solicitation. Except as otherwise described below, the restricted period for the non-competition and non-solicitation provisions includes the term of employment plus a post-employment period of six (6) months following the date of termination (twelve (12) months for Ms. Albo), or twelve (12) months if the termination is in connection with a change in control.
Giuseppina Albo
If, other than in connection with a change in control, Ms. Albo’s employment is terminated (i) due to death, (ii) due to disability, (iii) by the Company without cause, (iv) by her resignation for good reason, or (v) due to non-renewal of the term of her employment agreement by the Company, then Ms. Albo would be entitled to any accrued but unpaid base salary, any then unpaid annual bonus for the year preceding the year of termination, any accrued but unused vacation, any accrued unpaid reimbursable expenses and, subject to her execution and non-revocation of a mutual general release of claims in favor of the Company, the following:
•pro-rated annual bonus for the year in which notice of termination is provided, based on actual performance for the entire year and paid at the time such amount would otherwise be paid;
•continuation of health insurance coverage for herself, her husband and eligible dependent for twelve (12) months following the termination date; and
•immediate vesting of all unvested time-based vesting equity-based compensation awards, including restricted stock units, that would have vested in the twelve (12) month period following the termination date.
In addition to the above severance benefits, if Ms. Albo’s employment is terminated (i) by the Company without cause, (ii) by her resignation for good reason, or (iii) due to non-renewal of the term of her employment agreement by the Company, then Ms. Albo would be entitled to continuation of base salary for twenty-four (24) months following the termination date and a lump sum cash payment equal to 100% of her target annual cash bonus for the year of termination subject to her execution and non-revocation of a mutual general release of claims in favor of the Company.
If, within twelve (12) months following a change in control, Ms. Albo’s employment is terminated by the Company without cause, or if she resigns for good reason, then in addition to the above payments all of her outstanding and unvested restricted stock units and performance stock units (assuming achievement of any performance criteria at the greater of target or estimated actual performance) will immediately vest.
Prior to our initial public offering, the Company has the right to repurchase all shares issued to Ms. Albo in connection with any restricted stock units, performance stock units or other equity-based compensation awards within twelve (12) months following the later of Ms. Albo’s termination of employment or breach of a restrictive covenant.
The employment agreement with Ms. Albo was further amended and restated effective as of the consummation of this offering. See “Compensation Discussion and Analysis—Additional Compensation Policies and Practices—Amended and Restated Employment Agreement with Giuseppina Albo” for a detailed description of the changes to the employment agreement with Ms. Albo.
Messrs. Daws and Howie and Ms. Thomas
The employment agreements with Messrs. Daws and Howie and Ms. Thomas provide that their employment may be terminated by the applicable company without cause or by him or her by providing the other with one hundred eighty (180) days prior written notice (or, if such resignation is for good reason, such earlier date specified in the notice of termination provided to the Company). The Company may elect to terminate the executives’ employment earlier by paying a lump sum cash payment in lieu of any base salary that would have been paid during the remainder of the notice period, and by continuing to provide the executive with employee benefits until the one hundred and eightieth (180th) day.
In the event of Mr. Daws and Ms. Thomas’ death, their estate or beneficiary (as applicable) would be entitled to payment of their annual cash bonus for the year preceding the year of termination (if not already paid), pro-rated based on the number of days worked during such year. In the event of Mr. Howie and Ms. Thomas’ death, their estate or beneficiary (as applicable) would be entitled to their target annual cash bonus for the year of termination, pro-rated based on the number of days worked during such year.
If, within twelve (12) months following a change in control, the employment of Messrs. Daws or Howie or Ms. Thomas is terminated by the applicable company without cause, or if the executive resigns for good reason, then the executive would be entitled to (i) a lump sum cash payment equal to the sum of his or her annual base salary and target annual cash bonus opportunity (less any sums paid to him or her by way of notice or payment in lieu of notice) and (ii) medical health insurance coverage for a maximum of twelve (12) month following the termination date or, if sooner, the date on which the executive obtains substantially comparable medical health insurance under any other contract. The payment of such amounts and provision of benefits would be subject to the executive’s compliance with the restrictive covenants in his or her employment agreement and his or her execution of documents in a form reasonably acceptable to the Company as it may require.
Separation Agreement with Peter Skerlj
On September 27, 2022, we entered into a separation agreement with Mr. Skerlj, which was subsequently amended on December 20, 2022, pursuant to which his employment terminated on January 2, 2023. The separation agreement provides (i) for a target cash payment equal to 75% of the annual cash incentive Mr. Skerlj would have earned for the fiscal year ended December 31, 2022 based on performance, (ii) that the RSUs and PSUs granted to Mr. Skerlj under the 2013 Equity Incentive Plan that were due to vest on January 1, 2023 would vest as of such date, (iii) that the Company would not exercise its repurchase rights in respect of Mr. Skerlj’s vested shares, and (iv) that the post-employment restricted period for the non-compete and non-solicit in Mr. Skerlj’s employment agreement would be extended from six (6) months to twelve (12) months. Bermuda payroll taxes attributable to amounts due under the separation agreement were paid by the Company in accordance with Mr. Skerlj’s employment agreement.
Estimated Potential Termination and Change in Control Payments and Benefits
The following table details the estimated value of the payments and benefits that our continuing NEOs would have been provided under their respective employment agreements, our annual cash incentive plan, the value appreciation pool plan and our 2013 Equity Incentive Plan, including any award agreement thereunder, if their employment had been terminated on December 31, 2012 or if a change in control occurred on that date. The actual amounts that would be paid upon an NEO’s termination of employment and/or a change in control can be determined only at the time of such event.
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| Name | | Compensation Component | | Change in Control | | Involuntary Termination In Connection With a Change in Control | | Termination without Cause or for Good Reason Termination | | Death or Disability (1) |
| Pina Albo | | | | | | | | | | | | | |
| | Cash Payment | | — | | | | 5,850,000 | | (2) | | 5,850,000 | | (2) | | 1,625,000 | |
| | Long Term Incentives | | — | | (3) | | 4,665,084 | | (4) | | 1,838,073 | | (5) | | 1,838,073 | |
| | Benefits and Perquisites | | — | | | | 41,487 | | (6) | | 41,487 | | (6) | | 41,487 | |
| | Total | | — | | | | 10,556,571 | | | | 7,729,560 | | | | 3,504,560 | |
| Craig Howie | | | | | | | | | | | | | |
| | Cash Payment | | — | | | | 1,200,000 | | (7) | | 300,000 | | (8) | | 600,000 | |
| | Long Term Incentives | | — | | (3) | | 833,188 | | (4) | | — | | | | — | |
| | Benefits and Perquisites | | — | | | | 43,286 | | (9) | | 21,643 | | (10) | | — | |
| | Total | | — | | | | 2,076,475 | | | | 321,643 | | | | 600,000 | |
| Megan Thomas | | | | | | | | | | | | | |
| | Cash Payment | | — | | | | 1,120,000 | | (7) | | 280,000 | | (8) | | 560,000 | |
| | Long Term Incentives | | — | | (3) | | 1,354,013 | | (4) | | — | | | | — | |
| | Benefits and Perquisites | | — | | | | 31,347 | | (9) | | 15,673 | | (10) | | — | |
| | Total | | — | | | | 2,505,360 | | | | 295,673 | | | | 560,000 | |
| Adrian Daws | | | | | | | | | | | | | |
| | Cash Payment | | — | | | | 754,484 | | (7) | | 188,621 | | (8) | | 377,242 | |
| | Long Term Incentives | | — | | (3) | | 893,844 | | (4) | | — | | | | — | |
| | Benefits and Perquisites | | — | | | | 5,280 | | (9) | | 2,640 | | (10) | | — | |
| | Total | | — | | | | 1,653,608 | | | | 191,261 | | | | 377,242 | |
__________________
(1)Under employment agreements for Mr. Howie, Ms. Thomas, and Mr. Daws, the amounts disclosed in this column reflect cash severance equal to a pro-rated target bonus in the case of termination due to death or disability.
(2)Under Ms. Albo’s employment agreement, the amount reflects cash severance equal to (i) the sum of two times her base salary in effect immediately prior to termination and one times her target annual cash bonus plus a pro-rated bonus for the year of termination in the case of termination without cause or for good reason; and (ii) a pro-rated bonus for the year of termination in the case of termination due to death or disability.
(3)The amount reflects the potential payout of the VAP awards upon a change in control. The potential payout of VAP awards as of December 31, 2022, is $0.
(4)The amounts reflect all unvested equity-based awards that will vest (assuming target performance where performance criteria are applicable) in the case of termination without cause or for good reason in connection with a change in control as provided under the 2013 Equity Incentive Plan, using the fair market value of our Class B common shares on December 31, 2022, $13.72, multiplied by the number of unvested shares underlying each award.
(5)Under Ms. Albo’s employment agreement, in the case of termination without cause or for good reason or termination due to death or disability, the amount reflects all her unvested equity-based compensation awards that would have vested in the 12-month period following termination (assuming target performance where performance criteria are applicable), using the fair market value of our Class B common shares on December 31, 2022, $13.72, multiplied by the number of unvested shares underlying each award.
(6)Under Ms. Albo’s employment agreement, in the case of termination without cause or for good reason or termination due to death or disability, the amount reflects company paid health insurance for twelve months.
(7)Under employment agreements for Mr. Howie, Ms. Thomas, and Mr. Daws, the amounts reflect cash severance equal to twelve months of base salary plus target annual cash bonus in the case of termination without cause or for good reason in connection with a change in control.
(8)Under employment agreements for Mr. Howie, Ms. Thomas, and Mr. Daws, the amounts reflect cash severance equal to six months of base salary that the Company may elect to pay in lieu of 180-day termination notice in the case of termination without cause or for good reason.
(9)Under employment agreements for Mr. Howie, Ms. Thomas, and Mr. Daws, the amounts reflect company paid benefits and insurance for twelve months in the case of termination without cause or for good reason in connection with a change in control.
(10)Under employment agreements for Mr. Howie, Ms. Thomas, and Mr. Daws, the amounts reflect company paid benefits and insurance for six months that the Company may elect to pay in lieu of 180-day termination notice in the case of termination without cause or for good reason.
2023 EQUITY INCENTIVE PLAN
In connection with this offering, our Board of Directors adopted, and we expect our shareholders to approve, the 2023 Equity Incentive Plan. The 2023 Equity Incentive Plan will become effective upon the completion of this offering and will replace the 2013 Equity Incentive Plan.
The total number of our Class B common shares available for issuance pursuant to awards under the 2023 Equity Incentive Plan will equal (i.e., 70% of the Class B common shares expected to be outstanding prior to the consummation of this offering) (plus an additional number of Class B common shares equal to 70%, on a fully diluted basis, of the Class B common shares sold by us in this offering) plus, to the extent that an award outstanding under the 2013 Equity Incentive Plan as of this offering is forfeited, cancelled, expires unexercised, is settled in cash or otherwise terminated without a delivery to the grantee of the full number of Class B common shares to which the award related, the number of Class B common shares that are undelivered, not to exceed the number of Class B common shares underlying outstanding awards under the 2013 Equity Incentive Plan as of the date of this offering. The total number of our Class B common shares available for issuance under the 2023 Equity Incentive Plan will also be increased on the first day of each of our fiscal years for a period of not more than nine years, commencing on the first day of the second fiscal year following the date on which the 2023 Equity Incentive Plan is adopted in an amount equal to the lesser of (i) two percent (2%) of the outstanding Class B common shares on the last day of the immediately preceding fiscal year, and (ii) such number of Class B common shares as determined by our Board of Directors (or a committee thereof) in its discretion. The total number of our Class B common shares that may be issued in respect of incentive stock options is shares. The number of our Class B common shares available for issuance under the 2023 Equity Incentive Plan will be subject to adjustment as provided therein. Any of our employees, directors or consultants of any of our subsidiaries or affiliates will be eligible to receive an award under the 2023 Equity Incentive Plan, to the extent that an offer of such award is permitted by applicable law, stock market or exchange rules, and regulations or accounting or tax rules and regulations.
The 2023 Equity Incentive Plan will provide for the grant of stock options (including incentive stock options and non-qualified stock options), stock appreciation rights, restricted stock, restricted stock units, performance-based awards, stock bonus awards, other stock-based awards, or any combination thereof. No determination has been made as to the types or amounts of awards that will be granted to specific individuals under the 2023 Equity Incentive Plan. Each award will be set forth in a separate grant notice or agreement and will indicate the type and terms and conditions of the award.
In connection with the consummation of this offering, the Board has approved the grant of PSUs and RSUs to Ms. Albo. See “Compensation Discussion and Analysis—Additional Compensation Policies and Practices—Special IPO Grants to Giuseppina Albo” for a detailed description of the equity grants to Ms. Albo.
Director Compensation
For the fiscal year ended December 31, 2022, non-employee members of our board of directors received the following compensation for service on our board of directors:
•Annual compensation package of $150,000, $75,000 of which is paid in Class B common shares and $75,000 of which is paid in either cash or additional Class B common shares, at the election of the director;
•Additional compensation for the chair of the Board of Directors of $200,000, paid in cash or Class B common shares, at the election of the director;
•Additional compensation for the chair of the audit committee of $50,000, paid in cash or Class B common shares, at the election of the director;
•Additional compensation for the chair of other committees of $20,000, paid in cash or Class B common shares, at the election of the director; and
•Additional compensation for directors who serve on the board of directors of an operating subsidiary of the Company of $20,000, paid in cash or Class B common shares, at the election of the director.
Non-employee members of our board who do not serve as the chair do not receive fees for service on the separate committees of our board of directors.
In addition, each non-employee member of our board has a one-time opportunity upon joining to purchase up to $2 million of our Class B common shares, based on the then-current fair market value of the Company.
We also reimburse our directors for reasonable and necessary out-of-pocket expenses incurred in attending board and committee meetings or performing other services for us in their capacities as directors.
Director Summary Compensation Table
The following table summarizes the total compensation paid to each non-employee director for the fiscal year ended December 31, 2022.
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| | Fees Earned or Paid in Cash (1) | | Stock Awards (2) | | Total |
| Name | | ($) | | ($) | | ($) |
| David Brown | | 115,000 | | | 81,241 | | | 196,241 | |
| Russell Fradin | | 113,339 | | | 81,241 | | | 194,580 | |
| William Freda | | 286,261 | | | 81,241 | | | 367,503 | |
| Stephen Pacala | | 75,000 | | | 81,241 | | | 156,241 | |
| Marvin Pestcoe | | 115,000 | | | 81,241 | | | 196,241 | |
| D. Pauline Richards | | 125,000 | | | 81,241 | | | 206,241 | |
Joan Lamm-Tennant (3) | | 75,000 | | | 81,241 | | | 156,241 | |
__________________
(1)Annual retainers are paid 50% in cash and 50% in fully vested Company Class B common shares. Mr. Freda elected to receive 60% of his annual retainer and 60% of his board chair fee in Class B common shares, with the remaining 40% paid in cash, and Mr. Fradin elected to receive 50% of his committee fees in Class B common shares, with the remaining 50% paid in cash. The amounts disclosed in this column for them reflects the cash received and the aggregate grant-date value, computed in accordance with ASC Topic 718, of the fully-vested Class B common shares issued to them in lieu of cash, which represents the number of shares issued multiplied by the fair market value of a Class B common share on the grant date.
(2)The amounts disclosed in the Stock Awards column represent the aggregate grant date fair value, computed in accordance with ASC Topic 718, of the fully-vested Company Class B common shares issued in respect of 50% of the directors’ annual retainers required to be delivered in Class B common shares. Amounts disclosed in this column reflect the number of shares issued multiplied by the fair market value of a Class B common share on the grant date. These Class B common shares were issued in two grants. In connection with the change in the Company’s fiscal year end from November to December, the first grant represented an amount in respect of the seven month period from December 1, 2021 through June 30, 2022. The second grant was in respect of the six month period from July 1, 2022 to December 31, 2022. None of our non-employee directors held any unvested stock awards or options as of December 31, 2022.
(3)Ms. Lamm-Tennant resigned from the Board as of December 31, 2022.
Our board has approved a new compensation program for our non-employee directors, to be effective on January 1, 2024, pursuant to which non-employee members of our board of directors will receive the following compensation for service on our board of directors:
•Annual compensation package of $250,000, $150,000 of which will be paid in Class B common shares, subject to a one-year cliff vesting period commencing on the grant date, and $100,000 of which will be paid in either cash or additional Class B common shares, at the election of the director;
•Additional compensation for the chair of the Board of Directors of $175,000, for total chair annual compensation of $425,000, which will be paid in cash or Class B common shares, at the election of the director;
•Additional compensation for the chair of the audit committee of $50,000, which will be paid in cash or Class B common shares, at the election of the director;
•Additional compensation for the chair of the compensation & personnel committee of $25,000, which will be paid in cash or Class B common shares, at the election of the director;
•Additional compensation for the chair of other committees of $20,000, which will be paid in cash or Class B common shares, at the election of the director; and
•Additional compensation for directors who serve on the board of directors of an operating subsidiary of the Company of $20,000, which will be paid in cash or Class B common shares, at the election of the director.
Non-employee members of our board who do not serve as the chair will not receive fees for service on the separate committees of our board of directors.
We will also continue to reimburse our directors for reasonable and necessary out-of-pocket expenses incurred in attending board and committee meetings or performing other services for us in their capacities as directors.
Further, upon completion of this offering, to strengthen the alignment of interests among our non-employee directors and our shareholders and to demonstrate sound corporate governance, our non-employee directors will be subject to share ownership guidelines. These guidelines require that within five years of being appointed, non-employee directors hold a minimum of five times the value of their annual retainer fee (excluding, for the avoidance of doubt, any portion of the annual compensation package paid in Company shares (other than at the election of a non-employee director) and committee chair fees or fees for serving on the board of directors of an operating subsidiary of the Company) in Company shares.
PRINCIPAL AND SELLING SHAREHOLDERS
The following tables and accompanying footnotes set forth information with respect to the beneficial ownership of our common shares as of September 30, 2023 by (1) each individual or entity known by us to beneficially own more than 5% of the outstanding common shares of our voting securities, (2) each of our named executive officers, (3) each of our directors, (4) all of our directors and our executive officers as a group and (5) each of the selling shareholders.
A person is a “beneficial owner” of a security if that person has or shares (i) “voting power,” which includes the power to vote or to direct the voting of the security and/or (ii) “investment power,” which includes the power to dispose of or to direct the disposition of the security, including in each case securities which such person has the right to acquire beneficial ownership of, within the meaning of Rule 13d-3 under the Exchange Act, within 60 days.
To our knowledge, unless otherwise noted in the footnotes to the following tables, and subject to applicable community property laws, the persons named in the tables have sole voting and investment power with respect to their beneficially owned common shares.
We have based our calculation of the percentage of beneficial ownership of our voting common shares prior to this offering on 30,520,078 shares of our Class A common shares and 42,658,302 shares of our Class B common shares outstanding as of September 30, 2023. We have not included beneficial ownership of 30,525,626 shares of our Class C common shares outstanding as of September 30, 2023, which shares do not have voting rights. We have based our calculation of the percentage of beneficial ownership of our voting common shares after this offering on (i) shares of our Class B common shares issued by us in this offering and 30,520,078 shares of our Class A common shares and (ii) shares of our Class B common shares outstanding immediately after the completion of this offering.
We have based our calculation of the percentage of beneficial ownership of our voting and non-voting common shares after this offering on (i) shares of our Class B common shares issued by us in this offering and (ii) shares of Class A voting common shares, shares of Class B voting common shares and shares of Class C non-voting common shares outstanding immediately after the completion of this offering and assuming that the underwriters will not exercise their option to purchase up to an additional shares of our Class B common shares from the selling shareholders in full. Although our Class A common shares and Class C common shares will, following this offering, automatically convert into our Class B common shares upon transfer of such common shares in accordance with our Bye-laws, the beneficial ownership of our Class B common shares set forth below excludes the shares of our Class B common shares issuable upon conversion of outstanding shares of our Class A common shares or Class C common shares except to the extent that such Class A common shares and Class C common shares are converted in connection with this offering.
Except as otherwise indicated in the footnotes below, the address of each beneficial owner is c/o Hamilton Insurance Group, Ltd., Wellesley House North, 1st Floor, 90 Pitts Bay Road, Pembroke HM 08 Bermuda.
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Name of Beneficial Owner Greater than 5% Shareholders(3) | | Common Shares Beneficially Owned Prior to the Offering | | Percentage of Total Voting Power Before the Offering (Class A and Class B)(1) | | Percentage of Total Voting Power Before the Offering (Class B only)(1) | | Common Shares Beneficially Owned After the Offering | | Percentage of Total Voting Power After the Offering (Class A and Class B) (no option exercise) (1) | | Percentage of Total Voting Power After the Offering (Class B only) (no option exercise) | | Percentage of Total Common Shares Beneficially Owned After the Offering (no option exercise) (2) |
| Class A | | Class B | | | | Class A | | Class B | | | |
Entities affiliated with Magnitude(4) | | — | | | | 15,096,940 | | | | 9.50% | (5) | | 14.92% | (6) | | | | | | | | | (7) | | | (7) | | | (7) |
Entities affiliated with Blackstone(8) | | 11,000,000 | | | | 971,971 | | | | 9.50% | (9) | | 2.28% | | | | | | | | | | (10) | | | (10) | | | (10) |
Hopkins Holdings, LLC(11) | | 9,860,039 | | | | — | | | | 9.50% | (12) | | — | | | | | | | | | | | (13) | | | | | | (13) |
Sango Hoken Holdings, LLC(14) | | 9,660,039 | | | | — | | | | 9.50% | (15) | | — | | | | | | | | | | | (16) | | | | | | (16) |
Hamilton Investments LP | | — | | | | 5,434,053 | | | | 0.00 | % | (17) | | 0.00% | (18) | | | | | | | | | (19) | | | (19) | | | (19) |
MLC Investments Limited as trustee for the WM Pool: Equities Trust No. 78(20) | | — | | | | 5,222,723 | | | | 7.14% | | | 12.24% | | | | | | | | | | (21) | | | (21) | | | (21) |
| Named Executive Officers and Directors: | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Pina Albo(22) | | — | | | | 641,248 | | | | * | | | 1.50% | | | | | | | | | | (23) | | | (23) | | | (23) |
Craig Howie | | — | | | | 6,579 | | | | * | | | * | | | | | | | | | | | | | | | | |
Megan Thomas | | — | | | | 53,789 | | | | * | | | * | | | | | | | | | | | | | | | | |
Adrian Daws | | — | | | | 76,921 | | | | * | | | * | | | | | | | | | | | | | | | | |
Peter Skerlj | | — | | | | 210,306 | | (24) | | * | | | * | | | | | | | | | | | | | | | | |
David Brown | | — | | | | 586,729 | | (25) | | * | | | 1.38% | | | | | | | | | | | | | | | | |
D. Pauline Richards | | — | | | | 124,319 | | | | * | | | * | | | | | | | | | | | | | | | | |
H. Hawes Bostic, III | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | |
Marvin Pestcoe | | — | | | | 28,303 | | | | * | | | * | | | | | | | | | | | | | | | | |
Russell Fradin | | — | | | | 175,494 | | | | * | | | * | | | | | | | | | | | | | | | | |
Stephen W. Pacala | | — | | | | 38,368 | | | | * | | | * | | | | | | | | | | | | | | | | |
William C. Freda | | — | | | | 293,619 | | (26) | | * | | | * | | | | | | | | | | | | | | | | |
Everard Barclay Simmons | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | |
Antonio Ursano, Jr. | | — | | | | — | | | | — | | | | — | | | | | | | | | | | | | | | | | |
| All directors and executive officers as a group (23 persons) | | — | | | | 2,235,675 | | | | 3.06% | | | 5.24% | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Name of Selling Shareholders | | Common Shares Beneficially Owned Prior to the Offering | | Percentage of Total Common Shares Beneficially Owned Before the Offering) | | Common Shares Offered Hereby(27) | | Common Shares Beneficially Owned After the Offering | | Percentage of Total Common Shares Beneficially Owned After the Offering (no option exercise) | | Percentage of Total Common Shares Beneficially Owned After the Offering (full option exercise) |
| Class A | | Class B | | | Class C | | | | Class A | | Class B | | Class C | | |
| Entities affiliated with Blackstone | | 11,000,000 | | | 971,971 | | | | — | | | 11.54 | % | | | | | | | | | | | | |
| Hamilton Investments LP | | — | | | 5,434,053 | | | | — | | | 5.24 | % | | | | | | | | | | | | |
| Gift Clearing Trust | | — | | | — | | | | 5,327,578 | | | 5.14 | % | | | | | | | | | | | | |
| Dechomai Asset Trust | | — | | | — | | | | 9,660,040 | | | 9.32 | % | | | | | | | | | | | | |
| National Philanthropic Trust | | — | | | — | | | | 9,660,040 | | | 9.32 | % | | | | | | | | | | | | |
| Jewish Communal Fund | | — | | | — | | | | 5,877,968 | | | 5.67 | % | | | | | | | | | | | | |
| Tudor Private Portfolio II LLC | | — | | | 2,765,454 | | | | — | | | 2.67 | % | | | | | | | | | | | | |
| D. Pauline Richards | | — | | | 124,319 | | | | — | | | * | | | | | | | | | | | | |
William C. Freda | | — | | | 293,619 | | (28) | | — | | | * | | | | | | | | | | | | |
Other Selling Shareholders(29) | | | | | | | | | | | | | | | | | | | | | |
__________________
*Less than one percent.
(1)Percentage of total voting power represents voting power with respect to all of our Class A common shares, entitled to one vote per share, and Class B common shares, entitled to one vote per share. Our Class C common shares have no voting rights, except as otherwise required by law. See the section titled “Description of Share Capital—Common Shares” for more information about the voting rights of our Class A common shares, Class B common shares and Class C common shares. The percentage of total voting power in the column for each shareholder takes into account any applicable voting cutback to reflect the reduction of voting power of any shareholder subject to the cutback, but does not take into account any reallocation to other shareholders of any voting power due to the reduction of voting power of any shareholder subject to a voting cutback.
(2)Percentage of total common shares beneficially owned after the offering represents beneficial ownership with respect to all of our outstanding Class A, Class B and Class C common shares.
(3)Greater than 5% shareholder represents shareholders that own greater than 5% of our Class A and Class B common shares, together.
(4)Consists of 11,225,805 Class B common shares held by Magnitude Master Fund CL A (“MMF”), 2,397,962 Class B common shares held by Magnitude Partners Master Fund LP (“MPMF”), 1,375,626 Class B common shares held by Magnitude Institutional Ltd. (“MIL”) and
67,547 Class B common shares held by Magnitude Insurance Master Fund, LLC (“MIMF”). MMF is a sub-trust of the Magnitude Master Series Trust, a Cayman Islands unit trust. MMF is controlled by its trustee, Sterling Trust (Cayman) Limited, a Cayman Islands company and licensed trust company. MPMF, a Delaware limited partnership, is controlled by its general partner, Magnitude Management, LLC, a Delaware limited liability company, which is in turn controlled its managing members – Benjamin S. Appen and James M. Hall. MIL, a Cayman Islands exempted company, is controlled by its directors—Patrick Agemian and Georgia Prinsloo. MIMF, a Delaware limited liability company is controlled by its non-member manager, Magnitude Capital, LLC, a Delaware limited liability company, which is in turn controlled its managing members – Benjamin S. Appen and James M. Hall. The registered address for each of these entities is 200 Park Avenue, 56th Floor, New York, NY 10166, USA.
(5)Pursuant to the Bye-laws, the total voting percentage with respect to matters on which certain Class A shareholders and Class B shareholders vote together is cut back to 9.5% and any percentage in excess of the cutback percentage is reallocated to other shareholders. The percentage of total voting power of entities affiliated with Magnitude prior to the cutback is 20.63%.
(6)Pursuant to the Bye-laws, the total voting percentage with respect to matters on which certain Class B shareholders vote is cut back to a maximum of 14.92% and any percentage in excess of the actual cutback percentage is reallocated to other shareholders. The percentage of total voting power of entities affiliated with Magnitude prior to the cutback is 35.39%.
(7)Assuming the underwriters’ option to purchase additional shares from the selling shareholders is exercised in full, the total voting power after the offering (Class A and Class B) will be %; the total voting power after the offering (Class B only) will be %; and the total common shares beneficially owned after the offering will be %.
(8)Consists of 11,316,919 Class A and Class B common shares held by BSOF Master Fund LP and 655,052 Class A and Class B common shares held by BSOF Master Fund II L.P. (collectively, the “BSOF Entities”), each, a Cayman Islands exempted limited partnership. Blackstone Strategic Opportunity Associates L.L.C. (“BSOA”) is the general partner of each of the BSOF Entities. Blackstone Holdings II L.P. is the managing member of BSOA. Blackstone Holdings I/II GP L.L.C. is the general partner of Blackstone Holdings II L.P. Blackstone Inc. is the sole member of Blackstone Holdings I/II GP L.L.C. Blackstone Group Management L.L.C. is the sole holder of the Series II preferred stock of Blackstone Inc. Blackstone Group Management L.L.C. is wholly-owned by Blackstone’s senior managing directors and controlled by its founder, Stephen A. Schwarzman. Each of the Blackstone entities and Mr. Schwarzman may be deemed to beneficially own the securities beneficially owned by the BSOF Entities directly or indirectly controlled by it or him, but each (other than each of the BSOF Entities to the extent of their respective direct holdings) disclaims beneficial ownership of such securities. The address of each of the Blackstone entities and Mr. Schwarzman is c/o Blackstone Inc., 345 Park Avenue, New York, NY 10154, USA.
(9)Pursuant to the Bye-laws, the total voting percentage with respect to matters on which certain Class A shareholders and Class B shareholders vote together is cut back to 9.5% and any percentage in excess of the cutback percentage is reallocated to other shareholders. The percentage of total voting power of entities affiliated with Blackstone prior to the cutback is 16.36%.
(10)Assuming the underwriters’ option to purchase additional shares from the selling shareholders is exercised in full, the total voting power after the offering (Class A and Class B) will be %; the total voting power after the offering (Class B only) will be %; and the total common shares beneficially owned after the offering will be %.
(11)Hopkins Holdings, LLC (“Hopkins Holdings”), a Delaware limited liability company, is managed by John A. Overdeck. The registered address for Hopkins Holdings is 100 Avenue of the Americas, 16th Floor, New York, NY 10013, USA.
(12)Pursuant to the Bye-laws, the total voting percentage with respect to matters on which certain Class A shareholders and Class B shareholders vote together is cut back to 9.5% and any percentage in excess of the cutback percentage is reallocated to other shareholders. The percentage of total voting power of Hopkins Holding LLC prior to the cutback is 13.47%.
(13)Assuming the underwriters’ option to purchase additional shares from the selling shareholders is exercised in full, the total voting power after the offering (Class A and Class B) will be %; and the total common shares beneficially owned after the offering will be %.
(14)Sango Hoken Holdings, LLC (“Sango Holdings”), a Delaware limited liability company, is managed by Mr. Siegel. The registered address for Sango Holdings is 100 Avenue of the Americas, 16th Floor, New York, NY 10013, USA.
(15)Pursuant to the bye-laws, the total voting percentage with respect to matters on which certain Class A shareholders and Class B shareholders vote together is cut back to 9.5% and any percentage in excess of the cutback percentage is reallocated to other shareholders. The percentage of total voting power of Sango Holdings prior to the cutback is 13.20%.
(16)Assuming the underwriters’ option to purchase additional shares from the selling shareholders is exercised in full, the total voting power after the offering (Class A and Class B) will be %; and the total common shares beneficially owned after the offering will be %.
(17)Pursuant to the Bye-laws, the total voting percentage with respect to matters on which certain shareholders vote is cut back to 0.00% and any percentage in excess of the cutback percentage is reallocated to other shareholders. The percentage of total voting power prior to the cutback is 7.43%.
(18)Pursuant to the Bye-laws, the total voting percentage with respect to matters on which certain shareholders vote is cut back to 0.00% and any percentage in excess of the cutback percentage is reallocated to other shareholders. The percentage of total voting power prior to the cutback is 12.74%.
(19)Assuming the underwriters’ option to purchase additional shares from the selling shareholders is exercised in full, the total voting power after the offering (Class A and Class B) will be %; the total voting power after the offering (Class B only) will be %; and the total common shares beneficially owned after the offering will be %.
(20)Assuming the underwriters’ option to purchase additional shares from the selling shareholders is exercised in full, the total voting power after the offering (Class A and Class B) will be %; the total voting power after the offering (Class B only) will be %; and the total common shares beneficially owned after the offering will be %.
(21)MLC Investments Limited as trustee for the WM Pool: Equities Trust No. 78 (“MLC”) is managed by MLC Asset Management Services Limited. The registered address for MLC is Level 3, 30 Hickson Road, Millers Point, NSW 2000, Australia.
(22)Consists of (i) 422,449 Class B common shares held by Ms. Albo and (ii) 218,799 Class B common shares held by The Albo 2018 LLC, a trust in which Ms. Albo has voting or investment power over the shares.
(23)Assuming the underwriters’ option to purchase additional shares from the selling shareholders is exercised in full, the total voting power after the offering (Class A and Class B) will be %; the total voting power after the offering (Class B only) will be %; and the total common shares beneficially owned after the offering will be %.
(24)Consists of (i) 175,306 Class B common shares held by Mr. Skerlj and (ii) warrants to purchase an aggregate of 35,000 Class B common shares at an exercise price of $10.00 per share, which warrants expire on March 20, 2024.
(25)Consists of (i) 86,729 Class B common shares held by Mr. Brown and (ii) 500,000 Class B common shares held by Leyton Ltd., an investment holding company held by Thelwall Trust, a family trust established for the benefit of Mr. Brown and his family.
(26)Consists of (i) 43,783 shares held by Mr. Freda and (ii) 249,836 shares held by William C. Freda 2020 Family Trust, a family trust established for the benefit of Mr. Freda and his family.
(27)Pursuant to the Bye-laws, each Class A common share and Class C common share sold by selling shareholders will automatically be converted into Class B common shares, on a share-for-share basis, upon the closing of this offering.
(28)Shares being offered for sale by the William C. Freda 2020 Family Trust, a family trust established for the benefit of Mr. Freda and his family.
(29)Consists of Selling Shareholders not otherwise listed in this table who collectively beneficially own less than 1% of our common shares prior to this offering.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The agreements described in this section, or forms of such agreements as they will be in effect at the time of this offering, will be filed as exhibits to the registration statement of which this prospectus forms a part, and the following descriptions are qualified by reference thereto.
Shareholders Agreement
Effective with the consummation of this offering, the Second Amended and Restated Shareholders Agreement between the Company and its current shareholders will terminate automatically and be of no further force or effect. Accordingly, the liquidity rights described in Note 13, Share Capital in the Audited Consolidated Financial Statements on page F-51 and in Note 10, Share Capital in the Unaudited Condensed Consolidated Financial Statements on page F-102 that certain of the Company’s current shareholders have under the Second Amended and Restated Shareholders Agreement will terminate at the consummation of this offering. The Second Amended and Restated Shareholders Agreement provides that, upon termination of the Second Amended and Restated Shareholders Agreement in connection with the consummation of a qualifying IPO, the Company will enter into a new shareholders agreement (the “Shareholders Agreement”) with certain shareholders who will, together with their affiliates, after giving effect to a qualifying IPO, continue to own at least five percent (5%) of our issued and outstanding common shares providing for certain rights. In connection with this offering the Company expects to enter into the Shareholders Agreement with the following shareholders: Sango Holdings, Hopkins Holdings, the Blackstone Investor and the Magnitude Investor. The Shareholders Agreement provides each such shareholder with certain rights, including the right to appoint a director to the Board of Directors, subject to the maintenance of certain ownership thresholds. These appointment rights are described in this prospectus in the section titled “Management—Composition of the Board of Directors of Hamilton.” The Shareholders Agreement also provides that the Company will obtain directors’ and officers’ liability insurance and fiduciary liability insurance, which includes coverage for prior acts, with insurers of recognized financial responsibility in such amounts as the Board of Directors determines to be prudent and customary for the Company’s business and operations, to the extent that coverage is available at a reasonable cost, or as otherwise provided for in the indemnification agreements. See “––Indemnification Agreements” for additional information regarding directors’ and officers’ liability insurance coverage.
Registration Rights Agreement
We have entered into the registration rights agreement, dated December 23, 2013, with certain of our existing shareholders (the “Registration Rights Agreement”) pursuant to which we have provided such shareholders with certain registration rights as described below.
Demand registration. Certain principal shareholders are able to request registration under the Securities Act of all or any portion of our common shares that are not freely sellable under Rule 144 under the Securities Act (the “Registrable Common Shares”) and we will be obligated, subject to certain customary exceptions, to register such shares. The principal shareholders may make up to six (6) demand registration requests in the aggregate; provided that such principal shareholders may request an unlimited number of underwritten offerings pursuant to registrations which are effected by filing a registration statement which provides for sales from time to time on a delayed or continuous basis pursuant to Rule 415 under the Securities Act.
Piggy-back registration. If we at any time propose to effect the registration of our common shares under the Securities Act on a form and in a manner that would permit the registration for offer and sale of our Registrable Common Shares held by our existing shareholders party to the Registration Rights Agreement, such shareholders will have the right to include common shares they own in that offering, subject to certain customary limitations.
Registration expenses. We will be generally responsible for all registration expenses in connection with the performance of our obligations under the registration rights provisions in the Registration Rights Agreement. The holders of our common shares being registered will generally be responsible for any underwriting discounts or commissions attributable to their sales.
Indemnification. The Registration Rights Agreement contains customary indemnification and contribution provisions by us for the benefit of holders of registerable securities and, in limited situations, by holders of registerable securities for the benefit of us with respect to the information provided by such holders included in any registration statement, prospectus or related document.
Commitment Agreement and Investment Management Agreement
Two Sigma and the Managing Member are related parties to the Company and parties to the Commitment Agreement and the Two Sigma Hamilton Fund IMA with Hamilton Re. Under the Commitment Agreement, Hamilton Re is required to maintain an investment in the Two Sigma Hamilton Fund in an amount up to the lesser of (i) $1.8 billion or (ii) 60% of Hamilton Insurance Group’s net tangible assets for a rolling three-year period commencing on July l, 2023. The Commitment Agreement renews for a new three-year period unless a non-renewal notice is provided by either party in accordance with the Commitment Agreement. See “Risk Factors—Risks Related to Our Investment Strategy—We do not have control over the Two Sigma Hamilton Fund.” Under the Two Sigma Hamilton Fund IMA, as of July 1, 2023, the Two Sigma Hamilton Fund charge the Company a management fee of 2.5% per annum of the net asset value of the Company’s investment in the Two Sigma Hamilton Fund. The management fee for the years ended December 31, 2022, November 30, 2021 and November 30, 2020 was charged at a rate of 3% (i.e., and not the current rate of 2.5%), which was equal to $53.1 million, $48.7 million and $49.5 million, respectively.
The Two Sigma Hamilton Fund Limited Liability Company Agreement
Under the terms of the LLCA, the Managing Member is entitled to an incentive allocation equal to 30% of the Two Sigma Hamilton Fund’s net profits, subject to high watermark provisions, and adjusted for withdrawals, and any incentive allocation to the Managing Member; provided, however, that in the event there is a net loss during a quarter and a net profit during any subsequent quarter, the Managing Member is entitled to a modified incentive allocation whereby the regular incentive allocation will be reduced by 50% until subsequent cumulative net profits are credited in an amount equal to 200% of the previously allocated net losses. As of July 1, 2023, the Managing Member is entitled to receive an additional incentive allocation equal to 25% of Two Sigma Hamilton Fund’s net profits that are over 10% for a given year, gross of the incentive allocation described above, but only after recouping previously unrecouped net losses. Prior to July 1, 2023, the Managing Member was entitled to receive an additional incentive allocation equal to 20% of Two Sigma Hamilton Fund’s net profits that are over 15% for a given year, gross of the incentive allocation described above, but only after recouping previously unrecouped net losses. The total incentive fee for the years ended December 31, 2022, November 30, 2021 and November 30, 2020 was $68.1 million, $61.6 million and $24.9 million, respectively.
Ada Re
Our wholly owned subsidiary, ACML, is a Bermuda insurance agent that provides certain underwriting services to Ada Re. Ada Re is a non-consolidated special purpose insurer funded by investors and formed to provide fully collateralized reinsurance and retrocession to both the wholly owned operating platforms of Hamilton Re and third-party cedants. John A. Overdeck and trusts for the benefit of certain members of his immediate family indirectly beneficially own 60% of the outstanding non-voting preference shares of Ada Re. Mr. Overdeck does not have any interest in any voting shares of Ada Re.
As of June 30, 2023, Mr. Overdeck and trusts for the benefit of certain members of his immediate family have, together, contributed approximately $186 million to Ada Re.
Mr. Overdeck, who was a member of our Board of Directors in 2023 and, through Hopkins Holdings, LLC, which is managed by Mr. Overdeck, beneficially owns such number of Class A common shares of the Company as set forth under “Principal and Selling Shareholders.”
IAP Engagement Letter
Pursuant to an engagement letter, we retained Insurance Advisory Partners LLC (“IAP”), a FINRA member, to act as financial advisor to us with respect to evaluating various strategic and financial alternatives including any
capital raise by us, including this offering (the “IAP Engagement Letter”). Mr. Ursano, one of our directors, is the Managing Partner and Co-Founder of IAP. As compensation under the IAP Engagement Letter, we agreed to pay IAP (i) a quarterly retainer of $30,000 and (ii) a transaction fee in connection with this offering and payable at the closing of 5% to 10% of the underwriting discounts and commissions (with the exact percentage to be mutually agreed based on the size of this offering and the quantity of work performed by IAP) reduced by the aggregate amount paid or payable as quarterly retainers to IAP. We have also agreed to reimburse IAP on a quarterly basis for all reasonable and documented out-of-pocket expenses incurred in connection with the IAP Engagement Letter up to a maximum of $15,000 during the course of the engagement, and have provided for indemnification of IAP pursuant to the IAP Engagement Letter.
Indemnification Agreements
Our Bye-laws provide that we will indemnify our directors and officers in respect of their actions and omissions, except in respect of their fraud or dishonesty. Pursuant to our Bye-laws, our shareholders have agreed to waive any claim or right of action that such shareholders may have, whether individually or by or in right of the Company, against our directors or officers for any act or failure to act in the performance of such director’s or officer’s duties with or for the Company, except in respect of any fraud or dishonesty of such director or officer. Our Bye-laws also permit us to purchase and maintain insurance for the benefit of any director or officer in respect of any loss or liability attaching to such officer or director in respect of any negligence, default, breach of duty or breach of trust, whether or not we may otherwise indemnify such officer or director. The Company intends to maintain a directors’ and officers’ liability policy for such a purpose.
In connection with the consummation of the offering, we intend to enter into separate indemnification agreements with each of our directors and executive officers and the former Blackstone Investor director, John A. Overdeck and David M. Siegel (who each resigned effective on October 15, 2023), which will contain customary terms for public companies. These indemnification agreements require us to obtain directors’ and officers’ liability insurance, which includes coverage for prior acts and actions relating to this offering, with reputable insurance companies, except to the extent that coverage is not available on commercially reasonable terms (in which case we are required to obtain the best available commercially reasonable coverage).
The indemnification agreements and our Bye-laws will require us to indemnify these individuals to the fullest extent permitted by applicable law against liabilities that may arise by reason of their service to us, and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified. The indemnification provided under the indemnification agreements will not be exclusive of any other indemnity rights. There is currently no pending material litigation or proceeding involving any of our directors for which indemnification is sought.
Policies and Procedures for Related-Party Transactions
Upon the completion of this offering, we intend to adopt a policy applicable to our transactions with “related parties,” which we define to include our executive officers, directors and nominees for director, any immediate family member or affiliated entity of any of our executive officers, directors or nominees for director and any person (and his or her immediate family members and affiliated entities) or entity (including affiliates) that is a beneficial owner of 5% or more of any class of our outstanding voting securities. This policy will cover, with certain exceptions set forth in Item 404 of Regulation S-K under the Securities Act, any transaction, arrangement or relationship, or any series of similar transactions, arrangements or relationships, in which we were or are to be a participant, where the amount involved exceeds $120,000 and a related person had or will have a direct or indirect material interest. Pursuant to this policy, an appropriate committee of our Board of Directors must approve the terms, arrangements and policies of, and provide ongoing oversight over, all transactions with a related party in which the amount involved exceeds $120,000. This committee, which may be our audit committee, will consist of directors independent from the related party in question. In conducting its initial and ongoing reviews, the committee will take into account, among other factors it deems appropriate, the terms of the transaction, including whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances, the extent of the related-party’s interest in the transaction, the qualifications and performance of the related party and other business considerations that would be applied to similar arrangements
with unaffiliated parties. Under the policy, if we should discover related party transactions that have not been approved, this committee will determine the appropriate action, including ratification, rescission or amendment of the transaction. Upon completion of this offering, we will make a copy of our related-party transactions policy available on our website.
DESCRIPTION OF SHARE CAPITAL
In connection with this offering, we have amended and restated our Bye-laws, which will be in effect upon the closing of this offering. The following is a description of the material terms of, and is qualified in its entirety by, our Bye-laws, as they will be amended, the form of which has been filed as an exhibit to the registration statement of which this prospectus forms a part. Because this is only a summary, it may not contain all the information that is important to you.
Under “Description of Share Capital,” “we,” “us,” “our” and “Company” refer to Hamilton Insurance Group, Ltd. and not to any of its subsidiaries.
General
We are an exempted company incorporated under the laws of Bermuda. In September 2023, the Board of Directors and the shareholders approved an increase of authorized share capital from $1.35 million to $1.5 million by the creation of an additional 15 million shares with a par value of $0.01 per share for a total of 150 million shares. Our authorized share capital is 150 million shares consisting of (i) Class A common shares, $0.01 par value per Class A common share; (ii) 65,480,684 Class B common shares, $0.01 par value per Class B common share, (iii) 30,525,626 Class C common shares, $0.01 par value per Class C common share and (iv) unclassified shares. Pursuant to our Bye-laws, subject to the requirements of the NYSE, and to any resolution of the shareholders to the contrary, our Board of Directors is authorized to issue any of our authorized but unissued shares. There are no limitations on the right of non-Bermudians or non-residents of Bermuda to hold or vote our shares provided our common shares remain listed on an appointed stock exchange, which includes the NYSE.
Common Shares
We have three classes of authorized common shares, Class A common shares, Class B common shares and Class C common shares. The rights of the holders of our Class A common shares, Class B common shares and Class C common shares are identical, except with respect to voting and conversion.
Subject to the voting cutback described below, holders of our Class A common shares and Class B common shares are entitled to one vote per share held of record and vote together as a single class on all matters on which shareholders are entitled to vote generally, except as provided by law and in the Bye-laws of the Company (including, for example, the election or removal of directors). Only holders of our Class B common shares may vote for the election or removal of certain directors as described below, other than for directors who are appointed by certain shareholders pursuant to the Shareholders Agreement and our Bye-laws. See “Management––Composition of the Board of Directors of Hamilton.” Holders of our Class C common shares are not entitled to vote on any matter submitted to a vote of shareholders, except as otherwise required by law. The holders of our common shares do not have cumulative voting rights in the election of directors.
Our Bye-laws provide a mechanism under which the Company may, before a vote of the shareholders on any matter, in certain circumstances reallocate a proportion of the voting rights held by or attributed to certain shareholders or groups of shareholders among other shareholders so as to ensure that those certain shareholders or groups of shareholders and their affiliates are not deemed to own shares possessing voting power comprising more than 9.5% of the total combined voting power (or, in the case of holders of our Class B common shares when voting as a class, such as in respect of the election or removal of directors other than for directors who are appointed by certain shareholders pursuant to the Shareholders Agreement and our Bye-laws, a maximum of 14.92% of the total combined voting power, calculated by multiplying (a) 9.5% and (b) the quotient of dividing (x) the total number of directors by (y) the number of directors elected by holders of Class B common shares). In addition, our Board of Directors may, in its absolute discretion, make adjustments to the voting power of its shares to the extent necessary or advisable in order (i) to prevent (or reduce the magnitude of) a share voting limitation violation and (ii) to avoid adverse tax, legal or regulatory consequences to the Company, any subsidiary of the Company or any shareholder or its affiliates. Our Bye-laws also eliminate the voting power for certain holders of our common shares that have a relationship with Two Sigma.
Our Board of Directors will from time to time, at its discretion and prior to any time at which a vote of shareholders is taken, take (or cause to be taken) reasonable steps to ascertain the voting power held by each shareholder, including requesting information regarding the direct or indirect ownership of common shares.
Holders of our common shares are entitled to receive dividends when, as and if declared by our Board of Directors out of funds legally available therefor, subject to any statutory or contractual restrictions on the payment of dividends and to any restrictions on the payment of dividends imposed by the terms of any outstanding preferred shares.
Upon our liquidation, dissolution or winding up and after payment in full of all amounts required to be paid to creditors and to the holders of preferred shares having liquidation preferences, if any, the holders of common shares will be entitled to receive pro rata our remaining assets available for distribution.
All common shares that will be outstanding at the time of the completion of this offering will be fully paid and nonassessable. There will be no redemption or sinking fund provisions applicable to the common shares. The rights, powers, preferences and privileges of our common shares will be subject to those of the holders of any preferred shares or any other series or class of shares we may authorize and issue in the future.
Conversion of Class A Common Shares and Class C Common Shares
Each Class A common share and Class C common share will convert automatically into one Class B common share of upon any transfer (except for transfers to a permitted transferee as defined in the Bye-laws), whether or not for value, which occurs after the closing of this offering. The number of authorized and issued Class A common shares and Class C common shares, as applicable, shall be reduced by the aggregate number of such issued Class A common shares and Class C common shares, as applicable, converted to Class B common shares and the number of authorized and issued Class B common shares shall be correspondingly increased by the same amount.
Preferred Shares
Under Bermuda law and our Bye-laws, our Board of Directors is authorized to issue preferred shares in one or more series without shareholder approval. Our Board of Directors has the discretion under our Bye-laws to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred shares, without any further shareholder approval. The rights with respect to a series of preferred shares may be greater than the rights attached to our common shares. It is not possible to state the actual effect of the issuance of any preferred shares on the rights of holders of our common shares until our Board of Directors determines the specific rights attached to those preferred shares. The effect of issuing preferred shares could include, among other things, one or more of the following:
•restricting dividends in respect of our common shares;
•diluting the voting power of our common shares or providing that holders of preferred shares have the right to vote on matters as a class;
•impairing the liquidation rights of our common shares; or
•delaying or preventing a change of control of us.
As of the date of this prospectus, we do not have any issued and outstanding preferred shares.
Warrants
As of June 30, 2023, warrants to purchase an aggregate of 1,152,500 Class B common shares, with an exercise price of $10.00 per share were outstanding. These warrants expire on March 20, 2024 or July 14, 2024, as applicable, and may be exercised at any time prior to the applicable expiration date.
Dividends
Under Bermuda law, a company may not declare or pay dividends if there are reasonable grounds for believing that (1) the company is, or would after the payment be, unable to pay its liabilities as they become due; or (2) the realizable value of its assets would thereby be less than its liabilities. Under our Bye-laws, each common share is entitled to dividends if, as and when dividends are declared by our Board of Directors, subject to any preferred dividend right of the holders of any preferred shares. We do not anticipate paying cash dividends in the foreseeable future.
Variation of Rights
Pursuant to our Bye-laws, if at any time we have more than one class of shares, the rights attaching to any class, unless otherwise provided for by the terms of issue of the relevant class, may, whether or not the Company is being wound-up, be varied by a majority of the Board of Directors voting in the affirmative and either: (1) with the consent in writing of the holders of a majority of the total outstanding voting power of the issued shares of that class; or (2) with the sanction of a resolution passed by a majority of the votes cast at a general meeting of the relevant class of shareholders at which a quorum consisting of at least one person holding or representing a majority of the issued shares of the relevant class is present except for a variation of rights with respect to the Class A common shares in which the Blackstone Investor must consent for so long as the Blackstone Investor holds any Class A common shares.
The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith.
Transfer of Shares
Our Board of Directors may, in its absolute discretion and without assigning any reason, refuse to register the transfer of a share on the basis that it is not fully paid. Our Board of Directors may also refuse to recognize an instrument of transfer of a share unless it is accompanied by the relevant share certificate and such other evidence of the transferor’s right to make the transfer as our Board of Directors shall reasonably require or unless all applicable consents, authorizations and permissions of any governmental agency or body in Bermuda have been obtained. Subject to these restrictions, a holder of common shares may transfer the title to all or any of his or her common shares by completing an instrument of transfer in writing in such form as our Board of Directors may accept. The instrument of transfer must be signed by the transferor and transferee, although in the case of a fully paid share our Board of Directors may accept the instrument signed only by the transferor.
Meetings of Shareholders
Under Bermuda law, a company is required to convene at least one general meeting of shareholders each calendar year, which we refer to as the annual general meeting. While Bermuda law permits the shareholders to waive the requirement to hold an annual general meeting by resolution (either for a specific year or a period of time or indefinitely), our Bye-laws provide that, notwithstanding, an annual general meeting shall be held in each year.
Bermuda law provides that a special general meeting of shareholders may be called by the board of directors of a company and must be called upon the request of shareholders holding not less than 10% of the paid-up capital of the company carrying the right to vote at general meetings. Bermuda law also requires that shareholders be given at least five days’ advance notice of a general meeting, but the accidental omission to give notice to any person does not invalidate the proceedings at a meeting. Our Bye-laws provide that our principal executive officer or the chairperson of our Board of Directors or any two directors or any director and the secretary or our Board of Directors may convene an annual general meeting and our principal executive officer or the chairperson of our Board of Directors or our Board of Directors may convene a special general meeting. Under our Bye-laws, at least 5 days’ notice of an annual general meeting or 5 days’ notice of a special general meeting must be given to each shareholder entitled to vote at such meeting. This notice requirement is subject to the ability to hold such meetings on shorter notice if such notice is agreed: (1) in the case of an annual general meeting by all of the shareholders entitled to attend and vote at such meeting; or (2) in the case of a special general meeting by a majority in number of
the shareholders entitled to attend and vote at the meeting holding not less than 95% in nominal value of the shares entitled to vote at such meeting. The quorum required for a general meeting of shareholders is two or more persons present in person at the start of the meeting and representing in person or by proxy in excess of 50% of the total issued and outstanding voting shares.
Access to Books and Records and Dissemination of Information
Members of the general public have a right to inspect the public documents of a company available at the office of the Registrar of Companies in Bermuda. These documents include a company’s memorandum of association, including its objects and powers, and certain alterations to the memorandum of association. The shareholders have the additional right to inspect the bye-laws of the company, minutes of general meetings and the company’s audited financial statements, which must be presented in the annual general meeting. The register of members of a company is also open to inspection by shareholders and by members of the general public without charge. The register of members is required to be open for inspection for not less than two hours in any business day (subject to the ability of a company to close the register of members for not more than thirty days in a year). A company is required to maintain its share register in Bermuda but may, subject to the provisions of the Companies Act, establish a branch register outside of Bermuda. A company is required to keep at its registered office a register of directors and officers that is open for inspection for not less than two hours in any business day by members of the public without charge. Bermuda law does not, however, provide a general right for shareholders to inspect or obtain copies of any other corporate records.
Election and Removal of Directors
Our Bye-laws provide that our Board of Directors shall consist of not less than eleven (11) directors or more than fifteen (15) directors as the Board of Directors may from time to time determine. It is expected that upon the closing of this offering, our Board of Directors will consist of eleven (11) directors. As provided in the Shareholders Agreement and our Bye-laws, as many as four (4) shareholders will each have the right to appoint one (1) director if such shareholder continues to hold a prescribed number of common shares. Each of Sango Holdings, Hopkins Holdings and the Blackstone Investor must hold at least five million Class A common shares, while the Magnitude Investor must hold at least seven and a half million Class B common shares to continue to have the appointment right. The remaining directors will be elected annually for a term expiring at the next annual general meeting or until their successors are elected or appointed or their office is otherwise vacated.
A shareholder holding any percentage of the common shares in issue may propose for election as a director someone who is not an existing director or is not proposed by our Board of Directors. Where a director is to be elected at an annual general meeting, notice of any such proposal for election must be given not less than 90 days nor more than 120 days before the anniversary of the last annual general meeting prior to the giving of the notice or, in the event the annual general meeting is called for a date that is not less than 30 days before or after such anniversary, the notice must be given no later than the later of (i) 70 days prior to the date of such meeting and (ii) the close of business on the fourth day following the day on which such notice of the date of the annual general meeting was posted to shareholders or the date on which public disclosure of the date of the annual general meeting was made, whichever first occurs.
A director may be removed, only with cause, by the shareholders by the affirmative vote of at least 66 2/3% of the issued and outstanding voting securities entitled to vote for the election of directors, provided that notice of the shareholders meeting convened to remove the director is given to the director. The notice must contain a statement of the intention to remove the director and a summary of the facts justifying the removal and must be served on the director not less than 14 days before the meeting. The director is entitled to attend the meeting and be heard on the motion for his or her removal.
Proceedings of Board of Directors
Our Bye-laws provide that our business is to be managed and conducted by our Board of Directors. Bermuda law permits individual and corporate directors and there is no requirement in our Bye-laws or Bermuda law that directors hold any of our shares although certain of our directors will be subject to our share ownership guidelines,
which have been adopted by the Board of Directors. There is also no requirement in our Bye-laws or Bermuda law that our directors must retire at a certain age.
The compensation of our directors will be determined by the Board of Directors with assistance from the compensation & personnel committee, and there is no requirement that a specified number or percentage of “independent” directors must approve any such determination. Our directors may also be paid all travel, hotel and other reasonable out-of-pocket expenses properly incurred by them in connection with our business or their duties as directors.
A director who discloses a direct or indirect interest in any contract or arrangement with us as required by Bermuda law may be entitled to be counted in the quorum for such meeting and to vote in respect of any such contract or arrangement in which he or she is interested unless the chairman of the relevant meeting of the board of directors determines that such director is disqualified from voting.
Indemnification of Directors and Officers
Section 98 of the Companies Act provides generally that a Bermuda company may indemnify its directors, officers and auditors against any liability which by virtue of any rule of law would otherwise be imposed on them in respect of any negligence, default, breach of duty or breach of trust, except in cases where such liability arises from fraud or dishonesty of which such director, officer or auditor may be guilty in relation to the company. Section 98 further provides that a Bermuda company may indemnify its directors, officers and auditors against any liability incurred by them in defending any proceedings, whether civil or criminal, in which judgment is awarded in their favor or in which they are acquitted or granted relief by the Supreme Court of Bermuda pursuant to Section 281 of the Companies Act.
Our Bye-laws provide that we shall indemnify our officers and directors in respect of their actions and omissions, except in respect of their fraud or dishonesty, and that we shall advance funds to our officers and directors for expenses incurred in their defense upon receipt of an undertaking to repay the funds if any allegation of fraud or dishonesty is proved. Pursuant to our Bye-laws, our shareholders have agreed to waive any claim or right of action that they might have, whether individually or by or in right of the Company, against any of the Company’s directors or officers for any act or failure to act in the performance of such director’s or officer’s duties, except in respect of any fraud or dishonesty of such director or officer. Section 98A of the Companies Act permits us to purchase and maintain insurance for the benefit of any officer or director in respect of any loss or liability attaching to him in respect of any negligence, default, breach of duty or breach of trust, whether or not we may otherwise indemnify such officer or director. We have purchased and maintain a directors’ and officers’ liability policy for such purpose.
Amendment of Memorandum of Association and Bye-laws
Bermuda law provides that the memorandum of association of a company may be amended by a resolution passed at a general meeting of shareholders of which due notice has been given. Our Bye-laws provide that no bye-law shall be rescinded, altered or amended, and no new bye-law shall be made, unless it shall have been approved by a resolution of our Board of Directors and by a resolution of our shareholders holding more than 50% of the total outstanding voting power of the voting securities. The memorandum of association shall not be rescinded, altered or amended without a resolution of our Board of Directors and a resolution of our shareholders holding more than 50% of the total outstanding voting power of the voting securities.
Under Bermuda law, the holders of an aggregate of not less than 20% in par value of a company’s issued share capital or any class thereof have the right to apply to the Supreme Court of Bermuda for an annulment of any amendment of the memorandum of association adopted by shareholders at any general meeting, other than an amendment that alters or reduces a company’s share capital as provided in the Companies Act. Where such an application is made, the amendment becomes effective only to the extent that it is confirmed by the Supreme Court of Bermuda. An application for an annulment of an amendment of the memorandum of association must be made within 21 days after the date on which the resolution altering the company’s memorandum of association is passed and may be made on behalf of persons entitled to make the application by one or more of their number as they may
appoint in writing for the purpose. No application may be made by a shareholder who has voted in favor of the alteration or has given the company a statement in writing that they consented to the alteration.
Amalgamations and Mergers
The amalgamation or merger of a Bermuda company with another company or corporation (other than certain affiliated companies) requires the amalgamation or merger agreement to be approved by the company’s board of directors and by its shareholders. Unless the company’s bye-laws provide otherwise, the approval of 75% of the shareholders voting at such meeting is required to approve the amalgamation or merger agreement, and the quorum for such meeting must be two or more persons holding or representing more than one-third of the issued shares of the company. Our Bye-laws require a majority of the Board of Directors voting in the affirmative and directors representing less than fifteen percent of the entire Board of Directors voting in opposition to approve the amalgamation or merger agreement.
Under Bermuda law, in the event of an amalgamation or merger of a Bermuda company with another company or corporation, a shareholder of the Bermuda company who did not vote in favor of the amalgamation or merger and who is not satisfied that fair value has been offered for such shareholder’s shares may, within one month of notice of the shareholders meeting, apply to the Supreme Court of Bermuda to appraise the fair value of those shares.
Shareholder Suits
Class actions and derivative actions are generally not available to shareholders under Bermuda law. The Bermuda courts, however, would ordinarily be expected to permit a shareholder to commence an action in the name of a company to remedy a wrong to the company where the act complained of is alleged to be beyond the corporate power of the company or illegal, or would result in the violation of the company’s memorandum of association or bye-laws. Furthermore, consideration would be given by a Bermuda court to acts that are alleged to constitute a fraud against the minority shareholders or, for instance, where an act requires the approval of a greater percentage of the company’s shareholders than that which actually approved it.
When the affairs of a company are being conducted in a manner that is oppressive or prejudicial to the interests of some part of the shareholders, one or more shareholders may apply to the Supreme Court of Bermuda, which may make such order as it sees fit, including an order regulating the conduct of the company’s affairs in the future or ordering the purchase of the shares of any shareholders by other shareholders or by the company.
Our Bye-laws contain a provision by virtue of which our shareholders waive any claim or right of action that they have, both individually and on our behalf, against any director or officer in relation to any action or failure to take action by such director or officer, except in respect of any fraud or dishonesty of such director or officer.
Capitalization of Profits and Reserves
Pursuant to our Bye-laws, our Board of Directors may (1) capitalize any part of the amount of our share premium or other reserve accounts or any amount credited to our profit and loss account or otherwise available for distribution by applying such sum in paying up unissued shares to be allotted as fully paid bonus shares pro rata (except in connection with the conversion of shares) to the shareholders; or (2) capitalize any sum standing to the credit of a reserve account or sums otherwise available for dividend or distribution by paying up in full, partly paid or nil paid shares of those shareholders who would have been entitled to such sums if they were distributed by way of dividend or distribution.
Untraced Shareholders
Our Bye-laws provide that our Board of Directors may forfeit any dividend or other monies payable in respect of any shares that remain unclaimed for six years from the date when such monies became due for payment. In addition, we are entitled to cease sending dividend warrants and checks by post or otherwise to a shareholder if such instruments have been returned undelivered to, or left uncashed by, such shareholder on at least two consecutive occasions or, following one such occasion, reasonable enquiries have failed to establish the shareholder’s new address. This entitlement ceases if the shareholder claims a dividend or cashes a dividend check or a warrant.
Certain Provisions of Bermuda Law
We have been designated by the BMA as a non-resident for Bermuda exchange control purposes. This designation allows us to engage in transactions in currencies other than the Bermuda dollar, and there are no restrictions on our ability to transfer funds (other than funds denominated in Bermuda dollars) in and out of Bermuda or to pay dividends to U.S. residents who are holders of common shares.
The BMA has given its consent for the issue and free transferability of all of the common shares that are the subject of this offering to and between residents and non-residents of Bermuda for exchange control purposes, provided that our shares remain listed on an appointed stock exchange, which includes the NYSE. Approvals or permissions given by the BMA do not constitute a guarantee by the BMA as to our performance or our creditworthiness. Accordingly, in giving such consent or permissions, neither the BMA nor the Registrar of Companies in Bermuda shall be liable for the financial soundness, performance or default of our business or for the correctness of any opinions or statements expressed in this prospectus. Certain issues and transfers of common shares involving persons deemed resident in Bermuda for exchange control purposes require the specific consent of the BMA. We have sought and have obtained a specific permission from the BMA for the issue and transfer of common shares up to the amount of our authorized capital from time to time, and options, warrants, depository receipts, rights, loan notes, debt instruments and our other securities to persons resident and non-resident for exchange control purposes with the need for prior approval of such issue or transfer.
In accordance with Bermuda law, share certificates are only issued in the names of companies, partnerships or individuals. In the case of a shareholder acting in a special capacity (for example as a trustee), certificates may, at the request of the shareholder, record the capacity in which the shareholder is acting. Notwithstanding such recording of any special capacity, we are not bound to investigate or see to the execution of any such trust.
Delaware Law
The terms of share capital of corporations incorporated in the United States, including Delaware, differ from companies incorporated in Bermuda. The following discussion highlights material differences of the rights of a shareholder of a Delaware corporation compared with the rights of our shareholders under Bermuda law, as outlined above.
Under Delaware law, a corporation may indemnify its director or officer (other than in action by or in the right of the companies) against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred in defense of an action, suit or proceeding by reason of such position if such director or officer (i) acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the corporation and (ii) with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful.
Delaware law provides that a majority of the shares entitled to vote, present in person or represented by proxy, constitutes a quorum at a meeting of shareholders. In matters other than the election of directors, with the exception of special voting requirements related to extraordinary transactions, the affirmative vote of a majority of shares present in person or represented by proxy at the meeting and entitled to vote is required for shareholder action, and the affirmative vote of a plurality of shares is required for the election of directors. With certain exceptions, a merger, consolidation or sale of all or substantially all the assets of a corporation must be approved by the board of directors and a majority of the outstanding shares entitled to vote thereon. Under Delaware law, a shareholder of a corporation participating in certain major corporate transactions may, under certain circumstances, be entitled to appraisal rights pursuant to which such shareholder may receive cash in the amount of the fair value of the shares held by such shareholder (as determined by a court) in lieu of the consideration such shareholder would otherwise receive in the transaction.
Under Delaware law, subject to any restrictions contained in the company’s certificate of incorporation, a company may pay dividends out of surplus or, if there is no surplus, out of net profits for the fiscal year in which the dividend is declared and for the preceding fiscal year. Delaware law also provides that dividends may not be paid out of net profits if, after the payment of the dividend, capital is less than the capital represented by the outstanding shares of all classes having a preference upon the distribution of assets.
Under Delaware law, the business and affairs of a corporation are managed by or under the direction of its board of directors. In exercising their powers, directors are charged with a fiduciary duty of care to protect the interests of the corporation and a fiduciary duty of loyalty to act in the best interests of its shareholders.
Delaware law permits any shareholder to inspect or obtain copies of a corporation’s shareholder list and its other books and records for any purpose reasonably related to such person’s interest as a shareholder.
Class actions and derivative actions generally are available to shareholders under Delaware law for, among other things, breach of fiduciary duty, corporate waste and actions not taken in accordance with applicable law, and the court generally has discretion in such actions to permit the winning party to recover attorneys’ fees.
Transfer Agent and Registrar
The transfer agent and registrar for the common shares is Broadridge Corporate Issuer Solutions, LLC (“Broadridge”). Broadridge’s address is 51 Mercedes Way, Edgewood, NY 11717.
Listing
We intend to apply to have our Class B common shares listed on the NYSE under the symbol “HG.”
SHARES ELIGIBLE FOR FUTURE SALE
General
Prior to this offering, there has not been a public market for our Class B common shares, and we cannot predict what effect, if any, market sales of Class B common shares or the availability of common shares for sale will have on the market price of our Class B common shares prevailing from time to time. Nevertheless, sales of substantial amounts of Class B common shares, including shares issued upon the exercise of outstanding options, in the public market, or the perception that such sales could occur, could materially and adversely affect the market price of our Class B common shares and could impair our future ability to raise capital through the sale of our equity or equity-related securities at a time and price that we deem appropriate.
Upon the completion of this offering, we will have a total of Class B common shares outstanding. Of the outstanding shares, the Class B common shares sold in this offering (or Class B common shares if the underwriters exercise in full their option to purchase additional shares from the selling shareholders) will be freely tradeable without restriction or further registration under the Securities Act, except that any shares held by our affiliates, as that term is defined under Rule 144, including our directors, executive officers and other affiliates, may be sold only in compliance with the limitations described below.
Rule 144
In general, under Rule 144, as currently in effect, once we have been subject to public company reporting requirements for at least 90 days, a person (or persons whose shares are aggregated) who is not deemed to be or have been one of our affiliates for purposes of the Securities Act at any time during 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than an affiliate, is entitled to sell such shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of a prior owner other than an affiliate, then such person is entitled to sell such shares without complying with any of the requirements of Rule 144.
In general, under Rule 144, as currently in effect, our affiliates or persons selling Class B common shares on behalf of our affiliates, who have met the six-month holding period for beneficial ownership of “restricted shares” of our Class B common shares, are entitled to sell upon the expiration of the lock-up agreements described below, within any three-month period beginning 90 days after the date of this prospectus, a number of shares that does not exceed the greater of:
•1% of the number of Class B common shares then outstanding, which will equal approximately Class B common shares immediately after this offering; or
•the average reported weekly trading volume of our Class B common shares on during the four calendar weeks preceding the filing of a notice on Form 144 with respect to such sale.
Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us. The sale of these shares, or the perception that sales will be made, could adversely affect the price of our Class B common shares after this offering because a great supply of shares would be, or would be perceived to be, available for sale in the public market.
Lock-Up Agreements
In connection with this offering, we, our directors, executive officers and shareholders of substantially all of our outstanding common shares will sign lock-up agreements with the underwriters that will, subject to certain exceptions, restrict the disposition of, or hedging with respect to, the Class B common shares or securities convertible into or exchangeable for Class B common shares, each held by them, during the period ending 180 days
after the date of this prospectus, except with the prior written consent of each of Barclays Capital Inc. and Morgan Stanley & Co. LLC. See “Underwriting” for a description of these lock-up agreements.
Shareholders Agreement
In connection with the consummation of the IPO, the Company and Sango Holdings, Hopkins Holdings, the Blackstone Investor and the Magnitude Investor will enter into the Shareholders Agreement. These shareholders will have specified board representation rights, governance rights and other rights. See “Certain Relationships and Related Party Transactions––Shareholders Agreement.”
Registration Rights Agreement
Certain of our existing shareholders will have the right to require us to include their Registrable Common Shares in any registration statement filed for the purposes of a public offering of our equity securities, subject to the terms of the Registration Rights Agreement. The Registrable Common Shares will represent % of our outstanding common shares after this offering (or % if the underwriters exercise their option to purchase additional common shares from the selling shareholders in full). For a description of these registration rights, see “Certain Relationships and Related Party Transactions––Registration Rights Agreement.”
Rule 701
Any of our directors, executive officers or employees who acquired shares under a written compensatory plan or contract may be entitled to sell them in reliance on Rule 701 under the Securities Act. Rule 701 permits affiliates to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144A. Rule 701 further provides that non-affiliates may sell these shares in reliance on Rule 144 without complying with the holding period, public information, volume limitation or notice provisions of Rule 144A. All holders of Rule 701 shares are required to wait 90 days after the date of this prospectus before selling those shares. However, all shares issued under Rule 701 are subject to lock-up agreements and will only become eligible for sale when the 180-day lock-up agreements expire.
Registration Statement on Form S-8
We intend to file one or more registration statements on Form S-8 under the Securities Act to register the Class B common shares issued or reserved to be issued pursuant to our equity incentive plans. We expect to file these registration statements as promptly as possible after the completion of this offering. Any such Form S-8 registration statements will automatically become effective upon filing. Accordingly, shares registered under such registration statements will be available for sale in the open market following the expiration of the lock-up agreements and arrangements described above, except that shares held by affiliates will still be subject to the volume limitation, manner of sale, notice and public information requirements of Rule 144 unless otherwise resalable under Rule 701 under the Securities Act.
CERTAIN REGULATORY CONSIDERATIONS
Bermuda Insurance Regulation
Insurance Regulation Generally. The Insurance Act 1978 of Bermuda and related regulations, as amended (the “Insurance Act”), regulate the insurance businesses of our Bermuda operating companies, and provide that no person may carry on any insurance business in or from within Bermuda unless registered as an insurer under the Insurance Act by the BMA. The BMA, in deciding whether to grant registration, has broad discretion to act as it thinks fit in the public interest. The BMA is required by the Insurance Act to determine whether the applicant is a fit and proper body to be engaged in insurance business and, in particular, whether it has, or has available to it, adequate knowledge and expertise to operate an insurance business.
The Insurance Act does not distinguish between insurers and reinsurers: companies are registered under the Insurance Act as “insurers.” The Insurance Act uses the defined term “insurance business” to include reinsurance.
The continued registration of an applicant as an insurer is subject to the applicant complying with the terms of its registration and such other conditions as the BMA may impose from time to time. The Insurance Act also grants to the BMA powers to supervise, investigate and intervene in the affairs of insurance companies.
Our Bermuda-licensed insurance operating subsidiaries include Hamilton Re, which is registered as a Class 4 general business insurer, Turing Re, which is registered as a Restricted Special Purpose Insurer, Ada Re, which is registered as an Unrestricted Special Purpose Insurer and registered as a segregated accounts company pursuant to the Segregated Accounts Companies Act 2000, and ACML, which is registered as an insurance agent (collectively, the “Bermuda Operating Companies”).
The Insurance Act imposes solvency and liquidity standards on Bermuda insurance companies, as well as auditing and reporting requirements, and grants the BMA powers to supervise, investigate, require information and demand the production of documents and intervene in the affairs of regulated companies.
As a holding company, the Company is not directly regulated as an insurer under the Insurance Act. However, our Bermuda Operating Companies are subject to various requirements under Bermuda law depending on their classification under the Insurance Act.
Bermuda registered insurers are generally prohibited from declaring or paying any dividends if in breach of the required minimum solvency margin or minimum liquidity ratio, or if the declaration or payment of such dividend would cause such a breach. Further, an insurer that fails to comply with its enhanced capital requirement is also prohibited from declaring and paying any dividends until the failure has been rectified. Hamilton Re is also subject to additional restrictions which apply to the payment of dividends and a reduction in total statutory capital and surplus over applicable thresholds.
From time to time, the Bermuda Operating Companies may apply for, and be granted, certain modifications to, or exemptions from, regulatory requirements which may otherwise apply to them.
The BMA acts as our group supervisor and has designated Hamilton Re as the “designated insurer” in respect of the Hamilton Group. Therefore, Hamilton Group is subject to the BMA’s group supervision and solvency rules which cover assessing the financial situation and solvency position of Hamilton Group and/or its members and regulating intra-group transactions, risk concentration, governance procedures, risk management and regulatory reporting and disclosure. See “Group Supervision” below for further discussion. The BMA has certain powers of investigation and intervention, relating to Bermuda-licensed entities and their holding companies, subsidiaries and other affiliates, including the power to cancel a Bermuda-licensed entity’s registration, which it may exercise in the interest of such an insurer’s policyholders or if there is any risk of insolvency or a breach of the Insurance Act or the license conditions of a Bermuda-licensed entity.
The European Parliament recognizes Bermuda’s regulatory regime as achieving Solvency II Directive 2009 (2009/138/EC) equivalence for its commercial insurers and insurance groups. Bermuda’s regulatory regime and the United Kingdom’s prudential regime were maintained following the United Kingdom’s transition out of the E.U.
Certain significant aspects of the Bermuda insurance regulatory framework are set forth below, focusing only on our primary Class 4 insurer, Hamilton Re, which is subject to the strictest regulation.
Classification of Insurers. The Insurance Act distinguishes between insurers carrying on long-term business, insurers carrying on general business, insurers carrying on special purpose business, and insurers carrying on general business in an innovative or innovative and experimental manner. There are six general business classifications (Classes 1, 2, 3, 3A, 3B and 4), five long-term business classifications (Classes A, B, C, D and E), two classifications of insurers carrying on special purpose business (Special Purpose Insurer and Collateralized Insurer), two innovative classifications (Class IGB and ILT), and two innovative and experimental classifications (Class IIGB and IILT).
Classification as a Class 4 Insurer; Minimum Paid Up Share Capital. A body corporate is registrable as a Class 4 insurer where (a) it has at the time of its application for registration, or will have before it carries on insurance business, total statutory capital and surplus of not less than $100,000,000; and (b) it intends to carry on general insurance business including excess liability business or property catastrophe reinsurance business. Hamilton Re is required to maintain fully paid up share capital of at least $1 million.
Principal Representative, Principal Office and Head Office. As a Class 4 insurer, Hamilton Re is required to maintain a principal office and to appoint and maintain a principal representative in Bermuda. For the purposes of the Insurance Act, the principal office of Hamilton Re is located at Wellesley House North, 1st Floor, 90 Pitts Bay Road, Pembroke, HM 08, Bermuda and Chad Cundliffe, the Chief Financial Officer of Hamilton Re, serves as its principal representative.
Without a reason acceptable to the BMA, an insurer may not terminate the appointment of its principal representative, and the principal representative may not cease to act as such, unless 30 days’ notice in writing to the BMA is given of the intention to do so.
The principal representative must notify the BMA forthwith upon reaching a view that there is a likelihood of the insurer becoming insolvent, or upon becoming aware that a reportable “event” has occurred, or is believed to have occurred. Examples of a reportable “event” include a failure by the insurer to comply substantially with a condition imposed upon it by the BMA relating to a solvency margin or a liquidity or other ratio, a significant loss reasonably likely to cause the insurer to fail to comply with its enhanced capital requirement (discussed below) and the occurrence of a “material change” (as such term is defined under the Insurance Act). Within 14 days of such notification to the BMA, the principal representative must furnish the BMA with a written report setting out all the particulars of the case that are available to the principal representative.
Where there has been a significant loss which is reasonably likely to cause the insurer to fail to comply with its enhanced capital requirement, the principal representative must also furnish the BMA with a capital and solvency return reflecting an enhanced capital requirement prepared using post-loss data within 45 days of notifying the BMA regarding the loss.
Furthermore, where a notification has been made to the BMA regarding a material change, the principal representative has 30 days from the date of such notification to furnish the BMA with unaudited interim statutory financial statements in relation to such period as the BMA may require, together with a general business solvency certificate in respect of those statements.
In addition, each Class 4 insurer must maintain its head office in Bermuda. In determining whether an insurer satisfies this requirement, the BMA considers, among other things, the following factors: (i) where the underwriting, risk management and operational decision-making of the insurer occurs; (ii) whether the presence of senior executives who are responsible for, and involved in, the decision-making related to the insurance business of the insurer are located in Bermuda; and (iii) where meetings of the board of directors of the insurer occur. In making its determination, the BMA may also give regard to (i) the location where management of the insurer meets to effect policy decisions of the insurer, (ii) the residence of the officers, insurance managers or employees of the insurer, and (iii) the residence of one or more directors of the insurer in Bermuda.
Independent Approved Auditor. Hamilton Re has appointed Ernst & Young Ltd. as its independent auditor. The independent auditor will audit and report on Hamilton Re’s GAAP or international financial reporting standards (“IFRS”) financial statements (as defined below) and audit its statutory financial statements, each of which is required to be filed annually with the BMA, as described below.
Loss Reserve Specialist. As a Class 4 insurer, Hamilton Re is required to appoint an individual approved by the BMA to be its loss reserve specialist. In order to qualify as an approved loss reserve specialist, the applicant must be an individual qualified to provide an opinion in accordance with the requirements of the Insurance Act and the BMA must be satisfied that the individual is fit and proper to hold such an appointment.
As a Class 4 insurer, Hamilton Re is required to submit annually an opinion of its approved loss reserve specialist with its capital and solvency return in respect of its total general business insurance technical provisions (i.e., the aggregate of its net premium provisions, net loss and loss expense provisions and risk margin, as each is reported in the insurer’s statutory economic balance sheet). The loss reserve specialist’s opinion must state, among other things, whether or not the aggregate amount of technical provisions shown in the statutory economic balance sheet as at the end of the relevant financial year (i) meets the requirements of the Insurance Act and (ii) makes reasonable provision for the total technical provisions of the insurer under the terms of its insurance contracts and agreements.
Annual Audited Financial Statements. Hamilton Re must prepare and submit, on an annual basis, audited GAAP or IFRS financial statements and audited statutory financial statements. The Insurance Act prescribes rules for the preparation and substance of statutory financial statements (which include, in statutory form, a balance sheet, income statement, a statement of capital and surplus and notes thereto). The statutory financial statements include detailed information and analysis regarding premiums, claims, reinsurance and investments of the insurer. Hamilton Re is also required to prepare and submit to the BMA financial statements which have been prepared under generally accepted accounting principles in the United States or international financial reporting standards (“GAAP or IFRS financial statements”). The insurer’s annual GAAP or IFRS financial statements and the auditor’s report thereon, and the statutory financial statements are required to be filed with the BMA within four months from the end of the relevant financial year (unless specifically extended with the approval of the BMA). The statutory financial statements do not form part of the public records maintained by the BMA, but the GAAP or IFRS financial statements are available for public inspection.
Annual Statutory Financial Return and Annual Capital and Solvency Return. As a Class 4 insurer, Hamilton Re is required to file with the BMA an annual statutory financial return no later than four months after its financial year end (unless specifically extended with the approval of the BMA). The statutory financial return includes, among other matters, the statutory financial statements of the insurer and the calculations for the Class 4 insurer’s minimum solvency margin and liquidity ratio.
In addition, each year Hamilton Re is required to file with the BMA a capital and solvency return along with its annual statutory financial return. The prescribed form of capital and solvency return comprises the Class 4 insurer’s Bermuda Solvency Capital Requirement (“BSCR”) model or an approved internal capital model in lieu thereof (more fully described below), various schedules and the opinion of the loss reserve specialist.
Neither the statutory financial return nor the capital and solvency return is available for public inspection.
Declaration of Compliance. At the time of filing its statutory financial statements, a Class 4 insurer is also required to deliver to the BMA a declaration of compliance, in such form and with such content as may be prescribed by the BMA, declaring whether or not the Class 4 insurer has, with respect to the preceding financial year: (i) complied with all requirements of the minimum criteria applicable to it; (ii) complied with the minimum margin of solvency as at its financial year end; (iii) complied with the applicable enhanced capital requirements as at its financial year end; (iv) observed any limitations, restrictions or conditions imposed upon issuance of its license, if applicable; and (v) complied with the minimum liquidity ratio for general business as at its financial year end. The declaration of compliance is required to be signed by two directors of the Class 4 insurer and if the Class 4 insurer has failed to comply with any of the requirements referenced in clauses (i) through (v) above, the Class 4 insurer will be required to provide the BMA with particulars of such failure in writing. A Class 4 insurer shall be liable to
civil penalty by way of a fine for failure to comply with a duty imposed on it in connection with the delivery of the declaration of compliance.
Public Disclosures. All commercial insurers and insurance groups are required to prepare and file with the BMA, and also publish on their website, a financial condition report, which provides, among other things, measures governing the business operations, corporate governance framework and solvency and financial performance of the insurer/insurance group. The BMA has discretion to approve modifications and exemptions to the public disclosure rules, on application by the insurer if, among other things, the BMA is satisfied that the disclosure of certain information will result in a competitive disadvantage or compromise confidentiality obligations of the insurer. We have received approval from the BMA to file a consolidated group financial condition report, inclusive of Hamilton Re.
Non-insurance Business. No Class 4 insurer may engage in non-insurance business, unless that non-insurance business is ancillary to the insurance business carried on by the insurer. Non-insurance business means any business other than insurance business and includes carrying on investment business, managing an investment fund as operator, carrying on business as a fund administrator, carrying on banking business, underwriting debt or securities or otherwise engaging in investment banking, engaging in commercial or industrial activities and carrying on the business of management, sales or leasing of real property.
Minimum Liquidity Ratio. The Insurance Act provides a minimum liquidity ratio for general business insurers. A Class 4 insurer engaged in general business is required to maintain a minimum liquidity ratio to the value of its relevant assets at not less than 75% of the amount of its relevant liabilities. Relevant assets include cash and time deposits, quoted investments, unquoted bonds and debentures, first liens on real estate, investment income due and accrued, accounts and premiums receivable, reinsurance balances receivable, funds held by ceding reinsurers and any other assets which the BMA, on application in any particular case made to it with reasons, accepts in that case. There are certain categories of assets which, unless specifically permitted by the BMA, do not automatically qualify as relevant assets, such as unquoted equity securities, investments in and advances to affiliates and real estate and collateral loans. The relevant liabilities are total general business insurance reserves and total other liabilities less deferred income tax and sundry liabilities (by interpretation, those not specifically defined) and letters of credit and guarantees.
Minimum Solvency Margin and Enhanced Capital Requirements. The Insurance Act provides that all general business insurers’ statutory assets must exceed their statutory limits by an amount greater than or equal to their prescribed minimum solvency margin (“MSM”). The MSM that must be maintained by a Class 4 insurer is the greater of (i) U.S. $100 million, (ii) 50% of net premiums written (with a credit for reinsurance ceded not exceeding 25% of gross premiums), (iii) 15% of net aggregate loss and loss expense provisions and other reinsurance reserves, or (iv) 25% of the ECR (as defined below) as reported at the end of the relevant year. Additional regulations apply to the determination of the types of capital instruments that may be used to satisfy the solvency requirements.
Hamilton Re is also required to maintain available statutory economic capital and surplus at a level equal to or in excess of its enhanced capital requirement (“ECR”), which is established by reference to either the BSCR model or an approved internal capital model. The BMA has also implemented the economic balance sheet (“EBS”) framework, which is used as the basis to determine an insurer’s ECR. Under the EBS framework, assets and liabilities are mainly assessed and included on the EBS at fair value, with the insurer’s U.S. GAAP balance sheet serving as a starting point. The model also requires insurers to estimate insurance technical provisions, which consist of the insurer’s insurance-related balances valued based on best-estimate cash flows, adjusted to reflect the time value of money, with the addition of a risk margin to reflect the uncertainty in the underlying cash flows. The ECR shall at all times equal or exceed the Class 4 insurer’s MSM and may be adjusted in circumstances where the BMA concludes that the insurer’s risk profile deviates significantly from the assumptions underlying its ECR on the insurer’s assessment of its risk management policies and practices used to calculate the ECR applicable to it.
The BSCR model is a risk-based capital model which provides a method for determining a Class 4 insurer’s capital requirements (statutory economic capital and surplus) by taking into account the risk characteristics of different aspects of the Class 4 insurer’s business. The BSCR formula establishes capital requirements for 10 categories of risk: fixed income investment risk, equity investment risk, interest rate/liquidity risk, currency risk,
concentration risk, premium risk, reserve risk, credit risk, catastrophe risk and operational risk. For each category, the capital requirement is determined by applying risk factors to asset, premium, reserve, creditor, PML and operation items, with higher risk factors applied to items with greater underlying risk and lower factors for less risky items.
While not specifically referred to in the Insurance Act, the BMA has also established a target capital level (“TCL”) applicable to Class 4 insurers, equal to 120% of its ECR. While Class 4 insurers are not currently required to maintain their statutory capital and surplus at this level, the TCL serves as an early warning tool for the BMA. Failure to maintain statutory capital at least equal to the TCL will likely result in increased regulatory oversight.
Any Class 4 insurer which at any time fails to meet its MSM requirements must, upon becoming aware of such failure, immediately notify the BMA and, within 14 days thereafter, file a written report with the BMA containing particulars of the circumstances that gave rise to the failure and setting out its plan detailing specific actions to be taken and the expected time frame in which the company intends to rectify the failure.
Any Class 4 insurer which at any time fails to meet the enhanced capital requirement applicable to it shall upon becoming aware of that failure, or of having reason to believe that such a failure has occurred, immediately notify the BMA in writing and within 14 days of such notification file with the BMA a written report containing particulars of the circumstances leading to the failure; and a plan detailing the manner, specific actions to be taken and time within which the insurer intends to rectify the failure, and within 45 days of becoming aware of that failure, or of having reason to believe that such a failure has occurred, furnish the BMA with (i) unaudited statutory economic balance sheets and unaudited interim statutory financial statements prepared in accordance with GAAP covering such period as the BMA may require; (ii) the opinion of a loss reserve specialist in relation to total general business insurance technical provisions as set out in the statutory economic balance sheet, where applicable; (iii) a general business solvency certificate in respect of the financial statements; and (iv) a capital and solvency return reflecting an enhanced capital requirement prepared using post failure data where applicable.
Eligible Capital. To enable the BMA to better assess the quality of the Class 4 insurer’s capital resources, a Class 4 insurer is required to disclose the makeup of its capital in accordance with the “3-tiered eligible capital system.” Under this system, all of the Class 4 insurer’s capital instruments will be classified as either basic or ancillary capital, which in turn will be classified into one of three tiers based on their “loss absorbency” characteristics. Highest quality capital will be classified as Tier 1 Capital; lesser quality capital will be classified as either Tier 2 Capital or Tier 3 Capital. Under this regime, up to certain specified percentages of Tier 1, Tier 2, and Tier 3 Capital may be used to support the Class 4 insurer’s MSM, ECR and TCL.
The characteristics of the capital instruments that must be satisfied to qualify as Tier 1, Tier 2 and Tier 3 Capital are set out in the Insurance (Eligible Capital) Rules 2012 and any amendments thereto. Under these rules, Tier 1, Tier 2 and Tier 3 Capital may, until January 1, 2026, include capital instruments that do not satisfy the requirement that the instrument be non-redeemable or settled only with the issuance of an instrument of equal or higher quality upon a breach, or if it would cause a breach, of the ECR.
Where the BMA has previously approved the use of certain instruments for capital purposes, the BMA’s consent will need to be obtained if such instruments are to remain eligible for use in satisfying the MSM and the ECR.
Insurance Code of Conduct. All Bermuda insurers are required to comply with the BMA’s Insurance Code of Conduct (the “Insurance Code”), which establishes the duties, requirements and standards to be complied with to ensure each insurer implements sound corporate governance, risk management and internal controls. The BMA will assess an insurer’s compliance with the Insurance Code in a proportional manner relative to the nature, scale and complexity of its business. Failure to comply with the requirements of the Insurance Code will be taken into account by the BMA in determining whether an insurer is conducting its business in a sound and prudent manner as prescribed by the Insurance Act, may result in the BMA exercising its powers of intervention and investigation (see below) and will be a factor in calculating the operational risk charge under the insurer’s BSCR or approved internal model.
Cancellation of Insurer’s Registration. An insurer’s registration may be cancelled by the BMA at the request of the insurer or on certain grounds specified in the Insurance Act. Failure by the insurer to comply with its obligations under the Insurance Act or, if the BMA believes that the insurer has not been carrying on business in accordance with sound insurance principles, would be examples of such grounds.
Restrictions on Dividends and Distributions. A Class 4 insurer is prohibited from declaring or paying a dividend if it is in breach of its MSM or minimum liquidity ratio or if the declaration or payment of such dividend would cause such a breach. Where an insurer fails to meet its MSM or minimum liquidity ratio on the last day of any financial year, it will be prohibited from declaring or paying any dividends during the next financial year without the approval of the BMA. Further, any insurer that fails to comply with its ECR is also prohibited from declaring and paying any dividends until the failure has been rectified.
In addition, a Class 4 insurer is prohibited from declaring or paying in any financial year dividends of more than 25% of its total statutory capital and surplus (as shown on its previous financial year’s statutory balance sheet) unless it files (at least seven days before payment of such dividends) with the BMA an affidavit signed by at least two directors (one of whom must be a Bermuda resident director if any of the insurer’s directors are resident in Bermuda) and the insurer’s principal representative stating that it will continue to meet its solvency margin and minimum liquidity ratio. Where such an affidavit is filed, it shall be available for public inspection at the offices of the BMA.
Reduction of Capital. No Class 4 insurer may reduce its total statutory capital by 15% or more, as set out in its previous year’s financial statements, unless it has received the prior approval of the BMA. Total statutory capital consists of the insurer’s paid-in share capital, its contributed surplus (sometimes called additional paid-in capital) and any other fixed capital designated by the BMA as statutory capital (such as letters of credit).
A Class 4 insurer seeking to reduce its total statutory capital by 15% or more, as set out in its previous year’s financial statements, is also required to submit an affidavit signed by at least two directors (one of whom must be a Bermuda resident director if any of the insurer’s directors is resident in Bermuda) and the insurer’s principal representative stating that the proposed reduction will not cause the insurer to fail its relevant margins and such other information as the BMA may require. Where such an affidavit is filed, it shall be available for public inspection at the offices of the BMA.
Fit and Proper Controllers. The BMA maintains supervision over the controllers (as defined herein) of all registered insurers in Bermuda. For so long as shares of the Company are listed on the NYSE or another recognized stock exchange, the Insurance Act requires that the BMA be notified in writing within 45 days of any person becoming, or ceasing to be, a controller.
A controller includes (i) the managing director of the registered insurer or its parent company; (ii) the chief executive of the registered insurer or of its parent company; (iii) a shareholder controller (as defined below); and (iv) any person in accordance with whose directions or instructions the directors of the registered insurer or of its parent company are accustomed to act. The BMA may object to a controller and require the controller to reduce its shareholdings and direct, among other things, that voting rights attached to the shares shall not be exercisable.
The definition of shareholder controller is set out in the Insurance Act but generally refers to (i) a person who holds 10% or more of the shares carrying rights to vote at a shareholders’ meeting of the registered insurer or its parent company, (ii) a person who is entitled to exercise 10% or more of the voting power at any shareholders’ meeting of such registered insurer or its parent company, or (iii) a person who is able to exercise significant influence over the management of the registered insurer or its parent company by virtue of its shareholding or its entitlement to exercise, or control the exercise of the voting power at any shareholders’ meeting.
A shareholder controller that owns 10% or more but less than 20% of the shares as described above is defined as a 10% shareholder controller; a shareholder controller that owns 20% or more but less than 33% of the shares as described above is defined as a 20% shareholder controller; a shareholder controller that owns 33% or more but less than 50% of the shares as described above is defined as a 33% shareholder controller; and a shareholder controller that owns 50% or more of the shares as described above is defined as a 50% shareholder controller.
Where the shares of the registered insurer, or the shares of its parent company, are traded on a recognized stock exchange, and a person becomes a 10%, 20%, 33% or 50% shareholder controller of the insurer, that person shall, within 45 days, notify the BMA in writing that he has become such a controller. In addition, a person who is a shareholder controller of a Class 4 insurer whose shares or the shares of its parent company (if any) are traded on a recognized stock exchange must serve on the BMA a notice in writing that he has reduced or disposed of his holding in the insurer where the proportion of voting rights in the insurer held by him will have reached or has fallen below 10%, 20%, 33% or 50%, as the case may be, not later than 45 days after such disposal.
Where the shares of an insurer, or the shares of its parent company, are not traded on a recognized stock exchange (i.e., private companies), the Insurance Act prohibits a person from becoming a shareholder controller unless he has first served on the BMA notice in writing stating that he intends to become such a controller and the BMA has either, before the end of 45 days following the date of notification, provided that notice to the proposed controller that it does not object to his becoming such a controller or the full 45 days has elapsed without the BMA serving an objection. Where neither the shares of the insurer nor the shares of its parent company (if any) are traded on a recognized stock exchange, the Insurance Act prohibits a person who is a shareholder controller of a Class 4 insurer from reducing or disposing of his holdings where the proportion of voting rights held by the shareholder controller in the insurer will reach or fall below 10%, 20%, 33% or 50%, as the case may be, unless that shareholder controller has served on the BMA a notice in writing stating that he intends to reduce or dispose of such holding.
Any person who contravenes the Insurance Act by failing to give notice or knowingly becoming a shareholder controller of any description before the required 45 days has elapsed is guilty of an offense and liable to a fine of $25,000.
Notification by Registered Person of Change of Controllers and Officers. All registered insurers are required to give written notice to the BMA of the fact that a person has become, or ceased to be, a controller or officer of the registered insurer within 45 days of becoming aware of such fact. An officer in relation to a registered insurer means a director, chief executive or senior executive performing duties of underwriting, actuarial, risk management, compliance, internal audit, finance or investment matters.
The BMA may issue a notice of objection to any person who is a controller of any description where it appears that such person is not, or is no longer, a fit and proper person to be a controller of the registered entity. Before issuing a notice of objection, the BMA is required to serve upon the person concerned a preliminary written notice stating the BMA’s intention to issue formal notice of objection. Upon receipt of the preliminary written notice, the person served may, within 28 days, file written representations with the BMA which shall be taken into account by the BMA in making its final determination. Any person who continues to be a controller of any description after having received a notice of objection shall be guilty of an offense and shall be liable on summary conviction to a fine of $25,000 (and a continuing fine of $500 per day for each day that the offense is continuing) or, if convicted on indictment, to a fine of $100,000 and/or two years in prison.
Notification of Material Changes. All registered insurers are required to give notice to the BMA of their intention to effect a material change within the meaning of the Insurance Act. For the purposes of the Insurance Act, the following changes are material: (i) the transfer or acquisition of insurance business being part of a scheme falling under section 25 of the Insurance Act or section 99 of the Companies Act 1981 of Bermuda (the “Companies Act”), (ii) the amalgamation with or acquisition of another firm, (iii) engaging in unrelated business that is retail business, (iv) the acquisition of a controlling interest in an undertaking that is engaged in non-insurance business which offers services and products to persons who are not affiliates of the insurer, (v) outsourcing all or substantially all of the company’s actuarial, risk management, compliance or internal audit functions, (vi) outsourcing all or a material part of an insurer’s underwriting activity, (vii) the transfer other than by way of reinsurance of all or substantially all of a line of business, (viii) the expansion into a material new line of business, (ix) the sale of an insurer, and (x) outsourcing of an officer’s role.
No registered insurer shall take any steps to give effect to a material change unless it has first served notice on the BMA that it intends to effect such material change and before the end of 30 days, either the BMA has notified such company in writing that it has no objection to such change or that period has lapsed without the BMA having issued a notice of objection.
Disclosure of Information. In addition to powers under the Insurance Act to investigate the affairs of an insurer, the BMA may require certain information from an insurer (or certain other persons) to be produced to the BMA. Further, the BMA has been given powers to assist other regulatory authorities, including foreign insurance regulatory authorities, with their investigations involving insurance companies in Bermuda if it is satisfied that the assistance being requested is in connection with the discharge of regulatory responsibilities and that such cooperation is in the public interest.
Insurance Agent Reporting Requirements. The BMA’s Insurance Brokers and Insurance Agents Code of Conduct requires insurance agents to file an insurance agents return, which requires, among other matters, details around directors and officers of the insurance agent, services provided by the agent and details of the insurers for which the agent has been appointed. In addition, under the Insurance Act, insurance agents are required to notify the BMA of certain events, such as failure to comply with a condition imposed upon them by the BMA or the occurrence of a cyber reporting event.
Group Supervision. The BMA acts as group supervisor of our group of insurance and reinsurance companies (the “Regulatory Group”) and has designated Hamilton Re as the designated insurer for group supervisory and solvency purposes (“Designated Insurer”). As the Designated Insurer, Hamilton Re is required to facilitate compliance by the Regulatory Group with group insurance solvency and supervision rules.
As group supervisor, the BMA performs a number of supervisory functions, including (i) coordinating the gathering and dissemination of information which is of importance for the supervisory task of other competent authorities; (ii) carrying out a supervisory review and assessment of the Regulatory Group; (iii) carrying out an assessment of the Regulatory Group’s compliance with the rules on solvency, risk concentration, intra-group transactions and good governance procedures; (iv) planning and coordinating, with other competent authorities, supervisory activities in respect of the Regulatory Group, both as a going concern and in emergency situations; (v) coordinating any enforcement action that may need to be taken against the Regulatory Group or any of its members; and (vi) planning and coordinating meetings of colleges of supervisors (consisting of insurance regulators) in order to facilitate the carrying out of the functions described above.
In carrying out its functions, the BMA makes rules for (i) assessing the financial situation and the solvency position of the Regulatory Group and/or its members and (ii) regulating intra-group transactions, risk concentration, governance procedures, risk management and regulatory reporting and disclosure.
Group Solvency and Group Supervision. The current supervision and solvency rules (together, “Group Rules”) apply to the Regulatory Group so long as the BMA remains our group supervisor. Through the Group Rules, the BMA may take action which affects the Company. A summary of the Group Rules is set forth below.
Approved Group Actuary. Hamilton Re, as Designated Insurer, is responsible for ensuring that the Regulatory Group appoints an individual approved by the BMA to be the group actuary who is qualified to provide an opinion on the Regulatory Group’s technical provisions.
Annual Group Financial Statements. The Regulatory Group is required to prepare and submit, on an annual basis, consolidated financial statements (including notes to the financial statements) prepared in accordance with either GAAP or IFRS. The group financial statements must be audited annually by the Regulatory Group’s approved auditor who is required to prepare an auditor’s report thereon in accordance with generally accepted auditing standards. In addition, the Regulatory Group must prepare statutory financial statements (which include, in statutory form, a balance sheet, an income statement, a statement of capital and surplus, and notes thereto). The Designated Insurer is required to file with the BMA the statutory financial statements and the audited GAAP or IFRS financial statements for the Regulatory Group with the BMA within five months from the end of the relevant financial year (unless specifically extended).
Annual Insurance Group Statutory Financial Return. The Regulatory Group is required to prepare an annual Group Statutory Financial Return consisting of (i) an insurance group solvency certificate, (ii) particulars of ceded reinsurance comprising the top 10 unaffiliated reinsurers for which the group has the highest recoverable balances and any reinsurer with recoverable balances exceeding 15% of the insurance group’s statutory capital and surplus, (iii) any adjustments to the group financial statements to produce the economic balance sheet (i.e., a reconciliation),
(iv) a list of non-insurance financial regulated entities owned by the group, and (v) particulars of qualifying members of the group as defined within the Group Rules. The annual insurance Group Statutory Financial Return must be submitted to the BMA by the Designated Insurer within five months after the financial year end (unless specifically extended).
Annual Insurance Group Capital and Solvency Return. The Regulatory Group is required to prepare an annual Insurance Group Capital and Solvency Return which includes the Group Solvency Self-Assessment (“GSSA”), Group BSCR and associated Schedules, including an annual opinion of the Group Actuary on the EBS technical provisions. The Group Capital and Solvency Return must be submitted to the BMA by the Designated Insurer within five months after the financial year end (unless specifically extended). The Designated Insurer must keep a copy of the Regulatory Group’s financial statements (together with the notes to those statements and the auditor’s report thereon), statutory financial statements and the Group Statutory Financial Return at its principal office for a period of five years.
The GSSA assesses the quality and quantity of capital required to adequately cover the risks to which the insurance group is exposed. In particular, the GSSA should, among other things, include consideration of the relationship between risk management, the quality and quantity of capital resources, the impact of risk mitigation techniques and diversification and correlation effects between material risks; describe the Regulatory Group’s risk appetite; be forward-looking; include appropriate stress and scenario testing and adequately reflect all assets and liabilities, material off-balance sheet arrangements, material intra-group transactions, sheet arrangements, material intra-group transactions, relevant managerial practices, systems and controls and a valuation basis that is aligned with the risk characteristics and business model of the group.
Quarterly Group Financial Statements. The Designated Insurer is required to file Quarterly Financial Returns for the Regulatory Group with the BMA on or before the last day of the months of May, August and November of each year. The quarterly Group Financial Return consists of (i) quarterly unaudited (consolidated) group financial statements in respect of its business for each financial quarter (which must not reflect a financial position that exceeds two months), (ii) a list and details of material intra-group transactions and risk concentrations, details surrounding all intra-group reinsurance and retrocession arrangements and other intra-group risk transfer insurance business arrangements, and details of the 10 largest exposures to unaffiliated counterparties and any other unaffiliated counterparty exposures or series of linked unaffiliated counterparty exposures exceeding 10% of the Regulatory Group’s statutory capital and surplus, (iii) Enhanced Capital Requirement ratio, (iv) Group Commercial Solvency Self-Assessment, (v) Total Quoted Bonds and Unquoted Bonds by BSCR rating, and (vi) details of the catastrophe event that occurred during the reporting period (if applicable).
Public Disclosures. All insurance groups are required to prepare and file with the BMA, and also publish on their website, a Financial Condition Report. An insurance group that does not have a website must furnish to the public a copy of the Financial Condition Report within 10 days of receipt of a request to do so made in writing. The Designated Insurer must keep copies of the financial condition report at its head office for a period of five years beginning from the filing date.
Group Minimum Solvency Margin and Group Enhanced Capital Requirement. The Regulatory Group is also required to maintain available statutory economic capital and surplus in an amount that is at least equal to or exceeds the value of its group ECR (the “Group ECR”), provided that the Group ECR shall at all times be an amount equal to or exceeding the group minimum solvency margin (the “Group MSM”). The BMA has established a group target capital level equal to 120% of Group ECR. In addition, under the tiered capital requirements, all of the Regulatory Group’s capital instruments will be classified as either basic or ancillary capital which in turn will be classified into one of three tiers based on their “loss absorbency” characteristics. Highest quality capital will be classified Tier 1 Capital, and lesser quality capital will be classified as either Tier 2 or Tier 3 Capital. A minimum threshold of Tier 1 Capital and maximum thresholds of Tier 2 and Tier 3 Capital used to satisfy the Group MSM and Group ECR requirements are specified under the rules. Under these rules, Tier 1, Tier 2 and Tier 3 Capital may, until January 1, 2026, include capital instruments that do not satisfy the requirement that the instrument be non-redeemable or settled only with the issuance of an instrument of equal or higher quality upon a breach, or if it would cause a breach, of the ECR.
Group Governance. The Group Rules require the Board of Directors of the Company (the “Parent Board”) to establish and effectively implement corporate governance policies and procedures, which must be periodically reviewed to ensure they continue to support the overall organizational strategy of the Regulatory Group. In particular, the Parent Board must:
•ensure that operational and oversight responsibilities of the group are clearly defined and documented and that the reporting of material deficiencies and fraudulent activities are transparent and devoid of conflicts of interest;
•establish systems for identifying on a risk-sensitive basis those policies and procedures that must be reviewed annually and those policies and procedures that must be reviewed at other regular intervals;
•establish a risk management and internal controls framework and ensure that it is assessed regularly and such assessment is reported to the Parent Board, the chief executive officer and senior executives;
•establish and maintain sound accounting and financial reporting procedures and practices for the Regulatory Group; and
•establish and keep under review group functions relating to actuarial, compliance, internal audit and risk management functions which must address certain specific requirements as set out in the Group Rules.
Designated Insurer Notification Obligations. The Designated Insurer must notify the BMA upon reaching a view that there is a likelihood of the Regulatory Group or any member of the Regulatory Group becoming insolvent or that a reportable “event” has, to the Designated Insurer’s knowledge, occurred or is believed to have occurred. Examples of a reportable “event” include a failure by the Regulatory Group or any member of the Regulatory Group to comply substantially with a requirement imposed upon it under the Group Rules relating to its solvency position, governance and risk management or supervisory reporting and disclosures; failure by the Designated Insurer to comply with a direction given to it under the Insurance Act in respect of the group or any of its members; a criminal conviction imposed upon any member of the Regulatory Group whether in Bermuda or abroad; material breaches of any statutory requirements by any member of the Regulatory Group located outside of Bermuda that could lead to supervisory or enforcement action by a competent authority; or a significant loss that is reasonably likely to cause the Regulatory Group to be unable to comply with its Group ECR. Within 30 days of such notification to the BMA, the Designated Insurer must furnish the BMA with a written report setting out all the particulars of the case that are available to it and within 45 days it must furnish a Regulatory Group capital and solvency return that reflects the Group ECR that has been prepared using post-loss data and unaudited interim financial statements for such period as the BMA shall require together with a declaration of solvency in respect thereof. The Designated Insurer must also notify the BMA in writing within 14 days of becoming aware that a requirement of the Group Rules conflicts with the laws of another jurisdiction where a member of the Regulatory Group operates.
The Designated Insurer is required to notify the BMA if any member of the Regulatory Group effects a material change within the meaning of the Insurance Act within 30 days of such material change taking effect. In addition, the Designated Insurer is required to give written notice to the BMA of the fact that a person has become, or ceased to be, a controller or officer of the parent company of the Regulatory Group within 45 days of becoming aware of such fact.
The following events constitute material changes that must be notified to the BMA: (i) the amalgamation with or acquisition of another firm, (ii) engaging in unrelated business that is retail business, (iii) the acquisition of a controlling interest in an undertaking that is engaged in non-insurance business which offers services and products to persons who are not affiliates, (iv) outsourcing all or substantially all of the actuarial, risk management, compliance or internal audit functions, (v) outsourcing all or a material part of underwriting activities, (vi) the transfer other than by way of reinsurance of all or substantially all of a line of business, and (vii) the expansion into a material new line of business.
If it appears to the BMA that the Designated Insurer is in breach of any provision of the Insurance Act or the Group Rules, the BMA may give the Designated Insurer such directions as appear to the BMA to be desirable for safeguarding the interests of policyholders and potential policyholders of the Regulatory Group.
Supervision, Investigation, Intervention and Disclosure. The BMA may, by notice in writing served on a registered person or a Designated Insurer, require the registered person or a Designated Insurer to provide such information and/or documentation as the BMA may reasonably require with respect to matters that are likely to be material to the performance of its supervisory functions under the Insurance Act. In addition, it may require such person’s auditor, underwriter, accountant or any other person with relevant professional skill to prepare a report on any aspect pertaining thereto. In the case of a report, the person so appointed shall immediately give the BMA written notice of any fact or matter of which he becomes aware or which indicates to him that any condition attaching to his registration under the Insurance Act is not or has not or may not be or may not have been fulfilled and that such matters are likely to be material to the performance of its functions under the Insurance Act. If it appears to the BMA to be desirable in the interests of the clients of a registered person or relevant insurance group, the BMA may also exercise these powers in relation to subsidiaries, parent companies and other affiliates of the registered person or designated insurer.
If the BMA deems it necessary to protect the interests of the policyholders or potential policyholders of an insurer or insurance group, it may appoint one or more competent persons to investigate and report on the nature, conduct or state of the insurer’s or the insurance group’s business, or any aspect thereof, or the ownership or control of the insurer or insurance group. If the person so appointed thinks it necessary for the purposes of his investigation, he may also investigate the business of any person who is, or has been at any relevant time, a member of the insurance group or of a partnership of which the person being investigated is a member. In this regard, it shall be the duty of every person who is or was a controller, officer, employee, agent, banker, auditor, accountant, barrister and attorney or insurance manager to produce to the person appointed such documentation as he may reasonably require for purposes of his investigation, and to attend and answer questions relevant to the investigation and to otherwise provide such assistance as may be necessary in connection therewith.
Where the BMA suspects that a person has failed to properly register under the Insurance Act or that a registered person or designated insurer has failed to comply with a requirement of the Insurance Act or that a person is not, or is no longer, a fit and proper person to perform functions in relation to a regulated activity, it may, by notice in writing, carry out an investigation into such person (or any other person connected thereto). In connection therewith, the BMA may require every person who is or was a controller, officer, employee, agent, banker, auditor, accountant, barrister and attorney or insurance manager to make a report and produce such documents in his care, custody and control and to attend before the BMA to answer questions relevant to the BMA’s investigation and to take such actions as the BMA may direct. The BMA may also enter any premises for the purposes of carrying out its investigation and may petition the court for a warrant if it believes a person has failed to comply with a notice served on him or there are reasonable grounds for suspecting the completeness of any information or documentation produced in response to such notice or that its directions will not be complied with or that any relevant documents would be removed, tampered with or destroyed.
If it appears to the BMA that the business of the registered insurer is being conducted in a way that there is a significant risk of the insurer becoming insolvent or being unable to meet its obligations to policyholders, or that the insurer is in breach of the Insurance Act or any conditions imposed upon its registration, or the minimum criteria stipulated in the Insurance Act is not or has not been fulfilled in respect of a registered insurer, or that a person has become a controller without providing the BMA with the appropriate notice or in contravention of a notice of objection, or the registered insurer is in breach of its ECR, or that a designated insurer is in breach of any provision of the Insurance Act or the regulations or rules applicable to it, the BMA may issue such directions as it deems desirable for safeguarding the interests of policyholders or potential policyholders of the insurer or the insurance group. The BMA may, among other things, direct an insurer, for itself and in its capacity as designated insurer of the insurance group of which it is a member, (1) not to effect further contracts of insurance, or any contract of insurance of a specified description, (2) to limit the aggregate premiums to be written by it during specified period, (3) not to vary any insurance contract if the effect would be to increase the insurer’s liabilities, (4) not to make certain investments, (5) to realize certain investments, (6) not to declare or pay any dividends or other distributions or to restrict the making of such payments, (7) not to enter into specified transactions with any specified person or persons of a specified class, (8) to provide such written particulars relating to the financial circumstances of the insurer as the BMA thinks fit, (9) (as an individual insurer only and not in its capacity as designated insurer) to obtain the opinion of a loss reserve specialist and submit it to the BMA and/or (10) to remove a controller or officer.
The BMA has the power to assist other regulatory authorities, including foreign insurance regulatory authorities, with their investigations involving insurance and reinsurance companies in Bermuda if it is satisfied that the assistance being requested is in connection with the discharge of regulatory responsibilities and that such cooperation is in the public interest. The grounds for disclosure by the BMA to a foreign regulatory authority without consent of the insurer are limited and the Insurance Act provides for sanctions for breach of the statutory duty of confidentiality.
Economic Substance Act. In December 2018, the Economic Substance Act 2018 (the “ESA”) came into effect in Bermuda. Under the provisions of the ESA, every Bermuda registered entity other than an entity which is resident for tax purposes in certain jurisdictions outside of Bermuda that carries on one or more “relevant activities” referred to in the ESA, and from which it earns gross revenue, must satisfy economic substance requirements by maintaining a substantial economic presence in Bermuda. Under the ESA, insurance or holding entity activities (both as defined in the ESA and Economic Substance Regulations 2018) are relevant activities. To the extent that the ESA applies to any of our entities registered in Bermuda, we will be required to demonstrate compliance with economic substance requirements by filing an annual economic substance declaration with the Registrar of Companies in Bermuda. Any entity that must satisfy economic substance requirements but fails to do so could face automatic disclosure to competent authorities in the E.U. of the information filed by the entity with the Bermuda Registrar of Companies in connection with the economic substance requirements and may also face financial penalties, restriction or regulation of its business activities and/or may be struck off as a registered entity in Bermuda.
Cyber Code and Reporting Events. In October 2020, the BMA issued the Insurance Sector Operational Cyber Risk Management Code of Conduct (“Cyber Code”) which applies to all registered insurers, insurance managers and intermediaries (e.g., agents, brokers, insurance market place providers). The Cyber Code establishes duties, requirements, standards, procedures and principles to be complied with in relation to operational cyber risk management and is designed to promote the stable and secure management of information technology systems of regulated entities. The Cyber Code defines a cyber reporting event as being any act that results in the unauthorized access to, disruption or misuse of the electronic systems or information stored on such systems of a licensed undertaking, including any breach of security leading to the loss or unlawful destruction or unauthorized disclosure of or access to such systems or information, where (i) a cyber reporting event has the likelihood of adversely impacting policyholders or clients; (ii) an insurer has reached a view that there is a likelihood that loss of its system availability will have an adverse impact on its insurance business; (iii) an insurer has reached the view that there is a likelihood that the integrity of its information or data has been compromised and may have an adverse impact on its insurance business; (iv) an insurer has become aware that there is a likelihood that there has been unauthorized access to its information systems whereby such access would have an adverse impact on its insurance business; or (v) an event has occurred for which a notice is required to be provided to a regulatory body or governmental agency. Cyber reporting events are only reportable to the BMA where the event results in a significant adverse impact to the regulated entity’s operations, its policyholders or clients.
Certain Other Bermuda Law Considerations. All Bermuda companies must comply with the provisions of the Companies Act regulating the payment of dividends and making of distributions from contributed surplus. A company is prohibited from declaring or paying a dividend, or making a distribution out of contributed surplus, if there are reasonable grounds for believing that (i) the company is, or would after the payment be, unable to pay its liabilities as they become due; or (ii) the realizable value of the company’s assets would be less than its liabilities.
Under the Company’s Bye-laws, each common share is entitled to dividends if, and when, dividends are declared by the Board of Directors, subject to any preferred dividend rights of the holders of any preference shares. Issued share capital is the aggregate par value of the company’s issued shares, and the share premium account is the aggregate amount paid for issued shares over and above their par value. Share premium accounts may be reduced in certain limited circumstances. In addition, the Companies Act regulates return of capital, reduction of capital and any purchase or redemption of shares by the Company.
Although the Company is incorporated in Bermuda, it has been designated as a non-resident of Bermuda for exchange control purposes by the BMA. Pursuant to its non-resident status, the Company may engage in transactions in currencies other than the Bermuda dollar, and there are no restrictions on its ability to transfer funds
(other than funds denominated in Bermuda dollars) in and out of Bermuda or to pay dividends to non-residents who are holders of its common shares in currencies other than the Bermuda dollar.
Under Bermuda law, exempted companies are companies formed for the purpose of conducting business outside Bermuda from a principal place in Bermuda. All Bermuda exempted companies are exempt from certain Bermuda laws restricting the percentage of share capital that may be held by non-Bermudians. However, exempted companies may not, without the express authorization of the Bermuda legislation or under a license or consent granted by the Bermuda Minister, participate in certain business transactions, including (i) the acquisition or holding of land in Bermuda (except that held by way of lease or tenancy agreement which is required for their business and held for a term not exceeding 50 years or which is used to provide accommodation or recreational facilities for their officers and employees and held with the consent of the Bermuda Minister, for a term not exceeding 21 years); (ii) the taking of mortgages on land in Bermuda to secure an amount in excess of BD$50,000; (iii) the acquisition of any bonds or debentures secured by any land in Bermuda, other than bonds or debentures issued by the Bermuda government or a public authority; or (iv) the carrying on of business of any kind for which they are not licensed in Bermuda, except in certain limited circumstances such as doing business with another exempted undertaking in furtherance of their business (as the case may be) carried on outside Bermuda.
Specific permission is required from the BMA, pursuant to the provisions of the Exchange Control Act 1972 and related regulations, for all issuances and transfers of securities of Bermuda companies, other than in cases where the BMA has granted a general permission. The BMA, in its notice to the public dated June 1, 2005, has granted general permission for the issue and subsequent transfer of any securities from and/or to a non-resident of Bermuda where any equity securities of such company (which includes the Class B common shares) are listed on an appointed stock exchange, for so long as any equity securities of the company remain so listed. The NYSE has been appointed as an appointed stock exchange under Bermuda law and therefore the specific permission of the BMA is not required to be obtained prior to the issuance or transfer of the Class B common shares. Neither the BMA nor the Bermuda Registrar of Companies has reviewed or approved the Class B common shares offered hereby or passed upon the adequacy of this prospectus and no statement to the contrary, explicit or implicit, is authorized to be made in this regard.
Bermuda Work Permit Considerations. Under Bermuda law, only persons who are Bermudians, spouses of Bermudians, holders of a permanent resident’s certificate, naturalized British Overseas Territory Citizens or persons who are exempt pursuant to the Incentives for Job Makers Act 2011, as amended (“exempted persons”) may engage in gainful occupation in Bermuda without an appropriate governmental work permit. Work permits may be granted or extended by the Bermuda government upon showing that, after proper public advertisement in most cases, no Bermudian (or otherwise exempted person) is available who meets the minimum standard requirements for the advertised position. A waiver from advertising is automatically granted in respect of any chief executive officer position and other chief officer positions. Waivers from advertising can also be granted where the applicant is uniquely qualified, the position would not exist in Bermuda if not for the expatriate, the success of the business would be detrimentally affected if the applicant were to leave the business or the expatriate is integral and key to income generation by brokering deals or attracting/retaining clients.
Bermuda Data Protection Legislation. The Personal Information Protection Act 2016 (“PIPA”) is the principal Bermuda legislation regulating the right to personal information privacy. Although PIPA was passed on July 27, 2016, the sections that are currently in effect are limited to those that relate to the establishment and appointment of the privacy commissioner (“Privacy Commissioner”), the hiring of the Privacy Commissioner’s staff, and the general authority of the Privacy Commissioner to inform the public about PIPA. Following the Privacy Commissioner’s appointment, effective January 20, 2020, the Privacy Commissioner’s office has begun communications with the public and stakeholders regarding full implementation of PIPA. On October 30, 2020, the Privacy Commissioner issued guidance regarding privacy safeguarding of personal information by public companies; however, PIPA’s remaining provisions have not been fully implemented and regulations under PIPA have not yet been provided. The Privacy Commissioner has recommended that organizations in Bermuda start to conduct data due diligence across their existing business lines as a first stage towards PIPA compliance and, whilst the effective date has not yet been announced, it is currently anticipated to be announced this year and the Privacy Commissioner has recommended to the Bermuda Government that a period of six to nine months between announcement and the effective date of PIPA be granted to allow adequate time to prepare.
U.S. Insurance Regulation
State Regulation
Our U.S. insurance subsidiaries are subject to extensive regulation and supervision by their state of domicile, as well as those states in which they do business. The purpose of such regulation and supervision is primarily to provide safeguards for policyholders, rather than to protect the interests of shareholders. The insurance laws of the various states establish regulatory agencies with broad administrative powers, including the power to grant or revoke operating licenses and regulate trade practices, investments, premium rates, deposits of securities, the form and content of financial statements and insurance policies, dividend limitations, cancellation and non-renewal of policies, accounting practices and the maintenance of specified reserves and capital for the protection of policyholders.
The payment of dividends by our subsidiaries to us is limited by statute. In general, the laws and regulations applicable to our domestic insurance subsidiaries limit the aggregate amount of dividends or other distributions that they may declare or pay within any 12-month period without advance regulatory approval.
Premium rate regulation varies greatly among jurisdictions and lines of insurance. In most states in which our subsidiaries write insurance, premium rates for the various lines of insurance are subject to either prior approval or limited review upon implementation. States require rates for property-casualty insurance that are adequate, not excessive, and not unfairly discriminatory.
Our insurance subsidiaries are required to file quarterly and annual reports with the appropriate regulatory agency in its state of domicile and with the NAIC based on applicable statutory regulations, which differ from U.S. generally accepted accounting principles. Their business and accounts are subject to examination by such agencies at any time.
Many jurisdictions have laws and regulations that limit an insurer’s ability to withdraw from a particular market. For example, states may limit an insurer’s ability to cancel or non-renew policies. Furthermore, certain states prohibit an insurer from withdrawing one or more lines of business from the states, except pursuant to a plan approved by the state insurance department. Laws and regulations that limit cancellation and non-renewal and that subject program withdrawals to prior approval requirements may restrict our ability to exit unprofitable marketplaces in a timely manner.
State laws governing insurance holding companies and insurance companies also impose standards on certain transactions between related companies, which include, among other requirements, that all transactions be fair and reasonable, that an insurer’s surplus as regards policyholders be reasonable and adequate in relation to its liabilities and that expenses and payments be allocated to the appropriate party in accordance with customary accounting practices. These transactions between related companies include transfers of assets, loans, reinsurance agreements, service agreements, certain dividend payments by the insurance companies and certain other material transactions. In 2012, the NAIC adopted the NAIC Amendments. The NAIC Amendments, when adopted by the various states, are designed to respond to perceived gaps in the regulation of insurance holding company systems in the United States. One of the major changes is a requirement that an insurance holding company system’s ultimate controlling person submit annually to its lead state insurance regulator an “enterprise risk report” that identifies activities, circumstances or events involving one or more affiliates of an insurer that, if not remedied properly, are likely to have a material adverse effect upon the financial condition or liquidity of the insurer or its insurance holding company system as a whole. Other changes include requiring a controlling person to submit prior notice to its domiciliary insurance regulator of its divestiture of control, having detailed minimum requirements for cost sharing and management agreements between an insurer and its affiliates and expanding of the agreements between an insurer and its affiliates to be filed with its domiciliary insurance regulator. In addition, in 2012 the NAIC adopted the Own Risk and Solvency Assessment (“ORSA”) Model Act. The ORSA Model Act, when adopted by the various states, will require an insurance holding company system’s Chief Risk Officer to submit at least annually to its lead state insurance regulator the ORSA. The ORSA is a confidential internal assessment appropriate to the nature, scale and complexity of an insurer, conducted by that insurer of the material and relevant risks identified by the insurer associated with an insurer’s current business plan and the sufficiency of capital resources to support those risks.
The insurance holding company laws and regulations of the states in which our insurance companies are domiciled also generally require that before a person can acquire direct or indirect control, and in some cases prior to divesting its control, of an insurer domiciled in the state, prior written approval must be obtained from the insurer’s domiciliary state insurance regulator. Pursuant to applicable laws and regulations, “control” over an insurer is generally presumed to exist if any person, directly or indirectly, owns, controls, holds the power to vote or holds proxies representing, 10% or more of the voting securities of that insurer. Indirect ownership includes ownership of the Company’s common shares.
Under state insurance guaranty fund laws, insurance companies doing business in a state can be assessed for certain obligations of insolvent insurance companies to such insolvent companies’ policyholders and claimants. Maximum assessments allowed in any one year generally vary between 1% and 2% of annual premiums written in that state, but it is possible that caps on such assessments could be raised if there are numerous or large insolvencies. In most states, guaranty fund assessments are recoverable either through future policy surcharges or offsets to state premium tax liabilities.
The admitted market is subject to more state regulation than the E&S market, particularly with regard to rate and form filing requirements, restrictions on the ability to exit lines of business, premium tax payments and membership in various state associations, such as guaranty funds. Some states have deregulated their commercial insurance markets. We cannot predict the effect that further deregulation would have on our business, financial condition or results of operations.
The state insurance regulators utilize a risk-based capital model to help assess the capital adequacy of insurance companies and identify insurers that are in, or are perceived as approaching, financial difficulty. This model establishes minimum capital needs based on the risks applicable to the operations of the individual insurer. The risk-based capital requirements for property-casualty insurance companies measure three major areas of risk: asset risk, credit risk and underwriting risk. Companies having less statutory surplus than required by the risk-based capital requirements are subject to varying degrees of regulatory scrutiny and intervention, depending on the severity of the inadequacy.
From time to time, states consider and/or enact laws that may alter or increase state authority to regulate insurance companies and insurance holding companies. States also consider and/or enact laws that impact the competitive environment and marketplace for property-casualty insurance.
Federal Regulation
The U.S. federal government generally has not directly regulated the insurance industry except for certain areas of the market, such as insurance for flood, nuclear and terrorism risks. However, the federal government has undertaken initiatives or considered legislation in several areas that may impact the insurance industry, including tort reform, corporate governance and the taxation of reinsurance companies. The Dodd-Frank Act of 2010 established the Federal Insurance Office which is authorized to study, monitor and report to U.S. Congress on the insurance industry and to recommend that the Financial Stability Oversight Council designate an insurer as an entity posing risks to U.S. financial stability in the event of the insurer’s material financial distress or failure. The Federal Insurance Office issued a report on alternatives to modernize and improve the system of insurance regulation in the United States, including by increasing national uniformity through either a federal charter or effective action by the states. Changes to federal legislation and administrative policies in several areas, including changes in federal taxation, can also significantly impact the insurance industry and us.
CERTAIN TAX CONSIDERATIONS
The following summary of the taxation of the Company and certain of its shareholders is based upon current U.S. and Bermuda law and is for general information only. Legislative, judicial or administrative changes may be forthcoming that could affect this summary. Prospective investors should consult their own tax advisors with respect to their particular circumstances.
United States
The following legal discussion (including and subject to the matters and qualifications set forth in such summary) is based upon the advice of Willkie Farr & Gallagher LLP. The advice of such firm does not include any factual or accounting matters, determinations or conclusions, including amounts and computations of RPII and amounts of components thereof or facts relating to the Company’s business or activities. The tax treatment of a holder of Class B common shares, or of a person treated as a holder of Class B common shares for U.S. federal income, state, local or non-U.S. tax purposes, may vary depending on the holder’s particular tax situation. Statements contained herein as to the beliefs, expectations and conditions of HIG and its subsidiaries as to the application of such tax laws or facts represent the view of management as to the application of such laws and do not represent the opinions of counsel.
PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THEIR PARTICULAR CIRCUMSTANCES CONCERNING THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES OF OWNING CLASS B COMMON SHARES.
U.S. Tax Reform
The 2017 Act included certain provisions intended to eliminate certain perceived tax advantages of companies (including insurance companies) that have legal domiciles outside the United States, but have certain U.S. connections, and U.S. Persons (as defined below) investing in such companies. Among other things, the 2017 Act revised the rules applicable to PFICs and CFCs in ways that could affect the timing or amount of U.S. federal income taxes imposed on certain investors that are U.S. Persons, and the BEAT that could make affiliate reinsurance between U.S. taxpaying and other non-U.S. members of the Company economically unfeasible. Further, it is possible that other legislation could be introduced and enacted by the current Congress or future Congresses that could have an adverse impact on the Company, the Company’s operations, or U.S. Holders. Additionally, tax laws and interpretations regarding whether a company is engaged in a U.S. trade or business or whether a company is a CFC or a PFIC or has RPII are subject to change, possibly on a retroactive basis. The U.S. Treasury Department recently issued final and proposed regulations intended to clarify the application of the insurance income exception to the classification of a non-U.S. insurer as a PFIC and provide guidance on a range of issues relating to PFICs, and recently issued proposed regulations that would expand the scope of the RPII rules. New regulations or pronouncements interpreting or clarifying such rules may be forthcoming as well. The Company cannot be certain if, when, or in what form such regulations or pronouncements may be provided and whether such guidance will have a retroactive effect.
Taxation of HIG and its Non-U.S. Subsidiaries
The following discussion is a summary of material U.S. federal income tax considerations relating to the Company’s operations. A non-U.S. corporation that is engaged in the conduct of a U.S. trade or business will be subject to U.S. federal income tax as described below, unless entitled to the benefits of an applicable tax treaty. Whether a trade or business is being conducted in the United States is an inherently factual determination. Because the Code, regulations and court decisions fail to definitively identify activities that constitute being engaged in a trade or business in the United States, the Company cannot be certain that the IRS will not contend successfully that, in addition to the Designated Corporate Members and HIDAC (each as defined and discussed below), HIG or any of its non-U.S. subsidiaries are or will be engaged in a trade or business in the United States. A non-U.S. corporation deemed to be so engaged would be subject to U.S. income tax at regular corporate rates, as well as the branch profits tax, on its income which is treated as effectively connected with the conduct of that trade or business unless the corporation is entitled to relief under the permanent establishment provision of an applicable tax treaty, as discussed below. Such income tax on effectively connected income, if imposed, would be computed in a manner generally
analogous to that applied to the income of a U.S. corporation, except that a non-U.S. corporation is generally entitled to deductions and credits only if it timely files a U.S. federal income tax return. Each of HIG and its non-U.S. subsidiaries, other than the Designated Corporate Members and HIDAC, generally file protective U.S. federal income tax returns on a timely basis in order to preserve the right to claim income tax deductions and credits if it is ever determined that it is subject to U.S. federal income tax. The highest marginal federal income tax rates currently are 21% for a corporation’s effectively connected income and 30% for the additional “branch profits” tax. In addition, certain corporations with effectively connected income may be subject to a corporate alternative minimum tax of 15% of the corporation’s adjusted financial statement income.
If Hamilton Re is entitled to the benefits under the income tax treaty between Bermuda and the United States (the “Bermuda Treaty”), it would not be subject to U.S. income tax on any income found to be effectively connected with a U.S. trade or business unless that trade or business is conducted through a permanent establishment in the United States. Similarly, if HIG’s U.K. subsidiaries or HIG’s Irish subsidiaries are entitled to the benefits under the U.S. income tax treaty with the United Kingdom (the “U.K. Treaty”) or Ireland (the “Irish Treaty”), respectively (each discussed below), they would not be subject to U.S. income tax on any income found to be effectively connected with U.S. trade or business unless that trade or business is conducted through a permanent establishment in the United States. Except as provided below in “Taxation of the Designated Corporate Members” and “Taxation of HIDAC,” HIG and each of its non-U.S. subsidiaries currently intend to conduct their activities so that they do not have a permanent establishment in the United States, although the Company cannot be certain that this result will be achieved.
An insurance enterprise resident in Bermuda generally will be entitled to the benefits of the Bermuda Treaty if (i) more than 50% of its shares are owned beneficially, directly or indirectly, by individual residents of the United States or Bermuda or U.S. citizens; and (ii) its income is not used in substantial part, directly or indirectly, to make disproportionate distributions to, or to meet certain liabilities of, persons who are neither residents of either the United States. or Bermuda nor U.S. citizens; or (iii) the principal class of its shares is listed or admitted to dealings on certain recognized stock exchanges and there is substantial and regular trading on a recognized stock exchange. No regulations interpreting the Bermuda Treaty have been issued. The Company cannot be certain that Hamilton Re will be eligible for Bermuda Treaty benefits because of factual and legal uncertainties regarding the residency and citizenship of HIG’s shareholders. Accordingly, Hamilton Re. intends to conduct substantially all of its operations outside the United States and to limit its U.S. contacts so that it would not be treated as engaged in the conduct of a trade or business in the United States.
Under the U.K. Treaty, a U.K. resident company is entitled to the benefits of the treaty only if certain requirements can be satisfied, for example where: (i)(a) such company is owned more than 50%, by vote and by value, by “qualified persons” (broadly speaking, certain U.S. and U.K. tax residents) during a requisite portion of the relevant taxable period, and (b) less than 50% of such company’s gross income for the relevant taxable period is paid or accrued directly or indirectly to persons who are not “qualified persons” or U.S. citizens to residents in the form of payments that are deductible for purposes of the jurisdiction of such person’s residence, or (ii) such company is engaged in the active conduct of a trade or business in the United Kingdom and the income, profit or gain derived from the United States is derived in connection with, or is incidental to, that trade or business, and the company satisfies certain other conditions. The Company cannot be certain that its U.K. subsidiaries will be eligible for U.K. Treaty benefits. If each of HIG’s U.K. subsidiaries qualifies for treaty benefits, each U.K. subsidiary should be subject to U.S. federal income tax on its income found to be effectively connected with a U.S. trade or business only if such income is attributable to the conduct of a trade or business carried on through a permanent establishment in the United States. The U.K. subsidiaries intend to conduct their activities in a manner so that none of them should have a permanent establishment in the United States, although the Company cannot be certain that they will achieve this result.
Under the Irish Treaty, an Irish resident company is entitled to the benefits of the treaty only if certain requirements, similar to those under the U.K. Treaty, can be satisfied. The Company cannot be certain that HIG’s Irish subsidiaries will be eligible for Irish Treaty benefits. If each of HIG’s Irish subsidiaries qualify for treaty benefits, such Irish subsidiaries should be subject to U.S. federal income tax on its income found to be effectively connected with a U.S. trade or business only if such income is attributable to the conduct of a trade or business carried on through a permanent establishment in the United States. Except as provided below in “Taxation of
HIDAC,” the Irish subsidiaries intend to conduct their activities in a manner so that none of them should have a permanent establishment in the United States, although the Company cannot be certain that they will achieve this result.
Under both the U.K. Treaty and Irish Treaty, the additional U.S. branch profits tax may be imposed at a rate of up to five percent (5%) absent an applicable exception to the extent a U.K. resident company or Irish resident company, as applicable, has a permanent establishment in the United States.
Non-U.S. insurance companies carrying on an insurance business within the United States have a certain minimum amount of effectively connected net investment income, determined in accordance with a formula that depends, in part, on the amount of U.S. risk insured or reinsured by such companies. If HIG or its non-U.S. insurance subsidiaries are considered to be engaged in the conduct of an insurance business in the United States and they are not entitled to the benefits of an income tax treaty with the United States in general, the Code could subject a significant portion of its or such subsidiaries’ investment income to U.S. income tax. In addition, while the Bermuda Treaty clearly applies to premium income, it is uncertain whether the Bermuda Treaty applies to other income such as investment income. If Hamilton Re is considered engaged in the conduct of an insurance business in the United States and is entitled to the benefits of the Bermuda Treaty in general, but the Bermuda Treaty is interpreted to not apply to investment income, a significant portion of Hamilton Re’s investment income could be subject to U.S. income tax.
Non-U.S. corporations not engaged in a trade or business in the United States are nonetheless subject to U.S. income tax imposed by withholding on certain “fixed or determinable annual or periodic gains, profits and income” derived from sources within the United States (such as dividends and certain interest on investments), subject to potential exemption under the Code or reduction by applicable treaties. Generally under both the U.K. Treaty and the Irish Treaty the withholding rate is reduced (i) on dividends from less than ten percent (10%) owned corporations to 15%; (ii) on dividends from 10% or more owned corporations to five percent (5%) (and is eliminated in some cases under the U.K. Treaty); and (iii) on interest to zero percent (0%). The Bermuda Treaty does not reduce the U.S. withholding rate on U.S.-sourced investment income.
The United States also imposes FET on insurance premiums paid to non-U.S. insurers with respect to (i) risks of a U.S. entity or individual, located wholly or partly within the United States and (ii) risks of a non-U.S. entity or individual engaged in trade or business in the United States, located within the United States (“U.S. Situs Risks”) and on reinsurance premiums for any reinsurance policy covering any such risks. The rates of FET applicable to premiums paid are four percent (4%) for direct property and casualty insurance premiums and one percent (1%) for reinsurance premiums or life insurance premiums, subject to elimination pursuant to a U.S. income tax treaty. The U.K. Treaty provides for the elimination of the FET on insurance or reinsurance premiums paid to U.K. residents, otherwise entitled to the benefits of the treaty, with respect to U.S. Situs Risks, provided that the U.K. resident does not cede the risks in a transaction characterized as part of a conduit arrangement for purposes of the U.K. Treaty. If HIG’s U.K. subsidiaries are entitled to the benefit of the FET exemption in the U.K. Treaty, but cedes business with respect to U.S. Situs Risks in transactions that are characterized as conduit arrangements for purposes of the U.K. Treaty, such subsidiaries would not be entitled to the U.K. Treaty FET exemption with respect to these U.S. Situs Risks. The Irish Treaty provides for an elimination of the FET on insurance or reinsurance premiums paid to Irish residents, provided that such insured or reinsured risks are not subsequently ceded to a country with a treaty providing for a similar exemption. The Bermuda Treaty does not eliminate the FET on premiums ceded to Bermuda residents with respect to U.S. Situs Risks. The FET does not apply to amounts which are effectively connected with the conduct of a trade or business within the United States unless such amount is exempt pursuant to a treaty obligation of the United States with respect to a non-U.S. corporation. The FET is not applicable to reinsurance cessions or retrocessions of risks by non-U.S. insurers or reinsurers to non-U.S. reinsurers where the FET has been paid on a prior cession of the same risk.
Taxation of the Designated Corporate Members
HIG indirectly invests in Hamilton Corporate Member Limited and Hamilton Corporate Member IV Limited (the “Designated Corporate Members”), each of which will be subject to U.S. federal income tax. The Designated Corporate Members are each a member of Lloyd’s and are subject to a closing agreement between Lloyd’s and the
IRS (the “Closing Agreement”). Pursuant to the terms of the Closing Agreement, all members of Lloyd’s, including the Designated Corporate Members, are subject to U.S. federal income taxation. The Closing Agreement provides rules for determining the income considered to be attributable to a permanent establishment or U.S. trade or business. The application of the FET to the Designated Corporate Members is determined pursuant to a separate closing agreement between Lloyd’s and the IRS.
Taxation of HIDAC
HIG indirectly invests in HIDAC to access certain types of reinsurance transactions. For tax purposes, HIDAC intends to take the position that it is entitled to the benefits of the Irish Treaty and that it is engaged in the conduct of a U.S. trade or business through a permanent establishment in the United States, although because of factual and legal uncertainties regarding the residency and citizenship of HIG’s shareholders it cannot be certain that HIDAC will be eligible for Irish Treaty benefits. As such, the business profits attributable to the U.S. permanent establishment of HIDAC would be subject to U.S. federal corporate income tax at the regular U.S. corporate income tax rates and, pursuant to the terms of the Irish Treaty, if applicable, a reduced U.S. branch profits tax rate. No assurance may be given that HIDAC will be entitled to the benefits of the Irish Treaty. If HIDAC is not entitled to the benefits of the Irish Treaty, more of its U.S.-source income may be subject to U.S. corporate income tax and the U.S. branch profits tax would be imposed at the rate provided in the Code.
Separate and distinct to its U.S. permanent establishment, HIDAC also may generate U.S.-source income not attributable to its permanent establishment (“non-permanent establishment activities”). This income may be subject to U.S. withholding tax at the applicable rate. In this regard, to the extent that HIDAC is entitled to the benefits of the Irish Treaty, withholding tax or FET should be restricted to the relevant rate as set out therein. However, as noted above, there are no assurances that HIDAC will be entitled to the benefits of the Irish Treaty and, if they are not so entitled, the withholding tax or FET would be imposed at the rate provided in the Code.
Taxation of the U.S. Subsidiaries
HIG’s U.S. subsidiaries are expected to conduct their operations primarily in the United States. HIG’s U.S. subsidiaries will be subject to U.S. federal income tax at a rate of 21%. If Hamilton UK Holdings II Limited is entitled to the benefits of the U.K. Treaty, as discussed above, the withholding rate on dividends paid by the U.S. subsidiaries to Hamilton UK Holdings II will be reduced to 5%, and interest paid to Hamilton UK Holdings II will not be subject to U.S. FET or U.S. federal income tax withholding. Hamilton Re and Hamilton ILS have entered into an arrangement pursuant to which certain U.S. insured risks are written on the books of Hamilton Re and the parties have filed an election with the IRS to treat the arrangement, Hamilton Re US, as a separate U.S. corporation for U.S. federal income taxation that is subject to U.S. taxation, rather than a branch of Hamilton Re. Dividends paid to Hamilton Re and Hamilton ILS are subject to a 30% withholding tax rate. However, the expectation is that all earnings will be retained, and no dividends will be paid.
Taxation of the Shareholders
The following summary sets forth the material U.S. federal income tax considerations related to the purchase, ownership and disposition of the Class B common shares sold in this offering. Unless otherwise stated, this summary deals only with U.S. Holders who hold their Class B common shares as capital assets within the meaning of Section 1221 of the Code. The following discussion is only a discussion of the material U.S. federal income tax matters as described herein and does not purport to address all of the U.S. federal income tax consequences that may be relevant to a particular shareholder in light of such shareholder’s specific circumstances. In addition, the following summary does not address the U.S. federal income tax consequences that may be relevant to special classes of shareholders, such as financial institutions, insurance companies, regulated investment companies, real estate investment trusts, dealers or traders in securities, tax-exempt organizations, U.S. expatriates, individual retirement accounts or other tax-deferred accounts, investors in pass through entities, persons who are considered with respect to HIG or its subsidiaries as “United States shareholders” for purposes of the CFC rules of the Code (generally, a U.S. Person, as defined below, who owns or is deemed to own 10% or more of the total combined voting power of all classes of HIG’s or its subsidiaries’ shares entitled to vote, or 10% or more of the value of all classes of HIG’s or its subsidiaries’ shares (that is, 10% U.S. Shareholders)), U.S. accrual method taxpayers subject
to special tax accounting rules as a result of any item of gross income with respect to the Class B common shares being taken into account in an applicable financial statements (as described in Section 451(b) of the Code), persons subject to the alternative minimum tax or persons who hold their shares as part of a hedging or conversion transaction or as part of a short- sale or straddle or in currency other than the U.S. dollar, who may be subject to special rules or treatment under the Code. This discussion is based upon the Code, the Treasury Regulations promulgated thereunder and any relevant administrative rulings or pronouncements or judicial decisions, all as in effect on the date hereof and as currently interpreted and does not take into account possible changes in such tax laws or interpretations thereof, which may apply retroactively. This discussion does not include any description of the tax laws of any state or local governments within the U.S. or of any non-U.S. government. Persons considering making an investment in the Class B common shares should consult their own tax advisors concerning the application of the U.S. federal tax laws to their particular situations as well as any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction, prior to making such investment.
If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds Class B common shares, the tax treatment of the partners will generally depend on the status of the partner and the activities of the partnership. If a potential investor in Class B common shares is such a partnership or a partner of such a partnership, it should consult its tax advisors.
Taxation of Distributions
Subject to the discussion below regarding PFICs, CFCs and RPII, cash distributions paid with respect to the Class B common shares will constitute ordinary dividend income to the extent paid out of HIG’s current or accumulated earnings and profits (as determined using U.S. federal income tax principles), and the U.S. Holders generally will be subject to U.S. federal income tax upon its receipt of such dividends. If the holder is not a corporation or an entity treated as a corporation under U.S. federal income tax law, dividends paid to it will generally be taxable at the rate applicable for long-term capital gains (at a maximum rate of 20% currently) if: (1) the dividends constitute “qualified dividend income,” and (2) it holds the Class B common shares for more than 60 days out of the 121-day period that begins 60 days before the ex-dividend date and meets other holding period requirements. Any dividends paid on the Class B common shares generally will be “qualified dividend income,” provided that: (i) the Class B common shares are readily tradeable on an established securities market in the United States in the year in which the shareholder receives the dividend, and (ii) HIG is not considered to be a PFIC in either the year of the distribution or the preceding taxable year. Under current U.S. Treasury Department guidance, the Class B common shares would be treated as readily tradeable on an established securities market if they are listed on the NYSE, as we intend the Class B common shares to be after this offering. However, there can be no assurance that our Class B common shares will continue to be listed on the NYSE or that HIG will not be treated as a PFIC for any taxable year. Dividends paid on the Class B common shares to a corporate shareholder generally will not be eligible for the dividends received deduction.
Classification of HIG or its Non-U.S. Subsidiaries as Controlled Foreign Corporations
Each 10% U.S. Shareholder (as defined below) of a non-U.S. corporation that is a CFC at any time during a taxable year and that owns shares in the non-U.S. corporation, directly or indirectly through non-U.S. entities, on the last day of the non-U.S. corporation’s taxable year on which it is a CFC must include in its gross income for U.S. federal income tax purposes its pro rata share of the CFC’s “subpart F income” and GILTI, even if the subpart F income or GILTI is not distributed. “Subpart F income” of a non-U.S. insurance corporation typically includes foreign personal holding company income (such as interest, dividends and other types of passive income), as well as insurance and reinsurance income (including underwriting and investment income), and GILTI is generally business income of the CFC (other than Subpart F income and certain other categories of income) reduced by 10% of the adjusted tax basis of the CFC’s depreciable tangible personal property (based on a computation that generally aggregates all of a 10% U.S. Shareholder’s GILTI from its investments in CFCs) that is potentially subject to further reductions depending on the nature of the applicable 10% U.S. Shareholder. The amount of any subpart F income inclusion would be limited by such 10% U.S. Shareholder’s share of the CFC’s current-year earnings and profits as reduced by the 10% U.S. Shareholder’s share, if any, of certain prior-year deficits in earnings and profits, and a 10% U.S. Shareholder recognizing subpart F or GILTI income would increase the basis in its shares by the amount of subpart F or GILTI income included in income. Amounts distributed out of previously taxed subpart F or GILTI
income would be excluded from the 10% U.S. Shareholder’s income, and the 10% U.S. Shareholder’s basis in the shares would be reduced by the amount so excluded. In addition, as discussed below, gain recognized by a 10% U.S. Shareholder on the sale of stock of a CFC will be re-characterized as a dividend and taxed as ordinary income rather than as capital gain to the extent of the 10% U.S. Shareholder’s share of the CFC’s earnings and profits. Such dividend income would not be eligible for the reduced rate of tax on qualified dividends.
A non-U.S. corporation is considered a CFC if 10% U.S. Shareholders own (directly, indirectly through non-U.S. entities or by attribution by application of the constructive ownership rules of Code Section 958(b) (that is, “constructively”)) more than 50% of the total combined voting power of all classes of voting stock of such non-U.S. corporation, or more than 50% of the total value of all stock of such corporation. For purposes of taking into account insurance income, a CFC also includes a non-U.S. insurance company in which more than 25% of the total combined voting power of all classes of stock or more than 25% of the total value of all stock is owned by 10% U.S. Shareholders on any day of the taxable year of such corporation, if the gross amount of premiums or other consideration for the reinsurance or the issuing of insurance or annuity contracts (other than certain insurance- or reinsurance-related to same country risks written by certain insurance companies) exceeds 75% of the gross amount of all premiums or other consideration in respect of all risks. A “10% U.S. Shareholder” is a U.S. Person who owns (directly, indirectly through non-U.S. entities or constructively) at least 10% of the total combined voting power of all classes of stock entitled to vote or 10% of the value of the non-U.S. corporation. The 2017 Act expanded the definition of 10% U.S. Shareholder to include ownership by value (rather than just vote), so provisions in a company’s organizational documents that cut back voting power to potentially avoid 10% U.S. Shareholder status will no longer mitigate the risk of 10% U.S. Shareholder status.
The Company believes that because of the anticipated dispersion of HIG’s share ownership, no U.S. Person who owns the Class B common shares of HIG directly or indirectly through one or more non-U.S. entities should be treated as owning (directly, indirectly through non-U.S. entities, or constructively) 10% or more of the total voting power or value of all classes of shares of HIG or any of its non-U.S. subsidiaries. However, HIG’s shares may not be as widely dispersed as the Company believes due to, for example, the application of certain ownership attribution rules, and no assurance may be given that a U.S. Person who owns HIG’s shares will not be characterized as a 10% U.S. Shareholder.
The RPII CFC Provisions
The following discussion generally is applicable only if RPII shareholders are treated as owning (directly, indirectly through non-U.S. entities or constructively) 25% or more of the shares of HIG by vote or value and neither the 20% Gross Income Exception nor the 20% Ownership Exception (as such terms are defined below) is met for a taxable year. Although the Company cannot be certain, it believes that each of HIG’s non-U.S. insurance subsidiaries should meet either the 20% Ownership Exception or the 20% Gross Income Exception for each taxable year for the foreseeable future.
RPII is any “insurance income” (as defined below) attributable to policies of insurance or reinsurance with respect to which the person (directly or indirectly) insured is an “RPII shareholder” (as defined below) or a “related person” (as defined below) to such RPII shareholder. In general, and subject to certain limitations, “insurance income” is income (including premium and investment income) attributable to the issuing of any insurance or reinsurance contract which would be taxed under the portions of the Code relating to insurance companies if the income were the income of a U.S. insurance company. For purposes of inclusion of the RPII of a non-U.S. insurance subsidiary of HIG in the income of RPII shareholders, unless an exception applies, the term “RPII shareholder” means any U.S. Person who owns (directly or indirectly through non-U.S. entities) any amount of HIG’s shares. Generally, the term “related person” for this purpose means someone who controls or is controlled by the RPII shareholder or someone who is controlled by the same person or persons which control the RPII shareholder. Control is measured by either more than 50% in value or more than 50% in voting power of stock applying certain constructive ownership principles. A corporation’s pension plan is ordinarily not a “related person” with respect to the corporation unless the pension plan owns, directly or indirectly through the application of certain constructive ownership rules, more than 50% measured by vote or value, of the stock of the corporation.
RPII Exceptions
The special RPII rules do not apply to each non-U.S. insurance subsidiary of HIG for a taxable year if (i) the 20% Ownership Exception”); (ii) the 20% Gross Income Exception; (iii) the non-U.S. insurance subsidiary elects to be taxed on its RPII as if the RPII were effectively connected with the conduct of a U.S. trade or business, and to waive all treaty benefits with respect to RPII and meet certain other requirements; or (iv) the non-U.S. insurance subsidiary elects to be treated as a U.S. corporation and waives all treaty benefits and meets certain other requirements. No non-U.S. insurance subsidiary of HIG intends to make either of these elections. Where none of these exceptions applies to a non-U.S. insurance subsidiary, each U.S. Person owning (directly or indirectly through non-U.S. entities) any shares in HIG (and therefore, indirectly, the non-U.S. insurance subsidiary) on the last day of such company’s taxable year will be required to include in its gross income for U.S. federal income tax purposes its share of the RPII of the non-U.S. insurance subsidiary for the portion of the taxable year during which the non-U.S. insurance subsidiary was a CFC under the RPII provisions, determined as if all such RPII were distributed proportionately only to such U.S. Persons at that date, but limited by each such U.S. Person’s share of HIG’s current-year earnings and profits as reduced by the U.S. Person’s share, if any, of certain prior-year deficits in earnings and profits. Each non-U.S. insurance subsidiary of HIG intends to operate in a manner that is intended to ensure that it qualifies for the 20% Gross Income Exception or 20% Ownership Exception. However, it is possible that they will not be successful in qualifying under these exceptions because some of the factors which determine the extent of RPII may be beyond the Company’s control.
Computation of RPII
In order to determine how much RPII a non-U.S. insurance subsidiary of HIG has earned in each taxable year, each non-U.S. insurance subsidiary may obtain and rely upon information from its insureds and reinsureds to determine whether any of the insureds, reinsureds or persons related thereto own (directly or indirectly through non-U.S. entities) shares of HIG and are U.S. Persons. A non-U.S. insurance subsidiary of HIG may not be able to determine whether any of their underlying direct or indirect insureds are shareholders or related persons to such shareholders, and, consequently, may not be able to determine accurately the gross amount of RPII earned by it in a given taxable year. For any year in which the 20% Gross Income Exception and the 20% Ownership Exception do not apply, the Company may also seek information from its shareholders as to whether beneficial owners of shares at the end of the year are U.S. Persons so that the RPII may be determined and apportioned among such persons; to the extent the Company is unable to determine whether a beneficial owner of shares is a U.S. Person, the Company may assume that such owner is not a U.S. Person, thereby increasing the per share RPII amount for all known RPII shareholders.
If, as expected, for each taxable year each non-U.S. insurance subsidiary of HIG meets the 20% Gross Income Exception or 20% Ownership Exception, RPII shareholders will not be required to include RPII in their taxable income. The amount of RPII includable in the income of an RPII shareholder is based upon the net RPII income for the year after deducting related expenses such as losses, loss reserves and operating expenses.
Apportionment of RPII to U.S. Holders
Every RPII shareholder who owns shares on the last day of any taxable year of HIG in which both the 20% Ownership Exception and the 20% Gross Income Exception do not apply to a non-U.S. insurance subsidiary of HIG should expect that for such year it will be required to include in gross income its share of such subsidiary’s RPII for the portion of the taxable year during which the non-U.S. insurance subsidiary was a CFC under the RPII provisions, whether or not distributed, even though such shareholder may not have owned the shares throughout such period. An RPII shareholder who owns shares during such taxable year but not on the last day of the taxable year is not required to include in gross income any part of the RPII of a non-U.S. insurance subsidiary of HIG.
Basis Adjustments
An RPII shareholder’s tax basis in its shares will be increased by the amount of any RPII that such shareholder includes in income. The RPII shareholder may exclude from income the amount of any distributions by HIG out of previously taxed RPII income. The RPII shareholder’s tax basis in its shares will be reduced by the amount of such distributions that are excluded from income.
Uncertainty as to Application of RPII
The RPII provisions have never been interpreted by the courts or the U.S. Treasury Department in final regulations, and regulations interpreting the RPII provisions of the Code exist only in proposed form. Accordingly, the meaning of the RPII provisions and the application thereof to a non-U.S. insurance subsidiary of HIG is uncertain. In addition, the Company cannot be certain that the amount of RPII or the amounts of the RPII inclusions for any particular RPII shareholder, if any, will not be subject to adjustment based upon subsequent IRS examination. Further, recently proposed regulations could, if finalized in their current form, substantially expand the definition of RPII to include insurance income of our non-U.S. subsidiaries with respect to certain affiliate reinsurance transactions. If these proposed regulations are finalized in their current form, it could limit the Company’s ability to execute affiliate reinsurance transactions that would otherwise be undertaken for non-tax business reasons in the future and could increase the risk that the 20% Gross Income Exception would not be met for one or more of HIG’s non-U.S. subsidiaries in a particular taxable year, which could result in such RPII being taxable to U.S. Persons that own or are treated as owning Class B common shares directly or indirectly through non-U.S. entities. U.S. Persons owning or treated as owning Class B common shares should consult their tax advisors as to the effect of these uncertainties.
Information Reporting
Under certain circumstances, U.S. Persons owning shares in a non-U.S. corporation are required to file IRS Form 5471 with their U.S. federal income tax returns. Generally, information reporting on IRS Form 5471 (Information Return of U.S. Persons with respect to Certain Foreign Corporations) is required by (i) a person who is treated as an RPII shareholder; (ii) a 10% U.S. Shareholder of a non-U.S. corporation that is a CFC at any time during any tax year of the non-U.S. corporation and who owned the stock on the last day of that year; and (iii) under certain circumstances, a U.S. Person who acquires stock in a non-U.S. corporation and as a result thereof owns 10% or more of the voting power or value of such non-U.S. corporation, whether or not such non-U.S. corporation is a CFC. The Company will provide to all U.S. Persons registered as shareholders of its shares the relevant information necessary to complete IRS Form 5471 in the event the Company determines this is necessary. Failure to file IRS Form 5471 may result in penalties.
U.S. Holders should consider their possible obligation to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts, with respect to the Class B common shares. Additionally, such U.S. Holders should consider their possible obligations to annually report certain information with respect to the Form with their U.S. federal income tax returns. Certain U.S. Holders who are individuals (and certain entities) that hold an interest in “specified foreign financial assets” (which may include the Class B common shares) are required to report information (on IRS Form 8938) relating to such assets, subject to certain exceptions (including an exception for Class B common shares held in accounts maintained by certain financial institutions). U.S. Holders who fail to report the required information could be subject to substantial penalties, and, in such circumstances, the statute of limitations for assessment of tax could be suspended, in whole or part. Shareholders should consult their tax advisors with respect to these or any other reporting requirements which may apply with respect to their purchase, holding and sale of the Class B common shares.
Certain shareholders may be required to file an IRS Form 926 (Return of a U.S. Transferor of Property to a Foreign Corporation) to report a transfer of property, including cash, to HIG. Substantial penalties may be imposed on a shareholder that fails to comply with this reporting requirement. Treasury Regulations also require every 10% U.S. Shareholder that owns (directly or indirectly through non-U.S. entities) shares in one or more CFCs to file Form 8992 to report its share of the CFC’s GILTI, even if such amount if zero. Each shareholder is urged to consult with its own tax advisors regarding these reporting obligations.
Tax-Exempt Shareholders
Tax-exempt entities will be required to treat certain subpart F insurance income, including RPII, that is includible in income by the tax-exempt entity as unrelated business taxable income. Prospective investors that are tax-exempt entities are urged to consult their tax advisors as to the potential impact of the unrelated business taxable
income provisions of the Code. A tax-exempt organization that is treated as a 10% U.S. Shareholder or an RPII Shareholder also must file IRS Form 5471 in the circumstances described above.
Dispositions of the Class B Common Shares
Subject to the discussions below relating to the potential application of the Code Section 1248 and PFIC rules, U.S. Holders generally should recognize capital gain or loss for U.S. federal income tax purposes on the sale, exchange or other disposition of the Class B common shares in the same manner as on the sale, exchange or other disposition of any other shares held as capital assets. If the holding period for these shares exceeds one year, any gain will be subject to tax at a current maximum marginal tax rate of 20% for individuals and a rate of 21% for corporations. Moreover, gain, if any, generally will be U.S.-source gain and generally will constitute “passive category income” for foreign tax credit limitation purposes.
Code Section 1248 provides that if a U.S. Person sells or exchanges stock in a non-U.S. corporation and such person owned, directly, indirectly through certain non-U.S. entities or constructively, 10% or more of the voting power of the corporation at any time during the five (5) year period ending on the date of disposition when the corporation was a CFC, any gain from the sale or exchange of the shares will be treated as a dividend to the extent of the CFC’s earnings and profits (determined under U.S. federal income tax principles) during the period that the shareholder held the shares and while the corporation was a CFC (with certain adjustments). The Company believes that because of the anticipated dispersion of HIG share ownership, no U.S. Person that owns Class B common shares directly or through non-U.S. entities in HIG should be treated as owning (directly, indirectly through non-U.S. entities or constructively) 10% or more of the total voting power of HIG; to the extent that this is the case, the application of Code Section 1248 under the regular CFC rules should not apply to dispositions of the Class B common shares. However, no assurance can be given in this regard.
A 10% U.S. Shareholder may in certain circumstances be required to report a disposition of shares of a CFC by attaching IRS Form 5471 to the U.S. federal income tax or information return that it would normally file for the taxable year in which the disposition occurs. In the event this is determined necessary, the Company will, upon request, provide the relevant information necessary to complete IRS Form 5471.
Code Section 1248 in conjunction with the RPII rules also applies to the sale or exchange of shares in a non-U.S. corporation if the non-U.S. corporation would be treated as a CFC for RPII purposes regardless of whether the shareholder owns, directly, indirectly through certain non-U.S. entities or constructively, 10% or more of the voting power of such non-U.S. corporation or whether the 20% Gross Income Exception or the 20% Ownership Exception applies. Existing proposed regulations do not address whether Code Section 1248 would apply if a non-U.S. corporation is not a CFC but the non-U.S. corporation has a subsidiary that would be treated as a CFC for RPII purposes. The Company believes, however, that this application of Code Section 1248 under the RPII rules should not apply to dispositions of Class B common shares because HIG will not be directly engaged in the insurance business. The Company cannot be certain, however, that the IRS will not interpret the proposed regulations in a contrary manner or that the U.S. Treasury Department will not amend the proposed regulations to provide that these rules will apply to dispositions of the Class B common shares. Prospective investors should consult their tax advisors regarding the effects of these rules on a disposition of the Class B common shares.
PFIC
In general, a non-U.S. corporation will be a PFIC during a given taxable year if (i) the 75% test is met for such taxable year; or (ii) the 50% test is met for such taxable year. Once characterized as a PFIC, the shares of the non-U.S. corporation will generally retain status as shares in a PFIC for future taxable years with respect to U.S. shareholders that held such shares in the taxable year of the initial PFIC characterization.
If HIG were characterized as a PFIC during a given year, each U.S. Person holding the Class B common shares would be subject to a penalty tax at the time of the taxable disposition at a gain of, or receipt of an “excess distribution” with respect to, their Class B common shares, unless such person (i) is a 10% U.S. Shareholder and HIG is a CFC or (ii) made a QEF or “mark-to-market” election. It is uncertain whether the Company would be able to provide its shareholders with the information necessary for a U.S. Person to make the QEF election or whether a U.S. Person will be eligible to make a mark-to-market election with respect to the Class B common shares, and a
mark-to-market election likely will not be available for any shares of HIG’s non-U.S. subsidiaries. In addition, if HIG were considered a PFIC, upon the death of any U.S. individual owning shares, such individual’s heirs or estate would not be entitled to a “step-up” in the basis of their Class B common shares that might otherwise be available under U.S. federal income tax laws. In general, a shareholder receives an “excess distribution” if the amount of the distribution is more than 125% of the average distribution with respect to the shares during the three (3) preceding taxable years (or shorter period during which the taxpayer held the Class B common shares). In general, the penalty tax is equivalent to an interest charge on taxes that are deemed due during the period the shareholder owned the Class B common shares, computed by assuming that the excess distribution or gain (in the case of a taxable disposition) with respect to the Class B common shares was taken in equal portion at the highest applicable tax rate on ordinary income throughout the shareholder’s period of ownership. The interest charge is equal to the applicable rate imposed on underpayments of U.S. federal income tax for such period. In addition, a distribution paid by HIG to U.S. shareholders that is characterized as a dividend and is not characterized as an excess distribution would not be eligible for reduced rates of tax as qualified dividend income if HIG were considered a PFIC in the taxable year in which such dividend was paid or in the preceding taxable year. A U.S. Person that is a shareholder in a PFIC may also be subject to additional information reporting requirements, including the annual filing of IRS Form 8621.
For the above purposes, passive income generally includes interest, dividends, annuities and other investment income. The PFIC rules provide that income derived in the active conduct of an insurance business by a qualifying insurance corporation is not treated as passive income. The PFIC provisions also contain a look-through rule under which a non-U.S. corporation will be treated as if it “received directly its proportionate share of the income…” and as if it “held its proportionate share of the assets…” of any other corporation in which it owns at least 25% of the value of the stock (“the look-through rule”). Under the look-through rule, HIG should be deemed to own its proportionate share of the assets and to have received its proportionate share of the income of its non-U.S. insurance subsidiaries for purposes of the 75% test and the 50% test. However, the 2017 Act limits the insurance income exception to a non-U.S. insurance company that is a qualifying insurance corporation that would be taxable as an insurance company if it were a U.S. corporation and satisfies the Reserve Test by satisfying either the 25% Test or the 10% Test (each as defined above). The Company believes that each of HIG’s non-U.S. insurance subsidiaries have met this Reserve Test and will continue to do so in the foreseeable future, although no assurance may be given that such subsidiaries will satisfy the Reserve Test in future years.
Further, the 2021 Regulations define insurance liabilities for purposes of the Reserve Test, tighten the Reserve Test as well as place a statutory cap on insurance liabilities, and provide guidance on the runoff-related and rating-related circumstances for purposes of the 10% Test. The 2021 Regulations, which set forth in proposed form certain requirements that must be met to satisfy the “active conduct of an insurance business” test, also propose that a non-U.S. insurer with no or a nominal number of employees that relies exclusively or almost exclusively upon independent contractors (other than related entities) to perform its core functions will not be treated as engaged in the active conduct of an insurance business. Further, for purposes of applying the 10% Test, the 2021 Regulations: (i) generally limit the rating-related circumstances exception to a non-U.S. corporation: (a) if more than half of such corporation’s net written premiums for the applicable period are derived from insuring catastrophic risk, or (b) providing certain other insurance coverage that the Company is not expected to engage in, and (ii) reduce a corporation’s insurance liabilities by the amount of any reinsurance recoverable relating to such liability. The Company believes that, based on the implementation of its business plan and the application of the look-through rule and the exceptions set out under Section 1297 of the Code, none of the income and assets of HIG’s non-U.S. subsidiaries should be treated as passive pursuant to the 25% Test, and thus, HIG should not be characterized as a PFIC under current law for its current taxable year and foreseeable future years, but because of the legal uncertainties, as well as factual uncertainties with respect to the Company’s planned operations, there is a risk that HIG’s non-U.S. subsidiaries, and therefore HIG will be characterized as a PFIC for U.S. federal income tax purposes. In addition, because of the legal uncertainties relating to how the 2021 Regulations will be interpreted and the form in which the proposed 2021 Regulations may be finalized, no assurance can be given that HIG will not qualify as a PFIC under final IRS guidance or any future regulatory proposal or interpretation that may be subsequently introduced and promulgated. If HIG is considered a PFIC, it could have material adverse tax consequences for an investor that is subject to U.S. federal income taxation. Prospective investors should consult their tax advisors as to the effects of the PFIC rules.
U.S. investors are also urged to consult with their tax advisors and to consider making a “protective” QEF election with respect to HIG and each of its non-U.S. subsidiaries to preserve the possibility of making a retroactive QEF election. If the Company determines that HIG is a PFIC, the Company intends to use commercially reasonable efforts to provide, to the extent reasonably practicable, the information necessary to make a QEF election for HIG and each non-U.S. subsidiary of HIG that is a PFIC. A U.S. Person that makes a QEF election with respect to a PFIC is currently taxable on its pro rata share of the ordinary earnings and net capital gain of such company during the years it is a PFIC (at ordinary income and capital gain rates, respectively), regardless of whether or not distributions were received. In addition, any of the PFIC’s losses for a taxable year will not be available to U.S. Persons and may not be carried back or forward in computing the PFIC’s ordinary earnings and net capital gain in other taxable years. A U.S. Person generally increases the basis of its PFIC shares, and the basis of any other property of the U.S. Person by reason of which such U.S. Person is considered to indirectly own PFIC shares, by amounts included in such U.S. Person’s gross income pursuant to the QEF election. Therefore, an electing shareholder will generally increase the basis of its Class B common shares by amounts included in the shareholder’s gross income pursuant to the QEF election.
In lieu of making a QEF Election, if HIG is a PFIC for any taxable year and the Class B common shares are treated as “marketable stock” in such year, then a U.S. Person may avoid the unfavorable rules described above by making a mark-to-market election with respect to such holder’s Class B common shares. The Class B common shares will be marketable if they are regularly traded on certain qualifying stock exchanges, including the NYSE; however, there can be no assurance that trading in the Class B common shares will be sufficiently regular for the shares to qualify as marketable stock, and a mark-to-market election likely would not be available for any subsidiary of HIG also treated as a PFIC. In general, if a U.S. Holder were to make a timely and effective mark-to-market election, such holder would include as ordinary income each year the excess, if any, of the fair market value of the holder’s Class B common shares at the end of the taxable year over its adjusted basis in the Class B common shares. Any gain recognized by such holder on the sale or other disposition of the Class B common shares would be ordinary income, and any loss would be an ordinary loss to the extent of the net amount of previously included income as a result of the mark-to-market election and, thereafter, a capital loss. U.S. Holders considering a mark-to-market election for HIG should consult with their tax advisors regarding making a QEF election for any non-U.S. subsidiary of HIG treated as a PFIC.
A U.S. Holder will be required to file an IRS Form 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund, which is a form that is required to be filed by holders of equity in a PFIC) for each tax year that it holds Class B common shares and HIG is characterized as a PFIC, regardless of whether such U.S. Person has a QEF election in effect or receives any excess distribution.
Medicare Contribution Tax
A U.S. Person that is an individual, estate or a trust that does not fall into a special class of trusts that is exempt from such tax will be subject to a 3.8% tax on the lesser of (i) the U.S. Person’s “net investment income” (or “undistributed net investment income” in the case of estates and trusts) for the relevant taxable year and (ii) the excess of the U.S. Person’s modified adjusted gross income for the taxable year over a certain threshold. A U.S. Holder’s net investment income will generally include its dividend income and its net gains from the disposition of Class B common shares, unless such dividend income or net gains are derived in the ordinary course of the conduct of a trade or business (other than a trade or business that consists of certain passive or trading activities). Under certain proposed U.S. Treasury Regulations, an inclusion of subpart F income by a 10% U.S. Shareholder will not be treated as a dividend for purposes of calculating this 3.8% tax on “net investment income.” However, actual distributions with respect to such income, which as previously taxed income will not be subject to U.S. federal income tax and will be treated as dividends for purposes of calculating net investment income and this 3.8% tax.
Foreign Tax Credit
Dividends on Class B common shares, and current income inclusions under the CFC, RPII and PFIC rules generally will constitute foreign source income for foreign tax credit limitation purposes, and generally will constitute “passive category income.” If U.S. Persons in the aggregate own a majority of the shares of HIG, under certain circumstances only a portion of the current income inclusions, if any, under the CFC, RPII and PFIC rules
and of dividends paid by HIG (including any gain from the sale of the Class B common shares that is treated as a dividend under section 1248 of the Code) will be treated as foreign source income for purposes of computing a shareholder’s U.S. foreign tax credit limitations. The Company will consider providing shareholders with information regarding the portion of such amounts constituting foreign source income to the extent such information is reasonably available. There are additional significant and complex limits on a U.S. Person’s ability to claim foreign tax credits, and recently issued U.S. Treasury Regulations that apply to foreign income taxes paid or accrued in taxable years beginning on or after December 28, 2021 further restrict the availability of any such credit based on the nature of the tax imposed by the foreign jurisdiction. Thus, it may not be possible for shareholders to utilize excess foreign tax credits to reduce U.S. tax on such income. The rules relating to the determination of the U.S. foreign tax credit are complex, and U.S. Holders should consult their tax advisors regarding the availability of a foreign tax credit in their particular circumstances and the possibility of claiming an itemized deduction (in lieu of the foreign tax credit) for any foreign taxes paid or withheld.
Information Reporting and Backup Withholding on Distributions and Disposition Proceeds
Information returns may be filed with the IRS in connection with distributions on the Class B common shares and the proceeds from a sale or other disposition of the Class B common shares unless the holder of the Class B common shares establishes an exemption from the information reporting rules. A holder of the Class B common shares that does not establish such an exemption may be subject to U.S. backup withholding tax on these payments if the holder is not a corporation or fails to provide its taxpayer identification number or otherwise comply with the backup withholding rules. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the U.S. Holder’s U.S. federal income tax liability and may entitle the U.S. Holder to a refund, provided that the required information is furnished to the IRS.
Bermuda
Under current Bermuda law, there is no income, corporate or profits tax, withholding tax, capital gains tax or capital transfer tax payable by the Company. The Company has obtained from the Bermuda Minster under the Exempted Undertaking Tax Protection Act 1966, as amended, an assurance that, in the event that Bermuda enacts legislation imposing tax computed on profits, income, any capital asset, gain or appreciation, or any tax in the nature of estate duty or inheritance, then the imposition of any such tax shall not be applicable to the Company or any of its operations or its shares, debentures or other obligations, until March 31, 2035. This assurance is subject to the proviso that it is not to be construed so as to prevent the application of any tax or duty to such persons as are ordinarily resident in Bermuda or to prevent the application of any tax payable in accordance with the provisions of the Bermuda Land Tax Act 1967, as amended, or otherwise payable in relation to any property leased to the Company. Given the limited duration of the Bermuda Minister’s assurance, it cannot be certain that the Company will not be subject to any Bermuda tax after March 31, 2035.
Further, on August 8, 2023, the Bermuda Government issued the first of a series of public consultation papers as part of its considerations on the introduction a corporate income tax that would be taken into account in calculating the effective tax rate of Bermuda businesses under the OECD’s global anti-base erosion (GloBE) rules. Under the current proposal, Bermuda corporate income tax would apply only to “MNEs”, as defined in the GloBE rules, with EUR 750 million or more in total global revenue in at least two of the previous four accounting periods. The proposed Bermuda corporate income tax legislation is currently anticipated to be effective for tax years beginning on or after January 1, 2025. The Bermuda Government is considering if amendments are necessary to the existing tax assurance certificate regime to ensure that tax may be collected in Bermuda from entities which are subject to the proposed Bermuda corporate income tax regime. Although we cannot predict when or if any new Bermuda corporate income tax law will be adopted or will become effective, the imposition of a Bermuda corporate income tax could, if applicable to the Company (or any Bermuda incorporated subsidiary of the Company), have a material adverse effect on the Company's financial condition and results of operations.
The Company pays annual Bermuda government fees and annual regulatory fees. In addition, all entities, including the Company, employing individuals in Bermuda are required to pay a payroll tax and other sundry taxes payable, directly or indirectly, to the Bermuda government.
UNDERWRITING
Barclays Capital Inc. and Morgan Stanley & Co. LLC are acting as the representatives of the underwriters and book-running managers of this offering. Under the terms of an underwriting agreement, which will be filed as an exhibit to the registration statement, with respect to the shares being offered, each of the underwriters named below has severally agreed to purchase from the Company and the selling shareholders the respective number of common shares shown opposite its name below:
| | | | | | | | |
| Underwriters | | Number of Shares |
| Barclays Capital Inc. | | |
| Morgan Stanley & Co. LLC | | |
Total | | |
The underwriting agreement provides that the underwriters’ obligation to purchase common shares depends on the satisfaction of certain conditions contained in the underwriting agreement including:
•the obligation to purchase all of the common shares offered hereby (other than those common shares covered by their option to purchase additional shares from the selling shareholders as described below), if any of the shares are purchased;
•the representations and warranties made by us and the selling shareholders to the underwriters are true;
•there is no material change in our business or the financial markets; and
•we and the selling shareholders deliver customary closing documents to the underwriters.
Commissions and Expenses
The following table summarizes the underwriting discounts and commissions the selling shareholders will pay to the underwriters. These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase additional Class B common shares from the selling shareholders. The underwriting fee is the difference between the initial price to the public and the amount the underwriters pay to the selling shareholders for the shares.
| | | | | | | | | | | |
| No Exercise | | Full Exercise |
Per Share | $ | | $ |
Total | $ | | $ |
The representatives have advised us that the underwriters propose to offer the common shares directly to the public at the offering price on the cover of this prospectus and to selected dealers, which may include the underwriters, at such offering price less a selling concession not in excess of $ per share. If all the shares are not sold at the initial offering price following the initial offering, the representatives may change the offering price and other selling terms.
The expenses of the offering that are payable by us are estimated to be approximately $ (excluding underwriting discounts and commissions). The underwriters have agreed to reimburse us for certain expenses payable by us in connection with this offering. We have agreed to pay expenses incurred by the selling shareholders in connection with the offering, other than the underwriting discounts and commissions. We have also agreed to pay for certain expenses of the underwriters relating to clearance of this offering with the Financial Industry Regulatory Authority and the offering of common shares in Canada in an aggregate amount of up to $ .
Option to Purchase Additional Shares
The selling shareholders have granted the underwriters an option exercisable for 30 days after the date of this prospectus to purchase, from time to time, in whole or in part, up to an aggregate of shares from the selling
shareholders at the offering price less underwriting discounts and commissions. This option may be exercised solely to the extent the underwriters sell more shares than the shares set out above in connection with this offering. To the extent that this option is exercised, each underwriter will be obligated, subject to certain conditions, to purchase its pro rata portion of these additional shares approximately in the same proportion as such underwriter’s percentage underwriting commitment in this offering as indicated in the above table.
Lock-Up Agreements
We, all of our directors and executive officers, holders of substantially all of our outstanding common shares, including the selling shareholders, have agreed that, for a period of 180 days after the date of this prospectus (the “Lock-Up Period”), we and they will not directly or indirectly, without the prior written consent of each of Barclays Capital Inc. and Morgan Stanley & Co. LLC, (1) offer for sale, sell, pledge, or otherwise dispose of (or enter into any transaction or device that is designed to, or could be expected to, result in the disposition by any person at any time in the future of) any common shares (including, without limitation, common shares that may be deemed to be beneficially owned by us or them in accordance with the rules and regulations of the SEC and common shares that may be issued upon exercise of any options or warrants) or securities convertible into or exercisable or exchangeable for common shares (other than the common shares issued pursuant to employee benefit plans, qualified stock option plans, or other employee compensation plans existing on the date of this prospectus or pursuant to currently outstanding options or warrants not issued under one of those plans), or sell or grant options, rights or warrants with respect to any common shares or securities convertible into or exchangeable for common shares (other than the grant of options pursuant to option plans existing on the date of this prospectus), (2) enter into any swap or other derivatives transaction that transfers to another, in whole or in part, any of the economic benefits or risks of ownership of common shares, whether any such transaction described in clause (1) or (2) above is to be settled by delivery of common shares or other securities, in cash or otherwise, (3) make any demand for or exercise any right or confidentially submit or file or cause to be filed or confidentially submitted a registration statement, including any amendments thereto, with respect to the registration of any common shares or securities convertible, exercisable or exchangeable into common shares or any of our other securities (other than any registration statement on Form S-8), or (4) publicly disclose the intention to do any of the foregoing.
The restrictions set forth above applicable to our directors and executive officers and holders of substantially all of our outstanding common shares, including the selling shareholders, are subject to specified exceptions, including:
(a)transactions relating to common shares or other securities acquired in the open market after the completion of this offering;
(b)gifts, sales or other dispositions of shares of any class of our share capital, in each case
(1)as a bona fide gift,
(2)by will or intestacy,
(3)that are made exclusively between and among the lock-up party or members of the lock-up party’s immediate family (“immediate family” shall mean any relationship by blood, current or former marriage, domestic partnership or adoption, not more remote than first cousin) (including to any trust, limited partnership, limited liability company or other entity for the direct or indirect benefit of any members of the lock-up party’s family),
(4)by operation of law, such as pursuant to a qualified domestic order, divorce settlement, divorce decree or separation agreement,
(5)to a nominee or custodian of a person or entity to whom a disposition or transfer would be permissible under clauses (1) through (4) above, or
(6)if the lock-up party is a corporation, partnership, limited liability company, trust or other business entity, (A) to another corporation, partnership, limited liability company, trust or other business entity, in each case that is an affiliate (as defined in Rule 405 promulgated under the Securities Act) of the
lock-up party, or to any investment fund or other entity controlling, controlled by, affiliates of the lock-up party, including, where the lock-up party is a (x) partnership, to its general partner or a successor partnership or fund, or any other funds managed by such partnership or (y) in certain cases, trustee of a trust, to another trust for the benefit of a person or entity to whom a disposition or transfer would be permissible under clauses (1) through (4) above and whose trustee is the relevant lock-up party or an affiliate of that lock-up party, or (B) as part of a distribution, transfer or disposition to members, partners, shareholders or other equity holders of the lock-up party;
provided that it shall be a condition to any transfer pursuant to this clause (b) that any transferee agrees to be bound by the terms of a lock-up agreement (including, without limitation, the restrictions set forth in the preceding sentence) to the same extent as if the transferee were a party thereto, and provided further that it shall be a condition to such transfer that no public filing, report or announcement shall be voluntarily made and if any filing under Section 16(a) of the Exchange Act or other public filing, report or announcement reporting a reduction in beneficial ownership of common shares in connection with such transfer or distribution shall be legally required during the Lock-Up Period, such filing, report or announcement shall clearly indicate in the footnotes thereto the nature and conditions of such transfer;
(c)the exercise of warrants or the exercise, vesting or settlement of options, restricted stock units or other equity awards to purchase common shares granted, in each case pursuant to our stock option/incentive plans or otherwise outstanding on the date of the lock-up agreement and described herein, provided that the restrictions of the lock-up agreement shall apply to common shares issued upon such exercise, vesting or settlement;
(d)transfers to us in connection with the vesting, settlement or exercise of restricted stock units, options, warrants or other rights to purchase common shares, in each case, by way of “net” or “cashless” exercise, so long as such “net” or “cashless” exercise is effected solely by the surrender to us of the common shares subject to outstanding restricted stock units, options, warrants or other securities and our cancellation of all or a portion thereof solely in an amount sufficient to pay the exercise price and tax and remittance payments due as a result of the vesting, settlement or exercise of such restricted stock units, options, warrants or rights, provided that any such common shares received upon such exercise, vesting or settlement shall be subject to the terms of the lock-up agreement for the duration of the Lock-Up Period;
(e)transfers to us from our employees upon death, disability or termination of employment, in each case, of such employees; provided that it shall be a condition to such transfer that no public filing, report or announcement shall be voluntarily made during the Lock-Up Period, and if any filing under Section 16(a) of the Exchange Act, or other public filing, report or announcement in connection with such transfer or distribution shall be legally required during the Lock-Up Period, such filing, report or announcement shall clearly indicate in the footnotes thereto the nature and conditions of such transfer;
(f)transfers pursuant to a bona fide third-party tender offer, merger, consolidation or other similar transaction that is approved by our Board of Directors and made to all holders of our share capital involving a Change of Control (for purposes hereof, “Change of Control” shall mean the transfer pursuant to a bona fide tender offer, merger, consolidation or other similar transaction, in one transaction or a series of related transactions, to a person or group of affiliated persons, of share capital if, after such transfer, such person or group of affiliated persons the result of which is that any “person” (as defined in Section 13(d)(3) of the Exchange Act) or group of persons, other than us or any of our subsidiaries, would become the beneficial owner (as defined in Rules 13d-3 and 13d-5 of the Exchange Act) of at least a majority of the voting power of the outstanding voting share capital of the Company (or the surviving entity)); provided that, in the event that such tender offer, merger, consolidation or other similar transaction is not completed, the securities shall remain subject to the provisions of the lock-up agreement;
(g)the conversion or redesignation, as applicable, of common shares to Class B common shares pursuant to our Bye-laws, provided that any such common shares held by the lock-up party upon such conversion or redesignation shall be subject to the terms of the lock-up agreement;
(h)transfers solely to reflect a change in form of beneficial ownership by the lock-up party of common shares from direct through the our transfer agent to indirect through a brokerage or similar custodial account established for the benefit of the lock-up party (or from indirect to direct through a transfer from the lock-up party’s brokerage or similar custodial account to the lock-up party’s account with our transfer agent), provided that any common shares so transferred shall be notated with a legend (which may be in the form of an electronic notation), for the duration of the Lock-Up Period, stating that such common shares are subject to restrictions on transfer under the lock-up agreement;
(i)transfers solely from one brokerage or similar custodial account of or for the benefit of the lock-up party to another, which does not result in a change of beneficial ownership of such common shares, provided that any common shares so transferred shall be subject to the terms of the lock-up agreement;
(j)the establishment of any contract, instruction or plan that satisfies all of the requirements of Rule 10b5-1 (a “Rule 10b5-1 Plan”) under the Exchange Act; provided, however, that no sales of common shares or securities convertible into, or exchangeable or exercisable for, common shares shall be made pursuant to a Rule 10b5-1 Plan prior to the expiration of the Lock-Up Period (as the same may be extended pursuant to the provisions of the lock-up agreement); provided further, that any public announcement or filing with the SEC under the Exchange Act made by any person regarding the establishment of such plan during the Lock-Up Period shall include a statement that the lock-up party is not permitted to transfer, sell or otherwise dispose of securities under such plan during the Lock-Up Period in contravention of the lock-up agreement; and
(k)any demands or requests for, exercises of any right with respect to, or taking of any action in preparation of, the registration by us under the Securities Act of the lock-up party’s common shares, provided that no transfer of the lock-up party’s common shares registered pursuant to the exercise of any such right and no registration statement shall be confidentially submitted or publicly filed under the Securities Act with respect to any of the lock-up party’s common shares during the Lock-Up Period.
Barclays Capital Inc. and Morgan Stanley & Co. LLC, in their sole discretion, may release the common shares and other securities subject to the lock-up agreements described above in whole or in part at any time. In the event of any such release or waiver with respect to any lock-up party that is a party to the Registration Rights Agreement (see “Certain Relationships and Related Party Transactions––Registration Rights Agreement”), the representatives have agreed that each lock-up party, if it is a party to the Registration Rights Agreement, shall be granted the same release or waiver from the foregoing restrictions to the same extent as such other lock-up party. When determining whether or not to release common shares and other securities from lock-up agreements, Barclays Capital Inc. and Morgan Stanley & Co. LLC will consider, among other factors, the holder’s reasons for requesting the release, the number of common shares and other securities for which the release is being requested and market conditions at the time. At least three business days before the effectiveness of any release or waiver of any of the restrictions described above with respect to an officer or director of the Company, Barclays Capital Inc. and Morgan Stanley & Co. LLC will notify us of the impending release or waiver and we have agreed to announce the impending release or waiver in accordance with any method permitted by applicable law or regulation (which may include a press release), except (i) where the release or waiver is effected solely to permit a transfer of common shares that is not for consideration or that is to an immediate family member as defined in FINRA Rule 5130(i)(5) and (ii) where the transferee has agreed in writing to be bound by the same terms as the lock-up agreements described above to the extent and for the duration that such terms remain in effect at the time of transfer.
Offering Price Determination
Prior to this offering, there has been no public market for our common shares. The initial offering price was negotiated between the representatives and us. In determining the initial offering price of our common shares, the representatives considered:
•the history and prospects for the industry in which we compete;
•our financial information;
•the ability of our management and our business potential and earning prospects;
•the prevailing securities markets at the time of this offering; and
•the recent market prices of, and the demand for, publicly traded shares of generally comparable companies.
Indemnification
We and the selling shareholders have agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act, and to contribute to payments that the underwriters may be required to make for these liabilities.
Stabilization, Short Positions and Penalty Bids
The representatives may engage in stabilizing transactions, short sales and purchases to cover positions created by short sales, and penalty bids or purchases for the purpose of pegging, fixing or maintaining the price of the common shares, in accordance with Regulation M under the Securities Exchange Act of 1934, as amended:
•Stabilizing transactions permit bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum.
•A short position involves a sale by the underwriters of shares in excess of the number of shares the underwriters are obligated to purchase in the offering, which creates the syndicate short position. This short position may be either a covered short position or a naked short position. In a covered short position, the number of shares involved in the sales made by the underwriters in excess of the number of shares they are obligated to purchase is not greater than the number of shares that they may purchase by exercising their option to purchase additional shares. In a naked short position, the number of shares involved is greater than the number of shares in their option to purchase additional shares. The underwriters may close out any short position by either exercising their option to purchase additional shares and/or purchasing shares in the open market. In determining the source of shares to close out the short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through their option to purchase additional shares. A naked short position is more likely to be created if the underwriters are concerned that there could be downward pressure on the price of the shares in the open market after pricing that could adversely affect investors who purchase in the offering.
•Syndicate covering transactions involve purchases of the common shares in the open market after the distribution has been completed in order to cover syndicate short positions.
•Penalty bids permit the representatives to reclaim a selling concession from a syndicate member when the common shares originally sold by the syndicate member is purchased in a stabilizing or syndicate covering transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty bids may have the effect of raising or maintaining the market price of our common shares or preventing or retarding a decline in the market price of the common shares. As a result, the price of the common shares may be higher than the price that might otherwise exist in the open market. These transactions may be effected on the New York Stock Exchange or otherwise and, if commenced, may be discontinued at any time.
Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the common shares. In addition, neither we nor any of the underwriters make any representation that the representatives will engage in these stabilizing transactions or that any transaction, once commenced, will not be discontinued without notice.
Electronic Distribution
A prospectus in electronic format may be made available on internet sites or through other online services maintained by one or more of the underwriters and/or selling group members participating in this offering, or by their affiliates. In those cases, prospective investors may view offering terms online and, depending upon the particular underwriter or selling group member, prospective investors may be allowed to place orders online. The underwriters may agree with us to allocate a specific number of shares for sale to online brokerage account holders. Any such allocation for online distributions will be made by the representatives on the same basis as other allocations.
Other than the prospectus in electronic format, the information on any underwriter’s or selling group member’s website and any information contained in any other website maintained by an underwriter or selling group member is not part of the prospectus or the registration statement of which this prospectus forms a part, has not been approved and/or endorsed by us or any underwriter or selling group member in its capacity as underwriter or selling group member and should not be relied upon by investors.
Listing on the New York Stock Exchange
We intend to apply to list our shares on the New York Stock Exchange under the symbol “HG.”
Stamp Taxes
If you purchase common shares offered in this prospectus, you may be required to pay stamp taxes and other charges under the laws and practices of the country of purchase, in addition to the offering price listed on the cover page of this prospectus.
Other Relationships
Pursuant to an engagement letter, we retained Insurance Advisory Partners LLC (“IAP”), a FINRA member, to act as financial advisor to us with respect to evaluating various strategic and financial alternatives including any capital raise by us, including this offering. See “Certain Relationships and Related Party Transactions—IAP Engagement Letter.” IAP is not acting as an underwriter and has not had any contact with any public or institutional investor on behalf of us or the underwriters. In addition, IAP will not underwrite or purchase any of our Class B common shares in this offering or otherwise participate in any such undertaking.
The underwriters and certain of their affiliates are full-service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. The underwriters and certain of their affiliates have, from time to time, performed, and may in the future perform, various commercial and investment banking and financial advisory services for the issuer and its affiliates, for which they received or may in the future receive customary fees and expenses.
In the ordinary course of their various business activities, the underwriters and certain of their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers, and such investment and securities activities may involve securities and/or instruments of the issuer or its affiliates. If the underwriters or their affiliates have a lending relationship with us, certain of those underwriters or their affiliates routinely hedge, and certain other of those underwriters or their affiliates may hedge, their credit exposure to us consistent with their customary risk management policies. Typically, the underwriters and their affiliates would hedge such exposure by entering into transactions which consist of either the purchase of credit default swaps or the creation of short positions in our securities or the securities of our affiliates, including potentially the common shares offered hereby. Any such credit default swaps or short positions could adversely affect future trading prices of the common shares offered hereby. The underwriters and certain of their affiliates may also communicate independent investment recommendations, market color or trading ideas and/or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.
Selling Restrictions
General
Other than in the United States, no action has been taken by us or the underwriters that would permit a public offering of the securities offered by this prospectus in any jurisdiction where action for that purpose is required. The securities offered by this prospectus may not be offered or sold, directly or indirectly, nor may this prospectus or any other offering material or advertisements in connection with the offer and sale of any such securities be distributed or published in any jurisdiction, except under circumstances that will result in compliance with the applicable rules and regulations of that jurisdiction. Persons into whose possession this prospectus comes are advised to inform themselves about and to observe any restrictions relating to the offering and the distribution of this prospectus. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities offered by this prospectus in any jurisdiction in which such an offer or a solicitation is unlawful.
European Economic Area
In relation to each Member State of the European Economic Area (each, a “Member State”), no shares have been offered or will be offered pursuant to the offering to the public in that Member State prior to the publication of a prospectus in relation to the shares which has been approved by the competent authority in that Member State, all in accordance with the Prospectus Regulation, except that offers of shares may be made to the public in that Member State at any time under the following exemptions under the Prospectus Regulation:
•to any legal entity which is a qualified investor as defined in the Prospectus Regulation;
•to fewer than 150 natural or legal persons (other than qualified investors as defined under the Prospectus Regulation), subject to obtaining the prior consent of the underwriters for any such offer; or
•in any other circumstances falling within Article 1(4) of the Prospectus Regulation,
provided that no such offer of shares shall require the Company or any of the underwriters to publish a prospectus pursuant to Article 3 of the Prospectus Regulation or supplement a prospectus pursuant to Article 23 of the Prospectus Regulation.
For the purposes of this provision, the expression an “offer to the public” in relation to any shares in any Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any shares to be offered so as to enable an investor to decide to purchase or subscribe for any shares, and the expression “Prospectus Regulation” means Regulation (EU) 2017/1129.
United Kingdom
In relation to the United Kingdom, no shares have been offered or will be offered pursuant to the offering to the public in the United Kingdom prior to the publication of a prospectus in relation to the shares which has been approved by the Financial Conduct Authority, except that it may make an offer to the public in the United Kingdom of any shares at any time under the following exemptions under the U.K. Prospectus Regulation:
•to any legal entity which is a qualified investor as defined under Article 2 of the U.K. Prospectus Regulation;
•to fewer than 150 natural or legal persons (other than qualified investors as defined under Article 2 of the U.K. Prospectus Regulation), subject to obtaining the prior consent of the representatives for any such offer; or
•in any other circumstances falling within Section 86 of the FSMA,
provided that no such offer of the shares shall require the Company or any of the underwriters to publish a prospectus pursuant to Section 85 of the FSMA or supplement a prospectus pursuant to Article 23 of the U.K. Prospectus Regulation.
For the purposes of this provision, the expression an “offer to the public” in relation to the shares in the United Kingdom means the communication in any form and by any means of sufficient information on the terms of the offer and any shares to be offered so as to enable an investor to decide to purchase or subscribe for any shares and the expression “U.K. Prospectus Regulation” means Regulation (EU) 2017/1129 as it forms part of domestic law by virtue of the European Union (Withdrawal) Act 2018.
In addition, in the United Kingdom, this document is being distributed only to, and is directed only at, and any offer subsequently made may only be directed at persons who are “qualified investors” (as defined in Article 2 of the U.K. Prospectus Regulation) (i) who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the “Order”), and/or (ii) who are high net worth companies (or persons to whom it may otherwise be lawfully communicated) falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as “relevant persons”) or otherwise in circumstances which have not resulted and will not result in an offer to the public of the shares in the United Kingdom within the meaning of the FSMA.
Canada
The shares may be sold only to purchasers purchasing, or deemed to be purchasing, as principal that are accredited investors, as defined in National Instrument 45-106 Prospectus Exemptions or subsection 73.3(1) of the Securities Act (Ontario), and are permitted clients, as defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Any resale of the shares must be made in accordance with an exemption from, or in a transaction not subject to, the prospectus requirements of applicable securities laws.
Securities legislation in certain provinces or territories of Canada may provide a purchaser with remedies for rescission or damages if this prospectus (including any amendment thereto) contains a misrepresentation, provided that the remedies for rescission or damages are exercised by the purchaser within the time limit prescribed by the securities legislation of the purchaser’s province or territory. The purchaser should refer to any applicable provisions of the securities legislation of the purchaser’s province or territory for particulars of these rights or consult with a legal advisor.
Pursuant to section 3A.3 of National Instrument 33-105 Underwriting Conflicts (NI 33-105), the underwriters are not required to comply with the disclosure requirements of NI 33-105 regarding underwriter conflicts of interest in connection with this offering.
Hong Kong
The shares have not been offered or sold and will not be offered or sold in Hong Kong, by means of any document, other than (a) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (b) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance. No advertisement, invitation or document relating to the shares has been or may be issued or has been or may be in the possession of any person for the purpose of issue, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the Securities and Futures Ordinance and any rules made under that Ordinance.
Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore, or
the SFA, (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA, in each case subject to compliance with conditions set forth in the SFA.
Where our shares are subscribed or purchased under Section 275 by a relevant person which is:
•a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or
•a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor,
shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares pursuant to an offer made under Section 275 of the SFA except:
•to an institutional investor (for corporations, under Section 274 of the SFA) or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA;
•where no consideration is or will be given for the transfer;
•where the transfer is by operation of law;
•as specified in Section 276(7) of the SFA; or
•as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore.
Solely for the purposes of its obligations pursuant to Section 309B of the SFA, we have determined, and hereby notify all relevant persons (as defined in the CMP Regulations 2018), that the shares are “prescribed capital markets products” (as defined in the CMP Regulations 2018) and Excluded Investment Products (as defined in MAS Notice SFA 04-N12: Notice on the Sale of Investment Products and MAS Notice FAA-N16: Notice on Recommendations on Investment Products).
Dubai International Financial Centre
This prospectus relates to an Exempt Offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority (the “DFSA”). This prospectus is intended for distribution only to persons of a type specified in the Offered Securities Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this prospectus nor taken steps to verify the information set forth herein and has no responsibility for the prospectus. The shares to which this prospectus relates may be illiquid or subject to restrictions on its resale. Prospective purchasers of the shares offered should conduct their own due diligence on the shares. If you do not understand the contents of this prospectus you should consult an authorized financial advisor.
Japan
The shares have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948, as amended) and, accordingly, will not be offered or sold, directly or indirectly, in Japan, or for the benefit of any Japanese Person or to others for re-offering or resale, directly or indirectly, in Japan or to any Japanese Person, except in compliance with all applicable laws, regulations and ministerial guidelines promulgated by relevant Japanese governmental or regulatory authorities in effect at the relevant time. For the purposes of this paragraph, “Japanese Person” shall mean any person resident in Japan, including any corporation or other entity organized under the laws of Japan.
Australia
No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities and Investments Commission (“ASIC”), in relation to the offering. This prospectus does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001 (the “Corporations Act”), and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.
Any offer in Australia of the shares may only be made to persons (the “Exempt Investors”) who are “sophisticated investors” (within the meaning of section 708(8) of the Corporations Act), “professional investors” (within the meaning of section 708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it is lawful to offer the shares without disclosure to investors under Chapter 6D of the Corporations Act.
The shares applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of 12 months after the date of allotment under the offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring shares must observe such Australian on-sale restrictions.
This prospectus contains general information only and does not take account of the investment objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Before making an investment decision, investors need to consider whether the information in this prospectus is appropriate to their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters.
New Zealand
The common shares offered hereby have not been offered or sold, and will not be offered or sold, directly or indirectly in New Zealand and no offering materials or advertisements have been or will be distributed in relation to any offer of shares in New Zealand, in each case other than:
•to persons whose principal business is the investment of money or who, in the course of and for the purposes of their business, habitually invest money; or
•to persons who in all the circumstances can properly be regarded as having been selected otherwise than as members of the public; or
•to persons who are each required to pay a minimum subscription price of at least NZ$500,000 for the shares before the allotment of those shares (disregarding any amounts payable, or paid, out of money lent by the issuer or any associated person of the issuer); or
•in other circumstances where there is no contravention of the Securities Act 1978 of New Zealand (or any statutory modification or re-enactment of, or statutory substitution for, the Securities Act 1978 of New Zealand).
LEGAL MATTERS
The validity of the Class B common shares offered by this prospectus and certain legal matters with respect to Bermuda law will be passed upon for us by Carey Olsen Bermuda Limited. Certain other legal matters including those with respect to U.S. federal and New York law relating to the offering will be passed upon for us by Willkie Farr & Gallagher LLP, New York, New York. Certain legal matters in connection with the offering will be passed upon for the underwriters by Davis Polk & Wardwell LLP, New York, New York.
EXPERTS
The consolidated financial statements as of December 31, 2022 and November 30, 2021 and for the years ended December 31, 2022, November 30, 2021 and November 30, 2020 and for the period from December 1, 2021 to December 31, 2021, appearing in this Prospectus and Registration Statement have been audited by Ernst & Young Ltd., independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the Class B common shares offered by this prospectus. This prospectus is a part of the registration statement and does not contain all of the information set forth in the registration statement and its exhibits and schedules, portions of which have been omitted as permitted by the rules and regulations of the SEC. For further information about us and our Class B common shares, you should refer to the registration statement and its exhibits and schedules. Statements in this prospectus about the contents of any contract, agreement or other document are not necessarily complete and in each instance that a copy of such contract, agreement or document has been filed as an exhibit to the registration statement, we refer you to the copy that we have filed as an exhibit.
We will file annual, quarterly and special reports and other information with the SEC. The SEC maintains an internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. You may inspect these reports and other information without charge at the SEC’s website (http://www.sec.gov). Those filings will also be available to the public on, or accessible through, our corporate website at www.hamiltongroup.com. The information we file with the SEC or contained on or accessible through our corporate website or any other website that we may maintain is not part of this prospectus or the registration statement of which this prospectus is a part.
We intend to make available to our common shareholders annual reports containing consolidated financial statements audited by an independent registered public accounting firm.
ENFORCEMENT OF CIVIL LIABILITIES UNDER U.S. FEDERAL SECURITIES LAWS
We are a Bermuda exempted company. In addition, certain of our directors and officers as well as certain of the experts named in this prospectus, reside outside the United States, and all or a substantial portion of our assets and their assets are located outside the United States. Therefore, it may be difficult for investors to effect service of process within the United States upon those persons or to recover against us or those persons on judgments of courts in the United States, including judgments based on civil liabilities provisions of the U.S. federal securities laws.
We have been advised by Carey Olsen Bermuda Limited, our Bermuda counsel, that the United States and Bermuda do not currently have a treaty providing for reciprocal recognition and enforcement of judgments in civil and commercial matters. We also have been advised by Carey Olsen Bermuda Limited that there is doubt as to whether the courts of Bermuda would enforce (1) judgments of U.S. courts based on the civil liability provisions of the U.S. federal securities laws obtained in actions against us or our directors and officers, and (2) original actions brought in Bermuda against us or our officers and directors based solely upon the U.S. federal securities laws. A Bermuda court may, however, impose civil liability on us or our directors or officers in a suit brought in the Supreme Court of Bermuda; provided that the facts alleged constitute or give rise to a cause of action under Bermuda law. Certain remedies available under the laws of U.S. jurisdictions, including certain remedies under the U.S. federal securities laws, would not be allowed in Bermuda courts to the extent that they are contrary to public policy.
GLOSSARY OF SELECTED TERMS
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| ACML | | Ada Capital Management Limited, our wholly owned subsidiary that provides underwriting agency services to Ada Re. |
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| Acquisition expenses | | The aggregate expenses incurred by a company that relate directly to acquiring business, including broker commissions and other costs paid to distribution partners. |
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| Ada Re | | Ada Re, Ltd. is a non-consolidated Bermuda special purpose insurer funded by investors and formed to provide fully collateralized natural catastrophe reinsurance and retrocession cover to both Hamilton Re and third-party cedants. |
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| Attritional losses and loss ratio – current year and prior year development | | Attritional Loss Ratio – current year is the attritional losses incurred by the company relating to the current year divided by net premium earned. Attritional Loss Ratio – prior year development is the attritional losses incurred by the company relating to prior years divided by net premium earned. Attritional losses and loss ratio – current year and prior year development are non-GAAP financial measures as defined in Item 10(e) of SEC Regulation S-K. Refer to “Basis of Presentation—Presentation of Financial Information–Non-GAAP Financial Measures” for further details. |
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| Basic book value per common share | | Basic book value per common share is calculated by dividing total shareholders’ equity attributable to common shareholders by the number of common shares outstanding. |
| Blackstone Investor | | Collectively, BSOF Master Fund LP and BSOF Master Fund II L.P., including any permitted transferee of any of the foregoing. |
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| BMA | | Bermuda Monetary Authority. |
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| Bordereau | | A bordereau is a report prepared by an insurance company for a reinsurance company detailing either the policies that are covered by the reinsurance contract or the claims that are being submitted for payment under a reinsurance contract. These are usually for quota share treaties and are generally prepared on a quarterly basis. |
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| Broker | | An intermediary who negotiates contracts of insurance or reinsurance, receiving a commission for placement and other services rendered, between (1) a policyholder and a primary insurer, on behalf of the policyholder, (2) a primary insurer and reinsurer, on behalf of the primary insurer, or (3) a reinsurer and a retrocessionaire, on behalf of the reinsurer. |
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| Bye-laws | | HIG’s fourth amended and restated bye-laws. |
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| Capacity | | The amount of potential claims exposure that an insurer or reinsurer chooses to place at risk, or the dollar amount of exposure, that an insurer or reinsurer is willing or able to place at risk. Capacity may apply to a single risk, a program, a line of business or an entire book of business. Capacity may be constrained by legal restrictions, corporate restrictions, or indirect financial restrictions such as capital adequacy requirements. |
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| Case reserves | | Loss reserves, established with respect to specific, individual reported claims that have not yet been paid. |
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| Casualty Lines | | Types of insurance or reinsurance that is primarily concerned with the losses caused by injuries to third persons and their property (in other words, persons other than the policyholder) and the legal liability imposed on the policyholder resulting therefrom. Also referred to as liability reinsurance. It includes, but is not limited to workers’ compensation, automobile liability and general liability. |
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| Catastrophe and catastrophe losses | | A large loss, typically involving multiple claimants and includes both natural catastrophes such as earthquakes, hurricanes, tsunamis, hailstorms, severe winter weather, floods, wildfires, tornadoes, and manmade disasters such as explosions and fire. Catastrophe losses may also arise from acts of war, acts of terrorism and political instability. |
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| Catastrophe loss ratio – current year and prior year development | | Catastrophe Loss Ratio – current year is the catastrophe losses incurred by the company relating to the current year divided by net premium earned. Catastrophe Loss Ratio – prior year development is the catastrophe losses incurred by the company relating to prior years divided by net premium earned. Catastrophe losses and loss ratio – current year and prior year development are non-GAAP financial measures as defined in Item 10(e) of SEC Regulation S-K. Refer to “Basis of Presentation—Presentation of Financial Information—Non-GAAP Financial Measures” for further details. |
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| CBI | | Central Bank of Ireland. |
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| Cede; cedant; ceding company | | When a party reinsures some or all of its liability with another, it “cedes” business and is referred to as the “ceding company” or “cedant.” |
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| Claim | | Request by an insured or reinsured for indemnification by an insurance or reinsurance company for loss incurred from an insured peril or event. |
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| Claims Frequency | | The number of claims notified of during a given coverage period. |
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| Class of Business | | Class of business includes casualty, property and specialty business. |
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| Collateralized Reinsurance | | Collateralized Reinsurance is a form of reinsurance in which the party assuming the risk is required to post collateral in order to cover any potential claim obligation. This allows non-traditional reinsurers, such as unrated carriers to participate in the reinsurance market. |
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| Combined Ratio | | Combined ratio is a measure of our underwriting profitability and is expressed as the sum of the losses and loss adjustment expense ratio, acquisition cost ratio and other underwriting expense ratio. A combined ratio under 100% indicates an underwriting profit, while a combined ratio over 100% indicates an underwriting loss. |
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| Commercial lines | | The various kinds of insurance that are written for businesses, including property, general liability, automobile insurance and workers’ compensation. |
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| Demand surge | | The temporary inflation of costs for building materials and labor resulting from increased demand for rebuilding services in the aftermath of a catastrophe. |
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| Direct Insurance | | Direct Insurance means an insurance contract between an insurance company and a policyholder. |
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| Excess of loss reinsurance | | Reinsurance which indemnifies the reinsured against that portion of losses and loss adjustment expenses incurred on the underlying policies in excess of a specified dollar or percentage loss ratio amount. Also known as non-proportional reinsurance. |
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| Exclusions | | A listing of specific types of coverage or loss that are not covered by a given insurance, reinsurance or retrocession contract. |
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| E&S | | Excess & Surplus lines. |
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| Facultative Insurance | | Facultative reinsurance: the cedant cedes, and the reinsurer assumes, all or part of the risk under a single insurance contract. Facultative reinsurance is negotiated separately for each insurance contract that is reinsured and is usually intended to cover individual risks not covered by their reinsurance policies because of the limits involved or because the risk is unusual. |
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| Gross premiums earned | | The portion of gross premiums written during or prior to a given period that was actually recognized as income revenue under U.S. GAAP accounting during such period. |
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| Gross premiums written | | Total premiums for assumed insurance, reinsurance or retrocession cover that was contractually agreed to during a given period. |
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| Incurred but not reported (IBNR) | | Expected payments for losses relating to insured events that have occurred but have not been reported to the reporting entity as of the statement date. As a practical matter, IBNR may include losses that have been reported to the reporting entity but have not yet been entered to the claims system or bulk provisions. Bulk provisions are reserves included with other IBNR reserves to reflect deficiencies in known case reserves. |
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| Hamilton Group | | HIG and its subsidiaries and affiliates. |
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| Hamilton ILS | | Hamilton ILS Holdings Limited, a Bermuda-based affiliate of Hamilton Re and the direct parent of Ada Capital Management Limited. |
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| Hamilton Re | | Hamilton Re, Ltd., our Bermuda-based wholly-owned subsidiary that is regulated by the BMA and authorized to write property, casualty and specialty insurance and reinsurance. |
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| Hamilton Re US | | An arrangement between Hamilton Re and Hamilton ILS pursuant to which certain U.S. casualty and specialty reinsurance risks are written on the books of Hamilton Re. |
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| Hamilton Select | | Hamilton Select Insurance Inc., our wholly-owned U.S. domestic-based E&S carrier that is licensed to market and sell E&S products in all 50 states. |
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| Hamilton Strategic Partnerships | | Hamilton’s third-party capital business, comprised of Turing Re, Ada Re and Hamilton Managing Agency Limited, solely in its capacity as managing agent for Lloyd’s Syndicate 1947. |
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| HIDAC | | Hamilton Insurance Designated Activity Company, a Dublin-based insurer regulated by the CBI with a U.K. branch and a registered alien insurer with the NAIC affording access to write E&S business in all 50 states. |
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| HIG | | Hamilton Insurance Group, Ltd., a Bermuda-exempted company and the Headquarter (as defined under the Bermuda Economic Substance Regulations) of the Hamilton Group. |
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| HMA | | Hamilton Managing Agency Limited, our Lloyd’s Managing Agent that manages syndicates including Hamilton Syndicate 4000 (wholly aligned syndicate). |
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| HMGA Americas | | Hamilton Managing General Agency Americas, LLC, our wholly-owned U.S. subsidiary that has authority to write certain U.S. property, specialty and casualty insurance and reinsurance on behalf of Hamilton Re, Lloyd’s Syndicate 4000 and HIDAC. |
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| HUL | | Hamilton Underwriting Limited, a former Lloyd’s managing agent that managed Lloyd’s Syndicate 3334. |
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| IELR | | Initial expected loss ratio. |
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| Insurance-Linked Security or ILS | | A security that is tied to a specific event such as a hurricane or earthquake. |
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| Lead | | In some insurance markets, the brokers find takers for insurance risks on the market and establish the policy terms with a leading underwriter, who also takes on a substantial share of the risk. The broker then looks for further cover providers, known as following underwriters, who accept the terms established by the leading underwriter and accept a share of the risk. When a leading underwriter establishes the policy terms, it is called the “lead.” |
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| Line of business | | Insurance or reinsurance line of business such as property, general liability, professional liability, automobile liability, or workers’ compensation. |
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| Long tail | | Types of insurance or reinsurance contracts under which claims tend to take a relatively long time to be reported and/or settle. Examples include several types of casualty lines. |
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| Loss adjustment expenses | | The expenses involved in settling claims, including legal and other fees, and the portion of general expenses allocated to claim settlement costs. Also known as claim adjustment expenses. |
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| Loss and loss adjustment expense reserves/loss reserves | | Liabilities established by insurers and reinsurers to reflect the estimated costs of claim payments and the related expenses that the insurer or reinsurer will ultimately be required to pay in respect of insurance or reinsurance policies it has issued. Loss and loss adjustment expense reserves consist of “case reserves,” or reserves established with respect to individual reported claims, and “IBNR reserves.” |
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| Loss portfolio transfer | | A loss portfolio transfer is a reinsurance contract or agreement in which an insurer cedes policies that have expired, often ones that have already incurred losses, to a reinsurer. |
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| Loss Ratio | | Financial ratio calculated by dividing net losses and loss expenses by net premiums. |
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| Losses occurring | | Contracts that cover claims arising from loss events that occur during the term of the reinsurance contract, although not necessarily reported during the term of the contract. |
| Magnitude Investor | | Collectively, Magnitude Master Fund, a sub trust of the Magnitude Master Series Trust, Magnitude Institutional, Ltd., Magnitude Partners Master Fund, L.P., and Magnitude Insurance Master Fund, LLC, including any permitted transferee of any of the foregoing. |
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| Managing Member | | Two Sigma Principals, LLC., the managing member of the Two Sigma Hamilton Fund. |
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| Memorandum of Association | | Hamilton’s memorandum of association. |
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| NAIC | | National Association of Insurance Commissioners. |
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| Net premiums earned | | The portion of net premiums written during or prior to a given period that was actually recognized as income during such period. |
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| Net premiums written | | Gross premiums written for a given period less premiums ceded to reinsurers and retrocessionaires during such period. |
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| Net loss and loss adjustment expense ratio | | Net loss and loss adjustment expense ratio is calculated by dividing net loss and loss adjustment expenses by net premiums earned. |
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| Other underwriting expense ratio | | Other underwriting expense ratio is calculated by dividing non-acquisition expenses by net premiums. Examples of non-acquisition expenses include personnel costs, legal and professional fees, IT, travel and entertainment and communication costs. It also includes certain income items such as third- party fee income. |
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| Personal lines | | Types of insurance or reinsurance written for individuals or families, rather than for businesses. |
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| PMA and IEDAC | | Pembroke Managing Agency, Ironshore Europe DAC, and related companies acquired in 2019. |
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| Premiums | | Premiums represent the cost of insurance that is paid by the policyholder or cedant to the insurer or the reinsurer for the risk being assumed. |
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| Property catastrophe reinsurance | | Property catastrophe reinsurance contracts are typically “natural catastrophe” in nature, meaning that they protect against losses from earthquakes and hurricanes, as well as other natural catastrophes such as tornadoes, wildfires, winter storms, and floods (where the contract specifically provides for coverage). Losses on these contracts typically stem from direct property damage and business interruption. |
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| Property lines | | Types of insurance or reinsurance which provide coverage to a person with an insurable interest in tangible property for that person’s property loss, damage or loss of use caused by an insured peril. |
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| Property reinsurance | | Reinsurance that is primarily concerned with financial loss arising out of property loss, damage or loss of use caused by an insured peril, which could be either a natural catastrophe or man-made. |
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| Proportional reinsurance/Pro rata reinsurance/ Quota share reinsurance | | In proportional/ pro rata/ quota share treaty reinsurance, the reinsurer assumes a proportional share of the original premiums and losses incurred by the insurance company. |
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| Reinstatement premiums | | The premium charged for the restoration of the reinsurance limit of an excess of loss contract to its full amount after payment by the reinsurer of losses as a result of an occurrence. |
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| Reinsurance | | An arrangement in which an insurance company, the reinsurer, agrees to indemnify another insurance or reinsurance company, commonly referred to as the ceding company or cedant, for all or a portion of the insurance or reinsurance risks underwritten by the ceding company under one or more policies. Reinsurance does not legally discharge the primary insurer from its liability with respect to its obligations to the insured. |
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| Retention | | Specific amount of loss that the ceding company or insured retains before the reinsurance limit applies. |
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| Retrocession; retrocessional coverage | | A transaction whereby a reinsurer cedes to another reinsurer, commonly referred to as the retrocessionaire, all or part of the reinsurance that the first reinsurer has assumed. Retrocessional reinsurance does not legally discharge the ceding reinsurer from its liability with respect to its obligations to the reinsured. |
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| Return on average common shareholders’ equity or ROACE | | Return on average common shareholders’ equity is calculated by dividing net income (loss) attributable to common shareholders by average common shareholders’ equity for the same period. Average common shareholders’ equity is the arithmetic mean of opening and closing total common shareholders’ equity for the stated periods. |
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| Selling Shareholders | | The selling shareholders named in this prospectus. |
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| Short-tail | | Types of insurance or reinsurance contracts under which claims tend to take a relatively short time to be reported and/or settle. Examples include several types of property lines. |
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| Specialty Insurance | | Types of insurance and reinsurance that provide coverage for risks that are often unusual or difficult to place and do not fit the underwriting criteria of standard commercial products carriers. |
| | |
| Specialty Lines (of Business) | | Include lines of business other than property or casualty, such as marine and energy, aviation, political violence and war and terror. |
| | |
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| Submission | | An unprocessed application for (i) insurance, reinsurance or retrocessional coverage forwarded to an insurer, reinsurer or retrocessionaire by a broker or intermediary on behalf of such prospective ceding insurer, reinsurer or retrocessionaire. |
| | |
| Tangible book value | | Tangible book value is calculated as total common shareholders' equity less goodwill and intangible assets as at the same date. |
| | |
| Tangible book value per common share | | Tangible book value per common share is calculated by dividing tangible book value (as defined above) by the total number of common shares outstanding at the same date. |
| | |
| Treaty reinsurance | | The reinsurance of a specified type or category of risks defined in a reinsurance agreement (a “treaty”) between the primary insurer or other reinsured and a reinsurer. Typically, in treaty reinsurance, the primary insurer or reinsured is obligated to offer and the reinsurer is obligated to accept a specified portion of all of that type or category of risk originally written by the primary insurer or reinsured. A treaty is generally valid for a period of one year and contains common contract terms along with a specific risk definition, data on limit and retention, and provisions for premium and duration. |
| | |
| Turing Re | | Turing Re, Ltd., a Bermuda special purpose insurer sponsored by the Hamilton Group. |
| | |
| Two Sigma | | Two Sigma Investments, LP, an investment manager. |
| | |
| Two Sigma Hamilton Fund | | Two Sigma Hamilton Fund, LLC, a dedicated investment fund managed by Two Sigma for the Hamilton Group. |
| | |
| Underwriter | | An employee of an insurance or reinsurance company who examines, accepts or rejects risks and classifies accepted risks in order to charge an appropriate premium for each accepted risk. |
| | |
| Underwriting | | The insurer’s or reinsurer’s process of reviewing submissions for insurance or reinsurance coverage, deciding whether to accept all or part of the coverage requested and determining the applicable premiums. |
| | |
| Underwriting income (loss) | | Underwriting income (loss) is a non-GAAP financial measure as defined in Item 10(e) of SEC Regulation S-K. The reconciliation to net income (loss), the most comparable GAAP financial measure, is presented in “Management's Discussion and Analysis of Financial Condition and Results of Operations—Consolidated Results of Operations.” Refer also to “Basis of Presentation—Presentation of Financial Information—Non-GAAP Financial Measures” for further details. |
| | |
| Unearned premium | | The portion of premiums written that is allocable to the unexpired portion of the policy term. |
Hamilton Insurance Group, Ltd.
Table of Contents
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Audited Consolidated Financial Statements for the Years Ended December 31, 2022, November 30, 2021 and November 30, 2020, and for the One Month Period Ended December 31, 2021: | |
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| Schedules: | |
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| Unaudited Condensed Consolidated Financial Statements for the Three and Six Months Ended June 30, 2023 and 2022: | |
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| Schedules other than those listed above are omitted for the reason that they are not applicable | |
Hamilton Insurance Group, Ltd.
Audited Consolidated Financial Statements
For the Year Ended December 31, 2022
| | | | | | | | | | | |
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Ernst & Young Ltd.
3 Bermudiana Road
Hamilton HM 08
P.O. Box HM 463
Hamilton HM BX
BERMUDA | | Tel: +1 441 295 7000
Fax: +1 441 295 5193
ey.com |
Report of Independent Registered Public Accounting Firm
The Shareholders and the Board of Directors
Hamilton Insurance Group, Ltd.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Hamilton Insurance Group, Ltd. (the Company) as of December 31, 2022 and November 30, 2021, the related consolidated statements of operations and comprehensive income (loss), shareholders' equity and cash flows for the years ended December 31, 2022, November 30, 2021 and November 30, 2020, and for the one month period ended December 31, 2021, and the related notes and financial statement schedules (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and November 30, 2021, and the results of its operations and its cash flows for the three years ended December 31, 2022, November 30, 2021 and November 30, 2020, and for the one month period ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
F-3
A member firm of Ernst & Young Global Limited
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
F-4
A member firm of Ernst & Young Global Limited
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| Valuation of Losses Incurred but not Reported |
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| Description of the Matter | As disclosed in Notes 2 and 10 of the consolidated financial statements, reserves for losses and loss adjustment expenses includes reserves for unpaid reported losses (Case reserves) and for losses incurred but not reported (IBNR reserves). At December 31, 2022, IBNR reserves represented a significant portion of the $2.856 million of reserves for losses and loss adjustment expenses. |
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| There is significant uncertainty inherent in determining management’s estimate of ultimate losses and loss expenses associated with IBNR reserves. Management estimates its IBNR reserves exposure for large loss events based upon discussions with brokers and cedants, use of proprietary loss modelling and pricing software, estimate of market loss and market share and experience from historical large events. IBNR reserves for attritional losses are established using actuarial loss reserving techniques. These techniques include the loss development factor method, Bornheutter Ferguson method, the Initial Expected Loss Ratio method, and other techniques. These techniques rely on estimates of paid and reported loss development patterns and estimates of the loss ratio at the inception of the contract. The Company’s actuaries may use other approaches in addition to those described, and supplement these methods with judgment depending upon the characteristics of the class of business and available data. Inherent in the estimates of ultimate losses and loss expenses are expected trends in claim severity and frequency, the expected duration of the respective claims development period, inadequacies in the data provided by industry participants, the potential for further reporting lags, significant uncertainty as it relates to legal issues under the relevant terms of insurance and reinsurance contracts and other factors, which may vary significantly as claims are settled. |
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| Auditing management’s estimate for IBNR reserves was complex and required the involvement of our actuarial specialists due to the high degree of subjectivity inherent in management’s methods and assumptions used in the calculations which have a significant effect on the valuation of IBNR reserves. |
F-5
A member firm of Ernst & Young Global Limited
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| How We Addressed the Matter in Our Audit | We obtained an understanding of the estimation process for IBNR reserves. This included, among others, understanding management’s process over the actuarial methods and assumptions selected to determine their recorded estimate. To test IBNR reserves, our procedures included, among others, the involvement of actuarial specialists to assist with the evaluation of the Company’s selection of significant actuarial methods and assumptions used in their analysis and a comparison of those methods used in prior periods and those used in the industry. We independently calculated a range of reasonable reserve estimates including performing independent projections and compared the range of reserve estimates to the Company’s recorded loss and loss adjustment expense reserve. |
We have served as the Company’s auditor since 2013.
Hamilton, Bermuda
May 12, 2023
F-6
A member firm of Ernst & Young Global Limited
Hamilton Insurance Group, Ltd.
Consolidated Balance Sheets
| | | | | | | | | | | | |
(Expressed in thousands of U.S. Dollars, except share information) | December 31,
2022 | | November 30,
2021 | |
Assets | | | | |
| Fixed maturity investments, at fair value (amortized cost 2022: $1,348,684; 2021: $1,064,615) | $ | 1,259,476 | | | $ | 1,055,372 | | |
| Short-term investments, at fair value (amortized cost 2022: $285,130; 2021: $644,432) | 286,111 | | | 643,862 | | |
| Investments in Two Sigma Funds, at fair value (cost 2022: $731,100; 2021: $624,379) | 740,736 | | | 765,388 | | |
Total investments | 2,286,323 | | | 2,464,622 | | |
Cash and cash equivalents | 1,076,420 | | | 797,793 | | |
| Restricted cash | 130,783 | | | 157,135 | | |
Premiums receivable | 522,670 | | | 470,996 | | |
| Paid losses recoverable | 90,655 | | | 76,077 | | |
Deferred acquisition costs | 115,147 | | | 96,085 | | |
Unpaid losses and loss adjustment expenses recoverable | 1,177,863 | | | 1,118,273 | | |
Receivables for investments sold | 371 | | | 58,438 | | |
Prepaid reinsurance | 164,313 | | | 151,947 | | |
Goodwill and intangible assets | 86,958 | | | 117,012 | | |
Other assets | 167,462 | | | 103,229 | | |
Total assets | $ | 5,818,965 | | | $ | 5,611,607 | | |
| | | | |
Liabilities, non-controlling interest, and shareholders’ equity | | | | |
Liabilities | | | | |
Reserve for losses and loss adjustment expenses | $ | 2,856,275 | | | $ | 2,379,027 | | |
Unearned premiums | 718,188 | | | 620,994 | | |
Reinsurance balances payable | 244,320 | | | 314,279 | | |
Payables for investments purchased | 48,095 | | | 149,216 | | |
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| Term loan, net of issuance costs | 149,715 | | | 149,875 | | |
| | | | |
Accounts payable and accrued expenses | 138,050 | | | 181,747 | | |
Payables to related parties | 20 | | | 28,874 | | |
Total liabilities | 4,154,663 | | | 3,824,012 | | |
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Non-controlling interest – TS Hamilton Fund | 119 | | | 150 | | |
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Shareholders’ equity | | | | |
Common shares: | | | | |
| Class A, authorized (2022: 53,993,690 and 2021: 53,793,690), par value $0.01; issued and outstanding (2022: 30,520,078 and 2021: 30,320,078) | 305 | | | 303 | | |
| Class B, authorized (2022: 50,480,684 and 2021: 46,898,612), par value $0.01; issued and outstanding (2022: 42,042,155 and 2021: 37,912,993) | 420 | | | 379 | | |
| Class C, authorized (2022: 30,525,626 and 2021: 34,307,698), par value $0.01; issued and outstanding (2022: 30,525,626 and 2021: 34,307,698) | 305 | | | 343 | | |
Additional paid-in capital | 1,120,242 | | | 1,109,205 | | |
Accumulated other comprehensive loss | (4,441) | | | (4,441) | | |
Retained earnings | 547,352 | | | 681,656 | | |
Total shareholders’ equity | 1,664,183 | | | 1,787,445 | | |
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Total liabilities, non-controlling interest, and shareholders’ equity | $ | 5,818,965 | | | $ | 5,611,607 | | |
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See accompanying notes to the consolidated financial statements.
Hamilton Insurance Group, Ltd.
Consolidated Statements of Operations and Comprehensive Income (Loss)
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended | | Month Ended | | Years Ended |
| | | | | December 31, | | December 31, | | November 30, |
| (Expressed in thousands of U.S. Dollars, except per share information) | | | | | 2022 | | 2021 | | 2021 | | 2020 |
| Revenues | | | | | | | | | | | |
| Gross premiums written | | | | | $ | 1,646,673 | | | $ | 121,813 | | | $ | 1,446,551 | | | $ | 1,086,540 | |
| Reinsurance premiums ceded | | | | | (424,809) | | | (23,892) | | | (361,123) | | | (357,217) | |
| Net premiums written | | | | | 1,221,864 | | | 97,921 | | | 1,085,428 | | | 729,323 | |
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| Net change in unearned premiums | | | | | (78,150) | | | 710 | | | (142,879) | | | (21,862) | |
| Net premiums earned | | | | | 1,143,714 | | | 98,631 | | | 942,549 | | | 707,461 | |
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| Net realized and unrealized gains (losses) on investments | | | | | 85,634 | | | (33,526) | | | 352,193 | | | 5,701 | |
| Net investment income (loss) | | | | | (20,764) | | | (3,222) | | | (43,217) | | | (38,600) | |
| Total realized and unrealized gains (losses) on investments and net investment income (loss) | | | | | 64,870 | | | (36,748) | | | 308,976 | | | (32,899) | |
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| Net gain on sale of equity method investment | | | | | 6,991 | | | — | | | 54,557 | | | — | |
| Other income (loss) | | | | | 11,316 | | | 2,131 | | | 21,011 | | | 15,722 | |
| Net foreign exchange gains (losses) | | | | | 6,137 | | | 16 | | | 6,442 | | | (9,540) | |
Total revenues | | | | | 1,233,028 | | | 64,030 | | | 1,333,535 | | | 680,744 | |
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| Expenses | | | | | | | | | | | |
| Losses and loss adjustment expenses | | | | | 758,333 | | | 56,650 | | | 640,560 | | | 505,269 | |
| Acquisition costs | | | | | 271,189 | | | 23,992 | | | 229,213 | | | 168,327 | |
| General and administrative expenses | | | | | 177,682 | | | 15,682 | | | 172,294 | | | 149,774 | |
| Impairment of goodwill | | | | | 24,082 | | | — | | | 936 | | | — | |
| Amortization of intangible assets | | | | | 12,832 | | | 1,200 | | | 13,431 | | | 12,489 | |
| Interest expense | | | | | 15,741 | | | 1,061 | | | 14,897 | | | 18,910 | |
Total expenses | | | | | 1,259,859 | | | 98,585 | | | 1,071,331 | | | 854,769 | |
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| Income (loss) before income tax | | | | | (26,831) | | | (34,555) | | | 262,204 | | | (174,025) | |
| Income tax expense | | | | | 3,104 | | | 1,335 | | | 12,365 | | | 11,492 | |
Net income (loss) | | | | | (29,935) | | | (35,890) | | | 249,839 | | | (185,517) | |
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| Net income (loss) attributable to non-controlling interest | | | | | 68,064 | | | (3) | | | 61,660 | | | 24,930 | |
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Net income (loss) and other comprehensive income (loss) attributable to common shareholders | | | | | $ | (97,999) | | | $ | (35,887) | | | $ | 188,179 | | | $ | (210,447) | |
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| Per share data | | | | | | | | | | | |
| Basic income (loss) per share attributable to common shareholders | | | | | $ | (0.95) | | | $ | (0.35) | | | $ | 1.83 | | | $ | (2.05) | |
| Diluted income (loss) per share attributable to common shareholders | | | | | $ | (0.95) | | | $ | (0.35) | | | $ | 1.82 | | | $ | (2.05) | |
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See accompanying notes to the consolidated financial statements.
Hamilton Insurance Group, Ltd.
Consolidated Statements of Shareholders' Equity
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended | | Month Ended | | Years Ended |
| | | | December 31, | | December 31, | | November 30, |
| (Expressed in thousands of U.S. Dollars) | | | | 2022 | | 2021 | | 2021 | | 2020 |
Common shares | | | | | | | | | | |
Balance, beginning of period | | | | $ | 1,025 | | | $ | 1,025 | | | $ | 1,024 | | | $ | 1,022 | |
| Issuance of common shares | | | | 7 | | | — | | | 5 | | | 5 | |
| | | | | | | | | | |
| Repurchases of common shares | | | | (2) | | | — | | | (4) | | | (3) | |
Balance, end of period | | | | 1,030 | | | 1,025 | | | 1,025 | | | 1,024 | |
| | | | | | | | | | |
| Additional paid-in capital | | | | | | | | | | |
Balance, beginning of period | | | | 1,110,248 | | | 1,109,205 | | | 1,104,803 | | | 1,098,131 | |
| Issuance of common shares | | | | 308 | | | — | | | 1,008 | | | 2,132 | |
| Repurchases of common shares | | | | (1,098) | | | — | | | (5,489) | | | (2,628) | |
| Share compensation expense | | | | 10,784 | | | 1,043 | | | 8,883 | | | 7,168 | |
| | | | | | | | | | |
Balance, end of period | | | | 1,120,242 | | | 1,110,248 | | | 1,109,205 | | | 1,104,803 | |
| | | | | | | | | | |
| Accumulated other comprehensive income (loss) | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Balance, beginning and end of period | | | | (4,441) | | | (4,441) | | | (4,441) | | | (4,441) | |
| | | | | | | | | | |
| | | | | | | | | | |
| Retained earnings | | | | | | | | | | |
Balance, beginning of period | | | | 645,769 | | | 681,656 | | | 495,364 | | | 707,053 | |
| Net income (loss) | | | | (29,935) | | | (35,890) | | | 249,839 | | | (185,517) | |
| Net income attributable to non-controlling interest | | | | (68,064) | | | 3 | | | (61,660) | | | (24,930) | |
| Repurchases of common shares | | | | (418) | | | — | | | (1,887) | | | (1,242) | |
Balance, end of period | | | | 547,352 | | | 645,769 | | | 681,656 | | | 495,364 | |
| | | | | | | | | | |
Total shareholders’ equity | | | | $ | 1,664,183 | | | $ | 1,752,601 | | | $ | 1,787,445 | | | $ | 1,596,750 | |
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See accompanying notes to the consolidated financial statements.
Hamilton Insurance Group, Ltd.
Consolidated Statements of Cash Flows
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended | | Month Ended | | Years Ended | | |
| | | | December 31, | | December 31, | | November 30, | | |
| (Expressed in thousands of U.S. Dollars) | | | | 2022 | | 2021 | | 2021 | | 2020 | | |
| Operating activities | | | | | | | | | | | | |
| Net income (loss) | | | | $ | (29,935) | | | $ | (35,890) | | | $ | 249,839 | | | $ | (185,517) | | | |
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | | | | | | | | | | |
| Depreciation and amortization | | | | 14,994 | | | 961 | | | 13,898 | | | 13,986 | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Share compensation expense | | | | 10,784 | | | 1,043 | | | 8,883 | | | 7,168 | | | |
| Net realized (gains) losses on investments | | | | (250,671) | | | (11,302) | | | (278,691) | | | 19,349 | | | |
| Change in net unrealized (gains) losses on investments | | | | 165,037 | | | 44,828 | | | (73,502) | | | (25,050) | | | |
| Impairment of goodwill | | | | 24,082 | | | — | | | 936 | | | — | | | |
| Net gain on sale of equity method investment | | | | (6,991) | | | — | | | (54,557) | | | — | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Other items | | | | 11,771 | | | (110) | | | 7,103 | | | 2,590 | | | |
| Change in: | | | | | | | | | | | | |
| Premiums receivable | | | | (60,397) | | | 8,723 | | | (13,394) | | | 49,520 | | | |
| Paid losses recoverable | | | | (11,408) | | | (3,170) | | | (47,976) | | | (8,885) | | | |
| Deferred acquisition costs | | | | (16,323) | | | (2,739) | | | (40,735) | | | (16,229) | | | |
| Prepaid reinsurance | | | | (11,764) | | | (603) | | | 8,593 | | | 56,174 | | | |
| Unpaid losses and loss adjustment expenses recoverable | | | | (65,320) | | | 5,730 | | | (42,210) | | | 11,556 | | | |
| | | | | | | | | | | | |
| Other assets | | | | (41,894) | | | (21,457) | | | (14,855) | | | (44,361) | | | |
| Reserve for losses and loss adjustment expenses | | | | 440,784 | | | 36,464 | | | 324,399 | | | 96,639 | | | |
| Unearned premiums | | | | 96,733 | | | 461 | | | 141,465 | | | (25,821) | | | |
| Reinsurance balances payable | | | | (42,476) | | | (27,483) | | | (23,813) | | | 35,647 | | | |
| Accounts payable and accrued expenses and other | | | | (36,079) | | | (29,369) | | | 61,146 | | | 15,924 | | | |
Net cash provided by (used in) operating activities | | | | 190,927 | | | (33,913) | | | 226,529 | | | 2,690 | | | |
| | | | | | | | | | | | |
| Investing activities | | | | | | | | | | | | |
| Proceeds from redemptions from Two Sigma Funds | | | | 2,592,289 | | | 184,480 | | | 2,113,989 | | | 2,135,985 | | | |
| Contributions to Two Sigma Funds | | | | (2,464,902) | | | (137,453) | | | (1,870,057) | | | (2,131,410) | | | |
| Net proceeds from sale of equity method investment | | | | — | | | — | | | 57,428 | | | — | | | |
| | | | | | | | | | | | |
| Purchases of fixed maturity investments | | | | (705,144) | | | (54,445) | | | (655,693) | | | (785,829) | | | |
| Proceeds from sales, redemptions and maturity of fixed maturity investments | | | | 420,702 | | | 51,370 | | | 347,418 | | | 520,464 | | | |
| Purchases of short-term investments | | | | (1,551,834) | | | (357,857) | | | (2,035,529) | | | (2,775,444) | | | |
| Proceeds from sales of short-term investments | | | | 1,843,007 | | | 413,054 | | | 2,163,920 | | | 2,845,058 | | | |
| Change in receivables for investments sold | | | | (345) | | | 58,412 | | | 20,178 | | | (32,900) | | | |
| Change in payables for investments purchased | | | | 12,920 | | | (114,041) | | | 11,814 | | | 63,628 | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Other | | | | (13,591) | | | (432) | | | (15,644) | | | (19,677) | | | |
Net cash provided by (used in) investing activities | | | | 133,102 | | | 43,088 | | | 137,824 | | | (180,125) | | | |
| | | | | | | | | | | | |
Hamilton Insurance Group, Ltd.
Consolidated Statements of Cash Flows
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Financing activities | | | | | | | | | | | | |
| Issuance of common shares | | | | 7 | | | — | | | 5 | | | 5 | | | |
| Repurchases of common shares and options | | | | (1,518) | | | — | | | (7,380) | | | (3,873) | | | |
| Contribution of additional paid-in capital | | | | 308 | | | — | | | 1,008 | | | 2,132 | | | |
| | | | | | | | | | | | |
| Term loan renewal costs | | | | (345) | | | — | | | — | | | — | | | |
| | | | | | | | | | | | |
| Withdrawal of non-controlling interest | | | | (68,069) | | | (23) | | | (61,629) | | | (24,988) | | | |
Net cash provided by (used in) financing activities | | | | (69,617) | | | (23) | | | (67,996) | | | (26,724) | | | |
| | | | | | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | | | | (11,335) | | | 46 | | | (1,508) | | | 2,702 | | | |
| | | | | | | | | | | | |
| Net increase (decrease) in cash and cash equivalents | | | | 243,077 | | | 9,198 | | | 294,849 | | | (201,457) | | | |
| Cash and cash equivalents and restricted cash, beginning of period | | | | 964,126 | | | 954,928 | | | 660,079 | | | 861,536 | | | |
Cash and cash equivalents and restricted cash, end of period | | | | $ | 1,207,203 | | | $ | 964,126 | | | $ | 954,928 | | | $ | 660,079 | | | |
| | | | | | | | | | | | |
| Net income taxes paid | | | | $ | 9,971 | | | $ | 170 | | | $ | 12,344 | | | $ | 8,114 | | | |
| Interest paid | | | | $ | 15,655 | | | $ | 475 | | | $ | 11,803 | | | $ | 17,235 | | | |
See accompanying notes to the consolidated financial statements.
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
1. Organization
Hamilton Insurance Group, Ltd. (“Hamilton Group”, the “Group” or the “Company”), the ultimate group holding company, was incorporated on September 4, 2013, under the laws of Bermuda.
Our Bermuda operations are led by Hamilton Re, Ltd. (“Hamilton Re”), a registered Class 4 insurer incorporated in Bermuda. Hamilton Re writes property, casualty, and specialty insurance and reinsurance on a global basis.
Hamilton Reinsurance - U.S. Branch (“Hamilton Re US”) is a tax partnership that was formed pursuant to an arrangement between Hamilton Re and its Bermuda-incorporated affiliate, Hamilton ILS Holdings Limited. The tax partnership is treated as a U.S. corporation for U.S. tax purposes and is registered with the U.S. Internal Revenue Service, such that capital and profits allocated to Hamilton Re US are subject to applicable U.S. taxation.
Ada Capital Management Limited (“ACML”), a wholly owned insurance agent incorporated and regulated in Bermuda, is authorized to underwrite on behalf of Ada Re, Ltd. (“Ada Re”).
Our London operations are comprised of Hamilton Managing Agency Limited (“HMA”), a Lloyd’s managing agency, which manages our wholly aligned Syndicate 4000 and certain other third-party funded Lloyd’s Syndicates. Syndicate 4000 operates in the Lloyd’s market and underwrites property, casualty and specialty insurance and reinsurance business on a subscription basis. Syndicate 3334, which was managed by HMA, was closed by way of a Reinsurance to Close (“RITC”) into Syndicate 4000 at the end of December 31, 2021.
Our Dublin operations are comprised of Hamilton Insurance Designated Activity Company ("HIDAC"), a Dublin-based insurer with a U.K. branch and extensive licensing in the United States, including excess and surplus lines and reinsurance in all 50 states.
Hamilton Managing General Agency Americas LLC (“HMGA Americas”) is licensed throughout the United States and underwrites on behalf of the Group's London, Dublin and Bermuda operations solely in respect of Hamilton Re US, providing access from the U.S. to the Lloyd's market, the Group's rated Irish carrier and the Group's Bermuda balance sheet, respectively.
Hamilton Select Insurance Inc. (“Hamilton Select”) is a U.S. domestic excess and surplus lines carrier incorporated in Delaware and authorized to write excess and surplus business in all 50 states.
Two Sigma Hamilton Fund, LLC (“TS Hamilton Fund”), is a Delaware limited liability company. In 2013, Hamilton Re entered into a limited liability company agreement with TS Hamilton Fund and Two Sigma Principals, LLC (the “Managing Member”) as the managing member of TS Hamilton Fund, under which Hamilton Re has committed that its investment in TS Hamilton Fund will equal a minimum of 95% of the consolidated net tangible assets of Hamilton Group. TS Hamilton Fund has engaged Two Sigma Investments, LP (“Two Sigma”), a related party Delaware limited partnership, to serve as its investment manager. Two Sigma is a United States Securities and Exchange Commission registered investment adviser specializing in quantitative analysis (see Note 3, Investments for further details).
Unconsolidated Related Parties
Ada Re is a special purpose insurer funded by third party investors and formed to provide fully collateralized reinsurance and retrocession to both the wholly-owned operating platforms of Hamilton Group and third-party cedants.
Turing Re Ltd. (“Turing Re”), a Bermuda special purpose insurer funded by third party investors, provides collateralized reinsurance capacity for Hamilton Re’s property treaty business.
Easton Re is an industry loss index-triggered catastrophe bond that provides the Company's operating platforms with multi-year risk transfer capacity of $150 million to protect against named storm and earthquake risk in the United States.
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
2. Summary of Significant Accounting Policies
a.Basis of Presentation
These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). These financial statements include the accounts of Hamilton Group, Hamilton Re, Hamilton U.K. Holdings Limited, Hamilton Select, HMGA Americas, ACML, and TS Hamilton Fund (collectively, the “Company”). All significant intercompany transactions and balances have been eliminated on consolidation. Certain comparative information has been reclassified to conform to the current year presentation.
b.Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported and disclosed 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. The major estimates recorded in the Company’s financial statements include, but are not limited to, premiums written, provisions for estimated future credit losses, the reserve for losses and loss adjustment expenses and the fair value of investments.
c.Change in Year End
On January 17, 2022, the Company changed its fiscal year from November 30 to December 31. The current year consolidated financial statements and accompanying footnotes cover the calendar year ended December 31, 2022. As a result, our comparative prior periods consist of the one-month transition period ended December 31, 2021, and the twelve month periods from December 1, 2020 to November 30, 2021 and December 1, 2019 to November 30, 2020. The transition period has been separately disclosed in our Statements of Operations and Comprehensive Income, Statements of Shareholders' Equity, Statements of Cash Flows and throughout the footnotes.
As a result of the change in the Company’s fiscal year end, the annual and quarterly periods of its newly adopted fiscal year do not coincide with the historical annual or quarterly periods previously reported. Subsequent to November 30, 2021, the Company's first, second and third and fourth fiscal quarters refer to the three months ended March 31, June 30, September 30, and December 31, respectively. All references herein to a fiscal year prior to November 30, 2021 refer to the twelve months ended November 30 of such year, and references to the first, second, third and fourth fiscal quarters ended prior to November 30, 2021 refer to the three months ended February 28, May 31, August 31, and November 30, respectively.
d.Premiums and Acquisition Costs
Premiums written and ceded on a losses occurring basis are earned pro-rata over the terms of the related contracts and policies. For contracts written on a risks-attaching basis, premiums written and ceded are earned over the terms of the underlying contracts and policies. Premiums written and ceded include estimates based on information received from insureds, brokers and ceding companies, and any subsequent differences arising on such estimates are recorded in the periods in which they are determined. The portion of the premiums written and ceded applicable to the unexpired terms of the underlying contracts and policies are recorded as unearned premiums and prepaid reinsurance premiums, respectively. Amounts are computed by pro-rata methods based on statistical data or reports received from insureds, brokers or ceding companies. Reinstatement premiums are estimated after the occurrence of a significant loss and are recorded in accordance with the contract terms based upon paid losses and case reserves. Reinstatement premiums are earned when written.
Acquisition expenses are costs that vary with, and are directly related to, the successful acquisition of new or renewal business and consist principally of commissions, brokerage and premium tax expenses. These costs are deferred and amortized over the periods in which the related premiums are earned. Deferred acquisition costs are limited to their estimated realizable value based on the related unearned premiums. Anticipated losses and loss expenses, based on historical and current experience, and anticipated net investment income related to the premiums are considered in determining the recoverability of deferred acquisition costs.
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
e.Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash and cash equivalents, fixed maturity and short-term investments, and reinsurance balances recoverable. Cash and cash equivalents are held with financial institutions of high credit quality, and fixed maturity and short-term investments primarily consist of U.S. government, U.S. government agencies, and high credit quality issuers of corporate and debt securities. We limit the amount of credit exposure with any one financial institution or issuer and believe that no significant concentration of credit risk exists with respect to cash and investments. The Company evaluates the financial condition of its reinsurers, whom primarily consist of highly rated reinsurers and may require collateralization of those recoverable balances. See Note 9, Reinsurance, for further details.
f.Reinsurance
In the normal course of business, the Company seeks to reduce the potential amount of loss arising from claims events by reinsuring certain levels of risk with other reinsurers. Ceded reinsurance contracts do not relieve the Company of its primary obligation to policyholders. Prepaid reinsurance represents the portion of premiums ceded to reinsurers applicable to the unexpired coverage terms of the reinsurance contracts in place. Amounts recoverable from reinsurers are estimated based on the terms and conditions of the reinsurance contracts, in a manner consistent with the underlying liabilities insured or reinsured by the Company. If the Company determines that adjustments to earlier estimates are appropriate, such adjustments are recorded in the periods in which they are determined. Amounts recoverable from reinsurers are recorded net of an allowance for expected credit losses. See Note 9, Reinsurance, for further details.
Retroactive reinsurance agreements are reinsurance agreements under which a reinsurer agrees to reimburse the Company as a result of past insurable events. For these agreements, the excess of the amounts ultimately collectible under the agreement over the consideration paid is recognized as a deferred gain liability which is amortized into income as a reduction of losses and loss adjustment expenses over the estimated ceded reserve settlement period. The amount of the deferred gain is recalculated each period based on actual loss payments and updated estimates of ultimate losses. If cumulative adverse development occurs subsequent to signing of a retroactive reinsurance agreement, it may result in significant losses from operations until periods when the recalculated deferred gain is recognized as a benefit to earnings. If the consideration paid for a retroactive reinsurance agreement exceeds the ultimate losses collectible under the agreement, the net loss on the retroactive reinsurance agreement is recognized within income immediately.
g.Credit Loss Provisions
We routinely evaluate our premiums receivable and paid and unpaid losses recoverable for potential specific credit or collection issues that might indicate an impairment. Premiums receivable and paid and unpaid losses recoverable are presented net of the resulting credit provisions, with the corresponding debits offset against gross premiums written or losses and loss adjustment expenses, as applicable, in the consolidated statement of operations and comprehensive income (loss).
The method for calculating the best estimate of losses depends on the size, nature, and risk characteristics of the related underwriting receivable. Such an estimate requires consideration of historical loss experience, current economic conditions, and judgments about the probable effects of relevant observable data, including historical information, counterparty financial strength ratings and the extent of collateralization. The underlying assumptions, estimates and assessments are updated periodically to reflect the Company's view of current conditions. Changes in estimates may significantly affect the allowance and provision for losses. It is possible that the Company's actual credit loss experience will differ materially from current estimates. Adjustments, if any, are recorded in earnings in the periods in which they become known. See Note 9, Reinsurance, for further details.
h.Reserve for Losses and Loss Adjustment Expenses
The reserve for losses and loss adjustment expenses includes reserves for unpaid reported losses and for losses incurred but not reported (“IBNR”). The reserve for unpaid reported losses and loss expenses is established by management based on reports from insureds, brokers and ceding companies and represents the estimated ultimate
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
cost of events or conditions that have been reported to or specifically identified by the Company. The reserve for IBNR losses and loss expenses is established by management based on estimates of ultimate losses and loss expenses.
Inherent in the estimates of ultimate losses and loss expenses are expected trends in claim severity and frequency, the expected duration of the respective claims development period, inadequacies in the data provided by industry participants, the potential for further reporting lags, significant uncertainty as it relates to legal issues under the relevant terms of insurance and reinsurance contracts and other factors, which may vary significantly as claims are settled. Accordingly, ultimate losses and loss expenses may differ materially from the amounts recorded in the financial statements. These estimates are reviewed regularly and, as experience develops and new information becomes known, the reserves are adjusted as necessary. Such adjustments, if any, are recorded in earnings in the periods in which they become known. See Note 10, Reserve for Losses and Loss Adjustment Expenses, for further details.
i.Cash and Cash Equivalents and Restricted Cash
Cash and cash equivalents include money market funds and highly liquid short-term deposits and securities with maturities of 90 days or less at the time of purchase. Bank deposits are not considered to be fair value measurements and as such are not subject to the authoritative guidance on fair value measurement disclosures. Money market funds are classified as Level 1 as these instruments are considered actively traded; however, certificates of deposit are classified as Level 2.
Restricted cash typically relates to funds held in trust supporting a portion of the Lloyd's capital requirements and other underwriting obligations. See Note 3, Investments, for further details.
j.Investments
Investments - Trading
The Company elects the fair value option for all of its fixed maturities, short-term investments, equities and certain other invested assets (excluding those that are accounted for using specialized investment company accounting as noted below). All changes in the fair value of investments are recorded within net realized and unrealized gains (losses) on investments in the consolidated statements of operations.
All investment transactions are recorded on a trade-date basis and are valued using pricing data received from third parties. Realized gains or losses on sales of investments are determined on a weighted average basis. Investment income is recognized when earned and includes interest and dividend income, recorded as of the ex-dividend date, together with the amortization of premium and discount on fixed maturities and short-term investments computed using the effective yield method. Net investment income includes related investment expenses. See Note 4, Fair Value, for further details.
Short-Term Investments
Short-term investments comprise securities with a maturity greater than three months but less than one year from the date of purchase. See Note 4, Fair Value, for further details.
Investments in Two Sigma Funds
TS Hamilton Fund invests in Two Sigma Funds (“Two Sigma Funds”), which are stated at their estimated fair values, which generally represent the Company’s proportionate interest in the members’ equity of the Two Sigma Funds as reported by the respective funds based on the net asset value (“NAV”) provided by the fund administrator. The Company accounts for its investment in Two Sigma Funds under the variable interest model at NAV as a practical expedient for fair value in the consolidated balance sheets. Increases or decreases in such fair values are recorded within net realized and unrealized gains (losses) on investments in the consolidated statements of operations. Realized gains or losses upon any withdrawals of investments in the Two Sigma Funds are calculated using the weighted average method. The assets and liabilities of the Two Sigma Funds are recorded at fair value, or
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
at amounts approximating fair value. The Company records contributions and withdrawals related to its investments in the Two Sigma Funds on the transaction date.
The specialized investment company accounting, as described above, is retained in the Company’s consolidated financial statements upon consolidation of TS Hamilton Fund.
k.Foreign Exchange
Monetary assets and liabilities denominated in foreign currencies are revalued into the functional currency of each entity using the exchange rates in effect at the balance sheet date, with the resulting foreign exchange gains and losses included in earnings. Revenues and expenses denominated in foreign currencies are revalued at the exchange rates in effect on the transaction date.
The Company’s reporting currency as at December 31, 2022 is the U.S. dollar (“USD”). The functional currency of the Company's U.K. subsidiaries changed from GBP to USD on January 1, 2017. The accumulated other comprehensive loss recorded prior to the change in functional currency will remain on the balance sheet until such time as the U.K. operations are sold, or substantially liquidated.
l.Stock-Based Compensation
The Company issues restricted stock units, performance stock units and warrants and may issue other equity-based awards to its employees. Both a market approach and an income approach are used to measure the fair value of the compensation cost associated with restricted stock units and performance stock units. The Black-Scholes pricing model is used to determine the fair value of warrants. When using the Black-Scholes model, the volatility assumption is derived from the historical volatility of the share prices of a selection of publicly traded insurance companies of a similar business nature to the Company. No allowance is made for any potential illiquidity associated with the private nature of the Company’s shares. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. Historically, the expected lives of the awards were estimated at their maximum term as the Company had insufficient historical experience to support using a term of less than the contractual life of each award.
Compensation cost is expensed over the period for which the employee is required to provide services in exchange for the award. For awards subject to graded vesting, the awards are separated into vesting tranches, which are amortized over their respective vesting periods. The fair value of awards with performance conditions is remeasured at each reporting period with any changes in the expected outcome of the performance conditions recorded in compensation expense by a cumulative catch-up adjustment to apply the revised estimate. Forfeitures are recognized as they occur.
m.Long-Term Incentive Compensation
Compensation benefits include employee participation in a plan known as the Value Appreciation Pool (“VAP”). The VAP is intended to align long-term Company and shareholder interests by rewarding employees with 10% of any increase in the multiple of the Company's estimated fair market value to GAAP shareholders' equity between the December 1, 2020 VAP inception date, and either an interim trigger event or ultimate plan maturity on November 30, 2025. The VAP will settle in two tranches: the first settlement upon either plan maturity or the occurrence of a trigger event, and the second twelve months later. The fair value of the compensation cost is estimated at each reporting date using both a market approach and an income approach and the resulting intrinsic value expensed over the period for which the employee is required to provide services in exchange for the award, with any changes in the intrinsic value recorded in compensation expense by a cumulative catch-up adjustment. The VAP is subject to graded vesting of its two settlement tranches. Forfeitures are recognized as they occur. As of December 31, 2022, no expense has been recognized related to the VAP.
n.Goodwill and Intangible Assets
The Company accounts for goodwill and other intangible assets that arise from business combinations in accordance with FASB ASC Topic Intangibles - Goodwill and Other. A purchase price that is in excess of the fair
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
value of the net assets acquired arising from a business combination is recorded as goodwill or other intangible assets, according to their nature. Goodwill and other intangible assets with indefinite useful lives are not amortized. Other intangible assets with a finite life are amortized over the estimated useful lives of the assets.
Goodwill and other indefinite life intangible assets are tested for impairment on an annual basis or more frequently if events or changes in circumstances indicate that the carrying amount may not be recoverable. Finite lived intangible assets are reviewed for indicators of impairment on an annual basis or more frequently if events or changes in circumstances indicate that the carrying amount may not be recoverable, and tested for impairment if appropriate. For purposes of the annual impairment evaluation, goodwill is evaluated at the applicable reporting unit of the acquired entities giving rise to the goodwill.
As part of the annual impairment test, the Company has the option to first assess qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. Under this option, the Company would not be required to calculate the fair value of a reporting unit unless the Company determines, based on its qualitative assessment, that it is more likely than not that a reporting unit's fair value is less than its carrying amount. If goodwill or other intangible assets are impaired, they are written down to their estimated fair value with a corresponding expense recorded in the Company's consolidated statement of operations.
o.Variable Interest Entities
The Company accounts for variable interest entities (“VIE”) in accordance with GAAP guidance, which requires the consolidation of all VIEs by the primary beneficiary, that being the investor that has the power to direct the activities of the VIE and will absorb a majority of the VIE’s expected losses or residual returns. The Company determines whether it is the primary beneficiary of a VIE by performing an analysis that principally considers: (i) the VIE’s purpose and design, including the risks the VIE was designed to create and pass through to its variable interest holders; (ii) the VIE’s capital structure; (iii) the terms between the VIE and its variable interest holders and other parties involved with the VIE; (iv) which variable interest holders have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance; (v) which variable interest holders have the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE; and (vi) related party relationships. The Company reassesses its initial evaluation of an entity as a VIE upon the occurrence of certain reconsideration events. The Company also reassesses its determination of whether the Company is the primary beneficiary of a VIE upon changes in facts and circumstances that could potentially alter the Company’s assessment.
p.Non-Controlling Interest
The share classes related to the redeemable non-controlling interest portion of TS Hamilton Fund are not considered liabilities in accordance with GAAP and have redemption features that are not solely within the control of TS Hamilton Fund. Therefore, the redeemable non-controlling interest in TS Hamilton Fund is presented in the mezzanine section on the Company’s consolidated balance sheets. The net income or loss attributable to non-controlling interest is presented separately in the Company’s consolidated statements of operations. See Note 5, Variable Interest Entities, for further details.
q.Earnings Per Share
The Company calculates earnings per share in accordance with FASB ASC Topic Earnings per Share. Basic earnings per share are based on weighted average common shares outstanding during the period and exclude any dilutive effects of restricted stock and warrants. Diluted earnings per share includes the estimated impact under the Treasury Stock method were all dilutive restricted stock grants to vest and all dilutive warrants to be exercised during the period.
r.Income Taxes
The Company records deferred income taxes that reflect the tax effect of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their respective tax bases. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in earnings in the fiscal period that
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
includes the enactment date. A valuation allowance against deferred tax assets is recorded if it is not more likely than not that all, or some portion, of the benefits related to deferred tax assets will be realized. The valuation allowance assessment considers tax planning strategies, where applicable.
s.Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU” “Update”) 2019-12 Simplifying the Accounting for Income Taxes which simplifies accounting for income taxes, changes the accounting for certain income tax transactions and makes minor improvements to the accounting guidance. The Company adopted this guidance in the first quarter of 2021 and it did not have an impact on the Company’s results of operations, financial position or cash flows.
In August 2018, the FASB issued ASU 2018-15 Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract which updated accounting guidance on the treatment of fees paid by a customer in a cloud computing arrangement. The guidance specifies that if a license is included in the arrangement, the related costs should be recorded on the balance sheet; if no license is included, the costs should be expensed. The Company adopted this guidance in the first quarter of 2020 and it did not have an impact on the Company’s results of operations, financial position or cash flows.
In January 2017, the FASB issued ASU 2017-04 Simplifying the Test for Goodwill Impairment. Among other things, the guidance requires:
(1)the elimination of step two of the goodwill impairment test; entities will no longer utilize the implied fair value of their assets and liabilities for purposes of testing goodwill for impairment,
(2)the quantitative portion of the goodwill impairment test will be performed by comparing the fair value of a reporting unit with its carrying amount; an impairment charge is to be recognized for the excess of carrying amount over fair value, but only to the extent of the amount of goodwill allocated to that reporting unit, and
(3)foreign currency translation adjustments are not to be allocated to a reporting unit from an entity’s accumulated other comprehensive income; the reporting unit’s carrying amount should include only the currently translated balances of the assets and liabilities assigned to the reporting unit.
This guidance is effective for the years beginning after December 15, 2019 for public companies, with early adoption permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company adopted this guidance effective December 1, 2019. It did not have an impact on the Company’s results of operations or financial position.
In February 2016, the FASB issued ASU 2016-02 Leases (as subsequently clarified in various Updates) which updated accounting guidance that applies to any entity that enters into a lease that does not meet certain scope exceptions. The guidance requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The Company elected to adopt this guidance in the first quarter of 2022 by recording a gross-up of the balance sheet in recognition of an operating lease liability for future lease payments and the associated right-of-use asset for the right to use the underlying asset over the lease term. This guidance did not have a material impact on the Company’s results of operations, financial position, cash flows or disclosures. We subsequently re-evaluated the impact of the Update as if we had adopted on the public company timeline and concluded that there was no material impact on the Company’s results of operations, financial position, or cash flows in each of the prior periods. Therefore we did not record any additional adjustments to these financial statements.
In June 2016, the FASB issued ASU 2016-13 Measurement of Credit Losses on Financial Instruments (as subsequently clarified in various Updates), which replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to record credit loss estimates. The Company elected to adopt this guidance
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
in the first quarter of 2022, and because it did not have a material impact on the Company’s results of operations, financial position, or cash flows, we did not record a cumulative effective adjustment to opening retained earnings as of January 1, 2022. We subsequently re-evaluated the impact of the Update as if we had adopted on the public company timeline and concluded that there was no material impact on the Company’s results of operations, financial position, or cash flows in each of the prior periods. Therefore we did not record any additional adjustments to these financial statements.
3. Investments
Fixed Maturity and Short-Term Investments - Trading
The Company’s fixed maturity and short-term investments at December 31, 2022 and November 30, 2021 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| 2022 |
(Expressed in thousands of U.S. Dollars) | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair
Value |
| Fixed maturities: | | | | | | | |
| U.S. government treasuries | $ | 498,841 | | | $ | 99 | | | $ | (27,089) | | | $ | 471,851 | |
| U.S. states, territories and municipalities | 4,741 | | | — | | | (434) | | | 4,307 | |
| Non-U.S. sovereign governments and supranationals | 14,191 | | | 363 | | | (1,602) | | | 12,952 | |
| Corporate | 690,900 | | | 363 | | | (43,786) | | | 647,477 | |
| Residential mortgage-backed securities - Agency | 111,234 | | | — | | | (14,824) | | | 96,410 | |
| Residential mortgage-backed securities - Non-agency | 5,147 | | | — | | | (772) | | | 4,375 | |
| | | | | | | |
| Commercial mortgage-backed securities - Non-agency | 10,283 | | | — | | | (1,064) | | | 9,219 | |
| Other asset-backed securities | 13,347 | | | 1 | | | (463) | | | 12,885 | |
| Total fixed maturities | 1,348,684 | | | 826 | | | (90,034) | | | 1,259,476 | |
| Short-term investments | 285,130 | | | 986 | | | (5) | | | 286,111 | |
| | | | | | | |
| | | | | | | |
| Total | $ | 1,633,814 | | | $ | 1,812 | | | $ | (90,039) | | | $ | 1,545,587 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 2021 |
| (Expressed in thousands of U.S. Dollars) | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair
Value |
| Fixed maturities: | | | | | | | |
| U.S. government treasuries | $ | 310,045 | | | $ | 1,254 | | | $ | (2,918) | | | $ | 308,381 | |
| U.S. states, territories and municipalities | 4,774 | | | — | | | (16) | | | 4,758 | |
| Non-U.S. sovereign governments and supranationals | 19,284 | | | 92 | | | (277) | | | 19,099 | |
| Corporate | 534,019 | | | 2,151 | | | (7,703) | | | 528,467 | |
| Residential mortgage-backed securities - Agency | 179,331 | | | 416 | | | (2,307) | | | 177,440 | |
| Residential mortgage-backed securities - Non-agency | 8,746 | | | 37 | | | (66) | | | 8,717 | |
| | | | | | | |
| Commercial mortgage-backed securities - Non-agency | 988 | | | — | | | (1) | | | 987 | |
| Other asset-backed securities | 7,428 | | | 104 | | | (9) | | | 7,523 | |
| Total fixed maturities | 1,064,615 | | | 4,054 | | | (13,297) | | | 1,055,372 | |
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
| | | | | | | | | | | | | | | | | | | | | | | |
| Short-term investments | 644,432 | | | 149 | | | (719) | | | 643,862 | |
| | | | | | | |
| | | | | | | |
| Total | $ | 1,709,047 | | | $ | 4,203 | | | $ | (14,016) | | | $ | 1,699,234 | |
Contractual Maturities Summary
The following table presents contractual maturities of fixed maturity securities at December 31, 2022. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
| | | | | | | | | | | |
| 2022 |
| (Expressed in thousands of U.S. Dollars) | Amortized Cost | | Fair
Value |
| Due less than one year | $ | 95,866 | | | $ | 93,786 | |
| Due after one through five years | 928,450 | | | 870,874 | |
| Due after five through ten years | 180,152 | | | 168,901 | |
| Due after ten years | 4,205 | | | 3,026 | |
| Mortgage-backed | 126,664 | | | 110,004 | |
| Asset-backed | 13,347 | | | 12,885 | |
| Total | $ | 1,348,684 | | | $ | 1,259,476 | |
Investments in Two Sigma Funds
The Company’s investments in Two Sigma Funds at December 31, 2022 and November 30, 2021 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2021 |
| (Expressed in thousands of U.S. Dollars) | Cost | | Net
Unrealized Gains (Losses) | | Fair
Value | | Cost | | Net
Unrealized Gains (Losses) | | Fair
Value |
| Two Sigma Futures Portfolio, LLC (FTV) | $ | 438,625 | | | $ | (95,213) | | | $ | 343,412 | | | $ | 256,633 | | | $ | 76,953 | | | $ | 333,586 | |
| Two Sigma Spectrum Portfolio, LLC (STV) | 171,135 | | | 57,982 | | | 229,117 | | | 247,391 | | | 27,937 | | | 275,328 | |
| Two Sigma Equity Spectrum Portfolio, LLC (ESTV) | 121,340 | | | 46,867 | | | 168,207 | | | 120,355 | | | 36,119 | | | 156,474 | |
| Total | $ | 731,100 | | | $ | 9,636 | | | $ | 740,736 | | | $ | 624,379 | | | $ | 141,009 | | | $ | 765,388 | |
The Company, through its investments in FTV, STV and ESTV, seeks to achieve absolute dollar-denominated returns on a substantial capital base, primarily by combining multiple hedged and leveraged systematic investment strategies with proprietary risk management and execution techniques. These systematic strategies include, but are not limited to, technical and statistically-based, fundamental-based, event-based, market condition-based and spread-based strategies as well as contributor-based and/or sentiment-based strategies and blended strategies. FTV primarily utilizes systematic strategies to gain broad macro exposure to FX, fixed income, equity and credit indices and commodities, predominantly by trading futures, spots, forwards, options, swaps, cash bonds and exchange traded products. STV primarily utilizes systematic strategies to trade U.S.-listed equity securities and related instruments and derivatives. ESTV primarily utilizes systematic strategies to trade non-U.S.-listed equity securities and related instruments and derivatives. At December 31, 2022, the Company owns a 18.7%, 14.5% and 7.6% interest in each of the FTV, STV and ESTV funds, respectively.
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
The following table summarizes certain investments of FTV, STV and ESTV where TS Hamilton Fund’s proportionate share of the fair value of the investment represents more than 5% of TS Hamilton Fund’s members’ equity at December 31, 2022:
| | | | | | | | | | | | | | | | | |
| 2022 |
| (Expressed in thousands of U.S. Dollars) | Principal/ Shares(1) | | Fair Value(1) | | % of Members’ Equity |
| U.S. Treasury Securities, 0.0000% - 4.1250%, due 1/26/2023 - 11/15/2032 | 392,492 | | | $ | 387,891 | | | 24.1 | % |
| State Street Treasury Obligations Money Market Fund | 259,929 | | | 259,929 | | | 16.1 | % |
| Federated Hermes Treasury Obligations Fund | 115,061 | | | 115,061 | | | 7.1 | % |
| UBS Select Treasury Institutional Fund | 93,614 | | | 93,614 | | | 5.8 | % |
| Invesco Short-Term Treasury Portfolio | 86,762 | | | 86,762 | | | 5.4 | % |
| | | | | |
| | | | | |
| U.S. Treasury Securities, 3.8750% - 4.2500%, due 12/31/2024 - 11/15/2052 | (64,842) | | | (64,625) | | | (4.0) | % |
__________________
(1)Values represent TS Hamilton Fund’s proportionate share of the aggregate of FTV, STV and ESTV total holdings.
Two Sigma and the Managing Member are related parties to the Company as described further in Note 1, Organization. The investment management agreement with Two Sigma requires TS Hamilton Fund to incur a management fee of 3% of the non-managing members' equity in the net asset value of the TS Hamilton Fund per annum. The management fee for the year ended December 31, 2022, the month ended December 31, 2021 and the years ended November 30, 2021 and 2020 was $53.1 million, $4.3 million, $48.7 million and $49.5 million, respectively. Under the terms of the limited liability company agreement between Hamilton Re and the Managing Member, the Managing Member is entitled to an incentive allocation equal to 30% of TS Hamilton Fund’s net profits, subject to high watermark provisions, and adjusted for withdrawals and any incentive allocation to the Managing Member. However, in the event there is a net loss during a quarter and a net profit during any subsequent quarter, the Managing Member is entitled to a modified incentive allocation whereby the regular incentive allocation will be reduced by 50% until subsequent cumulative net profits are credited in an amount equal to 200% of the previously allocated net losses.
The Managing Member is also entitled to receive an additional incentive allocation as of the end of each fiscal year (or on any date Hamilton Re withdraws all or a portion of its capital), in an amount equal to 20% of the Excess Profits. “Excess Profits” for any given fiscal year (or other such accounting period) means the net profits over 15% for such fiscal year, net of management fees and expenses and gross of incentive allocations, but only after recouping previously unrecouped net losses. To the extent Hamilton Re contributes capital other than at the beginning of a fiscal year or withdraws capital other than at the end of a fiscal year, the additional incentive allocation hurdle with respect to such capital is prorated.
The aggregate incentive allocation (inclusive of the additional incentive allocation) for the year ended December 31, 2022, the month ended December 31, 2021 and the years ended November 30, 2021 and 2020 was $68.0 million, $Nil, $61.6 million and $24.9 million, respectively.
Hamilton Re has a commitment with TS Hamilton Fund to maintain approximately 93% of its investable assets in TS Hamilton Fund for a period (the “Commitment Period”), subject to certain circumstances and the liquidity options described below, with the Commitment Period ending on December 31, 2025. The Commitment Period consists of a 3-year rolling term that automatically renews on an annual basis unless Hamilton Re or the Managing Member provide advance notice of non-renewal. The commitment is subject to a waiver that permits Hamilton Re to maintain an investment in TS Hamilton Fund equal to a minimum of 95% of the consolidated net tangible assets of Hamilton Group. The waiver is applicable to December 31, 2023, and is intended to automatically renew annually and may be revoked by the Managing Member in its sole discretion upon 90 days’ prior written notice. The TS
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
Hamilton Fund generally has two liquidity options, subject to Hamilton Re’s minimum investment commitment, which are as follows:
•Monthly liquidity - Subject to certain conditions, Hamilton Re may request a whole or partial withdrawal of its capital account, no later than fifteen days prior to the end of a calendar month, effective as of the last day of such calendar month.
•Daily liquidity - Subject to certain limited circumstances, including the need to meet obligations pursuant to Hamilton Re’s underwriting operations, Hamilton Re may request a withdrawal of all or a portion of its capital account upon at least one business day’s written notice of such withdrawal request date to the Managing Member.
At its discretion, the Managing Member may permit or require Hamilton Re to withdraw all or any portion of its respective capital account at other times, or waive or reduce certain notice periods, or allow a notice to be revoked. The Managing Member may withdraw all or any portion of its capital account at any time.
Total Realized and Unrealized Gains (Losses) on Investments and Net Investment Income (Loss)
The components of total realized and unrealized gains (losses) on investments and net investment income (loss) are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended | | Month Ended | | Years Ended | | |
| | | | December 31, | | December 31, | | November 30, | | |
| (Expressed in thousands of U.S. Dollars) | | | | 2022 | | 2021 | | 2021 | | 2020 | | |
| Net realized and unrealized gains (losses) on investments: | | | | | | | | | | | | |
| Net realized gains (losses) on investments | | | | $ | 250,671 | | | $ | 11,302 | | | $ | 278,691 | | | $ | (19,349) | | | |
| Change in net unrealized gains (losses) on investments | | | | (165,037) | | | (44,828) | | | 73,502 | | | 25,050 | | | |
| Net realized and unrealized gains (losses) on investments | | | | 85,634 | | | (33,526) | | | 352,193 | | | 5,701 | | | |
| | | | | | | | | | | | |
| Net investment income (loss): | | | | | | | | | | | | |
| Fixed maturities | | | | 22,466 | | | 1,042 | | | 11,277 | | | 15,858 | | | |
| Short-term investments | | | | 807 | | | 28 | | | 838 | | | 430 | | | |
| TS Hamilton Fund | | | | 10,395 | | | 199 | | | 2,124 | | | 4,234 | | | |
| Cash and cash equivalents | | | | 541 | | | 40 | | | 252 | | | 1,028 | | | |
| Other | | | | 691 | | | 2 | | | 636 | | | 19 | | | |
| Interest and other | | | | 34,900 | | | 1,311 | | | 15,127 | | | 21,569 | | | |
| Loss on equity method investment | | | | — | | | — | | | (7,285) | | | (8,987) | | | |
| Management fees | | | | (54,578) | | | (4,442) | | | (49,927) | | | (50,079) | | | |
| Other expenses | | | | (1,086) | | | (91) | | | (1,132) | | | (1,103) | | | |
| Net investment income (loss) | | | | (20,764) | | | (3,222) | | | (43,217) | | | (38,600) | | | |
| | | | | | | | | | | | |
| Total realized and unrealized gains (losses) on investments and net investment income (loss) | | | | $ | 64,870 | | | $ | (36,748) | | | $ | 308,976 | | | $ | (32,899) | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
Net Realized Gains (Losses) on Investments
The components of net realized gains (losses) on investments are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended | | Month Ended | | Years Ended |
| | | | December 31, | | December 31, | | November 30, |
| (Expressed in thousands of U.S. Dollars) | | | | 2022 | | 2021 | | 2021 | | 2020 |
| Fixed maturities and short-term investments | | | | $ | (16,144) | | | $ | (8,699) | | | $ | 5,767 | | | $ | 8,345 | |
| TS Hamilton Fund | | | | 266,630 | | | 20,008 | | | 272,988 | | | (27,712) | |
| Other | | | | 185 | | | (7) | | | (64) | | | 18 | |
| Net realized gains (losses) on investments | | | | $ | 250,671 | | | $ | 11,302 | | | $ | 278,691 | | | $ | (19,349) | |
Net Unrealized Gains (Losses) on Investments
The components of net unrealized gains (losses) on investments are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended | | Month Ended | | Years Ended |
| | | | December 31, | | December 31, | | November 30, |
| (Expressed in thousands of U.S. Dollars) | | | | 2022 | | 2021 | | 2021 | | 2020 |
| Fixed maturities and short-term investments | | | | $ | (86,985) | | | $ | 6,743 | | | $ | (27,624) | | | $ | 12,831 | |
| TS Hamilton Fund | | | | (78,052) | | | (51,571) | | | 101,126 | | | 12,219 | |
| Other | | | | — | | | — | | | — | | | — | |
| Net unrealized gains (losses) on investments | | | | $ | (165,037) | | | $ | (44,828) | | | $ | 73,502 | | | $ | 25,050 | |
Pledged Assets
At December 31, 2022 and November 30, 2021, pledged investments at fair value were comprised of $274.0 million and $359.4 million, respectively, securing a portion of the capital requirements for business written at Lloyd's and $39.0 million and $23.9 million, respectively, held in trust accounts for the benefit of U.S. state regulatory authorities. In addition, certain investments were pledged as security for letter of credit facilities as described further in Note 12, Debt and Credit Facilities.
At December 31, 2022 and November 30, 2021, restricted cash balances were comprised of $126.8 million and $141.2 million, respectively, securing other underwriting obligations, $2.1 million and $7.1 million, respectively, securing a portion of the capital requirements for business written at Lloyd's, $1.3 million and $1.3 million, respectively, in trust accounts for the benefit of U.S. state regulatory authorities, and $0.6 million and $7.6 million, respectively, of escrow funds. Total cash and cash equivalents and restricted cash of $1.2 billion presented in the statement of cash flows was comprised of cash and cash equivalents of $1.1 billion and restricted cash of $130.8 million on the balance sheet at December 31, 2022. Total cash and cash equivalents and restricted cash of $954.9 million presented in the statement of cash flows was comprised of cash and cash equivalents of $797.8 million and restricted cash of $157.1 million on the balance sheet at November 30, 2021.
4. Fair Value
Financial Instruments Subject to Fair Value Measurements
Accounting guidance over fair value measurements requires that a fair value measurement reflect the assumptions market participants would use in pricing an asset or liability based on the best information available. Assumptions include the risks inherent in a particular valuation technique (such as a pricing model) and/or the risks inherent in the inputs to the model. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the “exit price”). Instruments that the Company owns are marked to bid prices.
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
Basis of Fair Value Measurements
Fair value measurement accounting guidance also establishes a fair value hierarchy that prioritizes the inputs to the respective valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). An asset or liability’s classification within the fair value hierarchy is based on the lowest level of significant input to its valuation. The three levels of the fair value hierarchy are:
•Level 1 - Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date;
•Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active; and
•Level 3 - Inputs that are both significant to the fair value measurement and unobservable.
The following section describes the valuation methodologies used by the Company to determine the fair value of the Group’s fixed maturity and short-term investments by asset class:
•U.S. government treasuries fair value based on observable market inputs such as quoted prices, reported trades, quoted prices for similar issuances and benchmark yields;
•U.S. states, territories and municipalities fair value based on observable market inputs such as quoted market prices, quoted prices for similar securities, benchmark yields and credit spreads;
•Non-U.S. sovereign governments and supranationals fair value based on observable market inputs such as quoted market prices, quoted prices for similar securities and models with observable inputs such as benchmark yields and credit spreads and then, where applicable, converted to U.S. dollars using an exchange rate from a nationally recognized source;
•Corporate fair value based on observable market inputs such as quoted market prices, quoted prices for similar securities, benchmark yields and credit spreads;
•Asset-backed and mortgage-backed securities fair value based on observable inputs such as quoted prices, reported trades, quoted prices for similar issuances or benchmark yields and cash flow models using observable inputs such as prepayment speeds, collateral performance and default spreads;
•Short-term investments fair value based on observable market inputs such as quoted prices, reported trades, quoted prices for similar issuances and benchmark yields.
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
The following table presents the financial instruments measured at fair value at December 31, 2022 and November 30, 2021:
| | | | | | | | | | | | | | | | | | | | | | | |
| 2022 |
| (Expressed in thousands of U.S. Dollars) | Level 1 | | Level 2 | | Level 3 | | Total |
| Fixed maturities: | | | | | | | |
| U.S. government treasuries | $ | — | | | $ | 471,851 | | | $ | — | | | $ | 471,851 | |
| U.S. states, territories and municipalities | — | | | 4,307 | | | — | | | 4,307 | |
| Non-U.S. sovereign governments and supranationals | — | | | 12,952 | | | — | | | 12,952 | |
| Corporate | — | | | 647,477 | | | — | | | 647,477 | |
| Residential mortgage-backed securities - Agency | — | | | 96,410 | | | — | | | 96,410 | |
| Residential mortgage-backed securities - Non-agency | — | | | 4,375 | | | — | | | 4,375 | |
| | | | | | | |
| Commercial mortgage-backed securities - Non-agency | — | | | 9,219 | | | — | | | 9,219 | |
| Other asset-backed securities | — | | | 12,885 | | | — | | | 12,885 | |
| Total fixed maturities | — | | | 1,259,476 | | | — | | | 1,259,476 | |
| Short-term investments | — | | | 286,111 | | | — | | | 286,111 | |
| | | | | | | |
| | | | | | | |
| Total | $ | — | | | $ | 1,545,587 | | | $ | — | | | $ | 1,545,587 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 2021 |
| (Expressed in thousands of U.S. Dollars) | Level 1 | | Level 2 | | Level 3 | | Total |
| Fixed maturities: | | | | | | | |
| U.S. government treasuries | $ | — | | | $ | 308,381 | | | $ | — | | | $ | 308,381 | |
| U.S. states, territories and municipalities | — | | | 4,758 | | | — | | | 4,758 | |
| Non-U.S. sovereign governments and supranationals | — | | | 19,099 | | | — | | | 19,099 | |
| Corporate | — | | | 528,467 | | | — | | | 528,467 | |
| Residential mortgage-backed securities - Agency | — | | | 177,440 | | | — | | | 177,440 | |
| Residential mortgage-backed securities - Non-agency | — | | | 8,717 | | | — | | | 8,717 | |
| | | | | | | |
| Commercial mortgage-backed securities - Non-agency | — | | | 987 | | | — | | | 987 | |
| Other asset-backed securities | — | | | 7,523 | | | — | | | 7,523 | |
| Total fixed maturities | — | | | 1,055,372 | | | — | | | 1,055,372 | |
| Short-term investments | — | | | 643,862 | | | — | | | 643,862 | |
| | | | | | | |
| | | | | | | |
| Total | $ | — | | | $ | 1,699,234 | | | $ | — | | | $ | 1,699,234 | |
The carrying values of cash and cash equivalents, restricted cash, accrued investment income, receivables for investments sold, certain other assets, payables for investments purchased, and certain other liabilities approximated their fair values.
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
5. Variable Interest Entities
Two Sigma Hamilton Fund
TS Hamilton Fund meets the definition of a VIE principally because the Managing Member does not hold substantive equity at risk in the entity but controls all of the decision making authority over it. Therefore, the Company assessed its ownership in the VIE to determine if it is the primary beneficiary. The Managing Member is a related party to the Company and collectively they hold all of the variable interest. The Company performed an assessment of all relevant facts and circumstances and determined that it is the entity within the related party group for whom substantially all of the activities of the VIE are conducted. As a result, the Company concluded that it is the primary beneficiary of TS Hamilton Fund.
Activity in the non-controlling interest of TS Hamilton Fund was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended | | Month Ended | | Years Ended |
| | | | December 31, | | December 31, | | November 30, | | |
| (Expressed in thousands of U.S. Dollars) | | | | 2022 | | 2021 | | 2021 | | 2020 | | |
| Non-controlling interest - beginning of period | | | | $ | 124 | | | $ | 150 | | | $ | 119 | | | $ | 177 | | | |
| | | | | | | | | | | | |
| Withdrawals | | | | (68,069) | | | (23) | | | (61,629) | | | (24,988) | | | |
| Equity in earnings | | | | 14 | | | (3) | | | 31 | | | (1) | | | |
| Incentive allocation | | | | 68,050 | | | — | | | 61,629 | | | 24,931 | | | |
| Non-controlling interest - end of period | | | | $ | 119 | | | $ | 124 | | | $ | 150 | | | $ | 119 | | | |
The following table represents the total assets and total liabilities of TS Hamilton Fund at December 31, 2022 and November 30, 2021. Creditors or beneficial interest holders of TS Hamilton Fund have no recourse to the general credit of the Company as the Company’s obligation is limited to the amount of its committed investment.
| | | | | | | | | | | |
| (Expressed in thousands of U.S. Dollars) | 2022 | | 2021 |
| Assets | | | |
| Cash and cash equivalents | $ | 800,239 | | | $ | 473,461 | |
| Short-term investments | 264,104 | | | 600,268 | |
| Investments in Two Sigma Funds, at fair value | 740,736 | | | 765,388 | |
| Receivables for investments sold | — | | | 55,094 | |
| Interest and dividends receivable | 2,076 | | | 535 | |
Total assets | 1,807,155 | | | 1,894,746 | |
| | | |
| Liabilities | | | |
| Accounts payable and accrued expenses | 291 | | | 169 | |
| | | |
| Withdrawal payable | 145,738 | | | 28,874 | |
| Payable for investments purchased | 48,095 | | | 138,319 | |
Total liabilities | 194,124 | | | 167,362 | |
Total net assets managed by TS Hamilton Fund | $ | 1,613,031 | | | $ | 1,727,384 | |
The withdrawal payable of $145.7 million and $28.9 million at December 31, 2022 and November 30, 2021, respectively, includes a redemption of $145.7 million and $Nil, respectively, due to Hamilton Re. The net balance is reported on the Company's consolidated balance sheets in “Payables to related parties”.
6. Derivative Instruments
On June 21, 2022, the Company entered into a foreign currency forward contract to mitigate the impact of foreign exchange volatility on earnings. The contract provided for the purchase of £26.4 million for $33.0 million
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
and settled in six equal monthly tranches between July 2022 and December 2022. It was recorded on the balance sheet at fair value. The fair value of the resulting asset or liability was determined with reference to observable market inputs and was classified as Level 2 in the fair value hierarchy.
The Company did not elect to apply hedge accounting. Therefore, the gains or losses resulting from fair value remeasurement at each quarter end were recorded through income in the period to which they related. As at December 31, 2022, the Company had discharged all obligations under the contact and recorded a loss of $1.9 million in “Net foreign exchange gains (losses)” in the consolidated statements of operations and comprehensive income (loss) for the year ended December 31, 2022. The net cash flows related to these settlements were recorded through the change in “Accounts payable and accrued expenses and other” in the consolidated statements of cash flows.
7. Change in Fiscal Year End Comparative Reporting
The Company changed its fiscal year end as discussed in Note 2, Summary of Significant Accounting Policies. The following condensed consolidated statements of operations and comprehensive income (loss), condensed consolidated statements of cash flows and consolidated statements of shareholders' equity present the resulting one month transition period ended December 31, 2021 and the comparative results for the one month ended December 31, 2020.
The Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the one month period ended December 31, 2021 and 2020 are as follows:
| | | | | | | | | | | |
| One Month Ended |
| December 31, |
| (Expressed in thousands of U.S. Dollars, except per share information) | 2021 | | 2020 (unaudited) |
| Revenues | | | |
| Net premiums earned | $ | 98,631 | | | $ | 67,498 | |
| Net investment income (loss), net of income attributable to non-controlling interest | (36,745) | | | 72,048 | |
| Other income (loss) | 2,147 | | | 3,757 | |
Total revenues | 64,033 | | | 143,303 | |
| | | |
| Expenses | | | |
| Losses and loss adjustment expenses | 56,650 | | | 44,925 | |
| Acquisition costs | 23,992 | | | 17,534 | |
| General and administrative expenses | 15,682 | | | 15,189 | |
| Other expenses | 2,261 | | | 1,570 | |
Total expenses | 98,585 | | | 79,218 | |
| | | |
| Income (loss) before income tax | (34,552) | | | 64,085 | |
| Income tax expense | 1,335 | | | 664 | |
Net income (loss) attributable to common shareholders | $ | (35,887) | | | $ | 63,421 | |
| | | |
| Per share data | | | |
| Basic earnings (loss) per share attributable to common shareholders | $ | (0.35) | | | $ | 0.62 | |
| Diluted earnings (loss) per share attributable to common shareholders | $ | (0.35) | | | $ | 0.61 | |
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
The Condensed Consolidated Statements of Cash Flows for the one month period ended December 31, 2021 and 2020 are as follows:
| | | | | | | | | | | |
| One Month Ended |
| December 31, |
| (Expressed in thousands of U.S. Dollars) | 2021 | | 2020 (unaudited) |
Net cash used in operating activities | $ | (33,913) | | | $ | (20,765) | |
| | | |
Net cash from investing activities | 43,088 | | | 2,141 | |
| | | |
Net cash used in financing activities | (23) | | | (53) | |
| | | |
Effect of exchange rate changes on cash and cash equivalents | 46 | | | 1,409 | |
| Net increase (decrease) in cash and cash equivalents | 9,198 | | | (17,268) | |
| Cash and cash equivalents and restricted cash, beginning of period | 954,928 | | | 660,079 | |
Cash and cash equivalents and restricted cash, end of period | $ | 964,126 | | | $ | 642,811 | |
The Consolidated Statements of Shareholders' Equity for the one month period ended December 31, 2021 and 2020 are as follows:
| | | | | | | | | | | | | |
| One Month Ended | | |
| December 31, | | |
| (Expressed in thousands of U.S. Dollars) | 2021 | | 2020 (unaudited) | | |
Common shares | | | | | |
Balance, beginning and end of period | $ | 1,025 | | | $ | 1,024 | | | |
| | | | | |
Additional paid-in capital | | | | | |
Balance, beginning of period | 1,109,205 | | | 1,104,803 | | | |
| Repurchases of common shares | — | | | (34) | | | |
| Share compensation expense | 1,043 | | | 830 | | | |
Balance, end of period | 1,110,248 | | | 1,105,599 | | | |
| | | | | |
Accumulated other comprehensive loss | | | | | |
Balance, beginning and end of period | (4,441) | | | (4,441) | | | |
| | | | | |
Retained earnings | | | | | |
Balance, beginning of period | 681,656 | | | 495,364 | | | |
| Net income (loss) | (35,890) | | | 78,616 | | | |
| Net income attributable to non-controlling interest | 3 | | | (15,195) | | | |
| Repurchases of common shares | — | | | (18) | | | |
Balance, end of period | 645,769 | | | 558,767 | | | |
| | | | | |
Total shareholders’ equity | $ | 1,752,601 | | | $ | 1,660,949 | | | |
| | | | | |
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
8. Goodwill and Intangible Assets
The following table provides a summary of the Company's goodwill and intangible assets:
| | | | | | | | | | | | | | | | | | | | | | | |
| (Expressed in thousands of U.S. Dollars) | Goodwill | | Intangible Assets
Subject to Amortization | | Intangible Assets not Subject to Amortization | | Total |
Net balance, November 30, 2020 | $ | 21,809 | | | $ | 56,736 | | | $ | 37,208 | | | $ | 115,753 | |
| Plus: additions | 4,011 | | | 11,615 | | | — | | | 15,626 | |
| Less: impairment | (936) | | | — | | | — | | | (936) | |
| Less: amortization | — | | | (13,431) | | | — | | | (13,431) | |
| | | | | | | |
| | | | | | | |
Net balance, November 30, 2021 | 24,884 | | | 54,920 | | | 37,208 | | | 117,012 | |
| Plus: additions | — | | | 800 | | | — | | | 800 | |
| | | | | | | |
| Less: amortization | — | | | (1,200) | | | — | | | (1,200) | |
| | | | | | | |
| | | | | | | |
Net balance, December 31, 2021 | 24,884 | | | 54,520 | | | 37,208 | | | 116,612 | |
| Plus: additions | (802) | | | 8,062 | | | — | | | 7,260 | |
| Less: impairment | (24,082) | | | — | | | — | | | (24,082) | |
| Less: amortization | — | | | (12,832) | | | — | | | (12,832) | |
| | | | | | | |
| | | | | | | |
Net balance, December 31, 2022 | $ | — | | | $ | 49,750 | | | $ | 37,208 | | | $ | 86,958 | |
| | | | | | | |
Gross balance, December 31, 2022 | $ | — | | | $ | 94,901 | | | $ | 37,208 | | | $ | 132,109 | |
| Accumulated amortization | — | | | (45,151) | | | — | | | (45,151) | |
| | | | | | | |
| | | | | | | |
Net balance, December 31, 2022 | $ | — | | | $ | 49,750 | | | $ | 37,208 | | | $ | 86,958 | |
In the year ended December 31, 2022, the Company conducted its annual evaluation of recorded goodwill for impairment using both a market model and an income model and concluded that the associated reporting units’ fair value did not exceed their carrying value, and consequently recorded an impairment to goodwill of $24.1 million in our International segment.
In the year ended November 30, 2021, the Company sold a reporting unit and impaired $0.9 million of associated goodwill in our International segment because the consideration received was lower than its carried value.
The impairment charges of $24.1 million and $0.9 million are recorded in the consolidated statement of operations in the line “Impairment of goodwill” for the years ended December 31, 2022 and November 30, 2021, respectively.
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
The following tables present the components of goodwill and intangible assets at December 31, 2022 and November 30, 2021:
| | | | | | | | | | | | | | | | | |
| 2022 |
| (Expressed in thousands of U.S. Dollars) | Gross Balance | | Accumulated Amortization and Impairment | | Net Balance |
Goodwill | $ | — | | | $ | — | | | $ | — | |
| | | | | |
| Intangible assets subject to amortization | | | | | |
| Coverholder and broker relationships | 44,515 | | | (14,804) | | | 29,711 | |
| Internally developed software | 29,698 | | | (10,293) | | | 19,405 | |
| Value of business acquired | 13,309 | | | (12,675) | | | 634 | |
| Managing general agency contracts | 7,379 | | | (7,379) | | | — | |
| | | | | |
| Intangible assets not subject to amortization | | | | | |
| Lloyd's syndicate capacity | 35,583 | | | — | | | 35,583 | |
| Licenses | 1,625 | | | — | | | 1,625 | |
| $ | 132,109 | | | $ | (45,151) | | | $ | 86,958 | |
| | | | | | | | | | | | | | | | | |
| 2021 |
| (Expressed in thousands of U.S. Dollars) | Gross Balance | | Accumulated Amortization and Impairment | | Net Balance |
Goodwill | $ | 25,820 | | | $ | (936) | | | $ | 24,884 | |
| | | | | |
| Intangible assets subject to amortization | | | | | |
| Coverholder and broker relationships | 44,515 | | | (10,016) | | | 34,499 | |
| Internally developed software | 28,121 | | | (13,772) | | | 14,349 | |
| Value of business acquired | 13,309 | | | (8,556) | | | 4,753 | |
| Managing general agency contracts | 7,379 | | | (6,060) | | | 1,319 | |
| | | | | |
| Intangible assets not subject to amortization | | | | | |
| Lloyd's syndicate capacity | 35,583 | | | — | | | 35,583 | |
| Licenses | 1,625 | | | — | | | 1,625 | |
| $ | 156,352 | | | $ | (39,340) | | | $ | 117,012 | |
The Company's finite-lived intangible assets are amortized on a straight-line basis over their useful lives. As of December 31, 2022, the estimated weighted average amortization period by class consisted of coverholder and broker relationships (10 years), internally-developed software (5 years), and value of business acquired (“VOBA”) (3.5 years). Costs incurred to renew or extend the assets' useful lives are expensed straight-line over the remaining life of the related asset or asset class. The weighted-average amortization period is 3.3 years and the estimated amortization expense for each of the five succeeding fiscal years and thereafter related to these assets is as follows:
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
| | | | | |
(Expressed in thousands of U.S. Dollars)
Year Ending December 31, | Estimated Amortization Expense |
| 2023 | $ | 9,871 | |
| 2024 | 9,720 | |
| 2025 | 8,826 | |
| 2026 | 6,876 | |
| 2027 | 6,422 | |
| Thereafter | 8,035 | |
| Total | $ | 49,750 | |
Intangible assets not subject to amortization consist of Lloyd's syndicate capacity and insurance licenses. The Company did not recognize any impairment losses as a result of the annual impairment review of indefinite-lived assets for the year ended December 31, 2022, the month ended December 31, 2021 or the years ended November 30, 2021 and 2020.
9. Reinsurance
The Company purchases reinsurance and other protection to manage its risk portfolio and to reduce its exposure to large losses. The Company currently has in place contracts that provide for recovery of a portion of certain claims and claim expenses, generally in excess of various retentions or on a proportional basis. Amounts recoverable under reinsurance contracts are recorded as assets. The Company remains liable to the extent that any reinsurance company fails to meet its obligations.
The following tables set forth the effect of reinsurance and retrocessional activity on premiums written and earned and on losses and loss adjustment expenses incurred:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Premiums Written | |
| | | Year Ended | | Month Ended | | Years Ended | |
| | | December 31, | | December 31, | | November 30, | |
| (Expressed in thousands of U.S. Dollars) | | | 2022 | | 2021 | | 2021 | | 2020 | |
| Assumed | | | $ | 709,194 | | | $ | 40,938 | | | $ | 624,470 | | | $ | 481,368 | | |
| Direct | | | 937,479 | | | 80,875 | | | 822,081 | | | 605,172 | | |
| Ceded | | | (424,809) | | | (23,892) | | | (361,123) | | | (357,217) | | |
| Net | | | $ | 1,221,864 | | | $ | 97,921 | | | $ | 1,085,428 | | | $ | 729,323 | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Premiums Earned |
| | | Year Ended | | Month Ended | | Years Ended |
| | | December 31, | | December 31, | | November 30, |
| (Expressed in thousands of U.S. Dollars) | | | 2022 | | 2021 | | 2021 | | 2020 |
| Assumed | | | $ | 670,272 | | | $ | 57,731 | | | $ | 574,155 | | | $ | 528,295 | |
| Direct | | | 886,488 | | | 64,190 | | | 737,982 | | | 592,557 | |
| Ceded | | | (413,046) | | | (23,290) | | | (369,588) | | | (413,391) | |
| Net | | | $ | 1,143,714 | | | $ | 98,631 | | | $ | 942,549 | | | $ | 707,461 | |
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Losses and Loss Adjustment Expenses |
| | | Year Ended | | Month Ended | | Years Ended |
| | | December 31, | | December 31, | | November 30, |
| (Expressed in thousands of U.S. Dollars) | | | 2022 | | 2021 | | 2021 | | 2020 |
| Gross losses and loss adjustment expenses | | | $ | 1,133,469 | | | $ | 78,691 | | | $ | 768,255 | | | $ | 630,073 | |
| Losses and loss adjustment expenses ceded | | | (375,136) | | | (22,041) | | | (127,695) | | | (124,804) | |
| Net | | | $ | 758,333 | | | $ | 56,650 | | | $ | 640,560 | | | $ | 505,269 | |
Allowance for Expected Credit Losses
Premiums receivable and paid and unpaid losses recoverable comprise the Company's most significant credit exposures not carried at fair value. The Company has not historically experienced significant credit losses. In determining an allowance for these reinsurance assets, the Company considers historical information in combination with counterparty financial strength ratings and the extent to which they are collateralized. The Company assesses the risk of future default by evaluating current market conditions for the likelihood of default and calculates its provision for current expected credit losses under the probability of default and loss given default methodology.
Premiums Receivable
Premiums receivable are estimated based on policy terms and reports received from the underlying counterparties, supplemented by management's judgment. Due to the nature of the (re)insurance business, the Company routinely receives reports and premiums subsequent to the inception of the coverage period. At December 31, 2022, the Company’s premiums receivable balance, net of credit provisions of $2.9 million, was $522.7 million. At November 30, 2021, the Company’s premiums receivable balance, net of credit provisions of $Nil, was $471.0 million.
Reinsurance Balances Recoverable
Reinsurance balances recoverable is comprised of amounts due from reinsurers based on the claim liabilities associated with the reinsured policy. The Company accrues amounts due from reinsurers based on estimated ultimate contract losses.
At December 31, 2022, the Company’s paid and unpaid reinsurance recoverable balances net of credit provisions were $90.7 million and $1.2 billion, respectively, with a total corresponding provision for current expected credit losses of $0.8 million. At November 30, 2021, the Company’s paid and unpaid reinsurance recoverable balances net of credit provisions were $76.1 million and $1.1 billion, respectively, with a total corresponding provision for current expected credit losses of $Nil.
At December 31, 2022 and November 30, 2021, the distribution of the Company’s paid and unpaid losses and loss adjustment expenses recoverable as categorized by major rating agencies were as follows:
| | | | | | | | | | | | | | |
| | % of total paid and unpaid losses and
loss adjustment expenses recoverable |
| Classification | | December 31,
2022 | | November 30,
2021 |
| Collateralized | | 33.8 | % | | 47.2 | % |
| A- or better | | 65.6 | % | | 52.4 | % |
| Below A- | | 0.6 | % | | 0.4 | % |
| Total | | 100.0 | % | | 100.0 | % |
At December 31, 2022 and November 30, 2021, the three largest balances by reinsurer accounted for 31%, 17% and 11%, and 43%, 20% and 9%, respectively, of paid and unpaid losses and loss adjustment expenses recoverable.
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
Loss Portfolio Transfer
On February 6, 2020, the Company entered into a loss portfolio transfer agreement (the “LPT”), under which the insurance liabilities arising from certain casualty risks for the Lloyd's Years of Account (“YOA”) 2016, 2017 and 2018 were retroceded to a third party in exchange for total premium of $72.1 million. This transaction was accounted for as retroactive reinsurance under which cumulative ceded losses exceeding the LPT premium are recognized as a deferred gain liability and amortized into income over the settlement period of the ceded reserves in proportion to cumulative losses collected over the estimated ultimate reinsurance recoverable. The amount of the deferral is recalculated each reporting period based on updated ultimate loss estimates. Consequently, cumulative adverse development subsequent to the signing of the LPT may result in significant losses from operations until periods when the deferred gain is recognized as a benefit to earnings.
The balance of reinsurance recoverable on unpaid losses due under this LPT was $59.2 million and $93.9 million as at December 31, 2022 and November 30, 2021, respectively. Amortization of the deferred gain was income of $1.9 million, $0.4 million, $18.0 million and $6.3 million in the year ended December 31, 2022, the month ended December 31, 2021 and the years ended November 30, 2021 and 2020, respectively, and was recorded through losses and loss adjustment expenses in accordance with the actual loss payments and updated estimates of ultimate losses of the subject business.
Catastrophe Bond Reinsurance
In 2021, Hamilton Group sponsored an industry loss index-triggered catastrophe bond through the issuance of Series 2020-1 Class A Principal-at-Risk Variable Rate Notes by Easton Re Pte, Ltd. (“Easton Re”). Easton Re provides the Company's operating platforms with multi-year risk transfer capacity of $150 million to protect against named storm and earthquake risk in the United States. The risk period for Easton Re is from January 1, 2021 to December 31, 2023. The Company recorded reinsurance premiums ceded of $6.3 million, $Nil and $7.8 million in the year ended December 31, 2022, the month ended December 31, 2021 and the year ended November 30, 2021, respectively.
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
10. Reserve for Losses and Loss Adjustment Expenses
The following table presents a reconciliation of unpaid losses and loss adjustment expenses (“LAE”):
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended | | Month Ended | | Years Ended | | |
| December 31, | | December 31, | | November 30, | | |
| (Expressed in thousands of U.S. Dollars) | 2022 | | 2021 | | 2021 | | 2020 | | |
| Gross unpaid losses and loss expenses, beginning of period | $ | 2,415,491 | | | $ | 2,379,027 | | | $ | 2,054,628 | | | $ | 1,957,989 | | | |
| Reinsurance recoverable on unpaid losses | 1,112,543 | | | 1,118,273 | | | 1,076,063 | | | 1,087,619 | | | |
| Net unpaid losses and loss expenses, beginning of period | 1,302,948 | | | 1,260,754 | | | 978,565 | | | 870,370 | | | |
| | | | | | | | | |
| Net losses and loss expenses incurred in respect of losses occurring in: | | | | | | | | | |
| Current year | 778,936 | | | 56,650 | | | 628,781 | | | 546,250 | | | |
| Prior years | (20,603) | | | — | | | 11,779 | | | (40,981) | | | |
| Total incurred | 758,333 | | | 56,650 | | | 640,560 | | | 505,269 | | | |
| | | | | | | | | |
| Net losses and loss expenses paid in respect of losses occurring in: | | | | | | | | | |
| Current year | 61,649 | | | 3,767 | | | 55,979 | | | 67,774 | | | |
| Prior years | 315,537 | | | 11,082 | | | 255,543 | | | 253,038 | | | |
| Total paid | 377,186 | | | 14,849 | | | 311,522 | | | 320,812 | | | |
| | | | | | | | | |
| Retroactive reinsurance recoverable | — | | | — | | | — | | | (93,179) | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Foreign currency revaluation and other | (5,683) | | | 393 | | | (46,849) | | | 16,917 | | | |
| Net unpaid losses and loss expenses, end of period | 1,678,412 | | | 1,302,948 | | | 1,260,754 | | | 978,565 | | | |
| Reinsurance recoverable on unpaid losses | 1,177,863 | | | 1,112,543 | | | 1,118,273 | | | 1,076,063 | | | |
| Gross unpaid losses and loss expenses, end of period | $ | 2,856,275 | | | $ | 2,415,491 | | | $ | 2,379,027 | | | $ | 2,054,628 | | | |
Net favorable prior year development of $20.6 million for the year ended December 31, 2022 was comprised of $17.4 million and $3.2 million of favorable prior year development on catastrophe and attritional losses, respectively. See below for further details:
•Net favorable development of $36.9 million on specialty contracts, driven by reductions in loss estimates across multiple classes;
•Net favorable development of $0.4 million on property contracts, related to $9.5 million of favorable development on Hurricane Ida that was partially offset by $7.0 million of unfavorable attritional loss development and $2.1 million of unfavorable development on various other catastrophes; partially offset by
•Net unfavorable development of $23.7 million on casualty lines of business, primarily related to discontinued business.
In addition, casualty business protected by the LPT discussed in Note 9, Reinsurance, recorded favorable gross development which was partially offset by amortization of the associated deferred gain, resulting in a net positive earnings impact of $7.0 million.
There was no prior year development for the month ended December 31, 2021.
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
Net unfavorable prior year development of $11.8 million for the year ended November 30, 2021 was comprised of $19.9 million of unfavorable prior year development on catastrophe losses, partially offset by $8.1 million of favorable prior year development on attritional losses. See below for further details:
•Net unfavorable development of $23.2 million on property contracts, driven by increases in loss estimates for Covid-19 and Hurricanes Laura, Sally, and Zeta;
•Net unfavorable development of $15.2 million on casualty contracts, driven by increased loss estimates; partially offset by
•Net favorable development of $33.4 million on specialty contracts, driven by lower than expected loss experience; and
•Net favorable development of $7.8 million on loss adjustment reserves related to the 2019 business acquisition.
In addition, casualty business protected by the LPT discussed in Note 9, Reinsurance, recorded unfavorable gross development which was partially offset by amortization of the associated deferred gain, resulting in a net negative earnings impact of $14.6 million.
Net favorable prior year development of $41.0 million for the year ended November 30, 2020 was primarily comprised of $24.9 million and $16.1 million of favorable prior year development on attritional and catastrophe losses, respectively. See below for further details:
•Net favorable development of $22.5 million on specialty contracts as a result of lower than expected loss experience;
•Net favorable development of $20.2 million on property contracts as a result of reductions in loss estimates for Hurricanes Harvey, Irma and Maria and other catastrophe events, along with lower than expected attritional losses; partially offset by
•Net unfavorable development of $1.7 million on casualty contracts, net of amortization of the gain on the loss portfolio transfer referenced below.
Reinsurance recoverable on unpaid losses related to the LPT discussed in Note 9, Reinsurance was recognized for the year ended December 31, 2022 in the reconciliation of beginning and ending gross and net loss and LAE reserves presented above.
The Company amortized acquisition costs of $271.2 million, $24.0 million, $229.2 million and $168.3 million for the year ended December 31, 2022, the month ended December 31, 2021 and the years ended November 30, 2021 and 2020, respectively.
Ukraine Conflict
The estimate of net reserves for losses and loss adjustment expenses related to the ongoing Ukraine conflict is subject to significant uncertainty. As at December 31, 2022 and November 30, 2021, our recorded reserves relating to the Ukraine conflict totaled $79.3 million and $Nil, respectively.
Covid-19
Our Covid-19 losses also remain subject to significant uncertainty and review. Actual ultimate losses for these events may differ materially from the Company's current estimates. As at December 31, 2022 and November 30, 2021, our recorded reserves relating to Covid-19 totaled $39.0 million and $59.6 million, respectively.
While the Company believes, based on current facts and circumstances, that its estimates of net reserves for losses and loss expenses are adequate for losses and loss adjustment expenses that have been incurred at December 31, 2022, the Company will continue to monitor its assumptions as new information becomes available
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
and will adjust its estimate of net reserves for losses and loss adjustment expenses as appropriate. Actual ultimate losses for these events may differ materially from the Company's current estimates.
Reserving
The Company's reserve for losses and loss expenses consists of case reserves and IBNR reserves. Case reserves are reserves for reported losses and loss expenses that have not yet been settled. IBNR are reserves for incurred but not reported losses and loss expenses, and include reserves for reported losses in excess of case reserves.
Case Reserves
For reinsurance business, the Company typically receives loss notifications from its cedants in the form of loss bordereaux or individual loss notifications. These notifications generally include varying amounts of information about the nature and quantum of the loss, including paid amounts and estimates of outstanding loss. The Company records the estimates of outstanding loss from its cedants as case reserves. Typically there is a timing lag between the cedant establishing a reserve and notifying the loss to the Company. In addition, different cedants have different claims handling practices which result in case reserve estimates that vary in the level of embedded prudence.
For insurance business, the Company records a case reserve for the estimated amount of settlement. This amount is based on the judgment of the Company’s claims team and takes into account the class of business, nature of the claim and, if appropriate, the advice of specialist legal counsel and external loss adjusters, and includes the estimated expenses of settling the claim, such as legal and other fees. The Company may sometimes use third party claims administrators to handle claims and set case reserves, within defined authority levels and service level agreements. In syndicated markets such as Lloyd’s, the Company’s case reserve will be based in part on information provided by the lead insurer, where the Company is not an agreement party. Any adjustments to case reserves are accounted for as changes in estimates and recorded in the period in which such changes are identified.
IBNR Reserves
The Company establishes IBNR reserves for large events based on a number of different factors, including discussions with brokers and cedants, proprietary loss modelling and pricing software, estimates of market loss and market share, experience from historical large events and other information that can guide the estimates of loss reserves. Our actuaries may use other approaches in addition to those described, and supplement these methods with judgement where they deem appropriate, depending upon the characteristics of the class of business and available data. These estimates are reviewed periodically as new information emerges.
IBNR reserves for attritional losses are established using actuarial loss reserving techniques. These techniques include the loss development factor method, Bornheutter Ferguson method, the Initial Expected Loss Ratio method, and other techniques. These techniques rely on estimates of paid and reported loss development patterns and estimates of the loss ratio at the inception of the contract. The Company’s actuaries review the estimates of IBNR reserves on a quarterly basis and adjust the estimates as new information becomes available. Any such adjustments are accounted for as changes in estimates and recorded in the periods in which they become known.
To establish IBNR reserves for attritional losses, contracts are grouped into cohorts, or reserving classes, that have similar coverage, inception period and loss reporting characteristics. The paid and reported losses for these reserving classes are tracked over time against expectations and against the actuarial loss reserving indications and IBNR reserve selected for each cohort.
Claims Development and Frequency
For incurred and paid accident year claims denominated in foreign currency, the Company used the current year-end balance sheet foreign exchange rate for all periods provided, thereby eliminating the effects of changes in foreign currency translation rates from the incurred and paid accident year claims development information included in the following tables.
In determining the cumulative number of reported claims, the Company measures claim counts on its insurance business by individual claimant where information is available. The claim counts include all claims reported where
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
the Company has identified a potential liability for the claim even if there is no existing reserve. Reinsurance business is typically written under either proportional (quota share arrangements) or non-proportional arrangements (excess of loss or other facultative covers).
The Company typically does not have direct access to claim frequency information underlying its assumed quota share arrangements, given the nature of that business. In addition, multiple claims are often aggregated by the ceding company before being reported to the Company. The Company generally does not use claim frequency information in the determination of loss reserves or for other internal purposes relating to proportional business. In addition, the nature, size, terms and conditions of contracts entered into by the Company may change from one accident year to the next and the quantum of contractual or policy limits, and accordingly, the potential amount of losses and loss adjustment expenses associated with a reported claim, can range from nominal to significant, and therefore the Company does not believe providing claims frequency information is practicable as it relates to its proportional business.
The Company has developed claims frequency information associated with its non-proportional reinsurance contracts. In determining claims frequency for its excess-of-loss reinsurance contracts, claims counts include all claims reported by each insured where a reserve for losses and loss adjustment expenses has been recorded. The Company has assumed that claims below the loss layer of a contract are excluded; if an insured's claim impacts multiple layers of a contract, the Company considers each impact to be a separate claim, and for an insured loss impacting more than one operating subsidiary, each impact is considered a separate claim.
Claims Development
The information provided herein about incurred and paid accident year claims development, net of reinsurance, for the periods ended prior to December 31, 2022 and the annual percentage payouts of incurred claims by age, net of reinsurance, is presented as supplementary information. The following tables show the paid and incurred loss development by broad classification based on groupings of contracts that are similar in coverage and duration:
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
International Property
(Expressed in thousands of U.S. Dollars, except claim count)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance | | | | |
| | | | For the years ended | | As of December 31, 2022 |
| | | | November 30, | | December 31, | | IBNR(1) | | Cumulative Number of Reported Claims |
Accident
year | | | | 2015 (unaudited) | | 2016 (unaudited) | | 2017 (unaudited) | | 2018 (unaudited) | | 2019 (unaudited) | | 2020 (unaudited) | | 2021 (unaudited) | | 2022 | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| 2015 | | | | $1 | | $1 | | $1 | | $— | | $— | | $— | | $— | | $— | | $— | | — |
| 2016 | | | | | | 7,527 | | | 6,551 | | 6,212 | | 6,351 | | 6,011 | | 7,155 | | 7,261 | | 17 | | 903 | |
| 2017 | | | | | | | | 38,379 | | 42,986 | | 44,911 | | 41,819 | | 41,260 | | 41,224 | | 25 | | 992 | |
| 2018 | | | | | | | | | | 24,037 | | 26,191 | | 24,873 | | 24,537 | | 24,542 | | 237 | | 1,116 | |
| 2019 | | | | | | | | | | | | 32,695 | | 33,895 | | 36,609 | | 36,672 | | 7,949 | | 1,206 | |
| 2020 | | | | | | | | | | | | | | 134,743 | | 144,201 | | 143,676 | | 16,028 | | 1,958 | |
| 2021 | | | | | | | | | | | | | | | | 113,813 | | 124,917 | | 35,490 | | 1,446 | |
| 2022 | | | | | | | | | | | | | | | | | | 81,324 | | 46,579 | | 598 | |
| | | | | | | | | | | | | | | | Total | | $459,616 | | $106,325 | | 8,219 |
(1) | | | | Total of incurred but not reported liabilities plus expected development on reported claims |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance | | | | |
| | | | For the years ended | | | | |
| | | | November 30, | | December 31, | | | | |
Accident
year | | | | 2015 (unaudited) | | 2016 (unaudited) | | 2017 (unaudited) | | 2018 (unaudited) | | 2019 (unaudited) | | 2020 (unaudited) | | 2021 (unaudited) | | 2022 | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| 2015 | | | | $— | | $— | | $— | | $— | | $— | | $— | | $— | | $— | | | | |
| 2016 | | | | | | 171 | | 3,428 | | 4,567 | | 6,668 | | 7,049 | | 6,891 | | 7,003 | | | | |
| 2017 | | | | | | | | 9,249 | | 29,283 | | 34,363 | | 40,193 | | 39,984 | | 40,832 | | | | |
| 2018 | | | | | | | | | | 1,322 | | 12,036 | | 17,340 | | 20,053 | | 20,905 | | | | |
| 2019 | | | | | | | | | | | | 8,307 | | 21,106 | | 20,940 | | 25,818 | | | | |
| 2020 | | | | | | | | | | | | | | 24,365 | | 90,859 | | 115,587 | | | | |
| 2021 | | | | | | | | | | | | | | | | 23,564 | | 63,784 | | | | |
| 2022 | | | | | | | | | | | | | | | | | | 9,996 | | | | |
| | | | | | | | | | | | | | | | Total | | $283,925 | | | | |
| | | | | | | | | | |
| Liabilities for unpaid losses and loss adjustment expenses, net of reinsurance | | $175,691 | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | Average Annual Percentage Payout of Incurred Losses by Age, Net of Reinsurance(1) | | | | | | |
| Years | | | | 1
(unaudited) | | 2
(unaudited) | | 3
(unaudited) | | 4
(unaudited) | | 5
(unaudited) | | 6
(unaudited) | | 7
(unaudited) | | | | | | |
| | | | 17 | % | | 41 | % | | 14 | % | | 14 | % | | 1 | % | | 1 | % | | 2 | % | | | | | | |
(1) | | | | Unaudited supplementary information |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
International Casualty
(Expressed in thousands of U.S. Dollars, except claim count)
The following table discloses losses incurred, losses paid and claims data excluding the impact of the loss portfolio transfer discussed in further detail in Note 9, Reinsurance.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance | | | | |
| | For the years ended | | As of December 31, 2022 |
| | November 30, | | December 31, | | IBNR(1) | | Cumulative Number of Reported Claims |
Accident
year | | 2015 (unaudited) | | 2016 (unaudited) | | 2017 (unaudited) | | 2018 (unaudited) | | 2019 (unaudited) | | 2020 (unaudited) | | 2021 (unaudited) | | 2022 | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| 2015 | | $— | | $— | | $— | | $— | | $— | | $— | | $— | | $— | | $— | | — |
| 2016 | | | | 171 | | | 278 | | 243 | | 342 | | 342 | | 342 | | 388 | | — | | 32 | |
| 2017 | | | | | | 648 | | 5,187 | | 7,354 | | 6,332 | | 5,857 | | 5,121 | | 562 | | 73 |
| 2018 | | | | | | | | 302 | | 5,276 | | 4,926 | | 4,342 | | 3,714 | | 303 | | 338 | |
| 2019 | | | | | | | | | | 18,243 | | 15,759 | | 15,099 | | 13,178 | | 2,623 | | 2,107 | |
| 2020 | | | | | | | | | | | | 24,285 | | 21,604 | | 15,785 | | 3,749 | | 2,251 | |
| 2021 | | | | | | | | | | | | | | 94,633 | | 105,005 | | 80,112 | | 2,249 | |
| 2022 | | | | | | | | | | | | | | | | 134,985 | | 127,597 | | 1,518 | |
| | | | | | | | | | | | | | Total | | $278,176 | | $214,946 | | 8,568 |
(1) | | Total of incurred but not reported liabilities plus expected development on reported claims | | |
| | | | | | | | | | | | | | | | | | | | |
| | Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance | | | | |
| | For the years ended | | | | |
| | November 30, | | December 31, | | | | |
Accident
year | | 2015 (unaudited) | | 2016 (unaudited) | | 2017 (unaudited) | | 2018 (unaudited) | | 2019 (unaudited) | | 2020 (unaudited) | | 2021 (unaudited) | | 2022 | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| 2015 | | $— | | $— | | $— | | $— | | $— | | $— | | $— | | $— | | | | |
| 2016 | | | | — | | — | | 82 | | — | | — | | — | | — | | | | |
| 2017 | | | | | | — | | 22 | | 629 | | 2,285 | | 2,406 | | 3,964 | | | | |
| 2018 | | | | | | | | 35 | | 384 | | 1,787 | | 2,670 | | 3,286 | | | | |
| 2019 | | | | | | | | | | 57 | | 1,097 | | 3,969 | | 9,943 | | | | |
| 2020 | | | | | | | | | | | | 3,226 | | 8,121 | | 11,400 | | | | |
| 2021 | | | | | | | | | | | | | | 641 | | 9,493 | | | | |
| 2022 | | | | | | | | | | | | | | | | 2,804 | | | | |
| | | | | | | | | | | | | | Total | | $40,890 | | | | |
| Liabilities for unpaid losses and loss adjustment expenses, net of reinsurance | | $237,286 | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | Average Annual Percentage Payout of Incurred Losses by Age, Net of Reinsurance(1) | | | | | | |
| Years | | 1 (unaudited) | | 2
(unaudited) | | 3
(unaudited) | | 4
(unaudited) | | 5
(unaudited) | | 6
(unaudited) | | 7
(unaudited) | | | | | | |
| | 2 | % | | 11 | % | | 22 | % | | 38 | % | | 8 | % | | 28 | % | | — | % | | | | | | |
(1) | | Unaudited supplementary information | | | | |
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
International Specialty
(Expressed in thousands of U.S. Dollars, except claim count)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance | | | | |
| | For the years ended | | As of December 31, 2022 |
| | November 30, | | December 31, | | IBNR(1) | | Cumulative Number of Reported Claims |
Accident
year | | 2015 (unaudited) | | 2016 (unaudited) | | 2017 (unaudited) | | 2018 (unaudited) | | 2019 (unaudited) | | 2020 (unaudited) | | 2021 (unaudited) | | 2022 | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| 2015 | | $— | | $93 | | $138 | | $218 | | $212 | | $144 | | $149 | | $94 | | $— | | 65 |
| 2016 | | | | 2,534 | | | 4,771 | | 5,383 | | 5,232 | | 5,370 | | 3,668 | | 3,367 | | 46 | | 766 | |
| 2017 | | | | | | 22,378 | | 17,430 | | 16,943 | | 15,256 | | 22,030 | | 25,397 | | 694 | | 1,300 |
| 2018 | | | | | | | | 32,119 | | 31,221 | | 29,935 | | 33,727 | | 38,471 | | 1,291 | | 2,032 | |
| 2019 | | | | | | | | | | 109,674 | | 113,410 | | 107,784 | | 102,711 | | 12,555 | | 3,371 | |
| 2020 | | | | | | | | | | | | 124,196 | | 118,761 | | 108,859 | | 14,753 | | 2,504 | |
| 2021 | | | | | | | | | | | | | | 131,761 | | 141,006 | | 72,956 | | 2,799 | |
| 2022 | | | | | | | | | | | | | | | | 138,981 | | 114,131 | | 1,465 | |
| | | | | | | | | | | | | | Total | | $558,886 | | $216,426 | | 14,302 |
(1) | | Total of incurred but not reported liabilities plus expected development on reported claims | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance | | | | |
| | For the years ended | | | | |
| | November 30, | | December 31, | | | | |
Accident
year | | 2015 (unaudited) | | 2016 (unaudited) | | 2017 (unaudited) | | 2018 (unaudited) | | 2019 (unaudited) | | 2020 (unaudited) | | 2021 (unaudited) | | 2022 | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| 2015 | | $— | | $16 | | $62 | | $119 | | $147 | | $150 | | $150 | | $94 | | | | |
| 2016 | | | | 248 | | 2,141 | | 4,000 | | 3,098 | | 3,446 | | 3,600 | | 3,265 | | | | |
| 2017 | | | | | | 2,427 | | 8,992 | | 16,986 | | 21,763 | | 21,256 | | 23,043 | | | | |
| 2018 | | | | | | | | 2,054 | | 17,209 | | 31,130 | | 31,337 | | 36,128 | | | | |
| 2019 | | | | | | | | | | 14,196 | | 60,774 | | 80,376 | | 82,196 | | | | |
| 2020 | | | | | | | | | | | | 12,355 | | 53,723 | | 85,944 | | | | |
| 2021 | | | | | | | | | | | | | | 9,897 | | 47,587 | | | | |
| 2022 | | | | | | | | | | | | | | | | 9,426 | | | | |
| | | | | | | | | | | | | | Total | | $287,683 | | | | |
| | | | | | | | | | | | |
| Liabilities for unpaid losses and loss adjustment expenses, net of reinsurance | | $271,203 | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | Average Annual Percentage Payout of Incurred Losses by Age, Net of Reinsurance(1) | | | | | | |
| Years | | 1
(unaudited) | | 2
(unaudited) | | 3
(unaudited) | | 4
(unaudited) | | 5
(unaudited) | | 6
(unaudited) | | 7
(unaudited) | | | | | | |
| | 9 | % | | 36 | % | | 27 | % | | 4 | % | | 7 | % | | 7 | % | | (10) | % | | | | | | |
(1) | | Unaudited supplementary information | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
Bermuda Property
(Expressed in thousands of U.S. Dollars, except claim count)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance | | | | | | |
| | For the years ended | | As of December 31, 2022 | | |
| | November 30, | | December 31, | | IBNR(1) | | Cumulative Number of Reported Claims | | |
Accident
year | | 2013 (unaudited) | | 2014 (unaudited) | | 2015 (unaudited) | | 2016 (unaudited) | | 2017 (unaudited) | | 2018 (unaudited) | | 2019 (unaudited) | | 2020 (unaudited) | | 2021 (unaudited) | | 2022 | | | | |
| 2013 | | $15,447 | | $14,779 | | $12,065 | | $10,948 | | $9,567 | | $9,476 | | $9,391 | | $9,392 | | $9,362 | | $9,289 | | $— | | 33 | | |
| 2014 | | | | 19,416 | | 20,563 | | 19,374 | | 17,946 | | 17,757 | | 17,758 | | 17,685 | | 17,426 | | 17,441 | | — | | 49 | | |
| 2015 | | | | | | 29,519 | | 17,011 | | 12,653 | | 12,192 | | 7,827 | | 6,494 | | 6,468 | | 6,439 | | — | | 41 | | |
| 2016 | | | | | | | | 56,248 | | 38,990 | | 37,658 | | 36,065 | | 35,206 | | 36,424 | | 35,695 | | 14 | | 107 | | |
| 2017 | | | | | | | | | | 100,808 | | 98,162 | | 93,383 | | 81,054 | | 79,495 | | 83,424 | | 546 | | 271 | | |
| 2018 | | | | | | | | | | | | 74,381 | | 85,136 | | 80,040 | | 79,676 | | 74,477 | | 1,517 | | 233 | | |
| 2019 | | | | | | | | | | | | | | 30,184 | | 51,466 | | 59,615 | | 59,190 | | 3,627 | | 140 | | |
| 2020 | | | | | | | | | | | | | | | | 113,075 | | 121,358 | | 125,985 | | 29,733 | | 270 | | |
| 2021 | | | | | | | | | | | | | | | | | | 146,217 | | 161,350 | | 35,011 | | 192 | | |
| 2022 | | | | | | | | | | | | | | | | | | | | 179,681 | | 88,714 | | 128 | | |
| | | | | | | | | | | | | | | | | | Total | | $752,971 | | $159,162 | | 1,464 | | |
(1) | | Total of incurred but not reported liabilities plus expected development on reported claims | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance | | | | | | |
| | For the years ended | | | | | | |
| | November 30, | | December 31, | | | | | | |
Accident
year | | 2013 (unaudited) | | 2014 (unaudited) | | 2015 (unaudited) | | 2016 (unaudited) | | 2017 (unaudited) | | 2018 (unaudited) | | 2019 (unaudited) | | 2020 (unaudited) | | 2021 (unaudited) | | 2022 | | | | | | |
| 2013 | | $4,295 | | $6,136 | | $8,345 | | $8,874 | | $9,036 | | $9,115 | | $9,163 | | $9,226 | | $9,238 | | $9,246 | | | | | | |
| 2014 | | | | 8,047 | | 14,310 | | 15,920 | | 16,592 | | 17,005 | | 17,240 | | 17,313 | | 17,377 | | 17,404 | | | | | | |
| 2015 | | | | | | 1,775 | | 4,664 | | 5,163 | | 5,297 | | 5,417 | | 5,608 | | 5,630 | | 5,646 | | | | | | |
| 2016 | | | | | | | | 12,840 | | 25,596 | | 29,623 | | 31,685 | | 32,882 | | 33,985 | | 34,609 | | | | | | |
| 2017 | | | | | | | | | | 24,533 | | 90,864 | | 71,190 | | 82,940 | | 71,795 | | 75,524 | | | | | | |
| 2018 | | | | | | | | | | | | 12,631 | | 71,557 | | 85,660 | | 67,547 | | 65,583 | | | | | | |
| 2019 | | | | | | | | | | | | | | 2,401 | | 32,433 | | 38,002 | | 46,504 | | | | | | |
| 2020 | | | | | | | | | | | | | | | | 13,253 | | 48,246 | | 75,445 | | | | | | |
| 2021 | | | | | | | | | | | | | | | | | | 16,080 | | 71,293 | | | | | | |
| 2022 | | | | | | | | | | | | | | | | | | | | 35,261 | | | | | | |
| | | | | | | | | | | | | | | | | | Total | | $436,515 | | | | | | |
| | | | | | Liabilities for unpaid losses and loss adjustment expenses, net of reinsurance | | $316,456 | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Average Annual Percentage Payout of Incurred Losses by Age, Net of Reinsurance(1) | | | | | | | | |
| Years | | 1 (unaudited) | | 2 (unaudited) | | 3 (unaudited) | | 4 (unaudited) | | 5 (unaudited) | | 6 (unaudited) | | 7 (unaudited) | | 8 (unaudited) | | 9 (unaudited) | | | | | | | | |
| | 17 | % | | 47 | % | | 9 | % | | 2 | % | | (5) | % | | 4 | % | | 1 | % | | — | % | | — | % | | | | | | | | |
(1) | | Unaudited supplementary information | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
Bermuda Casualty
(Expressed in thousands of U.S. Dollars, except claim count)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance | | | | |
| | For the years ended | | As of December 31, 2022 |
| | November 30, | | December 31, | | IBNR(1) | | Cumulative Number of Reported Claims |
Accident
year | | 2013 (unaudited) | | 2014 (unaudited) | | 2015 (unaudited) | | 2016 (unaudited) | | 2017 (unaudited) | | 2018 (unaudited) | | 2019 (unaudited) | | 2020 (unaudited) | | 2021 (unaudited) | | 2022 | | |
| 2013 | | $2,201 | | $2,758 | | $2,911 | | $2,501 | | $3,613 | | $4,356 | | $4,339 | | $4,373 | | $4,627 | | $4,614 | | $473 | | 1 |
| 2014 | | | | 13,350 | | 13,408 | | 18,549 | | 12,726 | | 18,046 | | 19,772 | | 16,296 | | 16,381 | | 16,471 | | 2,492 | | 4 |
| 2015 | | | | | | 19,729 | | 18,378 | | 31,615 | | 30,393 | | 38,660 | | 39,400 | | 50,637 | | 49,605 | | 6,794 | | 34 |
| 2016 | | | | | | | | 44,749 | | 49,940 | | 54,318 | | 54,682 | | 56,924 | | 56,405 | | 60,392 | | 10,257 | | 7 |
| 2017 | | | | | | | | | | 84,837 | | 96,428 | | 101,569 | | 105,642 | | 113,664 | | 126,268 | | 18,135 | | 35 |
| 2018 | | | | | | | | | | | | 101,456 | | 115,700 | | 123,194 | | 121,754 | | 131,788 | | 40,801 | | 24 |
| 2019 | | | | | | | | | | | | | | 85,424 | | 96,091 | | 101,499 | | 100,652 | | 46,126 | | 14 |
| 2020 | | | | | | | | | | | | | | | | 81,650 | | 84,233 | | 88,184 | | 54,276 | | 19 |
| 2021 | | | | | | | | | | | | | | | | | | 69,689 | | 79,033 | | 61,488 | | 7 |
| 2022 | | | | | | | | | | | | | | | | | | | | 110,285 | | 106,171 | | 3 |
| | | | | | | | | | | | | | | | | | Total | | $767,292 | | $347,013 | | 148 |
(1) | | Total of incurred but not reported liabilities plus expected development on reported claims | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance | | | |
| | For the years ended | | | | |
| | November 30, | | December 31, | | | | |
Accident
year | | 2013 (unaudited) | | 2014 (unaudited) | | 2015 (unaudited) | | 2016 (unaudited) | | 2017 (unaudited) | | 2018 (unaudited) | | 2019 (unaudited) | | 2020 (unaudited) | | 2021 (unaudited) | | 2022 | | | | |
| 2013 | | $55 | | $229 | | $572 | | $958 | | $1,872 | | $2,243 | | $2,607 | | $2,890 | | $3,587 | | $3,644 | | | | |
| 2014 | | | | 776 | | 2,026 | | 3,330 | | 4,687 | | 6,223 | | 10,512 | | 12,847 | | 13,336 | | 13,846 | | | | |
| 2015 | | | | | | 708 | | 2,111 | | 3,569 | | 11,246 | | 16,953 | | 18,828 | | 25,671 | | 34,198 | | | | |
| 2016 | | | | | | | | 1,541 | | 5,169 | | 12,678 | | 20,504 | | 27,103 | | 35,482 | | 39,381 | | | | |
| 2017 | | | | | | | | | | 3,792 | | 10,961 | | 22,829 | | 50,471 | | 70,548 | | 91,855 | | | | |
| 2018 | | | | | | | | | | | | 3,782 | | 22,800 | | 50,903 | | 66,889 | | 70,939 | | | | |
| 2019 | | | | | | | | | | | | | | 3,965 | | 11,094 | | 23,445 | | 36,161 | | | | |
| 2020 | | | | | | | | | | | | | | | | 5,415 | | 14,493 | | 19,712 | | | | |
| 2021 | | | | | | | | | | | | | | | | | | 1,934 | | 4,523 | | | | |
| 2022 | | | | | | | | | | | | | | | | | | | | 696 | | | | |
| | | | | | | | | | | | | | | | | | Total | | $314,955 | | | | |
| | | | Liabilities for unpaid losses and loss adjustment expenses, net of reinsurance | | $452,337 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Average Annual Percentage Payout of Incurred Losses by Age, Net of Reinsurance(1) | | | | | | |
| Years | | 1 (unaudited) | | 2 (unaudited) | | 3 (unaudited) | | 4 (unaudited) | | 5 (unaudited) | | 6 (unaudited) | | 7 (unaudited) | | 8 (unaudited) | | 9
(unaudited) | | | | | | |
| | 3 | % | | 8 | % | | 12 | % | | 15 | % | | 10 | % | | 14 | % | | 10 | % | | 13 | % | | 6 | % | | | | | | |
(1) | | Unaudited supplementary information | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
Bermuda Specialty
(Expressed in thousands of U.S. Dollars, except claim count)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance | | | | |
| | For the years ended | | As of December 31, 2022 |
| | November 30, | | December 31, | | IBNR(1) | | Cumulative Number of Reported Claims |
Accident
year | | 2013 (unaudited) | | 2014 (unaudited) | | 2015 (unaudited) | | 2016 (unaudited) | | 2017 (unaudited) | | 2018 (unaudited) | | 2019 (unaudited) | | 2020 (unaudited) | | 2021 (unaudited) | | 2022 | | |
| 2013 | | $1,742 | | $2,284 | | $827 | | $571 | | $819 | | $781 | | $709 | | $674 | | $654 | | $616 | | $6 | | 3 |
| 2014 | | | | 11,857 | | 12,478 | | 10,293 | | 8,377 | | 9,123 | | 8,865 | | 8,730 | | 8,612 | | 8,540 | | 28 | | 19 |
| 2015 | | | | | | 27,712 | | 26,686 | | 19,343 | | 19,237 | | 17,465 | | 16,820 | | 15,383 | | 15,672 | | 143 | | 38 |
| 2016 | | | | | | | | 38,154 | | 34,874 | | 28,962 | | 23,201 | | 19,849 | | 16,860 | | 15,845 | | 641 | | 56 |
| 2017 | | | | | | | | | | 57,589 | | 44,200 | | 36,282 | | 29,613 | | 24,478 | | 26,821 | | 1,031 | | 72 |
| 2018 | | | | | | | | | | | | 58,780 | | 52,596 | | 48,410 | | 45,130 | | 38,665 | | 2,465 | | 88 |
| 2019 | | | | | | | | | | | | | | 62,269 | | 56,106 | | 48,836 | | 49,031 | | (1,376) | | 99 |
| 2020 | | | | | | | | | | | | | | | | 63,214 | | 56,809 | | 52,160 | | 9,458 | | 88 |
| 2021 | | | | | | | | | | | | | | | | | | 53,754 | | 46,017 | | 33,638 | | 9 |
| 2022 | | | | | | | | | | | | | | | | | | | | 117,554 | | 111,677 | | 16 |
| | | | | | | | | | | | | | | | | | Total | | $370,921 | | $157,711 | | 488 |
(1) | | Total of incurred but not reported liabilities plus expected development on reported claims | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance | | | | |
| | For the years ended | | | | |
| | November 30, | | December 31, | | | | |
Accident
year | | 2013 (unaudited) | | 2014 (unaudited) | | 2015 (unaudited) | | 2016 (unaudited) | | 2017 (unaudited) | | 2018 (unaudited) | | 2019 (unaudited) | | 2020 (unaudited) | | 2021 (unaudited) | | 2022 | | | | |
| 2013 | | $14 | | $438 | | $406 | | $425 | | $517 | | $583 | | $590 | | $589 | | $587 | | $587 | | | | |
| 2014 | | | | 2,218 | | 7,196 | | 6,767 | | 6,362 | | 7,454 | | 7,503 | | 7,519 | | 8,208 | | 8,313 | | | | |
| 2015 | | | | | | 3,330 | | 8,638 | | 13,136 | | 13,115 | | 14,192 | | 14,397 | | 14,432 | | 14,767 | | | | |
| 2016 | | | | | | | | 2,938 | | 8,661 | | 5,632 | | 10,814 | | 13,116 | | 13,589 | | 13,810 | | | | |
| 2017 | | | | | | | | | | 2,217 | | 10,194 | | 14,114 | | 16,417 | | 17,726 | | 22,638 | | | | |
| 2018 | | | | | | | | | | | | 7,607 | | 19,326 | | 25,826 | | 28,223 | | 27,789 | | | | |
| 2019 | | | | | | | | | | | | | | 6,373 | | 20,505 | | 29,083 | | 36,472 | | | | |
| 2020 | | | | | | | | | | | | | | | | 9,160 | | 25,585 | | 32,653 | | | | |
| 2021 | | | | | | | | | | | | | | | | | | 3,862 | | 7,248 | | | | |
| 2022 | | | | | | | | | | | | | | | | | | | | 3,465 | | | | |
| | | | | | | | | | | | | | | | | | Total | | $167,742 | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | Liabilities for unpaid losses and loss adjustment expenses, net of reinsurance | | $203,179 | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Average Annual Percentage Payout of Incurred Losses by Age, Net of Reinsurance(1) | | | | | | |
| Years | | 1 (unaudited) | | 2 (unaudited) | | 3 (unaudited) | | 4 (unaudited) | | 5 (unaudited) | | 6 (unaudited) | | 7 (unaudited) | | 8 (unaudited) | | 9 (unaudited) | | | | | | |
| | 11 | % | | 28 | % | | 13 | % | | 11 | % | | 5 | % | | 8 | % | | 1 | % | | 4 | % | | 1 | % | | | | | | |
(1) | | Unaudited supplementary information | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
Reconciliation
| | | | | |
| December 31, |
| (Expressed in thousands of U.S. Dollars) | 2022 |
| Net outstanding liabilities | |
| International - Property | $ | 175,691 | |
| International - Casualty | 237,286 | |
| International - Specialty | 271,203 | |
| Bermuda - Property | 316,456 | |
| Bermuda - Casualty | 452,337 | |
| Bermuda - Specialty | 203,179 | |
| Liabilities for unpaid losses and loss adjustment expenses, net of reinsurance | 1,656,152 | |
| |
| Reinsurance recoverable on unpaid claims | |
| International - Property | 86,890 | |
| International - Casualty | 642,250 | |
| International - Specialty | 157,007 | |
| Bermuda - Property | 67,328 | |
| Bermuda - Casualty | 153,053 | |
| Bermuda - Specialty | 71,335 | |
| Total reinsurance recoverable on unpaid claims | 1,177,863 | |
| |
| Other insurance lines | (1,738) | |
| Unallocated loss adjustment expenses | 23,998 | |
| |
| 22,260 | |
| |
Total gross liability for unpaid losses and loss adjustment expenses | $ | 2,856,275 | |
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
11. Segment Reporting
We have determined our reportable business segments based on the information used by management in assessing performance and allocating resources to underwriting operations. We have identified two reportable business segments - International and Bermuda. Each of our identified reportable segments has a Chief Executive Officer who is responsible for the overall profitability of their segment and who regularly reports and is directly accountable to the chief operating decision maker: the Chief Executive Officer of the consolidated group.
We evaluate reportable segment performance based on their respective underwriting income or loss. Underwriting income or loss is calculated as net earned premium less losses and loss adjustment expenses, acquisition costs, and other underwriting expenses (a component of general and administrative expenses), net of third party fee income (a component of other income). General and administrative expenses not incurred by the reportable segments are included in corporate and other expenses as part of the reconciliation of net underwriting income or loss to net income or loss attributable to common shareholders. As we do not manage our assets by segment, investment income and assets are not allocated to reportable segments.
Our core business is underwriting and our underwriting results are reflected in our reportable segments: (1) International, which is comprised of property, specialty and casualty insurance and reinsurance classes of business originating from the Company’s London, Dublin, and Hamilton Select operations; and (2) Bermuda, which is comprised of property, specialty and casualty insurance and reinsurance classes of business originating from Hamilton Re, Bermuda and Hamilton Re US and subsidiaries. We consider many factors, including the nature of each segment’s products, client types, production sources, distribution methods and the regulatory environment, in determining the aggregated operating segments.
Corporate includes net realized and unrealized gains (losses) on investment, net investment income (loss), net gain (loss) on sale of equity method investment, other income (loss) not incurred by the reportable segments, net foreign exchange gain (loss), general and administrative expenses not incurred by reportable segments, amortization of intangible assets, impairment of goodwill, interest expense, and income tax expense (benefit).
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Expressed in thousands of U.S. Dollars) | | | | | | | | | |
| Year Ended December 31, 2022 | | International | | Bermuda | | Corporate | | Total | |
| Gross premiums written | | $ | 933,241 | | | $ | 713,432 | | | $ | — | | | $ | 1,646,673 | | |
| Net premiums written | | $ | 635,773 | | | $ | 586,091 | | | $ | — | | | $ | 1,221,864 | | |
| Net premiums earned | | $ | 623,047 | | | $ | 520,667 | | | $ | — | | | $ | 1,143,714 | | |
| Third-party fee income | | 11,430 | | | 201 | | | — | | | 11,631 | | |
| Losses and loss adjustment expenses | | 335,484 | | | 422,849 | | | — | | | 758,333 | | |
| Acquisition costs | | 170,571 | | | 100,618 | | | — | | | 271,189 | | |
| Other underwriting expenses | | 108,239 | | | 49,301 | | | — | | | 157,540 | | |
| Underwriting income (loss) | | $ | 20,183 | | | $ | (51,900) | | | $ | — | | | (31,717) | | |
| Net realized and unrealized gains (losses) on investments | | | | | | 85,634 | | | 85,634 | | |
| Net investment income (loss) | | | | | | (20,764) | | | (20,764) | | |
| Net gain on sale of equity method investment | | | | | | 6,991 | | | 6,991 | | |
| Other income (loss), excluding third party fee income | | | | | | (315) | | | (315) | | |
| Net foreign exchange gains (losses) | | | | | | 6,137 | | | 6,137 | | |
| Corporate expenses | | | | | | (20,142) | | | (20,142) | | |
| Impairment of goodwill | | | | | | (24,082) | | | (24,082) | | |
| Amortization of intangible assets | | | | | | (12,832) | | | (12,832) | | |
| Interest expense | | | | | | (15,741) | | | (15,741) | | |
| Income (loss) before income tax | | | | | | | | (26,831) | | |
| Income tax expense | | | | | | 3,104 | | | 3,104 | | |
| Net income (loss) | | | | | | | | (29,935) | | |
| Net income (loss) attributable to non-controlling interest | | | | | | 68,064 | | | 68,064 | | |
| Net income (loss) attributable to common shareholders | | | | | | | | $ | (97,999) | | |
| | | | | | | | | |
| Key Ratios | | | | | | | | | |
| Attritional loss ratio - current year | | 50.9 | % | | 52.9 | % | | | | 51.8 | % | |
| Attritional loss ratio - prior year development | | (4.8) | % | | 5.1 | % | | | | (0.3) | % | |
| Catastrophe loss ratio - current year | | 7.2 | % | | 27.1 | % | | | | 16.3 | % | |
| Catastrophe loss ratio - prior year development | | 0.5 | % | | (3.9) | % | | | | (1.5) | % | |
| Net loss and loss adjustment expense ratio | | 53.8 | % | | 81.2 | % | | | | 66.3 | % | |
| Acquisition cost ratio | | 27.4 | % | | 19.3 | % | | | | 23.7 | % | |
| Other underwriting expense ratio | | 15.5 | % | | 9.4 | % | | | | 12.8 | % | |
| Combined ratio | | 96.7 | % | | 109.9 | % | | | | 102.8 | % | |
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Expressed in thousands of U.S. Dollars) | | | | | | | | |
| One Month Ended December 31, 2021 | | International | | Bermuda | | Corporate | | Total |
| Gross premiums written | | $ | 87,294 | | | $ | 34,519 | | | $ | — | | | $ | 121,813 | |
| Net premiums written | | $ | 67,599 | | | $ | 30,322 | | | $ | — | | | $ | 97,921 | |
| Net premiums earned | | $ | 62,372 | | | $ | 36,259 | | | $ | — | | | $ | 98,631 | |
| Third-party fee income | | 1,386 | | | (37) | | | — | | | 1,349 | |
| Losses and loss adjustment expenses | | 33,888 | | | 22,762 | | | — | | | 56,650 | |
| Acquisition costs | | 17,192 | | | 6,800 | | | — | | | 23,992 | |
| Other underwriting expenses | | 10,377 | | | 3,480 | | | — | | | 13,857 | |
| Underwriting income (loss) | | $ | 2,301 | | | $ | 3,180 | | | $ | — | | | 5,481 | |
| Net realized and unrealized gains (losses) on investments | | | | | | (33,526) | | | (33,526) | |
| Net investment income (loss) | | | | | | (3,222) | | | (3,222) | |
| Net gain on sale of equity method investment | | | | | | — | | | — | |
| Other income (loss), excluding third party fee income | | | | | | 782 | | | 782 | |
| Net foreign exchange gains (losses) | | | | | | 16 | | | 16 | |
| Corporate expenses | | | | | | (1,825) | | | (1,825) | |
| Impairment of goodwill | | | | | | — | | | — | |
| Amortization of intangible assets | | | | | | (1,200) | | | (1,200) | |
| Interest expense | | | | | | (1,061) | | | (1,061) | |
| Income (loss) before income tax | | | | | | | | (34,555) | |
| Income tax expense | | | | | | 1,335 | | | 1,335 | |
| Net income (loss) | | | | | | | | (35,890) | |
| Net income (loss) attributable to non-controlling interest | | | | | | (3) | | | (3) | |
| Net income (loss) attributable to common shareholders | | | | | | | | $ | (35,887) | |
| | | | | | | | |
| Key Ratios | | | | | | | | |
| Attritional loss ratio - current year | | 46.1 | % | | 51.3 | % | | | | 48.0 | % |
| Attritional loss ratio - prior year development | | — | % | | — | % | | | | — | % |
| Catastrophe loss ratio - current year | | 8.2 | % | | 11.5 | % | | | | 9.4 | % |
| Catastrophe loss ratio - prior year development | | — | % | | — | % | | | | — | % |
| Net loss and loss adjustment expense ratio | | 54.3 | % | | 62.8 | % | | | | 57.4 | % |
| Acquisition cost ratio | | 27.6 | % | | 18.8 | % | | | | 24.3 | % |
| Other underwriting expense ratio | | 14.4 | % | | 9.7 | % | | | | 12.7 | % |
| Combined ratio | | 96.3 | % | | 91.3 | % | | | | 94.4 | % |
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Expressed in thousands of U.S. Dollars) | | | | | | | | |
| Year Ended November 30, 2021 | | International | | Bermuda | | Corporate | | Total |
| Gross premiums written | | $ | 892,292 | | | $ | 554,259 | | | $ | — | | | $ | 1,446,551 | |
| Net premiums written | | $ | 640,816 | | | $ | 444,612 | | | $ | — | | | $ | 1,085,428 | |
| Net premiums earned | | $ | 557,139 | | | $ | 385,410 | | | $ | — | | | $ | 942,549 | |
| Third-party fee income | | 20,672 | | | 350 | | | — | | | 21,022 | |
| Losses and loss adjustment expenses | | 352,859 | | | 287,701 | | | — | | | 640,560 | |
| Acquisition costs | | 154,969 | | | 74,244 | | | — | | | 229,213 | |
| Other underwriting expenses | | 112,055 | | | 37,767 | | | — | | | 149,822 | |
| Underwriting income (loss) | | (42,072) | | | (13,952) | | | $ | — | | | (56,024) | |
| Net realized and unrealized gains (losses) on investments | | | | | | 352,193 | | | 352,193 | |
| Net investment income (loss) | | | | | | (43,217) | | | (43,217) | |
| Net gain on sale of equity method investment | | | | | | 54,557 | | | 54,557 | |
| Other income (loss), excluding third party fee income | | | | | | (11) | | | (11) | |
| Net foreign exchange gains (losses) | | | | | | 6,442 | | | 6,442 | |
| Corporate expenses | | | | | | (22,472) | | | (22,472) | |
| Impairment of goodwill | | | | | | (936) | | | (936) | |
| Amortization of intangible assets | | | | | | (13,431) | | | (13,431) | |
| Interest expense | | | | | | (14,897) | | | (14,897) | |
| Income (loss) before income tax | | | | | | | | 262,204 | |
| Income tax expense | | | | | | 12,365 | | | 12,365 | |
| Net income (loss) | | | | | | | | 249,839 | |
| Net income (loss) attributable to non-controlling interest | | | | | | 61,660 | | | 61,660 | |
| Net income (loss) attributable to common shareholders | | | | | | | | $ | 188,179 | |
| | | | | | | | |
| Key Ratios | | | | | | | | |
| Attritional loss ratio - current year | | 50.4 | % | | 52.0 | % | | | | 51.1 | % |
| Attritional loss ratio - prior year development | | 0.1 | % | | (2.3) | % | | | | (0.9) | % |
| Catastrophe loss ratio - current year | | 10.7 | % | | 22.8 | % | | | | 15.7 | % |
| Catastrophe loss ratio - prior year development | | 2.1 | % | | 2.1 | % | | | | 2.1 | % |
| Net loss and loss adjustment expense ratio | | 63.3 | % | | 74.6 | % | | | | 68.0 | % |
| Acquisition cost ratio | | 27.8 | % | | 19.3 | % | | | | 24.3 | % |
| Other underwriting expense ratio | | 16.4 | % | | 9.7 | % | | | | 13.7 | % |
| Combined ratio | | 107.5 | % | | 103.6 | % | | | | 106.0 | % |
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Expressed in thousands of U.S. Dollars) | | | | | | | | |
| Year Ended November 30, 2020 | | International | | Bermuda | | Corporate | | Total |
| Gross premiums written | | $ | 661,541 | | | $ | 424,999 | | | $ | — | | | $ | 1,086,540 | |
| Net premiums written | | $ | 465,365 | | | $ | 263,958 | | | $ | — | | | $ | 729,323 | |
| Net premiums earned | | $ | 416,957 | | | $ | 290,504 | | | $ | — | | | $ | 707,461 | |
| Third-party fee income | | 15,625 | | | — | | | — | | | 15,625 | |
| Losses and loss adjustment expenses | | 271,447 | | | 233,822 | | | — | | | 505,269 | |
| Acquisition costs | | 110,266 | | | 58,061 | | | — | | | 168,327 | |
| Other underwriting expenses | | 95,434 | | | 31,435 | | | — | | | 126,869 | |
| Underwriting income (loss) | | $ | (44,565) | | | $ | (32,814) | | | $ | — | | | (77,379) | |
| Net realized and unrealized gains (losses) on investments | | | | | | 5,701 | | | 5,701 | |
| Net investment income (loss) | | | | | | (38,600) | | | (38,600) | |
| Net gain on sale of equity method investment | | | | | | — | | | — | |
| Other income (loss), excluding third party fee income | | | | | | 97 | | | 97 | |
| Net foreign exchange gains (losses) | | | | | | (9,540) | | | (9,540) | |
| Corporate expenses | | | | | | (22,905) | | | (22,905) | |
| Impairment of goodwill | | | | | | — | | | — | |
| Amortization of intangible assets | | | | | | (12,489) | | | (12,489) | |
| Interest expense | | | | | | (18,910) | | | (18,910) | |
| Income (loss) before income tax | | | | | | | | (174,025) | |
| Income tax expense | | | | | | 11,492 | | | 11,492 | |
| Net income (loss) | | | | | | | | (185,517) | |
| Net income (loss) attributable to non-controlling interest | | | | | | 24,930 | | | 24,930 | |
| Net income (loss) attributable to common shareholders | | | | | | | | $ | (210,447) | |
| | | | | | | | |
| Key Ratios | | | | | | | | |
| Attritional loss ratio - current year | | 50.2 | % | | 62.0 | % | | | | 55.0 | % |
| Attritional loss ratio - prior year development | | (1.9) | % | | (5.9) | % | | | | (3.5) | % |
| Catastrophe loss ratio - current year | | 17.7 | % | | 28.6 | % | | | | 22.2 | % |
| Catastrophe loss ratio - prior year development | | (0.9) | % | | (4.2) | % | | | | (2.3) | % |
| Net loss and loss adjustment expense ratio | | 65.1 | % | | 80.5 | % | | | | 71.4 | % |
| Acquisition cost ratio | | 26.4 | % | | 20.0 | % | | | | 23.8 | % |
| Other underwriting expense ratio | | 19.1 | % | | 10.8 | % | | | | 15.7 | % |
| Combined ratio | | 110.6 | % | | 111.3 | % | | | | 110.9 | % |
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
The following table presents gross premiums written by the geographical location of the Company's subsidiaries:
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended | | Month Ended | | Years Ended |
| (Expressed in thousands of U.S. Dollars) | December 31, 2022 | | December 31, 2021 | | November 30, 2021 | | November 30, 2020 |
| | | | | | | |
| | | | | | | |
| International | | | | | | | |
| Lloyd's of London | $ | 561,432 | | | $ | 49,405 | | | $ | 559,914 | | | $ | 469,496 | |
| Ireland | 345,088 | | | 37,889 | | | 332,378 | | | 192,045 | |
| U.S. | 26,721 | | | — | | | — | | | — | |
| Total International | 933,241 | | | 87,294 | | | 892,292 | | | 661,541 | |
| | | | | | | |
| Bermuda | 713,432 | | | 34,519 | | | 554,259 | | | 424,999 | |
| | | | | | | |
| Total | $ | 1,646,673 | | | $ | 121,813 | | | $ | 1,446,551 | | | $ | 1,086,540 | |
| | | | | | | |
12. Debt and Credit Facilities
Debt
On June 23, 2022, Hamilton Group renewed its unsecured $150 million term loan credit arrangement, as amended from time to time (the “Facility”), with various lenders as arranged by Wells Fargo Securities, LLC. All or a portion of the loan issued under the renegotiated Facility bears interest at either (a) the Base Rate plus the Applicable Margin or (b) the Adjusted Term SOFR rate plus the Applicable Margin, at Hamilton Group's discretion. In the event of default, an additional 2% interest in excess of (a) or (b) will be levied, not to exceed the highest rate permissible under applicable law, and certain types of loans may not be available for borrowing by Hamilton Group under the Facility. The Facility matures on June 23, 2025, unless accelerated pursuant to the terms of the Facility, and it contains usual and customary representations, warranties, conditions and covenants for bank loan facilities of this type. The Facility also contains certain financial covenants which cap the ratio of consolidated debt to capital and require that Hamilton Group maintain a certain minimum consolidated net worth. The net worth requirement is recalculated effective as of the end of each fiscal quarter. As of December 31, 2022, the outstanding loan balance was $150.0 million, the unamortized issuance costs were $0.3 million and the Company was in compliance with all covenants.
Debt issuance costs are amortized over the period of time during which the Facility is outstanding, as an offset to investment income. The Company amortized debt issuance costs of $0.2 million or less in each of the year ended December 31, 2022, the month ended December 31, 2021 and the years ended November 30, 2021 and 2020.
The Facility was recorded at amortized cost of $149.7 million and $149.9 million at December 31, 2022 and November 30, 2021, respectively. The fair value of the Facility of $150.8 million and $149.6 million at December 31, 2022 and November 30, 2021, respectively. The Company’s debt is classified as Level 3 within the fair value hierarchy because it is valued using an income approach, which utilizes a discounted cash flow technique that considers the credit profile of the Company.
Credit Facilities
The Company has several available letter of credit facilities and a revolving loan facility provided by commercial banks. The letter of credit facilities are utilized to provide collateral to reinsureds of Hamilton Re and its affiliates to the extent required under reinsurance agreements and to support capital requirements at Lloyd’s.
On June 23, 2022, Hamilton Group and Hamilton Re amended and restated their unsecured credit agreement with a syndication of lenders (the “Unsecured Facility”). Under the Unsecured Facility, the lenders have agreed to provide up to an aggregate of $415 million of letter of credit capacity for Hamilton Re, up to $150 million of which may be utilized for revolving loans to be issued to Hamilton Group. To the extent such loans are issued, the available letter of credit capacity shall decrease proportionally, such that the aggregate credit exposure for the lenders under the credit agreement is $415 million. Capacity is provided by Wells Fargo, National Association, Truist Bank, BMO Harris Bank N.A., Commerzbank AG, New York Branch, HSBC Bank USA, N. A., and
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
Barclays Bank PLC. Unless renewed or otherwise terminated in accordance with its terms, the Unsecured Facility is scheduled to terminate on June 23, 2025. At December 31, 2022, there were no loan amounts outstanding under this facility.
On August 13, 2021, Hamilton Re and HIDAC entered into a committed letter of credit facility agreement with Bank of Montreal (“BMO”), with Hamilton Group as guarantor, under which BMO agreed to make available a secured letter of credit facility of $50 million for a term that will expire on August 13, 2023.
On October 27, 2022, Hamilton Re amended its letter of credit facility agreement with UBS AG (“UBS”) under which UBS and certain of its affiliates agreed to make available to Hamilton Re a secured letter of credit facility of $100 million for a term that will expire on October 27, 2023.
In addition, Hamilton Re is the borrower under a $205 million unsecured letter of credit facility agreement that it utilizes to provide Funds at Lloyd's (“FAL”) (“FAL LOC Facility”) to support the FAL requirements of Syndicate 4000. Capacity is provided by Barclays Bank PLC, ING Bank N.V., London Branch, and Bank of Montreal, London Branch.
The Company’s obligations under its credit facilities require Hamilton Group, Hamilton Re and the other parties thereto to comply with various financial and reporting covenants. All applicable entities were in compliance with all such covenants at December 31, 2022.
Certain of the Company's credit facilities are secured by pledged interests in the TS Hamilton Fund or the Company's fixed income security portfolio or cash. The Company’s credit facilities at December 31, 2022, and associated securities pledged, were as follows:
| | | | | | | |
| (Expressed in thousands of U.S. Dollars) | 2022 | | |
| | | |
| | | |
| | | |
Available letter of credit and revolving loan facilities - commitments | $ | 885,477 | | | |
Available letter of credit and revolving loan facilities - in use | 654,412 | | | |
| | | |
Security pledged under letter of credit and revolving loan facilities: | | | |
Pledged interests in TS Hamilton Fund | $ | 239,087 | | | |
Pledged interests in fixed income portfolio | 182,313 | | | |
| Cash | 5,364 | | | |
The Company has recognized interest expense related to the above debt and credit facilities of $15.7 million, $1.1 million, $14.9 million and $18.9 million for the year ended December 31, 2022, the month ended December 31, 2021 and the years ended November 30, 2021 and 2020, respectively.
13. Share Capital
Authorized and Issued
Hamilton Group’s share capital at December 31, 2022 and November 30, 2021, is comprised as follows:
| | | | | | | | | | | |
| (Expressed in thousands of U.S. Dollars, except share information) | | | |
| Authorized: | | | |
135,000,000 common shares of $0.01 par value each | | | |
| | | |
| | | |
| | | |
| Issued, outstanding and fully paid: | 2022 | | 2021 |
Class A common shares (2022: 30,520,078 and 2021: 30,320,078) | $ | 305 | | | $ | 303 | |
Class B common shares (2022: 42,042,155 and 2021: 37,912,993) | 420 | | | 379 | |
Class C common shares (2022: 30,525,626 and 2021: 34,307,698) | 305 | | | 343 | |
| Total | $ | 1,030 | | | $ | 1,025 | |
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
Share Authorized
The following is a summary of the activity related to common shares authorized:
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 |
| Class A | | Class B | | Class C | | Total |
| Common shares - beginning of period | 53,793,690 | | | 46,898,612 | | | 34,307,698 | | | 135,000,000 | |
| Share class conversions | 200,000 | | | 3,582,072 | | | (3,782,072) | | | — | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Common shares - end of period | 53,993,690 | | | 50,480,684 | | | 30,525,626 | | | 135,000,000 | |
There was no activity related to common shares authorized for the month ended December 31, 2021.
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended November 30, 2021 |
| Class A | | Class B | | Class C | | Total |
| Common shares - beginning of period | 53,793,690 | | | 81,206,310 | | | — | | | 135,000,000 | |
| Share class conversions | — | | | (34,307,698) | | | 34,307,698 | | | — | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Common shares - end of period | 53,793,690 | | | 46,898,612 | | | 34,307,698 | | | 135,000,000 | |
There was no activity related to common shares authorized for the year ended November 30, 2020.
Share Issued and Outstanding
The following is a summary of the activity related to common shares issued and outstanding:
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 |
| Class A | | Class B | | Class C | | Total |
| Common shares - beginning of period | 30,320,078 | | | 37,935,266 | | | 34,307,698 | | | 102,563,042 | |
| Share class conversions | 200,000 | | | 3,582,072 | | | (3,782,072) | | | — | |
| Vesting of awards | — | | | 580,935 | | | — | | | 580,935 | |
| Employee and director share purchases | — | | | 22,750 | | | — | | | 22,750 | |
| Director share awards granted | — | | | 25,805 | | | — | | | 25,805 | |
| Share repurchases | — | | | (104,673) | | | — | | | (104,673) | |
| Common shares - end of period | 30,520,078 | | | 42,042,155 | | | 30,525,626 | | | 103,087,859 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| The Month Ended December 31, 2021 |
| Class A | | Class B | | Class C | | Total |
| Common shares - beginning of period | 30,320,078 | | | 37,912,993 | | | 34,307,698 | | | 102,540,769 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Director share awards granted | — | | | 22,273 | | | — | | | 22,273 | |
| | | | | | | |
| Common shares - end of period | 30,320,078 | | | 37,935,266 | | | 34,307,698 | | | 102,563,042 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended November 30, 2021 |
| Class A | | Class B | | Class C | | Total |
| Common shares - beginning of period | 30,320,078 | | | 72,134,229 | | | — | | | 102,454,307 | |
| Share class conversions | — | | | (34,307,698) | | | 34,307,698 | | | — | |
| Vesting of awards | — | | | 439,936 | | | — | | | 439,936 | |
| Employee and director share purchases | — | | | 65,808 | | | — | | | 65,808 | |
| Director share awards granted | — | | | 46,086 | | | — | | | 46,086 | |
| Share repurchases | — | | | (465,368) | | | — | | | (465,368) | |
| Common shares - end of period | 30,320,078 | | | 37,912,993 | | | 34,307,698 | | | 102,540,769 | |
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended November 30, 2020 |
| Class A | | Class B | | Class C | | Total |
| Common shares - beginning of period | 30,320,078 | | | 71,898,507 | | | — | | | 102,218,585 | |
| | | | | | | |
| Vesting of awards | — | | | 279,270 | | | — | | | 279,270 | |
| Employee and director share purchases | — | | | 142,307 | | | — | | | 142,307 | |
| Director share awards granted | — | | | 56,577 | | | — | | | 56,577 | |
| Share repurchases | — | | | (242,432) | | | — | | | (242,432) | |
| Common shares - end of period | 30,320,078 | | | 72,134,229 | | | — | | | 102,454,307 | |
In general, holders of Class A common shares and Class B common shares have one vote for each common share held. However, each holder of Class A common shares and Class B common shares is limited to voting (directly, indirectly or constructively, as determined for U.S. federal income tax purposes) that number of common shares equal to 9.5% of the total combined voting power of all classes of shares of Hamilton Group. In addition, the Board of Directors may limit a shareholder’s voting rights when it deems it appropriate to do so to avoid certain material adverse tax, legal or regulatory consequences to the Company or any direct or indirect shareholder or its affiliates. The Company Bye-laws provide for the redesignation of shares from (i) Class C common shares to Class B common shares and from (ii) Class A common shares and Class B common shares to Class C common shares at the request of the transferring shareholder and subject to approval by a Simple Majority of the Board. With the exception of the right to receive notice of, attend, or vote at any general meeting of the Company, the Class C common shares retain all rights associated with the Class B common shares, as described below.
Certain of Hamilton Group’s shareholders that own an aggregate of 62.0 million Class A, Class B and Class C common shares at December 31, 2022 have liquidity rights stipulating that on either December 23, 2023, or at the end of each three-year period thereafter, or upon the occurrence of a Trigger Event (as such term is defined in the Second Amended and Restated Shareholders' Agreement), such shareholders may cause, at the Company’s election, for the Company to either repurchase all or any portion of the exercised common shares held by such shareholder(s) at diluted book value or require an auction for a cash sale of the Company, at the Company's option. For purposes of these liquidity rights a Trigger Event includes any of the following: (i) various adverse tax determinations, including if the Company is determined to be a “passive foreign investment company” for U.S. federal income tax purposes; (ii) various changes in law that have material adverse consequences to either the Company or the applicable shareholder's interests in the Company; (iii) a downgrade in any material subsidiary’s financial strength rating to any level below A- by A.M. Best Company; or (iv) one or more changes in law (including regulatory requirements) that in the aggregate result in (a) a reduction in the investable assets of the Company invested with Two Sigma specifically, or alternative investment managers employing similar strategies generally, such that 75% or less of the Company’s investable assets will be invested with Two Sigma or such alternative investment managers or (b) Two Sigma specifically, or alternative investment managers employing similar strategies generally, being required to adopt a materially different investment strategy with respect to the investable assets of the Company. Should the Company elect to repurchase all or a portion of the common shares held by such exercising shareholder(s), such repurchase is subject to (i) applicable law and (ii) reasonable determination by the Board of Directors that A.M. Best Company will not downgrade or take any ratings action with respect to Hamilton Re’s financial strength rating as a result.
14. Stock Incentive Plans
Employees, directors, and consultants of the Company may be granted restricted stock units (“RSUs”), performance stock units (“PSUs”), restricted stock awards (“RSAs”), warrants, options, stock appreciation rights, and stock bonus awards under the Hamilton Insurance Group, Ltd. 2013 Equity Incentive Plan (the “Plan”). The
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
Plan initially reserved a total of 7,500,000 Class B common shares for issuance of awards of all types. The following table outlines the number of shares currently available for grant under the Plan:
| | | | | | | | | | | | | | | |
| Year Ended | | Month Ended | | | | |
| December 31, | | December 31, | | | | |
| 2022 | | 2021 | | | | |
| Shares available for grant - beginning of period | 2,350,397 | | | 2,372,670 | | | | | |
| Awards granted | (1,234,259) | | | (22,273) | | | | | |
| Awards canceled / expired | 175,091 | | | — | | | | | |
| Shares repurchased and canceled | 4,766 | | | — | | | | | |
| Shares available for grant - end of period | 1,295,995 | | | 2,350,397 | | | | | |
The following table presents the compensation expense relating to each award type that was recognized in earnings:
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended | | Month Ended | | Years Ended |
| December 31, | | December 31, | | November 30, |
| (Expressed in thousands of U.S. Dollars) | 2022 | | 2021 | | 2021 | | 2020 |
| Share-based compensation expense: | | | | | | | |
| RSUs | $ | 10,884 | | | $ | 911 | | | $ | 8,068 | | | $ | 8,098 | |
| PSUs | (100) | | | 132 | | | 815 | | | (930) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Total share-based compensation expense: | 10,784 | | | 1,043 | | | 8,883 | | | 7,168 | |
| Tax benefit | (1,074) | | | (76) | | | (621) | | | (717) | |
| Share-based compensation expense, net of taxes: | $ | 9,710 | | | $ | 967 | | | $ | 8,262 | | | $ | 6,451 | |
The following table presents the unrecognized compensation expense relating to each award type as at December 31, 2022 and the weighted-average period in years over which it is expected to be recognized.
| | | | | | | | | | | |
| December 31, 2022 |
| (Expressed in thousands of U.S. Dollars, except for weighted-average recognition period) | Unrecognized share-based compensation expense | | Weighted-average recognition period in years |
| Unrecognized share-based compensation expense: | | | |
| RSUs | $ | 5,527 | | | 1.8 | |
| PSUs | 2,120 | | | 1.9 | |
| | | |
| | | |
| Total unrecognized share-based compensation expense: | $ | 7,647 | | | |
Restricted Stock Units
During the year ended December 31, 2022, the month ended December 31, 2021 and the years ended November 30, 2021 and 2020, the Company granted RSUs with a total estimated fair value of $11.8 million, $Nil, $9.6 million and $8.8 million, respectively, to employees and directors which generally vest over a three-year period.
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
The following table presents a roll forward of the Company’s RSUs based upon expected vesting:
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2022 | | Month Ended December 31, 2021 |
| Number of RSUs | | Weighted-Average Grant Date Fair Value | | Number of RSUs | | Weighted-Average Grant Date Fair Value |
| Unvested RSUs, beginning of period | 1,182,380 | | | $15.29 | | 1,182,380 | | | $15.29 |
| Granted | 796,122 | | | $14.78 | | — | | | — | |
| Vested | (545,140) | | | $15.99 | | — | | | — | |
| Forfeited/ canceled | (72,593) | | | $14.57 | | — | | | — | |
| Unvested RSUs, end of period | 1,360,769 | | | $14.75 | | 1,182,380 | | | $15.29 |
Performance Stock Units
During the year ended December 31, 2022 and the years ended November 30, 2021 and 2020, the Company granted PSUs that vest and settle on the third January 1st following their grant dates and entitle participants to between 0-200% of the target award. Settlement of the PSUs is subject to achievement of defined performance metrics and to each participant's continued employment through each vesting date. The performance payout calculation is subject to specified adjustments and is ultimately adjustable at the discretion of the Compensation Committee.
During the year ended November 30, 2018, the Company also granted PSUs that vest in equal installments on the third, fourth and fifth January 1st following their respective grant dates, subject to achievement of defined performance metrics and the participant's continued employment through each vesting date. All other significant terms and conditions are consistent with the PSUs described above.
There were no PSUs granted during the month ended December 31, 2021.
The following table presents a grant-date summary of the PSUs awarded to certain employees of the Company:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended | | Month Ended | | Years Ended | | | |
| December 31, | | December 31, | | November 30, | | | |
| ($ amounts expressed in thousands of U.S. Dollars) | 2022 | | 2021 | | 2021 | | 2020 | | 2019 | | 2018 | | | |
| Performance units granted | 206,166 | | | — | | | 188,796 | | | 228,135 | | | 123,207 | | | 258,951 | | | | |
| Potential maximum share payout | 412,332 | | | — | | | 377,592 | | | 456,270 | | | 246,414 | | | 517,902 | | | | |
| Aggregate grant date fair value | $ | 2,732 | | | $ | — | | | $ | 2,502 | | | $ | 4,022 | | | $ | 2,209 | | | $ | 4,161 | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
The following table presents an inception-to-date roll forward of the Company’s unvested PSUs based upon expected vesting percentages:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Grant Period |
| Year Ended | | Month Ended | | Years Ended |
| December 31, | | December 31, | | November 30, |
| 2022 | | 2021 | | 2021 | | 2020 | | 2019 | | 2018 |
| Unvested PSUs at target, grant date | 206,166 | | | — | | | 188,796 | | | 228,135 | | | 123,207 | | | 258,951 | |
| Vested | — | | | — | | | — | | | — | | | (10,904) | | | (49,782) | |
| Forfeited/ canceled | (9,987) | | | — | | | (42,729) | | | (137,109) | | | (97,245) | | | (161,240) | |
| Change in expected performance factor | — | | | — | | | (109,550) | | | (86,475) | | | (15,058) | | | (23,038) | |
| Unvested PSUs at current expected performance percentage | 196,179 | | | — | | | 36,517 | | | 4,551 | | | — | | | 24,891 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Warrants
The Company's outstanding warrants were issued in 2014, have a 10-year term and are all vested and exercisable. The following table presents a summary of the Company's outstanding and exercisable warrants:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Intrinsic value in thousands of U.S. Dollars) | Number of Warrants | | Weighted-Average Exercise Price | | Weighted-Average Grant Date Fair Value | | Total Intrinsic Value | | Weighted-Average Remaining Contractual Term |
| Warrants outstanding and exercisable, December 31, 2022 | 1,152,500 | | | $ | 10.00 | | | $ | 4.44 | | | $ | 4,287 | | | 1.3 | |
Each warrant entitles the holder to purchase one common share of Hamilton Group at an exercise price of $10.00.
Board of Directors' Fees
The Company pays a portion of its board of directors fees in shares at each director's option. Expense relating to stock-settled directors' fees for the year ended December 31, 2022, the month ended December 31, 2021 and the years ended November 30, 2021 and 2020 was $0.7 million, less than $0.1 million, $0.7 million and $0.7 million, respectively.
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
15. Earnings Per Share
The following table sets forth the computation of basic and diluted income (loss) per common share:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Year Ended | | Month Ended | | Years Ended | | |
| | | | | December 31, | | December 31, | | November 30, | | |
| (Expressed in thousands of U.S. Dollars, except share information) | | | | | 2022 | | 2021 | | 2021 | | 2020 | | |
| Numerator: | | | | | | | | | | | | | |
| Net income (loss) attributable to common shareholders | | | | | $ | (97,999) | | | $ | (35,887) | | | $ | 188,179 | | | $ | (210,447) | | | |
| | | | | | | | | | | | | |
| Denominator: | | | | | | | | | | | | | |
| Weighted average common shares outstanding - basic | | | | | 103,062 | | | 102,563 | | | 102,597 | | | 102,557 | | | |
| Effect of dilutive securities | | | | | — | | | — | | | 936 | | | — | | | |
| Weighted average common shares outstanding - diluted | | | | | 103,062 | | | 102,563 | | | 103,533 | | | 102,557 | | | |
| | | | | | | | | | | | | |
| Income (loss) per common share - basic: | | | | | $ | (0.95) | | | $ | (0.35) | | | $ | 1.83 | | | $ | (2.05) | | | |
| Income (loss) per common share - diluted: | | | | | $ | (0.95) | | | $ | (0.35) | | | $ | 1.82 | | | $ | (2.05) | | | |
For the year ended December 31, 2022, the month ended December 31, 2021 and the years ended November 30, 2021 and 2020, common shares available for issuance under share-based compensation plans of 3.0 million, 2.7 million, fewer than 0.1 million and 2.5 million, respectively, were not included in the calculation of diluted income (loss) per share because the assumed exercise or issuance of such shares would be anti-dilutive.
16. Income Taxes
Hamilton Group and its Bermuda domiciled subsidiaries are not subject to Bermuda income tax under current Bermuda law. In the event there is a change in the current law and taxes are imposed, Hamilton Group and its Bermuda domiciled subsidiaries would be exempt from tax until 2035, pursuant to the Exempted Undertakings Tax Protection Act of 1966 of Bermuda, as amended. Hamilton Group has subsidiaries and branches that operate in various other jurisdictions around the world that are subject to tax in the jurisdictions in which they operate. The jurisdictions in which Hamilton Group’s subsidiaries and branches are subject to tax are the United Kingdom, Ireland and the United States. The Company and some of its subsidiaries file income tax returns in the U.S. federal jurisdiction, various U.S. states and certain foreign jurisdictions.
Net income (loss) before taxes by tax jurisdiction is as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended | | Month Ended | | Years Ended |
| December 31, | | December 31, | | November 30, |
| (Expressed in thousands of U.S. Dollars) | 2022 | | 2021 | | 2021 | | 2020 |
| Jurisdiction | | | | | | | |
| Domestic: | | | | | | | |
| Bermuda | $ | 66,823 | | | $ | (30,921) | | | $ | 312,901 | | | $ | (135,632) | |
| Foreign: | | | | | | | |
| United States | (23,540) | | | 470 | | | 38,268 | | | (15,546) | |
| United Kingdom | (67,213) | | | (956) | | | (85,416) | | | (22,106) | |
| Ireland | (2,901) | | | (2,173) | | | (4,108) | | | (1,075) | |
| Dubai | — | | | (975) | | | 559 | | | 334 | |
| Income (loss) before income tax | $ | (26,831) | | | $ | (34,555) | | | $ | 262,204 | | | $ | (174,025) | |
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
Income tax expense (benefit) consists of the following components:
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended | | Month Ended | | Years Ended |
| December 31, | | December 31, | | November 30, |
| (Expressed in thousands of U.S. Dollars) | 2022 | | 2021 | | 2021 | | 2020 |
| Current - Bermuda | $ | 2,625 | | | $ | 1,033 | | | $ | 10,488 | | | $ | 9,426 | |
| Current - United States | 1,818 | | | 165 | | | 2,418 | | | — | |
| Current - United Kingdom | 48 | | | 221 | | | (1,754) | | | 470 | |
| Current - Ireland | (122) | | | — | | | 48 | | | (28) | |
| Total current tax | 4,369 | | | 1,419 | | | 11,200 | | | 9,868 | |
| | | | | | | |
| | | | | | | |
| Deferred - United States | 705 | | | 73 | | | (776) | | | — | |
| Deferred - United Kingdom | (1,927) | | | (153) | | | 1,984 | | | 1,563 | |
| Deferred - Ireland | (43) | | | (4) | | | (43) | | | 61 | |
| Total deferred tax | (1,265) | | | (84) | | | 1,165 | | | 1,624 | |
| Total income tax expense | $ | 3,104 | | | $ | 1,335 | | | $ | 12,365 | | | $ | 11,492 | |
The following table presents a reconciliation of taxes calculated using the 0% Bermudian statutory rate (the tax rate at which the majority of Hamilton Group's worldwide operations are taxed) to the income tax expense (benefit) on pre-tax income (loss):
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended | | Month Ended | | Years Ended |
| December 31, | | December 31, | | November 30, |
(Expressed in thousands of U.S. Dollars) | 2022 | | 2021 | | 2021 | | 2020 |
| Expected tax provision at Bermuda statutory tax rate of 0% | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Permanent differences: | | | | | | | |
| Taxes on earnings subject to rate other than Bermuda statutory rate | (18,077) | | | (355) | | | (8,706) | | | (7,599) | |
| Change in valuation allowance | 17,060 | | | 1,437 | | | 20,458 | | | 11,292 | |
| Impairment of goodwill | 4,161 | | | — | | | — | | | — | |
| Other permanent adjustments | (112) | | | — | | | 294 | | | 545 | |
| Other prior period adjustments | 28 | | | (545) | | | (93) | | | (703) | |
| Tax rate changes | (2,655) | | | — | | | (10,076) | | | (1,468) | |
| Withholding tax | 2,625 | | | (236) | | | 10,488 | | | 9,425 | |
| State income tax | 74 | | | 1,034 | | | — | | | — | |
| Total income tax expense: | $ | 3,104 | | | $ | 1,335 | | | $ | 12,365 | | | $ | 11,492 | |
Withholding taxes on investment income from TS Hamilton Fund represent substantially all of the cash taxes paid by Hamilton Group in the amount of $2.6 million, $(0.2) million, $10.5 million, and $9.4 million for the year ended December 31, 2022, the month ended December 31, 2021 and the years ended November 30, 2021 and 2020, respectively.
Deferred tax assets and liabilities are valued at the tax rate at which they are expected to be recognized. In June 2021, the U.K enacted a tax rate of 25% to be effective April 1, 2023, an increase from the current corporation tax rate of 19%. Accordingly, for the year ended November 30, 2021, the Company revalued all of its deferred tax assets and liabilities that are expected to reverse after April 1, 2023. Hamilton Group had previously revalued its deferred tax assets and liabilities in the years ended November 30, 2020 and 2019, based on the tax rates of 19% and 17%, respectively, expected to be in effect at the time the financial statements were prepared. The revaluation of the deferred tax assets resulted in a tax benefit of $2.7 million, $Nil,$10.1 million and $1.5 million in the year ended
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
December 31, 2022, the month ended December 31, 2021, and the years ended November 30, 2021 and 2020, respectively. The financial statement impact of the rate changes was offset in each period by a valuation allowance, resulting in a related net tax expense (benefit) after valuation allowance of $(0.2) million, $Nil, $3.8 million, and $1.5 million for the year ended December 31, 2022, the month ended December 31, 2021, and the years ended November 30, 2021 and 2020, respectively.
Deferred taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts for tax purposes. The following table presents Hamilton Group’s significant deferred tax assets and liabilities at December 31, 2022 and November 30, 2021:
| | | | | | | | | | | |
| (Expressed in thousands of U.S. Dollars) | 2022 | | 2021 |
| Deferred tax assets: | | | |
| U.S. net operating loss carryforwards | $ | 4,645 | | | $ | 1,527 | |
| Ireland net operating loss carryforwards | 404 | | | 249 | |
| U.K. net operating loss carryforwards | 59,752 | | | 53,174 | |
| Loss portfolio transfer | 5,292 | | | — | |
| Share-based compensation | 3,564 | | | 3,100 | |
| Unearned premium reserve | 2,325 | | | — | |
| UK deferred interest | 1,731 | | | — | |
| Unrealized investment income | 1,454 | | | — | |
| Deferred acquisition costs | 830 | | | 1,997 | |
| Other | 3,517 | | | 3,752 | |
| Total deferred tax assets | 83,514 | | | 63,799 | |
| Deferred tax liabilities: | | | |
| Deferred policy acquisition costs | — | | | — | |
| Intangible assets | (16,431) | | | (19,359) | |
| | | |
| Depreciation | (2,421) | | | — | |
| Other | (1,999) | | | (2,425) | |
| Total deferred tax liabilities | (20,851) | | | (21,784) | |
| Net deferred tax asset (liability) before valuation allowance | 62,663 | | | 42,015 | |
| Valuation allowance | (79,095) | | | (60,597) | |
| Net deferred tax asset (liability) | $ | (16,432) | | | $ | (18,582) | |
Hamilton Group records a valuation allowance against deferred tax assets if it becomes more likely than not that all or a portion of a deferred tax asset will not be realized. Changes in valuation allowances from period to period are included in income tax expense in the period of change. When evaluating the Company’s ability to realize the benefit of its deferred tax assets and liabilities, the Company considers the relevant impact of all available positive and negative evidence, including historical operating results and forecasts of future taxable income. A significant piece of objectively verifiable negative evidence considered in the Company’s evaluation is current period pre-tax loss. Based on all available evidence, management has concluded that a valuation allowance of $79.1 million should be recorded as of December 31, 2022. Future realization of the Company’s deferred tax asset will ultimately depend on the existence of objectively verifiable positive evidence including sufficient taxable income of the appropriate character (ordinary income versus capital gains) within the applicable carry-forward periods provided under the tax law.
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
The Company had the following net operating loss carry-forwards, inclusive of cumulative currency translation adjustments, as of December 31, 2022:
| | | | | | | | | | | | | | | | | | | | |
| (Expressed in thousands of U.S. Dollars) | | 2022 |
| Tax jurisdiction | | Losses carried forward | | Tax effect | | Expiration |
| | | | | | |
| Ireland | | $ | 3,230 | | | $ | 404 | | | No expiry |
| United States | | 22,121 | | | 4,645 | | | 2040-2042 |
| United Kingdom | | 239,008 | | | 59,752 | | | No expiry |
Recognition of the benefit of a given tax position is based upon whether a company determines that it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. At December 31, 2022, the Company believes that it has no uncertain tax positions that, if challenged on technical merits, would cause a material effect on the Company's consolidated financial statements.
Hamilton Group classifies all interest and penalties on unrecognized tax benefits as part of income tax expense. During the year ended December 31, 2022, month ended December 20, 2021 and years ended November 30, 2021 and 2020, the Company did not recognize any net interest income or expense on unrecognized tax benefits. There was no accrued interest as of December 31, 2022. With few exceptions, Hamilton Group is no longer subject to tax examinations by U.S. federal or state examinations before 2019 or non-U.S. tax examinations before 2019.
17. Commitments and Contingencies
Concentrations of Credit Risks
Credit risk arises out of the failure of a counterparty to perform according to the terms of the contract. The Company underwrites most of its insurance and reinsurance business through brokers, and credit risk exists should any of these brokers be unable to fulfill their contractual obligations with respect to the payments of insurance and reinsurance balances to the Company. During the year ended December 31, 2022 and the years ended November 30, 2021 and 2020 gross premiums written generated from or placed by the below organizations individually accounted for more than 10% of the Company’s consolidated gross written premiums, as follows:
| | | | | | | | | | | | | | | | | | | |
| (Percentage of consolidated gross premiums written) | 2022 | | 2021 | | 2020 | | |
| Marsh McLennan | 25 | % | | 24 | % | | 24 | % | | |
| Aon | 18 | % | | 19 | % | | 20 | % | | |
| WTW | 5 | % | | 11 | % | | 10 | % | | |
| All others/direct | 52 | % | | 46 | % | | 46 | % | | |
| Total | 100 | % | | 100 | % | | 100 | % | | |
The Company believes that the brokers will meet all of their obligations. The Company’s credit risk is generally reduced by the contractual right to offset loss obligations against premiums receivable.
Operating Leases
The Company leases office space under operating leases in Bermuda, the United States, the United Kingdom, and Ireland. These leases expire at various dates through 2027, with a weighted average lease term of 2.3 years. As a result of the Company's January 1, 2022 adoption of ASU 2016-02 Leases, the December 31, 2022 balance sheet reflects a $7.8 million right of use asset in “other assets” and a corresponding lease liability in “accounts payable and accrued expenses”, calculated with reference to a weighted average discount rate of 3.75%. Leases including renewal options are recorded on the balance sheet when management is reasonably certain the options will be exercised. Operating lease expense for the year ended December 31, 2022, the month ended December 31, 2021 and
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
the years ended November 30, 2021 and 2020 was $3.8 million, $0.3 million, $4.0 million, and $4.3 million, respectively. Future minimum lease payments under the leases are expected to be as follows:
| | | | | | | | |
| (Expressed in thousands of U.S. Dollars) | | |
| Year Ended December 31, | | Minimum Lease Payments |
| 2023 | | $ | 2,845 | |
| 2024 | | 2,743 | |
| 2025 | | 1,676 | |
| 2026 | | 922 | |
| 2027 | | 692 | |
| Thereafter | | — | |
| Total undiscounted lease liabilities | | 8,878 | |
| Less: present value discount | | (1,042) | |
| Total recorded lease liability at present value | | $ | 7,836 | |
Lloyd's Capital Requirements
Lloyd’s bases the capital funding requirements of the Company's corporate member, Hamilton Corporate Member Limited (“HCML”), on their latest approved Economic Capital Assessments which are determined by reference to their business plans, internal capital models, and actual performance, among other factors, as well as any other relevant corporate member obligations or receivables. Capital is in the form of Funds at Lloyd's (“FAL”) which is generally available to settle the obligations of the corporate members.
Syndicate 4000 is solely supported by HCML for the 2020 underwriting YOA and all years thereafter. For the 2020 underwriting YOA onwards, the Company's operations consist of a managing agent, Hamilton Managing Agency Limited, which manages the affairs of Syndicate 4000 on behalf of HCML.
At December 31, 2022, the total available capital in support of the capital requirements for Syndicate 4000 is comprised of the following FAL:
| | | | | |
| |
| (Expressed in thousands of U.S. Dollars) | 2022 |
| Unsecured LOC capacity | $ | 205,000 | |
| Fixed income securities | 273,983 | |
| Cash | 2,104 | |
| Total | $ | 481,087 | |
Indemnifications
In the ordinary course of its business, the Company may enter into contracts or agreements that contain indemnifications. Future events could occur that lead to the execution of these provisions against the Company. Management currently believes that the likelihood of such an event is remote.
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
18. Related Party Transactions
In 2017, Hamilton Re established Turing Re, a special purpose insurer, to provide collateralized reinsurance capacity for Hamilton Re’s property treaty business. The following tables summarizes the impact of the business ceded to Turing Re:
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended | | Month Ended | | Years Ended |
| December 31, | | December 31, | | November 30, |
| (Expressed in thousands of U.S. Dollars) | 2022 | | 2021 | | 2021 | | 2020 |
| Reinsurance premiums ceded | $ | (208) | | | $ | (79) | | | $ | (556) | | | $ | (17,348) | |
| | | | | | | |
| Net premiums earned | (208) | | | (79) | | | (2,095) | | | (18,404) | |
| Losses and loss adjustment expenses | (888) | | | 16 | | | (7,935) | | | (866) | |
| Acquisition costs | (30) | | | 13 | | | 664 | | | 3,550 | |
| | | | | | | |
| Net gain (loss) on related party reinsurance | $ | (1,126) | | | $ | (50) | | | $ | (9,366) | | | $ | (15,720) | |
| | | | | | | | | | | |
| (Expressed in thousands of U.S. Dollars) | December 31, 2022 | | November 30, 2021 |
| Paid losses recoverable | $ | 818 | | | $ | 2,982 | |
| | | |
| Unpaid losses and loss adjustment expenses recoverable | 8,699 | | | 20,399 | |
| | | |
| Reinsurance balances payable | (1,028) | | | 4,822 | |
In 2020, the Company established ACML, an insurance agent authorized to underwrite on behalf of Ada Re, as more fully described in Note 1, Organization. No business was ceded to Ada Re for the year ended November 30, 2020. The following tables summarizes the impact of the business ceded to Ada Re:
| | | | | | | | | | | | | | | | | |
| Year Ended | | Month Ended | | Year Ended |
| December 31, | | December 31, | | November 30, |
| (Expressed in thousands of U.S. Dollars) | 2022 | | 2021 | | 2021 |
| Reinsurance premiums ceded | $ | (9,245) | | | $ | 1 | | | $ | (13,553) | |
| | | | | |
| Net premiums earned | (7,026) | | | (1,124) | | | (12,428) | |
| Losses and loss adjustment expenses | 4,088 | | | 841 | | | 9,015 | |
| Acquisition costs | 1,194 | | | 206 | | | 2,144 | |
| | | | | |
| Net loss on related party reinsurance | $ | (1,744) | | | $ | (77) | | | $ | (1,269) | |
| | | | | | | | | | | |
| (Expressed in thousands of U.S. Dollars) | December 31, 2022 | | November 30, 2021 |
| Paid losses recoverable | $ | 2,186 | | | $ | 864 | |
| Deferred acquisition costs | (413) | | | (209) | |
| Unpaid losses and loss adjustment expenses recoverable | 8,710 | | | 8,049 | |
| Prepaid reinsurance | 2,219 | | | 1,125 | |
| Reinsurance balances payable | 4,154 | | | 11,138 | |
19. Statutory Requirements
The Company is subject to the laws and statutory requirements of each jurisdiction in which the Company and its subsidiaries operate. These laws establish the Company's applicable minimum required statutory capital and surplus requirements and govern its ability to pay dividends. The minimum required statutory capital and surplus is the amount of statutory capital and surplus necessary to satisfy regulatory requirements based on the Company’s current operations. The difference between statutory financial statements and statements prepared in accordance
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
with GAAP varies by jurisdiction; however, the primary difference is that statutory financial statements do not reflect deferred acquisition costs or goodwill and intangible assets.
Group
The Bermuda Monetary Authority (“BMA”) is the Company's group supervisor and its group capital and solvency requirements determine the minimum capital thresholds that Hamilton Group must meet. Hamilton Group is dependent on dividends from its subsidiaries to pay its operating and financing expenses.
The actual and minimum required statutory capital and surplus for the Company’s principal operating subsidiaries by regulatory jurisdiction at December 31, 2022 and November 30, 2021 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Bermuda(1) | | | | United Kingdom(2) | | Ireland(3) | | United States(4) |
| (Expressed in thousands of U.S. Dollars) | 2022 | | 2021 | | | | | | 2022 | | 2021 | | 2022 | | 2021 | | 2022 | | 2021 |
| Minimum statutory capital and surplus | $ | 522,116 | | | $ | 469,674 | | | | | | | $ | 117,083 | | | $ | 121,082 | | | $ | 65,077 | | | $ | 60,589 | | | $ | 11,145 | | | $ | — | |
| Actual statutory capital and surplus | 1,579,773 | | | 1,742,355 | | | | | | | 481,087 | | | 571,437 | | | 133,320 | | | 101,699 | | | 58,711 | | | — | |
__________________
(1)Minimum statutory capital and surplus at December 31, 2022 for the Bermuda operating subsidiary is required to be maintained at the greater of a minimum solvency margin (“MSM”), as disclosed in the table above, and the Enhanced Capital Requirement (“ECR”), where applicable.
(2)Minimum statutory capital and surplus at December 31, 2022 for the U.K. operating entities is determined by reference to the entities' Solvency Capital Requirement and the Solvency II capital regime. U.K. operations are subject to Lloyd’s requirements where underwriting members hold acceptable FAL and/or Syndicates hold acceptable Funds In Syndicate (“FIS”) for their own account, in support of the total actual statutory capital and surplus amount. Actual statutory capital and surplus is comprised of an Economic Capital Assessment (“ECA”), derived from an approved Solvency II basis Internal model, plus any accumulated trading deficits calculated on a Solvency II basis.
(3)Our Irish operations are subject to the Solvency II regime, which requires insurance companies to hold assets that cover at least the best estimate of insurance liabilities, a risk margin, plus a risk-based Solvency Capital Requirement designed to protect against extreme stress events.
(4)Minimum statutory capital and surplus at December 31, 2022 represents the Company Action Level Risk-Based Capital level for U.S. operating subsidiaries.
The statutory net income (loss) for the Company’s principal operating subsidiaries by regulatory jurisdiction was as follows:
| | | | | | | | | | | | | | | | | |
| Year Ended | | Years Ended |
| December 31, | | November 30, |
| (Expressed in thousands of U.S. Dollars) | 2022 | | 2021 | | 2020 |
| Bermuda | $ | 1,993 | | | $ | 261,516 | | | $ | (140,743) | |
| United Kingdom | 25,470 | | | (22,676) | | | (19,525) | |
| Ireland | (32,331) | | | (17,383) | | | (2,545) | |
| United States | (9,962) | | | — | | | — | |
Bermuda Operations
Hamilton Re is subject to the requirements of the Insurance Act 1978, amendments thereto and Related Regulations of Bermuda (the “Insurance Act”). As a Class 4 (re)insurer, Hamilton Re must maintain capital at the greater of their MSM and their ECR, which are established by reference to the Bermuda Solvency Capital Requirement (“BSCR”) model. The Insurance Act also requires Hamilton Re to maintain certain measures of solvency and liquidity.
Independent of the Insurance Act, the BMA has also established a target capital level (“TCL”) for Class 4 (re)insurers, equal to 120% of their ECR. The TCL serves as an early warning tool for the BMA and failure to maintain statutory capital at least equal to the TCL will likely result in increased regulatory oversight. Hamilton Re's actual capital and surplus levels exceed the TCL at December 31, 2022.
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
Hamilton Re's BSCR for the year ended December 31, 2022 was filed with the BMA in April 2023. The required statutory capital and surplus disclosed as of December 31, 2022 is based on the MSM. At December 31, 2022, the actual statutory capital and surplus of Hamilton Re was $1.6 billion and the MSM was $522.1 million.
Hamilton Re received approval from the BMA to treat its investment in TS Hamilton Fund as a “Relevant Asset” for the purpose of computing its “Liquidity Ratio” (under which relevant assets must be maintained at not less than 75% of relevant liabilities) in respect of 2023 and 2022. Hamilton Re is in compliance with the Liquidity Ratio at December 31, 2022.
Under the Insurance Act, Hamilton Re is restricted as to the payment of dividends and/or distributions for amounts greater than 25% of the prior year’s statutory capital and surplus. In addition, before reducing its total statutory capital by 15% or more (as set out in its previous year's statutory financial statements), as a Class 4 Bermuda insurance subsidiary, Hamilton Re must apply to the BMA for permission to do so. For the year ended December 31, 2022, Hamilton Re had capacity to pay dividends of $435.7 million without prior approval under Bermuda law, of which $137.0 million of dividends were paid during the year. It is estimated that Hamilton Re will have capacity to pay dividends of $394.9 million in 2023.
United Kingdom Operations
A U.K. company’s ability to propose and pay dividends is dependent upon U.K. law and may require the approval of a local regulatory body where a minimum capital requirement applies.
As discussed in Note 17, Commitments and Contingencies, Lloyd’s bases the capital funding requirements of the Company's corporate members on their latest approved Economic Capital Assessments. As of December 31, 2022, actual levels of solvency, liquidity, and capital were in compliance with the Lloyd's requirements.
Following distributions received from Hamilton Syndicate 4000, profits arising in HCML are available for distribution subject to U.K. law. Profits arising in HMA, which is subject to Lloyds' oversight and regulation by both the Prudential Regulation Authority (“PRA”) and the Financial Conduct Authority (“FCA”), are available for distribution subject to U.K. law and the preservation of a minimum capital requirement calculated with reference to Lloyd's capital tests.
The PRA regulatory requirements impose no explicit restrictions on the U.K. subsidiaries' ability to pay a dividend, but the Company must notify the PRA 28 days prior to any proposed dividend payment. Dividends may only be distributed from profits available for distribution. At December 31, 2022, the Company's U.K. subsidiaries did not have retained profits available for distribution.
Ireland
HIDAC is regulated by the Central Bank of Ireland pursuant to the Insurance Acts 1909 to 2018 (as amended), the Central Bank Acts 1942 to 2018 and all statutory instruments relating to insurance made or adopted under the European Communities Acts 1972 to 2012, including the European Union (Insurance and Reinsurance) Regulations, 2015 (as amended) and the Solvency II regime. HIDAC is required to maintain the Minimum Capital Requirement (“MCR”) and the Solvency Capital Requirement (“SCR”) at all times. Capital requirements are calculated by reference to Solvency II definitions. If an entity falls below the MCR or SCR, the Central Bank of Ireland is authorized to take action to restore the financial position of the subsidiary. HIDAC was at all times in compliance with these requirements for the year ended December 31, 2022.
The amount of dividends that HIDAC is permitted to distribute is restricted to accumulated realized profits that have not been capitalized or distributed, less accumulated realized losses that have not been written off. The solvency and capital requirements must still be met subsequent to any distribution. As at December 31, 2022, HIDAC did not have retained profits available for distribution.
United States Operations
The Company’s U.S. insurance subsidiary is registered in Delaware and subject to restrictions on statutory net income and statutory surplus as determined in accordance with the relevant statutory accounting requirements
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
established by the National Association of Insurance Commissioners, subject to state modifications thereof. They are also required to file annual statements with insurance regulatory authorities prepared in accordance with statutory accounting principles prescribed or permitted by such authorities. The U.S. insurance subsidiary is also generally required to maintain minimum levels of solvency and liquidity as determined by law and regulation, comply with regulatory capital requirements and licensing rules.
Delaware law provides that an insurance company which is a member of an insurance holding company system and is domiciled in the state shall not pay dividends without giving prior notice to the Insurance Commissioner of Delaware and may not pay dividends without the approval of the Insurance Commissioner if the value of the proposed dividend, together with all other dividends and distributions made in the preceding twelve months, exceeds the greater of (1) 10% of statutory surplus or (2) net income, not including realized capital gains, each as reported in the prior year’s statutory annual statement. In addition, no dividend may be paid in excess of unassigned earned surplus. As at December 31, 2022, our U.S. insurance subsidiary did not have retained profits available for distribution.
20. Divestitures
Attune
In 2016, the Company entered into an agreement to form Attune Holdings LLC (“Attune”), a related party and a corporate joint venture with a technology-enabled platform in which the Company had a 33.33% ownership.
On September 20, 2021, a purchaser acquired for cash certain units of Attune. $65.2 million of the net consideration was allocated to Class A shares held by the Company. The Company's net gain on sale of $54.6 million was calculated with reference to the post-escrow funds received and was recorded in the consolidated statement of operations for the year ended November 30, 2021 as a net gain on sale of equity method investment. Proceeds of sale were settled on closing, with a portion of the balance owing to the Company held in escrow for the benefit of the purchaser pursuant to terms of the escrow agreements.
Prior to the sale on September 20, 2021, changes in the investment in Attune for the period ended September 20, 2021 and the year ended November 30, 2020 were as follows:
| | | | | | | | | | | | | | | | | |
| | | | | |
| | | | | |
| (Expressed in thousands of U.S. Dollars) | | | | | 2021 | | 2020 | | |
| Net investment in Attune - beginning of period | | | | | $ | 6,656 | | | $ | 7,310 | | | |
| Contributions | | | | | 3,500 | | | 8,333 | | | |
| Loss on equity method investment | | | | | (7,285) | | | (8,987) | | | |
| Sale of investment in Attune | | | | | (2,871) | | | — | | | |
| Net investment in Attune - end of period | | | | | $ | — | | | $ | 6,656 | | | |
In the year ended December 31, 2022, escrow funds of $7.0 million were received and recorded in the consolidated statement of operations as an incremental net gain on sale of equity method investment. As of December 31, 2022, escrow funds of $0.6 million were recorded in “restricted cash” and “accounts payable and accrued expenses” on the consolidated balance sheets.
21. Subsequent Events
The Company has evaluated subsequent events through May 12, 2023, the date these financial statements were available to be issued, and concluded that, except as disclosed below, there are no subsequent events requiring recognition or disclosure.
Long-Term Incentive Compensation
With effect from March 10, 2023, the Company revised the VAP described in Note 2(m), Long-Term Incentive Compensation, to include an Underpin, such that if the ratio of the Company's estimated fair market value to GAAP shareholders' equity on the trigger event date is less than 1.15, the value of the award will be calculated with
Hamilton Insurance Group, Ltd.
Notes to the Consolidated Financial Statements
reference to a minimum ratio of 1.15 in order to provide for a minimum payment in respect of the award. In the event that the Underpin comes into effect, the VAP will settle in two equal tranches: the first settlement upon the first anniversary of the trigger event, and the second twelve months later. There was no impact on the Company’s results of operations, financial position or cash flows as a result of the revision, and all other terms and conditions remain materially unchanged.
SCHEDULE I
HAMILTON INSURANCE GROUP, LTD. AND SUBSIDIARIES
SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
(THOUSANDS OF UNITED STATES DOLLARS)
| | | | | | | | | | | | | | | | | | | | |
| ($ in thousands) | | December 31, 2022 |
| Type of investment | | Cost or
Amortized Cost | | Fair
Value | | Amount at which shown in the balance sheet |
| Fixed maturities: | | | | | | |
| Bonds: | | | | | | |
| U.S. government treasuries | | $ | 498,841 | | | $ | 471,851 | | | $ | 471,851 | |
| U.S. states, territories and municipalities | | 4,741 | | | 4,307 | | | 4,307 | |
| Non-U.S. sovereign governments and supranationals | | 14,191 | | | 12,952 | | | 12,952 | |
| Corporate | | 690,900 | | | 647,477 | | | 647,477 | |
| Residential mortgage-backed securities - Agency | | 111,234 | | | 96,410 | | | 96,410 | |
| Residential mortgage-backed securities - Non-agency | | 5,147 | | | 4,375 | | | 4,375 | |
| Commercial mortgage-backed securities - Non-agency | | 10,283 | | | 9,219 | | | 9,219 | |
| Other asset-backed securities | | 13,347 | | | 12,885 | | | 12,885 | |
| Total fixed maturities | | $ | 1,348,684 | | | 1,259,476 | | | 1,259,476 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Investments in Two Sigma Funds | | | | 740,736 | | | 740,736 | |
| Short-term investments | | | | 286,111 | | | 286,111 | |
| Total investments | | | | $ | 2,286,323 | | | $ | 2,286,323 | |
SCHEDULE II
HAMILTON INSURANCE GROUP, LTD. (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT – CONTINUED(1)
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(THOUSANDS OF UNITED STATES DOLLARS)
| | | | | | | | | | | |
| ($ in thousands) | December 31, 2022 | | November 30, 2021 |
| Assets | | | |
| Cash and cash equivalents | $ | 10,608 | | | $ | 11,316 | |
| Investment in subsidiaries | 1,693,442 | | | 1,820,332 | |
| Intercompany loan receivable | 106,500 | | | 100,000 | |
| Interest receivable on intercompany loan | 5,181 | | | 4,345 | |
| Due from subsidiaries | — | | | 5,921 | |
| Other assets | 4,676 | | | 3,970 | |
Total assets | $ | 1,820,407 | | | $ | 1,945,884 | |
| | | |
| Liabilities and Shareholders' Equity | | | |
| Liabilities | | | |
| Due to subsidiaries | $ | 6,509 | | | $ | 7,636 | |
| Term loan payable | 149,715 | | | 149,875 | |
| Accounts payable and accrued liabilities | — | | | 928 | |
Total liabilities | 156,224 | | | 158,439 | |
| | | |
| Shareholders' Equity | | | |
| Common shares | | | |
| Class A | 305 | | | 303 | |
| Class B | 420 | | | 379 | |
| Class C | 305 | | | 343 | |
| Additional paid-in capital | 1,120,242 | | | 1,109,205 | |
| Accumulated other comprehensive loss | (4,441) | | | (4,441) | |
| Retained earnings | 547,352 | | | 681,656 | |
Total shareholders' equity | 1,664,183 | | | 1,787,445 | |
Total liabilities and shareholders' equity | $ | 1,820,407 | | | $ | 1,945,884 | |
__________________
(1)The condensed financial information should be read in conjunction with the consolidated U.S. GAAP financial statements and notes thereto.
SCHEDULE II
HAMILTON INSURANCE GROUP, LTD. (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT – CONTINUED(1)
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(THOUSANDS OF UNITED STATES DOLLARS)
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended | | Month Ended | | Years Ended |
| ($ in thousands) | December 31, 2022 | | December 31, 2021 | | November 30, 2021 | | November 30, 2020 |
| Revenues | | | | | | | |
| Intercompany loan interest | $ | 6,784 | | | $ | 552 | | | $ | 6,526 | | | $ | 5,702 | |
| Net foreign exchange gains (losses) | (131) | | | 17 | | | 20 | | | 236 | |
| Other income (loss) | 65 | | | (7) | | | (66) | | | 101 | |
Total revenues | 6,718 | | | 562 | | | 6,480 | | | 6,039 | |
| | | | | | | |
| Expenses | | | | | | | |
| General and administrative expenses | 20,524 | | | 1,475 | | | 21,743 | | | 23,643 | |
| Interest expense | 9,858 | | | 580 | | | 8,315 | | | 11,936 | |
Total expenses | 30,382 | | | 2,055 | | | 30,058 | | | 35,579 | |
| | | | | | | |
| Net income (loss) before equity in earnings of subsidiaries | (23,664) | | | (1,493) | | | (23,578) | | | (29,540) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Equity in earnings of subsidiaries | (211,335) | | | (34,394) | | | 181,757 | | | (205,185) | |
| Dividend income | 137,000 | | | — | | | 30,000 | | | 24,278 | |
Net income (loss) attributable to common shareholders | $ | (97,999) | | | $ | (35,887) | | | $ | 188,179 | | | $ | (210,447) | |
__________________
(1)The condensed financial information should be read in conjunction with the consolidated U.S. GAAP financial statements and notes thereto.
SCHEDULE II
HAMILTON INSURANCE GROUP, LTD. (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT – CONTINUED(1)
CONDENSED STATEMENTS OF CASH FLOWS
(THOUSANDS OF UNITED STATES DOLLARS)
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended | | Month Ended | | Years Ended |
| ($ in thousands) | December 31, 2022 | | December 31, 2022 | | November 30, 2021 | | November 30, 2020 |
| Cash flows provided by (used in) operating activities | | | | | | | |
| Net income (loss) attributable to common shareholders | $ | (97,999) | | | $ | (35,887) | | | $ | 188,179 | | | $ | (210,447) | |
| Less: dividend income and equity in earnings of subsidiaries | 74,335 | | | 34,394 | | | (211,757) | | | 180,907 | |
| Net income (loss) before equity in earnings of subsidiaries | (23,664) | | | (1,493) | | | (23,578) | | | (29,540) | |
| | | | | | | |
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities | | | | | | | |
| | | | | | | |
| Other operating inflows (outflows) | 7,033 | | | 1,509 | | | (9,294) | | | 9,906 | |
Net cash provided by (used) in operating activities | (16,631) | | | 16 | | | (32,872) | | | (19,634) | |
| | | | | | | |
| Cash flows provided by (used in) investing activities | | | | | | | |
| | | | | | | |
| | | | | | | |
| Other investing inflows (outflows) | (706) | | | — | | | (1,371) | | | — | |
| Dividends from subsidiaries | 137,000 | | | — | | | 30,000 | | | 24,278 | |
| Capital contributions to subsidiaries | (118,839) | | | — | | | (6,673) | | | (9,379) | |
Net cash provided by (used in) investing activities | 17,455 | | | — | | | 21,956 | | | 14,899 | |
| | | | | | | |
| Cash flows provided by (used in) financing activities | | | | | | | |
| Other financing inflows (outflows) | (345) | | | — | | | — | | | — | |
| Repurchase of common shares | (1,518) | | | — | | | (7,380) | | | (3,873) | |
| Issuance of common shares | 315 | | | — | | | 1,012 | | | 2,137 | |
Net cash provided by (used in) financing activities | (1,548) | | | — | | | (6,368) | | | (1,736) | |
| | | | | | | |
| Net increase (decrease) in cash and cash equivalents | (724) | | | 16 | | | (17,284) | | | (6,471) | |
| Cash and cash equivalents, beginning of period | 11,332 | | | 11,316 | | | 28,600 | | | 35,072 | |
| Cash and cash equivalents, end of period | $ | 10,608 | | | $ | 11,332 | | | $ | 11,316 | | | $ | 28,601 | |
__________________
(1)The condensed financial information should be read in conjunction with the consolidated U.S. GAAP financial statements and notes thereto.
SCHEDULE III
HAMILTON GROUP INSURANCE LTD.
SUPPLEMENTARY INSURANCE INFORMATION
(THOUSANDS OF UNITED STATES DOLLARS)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in thousands) | December 31, 2022 | | | | Year Ended December 31, 2022 |
| Deferred policy acquisition costs | | Future policy benefits, losses, claims and
loss expenses | | Unearned premiums | | | | Net premiums earned | | Total realized and unrealized gains (losses) on investments and net investment income (loss)(1) | | Benefits, claims, losses, and settlement expenses | | Amortization of deferred policy acquisition costs | | Other operating expenses | | Net premiums written |
| International | $ | 68,257 | | | $ | 1,582,410 | | | $ | 453,254 | | | | | $ | 623,047 | | | | | $ | 335,484 | | | $ | 170,571 | | | $ | 108,239 | | | $ | 635,773 | |
| Bermuda | 46,890 | | | 1,273,865 | | | 264,934 | | | | | 520,667 | | | | | 422,849 | | | 100,618 | | | 49,301 | | | 586,091 | |
| Total | $ | 115,147 | | | $ | 2,856,275 | | | $ | 718,188 | | | | | $ | 1,143,714 | | | $ | 64,870 | | | $ | 758,333 | | | $ | 271,189 | | | $ | 157,540 | | | $ | 1,221,864 | |
| | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | | | Month Ended December 31, 2021 |
| Deferred policy acquisition costs | | Future policy benefits, losses, claims and
loss expenses | | Unearned premiums | | | | Net premiums earned | | Total realized and unrealized gains (losses) on investments and net investment income (loss)(1) | | Benefits, claims, losses, and settlement expenses | | Amortization of deferred policy acquisition costs | | Other operating expenses | | Net premiums written |
| International | n/a | | n/a | | n/a | | | | $ | 62,372 | | | | | $ | 33,888 | | | $ | 17,192 | | | $ | 10,377 | | | $ | 67,599 | |
| Bermuda | n/a | | n/a | | n/a | | | | 36,259 | | | | | 22,762 | | | 6,800 | | | 3,480 | | | 30,322 | |
| Total | n/a | | n/a | | n/a | | | | $ | 98,631 | | | $ | (36,748) | | | $ | 56,650 | | | $ | 23,992 | | | $ | 13,857 | | | $ | 97,921 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| November 30, 2021 | | | | Year Ended November 30, 2021 |
| Deferred policy acquisition costs | | Future policy benefits, losses, claims and
loss expenses | | Unearned premiums | | | | Net premiums earned | | Total realized and unrealized gains (losses) on investments and net investment income (loss)(1) | | Benefits, claims, losses, and settlement expenses | | Amortization of deferred policy acquisition costs | | Other operating expenses | | Net premiums written |
| International | $ | 65,065 | | | $ | 1,371,233 | | | $ | 411,024 | | | | | $ | 557,139 | | | | | $ | 352,859 | | | $ | 154,969 | | | $ | 112,055 | | | $ | 640,816 | |
| Bermuda | 31,020 | | | 1,007,794 | | | 209,970 | | | | | 385,410 | | | | | 287,701 | | | 74,244 | | | 37,767 | | | 444,612 | |
| Total | $ | 96,085 | | | $ | 2,379,027 | | | $ | 620,994 | | | | | $ | 942,549 | | | $ | 308,976 | | | $ | 640,560 | | | $ | 229,213 | | | $ | 149,822 | | | $ | 1,085,428 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
SCHEDULE III
HAMILTON GROUP INSURANCE LTD.
SUPPLEMENTARY INSURANCE INFORMATION
(THOUSANDS OF UNITED STATES DOLLARS)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in thousands) | November 30, 2020 | | | | Year Ended November 30, 2020 |
| Deferred policy acquisition costs | | Future policy benefits, losses, claims and
loss expenses | | Unearned premiums | | | | Net premiums earned | | Total realized and unrealized gains (losses) on investments and net investment income (loss)(1) | | Benefits, claims, losses, and settlement expenses | | Amortization of deferred policy acquisition costs | | Other operating expenses | | Net premiums written |
| International | $ | 32,673 | | | $ | 1,109,107 | | | $ | 317,016 | | | | | $ | 416,957 | | | | | $ | 271,447 | | | $ | 110,266 | | | $ | 95,434 | | | $ | 465,365 | |
| Bermuda | 22,677 | | | 945,521 | | | 162,513 | | | | | 290,504 | | | | | 233,822 | | | 58,061 | | | 31,435 | | | 263,958 | |
| Total | $ | 55,350 | | | $ | 2,054,628 | | | $ | 479,529 | | | | | $ | 707,461 | | | $ | (32,899) | | | $ | 505,269 | | | $ | 168,327 | | | $ | 126,869 | | | $ | 729,323 | |
___________________
(1)We do not manage our investments by reportable segment and therefore total realized and unrealized gains (losses) on investments and net investment income (loss) is not allocated to each reportable segment.
SCHEDULE IV
CONSOLIDATED HAMILTON GROUP INSURANCE, LTD.
REINSURANCE
(THOUSANDS OF UNITED STATES DOLLARS)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in thousands) | Gross premiums earned | | Ceded to other companies | | Assumed from other companies | | Net
premiums earned | | Percentage of amount assumed to net |
| Year ended December 31, 2022 | | | | | | | | | |
| Premiums earned | $ | 886,488 | | | $ | 413,046 | | | $ | 670,272 | | | $ | 1,143,714 | | | 59 | % |
| Month ended December 31, 2021 | | | | | | | | | |
| Premiums earned | 64,190 | | | 23,290 | | | 57,731 | | | 98,631 | | | 59 | % |
| Year ended November 30, 2021 | | | | | | | | | |
| Premiums earned | 737,982 | | | 369,588 | | | 574,155 | | | 942,549 | | | 61 | % |
| Year ended November 30, 2020 | | | | | | | | | |
| Premiums earned | 592,557 | | | 413,391 | | | 528,295 | | | 707,461 | | | 75 | % |
SCHEDULE V
HAMILTON GROUP INSURANCE, LTD. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
| | | | | | | | | | | | | | | | | | | | | | | |
| ($ in thousands) | Opening Balance | | Additions | | Deductions | | Closing Balance |
| December 31, 2022 | | | | | | | |
Allowance for expected credit losses(1) | $ | — | | | $ | 3,633 | | | $ | — | | | $ | 3,633 | |
| December 31, 2021 | | | | | | | |
Allowance for expected credit losses(1) | — | | | — | | | — | | | — | |
| November 30, 2021 | | | | | | | |
Allowance for expected credit losses(1) | — | | | — | | | — | | | — | |
| | | | | | | |
| | | | | | | |
| November 30, 2020 | | | | | | | |
Allowance for expected credit losses(1) | — | | | — | | | — | | | — | |
__________________
(1)Deducted from Premiums Receivable, Paid and Unpaid losses and loss adjustment expenses recoverable.
SCHEDULE VI
CONSOLIDATED HAMILTON INSURANCE GROUP, LTD.
SUPPLEMENTAL INSURANCE INFORMATION CONCERNING
PROPERTY-CASUALTY INSURANCE OPERATIONS
(THOUSANDS OF UNITED STATES DOLLARS)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| ($ in thousands) | | Deferred policy
acquisition costs | | Reserves for unpaid claims and claim adjustments expenses | | Discount, if any, deducted | | Unearned premiums | | Net premiums earned | | Total realized and unrealized gains (losses) on investments and net investment income (loss) |
| | | | | | |
| Affiliation with Registrant | | | | | | |
| Consolidated subsidiaries | | | | | | | | | | | | |
| Year ended December 31, 2022 | | $ | 115,147 | | | $ | 2,856,275 | | | $ | — | | | $ | 718,188 | | | $ | 1,143,714 | | | $ | 64,870 | |
| Month ended December 31, 2021 | | n/a | | n/a | | — | | | n/a | | 98,631 | | | (36,748) | |
| Year ended November 30, 2021 | | 96,085 | | | 2,379,027 | | | — | | | 620,994 | | | 942,549 | | | 308,976 | |
| Year ended November 30, 2020 | | 55,350 | | | 2,054,628 | | | — | | | 479,529 | | | 707,461 | | | (32,899) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Claims and claims adjustment expenses incurred related to | | | | | | | | |
| ($ in thousands) | | Current year | | Prior year | | Amortisation of deferred policy acquisition costs | | Paid claims and claim adjusted expenses | | Net premiums written | | |
| | | | | | | |
| Affiliation with Registrant | | | | | | | |
| Consolidated subsidiaries | | | | | | | | | | | | |
| Year ended December 31, 2022 | | $ | 778,936 | | | $ | (20,603) | | | $ | 271,189 | | | $ | 377,186 | | | $ | 1,221,864 | | | |
| Month ended December 31, 2021 | | 56,650 | | | — | | | 23,992 | | | 14,849 | | | 97,921 | | | |
| Year ended November 30, 2021 | | 628,781 | | | 11,779 | | | 229,213 | | | 311,522 | | | 1,085,428 | | | |
| Year ended November 30, 2020 | | 546,250 | | | (40,981) | | | 168,327 | | | 320,812 | | | 729,323 | | | |
Hamilton Insurance Group, Ltd.
Condensed Consolidated Financial Statements
For the Three and Six Months Ended June 30, 2023
Hamilton Insurance Group, Ltd.
Table of Contents
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Financial Statements: | |
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Hamilton Insurance Group, Ltd.
Unaudited Condensed Consolidated Balance Sheets
| | | | | | | | | | | | |
| (Expressed in thousands of U.S. Dollars, except share information) | June 30,
2023 | | December 31,
2022 | |
| Assets | | | | |
Fixed maturity investments, at fair value (amortized cost 2023: $1,532,621; 2022: $1,348,684) | $ | 1,451,249 | | | $ | 1,259,476 | | |
Short-term investments, at fair value (amortized cost 2023: $335,668; 2022: $285,130) | 336,587 | | | 286,111 | | |
Investments in Two Sigma Funds, at fair value (cost 2023: $797,412; 2022: $731,100) | 868,486 | | | 740,736 | | |
| Total investments | 2,656,322 | | | 2,286,323 | | |
| Cash and cash equivalents | 818,522 | | | 1,076,420 | | |
| Restricted cash | 106,696 | | | 130,783 | | |
| Premiums receivable | 756,275 | | | 522,670 | | |
| Paid losses recoverable | 132,528 | | | 90,655 | | |
| Deferred acquisition costs | 145,280 | | | 115,147 | | |
| Unpaid losses and loss adjustment expenses recoverable | 1,162,940 | | | 1,177,863 | | |
| Receivables for investments sold | 36 | | | 371 | | |
| Prepaid reinsurance | 251,818 | | | 164,313 | | |
| Goodwill and intangible assets | 88,770 | | | 86,958 | | |
| Other assets | 161,364 | | | 167,462 | | |
Total assets | $ | 6,280,551 | | | $ | 5,818,965 | | |
| | | | |
| Liabilities, non-controlling interest, and shareholders’ equity | | | | |
| Liabilities | | | | |
| Reserve for losses and loss adjustment expenses | $ | 2,899,100 | | | $ | 2,856,275 | | |
| Unearned premiums | 924,723 | | | 718,188 | | |
| Reinsurance balances payable | 381,678 | | | 244,320 | | |
| Payables for investments purchased | 18,670 | | | 48,095 | | |
| | | | |
| Term loan, net of issuance costs | 149,772 | | | 149,715 | | |
| | | | |
| Accounts payable and accrued expenses | 149,833 | | | 138,050 | | |
| Payables to related parties | 4,497 | | | 20 | | |
Total liabilities | 4,528,273 | | | 4,154,663 | | |
| | | | |
Non-controlling interest – TS Hamilton Fund | 124 | | | 119 | | |
| | | | |
| Shareholders’ equity | | | | |
| Common shares: | | | | |
Class A, authorized (2023 and 2022: 53,993,690), par value $0.01; issued and outstanding (2023 and 2022: 30,520,078) | 305 | | | 305 | | |
Class B, authorized (2023 and 2022: 50,480,684), par value $0.01; issued and outstanding (2023: 42,638,190 and 2022: 42,042,155) | 426 | | | 420 | | |
Class C, authorized (2023 and 2022: 30,525,626), par value $0.01; issued and outstanding (2023 and 2022: 30,525,626) | 305 | | | 305 | | |
| Additional paid-in capital | 1,124,566 | | | 1,120,242 | | |
| Accumulated other comprehensive loss | (4,441) | | | (4,441) | | |
| Retained earnings | 630,993 | | | 547,352 | | |
Total shareholders’ equity | 1,752,154 | | | 1,664,183 | | |
| | | | |
Total liabilities, non-controlling interest, and shareholders’ equity | $ | 6,280,551 | | | $ | 5,818,965 | | |
See accompanying notes to the unaudited condensed consolidated financial statements.
Hamilton Insurance Group, Ltd.
Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
Three and Six Months Ended June 30, 2023 and 2022
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended | | |
| June 30, | | June 30, | | |
| (Expressed in thousands of U.S. Dollars, except per share information) | 2023 | | 2022 | | 2023 | | 2022 | | | | |
| Revenues | | | | | | | | | | | |
| Gross premiums written | $ | 504,960 | | | $ | 387,845 | | | $ | 1,043,124 | | | $ | 904,610 | | | | | |
| Reinsurance premiums ceded | (120,252) | | | (92,435) | | | (309,918) | | | (266,933) | | | | | |
| Net premiums written | 384,708 | | | 295,410 | | | 733,206 | | | 637,677 | | | | | |
| | | | | | | | | | | |
| Net change in unearned premiums | (53,248) | | | (24,802) | | | (117,844) | | | (101,153) | | | | | |
| Net premiums earned | 331,460 | | | 270,608 | | | 615,362 | | | 536,524 | | | | | |
| | | | | | | | | | | |
| Net realized and unrealized gains (losses) on investments | 19,406 | | | 227,689 | | | 54,539 | | | 214,019 | | | | | |
| Net investment income (loss) | 7,291 | | | (8,157) | | | 9,650 | | | (16,929) | | | | | |
| Total realized and unrealized gains (losses) on investments and net investment income (loss) | 26,697 | | | 219,532 | | | 64,189 | | | 197,090 | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Other income (loss) | 2,420 | | | 3,553 | | | 5,452 | | | 6,390 | | | | | |
| Net foreign exchange gains (losses) | (3,341) | | | 11,110 | | | (5,387) | | | 13,476 | | | | | |
Total revenues | 357,236 | | | 504,803 | | | 679,616 | | | 753,480 | | | | | |
| | | | | | | | | | | |
| Expenses | | | | | | | | | | | |
| Losses and loss adjustment expenses | 179,416 | | | 130,850 | | | 327,977 | | | 339,051 | | | | | |
| Acquisition costs | 76,856 | | | 63,691 | | | 141,995 | | | 129,060 | | | | | |
| General and administrative expenses | 49,234 | | | 45,890 | | | 95,040 | | | 88,946 | | | | | |
| | | | | | | | | | | |
| Amortization of intangible assets | 2,305 | | | 3,337 | | | 5,075 | | | 6,697 | | | | | |
| Interest expense | 5,189 | | | 3,790 | | | 10,718 | | | 7,153 | | | | | |
Total expenses | 313,000 | | | 247,558 | | | 580,805 | | | 570,907 | | | | | |
| | | | | | | | | | | |
| Income (loss) before income tax | 44,236 | | | 257,245 | | | 98,811 | | | 182,573 | | | | | |
| Income tax expense | 2,948 | | | 1,292 | | | 4,521 | | | 2,048 | | | | | |
Net income (loss) | 41,288 | | | 255,953 | | | 94,290 | | | 180,525 | | | | | |
| | | | | | | | | | | |
| Net income (loss) attributable to non-controlling interest | 4,501 | | | 83,384 | | | 6,011 | | | 83,387 | | | | | |
| | | | | | | | | | | |
Net income (loss) and other comprehensive income (loss) attributable to common shareholders | $ | 36,787 | | | $ | 172,569 | | | $ | 88,279 | | | $ | 97,138 | | | | | |
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| | | | | | | | | | | |
| Per share data | | | | | | | | | | | |
| Basic income (loss) per share attributable to common shareholders | $ | 0.35 | | | $ | 1.67 | | | $ | 0.85 | | | $ | 0.94 | | | | | |
| Diluted income (loss) per share attributable to common shareholders | $ | 0.35 | | | $ | 1.66 | | | $ | 0.84 | | | $ | 0.93 | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
See accompanying notes to the unaudited condensed consolidated financial statements.
Hamilton Insurance Group, Ltd.
Unaudited Condensed Consolidated Statements of Shareholders' Equity
Six Months Ended June 30, 2023 and 2022
| | | | | | | | | | | | | | | | | | |
| | | | | | |
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| (Expressed in thousands of U.S. Dollars) | 2023 | | 2022 | | | | | | | |
| Common shares | | | | | | | | | | |
Balance, beginning of period | $ | 1,030 | | | $ | 1,025 | | | | | | | | |
| Issuance of common shares | 8 | | | 6 | | | | | | | | |
| | | | | | | | | | |
| Repurchases of common shares | (2) | | | (1) | | | | | | | | |
Balance, end of period | 1,036 | | | 1,030 | | | | | | | | |
| | | | | | | | | | |
| Additional paid-in capital | | | | | | | | | | |
Balance, beginning of period | 1,120,242 | | | 1,110,248 | | | | | | | | |
| Issuance of common shares | (7) | | | (7) | | | | | | | | |
| Repurchases of common shares | (1,776) | | | (1,098) | | | | | | | | |
| Share compensation expense | 6,107 | | | 5,934 | | | | | | | | |
| | | | | | | | | | |
Balance, end of period | 1,124,566 | | | 1,115,077 | | | | | | | | |
| | | | | | | | | | |
| Accumulated other comprehensive income (loss) | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Balance, beginning and end of period | (4,441) | | | (4,441) | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Retained earnings | | | | | | | | | | |
Balance, beginning of period | 547,352 | | | 645,769 | | | | | | | | |
| Net income (loss) | 94,290 | | | 180,525 | | | | | | | | |
| Net income attributable to non-controlling interest | (6,011) | | | (83,387) | | | | | | | | |
| Share compensation expense | (4,169) | | | — | | | | | | | | |
| Repurchases of common shares | (469) | | | (419) | | | | | | | | |
Balance, end of period | 630,993 | | | 742,488 | | | | | | | | |
| | | | | | | | | | |
Total shareholders’ equity | $ | 1,752,154 | | | $ | 1,854,154 | | | | | | | | |
See accompanying notes to the unaudited condensed consolidated financial statements.
Hamilton Insurance Group, Ltd.
Unaudited Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 2023 and 2022
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | |
| | | | | | | | | | |
| (Expressed in thousands of U.S. Dollars) | 2023 | | 2022 | | | | | | | | | |
| Operating activities | | | | | | | | | | | | |
| Net income (loss) | $ | 94,290 | | | $ | 180,525 | | | | | | | | | | |
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | | | | | | | | | | | | |
| Depreciation and amortization | 5,794 | | | 8,087 | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Share compensation expense | 6,107 | | | 5,934 | | | | | | | | | | |
| Net realized (gains) losses on investments | 10,040 | | | (152,010) | | | | | | | | | | |
| Change in net unrealized (gains) losses on investments | (64,579) | | | (62,009) | | | | | | | | | | |
| | | | | | | | | | | | |
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| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Other items | (2,859) | | | 4,642 | | | | | | | | | | |
| Change in: | | | | | | | | | | | | |
| Premiums receivable | (233,605) | | | (146,519) | | | | | | | | | | |
| Paid losses recoverable | (41,873) | | | (27,559) | | | | | | | | | | |
| Deferred acquisition costs | (30,133) | | | (23,650) | | | | | | | | | | |
| Prepaid reinsurance | (87,505) | | | (61,563) | | | | | | | | | | |
| Unpaid losses and loss adjustment expenses recoverable | 14,923 | | | 11,235 | | | | | | | | | | |
| | | | | | | | | | | | |
| Other assets | 6,235 | | | (3,816) | | | | | | | | | | |
| Reserve for losses and loss adjustment expenses | 42,825 | | | 136,153 | | | | | | | | | | |
| Unearned premiums | 206,535 | | | 166,125 | | | | | | | | | | |
| Reinsurance balances payable | 137,358 | | | 69,902 | | | | | | | | | | |
| Accounts payable and accrued expenses and other | 12,301 | | | 30,772 | | | | | | | | | | |
Net cash provided by (used in) operating activities | 75,854 | | | 136,249 | | | | | | | | | | |
| | | | | | | | | | | | |
| Investing activities | | | | | | | | | | | | |
| Proceeds from redemptions from Two Sigma Funds | 1,267,647 | | | 1,402,664 | | | | | | | | | | |
| Contributions to Two Sigma Funds | (1,349,973) | | | (1,268,499) | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Purchases of fixed maturity investments | (476,046) | | | (429,141) | | | | | | | | | | |
| Proceeds from sales, redemptions and maturity of fixed maturity investments | 284,572 | | | 269,260 | | | | | | | | | | |
| Purchases of short-term investments | (732,261) | | | (1,009,037) | | | | | | | | | | |
| Proceeds from sales of short-term investments | 690,970 | | | 1,179,492 | | | | | | | | | | |
| Change in receivables for investments sold | 335 | | | (83,981) | | | | | | | | | | |
| Change in payables for investments purchased | (29,425) | | | 116,386 | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Other | (7,741) | | | (4,921) | | | | | | | | | | |
Net cash provided by (used in) investing activities | (351,922) | | | 172,223 | | | | | | | | | | |
| | | | | | | | | | | | |
| Financing activities | | | | | | | | | | | | |
| Issuance of common shares | 8 | | | 6 | | | | | | | | | | |
| Repurchases of common shares and options | (2,247) | | | (1,518) | | | | | | | | | | |
| Contribution of additional paid-in capital | (7) | | | (7) | | | | | | | | | | |
| Term loan, net of issuance costs | 57 | | | (345) | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| Withdrawal of non-controlling interest | (6,006) | | | (68,049) | | | | | | | | | | |
Net cash provided by (used in) financing activities | (8,195) | | | (69,913) | | | | | | | | | | |
| | | | | | | | | | | | |
Effect of exchange rate changes on cash and cash equivalents | 2,278 | | | (5,991) | | | | | | | | | | |
| | | | | | | | | | | | |
| Net increase (decrease) in cash and cash equivalents | (281,985) | | | 232,568 | | | | | | | | | | |
| Cash and cash equivalents and restricted cash, beginning of period | 1,207,203 | | | 964,125 | | | | | | | | | | |
Cash and cash equivalents and restricted cash, end of period | $ | 925,218 | | | $ | 1,196,693 | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
See accompanying notes to the unaudited condensed consolidated financial statements.
Hamilton Insurance Group, Ltd.
Notes to the Unaudited Condensed Consolidated Financial Statements
4. Fair Value
Financial Instruments Subject to Fair Value Measurements
Accounting guidance over fair value measurements requires that a fair value measurement reflect the assumptions market participants would use in pricing an asset or liability based on the best information available. Assumptions include the risks inherent in a particular valuation technique (such as a pricing model) and/or the risks inherent in the inputs to the model. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (the “exit price”). Instruments that the Company owns are marked to bid prices.
Basis of Fair Value Measurements
Fair value measurement accounting guidance also establishes a fair value hierarchy that prioritizes the inputs to the respective valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). An asset or liability’s classification within the fair value hierarchy is based on the lowest level of significant input to its valuation. The three levels of the fair value hierarchy are:
•Level 1 - Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date;
•Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active; and
•Level 3 - Inputs that are both significant to the fair value measurement and unobservable.
The following section describes the valuation methodologies used to determine the fair value of the Company’s fixed maturity and short-term investments by asset class:
•U.S. government treasuries: fair value based on observable market inputs such as quoted prices, reported trades, quoted prices for similar issuances and benchmark yields;
•U.S. states, territories and municipalities: fair value based on observable market inputs such as quoted market prices, quoted prices for similar securities, benchmark yields and credit spreads;
•Non-U.S. sovereign governments and supranationals: fair value based on observable market inputs such as quoted market prices, quoted prices for similar securities and models with observable inputs such as benchmark yields and credit spreads, and then, where applicable, converted to U.S. dollars using an exchange rate from a nationally recognized source;
•Corporate: fair value based on observable market inputs such as quoted market prices, quoted prices for similar securities, benchmark yields and credit spreads;
•Asset-backed and mortgage-backed securities: fair value based on observable inputs such as quoted prices, reported trades, quoted prices for similar issuances or benchmark yields and cash flow models using observable inputs such as prepayment speeds, collateral performance and default spreads; and
•Short-term investments: fair value based on observable market inputs such as quoted prices, reported trades, quoted prices for similar issuances and benchmark yields.
Hamilton Insurance Group, Ltd.
Notes to the Unaudited Condensed Consolidated Financial Statements
The following table presents the financial instruments measured at fair value at June 30, 2023 and December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| 2023 |
| (Expressed in thousands of U.S. Dollars) | Level 1 | | Level 2 | | Level 3 | | Total |
| Fixed maturities: | | | | | | | |
| U.S. government treasuries | $ | — | | | $ | 552,590 | | | $ | — | | | $ | 552,590 | |
| U.S. states, territories and municipalities | — | | | 4,347 | | | — | | | 4,347 | |
| Non-U.S. sovereign governments and supranationals | — | | | 16,029 | | | — | | | 16,029 | |
| Corporate | — | | | 714,731 | | | — | | | 714,731 | |
| Residential mortgage-backed securities - Agency | — | | | 137,485 | | | — | | | 137,485 | |
| Residential mortgage-backed securities - Non-agency | — | | | 4,216 | | | — | | | 4,216 | |
| | | | | | | |
| Commercial mortgage-backed securities - Non-agency | — | | | 8,981 | | | — | | | 8,981 | |
| Other asset-backed securities | — | | | 12,870 | | | — | | | 12,870 | |
| Total fixed maturities | — | | | 1,451,249 | | | — | | | 1,451,249 | |
| Short-term investments | — | | | 336,587 | | | — | | | 336,587 | |
| | | | | | | |
| | | | | | | |
| Total | $ | — | | | $ | 1,787,836 | | | $ | — | | | $ | 1,787,836 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 2022 |
| (Expressed in thousands of U.S. Dollars) | Level 1 | | Level 2 | | Level 3 | | Total |
| Fixed maturities: | | | | | | | |
| U.S. government treasuries | $ | — | | | $ | 471,851 | | | $ | — | | | $ | 471,851 | |
| U.S. states, territories and municipalities | — | | | 4,307 | | | — | | | 4,307 | |
| Non-U.S. sovereign governments and supranationals | — | | | 12,952 | | | — | | | 12,952 | |
| Corporate | — | | | 647,477 | | | — | | | 647,477 | |
| Residential mortgage-backed securities - Agency | — | | | 96,410 | | | — | | | 96,410 | |
| Residential mortgage-backed securities - Non-agency | — | | | 4,375 | | | — | | | 4,375 | |
| | | | | | | |
| Commercial mortgage-backed securities - Non-agency | — | | | 9,219 | | | — | | | 9,219 | |
| Other asset-backed securities | — | | | 12,885 | | | — | | | 12,885 | |
| Total fixed maturities | — | | | 1,259,476 | | | — | | | 1,259,476 | |
| Short-term investments | — | | | 286,111 | | | — | | | 286,111 | |
| | | | | | | |
| | | | | | | |
| Total | $ | — | | | $ | 1,545,587 | | | $ | — | | | $ | 1,545,587 | |
The carrying values of cash and cash equivalents, restricted cash, accrued investment income, receivables for investments sold, certain other assets, payables for investments purchased, and certain other liabilities approximate their fair values.
1. Organization
Hamilton Insurance Group, Ltd. ("Hamilton Group", the "Group" or the "Company"), the ultimate group holding company, was incorporated on September 4, 2013, under the laws of Bermuda.
Hamilton Insurance Group, Ltd.
Notes to the Unaudited Condensed Consolidated Financial Statements
Our Bermuda operations are led by Hamilton Re, Ltd. ("Hamilton Re"), a registered Class 4 insurer incorporated in Bermuda. Hamilton Re writes property, casualty, and specialty insurance and reinsurance on a global basis.
Hamilton Re US is a tax partnership that was formed pursuant to an arrangement between Hamilton Re and its Bermuda-incorporated affiliate, Hamilton ILS Holdings Limited. The tax partnership is treated as a U.S. corporation for U.S. tax purposes and is registered with the U.S. Internal Revenue Service, such that capital and profits allocated to Hamilton Re US are subject to applicable U.S. taxation.
Ada Capital Management Limited (“ACML”), a wholly owned insurance agent incorporated and regulated in Bermuda, is authorized to underwrite on behalf of Ada Re, Ltd. (“Ada Re”).
Our London operations are comprised of Hamilton Managing Agency Limited (“HMA”), a Lloyd’s managing agency, which manages our wholly aligned Syndicate 4000 and certain other third-party funded Lloyd’s Syndicates. Syndicate 4000 operates in the Lloyd’s market and underwrites property, casualty, and specialty insurance and reinsurance business on a subscription basis. Syndicate 3334, which was managed by HMA, was closed by way of a Reinsurance to Close (“RITC”) into Syndicate 4000 at the end of December 31, 2021.
Our Dublin operations are comprised of Hamilton Insurance Designated Activity Company ("HIDAC"), a Dublin-based insurer with a U.K. branch and extensive licensing in the United States, including excess and surplus lines and reinsurance in all 50 states.
Hamilton Managing General Agency Americas LLC ("HMGA Americas") is licensed throughout the United States and underwrites on behalf of the Group's London, Dublin and Bermuda operations solely in respect of Hamilton Re US, providing access from the U.S. to the Lloyd's market, the Group's rated Irish carrier and the Group's Bermuda balance sheet, respectively.
Hamilton Select Insurance Inc. ("Hamilton Select") is a U.S. domestic excess and surplus lines carrier incorporated in Delaware and authorized to write excess and surplus business in all 50 states.
Two Sigma Hamilton Fund, LLC ("TS Hamilton Fund"), is a Delaware limited liability company. In 2013, Hamilton Re entered into a limited liability company agreement with TS Hamilton Fund and Two Sigma Principals, LLC (the "Managing Member") as the managing member of TS Hamilton Fund, under which Hamilton Re has committed that its investment in TS Hamilton Fund will equal a minimum of 95% of the consolidated net tangible assets of Hamilton Group. TS Hamilton Fund has engaged Two Sigma Investments, LP ("Two Sigma"), a related party Delaware limited partnership, to serve as its investment manager. Two Sigma is a United States Securities and Exchange Commission registered investment adviser specializing in quantitative analysis (see Note 3, Investments for further details).
Unconsolidated Related Parties
Ada Re is a special purpose insurer funded by third party investors and formed to provide fully collateralized reinsurance and retrocession to both the wholly-owned operating platforms of Hamilton Group and third-party cedants.
Turing Re Ltd. ("Turing Re"), a Bermuda special purpose insurer funded by third party investors, provides collateralized reinsurance capacity for Hamilton Re’s property treaty business.
Easton Re is an industry loss index-triggered catastrophe bond that provides the Company's operating platforms with multi-year risk transfer capacity of $150 million to protect against named storm and earthquake risk in the United States.
2. Summary of Significant Accounting Policies
There have been no material changes to the Company's significant accounting policies as described in the Company's audited consolidated financial statements for the year ended December 31, 2022.
Hamilton Insurance Group, Ltd.
Notes to the Unaudited Condensed Consolidated Financial Statements
a.Basis of Presentation
These condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP"), for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In addition, the year-end balance sheet data was derived from audited financial statements but does not include all disclosures required by GAAP. In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of the Company's financial position and results of operations as at the end of, and for, the periods presented.
These financial statements include the accounts of Hamilton Group, Hamilton Re, Hamilton U.K. Holdings Limited, Hamilton Select, HMGA Americas, ACML, and TS Hamilton Fund (collectively the "Company"). All significant intercompany transactions and balances have been eliminated on consolidation. Certain comparative information has been reclassified to conform to the current year presentation.
b.Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported and disclosed 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. The major estimates recorded in the Company’s financial statements include, but are not limited to, premiums written, provisions for estimated future credit losses, the reserve for losses and loss adjustment expenses and the fair value of investments.
In the three months ended June 30, 2023, the Company recorded an accrual of $4.4 million as a result of a change in accounting principle relating to the Value Appreciation Pool ("VAP"), of which $4.2 million was recorded as an adjustment to retained earnings in "Share compensation expense".
c.Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02 Leases (as subsequently clarified in various Updates) which updated accounting guidance that applies to any entity that enters into a lease that does not meet certain scope exceptions. The guidance requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous guidance. The Company adopted this guidance in the first quarter of 2022 by recording a gross-up of the balance sheet in recognition of an operating lease liability for future lease payments and the associated right-of-use asset for the right to use the underlying asset over the lease term. This guidance did not have a material impact on the Company’s results of operations, financial position, cash flows or disclosures.
In June 2016, the FASB issued ASU 2016-13 Measurement of Credit Losses on Financial Instruments (as subsequently clarified in various Updates), which requires the application of an incurred loss impairment methodology that reflects expected credit losses and requires consideration of a broad range of reasonable and supportable information to record credit loss estimates. The Company adopted this guidance in the first quarter of 2022, and because it did not have a material impact on the Company’s results of operations, financial position, or cash flows, we did not record a cumulative effective adjustment to opening retained earnings as of January 1, 2022.
Hamilton Insurance Group, Ltd.
Notes to the Unaudited Condensed Consolidated Financial Statements
3. Investments
Fixed Maturity and Short-Term Investments - Trading
The Company’s fixed maturity and short-term investments at June 30, 2023 and December 31, 2022 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| 2023 |
| (Expressed in thousands of U.S. Dollars) | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair
Value |
| Fixed maturities: | | | | | | | |
| U.S. government treasuries | $ | 576,679 | | | $ | 220 | | | $ | (24,309) | | | $ | 552,590 | |
| U.S. states, territories and municipalities | 4,733 | | | — | | | (386) | | | 4,347 | |
| Non-U.S. sovereign governments and supranationals | 16,865 | | | 575 | | | (1,411) | | | 16,029 | |
| Corporate | 753,782 | | | 214 | | | (39,265) | | | 714,731 | |
| Residential mortgage-backed securities - Agency | 152,133 | | | — | | | (14,648) | | | 137,485 | |
| Residential mortgage-backed securities - Non-agency | 4,954 | | | 11 | | | (749) | | | 4,216 | |
| | | | | | | |
| Commercial mortgage-backed securities - Non-agency | 10,222 | | | — | | | (1,241) | | | 8,981 | |
| Other asset-backed securities | 13,253 | | | 2 | | | (385) | | | 12,870 | |
| Total fixed maturities | 1,532,621 | | | 1,022 | | | (82,394) | | | 1,451,249 | |
| Short-term investments | 335,668 | | | 919 | | | — | | | 336,587 | |
| | | | | | | |
| | | | | | | |
| Total | $ | 1,868,289 | | | $ | 1,941 | | | $ | (82,394) | | | $ | 1,787,836 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 2022 |
| (Expressed in thousands of U.S. Dollars) | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Fair
Value |
| Fixed maturities: | | | | | | | |
| U.S. government treasuries | $ | 498,841 | | | $ | 99 | | | $ | (27,089) | | | $ | 471,851 | |
| U.S. states, territories and municipalities | 4,741 | | | — | | | (434) | | | 4,307 | |
| Non-U.S. sovereign governments and supranationals | 14,191 | | | 363 | | | (1,602) | | | 12,952 | |
| Corporate | 690,900 | | | 363 | | | (43,786) | | | 647,477 | |
| Residential mortgage-backed securities - Agency | 111,234 | | | — | | | (14,824) | | | 96,410 | |
| Residential mortgage-backed securities - Non-agency | 5,147 | | | — | | | (772) | | | 4,375 | |
| | | | | | | |
| Commercial mortgage-backed securities - Non-agency | 10,283 | | | — | | | (1,064) | | | 9,219 | |
| Other asset-backed securities | 13,347 | | | 1 | | | (463) | | | 12,885 | |
| Total fixed maturities | 1,348,684 | | | 826 | | | (90,034) | | | 1,259,476 | |
| Short-term investments | 285,130 | | | 986 | | | (5) | | | 286,111 | |
| | | | | | | |
| | | | | | | |
| Total | $ | 1,633,814 | | | $ | 1,812 | | | $ | (90,039) | | | $ | 1,545,587 | |
Hamilton Insurance Group, Ltd.
Notes to the Unaudited Condensed Consolidated Financial Statements
Contractual Maturities Summary
The following table presents contractual maturities of fixed maturity securities at June 30, 2023. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
| | | | | | | | | | | |
| 2023 |
| (Expressed in thousands of U.S. Dollars) | Amortized
Cost | | Fair
Value |
| Due less than one year | $ | 100,359 | | | $ | 97,546 | |
| Due after one through five years | 1,007,650 | | | 955,534 | |
| Due after five through ten years | 240,364 | | | 231,703 | |
| Due after ten years | 3,686 | | | 2,914 | |
| Mortgage-backed | 167,309 | | | 150,682 | |
| Asset-backed | 13,253 | | | 12,870 | |
| Total | $ | 1,532,621 | | | $ | 1,451,249 | |
Investments in Two Sigma Funds
The Company’s investments in Two Sigma Funds at June 30, 2023 and December 31, 2022 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2023 | | 2022 |
| (Expressed in thousands of U.S. Dollars) | Cost | | Net
Unrealized
Gains
(Losses) | | Fair
Value | | Cost | | Net
Unrealized Gains (Losses) | | Fair
Value |
| Two Sigma Futures Portfolio, LLC (FTV) | $ | 372,754 | | | $ | (24,683) | | | $ | 348,071 | | | $ | 438,625 | | | $ | (95,213) | | | $ | 343,412 | |
| Two Sigma Spectrum Portfolio, LLC (STV) | 256,642 | | | 39,773 | | | 296,415 | | | 171,135 | | | 57,982 | | | 229,117 | |
| Two Sigma Equity Spectrum Portfolio, LLC (ESTV) | 168,016 | | | 55,984 | | | 224,000 | | | 121,340 | | | 46,867 | | | 168,207 | |
| Total | $ | 797,412 | | | $ | 71,074 | | | $ | 868,486 | | | $ | 731,100 | | | $ | 9,636 | | | $ | 740,736 | |
The Company, through its investments in FTV, STV and ESTV, seeks to achieve absolute dollar-denominated returns on a substantial capital base, primarily by combining multiple hedged and leveraged systematic investment strategies with proprietary risk management and execution techniques. These systematic strategies include, but are not limited to, technical and statistically-based, fundamental-based, event-based, market condition-based and spread-based strategies as well as contributor-based and/or sentiment-based strategies and blended strategies. FTV primarily utilizes systematic strategies to gain broad macro exposure to FX, fixed income, equity and credit indices and commodities, predominantly by trading futures, spots, forwards, options, swaps, cash bonds and exchange traded products. STV primarily utilizes systematic strategies to trade U.S.-listed equity securities and related instruments and derivatives. ESTV primarily utilizes systematic strategies to trade non-U.S.-listed equity securities and related instruments and derivatives. At June 30, 2023, the Company owns a 18.7%, 16.0% and 8.5% interest in each of the FTV, STV and ESTV funds, respectively.
Hamilton Insurance Group, Ltd.
Notes to the Unaudited Condensed Consolidated Financial Statements
The following table summarizes certain investments of FTV, STV and ESTV where TS Hamilton Fund’s proportionate share of the fair value of the investment represents more than 5% of TS Hamilton Fund’s members’ equity at June 30, 2023:
| | | | | | | | | | | | | | | | | |
| 2023 |
| (Expressed in thousands of U.S. Dollars) | Principal/ Shares (1) | | Fair Value (1) | | % of
Members’ Equity |
| U.S. Treasury Securities, 0.0000% - 6.2500%, due 7/11/2023 - 5/15/2043 | 666,549 | | | $ | 659,070 | | | 40.1 | % |
| State Street Treasury Obligations Money Market Fund | 202,768 | | | 202,768 | | | 12.3 | % |
| | | | | |
| | | | | |
| U.S. Treasury Securities, 3.3750% - 3.7500%, due 6/30/2030 - 5/15/2053 | (157,564) | | | $ | (152,368) | | | (9.3) | % |
| | | | | |
| | | | | |
| | | | | |
__________________
(1)Values represent TS Hamilton Fund’s proportionate share of the aggregate of FTV, STV and ESTV total holdings.
Two Sigma and the Managing Member are related parties to the Company as described further in Note 1, Organization. The investment management agreement with Two Sigma requires TS Hamilton Fund to incur a management fee of 3% of the non-managing members' equity in the net asset value of the TS Hamilton Fund per annum. The management fee for the three months ended June 30, 2023 and 2022 was $12.1 million and $12.9 million, respectively and the management fee for the six months ended June 30, 2023 and 2022 was $24.0 million and $25.5 million, respectively.
Under the terms of the limited liability company agreement between Hamilton Re and the Managing Member, the Managing Member is entitled to an incentive allocation equal to 30% of TS Hamilton Fund’s net profits, subject to high watermark provisions, and adjusted for withdrawals and any incentive allocation to the Managing Member. However, in the event there is a net loss during a quarter and a net profit during any subsequent quarter, the Managing Member is entitled to a modified incentive allocation whereby the regular incentive allocation will be reduced by 50% until subsequent cumulative net profits are credited in an amount equal to 200% of the previously allocated net losses. The Managing Member is also entitled to receive an additional incentive allocation as of the end of each fiscal year (or on any date Hamilton Re withdraws all or a portion of its capital), in an amount equal to 20% of the Excess Profits. “Excess Profits” for any given fiscal year (or other such accounting period) means the net profits over 15% for such fiscal year, net of management fees and expenses and gross of incentive allocations, but only after recouping previously unrecouped net losses. To the extent Hamilton Re contributes capital other than at the beginning of a fiscal year or withdraws capital other than at the end of a fiscal year, the additional incentive allocation hurdle with respect to such capital is prorated. The aggregate incentive allocation (inclusive of the additional incentive allocation) for the three months ended June 30, 2023 and 2022 was $4.5 million and $83.4 million, respectively and the aggregate incentive allocation (inclusive of the additional incentive allocation) for the six months ended June 30, 2023 and 2022 was $6.0 million and $83.4 million, respectively.
Hamilton Re has a commitment with TS Hamilton Fund to maintain approximately 93% of its investable assets in TS Hamilton Fund for a period (the "Commitment Period"), subject to certain circumstances and the liquidity options described below, with the Commitment Period ending on December 31, 2025. The Commitment Period consists of a 3-year rolling term that automatically renews on an annual basis unless Hamilton Re or the Managing Member provide advance notice of non-renewal. The commitment is subject to a waiver that permits Hamilton Re to maintain an investment in TS Hamilton Fund equal to a minimum of 95% of the consolidated net tangible assets of Hamilton Group. The waiver is applicable to December 31, 2023, is intended to automatically renew annually and may be revoked by the Managing Member in its sole discretion upon 90 days’ prior written notice.
The TS Hamilton Fund generally has two liquidity options, subject to Hamilton Re’s minimum investment commitment, which are as follows:
•Monthly liquidity - Subject to certain conditions, Hamilton Re may request a whole or partial withdrawal of its capital account, no later than fifteen days prior to the end of a calendar month, effective as of the last day of such calendar month.
Hamilton Insurance Group, Ltd.
Notes to the Unaudited Condensed Consolidated Financial Statements
•Daily liquidity - Subject to certain limited circumstances, including the need to meet obligations pursuant to Hamilton Re’s underwriting operations, Hamilton Re may request a withdrawal of all or a portion of its capital account upon at least one business day’s written notice of such withdrawal request date to the Managing Member.
At its discretion, the Managing Member may permit or require Hamilton Re to withdraw all or any portion of its respective capital account at other times, or waive or reduce certain notice periods, or allow a notice to be revoked. The Managing Member may withdraw all or any portion of its capital account at any time.
Total Realized and Unrealized Gains (Losses) on Investments and Net Investment Income (Loss)
The components of total realized and unrealized gains (losses) on investments and net investment income (loss) for the three and six months ended June 30, 2023 and 2022 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | | Six Months Ended | | |
| June 30, | | | | | June 30, | | |
| (Expressed in thousands of U.S. Dollars) | 2023 | | 2022 | | | | | 2023 | | 2022 | | |
| Net realized and unrealized gains (losses) on investments: | | | | | | | | | | | | |
| Net realized gains (losses) on investments | $ | 27,612 | | | $ | 120,920 | | | | | | $ | (10,040) | | | 152,010 | | | |
| Change in net unrealized gains (losses) on investments | (8,206) | | | 106,769 | | | | | | 64,579 | | | 62,009 | | | |
| Net realized and unrealized gains (losses) on investments | 19,406 | | | 227,689 | | | | | | 54,539 | | | 214,019 | | | |
| | | | | | | | | | | | |
| Net investment income (loss): | | | | | | | | | | | | |
| Fixed maturities | 10,815 | | | 4,767 | | | | | | 18,970 | | | 8,463 | | | |
| Short-term investments | 98 | | | 306 | | | | | | 249 | | | 403 | | | |
| TS Hamilton Fund | 6,025 | | | 1,054 | | | | | | 9,912 | | | 1,508 | | | |
| Cash and cash equivalents | 2,412 | | | 203 | | | | | | 4,725 | | | 154 | | | |
| Other | 697 | | | (961) | | | | | | 1,120 | | | (800) | | | |
| Interest and other | 20,047 | | | 5,369 | | | | | | 34,976 | | | 9,728 | | | |
| | | | | | | | | | | | |
| Management fees | (12,515) | | | (13,296) | | | | | | (24,849) | | | (26,181) | | | |
| Other expenses | (241) | | | (230) | | | | | | (477) | | | (476) | | | |
| Net investment income (loss) | 7,291 | | | (8,157) | | | | | | 9,650 | | | (16,929) | | | |
| | | | | | | | | | | | |
| Total realized and unrealized gains (losses) on investments and net investment income (loss) | $ | 26,697 | | | $ | 219,532 | | | | | | $ | 64,189 | | | $ | 197,090 | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
Net Realized Gains (Losses) on Investments
The components of net realized gains (losses) on investments for the three and six months ended June 30, 2023 and 2022 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended | | | | | |
| June 30, | | June 30, | | | | | |
| (Expressed in thousands of U.S. Dollars) | 2023 | | 2022 | | 2023 | | 2022 | | | | | | | |
| Fixed maturities and short-term investments | $ | 2,574 | | | $ | (7,294) | | | $ | (3,108) | | | $ | (10,372) | | | | | | | | |
| TS Hamilton Fund | 24,827 | | | 128,164 | | | (7,143) | | | 161,535 | | | | | | | | |
| Other | 211 | | | 50 | | | 211 | | | 847 | | | | | | | | |
| Net realized gains (losses) on investments | $ | 27,612 | | | $ | 120,920 | | | $ | (10,040) | | | $ | 152,010 | | | | | | | | |
Hamilton Insurance Group, Ltd.
Notes to the Unaudited Condensed Consolidated Financial Statements
Net Unrealized Gains (Losses) on Investments
The components of net unrealized gains (losses) on investments for the three and six months ended June 30, 2023 and 2022 are as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended | | | | | |
| June 30, | | June 30, | | | | | |
| (Expressed in thousands of U.S. Dollars) | 2023 | | 2022 | | 2023 | | 2022 | | | | | | | |
| Fixed maturities and short-term investments | $ | (19,539) | | | $ | (18,405) | | | $ | 3,019 | | | $ | (63,205) | | | | | | | | |
| TS Hamilton Fund | 11,333 | | | 125,174 | | | 61,560 | | | 125,214 | | | | | | | | |
| | | | | | | | | | | | | | |
| Net unrealized gains (losses) on investments | $ | (8,206) | | | $ | 106,769 | | | $ | 64,579 | | | $ | 62,009 | | | | | | | | |
Pledged Assets
At June 30, 2023 and December 31, 2022, pledged investments at fair value were comprised of $277.1 million and $274.0 million, respectively, securing a portion of the capital requirements for business written at Lloyd's and $54.1 million and $39.0 million, respectively, held in trust accounts for the benefit of U.S. state regulatory authorities. In addition, certain investments were pledged as security for letter of credit facilities as described further in Note 9, Debt and Credit Facilities.
At June 30, 2023 and December 31, 2022, restricted cash balances were comprised of $101.8 million and $126.8 million, respectively, securing other underwriting obligations; $3.2 million and $2.1 million, respectively, securing a portion of the capital requirements for business written at Lloyd's; $1.4 million and $1.3 million, respectively, in trust accounts for the benefit of regulatory authorities; and $0.3 million and $0.6 million, respectively, of escrow funds.
Total cash and cash equivalents and restricted cash of $0.9 billion presented in the statement of cash flows at June 30, 2023 was comprised of cash and cash equivalents of $818.5 million and restricted cash of $106.7 million on the balance sheet. Total cash and cash equivalents and restricted cash of $1.2 billion presented in the statement of cash flows at December 31, 2022 was comprised of cash and cash equivalents of $1.1 billion and restricted cash of $130.8 million on the balance sheet.
5. Variable Interest Entities
TS Hamilton Fund
TS Hamilton Fund meets the definition of a variable interest entity ("VIE") principally because the Managing Member does not hold substantive equity at risk in the entity but controls all of the decision making authority over it. Therefore, the Company assessed its ownership in the VIE to determine if it is the primary beneficiary. The Managing Member is a related party to the Company and collectively they hold all of the variable interest. The Company performed an assessment of all relevant facts and circumstances and determined that it is the entity within the related party group for whom substantially all of the activities of the VIE are conducted. As a result, the Company concluded that it is the primary beneficiary of TS Hamilton Fund.
Hamilton Insurance Group, Ltd.
Notes to the Unaudited Condensed Consolidated Financial Statements
Activity in the non-controlling interest of TS Hamilton Fund for the three and six months ended June 30, 2023 and 2022 was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | | Six Months Ended |
| June 30, | | | | | June 30, | | |
| (Expressed in thousands of U.S. Dollars) | 2023 | | 2022 | | | | | 2023 | | 2022 | | |
| Non-controlling interest - beginning of period | $ | 120 | | | $ | 127 | | | | | | $ | 119 | | | $ | 124 | | | |
| | | | | | | | | | | | |
| Withdrawals | (4,497) | | | (68,049) | | | | | | (6,006) | | | (68,049) | | | |
| Equity in earnings | 4 | | | 19 | | | | | | 5 | | | 22 | | | |
| Incentive allocation | 4,497 | | | 83,365 | | | | | | 6,006 | | | 83,365 | | | |
| Non-controlling interest - end of period | $ | 124 | | | $ | 15,462 | | | | | | $ | 124 | | | $ | 15,462 | | | |
The following table represents the total assets and total liabilities of TS Hamilton Fund at June 30, 2023 and December 31, 2022. Creditors or beneficial interest holders of TS Hamilton Fund have no recourse to the general credit of the Company as the Company’s obligation is limited to the amount of its committed investment.
| | | | | | | | | | | |
| (Expressed in thousands of U.S. Dollars) | 2023 | | 2022 |
| Assets | | | |
| Cash and cash equivalents | $ | 470,833 | | | $ | 800,239 | |
| Short-term investments | 326,092 | | | 264,104 | |
| Investments in Two Sigma Funds, at fair value | 868,486 | | | 740,736 | |
| | | |
| Interest and dividends receivable | 1,983 | | | 2,076 | |
Total assets | 1,667,394 | | | 1,807,155 | |
| | | |
| Liabilities | | | |
| Accounts payable and accrued expenses | 174 | | | 291 | |
| | | |
| Withdrawal payable | 4,497 | | | 145,738 | |
| Payable for investments purchased | 18,250 | | | 48,095 | |
Total liabilities | 22,921 | | | 194,124 | |
Total net assets managed by TS Hamilton Fund | $ | 1,644,473 | | | $ | 1,613,031 | |
The withdrawal payable of $4.5 million and $145.7 million at June 30, 2023 and December 31, 2022, respectively, includes a redemption of $Nil and $145.7 million, respectively, due to Hamilton Re. The net balance is reported on the Company's balance sheet in "Payables to related parties".
6. Reinsurance
The Company purchases reinsurance and other protection to manage its risk portfolio and to reduce its exposure to large losses. The Company currently has in place contracts that provide for recovery of a portion of certain claims and claim expenses, generally in excess of various retentions or on a proportional basis. Amounts recoverable under reinsurance contracts are recorded as assets. The Company remains liable to the extent that any reinsurance company fails to meet its obligations.
Allowance for Expected Credit Losses
Premiums receivable and paid and unpaid losses recoverable comprise the Company's most significant credit exposures not carried at fair value. The Company has not historically experienced significant credit losses. In determining an allowance for these reinsurance assets, the Company considers historical information in combination with counterparty financial strength ratings and the extent to which balances are collateralized. The Company assesses the risk of future default by evaluating current market conditions for the likelihood of default and calculates its provision for current expected credit losses under the probability of default and loss given default methodology.
Hamilton Insurance Group, Ltd.
Notes to the Unaudited Condensed Consolidated Financial Statements
Premiums Receivable
Premiums receivable are estimated based on policy terms and reports received from the underlying counterparties, supplemented by management's judgment. Due to the nature of the (re)insurance business, the Company routinely receives reports and premiums subsequent to the inception of the coverage period. At June 30, 2023, the Company’s premiums receivable balance, net of credit provisions of $3.1 million, was $756.3 million. At December 31, 2022, the Company’s premiums receivable balance, net of credit provisions of $2.9 million, was $522.7 million.
Reinsurance Balances Recoverable
Reinsurance balances recoverable is comprised of amounts due from reinsurers based on the claim liabilities associated with the reinsured policy. The Company accrues amounts due from reinsurers based on estimated ultimate contract losses.
At June 30, 2023, the Company’s paid and unpaid reinsurance recoverable balances net of credit provisions were $132.5 million and $1.2 billion, respectively, with a total corresponding provision for current expected credit losses of $0.8 million. At December 31, 2022, the Company’s paid and unpaid reinsurance recoverable balances net of credit provisions were $90.7 million and $1.2 billion, respectively, with a total corresponding provision for current expected credit losses of $0.8 million.
At June 30, 2023 and December 31, 2022, the distribution of the Company’s paid and unpaid losses and loss adjustment expenses recoverable as categorized by major rating agencies were as follows:
| | | | | | | | | | | | | | |
| | % of total paid and unpaid
losses and
loss adjustment expenses
recoverable |
| Classification | | June 30,
2023 | | December 31,
2022 |
| Collateralized | | 32.0 | % | | 33.8 | % |
| A- or better | | 67.4 | % | | 65.6 | % |
| Below A- | | 0.6 | % | | 0.6 | % |
| Total | | 100.0 | % | | 100.0 | % |
At June 30, 2023 and December 31, 2022, the three largest balances by reinsurer accounted for 31%, 20% and 12%, and 31%, 17% and 11%, respectively, of paid and unpaid losses and loss adjustment expenses recoverable.
Loss Portfolio Transfer
On February 6, 2020, the Company entered into a loss portfolio transfer agreement (the "LPT"), under which the insurance liabilities arising from certain casualty risks for the Lloyd's Years of Account ("YOA") 2016, 2017 and 2018 were retroceded to a third party in exchange for total premium of $72.1 million. This transaction was accounted for as retroactive reinsurance under which cumulative ceded losses exceeding the LPT premium are recognized as a deferred gain liability and amortized into income over the settlement period of the ceded reserves in proportion to cumulative losses collected over the estimated ultimate reinsurance recoverable. The amount of the deferral is recalculated each reporting period based on updated ultimate loss estimates. Consequently, cumulative adverse development subsequent to the signing of the LPT may result in significant losses from operations until periods when the deferred gain is recognized as a benefit to earnings.
At June 30, 2023 and December 31, 2022, the balance of reinsurance recoverable on unpaid losses due under this LPT was $57.0 million and $59.2 million, respectively. Amortization of the deferred gain was income of $3.1 million and an expense of $0.9 million during the three months ended June 30, 2023 and 2022, respectively, and income of $3.4 million and an expense of $2.0 million during the six months ended June 30, 2023 and 2022, respectively, which was recorded through losses and loss adjustment expenses in accordance with the actual loss payments and updated estimates of ultimate losses of the subject business.
Hamilton Insurance Group, Ltd.
Notes to the Unaudited Condensed Consolidated Financial Statements
Catastrophe Bond Reinsurance
In 2021, Hamilton Group sponsored an industry loss index-triggered catastrophe bond through the issuance of Series 2020-1 Class A Principal-at-Risk Variable Rate Notes by Easton Re Pte, Ltd. (“Easton Re”). Easton Re provides the Company's operating platforms with multi-year risk transfer capacity of $150 million to protect against named storm and earthquake risk in the United States. The risk period for Easton Re is from January 1, 2021 to December 31, 2023. The Company recorded reinsurance premiums ceded of $7.2 million and $6.3 million during each of the three and six months ended June 30, 2023 and 2022, respectively.
Hamilton Insurance Group, Ltd.
Notes to the Unaudited Condensed Consolidated Financial Statements
7. Reserve for Losses and Loss Adjustment Expenses
The following table presents a reconciliation of unpaid losses and loss adjustment expenses ("LAE") for the six months ended June 30, 2023 and 2022:
| | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| (Expressed in thousands of U.S. Dollars) | 2023 | | 2022 | | | | | | | |
| Gross unpaid losses and loss expenses, beginning of period | $ | 2,856,275 | | | $ | 2,415,491 | | | | | | | | |
| Reinsurance recoverable on unpaid losses | 1,177,863 | | | 1,112,543 | | | | | | | | |
| Net unpaid losses and loss expenses, beginning of period | 1,678,412 | | | 1,302,948 | | | | | | | | |
| | | | | | | | | | |
| Net losses and loss expenses incurred in respect of losses occurring in: | | | | | | | | | | |
| Current year | 330,458 | | | 370,534 | | | | | | | | |
| Prior years | (2,481) | | | (31,483) | | | | | | | | |
| Total incurred | 327,977 | | | 339,051 | | | | | | | | |
| | | | | | | | | | |
| Net losses and loss expenses paid in respect of losses occurring in: | | | | | | | | | | |
| Current year | 10,431 | | | 5,160 | | | | | | | | |
| Prior years | 282,252 | | | 161,352 | | | | | | | | |
| Total paid | 292,683 | | | 166,512 | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| Foreign currency revaluation and other | 22,454 | | | (25,151) | | | | | | | | |
| Net unpaid losses and loss expenses, end of period | 1,736,160 | | | 1,450,336 | | | | | | | | |
| Reinsurance recoverable on unpaid losses | 1,162,940 | | | 1,101,308 | | | | | | | | |
| Gross unpaid losses and loss expenses, end of period | $ | 2,899,100 | | | $ | 2,551,644 | | | | | | | | |
Net favorable prior year development of $2.5 million for the six months ended June 30, 2023 was comprised of $3.6 million of favorable prior year development on attritional losses and $1.1 million of unfavorable prior year development on catastrophe losses. See below for further details:
•Net favorable development of $5.3 million on specialty contracts, driven by lower than expected claims development across various classes; and
•Net favorable development of $1.2 million on casualty lines of business, primarily related to lower than expected claims development across various classes; offset by
•Net unfavorable development of $6.1 million on property contracts, primarily driven by higher than expected claims development relating to Winterstorm Elliott, as well as development in exited lines.
In addition, casualty business protected by the LPT discussed in Note 6, Reinsurance, recorded unfavorable gross development, which was partially offset by amortization of the associated deferred gain, resulting in a net positive earnings impact of $2.1 million.
Net favorable prior year development of $31.5 million for the six months ended June 30, 2022 was comprised of $18.5 million of favorable prior year development on attritional losses and $13.0 million of favorable prior year development on catastrophe losses. See below for further details:
•Net favorable development of $11.9 million on specialty contracts, driven by reductions in loss estimates;
•Net favorable development of $9.0 million on property contracts, driven by decreases in loss estimates for 2021 catastrophe events; and
•Net favorable development of $4.5 million on casualty lines of business.
Hamilton Insurance Group, Ltd.
Notes to the Unaudited Condensed Consolidated Financial Statements
In addition, casualty business protected by the LPT discussed in Note 6, Reinsurance, recorded favorable gross development which was partially offset by amortization of the associated deferred gain, resulting in a net positive earnings impact of $6.1 million.
Reinsurance recoverable on unpaid losses related to the LPT discussed in Note 6, Reinsurance was recognized for each of the six months ended June 30, 2023 and 2022 in the reconciliation of beginning and ending gross and net loss and LAE reserves presented above.
The Company amortized acquisition costs of $76.9 million and $63.7 million for the three months ended June 30, 2023 and 2022, respectively, and $142.0 million and $129.1 million for the six months ended June 30, 2023 and 2022, respectively.
Ukraine Conflict
The estimate of net reserves for losses and loss adjustment expenses related to the ongoing Ukraine conflict is subject to significant uncertainty. As at June 30, 2023 and December 31, 2022, our net recorded reserves relating to the Ukraine conflict totaled $75.6 million and $79.3 million, respectively.
Covid-19
Our Covid-19 losses also remain subject to significant uncertainty and review. Actual ultimate losses for these events may differ materially from the Company's current estimates. As at June 30, 2023 and December 31, 2022, our net recorded reserves relating to Covid-19 totaled $13.4 million and $39.0 million, respectively.
While the Company believes, based on current facts and circumstances, that its estimates of net reserves for losses and loss expenses are adequate for losses and loss adjustment expenses that have been incurred at June 30, 2023, the Company will continue to monitor its assumptions as new information becomes available and will adjust its estimate of net reserves for losses and loss adjustment expenses as appropriate. Actual ultimate losses for these events may differ materially from the Company's current estimates.
8. Segment Reporting
We have determined our reportable business segments based on the information used by management in assessing performance and allocating resources to underwriting operations. We have identified two reportable business segments - International and Bermuda. Each of our identified reportable segments has a Chief Executive Officer who is responsible for the overall profitability of their segment and who regularly reports and is directly accountable to the chief operating decision maker: the Chief Executive Officer of the consolidated group.
We evaluate reportable segment performance based on their respective underwriting income or loss. Underwriting income or loss is calculated as net earned premium less losses and loss adjustment expenses, acquisition costs, and other underwriting expenses (a component of general and administrative expenses), net of third party fee income (a component of other income). General and administrative expenses not incurred by the reportable segments are included in corporate and other expenses as part of the reconciliation of net underwriting income or loss to net income or loss attributable to common shareholders. As we do not manage our assets by segment, investment income and assets are not allocated to reportable segments.
Our core business is underwriting and our underwriting results are reflected in our reportable segments: (1) International, which is comprised of property, specialty and casualty insurance and reinsurance classes of business originating from the Company’s London, Dublin, and Hamilton Select operations; and (2) Bermuda, which is comprised of property, specialty and casualty insurance and reinsurance classes of business originating from Hamilton Re Bermuda and Hamilton Re US and subsidiaries. We consider many factors, including the nature of each segment’s products, client types, production sources, distribution methods and the regulatory environment, in determining the aggregated operating segments.
Corporate includes net realized and unrealized gains (losses) on investment, net investment income (loss), other income (loss) not incurred by the reportable segments, net foreign exchange gain (loss), general and administrative expenses not incurred by reportable segments, interest expense, and income tax expense (benefit).
Hamilton Insurance Group, Ltd.
Notes to the Unaudited Condensed Consolidated Financial Statements
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Expressed in thousands of U.S. Dollars) | | | | | | | | |
| Three Months Ended June 30, 2023 | | International | | Bermuda | | Corporate | | Total |
| Gross premiums written | | $ | 277,796 | | | $ | 227,164 | | | $ | — | | | $ | 504,960 | |
| Net written premiums | | $ | 197,047 | | | $ | 187,661 | | | $ | — | | | $ | 384,708 | |
| Net premiums earned | | $ | 176,636 | | | $ | 154,824 | | | $ | — | | | $ | 331,460 | |
| Third-party fee income | | 2,401 | | | 48 | | | — | | | 2,449 | |
| Net losses and loss adjustment expenses | | 87,575 | | | 91,841 | | | — | | | 179,416 | |
| Acquisition costs | | 47,260 | | | 29,596 | | | — | | | 76,856 | |
| Other underwriting expenses | | 29,540 | | | 13,203 | | | — | | | 42,743 | |
| Underwriting income (loss) | | $ | 14,662 | | | $ | 20,232 | | | $ | — | | | $ | 34,894 | |
| Net realized and unrealized gains (losses) on investments | | | | | | 19,406 | | | 19,406 | |
| Net investment income (loss) | | | | | | 7,291 | | | 7,291 | |
| | | | | | | | |
| Other income (loss), excluding third party fee income | | | | | | (29) | | | (29) | |
| Net foreign exchange gains (losses) | | | | | | (3,341) | | | (3,341) | |
| Corporate expenses | | | | | | (6,491) | | | (6,491) | |
| | | | | | | | |
| Amortization of intangible assets | | | | | | (2,305) | | | (2,305) | |
| Interest expense | | | | | | (5,189) | | | (5,189) | |
| Net income (loss) before tax | | | | | | | | 44,236 | |
| Income tax expense | | | | | | (2,948) | | | (2,948) | |
| Net income (loss) | | | | | | | | 41,288 | |
| Net income (loss) attributable to non-controlling interest | | | | | | 4,501 | | | 4,501 | |
| Net income (loss) attributable to common shareholders | | | | | | | | $ | 36,787 | |
| | | | | | | | |
| Key Ratios | | | | | | | | |
| Attritional loss ratio - current year | | 52.9 | % | | 48.9 | % | | | | 51.0 | % |
| Attritional loss ratio - prior year development | | (3.3) | % | | 0.3 | % | | | | (1.6) | % |
| Catastrophe loss ratio - current year | | 0.9 | % | | 9.8 | % | | | | 5.0 | % |
| Catastrophe loss ratio - prior year development | | (0.9) | % | | 0.3 | % | | | | (0.3) | % |
| Net loss and loss adjustment expense ratio | | 49.6 | % | | 59.3 | % | | | | 54.1 | % |
| Acquisition cost ratio | | 26.8 | % | | 19.1 | % | | | | 23.2 | % |
| Other underwriting expense ratio | | 15.4 | % | | 8.5 | % | | | | 12.2 | % |
| Combined ratio | | 91.8 | % | | 86.9 | % | | | | 89.5 | % |
Hamilton Insurance Group, Ltd.
Notes to the Unaudited Condensed Consolidated Financial Statements
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Expressed in thousands of U.S. Dollars) | | | | | | | | |
| Three Months Ended June 30, 2022 | | International | | Bermuda | | Corporate | | Total |
| Gross premiums written | | $ | 208,536 | | | $ | 179,309 | | | $ | — | | | $ | 387,845 | |
| Net written premiums | | $ | 148,992 | | | $ | 146,418 | | | $ | — | | | $ | 295,410 | |
| Net premiums earned | | $ | 149,538 | | | $ | 121,070 | | | $ | — | | | $ | 270,608 | |
| Third-party fee income | | 3,261 | | | 144 | | | — | | | 3,405 | |
| Net losses and loss adjustment expenses | | 69,824 | | | 61,026 | | | — | | | 130,850 | |
| Acquisition costs | | 38,002 | | | 25,689 | | | — | | | 63,691 | |
| Other underwriting expenses | | 27,734 | | | 12,682 | | | — | | | 40,416 | |
| Underwriting income (loss) | | $ | 17,239 | | | $ | 21,817 | | | $ | — | | | $ | 39,056 | |
| Net realized and unrealized gains (losses) on investments | | | | | | 227,689 | | | 227,689 | |
| Net investment income (loss) | | | | | | (8,157) | | | (8,157) | |
| | | | | | | | |
| Other income (loss), excluding third party fee income | | | | | | 148 | | | 148 | |
| Net foreign exchange gains (losses) | | | | | | 11,110 | | | 11,110 | |
| Corporate expenses | | | | | | (5,474) | | | (5,474) | |
| | | | | | | | |
| Amortization of intangible assets | | | | | | (3,337) | | | (3,337) | |
| Interest expense | | | | | | (3,790) | | | (3,790) | |
| Net income (loss) before tax | | | | | | | | 257,245 | |
| Income tax expense | | | | | | (1,292) | | | (1,292) | |
| Net income (loss) | | | | | | | | 255,953 | |
| Net income (loss) attributable to non-controlling interest | | | | | | 83,384 | | | 83,384 | |
| Net income (loss) attributable to common shareholders | | | | | | | | $ | 172,569 | |
| | | | | | | | |
| Key Ratios | | | | | | | | |
| Attritional loss ratio - current year | | 48.0 | % | | 58.1 | % | | | | 52.6 | % |
| Attritional loss ratio - prior year development | | (6.0) | % | | (1.0) | % | | | | (3.8) | % |
| Catastrophe loss ratio - current year | | 3.8 | % | | 6.6 | % | | | | 5.1 | % |
| Catastrophe loss ratio - prior year development | | 0.9 | % | | (13.3) | % | | | | (5.5) | % |
| Net loss and loss adjustment expense ratio | | 46.7 | % | | 50.4 | % | | | | 48.4 | % |
| Acquisition cost ratio | | 25.4 | % | | 21.2 | % | | | | 23.5 | % |
| Other underwriting expense ratio | | 16.4 | % | | 10.4 | % | | | | 13.6 | % |
| Combined ratio | | 88.5 | % | | 82.0 | % | | | | 85.5 | % |
Hamilton Insurance Group, Ltd.
Notes to the Unaudited Condensed Consolidated Financial Statements
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Expressed in thousands of U.S. Dollars) | | | | | | | | |
| Six Months Ended June 30, 2023 | | International | | Bermuda | | Corporate | | Total |
| Gross premiums written | | $ | 524,909 | | | $ | 518,215 | | | $ | — | | | $ | 1,043,124 | |
| Net written premiums | | $ | 319,067 | | | $ | 414,139 | | | $ | — | | | $ | 733,206 | |
| Net premiums earned | | $ | 326,151 | | | $ | 289,211 | | | $ | — | | | $ | 615,362 | |
| Third-party fee income | | 5,302 | | | 150 | | | — | | | 5,452 | |
| Net losses and loss adjustment expenses | | 157,967 | | | 170,010 | | | — | | | 327,977 | |
| Acquisition costs | | 84,452 | | | 57,543 | | | — | | | 141,995 | |
| Other underwriting expenses | | 58,002 | | | 23,884 | | | — | | | 81,886 | |
| Underwriting income (loss) | | $ | 31,032 | | | $ | 37,924 | | | $ | — | | | $ | 68,956 | |
| Net realized and unrealized gains (losses) on investments | | | | | | 54,539 | | | 54,539 | |
| Net investment income (loss) | | | | | | 9,650 | | | 9,650 | |
| | | | | | | | |
| Other income (loss), excluding third party fee income | | | | | | — | | | — | |
| Net foreign exchange gains (losses) | | | | | | (5,387) | | | (5,387) | |
| Corporate expenses | | | | | | (13,154) | | | (13,154) | |
| | | | | | | | |
| Amortization of intangible assets | | | | | | (5,075) | | | (5,075) | |
| Interest expense | | | | | | (10,718) | | | (10,718) | |
| Net income (loss) before tax | | | | | | | | 98,811 | |
| Tax expense | | | | | | (4,521) | | | (4,521) | |
| Net income (loss) | | | | | | | | 94,290 | |
| Net income (loss) attributable to non-controlling interest | | | | | | 6,011 | | | 6,011 | |
Net income (loss) attributable to common shareholders | | | | | | | | $ | 88,279 | |
| | | | | | | | |
| Key Ratios | | | | | | | | |
| Attritional loss ratio - current year | | 51.6 | % | | 48.5 | % | | | | 50.1 | % |
| Attritional loss ratio - prior year development | | (3.8) | % | | 3.0 | % | | | | (0.6) | % |
| Catastrophe loss ratio - current year | | 0.4 | % | | 7.1 | % | | | | 3.6 | % |
| Catastrophe loss ratio - prior year development | | 0.2 | % | | 0.2 | % | | | | 0.2 | % |
| Net loss and loss adjustment expense ratio | | 48.4 | % | | 58.8 | % | | | | 53.3 | % |
| Acquisition cost ratio | | 25.9 | % | | 19.9 | % | | | | 23.1 | % |
| Other underwriting expense ratio | | 16.2 | % | | 8.2 | % | | | | 12.4 | % |
| Combined ratio | | 90.5 | % | | 86.9 | % | | | | 88.8 | % |
Hamilton Insurance Group, Ltd.
Notes to the Unaudited Condensed Consolidated Financial Statements
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (Expressed in thousands of U.S. Dollars) | | | | | | | | |
| Six Months Ended June 30, 2022 | | International | | Bermuda | | Corporate | | Total |
| Gross premiums written | | $ | 429,740 | | | $ | 474,870 | | | $ | — | | | $ | 904,610 | |
| Net written premiums | | $ | 262,258 | | | $ | 375,419 | | | $ | — | | | $ | 637,677 | |
| Net premiums earned | | $ | 293,894 | | | $ | 242,630 | | | $ | — | | | $ | 536,524 | |
| Third-party fee income | | 5,884 | | | 249 | | | — | | | 6,133 | |
| Net losses and loss adjustment expenses | | 157,779 | | | 181,272 | | | — | | | 339,051 | |
| Acquisition costs | | 80,657 | | | 48,403 | | | — | | | 129,060 | |
| Other underwriting expenses | | 55,445 | | | 23,347 | | | — | | | 78,792 | |
| Underwriting income (loss) | | $ | 5,897 | | | $ | (10,143) | | | $ | — | | | $ | (4,246) | |
| Net realized and unrealized gains (losses) on investments | | | | | | 214,019 | | | 214,019 | |
| Net investment income (loss) | | | | | | (16,929) | | | (16,929) | |
| | | | | | | | |
| Other income (loss), excluding third party fee income | | | | | | 257 | | | 257 | |
| Net foreign exchange gains (losses) | | | | | | 13,476 | | | 13,476 | |
| Corporate expenses | | | | | | (10,154) | | | (10,154) | |
| | | | | | | | |
| Amortization of intangible assets | | | | | | (6,697) | | | (6,697) | |
| Interest expense | | | | | | (7,153) | | | (7,153) | |
| Net income (loss) before tax | | | | | | | | 182,573 | |
| Tax expense | | | | | | (2,048) | | | (2,048) | |
| Net income (loss) | | | | | | | | 180,525 | |
| Net income (loss) attributable to non-controlling interest | | | | | | 83,387 | | | 83,387 | |
Net income (loss) attributable to common shareholders | | | | | | | | $ | 97,138 | |
| | | | | | | | |
| Key Ratios | | | | | | | | |
| Attritional loss ratio - current year | | 47.8 | % | | 51.6 | % | | | | 49.5 | % |
| Attritional loss ratio - prior year development | | (5.3) | % | | (1.1) | % | | | | (3.4) | % |
| Catastrophe loss ratio - current year | | 9.8 | % | | 31.4 | % | | | | 19.5 | % |
| Catastrophe loss ratio - prior year development | | 1.4 | % | | (7.2) | % | | | | (2.4) | % |
| Net loss and loss adjustment expense ratio | | 53.7 | % | | 74.7 | % | | | | 63.2 | % |
| Acquisition cost ratio | | 27.4 | % | | 19.9 | % | | | | 24.0 | % |
| Other underwriting expense ratio | | 16.9 | % | | 9.6 | % | | | | 13.6 | % |
| Combined ratio | | 98.0 | % | | 104.2 | % | | | | 100.8 | % |
Hamilton Insurance Group, Ltd.
Notes to the Unaudited Condensed Consolidated Financial Statements
The following table presents gross premiums written by the geographical location of the Company's subsidiaries for the three and six months ended June 30, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended | | | |
| June 30, | | June 30, | | | | | |
| (Expressed in thousands of U.S. Dollars) | 2023 | | 2022 | | 2023 | | 2022 | | | | | |
| | | | | | | | | | | | |
| International | | | | | | | | | | | | |
| Lloyd's of London | $ | 169,463 | | | $ | 135,336 | | | $ | 318,171 | | | $ | 271,346 | | | | | | |
| Ireland | 90,968 | | | 69,967 | | | 174,731 | | | 155,161 | | | | | | |
| U.S. | 17,365 | | | 3,233 | | | 32,007 | | | 3,233 | | | | | | |
| Total International | 277,796 | | | 208,536 | | | 524,909 | | | 429,740 | | | | | | |
| | | | | | | | | | | | |
| Bermuda | 227,164 | | | 179,309 | | | 518,215 | | | 474,870 | | | | | | |
| | | | | | | | | | | | |
| Total | $ | 504,960 | | | $ | 387,845 | | | $ | 1,043,124 | | | $ | 904,610 | | | | | | |
9. Debt and Credit Facilities
Debt
On June 23, 2022, Hamilton Group renewed its unsecured $150 million term loan credit arrangement, as amended from time to time (the "Facility"), with various lenders as arranged by Wells Fargo Securities, LLC. All or a portion of the loan issued under the renegotiated Facility bears interest at either (a) the Base Rate plus the Applicable Margin or (b) the Adjusted Term Secured Overnight Financing Rate ("SOFR") rate plus the Applicable Margin, at Hamilton Group's discretion. In the event of default, an additional 2% interest in excess of (a) or (b) will be levied, not to exceed the highest rate permissible under applicable law, and certain types of loans may not be available for borrowing by Hamilton Group under the Facility. The Facility matures on June 23, 2025, unless accelerated pursuant to the terms of the Facility, and it contains usual and customary representations, warranties, conditions and covenants for bank loan facilities of this type. The Facility also contains certain financial covenants which cap the ratio of consolidated debt to capital and require that Hamilton Group maintain a certain minimum consolidated net worth. The net worth requirement is recalculated effective as of the end of each fiscal quarter. As of June 30, 2023, the outstanding loan balance was $150.0 million, the fair value was $150.9 million, the unamortized issuance costs were $0.2 million, and the Company was in compliance with all covenants.
Debt issuance costs are amortized over the period of time during which the Facility is outstanding, as an offset to investment income. The Company amortized debt issuance costs of $0.1 million or less in each of the three and six months ended June 30, 2023 and 2022. The Company’s debt is classified as Level 3 within the fair value hierarchy because it is valued using an income approach, which utilizes a discounted cash flow technique that considers the credit profile of the Company.
Credit Facilities
The Company has several available letter of credit facilities and a revolving loan facility provided by commercial banks. The letter of credit facilities are utilized to provide collateral to reinsureds of Hamilton Re and its affiliates to the extent required under reinsurance agreements and to support capital requirements at Lloyd’s.
On June 23, 2022, Hamilton Group and Hamilton Re amended and restated their unsecured credit agreement with a syndication of lenders (the “Unsecured Facility"). Under the Unsecured Facility, the lenders have agreed to provide up to an aggregate of $415 million of letter of credit capacity for Hamilton Re, up to $150 million of which may be utilized for revolving loans to be issued to Hamilton Group. At June 30, 2023, there were no loan amounts outstanding under this facility. Letters of credit issued under the facility bear interest at a rate of 150 basis points, while revolving loans if issued are subject to a fee of SOFR plus a margin of 185 basis points. To the extent such loans are issued, the available letter of credit capacity shall decrease proportionally, such that the aggregate credit exposure for the lenders under the credit agreement is $415 million. Amounts unutilized under the facility are subject to a fee of 22.5 basis points. Capacity is provided by Wells Fargo, National Association, Truist Bank, BMO Harris Bank N.A., Commerzbank AG, New York Branch, HSBC Bank USA, N. A., and Barclays Bank PLC. Unless
Hamilton Insurance Group, Ltd.
Notes to the Unaudited Condensed Consolidated Financial Statements
renewed or otherwise terminated in accordance with its terms, the Unsecured Facility is scheduled to terminate on June 23, 2025.
On August 13, 2021, Hamilton Re and HIDAC entered into a committed letter of credit facility agreement with Bank of Montreal ("BMO"), with Hamilton Group as guarantor, under which BMO agreed to make available a secured letter of credit facility of $50 million for a term that was to expire on August 13, 2023. The facility bears a fee of 40 basis points for letters of credit issued and 15 basis points on any unutilized portion of the facility. This facility was renewed under the same terms and conditions on August 11, 2023 for an additional term expiring on August 13, 2024.
On October 27, 2022, Hamilton Re amended its letter of credit facility agreement with UBS AG ("UBS") under which UBS and certain of its affiliates agreed to make available to Hamilton Re a secured letter of credit facility of $100 million for a term that will expire on October 27, 2023. The facility bears a fee of 140 basis points on the total available capacity.
In addition, Hamilton Re is the borrower under a $205 million unsecured letter of credit facility agreement that it utilizes to provide Funds at Lloyd's ("FAL") ("FAL LOC Facility") to support the FAL requirements of Syndicate 4000. Capacity is provided by Barclays Bank PLC, ING Bank N.V., London Branch, and Bank of Montreal, London Branch. The facility bears a fee of 162.5 basis points on the borrowed amount.
The Company’s obligations under its credit facilities require Hamilton Group, Hamilton Re and the other parties thereto to comply with various financial and reporting covenants. All applicable entities were in compliance with all such covenants at June 30, 2023.
Certain of the Company's credit facilities are secured by pledged interests in the TS Hamilton Fund or the Company's fixed income security portfolio or cash. The Company’s credit facilities at June 30, 2023, and associated securities pledged, were as follows:
| | | | | | | |
| (Expressed in thousands of U.S. Dollars) | 2023 | | |
| | | |
| | | |
| | | |
| Available letter of credit and revolving loan facilities - commitments | $ | 921,168 | | | |
| Available letter of credit and revolving loan facilities - in use | 673,809 | | | |
| | | |
| Security pledged under letter of credit and revolving loan facilities: | | | |
| Pledged interests in TS Hamilton Fund | $ | 225,302 | | | |
| Pledged interests in fixed income portfolio | 213,029 | | | |
| Cash | 6,201 | | | |
The Company has recognized interest expense related to the above debt and credit facilities of $5.2 million and $3.8 million for the three months ended June 30, 2023 and 2022, respectively, and $10.7 million and $7.2 million for the six months ended June 30, 2023 and 2022, respectively.
Hamilton Insurance Group, Ltd.
Notes to the Unaudited Condensed Consolidated Financial Statements
10. Share Capital
Authorized and Issued
Hamilton Group’s share capital at June 30, 2023 and December 31, 2022, is comprised as follows:
| | | | | | | | | | | |
| (Expressed in thousands of U.S. Dollars, except share information) | | | |
| Authorized: | | | |
| 135,000,000 common shares of $0.01 par value each | | | |
| | | |
| | | |
| | | |
| Issued, outstanding and fully paid: | 2023 | | 2022 |
Class A common shares (2023 and 2022: 30,520,078) | $ | 305 | | | $ | 305 | |
Class B common shares (2023: 42,638,190 and 2022: 42,042,155) | 426 | | | 420 | |
Class C common shares (2023 and 2022: 30,525,626) | 305 | | | 305 | |
| Total | $ | 1,036 | | | $ | 1,030 | |
There was no change in authorized Class A, B or C common shares for the six months ended June 30, 2023.
The following is a summary of the activity related to common shares authorized for the six months ended June 30, 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| 2022 |
| Class A | | Class B | | Class C | | Total |
| Common shares - beginning of period | 53,793,690 | | | 46,898,612 | | | 34,307,698 | | | 135,000,000 | |
| Share class conversions | 200,000 | | | 2,085,511 | | | (2,285,511) | | | — | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Common shares - end of period | 53,993,690 | | | 48,984,123 | | | 32,022,187 | | | 135,000,000 | |
The following is a summary of the activity related to common shares issued and outstanding for the six months ended June 30, 2023 and 2022:
| | | | | | | | | | | | | | | | | | | | | | | |
| 2023 |
| Class A | | Class B | | Class C | | Total |
| Common shares - beginning of period | 30,520,078 | | | 42,042,155 | | | 30,525,626 | | | 103,087,859 | |
| | | | | | | |
| Vesting of awards | — | | | 735,013 | | | — | | | 735,013 | |
| | | | | | | |
| Director share awards granted | — | | | 24,780 | | | — | | | 24,780 | |
| Share repurchases | — | | | (163,758) | | | — | | | (163,758) | |
| Common shares - end of period | 30,520,078 | | | 42,638,190 | | | 30,525,626 | | | 103,683,894 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| 2022 |
| Class A | | Class B | | Class C | | Total |
| Common shares - beginning of period | 30,320,078 | | | 37,935,266 | | | 34,307,698 | | | 102,563,042 | |
| Share class conversions | 200,000 | | | 2,085,511 | | | (2,285,511) | | | — | |
| Vesting of awards | — | | | 580,935 | | | — | | | 580,935 | |
| | | | | | | |
| | | | | | | |
| Share repurchases | — | | | (104,673) | | | — | | | (104,673) | |
| Common shares - end of period | 30,520,078 | | | 40,497,039 | | | 32,022,187 | | | 103,039,304 | |
In general, holders of Class A common shares and Class B common shares have one vote for each common share held. However, each holder of Class A common shares and Class B common shares is limited to voting (directly, indirectly or constructively, as determined for U.S. federal income tax purposes) that number of common shares equal to 9.5% of the total combined voting power of all classes of shares of Hamilton Group. In addition, the Board of Directors may limit a shareholder’s voting rights when it deems it appropriate to do so to avoid certain material adverse tax, legal or regulatory consequences to the Company or any direct or indirect shareholder or its
Hamilton Insurance Group, Ltd.
Notes to the Unaudited Condensed Consolidated Financial Statements
affiliates. The Company Bye-laws provide for the redesignation of shares from (i) Class A common shares to Class B common shares automatically upon any transfer, whether or not for value, from (ii) Class A common shares and Class B common shares to Class C common shares at the request of the transferring shareholder and subject to approval by a Simple Majority of the Board and, (iii) from Class C common shares to Class B common shares upon approval by a Simple Majority of the Board.
Certain of Hamilton Group’s shareholders that own an aggregate of 62.0 million Class A, Class B and Class C common shares at June 30, 2023 have liquidity rights stipulating that on either December 23, 2023, or at the end of each three-year period thereafter, or upon the occurrence of a Trigger Event (as such term is defined in the Second Amended and Restated Shareholders' Agreement), such shareholders may cause, at the Company’s election, for the Company to either repurchase all or any portion of the exercised common shares held by such shareholder(s) at diluted book value or require an auction for a cash sale of the Company, at the Company's option. For purposes of these liquidity rights a Trigger Event includes any of the following: (i) various adverse tax determinations, including if the Company is determined to be a “passive foreign investment company” for U.S. federal income tax purposes; (ii) various changes in law that have material adverse consequences to either the Company or the applicable shareholder's interests in the Company; (iii) a downgrade in any material subsidiary’s financial strength rating to any level below A- by A.M. Best Company; or (iv) one or more changes in law (including regulatory requirements) that in the aggregate result in (a) a reduction in the investable assets of the Company invested with Two Sigma specifically, or alternative investment managers employing similar strategies generally, such that 75% or less of the Company’s investable assets will be invested with Two Sigma or such alternative investment managers or (b) Two Sigma specifically, or alternative investment managers employing similar strategies generally, being required to adopt a materially different investment strategy with respect to the investable assets of the Company. Should the Company elect to repurchase all or a portion of the common shares held by such exercising shareholder(s), such repurchase is subject to (i) applicable law and (ii) reasonable determination by the Board of Directors that A.M. Best Company will not downgrade or take any ratings action with respect to Hamilton Re’s financial strength rating as a result.
11. Earnings Per Share
The following table sets forth the computation of basic and diluted income (loss) per common share for the three and six months ended June 30, 2023 and 2022, respectively:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | | | | | Six Months Ended | | |
| June 30, | | | | | | June 30, | | |
| (Expressed in thousands of U.S. Dollars, except share information) | 2023 | | 2022 | | | | | | 2023 | | 2022 | | |
| Numerator: | | | | | | | | | | | | | |
| Net income (loss) attributable to common shareholders | $ | 36,787 | | | $ | 172,569 | | | | | | | $ | 88,279 | | | $ | 97,138 | | | |
| | | | | | | | | | | | | |
| Denominator: | | | | | | | | | | | | | |
| Weighted average common shares outstanding - basic | 103,732 | | | 103,040 | | | | | | | 103,714 | | | 103,042 | | | |
| Effect of dilutive securities | 1,163 | | | 1,200 | | | | | | | 1,027 | | | 995 | | | |
| Weighted average common shares outstanding - diluted | 104,895 | | | 104,240 | | | | | | | 104,741 | | | 104,037 | | | |
| | | | | | | | | | | | | |
| Income (loss) per common share - basic: | $ | 0.35 | | | $ | 1.67 | | | | | | | $ | 0.85 | | | $ | 0.94 | | | |
| Income (loss) per common share - diluted: | $ | 0.35 | | | $ | 1.66 | | | | | | | $ | 0.84 | | | $ | 0.93 | | | |
In each of the three and six months ended June 30, 2023 and 2022, there were no common shares available for issuance under share-based compensation plans excluded from the calculation of diluted income (loss) per share because the assumed exercise or issuance of such shares would be anti-dilutive.
Hamilton Insurance Group, Ltd.
Notes to the Unaudited Condensed Consolidated Financial Statements
12. Subsequent Events
The Company has evaluated subsequent events through August 11, 2023, the date these financial statements were available to be issued, and concluded that, except as disclosed below, there are no subsequent events requiring recognition or disclosure.
TS Hamilton Fund
A modification of the terms of the TS Hamilton Fund’s limited liability company agreement, dated December 23, 2013 and as amended from time to time (the “LLCA”) came into effect on July 1, 2023. The terms of the LLCA prior to the modifications discussed below are as described in Note 3, Investments.
Under the terms of the revised LLCA, as supplemented by a commitment agreement (the “Commitment Agreement”), Hamilton Re is required to maintain an investment in the TS Hamilton Fund in an amount up to the lesser of (i) $1.8 billion or (ii) 60% of Hamilton Insurance Group’s net tangible assets (such lesser amount, the “Minimum Commitment Amount”) for a three-year period (the “Initial Term”) and for rolling three-year periods thereafter (each such three-year period, a “Commitment Period”) unless a notice of non-renewal is provided in accordance with the Commitment Agreement. The Managing Member is subject to the same Commitment Period and has exclusive control over the management, operations and policies of the TS Hamilton Fund, subject to certain rights afforded to Hamilton Re, including the authority to undertake on behalf of the TS Hamilton Fund all actions that, in its sole judgment, are necessary or desirable to carry out its duties and responsibilities.
In addition, the revised investment management agreement with Two Sigma requires TS Hamilton Fund to incur a management fee of 2.5% of the non-managing members' equity in the net asset value of the TS Hamilton Fund per annum. Under the terms of the revised LLCA, the Managing Member is entitled to an incentive allocation equal to 30% of TS Hamilton Fund’s net profits, subject to high watermark provisions, and adjusted for withdrawals and any incentive allocation to the Managing Member. However, in the event there is a net loss during a quarter and a net profit during any subsequent quarter, the Managing Member is entitled to a modified incentive allocation whereby the regular incentive allocation will be reduced by 50% until subsequent cumulative net profits are credited in an amount equal to 200% of the previously allocated net losses.
The Managing Member is also entitled to receive an additional incentive allocation as of the end of each fiscal year (or on any date Hamilton Re withdraws all or a portion of its capital), in an amount equal to 25% of the Excess Profits. “Excess Profits” for any given fiscal year (or other such accounting period) means the net profits over 10% for such fiscal year, net of management fees and expenses and gross of incentive allocations, but only after recouping previously unrecouped net losses. To the extent Hamilton Re contributes capital other than at the beginning of a fiscal year or withdraws capital other than at the end of a fiscal year, the additional incentive allocation hurdle with respect to such capital is prorated.
Shares
Hamilton Insurance Group, Ltd.
Common Shares
Prospectus
, 2023
| | | | | |
Joint Bookrunners |
| Barclays | Morgan Stanley |
Through and including the 25th day after the date of this prospectus, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligations to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the expenses to be paid by the Registrant, other than estimated underwriting discounts and commissions, in connection with our initial public offering. All of such expenses are estimates, except for the Securities and Exchange Commission (the “SEC”) registration fee, the Financial Industry Regulatory Authority (“FINRA”) filing fee, the listing fee and the transfer agent and registrar fees and expenses.
| | | | | |
| SEC registration fee | $ |
| FINRA filing fee | |
listing fee | |
| Printing fees and expenses | |
| Legal fees and expenses | |
| Blue sky fees and expenses | |
| Registrar and transfer agent fees | |
| Accounting fees and expenses | |
| Miscellaneous expenses | |
Total | $ |
Item 14. Indemnification of Directors and Officers.
Section 98 of the Companies Act provides generally that a Bermuda company may indemnify its directors, officers and auditors against any liability which by virtue of any rule of law would otherwise be imposed on them in respect of any negligence, default, breach of duty or breach of trust, except in cases where such liability arises from fraud or dishonesty of which such director, officer or auditor may be guilty in relation to the company. Section 98 further provides that a Bermuda company may indemnify its directors, officers and auditors against any liability incurred by them in defending any proceedings, whether civil or criminal, in which judgment is awarded in their favor or in which they are acquitted or granted relief by the Supreme Court of Bermuda pursuant to Section 281 of the Companies Act.
Our Bye-laws provide that we shall indemnify our officers and directors in respect of their actions and omissions, except in respect of their fraud or dishonesty, and that we shall advance funds to our officers and directors for expenses incurred in their defense upon receipt of an undertaking to repay the funds if any allegation of fraud or dishonesty is proved. Our Bye-laws provide that the shareholders waive all claims or rights of action that they might have, individually or in right of the company, against any of the Company’s directors or officers for any act or failure to act in the performance of such director’s or officer’s duties, except in respect of any fraud or dishonesty of such director or officer. Section 98A of the Companies Act permits us to purchase and maintain insurance for the benefit of any officer or director in respect of any loss or liability attaching to him in respect of any negligence, default, breach of duty or breach of trust, whether or not we may otherwise indemnify such officer or director. We have purchased and maintain a directors’ and officers’ liability policy for such purpose.
We have entered into indemnification agreements with each of our directors and executive officers. These indemnification agreements will provide the directors and executive officers with contractual rights to indemnification and expense advancement that are, in some cases, broader than the specific indemnification provisions contained under Bermuda law.
Item 15. Recent Sales of Unregistered Securities.
Within the past three years, the Registrant has granted or issued the following securities of the Registrant which were not registered under the Securities Act.
The Registrant has granted or issued the following securities of the Registrant which were not registered under the Securities Act during the three year period from October 1, 2020 through September 30, 2023:
•The Registrant granted to its directors, officers, employees, and other service providers an aggregate of 2,456,859 restricted stock units, of which 1,553,637 remain outstanding and of which 695,142 have been settled in Class B common shares pursuant to our 2013 Equity Incentive Plan.
•The Registrant granted to its directors, officers, employees, and other service providers an aggregate of 673,348 performance restricted stock units, of which 578,050 remain outstanding and of which none have been settled in Class B common shares pursuant to our 2013 Equity Incentive Plan.
•On, or around, July 26, 2021, October 27, 2021, August 24, 2022, the Registrant issued 54,596 Class B common shares for an aggregate purchase price of $703,742, 11,212 Class B common shares for an aggregate purchase price of $152,371, 22,750 Class B common shares for an aggregate purchase price $315,088, respectively, pursuant to the executive and director share purchase program. This program is limited to new directors and executive officers of the Registrant and its subsidiaries and those promoted to executive officer roles of the Registrant and its subsidiaries who qualify as “accredited investors” under U.S. securities laws.
On or about October , 2023, it is expected that Class B common shares will be issued upon the exercise of certain warrants that are outstanding as of September 30, 2023.
The foregoing grants and issuances were not registered under the Securities Act, because the attributable securities were offered and sold in transactions by an issuer not involving any public offering and such grants and issuances were exempt from registration under Section 4(a)(2) of the Securities Act or pursuant to benefit plans and contracts relating to compensation as provided under Rule 701. The recipients of the securities in each of these transactions represented their intentions to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof, and appropriate legends were placed upon the applicable award agreements and/or stock certificates issued in these transactions.
Item 16. Exhibits and Financial Statement Schedules.
(a)Exhibits. See the Exhibit Index immediately preceding the signature pages hereto, which is incorporated by reference as if fully set forth herein.
Item 17. Undertakings.
(1)The Registrant hereby undertakes to provide to the underwriters, at the closing specified in the underwriting agreement, certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
(2)Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
(3)The Registrant hereby undertakes that:
(A)For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.
(B)For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
EXHIBIT INDEX
| | | | | | | | |
| Exhibit Number | | Exhibit Description |
1.1* | | Form of Underwriting Agreement |
| | |
3.1 | | |
| | |
3.2 | | |
| | |
| 5.1* | | Opinion of Carey Olsen Bermuda Limited |
| | |
10.1 | | |
| | |
10.2 | | |
| | |
10.3 | | |
| | |
10.4 | | |
| | |
10.5 | | |
| | |
10.6 | | |
| | |
10.7 | | |
| | |
10.8 | | |
| | |
10.9 | | |
| | |
10.10 | | |
| | |
10.11 | | |
| | |
10.12 | | |
| | |
10.13 | | |
| | |
10.14 | | |
| | |
10.15 | | |
| | |
10.16 | | Letter of Credit, dated as of August 13, 2021, among Hamilton Re, Ltd., Hamilton Insurance Designated Activity Company, Hamilton Insurance Group, Ltd. and Bank of Montreal, as amended by that certain First Amendment to Letter of Credit Agreement, dated as of August 11, 2023 |
| | |
10.17 | | |
| | |
| 10.18 | | |
| | |
| 10.19 | | |
| | |
| 10.20 | | |
| | |
| 10.21 | | |
| | |
| 10.22 | | |
| 10.23 | | |
| | |
21.1 | | |
| | |
23.1* | | Consent of Carey Olsen Bermuda Limited (included in Exhibit 5.1) |
| | |
23.2 | | |
| | |
24.1 | | |
| | |
107 | | |
__________________
*To be filed by an amendment.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, New York on October 16, 2023.
| | | | | |
| HAMILTON INSURANCE GROUP, LTD. |
| |
| |
| |
| By: | /s/ Giuseppina Albo |
| Name: Giuseppina Albo |
| Title: Chief Executive Officer |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENT, that each person whose signature appears below constitutes and appoints Pina Albo, Craig Howie and Gemma Carreiro, and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution for him or her in any and all capacities, to sign (i) any and all amendments (including post-effective amendments) to this registration statement and (ii) any registration statement or post-effective amendment thereto to be filed with the United States Securities and Exchange Commission pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the United States Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this registration statement has been signed by the following persons in the capacities and on the dates indicated:
| | | | | | | | | | | | | | |
| Signature | | Title | | Date |
| | | | |
/s/ Giuseppina Albo | | Director, Chief Executive Officer
(principal executive officer) | | October 16, 2023 |
Giuseppina Albo | | |
| | | | |
/s/ Craig Howie | | Group Chief Financial Officer (principal financial officer) | | October 16, 2023 |
| Craig Howie | | |
| | | | |
/s/ Brian Deegan | | Group Chief Accounting Officer (principal accounting officer) | | October 16, 2023 |
Brian Deegan | | |
| | | | |
/s/ D. Pauline Richards | | Director | | October 16, 2023 |
| D. Pauline Richards | | |
| | | | |
/s/ David Brown | | Director | | October 16, 2023 |
| David Brown | | |
| | | | |
/s/ H. Hawes Bostic, III | | Director | | October 16, 2023 |
H. Hawes Bostic, III | | |
| | | | |
/s/ Marvin Pestcoe | | Director | | October 16, 2023 |
| Marvin Pestcoe | | |
| | | | |
/s/ Russell Fradin | | Director | | October 16, 2023 |
| Russell Fradin | | |
| | | | |
/s/ Stephen W. Pacala | | Director | | October 16, 2023 |
| Stephen W. Pacala | | |
| | | | |
/s/ William C. Freda | | Director | | October 16, 2023 |
| William C. Freda | | |
| | | | |
/s/ Everard Barclay Simmons | | Director | | October 16, 2023 |
| Everard Barclay Simmons | | |
| | | | |
/s/ Antonio Ursano, Jr. | | Director | | October 16, 2023 |
Antonio Ursano Jr. | | |
| | | | |
AUTHORIZED REPRESENTATIVE
Pursuant to the requirement of the Securities Act of 1933, the undersigned, the duly undersigned representative in the United States of Hamilton Insurance Group, Ltd., has signed this registration statement in the city of Newark, Delaware, on October 16, 2023.
| | | | | |
| By: | /s/ Donald J. Puglisi |
Name: | Donald J. Puglisi, Puglisi & Associates |
Title: | Authorized Representative |
Calculation of Filing Fee Tables
Form S-1
(Form Type)
Hamilton Insurance Group, Ltd.
(Exact Name of Registrant as Specified in its Charter)
Table 1: Newly Registered Securities
| | | | | | | | | | | | | | | | | | | | |
| Security Type | Security Class Title | Fee Calculation or Carry Forward Rule | Maximum Aggregate Offering Price (1)(2) | Fee Rate | Amount of
Registration
Fee |
| Newly Registered Securities |
| Fees to Be Paid | Equity | Common Share, par value $0.01 per share | Rule 457(o) | $100,000,000 | 0.00014760 | $14,760.00 |
| Total Offering Amounts | | | $100,000,000 | | $14,760.00 |
| Total Fees Previously Paid | | | | | — |
| Total Fee Offsets | | | | | — |
| Net Fee Due | | | $100,000,000 | | $14,760.00 |
(1)Includes offering price of any additional shares that the underwriters have the option to purchase.
(2)Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended.
FORM NO. 2
BERMUDA
THE COMPANIES ACT 1981
MEMORANDUM OF ASSOCIATION OF COMPANY LIMITED BY SHARES
Section 7(1) and (2)
MEMORANDUM OF ASSOCIATION
OF
| | |
| Hamilton Insurance Group, Ltd. |
| (hereinafter referred to as the "Company") |
1.The liability of the members of the Company is limited to the amount (if any) for the time being unpaid on the shares respectively held by them.
2.We, the undersigned, namely,
| | | | | | | | | | | |
| Name and Address | Bermudian Status
(Yes or No) | Nationality | Number of Shares Subscribed |
| | | |
Appleby Services (Bermuda) Ltd. Canon’s Court 22 Victoria Street Hamilton HM 12 Bermuda | Yes | Bermuda | 1 |
do hereby respectively agree to take such number of shares of the Company as may be allotted to us respectively by the provisional directors of the Company, not exceeding the number of shares for which we have respectively subscribed, and to satisfy such calls as may be made by the directors, provisional directors or promoters of the Company in respect of the shares allotted to us respectively.
3.The Company is to be an exempted Company as defined by the Companies Act 1981.
4.The Company, with the consent of the Minister of Finance, has power to hold land situate in Bermuda not exceeding________________in all, including the following parcels:-
Not Applicable
5.The authorized share capital of the Company is USD 10.00 divided into 10 shares of par value USD 1.00 each.
6.The objects for which the Company is formed and incorporated are unrestricted.
7.The following are provisions regarding the powers of the Company:
(i)has the powers of a natural person;
(ii)subject to the provisions of Section 42 of the Companies Act 1981, has the power to issue preference shares which at the option of the holders thereof are to be liable to be redeemed;
(iii)has the power to purchase its own shares in accordance with the provisions of Section 42A of the Companies Act 1981; and
(iv)has the power to acquire its own shares to be held as treasury shares in accordance with the provisions of Section 42B of the Companies Act 1981.
Signed by each subscriber in the presence of at least one witness attesting the signature thereof: -
| | | | | | | | |
| Subscriber | | Witness |
| | |
| | |
| /s/ [Illegible signature] | | /s/ [Illegible signature] |
| For and on behalf of | | |
| Appleby Services (Bermuda) Ltd. | | |
Subscribed this 4th day of September 2013.
AMENDED AND RESTATED
BYE-LAWS
OF
HAMILTON INSURANCE GROUP, LTD.
Adopted on [•]
TABLE OF CONTENTS
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| 1. | DEFINITIONS | 1 |
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| 2. | POWER TO ISSUE SHARES | 7 |
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| 3. | POWER OF THE COMPANY TO PURCHASE ITS SHARES | 8 |
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| 4. | RIGHTS ATTACHING TO SHARES | 8 |
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| 5. | LIMITATION ON VOTING RIGHTS AND ADJUSTMENT OF VOTING POWER | 10 |
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| 6. | CALL ON SHARES | 12 |
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| 7. | SHARE CERTIFICATES | 12 |
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| 8. | FRACTIONAL SHARES | 13 |
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| 9. | REGISTER OF MEMBERS | 13 |
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| 10. | REGISTERED HOLDER ABSOLUTE OWNER | 14 |
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| 11. | TRANSFER OF REGISTERED SHARES | 14 |
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| 12 | RESTRICTIONS ON TRANSFERS | 15 |
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| 13. | TRANSMISSION OF REGISTERED SHARES | 15 |
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| 14. | POWER TO ALTER CAPITAL | 15 |
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| 15. | VARIATION OF RIGHTS ATTACHING TO SHARES | 16 |
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| 16. | DIVIDENDS AND OTHER PAYMENTS | 16 |
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| 17. | POWER TO SET ASIDE PROFITS | 17 |
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| 18. | METHOD OF PAYMENT | 17 |
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| 19. | UNCLAIMED DIVIDENDS | 17 |
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| 20. | UNDELIVERED PAYMENTS | 17 |
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| 21. | CAPITALISATION | 17 |
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| 22. | ANNUAL GENERAL MEETINGS | 18 |
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| 23. | SPECIAL GENERAL MEETINGS | 19 |
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| 24. | REQUISITIONED GENERAL MEETINGS | 20 |
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| 25. | NOTICE | 20 |
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| 26. | GIVING NOTICE AND ACCESS | 20 |
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| 27. | POSTPONEMENT OF GENERAL MEETING | 21 |
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| 28. | ELECTRONIC PARTICIPATION IN MEETINGS | 21 |
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| 29. | QUORUM AT GENERAL MEETINGS | 21 |
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| 30. | CHAIRPERSON TO PRESIDE AT GENERAL MEETINGS | 21 |
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| 31. | VOTING ON RESOLUTIONS | 22 |
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| 32. | POWER TO DEMAND A VOTE ON A POLL | 22 |
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| 33. | VOTING BY JOINT HOLDERS OF SHARES | 23 |
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| 34. | INSTRUMENT OF PROXY | 23 |
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| 35. | REPRESENTATION OF MEMBER | 24 |
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| 36. | ADJOURNMENT OF GENERAL MEETING | 24 |
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| 37. | WRITTEN RESOLUTIONS | 24 |
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| 38. | DIRECTORS' ATTENDANCE AT GENERAL MEETINGS | 25 |
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| 39. | NUMBER OF DIRECTORS | 25 |
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| 40. | ELECTION OF DIRECTORS | 25 |
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| 41. | TERM OF OFFICE OF DIRECTORS | 26 |
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| 42. | DEFECTS IN APPOINTMENT OF DIRECTORS | 26 |
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| 43. | ALTERNATE DIRECTORS | 27 |
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| 44. | REMOVAL OF DIRECTORS | 28 |
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| 45. | VACANCY IN THE OFFICE OF DIRECTOR | 28 |
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| 46. | REMUNERATION OF DIRECTORS | 29 |
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| 47. | DIRECTORS TO MANAGE BUSINESS | 29 |
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| 48. | POWERS OF THE BOARD OF DIRECTORS | 29 |
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| 49. | REGISTER OF DIRECTORS AND OFFICERS | 30 |
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| 50. | APPOINTMENT OF OFFICERS | 31 |
| | |
| 51. | APPOINTMENT OF SECRETARY AND RESIDENT REPRESENTATIVE | 31 |
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| 52. | DUTIES OF OFFICERS | 31 |
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| 53. | DUTIES OF THE SECRETARY | 31 |
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| 54. | REMUNERATION OF OFFICERS | 31 |
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| 55. | CONFLICTS OF INTEREST | 31 |
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| 56. | INDEMNIFICATION AND EXCULPATION OF DIRECTORS AND OFFICERS | 31 |
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| 57. | BOARD MEETINGS | 33 |
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| 58. | NOTICE OF BOARD MEETINGS | 33 |
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| 59. | ELECTRONIC PARTICIPATION IN MEETINGS | 33 |
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| 60. | REPRESENTATION OF A CORPORATE DIRECTOR | 34 |
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| 61. | QUORUM AT BOARD MEETINGS | 34 |
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| 62. | BOARD TO CONTINUE IN THE EVENT OF VACANCY | 34 |
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| 63. | CHAIRPERSON TO PRESIDE | 34 |
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| 64. | WRITTEN RESOLUTIONS | 34 |
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| 65. | VALIDITY OF PRIOR ACTS | 34 |
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| 66. | MINUTES | 35 |
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| 67. | PLACE WHERE CORPORATE RECORDS KEPT | 35 |
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| 68. | FORM AND USE OF SEAL | 35 |
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| 69. | RECORDS OF ACCOUNT | 35 |
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| 70. | FINANCIAL YEAR END | 35 |
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| | | | | | | | |
| 71. | ANNUAL AUDIT | 36 |
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| 72. | APPOINTMENT OF AUDITOR | 36 |
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| 73. | REMUNERATION OF AUDITOR | 36 |
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| 74. | DUTIES OF AUDITOR | 36 |
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| 75. | ACCESS TO RECORDS | 36 |
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| 76. | FINANCIAL STATEMENTS | 36 |
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| 77. | DISTRIBUTION OF AUDITOR'S REPORT | 37 |
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| 78. | VACANCY IN THE OFFICE OF AUDITOR | 37 |
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| 79. | WINDING UP | 37 |
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| 80. | CHANGES TO BYE-LAWS | 37 |
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| 81. | CHANGES TO MEMORANDUM OF ASSOCIATION | 37 |
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| 82. | DISCONTINUANCE | 37 |
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| 83. | CERTAIN APPROVALS | 37 |
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| 84. | CERTAIN INFORMATION REPORTING REQUIREMENTS | 40 |
1. DEFINITIONS
1.1 In these Bye-laws, the following words and expressions shall, where not inconsistent with the context, have the following meanings:
"Action" means any claim, action, cause of action, suit, litigation, arbitration, investigation, inquiry, hearing, charge, controversy, dispute, subpoena, demand, complaint or legal, administrative or other proceeding, at law or in equity, or before or by any Regulatory Agency.
"Affiliate" means, with respect to any Person, any other Person that controls, is controlled by or is under common control with such Person; provided, however, no Member shall be considered an Affiliate of the Company or any of its Subsidiaries for purposes of these Bye-laws (and nor shall any Person controlling such Member merely by virtue of such control). For the purposes of this definition, the term "control" (including, with correlative meanings, the terms "controlling", "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract, voting power or otherwise.
"Alternate Director" means an alternate director appointed in accordance with these Bye-laws.
"Appointed Stock Exchange" means an appointed stock exchange as defined under the Companies Act.
"Attribution Percentage" means, with respect to a Member and a Tentative Prohibited Shareholder, the percentage of the Member’s shares that are treated as Controlled Shares of such Tentative Prohibited Shareholder.
"Auditor" includes an individual, company or partnership for the time being appointed as auditor of the Company.
"Bermuda" means the Islands of Bermuda.
"Blackstone Investor Director" has the meaning given to it in Bye-law 40.5(c).
"Blackstone Investor" means collectively, BSOF Master Fund L.P. and BSOF Master Fund II L.P., and shall include any Permitted Transferee thereof.
"Board" means the board of directors appointed or elected pursuant to these Bye-laws and acting by resolution in accordance with the Companies Act and these Bye-laws or the directors present at a meeting of directors at which there is a quorum.
"Board Shareholder" means any of Shareholder 1, Shareholder 2, the Magnitude Investor or the Blackstone Investor.
"Business Day" means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City or Bermuda are authorised or required by law to close.
"Bye-laws" means these bye-laws in their current form or as from time to time amended.
"Cause" as it relates to a Director in such capacity, means (i) the Director’s habitual drug or alcohol use that impairs the ability of the Director to perform his or her duties to the Company or any
Subsidiary; (ii) the Director’s indictment by a court of competent jurisdiction, or a pleading of "no contest" or guilty, to a felony (or the equivalent if outside the United States); (iii) the Director’s engaging in fraud, embezzlement or any similar conduct with respect to the Company, any Subsidiary, or any assets of the Company or any Subsidiary; (iv) the Director’s wilful and material failure or refusal to perform his or her duties as a Director; or (v) the Director otherwise materially breaches any written policy of the Company or any Subsidiary regarding the conduct of its respective directors in the performance of his or her duties to the Company or any Subsidiary.
"Charitable Organization" shall mean (x) any organization described in section 170(c) of the Code (determined without regard to section 170(c)(2)(A) of the Code), (y) any charitable remainder trust described in sections 664(d)(1) or 664(d)(2) of the Code and (z) any charitable lead trust, an interest in which is described in sections 2055(e)(2)(B) or 2522(c)(2)(B) of the Code.
"Class A Common Shares" has the meaning given to it in Bye-law 4.1.
"Class A Member" means a holder of Class A Common Shares.
"Class B Common Shares" has the meaning given to it in Bye-law 4.1.
"Class B Director" means any Director who is not a Shareholder Director.
"Class B Member" means a holder of Class B Common Shares.
"Class C Common Shares" has the meaning given to it in Bye-law 4.1.
"Class C Member" means a holder of Class C Common Shares.
"Code" means the United States Internal Revenue Code of 1986, as amended.
"Common Shares" has the meaning given to it in Bye-law 4.1.
"Companies Act" means the Companies Act 1981 as amended from time to time.
"Company" means the company for which these Bye-laws are approved and confirmed.
"Company Policies" has the meaning specified in Bye-law 83.3(p).
"Company Securities" means the Company Shares and options, warrants or other rights to acquire Company Shares.
"Company Shares" means the shares of the Company (whether Common Shares or preferred shares of the Company, and whether outstanding or issued or acquired hereafter, including all shares of the Company issuable upon the exercise of warrants, options or other rights to acquire shares of the Company, or upon the conversion or exchange of any security).
"Controlled Shares" in reference to any Person means (i) for a U.S. Person, all Company Securities entitled to vote at a general meeting directly, indirectly or constructively owned by such Person as determined pursuant to Section 958 of the Code, or (ii) for a Non-U.S. Person, all Company Securities entitled to vote at a general meeting directly or indirectly owned by such Person.
"Deemed Owner" means, with respect to any Company Securities, any Person with respect to whom or which such Company Securities are Controlled Shares.
"Director" means a director of the Company which has been duly elected or appointed in accordance with these Bye-laws and shall include an Alternate Director.
"Effective Date" has the meaning specified in the Shareholders Agreement.
"ERISA" means the U.S. Employee Retirement Income Security Act of 1974, as amended.
"FATCA" has the meaning specified in Bye-law 84.1.
"Fiscal Quarter" means any of the four (4) quarters of a Fiscal Year.
"Fiscal Year" shall be such date as determined by resolution of the Board from time to time in accordance with these Bye-laws, or, in the case of the last fiscal year, the fraction thereof ending on the date on which the winding up of the Company is completed.
"GAAP" means United States generally accepted accounting principles, as in effect from time to time.
"Immediate Family" means, with respect to any individual, such individual’s spouse, lineal ancestors, lineal blood or adopted descendants and any trust for any of their benefit or any partnership or limited liability company in which only such Persons own equity interests.
"Indemnified Party" has the meaning ascribed thereto in Bye-law 56.1.
"Investment Manager" means Two Sigma Investments, LP or any of its Affiliates.
"Magnitude Investor" means, collectively, Magnitude Master Fund, a sub trust of the Magnitude Master Series Trust, Magnitude Institutional, Ltd., Magnitude Partners Master Fund, L.P., and Magnitude Insurance Master Fund, LLC and shall include any Permitted Transferee of any of the foregoing.
"Magnitude Investor Director" has the meaning specified in Bye-law 40.5(d).
"Material Subsidiary" means any Subsidiary of the Company which, at the relevant time, (together with such Subsidiary’s Subsidiaries) represents ten percent (10%) or more of the net income for the trailing four (4) Fiscal Quarters or, on a book value basis, ten percent (10%) or more of the assets of the Company and its Subsidiaries, taken as a whole.
"Member" means the person registered in the Register of Members as the holder of shares in the Company and, when two or more persons are so registered as joint holders of shares, means the person whose name stands first in the Register of Members as one of such joint holders or all of such persons, as the context so requires.
"Non-US. Person" means a Person who or which is not a U.S. Person.
"Notice" means written notice as provided in these Bye-laws unless specifically stated otherwise.
"Officer" means any person appointed by the Board to hold an office in the Company.
"Permitted Transferee" means, as it relates to any Member, (i) any Affiliate of such Member (other than, in the case of a Member which is, or which is an Affiliate of, a private equity fund, merchant bank, investment firm, or other similar investor, an Affiliate which is a portfolio company of such Member), (ii) any Charitable Organization and any other Charitable Organization whose Common
Shares were originally transferred subsequently and successively by such Member, or (iii) such other Persons that the Board determines in its reasonable discretion have a substantially similar relationship with the Member as any of the foregoing Persons. Any Member shall be a Permitted Transferee of the Permitted Transferees of itself.
"Person" means an individual, company, corporation, partnership, trust, joint venture, limited liability company, unincorporated organization or other legal entity, or a government or any agency or political subdivision thereof.
"Prohibited Shareholder" means (i) with respect to matters on which solely the Class B Members may vote, any Class B Member whose Controlled Shares constitute more than an amount of the total combined voting power of all issued and outstanding Class B Common Shares equal to the product of (a) 9.5% and (b) the quotient reached by dividing (x) the total number of Directors by (y) the number of Class B Directors, and (ii), with respect to all other matters, any Person, including any Class A Member, whose Controlled Shares constitute more than 9.5% of the total combined voting power of all issued and outstanding Company Securities.
"Qualified Majority" shall mean, in the case of a vote of the Board, (i) a Simple Majority voting in the affirmative and (ii) Directors representing less than fifteen percent (15%) of the entire Board voting in opposition.
"Register of Directors and Officers" means the register of Directors and Officers of the Company maintained in accordance with the Companies Act.
"Register of Members" means the register of members of the Company maintained in accordance with the Companies Act.
"Registered Office" means the registered office of the Company maintained in accordance with the Companies Act.
"Registration Rights Agreement" means the registration rights agreement, dated as of December 23, 2013, by and among the Company and the Members, as in effect from time to time.
"Regulatory Agency" means any nation, government, court, regulatory, taxing or administrative agency, commission or authority or other legislative, executive or judicial governmental entity, body, agency, official or instrumentality, domestic or foreign, whether federal, national, provincial, state, local or multinational or self-regulatory organization or agency or other similar quasi-governmental regulatory body or arbitration panel, tribunal or arbitrator.
"Resident Representative" means any person appointed to act as resident representative and includes any deputy or assistant resident representative.
"Secretary" means any person appointed to act as secretary of the Company and includes any deputy or assistant secretary and any person appointed by the Board to perform any of the duties of the Secretary.
"Securities Exchange Act" means the Securities Exchange Act of 1934 and the rules and regulations promulgated thereunder.
"share" means any share or class or series of shares in the share capital of the Company and includes a fraction of a share.
"Share Voting Limitation Violation" means, with respect to a Person, a circumstance under which such Person is a Prohibited Shareholder of the Company or any Subsidiary thereof.
"Shareholder 1" means Sango Hoken Holdings, LLC, and shall include any Permitted Transferee thereof.
"Shareholder 1 Director" has the meaning specified in Bye-law 40.5(a).
"Shareholder 2" means Hopkins Holdings, LLC, and shall include any Permitted Transferee thereof.
"Shareholder 2 Director" has the meaning specified in Bye-law 40.5(b).
"Shareholders Agreement" means the shareholders agreement of the Company, dated as of [•] 2023, by and among the Members party thereto and the Company (or any successor agreement; either as may be amended from time to time).
"Shareholder Director" means a director appointed by a Board Shareholder pursuant to Bye-law 40.5 and the Shareholders Agreement.
"Simple Majority" shall mean, (i) in the case of a vote of the Board, Directors representing more than fifty percent (50%) of the Directors then in office, and (ii) in the case of a vote of the Members, Members of the Company holding more than fifty percent (50%) of the total outstanding voting power of the Voting Securities.
"Sold-Down Board Shareholder" has the meaning specified in Bye-law 40.6.
"Sold-Down Board Shareholder Director" has the meaning specified in Bye-law 40.6.
"Subsidiary" means, for any Person, any other Person (i) in which it directly or indirectly owns at least fifty percent (50%) of such Person’s voting securities, (ii) that, if a general or limited partnership, limited liability company, association or other business entity, a majority of the general or limited partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more Subsidiaries of that Person or a combination thereof, or (iii) with which it is required to be consolidated under GAAP.
"Subsidiary Securities" means any shares or equity securities of any Subsidiary of the Company, any options, warrants or other rights to acquire any shares or equity securities of any Subsidiary of the Company and any other securities convertible into or exercisable or exchangeable for (or entitling the holder thereof to subscribe for) any shares or equity securities of any Subsidiary of the Company.
"Tentative Prohibited Shareholder" means a Person that, but for adjustments to the voting rights of shares made pursuant to the Voting Cutback Provisions, would be a Prohibited Shareholder.
"Tentative Share Voting Limitation" has the meaning specified in Bye-law 5.6.
“Tentative TS Prohibited Employee Limitation Violation” has the meaning specified in Bye-law 5.6.
“Tentative TS Prohibited Employee Member” means an individual that, but for adjustments to the voting rights of shares made pursuant to Bye-laws 5.4 and 5.8, would be a TS Prohibited Employee Member.
"Transfer" means, in respect of any Common Shares or other security, in each case whether directly, indirectly, constructively or synthetically and whether voluntarily or by operation of law, judicial process or otherwise, to transfer, sell, distribute, assign, convey, hypothecate, pledge, charge, mortgage, encumber or otherwise dispose of, or grant any right, option, profit participation or interest in, or otherwise convey any legal or beneficial interest in, including rights to vote or to receive dividends, distributions or other income, or make any agreement or commitment to do any of the foregoing; and "Transferor" and "Transferee" have the correlative meaning.
"Treasury Share" means a share of the Company that was or is treated as having been acquired and held by the Company and has been held continuously by the Company since it was so acquired and has not been cancelled.
“TS Prohibited Employee Member” means, at any given time, any Member other than Shareholder 1 or Shareholder 2 who is (i) employed by, partner or member in, or officer of Two Sigma or any of its Affiliates at such time and/or (ii) whose underlying investors include any current employees of Two Sigma or any of its Affiliates at such time, whose Controlled Shares constitute more than 0.0% of the total combined voting power of all issued and outstanding Company Securities.
“TS Prohibited Employee Voting Limitation Violation” means, with respect to a Member, a circumstance under which such Person is a TS Prohibited Employee Member of the Company or any Subsidiary thereof.
“Two Sigma” means Two Sigma Investments, LLC.
"U.S. Person" means a "United States person" as defined in Section 7701(a)(30) of the Code.
"Vacancy Event" has the meaning specified in Bye-law 45.2.
"Voting Cutback Provisions" means Bye-law 5 of these Bye-laws.
"Voting Securities" shall mean the Class A Common Shares and Class B Common Shares and any other securities of the Company entitled to vote together with the Class A Common Shares and Class B Common Shares as a single class on all matters with respect to which the Class A Common Shares and Class B Common Shares are entitled to vote, and subject in each case to the Voting Cutback Provisions.
1.2 In these Bye-laws, where not inconsistent with the context:
(a) words denoting the plural number include the singular number and vice versa;
(b) words denoting the masculine gender include the feminine and neuter genders;
(c) the word "may" shall be construed as permissive and the word "shall" shall be construed as imperative; and
(d) unless otherwise provided herein, words or expressions defined in the Companies Act shall bear the same meaning in these Bye-laws.
1.3 Unless otherwise specifically indicated, all references to "dollars" or "$" shall refer to the lawful currency of the United States.
1.4 In these Bye-laws, unless expressly stated otherwise, any reference to voting power, individual, combined or aggregate, refers to voting power of issued and outstanding voting shares after the application, if any, of the Voting Cutback Provisions.
1.5 In these Bye-laws a reference to writing shall, unless the contrary intention appears, include facsimile, printing, lithography, photography, electronic mail and other modes of representing words in visible form.
1.6 Headings used in these Bye-laws are for convenience only and are not to be used or relied upon in the construction hereof.
1.7 The Board, acting by a Simple Majority thereof, shall have the power to interpret or construe any term or provision of these Bye-laws, and all decisions made by a Simple Majority of the Board in such interpretation or construction shall be binding and conclusive for all purposes.
1.8 The designation of a Person as a Permitted Transferee is being made hereunder solely for the purposes of establishing certain rights as specified herein as well as for establishing provisions for rules of transfers of Common Shares, including calculations of share ownership relating thereto; provided, however, that in no event shall such designation, in and of itself, create joint or aggregate ownership among Members or impute any joint or aggregate legal or beneficial title of Common Shares among Members.
1.9 To the extent that any of the provisions of the Shareholders Agreement conflict with any of the provisions of the Memorandum of Association or these Bye-laws, the provisions of the Memorandum of Association or these Bye-laws, as the case may be shall prevail and the Members, the Board and the Company shall take such steps as are necessary, subject to any applicable law, to amend the Shareholders Agreement to not be in conflict with the Memorandum of Association or these Bye-laws, as the case may be.
2. POWER TO ISSUE SHARES
2.1 Subject to these Bye-laws, the Shareholders Agreement, the requirements of the New York Stock Exchange, and to any resolution of the Members to the contrary, without prejudice to any special rights previously conferred on the holders of any existing shares or class of shares, the Board shall have the power to issue any unissued shares on such terms and conditions as it may determine and any shares or class of shares may be issued with such preferred, deferred or other special rights or such restrictions, whether in regard to dividend, voting, return of capital, or otherwise as the Board may prescribe. The rights attaching to any Common Shares will be deemed not be altered by the allotment of any class or series of shares issued pursuant to this Bye-law 2.1 even if such class or series of shares does or will rank in priority for payment of a dividend or in respect of capital or surplus or confer on the holder thereof voting rights more favourable than those conferred by such Common Share and will not otherwise be deemed to be altered by the creation or issue of further shares ranking pari passu therewith.
2.2 Without limitation to the provisions of Bye-law 4, subject to the Companies Act, any preference shares may be issued or converted into shares that (at a determinable date or at the option of the Company or the holder) are liable to be redeemed on such terms and in such manner as may be determined by the Board (before the issue or conversion).
3. POWER OF THE COMPANY TO PURCHASE ITS SHARES
3.1 The Company may purchase its own shares for cancellation or acquire them as Treasury Shares in accordance with the Companies Act on such terms as the Board shall think fit.
3.2 The Board may exercise all the powers of the Company to purchase or acquire all or any part of its own shares in accordance with the Companies Act.
4. RIGHTS ATTACHING TO SHARES
4.1 At the date of adoption of these Bye-laws, the share capital of the Company shall be divided into three classes of common equity: (i) Class A common shares of the Company, par value US$0.01 per share, with the rights and privileges set forth herein (the "Class A Common Shares"), (ii) Class B common shares of the Company, par value US$0.01 per share, with the rights and privileges set forth herein (the "Class B Common Shares"), and (iii) Class C common shares of the Company, par value US$0.01 per share, with the rights and privileges set forth herein (the "Class C Common Shares" and, together with the Class A Common Shares and the Class B Common Shares, the "Common Shares").
Class A Common Shares
4.2 The holders of Class A Common Shares shall, subject to the provisions of these Bye-laws and the Shareholders Agreement (including, without limitation, the rights attaching to any preference shares):
(a) be entitled to one vote per share, except as provided by Bye-laws 5 and 40.4;
(b) be entitled to such dividends as the Board may from time to time declare on a pari passu basis with the Class B Common Shares and Class C Common Shares;
(c) in the event of a winding-up or dissolution of the Company, whether voluntary or involuntary or for the purpose of a reorganisation or otherwise or upon any distribution of capital, be entitled to the surplus assets of the Company on a pari passu basis with the Class B Common Shares and Class C Common Shares; and
(d) generally be entitled to enjoy all of the rights attaching to shares.
4.3 Each Class A Common Share will automatically, and without further act of the holder, be converted into a Class B Common Share upon any Transfer of such Class A Common Share, whether or not for value, except for Transfers to a Permitted Transferee of the transferor. The number of authorised and issued Class A Common Shares shall be reduced by the aggregate number of such issued Class A Common Shares converted to Class B Common Shares and the number of authorised and issued Class B Common Shares shall be correspondingly increased by the same amount.
4.4 Upon notice from a Class A Member to the Company that certain Class B Common Shares are held by the Class A Member or a Permitted Transferee thereof, if so requested by the Class A Member, upon approval by a Simple Majority of the Board, such Class B Common Shares shall convert automatically and without further act of the holder (effective as of such notice) into the same number of Class A Common Shares. The number of authorised and issued Class B Common Shares shall be reduced by the aggregate number of such issued Class B Common Shares so converted and the number of authorised and issued Class A Common Shares shall be correspondingly increased by the same amount.
4.5 Notwithstanding anything in Bye-law 2 to the contrary and for so long as the Shareholders Agreement is in effect, the Board may not, and will not cause or permit the Company to, issue any additional Class A Common Shares without the consent of the Board Shareholders who are not Sold-Down Board Shareholders, except as otherwise provided in the Shareholders Agreement or as contemplated in Bye-law 4.4.
Class B Common Shares
4.6 The holders of Class B Common Shares shall, subject to the provisions of these Bye-laws and the Shareholders Agreement (including, without limitation, the rights attaching to any preference shares):
(a) be entitled to one vote per share, except as provided by Bye-law 5;
(b) be entitled to such dividends as the Board may from time to time declare on a pari passu basis with the Class A Common Shares and Class C Common Shares;
(c) in the event of a winding-up or dissolution of the Company, whether voluntary or involuntary or for the purpose of a reorganisation or otherwise or upon any distribution of capital, be entitled to the surplus assets of the Company on a pari passu basis with the Class A Common Shares and Class C Common Shares; and
(d) generally be entitled to enjoy all of the rights attaching to shares.
4.7 Each Class B Common Share will continue to remain a Class B Common Share upon any Transfer of such Class B Common Share, whether or not for value, except as otherwise provided in Bye-law 4.4.
Class C Common Shares
4.8 The holders of Class C Common Shares shall, subject to the provisions of these Bye-laws and the Shareholders Agreement (including, without limitation, the rights attaching to any preference shares):
(a) except as required by the Companies Act, not be entitled to receive notice of, or attend and vote at, any general meeting of the Company;
(b) be entitled to such dividends as the Board may from time to time declare on a pari passu basis with the Class A Common Shares and Class B Common Shares;
(c) in the event of a winding-up or dissolution of the Company, whether voluntary or involuntary or for the purpose of a reorganisation or otherwise or upon any distribution of capital, be entitled to the surplus assets of the Company on a pari passu basis with the Class A Common Shares and Class B Common Shares; and
(d) generally be entitled to enjoy all of the rights attaching to shares.
4.9 Each Class C Common Share will automatically, and without further act of the holder, be converted into a Class B Common Share upon any Transfer of such Class C Common Share, whether or not for value, except for Transfers to a Permitted Transferee of the transferor. The number of authorised and issued of Class C Common Shares, shall be reduced by the aggregate number of such Class C Common Shares converted to Class B Common Shares and the number of authorised and issued Class B Common Shares shall be correspondingly increased by the same amount.
4.10 Upon notice from a Class A Member and/or Class B Member to the Company, if so requested by such Class A Member and/or Class B Member, upon approval by a Simple Majority of the Board, such consent not to be unreasonably withheld or unduly delayed, such Class A Common Shares and/or Class B Common Shares shall be redesignated as Class C Common Shares. In such instance, the authorized and issued number of Class A Common Shares and/or Class B Common Shares shall be reduced by the aggregate number of such Class A Common Shares and/or Class B Common Shares so converted and the number of authorised and issued Class C Common Shares shall be correspondingly increased by the same amount.
4.11 Upon notice from a Class C Member to the Company, if so requested by such Class C Member, upon approval by a Simple Majority of the Board, such consent not to be unreasonably withheld or unduly delayed, such Class C Common Shares shall be redesignated as Class B Common Shares. In such instance, the authorized and issued number of Class C Common Shares shall be reduced by the aggregate number of such Class C Common Shares so converted and the number of authorised and issued Class B Common Shares shall be correspondingly increased by the same amount.
5. LIMITATION ON VOTING RIGHTS AND ADJUSTMENT OF VOTING POWER
5.1 The voting power of all shares is hereby adjusted (and will be automatically adjusted in the future) to the extent necessary to prevent a Share Voting Limitation Violation. To effectuate the preceding sentence, in the event that the Board determines that a Tentative Share Voting Limitation Violation exists, or will exist at the time any vote of Members is taken, with respect to any Person, the aggregate votes conferred by shares as to which such Person is the Deemed Owner will, to the extent possible, be reduced to the extent necessary to eliminate such Tentative Share Voting Limitation Violation.
5.2 The final determination of the application of any reductions pursuant to Bye-law 5.1 will be as determined by the Board, subject to the following provisions (and notwithstanding anything to the contrary, the Board may not delegate the right or obligation to make such final determination):
(a) First, where a Person (including, with respect to (ii) below, any Class A Member) is a Tentative Prohibited Shareholder by virtue of its direct ownership of shares, then the voting power of the shares held by such Person will be reduced (i) with respect to matters on which solely the Class B Members may vote, to an amount of the total combined voting power of all issued and outstanding Class B Common Shares equal to the product of (a) 9.5% and (b) the quotient reached by dividing (x) the total number of Directors by (y) the number of Class B Directors, and (ii) with respect to all other matters, to 9.5% of the total combined voting power of such issued and outstanding shares.
(b) Second, to the extent necessary to eliminate a Tentative Share Voting Limitation Violation, where a Person is a Tentative Prohibited Shareholder by virtue of being the Deemed Owner of shares (some of which are held by a different Member), the voting power of the shares held by such Member or Members with the highest Attribution Percentage (other than the Class A Members, which are subject to paragraph (c), below) will be reduced first (until the voting power of such immediately aforementioned Member or Members is equal to the voting power of the Company Securities held by the Member or Members with the next highest Attribution Percentage); provided that, in the event that the Attribution Percentage of any such Members is equal (taking into account the successive application of the foregoing clause), the voting power of the Company Securities held by such Members (other than the Class A Members) will be reduced such that the reduction shall be by the same
amount for such Members on an absolute basis (meaning that the total aggregate reduction of voting power will be split evenly between such Members).
(c) Third, notwithstanding any other provisions of these Bye-laws the voting power of shares held by each Class A Member will not be reduced except pursuant to Bye-laws 5.1 and 5.2(a) in the event that after (1) application of any reductions in voting power pursuant to Bye-law 5.2(b) with respect to shares held by any Member other than the Class A Members and (2) any adjustments made by the Board pursuant to Bye-law 5.2(a), there remains a Tentative Share Voting Limitation Violation, then the voting power with respect to shares held directly or indirectly by each Class A Member will be reduced, and such reduction shall be by the same amount for each Class A Member on an absolute basis (meaning that the total aggregate reduction of voting power will be split evenly between such Class A Members), to the extent necessary to eliminate such Tentative Share Voting Limitation Violation; provided, however, that, to the extent that a Transfer by any Class A Member, or in each case by an Affiliate thereof, to a Permitted Transferee thereof or the acceptance by any Class A Member of new or additional investments by any Person in such Person, or in each case by any Affiliate thereof, would result in additional adjustments pursuant to the application of this Bye-law 5.2(c) then the Person or its Affiliate making such Transfer will bear the entirety of the incremental voting cutback attributable to such action.
5.3 Except in the case of the Board’s discretionary adjustments to voting power as provided in Bye-law 5.4, (i) the voting power of Members holding no shares treated as Controlled Shares of any Tentative Prohibited Shareholder will, in the aggregate, be increased by the same amount of voting power subject to reductions as described in Bye-laws 5.2(a) and 5.2(b); (ii) such increase shall apply to all such Members in proportion to their voting power at that time; provided that such increase shall only apply to the Class B Members if the Tentative Prohibited Shareholder is described in clause (i) of the definition of Prohibited Shareholder and shall apply to such Class B Members in proportion to their voting power with respect to matters solely on which Class B Members may vote; provided, further, that any increase pursuant to this clause (ii) shall be limited to the extent necessary to avoid causing a Share Voting Limitation Violation; and (iii) the adjustments of voting power described in Bye laws 5.2(a) and 5.2(b) and this Bye-law 5.3 will apply repeatedly until there would be no Share Voting Limitation Violation or until it becomes no longer possible to reduce the voting power of any Tentative Prohibited Shareholder without resulting in a Share Voting Limitation Violation. For the avoidance of doubt, in applying the provisions of Bye-laws 5.2 and 5.3, a share may carry a fraction of a vote.
5.4 Notwithstanding anything to the contrary in these Bye-laws, the voting power of all shares directly held by any TS Prohibited Employee Member is hereby adjusted (and will be automatically adjusted in the future) to the extent necessary to prevent an TS Prohibited Employee Voting Limitation Violation. To effectuate the preceding sentence, in the event that the Board determines that a Tentative TS Prohibited Employee Limitation Violation exists, or will exist at the time any vote of Members is taken, with respect to any Person, the aggregate votes conferred by shares as to which such Person is the Deemed Owner will, to the extent possible, be reduced to the extent necessary to eliminate such Tentative TS Prohibited Employee Limitation Violation. The final determination of the application of any reductions pursuant to this Bye-law 5.4 will be as determined by the Board (and notwithstanding anything to the contrary, the Board may not delegate the right or obligation to make such final determination).
5.5 The Board may, in its absolute discretion and subject to Bye-law 5.8, make other adjustments to the voting power of shares to the extent necessary or advisable in order (i) to prevent (or reduce the magnitude of) a Share Voting Limitation Violation or (ii) to avoid adverse tax, legal or regulatory
consequences to the Company, any Subsidiary of the Company or any Member or its Affiliates; provided, however, that the Board may not make any adjustment pursuant to this Bye-law 5.5 if the effect of such adjustment would be (x) to cause a Share Voting Limitation Violation with respect to a U.S. Person, or (y) to reduce the voting power of shares held by any Class A Member (except in accordance with Bye-law 5.2(b)).
5.6 The Board will from time to time, at its discretion and prior to any time at which a vote of Members is taken, take (or cause to be taken) reasonable steps to ascertain through communications with Members or otherwise, whether there exists, or will exist at the time any vote of the Members is taken, a Tentative Prohibited Shareholder (a "Tentative Share Voting Limitation Violation") or a Tentative TS Prohibited Employee Member (a “Tentative TS Prohibited Employee Limitation Violation”). .
5.7 The Company will have no obligation to provide notice to a Member of any adjustment to its voting power that results (or may result) from the application of this Bye-law 5.
5.8 The Board, in its absolute discretion, by unanimous consent of the entire Board (except for any Directors who voluntarily recuse themselves), may waive a Share Voting Limitation Violation or the provisions of Bye-laws 5.1, 5.2, 5.3 or 5.4 with respect to any Person; provided that such waiver will not be effective without the consent of such Person.
5.9 All the rights attaching to a Treasury Share shall be suspended and shall not be exercised by the Company while it holds such Treasury Share and, except where required by the Companies Act, all Treasury Shares shall be excluded from the calculation of any percentage or fraction of the share capital, or shares, of the Company.
6. CALL ON SHARES
6.1 The Board may make such calls as it thinks fit upon the Members in respect of any moneys (whether in respect of nominal value or premium) unpaid on the shares allotted to or held by such Members and, if a call is not paid on or before the day appointed for payment thereof, the Member may at the discretion of the Board be liable to pay the Company interest on the amount of such call at such rate as the Board may determine, from the date when such call was payable up to the Company's actual date of payment. The Board may differentiate between the holders as to the amount of calls to be paid and the times of payment of such calls.
6.2 The joint holders of a share shall be jointly and severally liable to pay all calls and any interest, costs and expenses in respect thereof.
6.3 The Company may accept from any Member the whole or a part of the amount remaining unpaid on any shares held by him or her, although no part of that amount has been called up.
7. SHARE CERTIFICATES
7.1 Subject to Bye-law 7.4 and save in respect of those shares that the Board has determined to be uncertificated shares, every Member shall be entitled to a share certificate under the common seal of the Company (or a facsimile thereof) or bearing the signature (or a facsimile thereof) of a Director or the Secretary or a person expressly authorised to sign. The Board may by resolution determine, either generally or in any particular case, that any signatures on any such certificates need not be autographic but may be affixed to such certificates by some mechanical means or may be printed thereon or that such certificates need not be signed by any persons. Where share certificates are issued they shall specify the number and, where appropriate, the class of shares held by such
Member and whether the same are fully paid up and, if not, specifying the amount paid on such shares.
7.2 The Company shall be under no obligation to complete and deliver a share certificate unless specifically requested by the person to whom the shares have been allotted. In the case of a share held jointly by several persons, delivery of a certificate to one of several joint holders shall be sufficient delivery to all.
7.3 If any share certificate shall be proved to the satisfaction of the Board to have been worn out, lost, mislaid, or destroyed the Board may cause a new certificate to be issued and request an indemnity for the lost certificate if it sees fit.
7.4 Notwithstanding any provisions of these Bye-laws:
(a) the Board shall, subject always to the Companies Act and any other applicable laws and regulations and the requirements of any relevant system concerned, have power to implement any arrangements it may, in its absolute discretion, think fit in relation to the evidencing of title to and transfer of uncertificated shares and to the extent such arrangements are so implemented, no provision of these Bye-laws shall apply or have effect to the extent that it is in any respect inconsistent with the holding or transfer of shares in uncertificated form; and
(b) unless otherwise determined by the Board and as permitted by the Companies Act and any other applicable laws and regulations including the applicable rules of the New York Stock Exchange or other exchange on which the shares are admitted to trading, no person shall be entitled to receive a certificate in respect of any share for so long as the title to that share is evidenced otherwise than by a certificate and for so long as transfers of that share may be made otherwise than by a written instrument.
7.5 The Board shall, subject always to the Companies Act, any other applicable laws and regulations and the requirements of any relevant system and these Bye-laws, have the power to implement and/or approve any arrangements it may, in its absolute discretion, think fit in relation to the evidencing of title to and transfer of interest in shares in the form of depositary interests or similar interests, instruments or securities, and to the extent such arrangements are so implemented, no provision of these Bye-laws shall apply or have effect to the extent that it is in any respect inconsistent with the holding or transfer thereof or the shares represented thereby. The Board may from time to time take such actions and do such things as it may, in its absolute discretion, think fit in relation to the operation of any such arrangements, including without limitation, implementing voting procedures in respect thereof.
8. FRACTIONAL SHARES
8.1 The Company may issue its shares in fractional denominations and deal with such fractions to the same extent as its whole shares and shares in fractional denominations shall have in proportion to the respective fractions represented thereby all of the rights of whole shares including (but without limiting the generality of the foregoing) the right to vote, to receive dividends and distributions and to participate in a winding-up.
9. REGISTER OF MEMBERS
9.1 The Board shall cause to be kept in one or more books a Register of Members and shall enter therein the particulars required by the Companies Act. Subject to the provisions of the Companies Act, the
Company may keep one or more overseas or branch registers in any place, and the Board may make, amend and revoke any such regulations as it may think fit regarding the keeping of such registers. The Board may authorise any share on the Register of Members to be included in a branch register or any share registered on a branch register to be registered on another branch register, provided that at all times the Register of Members is maintained in accordance with the Companies Act.
9.2 The Register of Members shall be open to inspection without charge at the Registered Office on every Business Day, subject to such reasonable restrictions as the Board may impose, so that not less than two hours in each Business Day be allowed for inspection. The Register of Members may, after notice has been given in accordance with the Companies Act, be closed for any time or times not exceeding in the whole thirty days in each year.
10. REGISTERED HOLDER ABSOLUTE OWNER
The Company shall be entitled to treat the registered holder of any share as the absolute owner thereof and accordingly shall not be bound to recognise any equitable claim or other claim to, or interest in, such share on the part of any other person.
11. TRANSFER OF REGISTERED SHARES
11.1 An instrument of transfer shall be in writing in such form as the Board may accept. Shares may be transferred without a written instrument if transferred in accordance with Section 48 of the Companies Act or, if not inconsistent with the Companies Act, pursuant to Byelaw 11.7.
11.2 Such instrument of transfer shall be signed by or on behalf of the transferor and transferee, provided that, in the case of a fully paid share, the Board may accept the instrument signed by or on behalf of the transferor alone. The transferor shall be deemed to remain the holder of such share until the same has been registered as having been transferred to the transferee in the Register of Members.
11.3 The joint holders of any share may transfer such share to one or more of such joint holders, and the surviving holder or holders of any share previously held by them jointly with a deceased Member may transfer any such share to the executors or administrators of such deceased Member.
11.4 The Board shall refuse to register a transfer unless all applicable consents, authorisations and permissions of any governmental body or agency in Bermuda have been obtained. Subject to any directions of the Board from time to time in force, the Secretary may exercise the powers and discretions of the Board under this Bye-law.
11.5 The Board may in its absolute discretion and without assigning any reason therefor refuse to register a transfer unless it is accompanied by the certificate in respect of the shares to which it relates (provided that a certificate has been issued) and by such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer. Subject to any directions of the Board from time to time in force, the Secretary may exercise the powers and discretions of the Board under this Bye-law.
11.6 If the Board refuses to register a transfer of any share the Secretary shall, within three months after the date on which the transfer was lodged with the Company, send to the transferor and transferee notice of the refusal.
11.7 Notwithstanding anything to the contrary in Bye-laws 11.2 to 11.6, shares of a class that are listed or admitted to trading on an Appointed Stock Exchange (and shares of a different class that will, upon
transfer, be shares of the same class as shares listed on the Appointed Stock Exchange) may be transferred in accordance with the rules and regulations of such exchange.
12. RESTRICTIONS ON TRANSFERS
12.1 A Member may Transfer all or a portion of its Company Shares to any Person, subject to compliance with the Companies Act and these Bye-laws. For any Member that is a trust, a change in the trustee of such Member shall not constitute a Transfer.
13. TRANSMISSION OF REGISTERED SHARES
13.1 In the case of the death of a Member, the survivor or survivors where the deceased Member was a joint holder, and the legal personal representatives of the deceased Member where the deceased Member was a sole holder, shall be the only persons recognised by the Company as having any title to the deceased Member’s interest in the shares. Nothing herein contained shall release the estate of a deceased joint holder from any liability in respect of any share which had been jointly held by such deceased Member with other persons. Subject to the Companies Act, for the purpose of this Bye-law, legal personal representative means the executor or administrator of a deceased Member or such other person as the Board may, in its absolute discretion, decide as being properly authorised to deal with the shares of a deceased Member.
13.2 Any person becoming entitled to a share in consequence of the death or bankruptcy of any Member may be registered as a Member upon such evidence as the Board may deem sufficient or may elect to nominate some person to be registered as a transferee of such share, and in such case the person becoming entitled shall execute in favour of such nominee an instrument of transfer in writing in such form as the Board may accept. All the limitations, restrictions and provisions of these Bye-laws relating to the transfer of registered shares shall be applicable to any such transfer.
13.3 On the presentation of the foregoing materials to the Board, accompanied by such evidence as the Board may require to prove the title of the transferor, the transferee shall be registered as a Member.
13.4 Where two or more persons are registered as joint holders of a share or shares, then in the event of the death of any joint holder or holders the remaining joint holder or holders shall be absolutely entitled to such share or shares and the Company shall recognise no claim in respect of the estate of any joint holder except in the case of the last survivor of such joint holders.
13.5 Subject to any directions of the Board from time to time in force, the Secretary may exercise the powers and discretions of the Board under Bye-laws 13.1 - 13.4 (inclusive).
14. POWER TO ALTER CAPITAL
14.1 Subject to Bye-law 83, the Company may, if authorised by resolution of the Members, and in any manner permitted by the Companies Act:
(a) increase its share capital by new shares of such amount as it thinks expedient;
(b) change the currency denomination of its share capital; or
(c) cancel shares which, at the date of the passing of the resolution in that behalf, have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the shares so cancelled.
14.2 Subject to Bye-law 83, the Board may, in any manner permitted by the Companies Act:
(a) divide its shares into several classes and attach thereto respectively any preferential, deferred, qualified or special rights, privileges or conditions;
(b) consolidate and divide all or any of its share capital into shares of larger amount than its existing shares;
(c) subdivide its shares, or any of them, into shares of smaller amount than is fixed by the memorandum; or
(d) make provision for the issue and allotment of shares which do not carry any voting rights.
14.3 The Company may, if authorised by resolution of the Members, reduce its share capital in any manner permitted by the Companies Act.
14.4 Where, on any alteration or reduction of share capital, fractions of shares or some other difficulty would arise, the Board may deal with or resolve the same in such manner as it thinks fit.
15. VARIATION OF RIGHTS ATTACHING TO SHARES
If, at any time, the share capital is divided into different classes of shares, the rights attached to any class (unless otherwise provided by the terms of issue of the shares of that class) may, whether or not the Company is being wound-up, be varied by approval of a Simple Majority of the Board and with the consent in writing of the holders of a Simple Majority of the Members of that class or with the sanction of a resolution passed by a majority of the votes cast at a separate general meeting of the holders of the shares of the class at which meeting the necessary quorum shall be one person at least holding or representing by proxy a majority of the issued shares of the class; provided that, with respect to the Class A Common Shares, no such amendment or variation of rights shall be permitted without the written consent of the Blackstone Investor (for so long as the Blackstone Investor holds any Class A Common Shares). The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith.
16. DIVIDENDS AND OTHER PAYMENTS
16.1 The Board may, subject to these Bye-laws and in accordance with the Companies Act, declare a dividend to be paid to the Members, in proportion to the number of shares held by them, and such dividend may be paid in cash or wholly or partly in specie in which case the Board may fix the value for distribution in specie of any assets.
16.2 The Board may fix any date as the record date for determining the Members entitled to receive any dividend.
16.3 The Company may pay dividends in proportion to the amount paid up on each share where a larger amount is paid up on some shares than on others.
16.4 The Board may declare and make such other distributions (in cash or in specie) to the Members as may be lawfully made out of the assets of the Company.
16.5 The Board may deduct from the dividends or distributions payable to any Member all moneys due from such Member to the Company on account of calls or otherwise.
16.6 No dividend, distribution or other monies payable by the Company on or in respect of any share shall bear interest against the Company.
17. POWER TO SET ASIDE PROFITS
The Board may, before declaring a dividend or distribution out of contributed surplus, set aside out of the surplus or profits of the Company, such amount as it thinks proper as a reserve to be used to meet contingencies or for equalising dividends or for any other purpose.
18. METHOD OF PAYMENT
18.1 Any dividend, interest, or other moneys payable in cash in respect of the shares may be paid by cheque or draft sent through the post directed to the Member at such Member’s address in the Register of Members, or to such person and to such address as the Member may in writing direct, or by transfer to such account as the Member may in writing direct.
18.2 In the case of joint holders of shares, any dividend, interest or other moneys payable in cash in respect of shares may be paid by cheque or draft sent through the post directed to the address of the holder first named in the Register of Members, or to such person and to such address as the joint holders may in writing direct, or by transfer to such account as the joint holders may in writing direct. If two or more persons are registered as joint holders of any shares any one can give an effectual receipt for any dividend or other payment paid in respect of such shares.
18.3 The Board may deduct from the dividends or distributions payable to any Member all moneys due from such Member to the Company on account of calls or otherwise.
19. UNCLAIMED DIVIDENDS
19.1 Any dividend or other monies payable in respect of a share which has remained unclaimed for six (6) years from the date when it became due for payment shall, if the Board so resolves, be forfeited and cease to remain owing by the Company. The payment of any unclaimed dividend or other moneys payable in respect of a share may (but need not) be paid by the Company into an account separate from the Company’s own account. Such payment shall not constitute the Company a trustee in respect thereof.
20. UNDELIVERED PAYMENTS
20.1 The Company shall be entitled to cease sending dividend payments and cheques by post or otherwise to a Member if those instruments have been returned undelivered to, or left uncashed by, that Member on at least two consecutive occasions, or, following one such occasion, reasonable enquiries have failed to establish the Member’s new address. The entitlement conferred on the Company by this Bye-law in respect of any Member shall cease if the Member claims a dividend or cashes a dividend warrant or cheque.
21. CAPITALISATION
21.1 The Board may capitalise any amount for the time being standing to the credit of any of the Company’s share premium or other reserve accounts or to the credit of the profit and loss account or otherwise available for distribution by applying such amount in paying up unissued shares to be
allotted as fully paid bonus shares pro rata (except in connection with the conversion of shares) to the Members.
21.2 The Board may capitalise any amount for the time being standing to the credit of a reserve account or amounts otherwise available for dividend or distribution by applying such amounts in paying up in full, partly or nil paid shares of those Members who would have been entitled to such amounts if they were distributed by way of dividend or distribution.
22. ANNUAL GENERAL MEETINGS
22.1 An annual general meeting shall be held in each year at such place, date and hour as shall be fixed by the principal executive officer or the chairperson of the Board or any two Directors or any Director and the Secretary or the Board.
22.2 Nominations of persons for election to the Board or the proposal of other business to be transacted by the Members may be made at an annual general meeting only (A) pursuant to the Company’s notice of meeting (or any supplement thereto), (B) by or at the direction of the Board (or any duly authorized committee thereof) or (C) subject to any applicable law, by Members of record at the time of giving of notice as provided for in this Bye-law 22 and who comply with the notice procedures set forth in this Bye-law 22.
22.3 For nominations or other business to be properly brought before an annual general meeting by a Member pursuant to clause (C) of Bye-law 22.2, the Member must have given timely notice thereof in writing to the Secretary and any such proposed business must constitute a proper matter for Member action. To be timely, a Member’s notice shall be delivered to or mailed and received by the Secretary at the registered office of the Company not less than 90 days nor more than 120 days prior to the first anniversary of the preceding year’s annual general meeting; provided, however, that in the event that the annual general meeting is called for a date that is not within thirty (30) days before or after such anniversary date, notice by the Member in order to be timely must be so received by the Secretary at the registered office of the Company no earlier than 120 days prior to such meeting and no later than the later of (i) 70 days prior to the date of such meeting and (ii) the close of business on the fourth (4th) day following the day on which such notice of the date of the annual general meeting was mailed or such public disclosure of the date of the annual general meeting was made, whichever first occurs;.
22.4 A Member’s notice to the Secretary shall set forth (A) as to each person whom the Member proposes to nominate for election or re-election as a Director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Section 14(a) of the Securities Exchange Act (including such person’s written consent to being named in the proxy statement as a nominee and to serving as a Director if elected), (B) as to any other business that the Member proposes to bring before the general meeting, a brief description of the business desired to be brought before the general meeting, the text of the proposed business, the reasons for conducting such business at the general meeting and any material interest in such business of such Member and the beneficial owner, if any, on whose behalf the proposal is made, and (C) as to the Member giving the notice and the beneficial owner, if any, on whose behalf the proposal under (A) or (B) is made:
(a) the name and address of such Member (as they appear in the Register of Members) and any such beneficial owner;
(b) the class or series and number of shares of the Company which are held of record or are beneficially owned by such Member and by any such beneficial owner;
(c) a description of any agreement, arrangement or understanding between or among such Member and any such beneficial owner, any of their respective affiliates or associates, and any other person or persons (including their names) in connection with the proposal of such nomination or other business;
(d) a representation that the Member is a holder of record of shares of the Company entitled to vote at such general meeting and that that Member (or qualified representative of that Member) intends to appear in person or by proxy at the general meeting to bring such nomination or other business before the general meeting; and
(e) a representation as to whether such Member or any such beneficial owner intends or is part of a group that intends to (i) deliver a proxy statement and/or form of proxy to holders of at least the percentage of the voting power of the Company’s outstanding shares required to approve or adopt the proposal or to elect each such nominee and/or (ii) otherwise to solicit proxies from Members in support of such proposal or nomination.
22.5 If requested by the Company, the information required under Bye-laws 22.4(b) and 22.4(c)shall be supplemented by such Member and any such beneficial owner not later than 5 (five) Business Days after the record date for notice of the general meeting to disclose such information as of such record date, and, if requested by the Company at the instruction of the Board, such Member and any such beneficial owner shall provide any other information as the Company may request in its discretion.
22.6 Unless otherwise required by the Companies Act, if the Member (or a qualified representative of the Member) does not appear at the annual general meeting to present a nomination or other proposed business, such nomination shall be disregarded or such proposed business shall not be transacted, as the case may be, notwithstanding that proxies in respect of such vote may have been received by the Company. For purposes of this Bye-law 22.6, to be considered a qualified representative of the Member, a person must be a duly authorised officer, manager or partner of such Member or must be authorised by a writing executed by such Member or an electronic transmission delivered by such Member to act for such Member as proxy at the meeting and such person must produce such writing or electronic transmission, or a reliable reproduction of the writing or electronic transmission, at the meeting.
22.7 Without limiting the foregoing provisions of this Bye-law 22, a Member shall also comply with all applicable requirements of the Securities Exchange Act with respect to the matters set forth in this Bye-law 22; provided that any references in these Bye-laws to the Securities Exchange Act are not intended to and shall not limit any requirements applicable to nominations or proposals as to any other business to be considered pursuant to this Bye-law, and compliance with Bye-law 22 or 24 shall be the exclusive means for a Member to make nominations or submit other business.
23. SPECIAL GENERAL MEETINGS
A special general meeting may be convened by the principal executive officer or chairperson of the Board or by the Board, such meeting to be held at such place, date and hour as fixed by them, whenever in their judgment such a meeting is necessary.
24. REQUISITIONED GENERAL MEETINGS
The Board shall, on the requisition of Members holding, at the date of the deposit of the requisition, not less than 20% of the paid-up share capital of the Company which as at the date of the deposit carries the right to vote at general meetings, forthwith proceed to convene a special general meeting in accordance with the provisions of the Companies Act.
25. NOTICE
25.1 At least five (5) days’ notice of an annual general meeting shall be given to each Member entitled to attend and vote thereat, stating the place, date and hour at which the meeting is to be held, that the election of Directors will take place thereat, and as far as practicable, the other business to be conducted at the meeting.
25.2 At least five (5) days’ notice of a special general meeting shall be given to each Member entitled to attend and vote thereat, stating the date, time, place and the general nature of the business to be considered at the meeting.
25.3 The Board may fix any date as the record date for determining the Members entitled to receive notice of and to vote at any general meeting.
25.4 A general meeting shall, notwithstanding that it is called on shorter notice than that specified in these Bye-laws, be deemed to have been properly called if it is so agreed by (i) all the Members entitled to attend and vote thereat in the case of an annual general meeting; and (ii) a majority in number of the Members having the right to attend and vote at the meeting, being a majority together holding not less than 95% in nominal value of the shares giving a right to attend and vote thereat in the case of a special general meeting.
25.5 The accidental omission to give notice of a general meeting to, or the non-receipt of a notice of a general meeting by, any person entitled to receive notice shall not invalidate the proceedings at that meeting.
26. GIVING NOTICE AND ACCESS
26.1 A notice may be given by the Company to a Member:
(a) by delivering it to such Member in person, in which case the notice shall be deemed to have been served upon such delivery;
(b) by sending it by post to such Member's address in the Register of Members, in which case the notice shall be deemed to have been served seven days after the date on which it is deposited, with postage prepaid, in the mail;
(c) by sending it by courier to such Member's address in the Register of Members, in which case the notice shall be deemed to have been served two days after the date on which it is deposited, with courier fees paid, with the courier service;
(d) by transmitting it by electronic means (including facsimile and electronic mail, but not telephone) in accordance with such directions as may be given by such Member to the Company for such purpose, in which case the notice shall be deemed to have been served at the time that it would in the ordinary course be transmitted; or
(e) by delivering it in accordance with the provisions of the Companies Act pertaining to delivery of electronic records by publication on a website in accordance with Bye-law 26.3, in which case the notice shall be deemed to have been served at the time when the requirements of the Companies Act in that regard have been met.
26.2 Any notice required to be given to a Member shall, with respect to any shares held jointly by two or more persons, be given to whichever of such persons is named first in the Register of Members and notice so given shall be sufficient notice to all the holders of such shares.
26.3 Where a Member indicates his or her consent (in a form and manner satisfactory to the Board), to receive information or documents by accessing them on a website rather than by other means, or receipt in this manner is otherwise permitted by the Companies Act, the Board may deliver such information or documents by notifying the Member of their availability and including therein the address of the website, the place on the website where the information or document may be found, and instructions as to how the information or document may be accessed on the website.
27. POSTPONEMENT OF GENERAL MEETING
The Secretary may postpone any general meeting called in accordance with these Bye-laws (other than a meeting requisitioned under these Bye-laws) provided that notice of postponement is given to the Members before the time for such meeting. Fresh notice of the date, time and place for the postponed meeting shall be given to each Member in accordance with these Bye-laws.
28. ELECTRONIC PARTICIPATION IN MEETINGS
Members may participate in any general meeting by such telephonic, electronic or other communication facilities or means (including, without limiting the generality of the foregoing, by telephone, or by video conferencing) as permit all persons participating in the meeting to communicate with each other simultaneously and instantaneously, and participation in such a meeting shall constitute presence in person at such meeting.
29. QUORUM AT GENERAL MEETINGS
29.1 At any general meeting two or more persons present in person and representing in person or by proxy in excess of 50% of the total issued voting shares in the Company throughout the meeting shall form a quorum for the transaction of business, provided that if the Company shall at any time have only one Member, one Member present in person or by proxy shall form a quorum for the transaction of business at any general meeting held during such time.
29.2 If within half an hour from the time appointed for the meeting a quorum is not present, then, in the case of a meeting convened on a requisition, the meeting shall be deemed cancelled and, in any other case, the meeting shall stand adjourned to the same day one week later, at the same time and place or to such other day, time or place as the Secretary may determine. Unless the meeting is adjourned to a specific date, time and place announced at the meeting being adjourned, fresh notice of the resumption of the meeting shall be given to each Member entitled to attend and vote thereat in accordance with these Bye-laws.
30. CHAIRPERSON TO PRESIDE AT GENERAL MEETINGS
Unless otherwise agreed by a majority of those attending and entitled to vote thereat, the chairperson of the Company, if there be one, and if not the principal executive officer of the Company, if there be one, shall act as chairperson at all general meetings at which such person is
present. In their absence a chairperson shall be appointed or elected by those present at the meeting and entitled to vote.
31. VOTING ON RESOLUTIONS
31.1 Subject to the Companies Act and these Bye-laws, any question proposed for the consideration of the Members at any general meeting shall be decided by the affirmative votes of a majority of the votes cast in accordance with these Bye-laws and in the case of an equality of votes the resolution shall fail.
31.2 No Member shall be entitled to vote at a general meeting unless such Member has paid all the calls on all shares held by such Member.
31.3 At any general meeting a resolution put to the vote of the meeting shall, in the first instance, be voted upon by a show of hands and, subject to any rights or restrictions for the time being lawfully attached to any class of shares and subject to these Bye-laws, every Member present in person and every person holding a valid proxy at such meeting shall be entitled to one vote and shall cast such vote by raising his or her hand.
31.4 In the event that a Member participates in a general meeting by telephone, electronic or other communication facilities or means, the chairperson of the meeting shall direct the manner in which such Member may cast his or her vote on a show of hands.
31.5 At any general meeting if an amendment is proposed to any resolution under consideration and the chairperson of the meeting rules on whether or not the proposed amendment is out of order, the proceedings on the substantive resolution shall not be invalidated by any error in such ruling.
31.6 At any general meeting a declaration by the chairperson of the meeting that a question proposed for consideration has, on a show of hands, been carried, or carried unanimously, or by a particular majority, or lost, and an entry to that effect in a book containing the minutes of the proceedings of the Company shall, subject to these Bye-laws, be conclusive evidence of that fact.
32. POWER TO DEMAND A VOTE ON A POLL
32.1 Notwithstanding the foregoing, a poll may be demanded by any of the following persons:
(a) the chairperson of such meeting;
(b) at least three Members present in person or represented by proxy;
(c) any Member or Members present in person or represented by proxy and holding between them not less than one-tenth of the total voting rights of all the Members having the right to vote at such meeting; or
(d) any Member or Members present in person or represented by proxy holding shares in the Company conferring the right to vote at such meeting, being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total amount paid up on all such shares conferring such right.
32.2 Where a poll is demanded, subject to any rights or restrictions for the time being lawfully attached to any class of shares, every person present at such meeting shall have one vote for each share of which such person is the holder or for which such person holds a proxy and such vote shall be counted by
ballot as described herein, or in the case of a general meeting at which one or more Members are present by telephone, electronic or other communication facilities or means, in such manner as the chairperson of the meeting may direct and the result of such poll shall be deemed to be the resolution of the meeting at which the poll was demanded and shall replace any previous resolution upon the same matter which has been the subject of a show of hands. A person entitled to more than one vote need not use all his or her votes or cast all the votes he uses in the same way.
32.3 A poll demanded for the purpose of electing a chairperson of the meeting or on a question of adjournment shall be taken forthwith. A poll demanded on any other question shall be taken at such time and in such manner during such meeting as the chairperson (or acting chairperson) of the meeting may direct. Any business other than that upon which a poll has been demanded may be conducted pending the taking of the poll.
32.4 Where a vote is taken by poll, each person physically present and entitled to vote shall be furnished with a ballot paper on which such person shall record his or her vote in such manner as shall be determined at the meeting having regard to the nature of the question on which the vote is taken, and each ballot paper shall be signed or initialled or otherwise marked so as to identify the voter and the registered holder in the case of a proxy. Each person present by telephone, electronic or other communication facilities or means shall cast his or her vote in such manner as the chairperson shall direct. At the conclusion of the poll, the ballot papers and votes cast in accordance with such directions shall be examined and counted by a committee of not less than two Members or proxy holders appointed by the chairperson for the purpose and the result of the poll shall be declared by the chairperson.
33. VOTING BY JOINT HOLDERS OF SHARES
In the case of joint holders, the vote of the senior who tenders a vote (whether in person or by proxy) shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the Register of Members.
34. INSTRUMENT OF PROXY
34.1 An instrument appointing a proxy shall be in writing in such form as the chairperson of the meeting shall accept.
34.2 The instrument appointing a proxy must be received by the Company at the Registered Office or at such other place or in such manner as is specified in the notice convening the meeting or in any instrument of proxy sent out by the Company in relation to the meeting at which the person named in the instrument appointing a proxy proposes to vote, and an instrument appointing a proxy which is not received in the manner so prescribed shall be invalid.
34.3 A Member who is the holder of two or more shares may appoint more than one proxy to represent him or her and vote on his or her behalf in respect of different shares.
34.4 The decision of the chairperson of any general meeting as to the validity of any appointment of a proxy shall be final.
34.5 Any Member may irrevocably appoint a proxy and in such case:
(a) such proxy shall be irrevocable in accordance with the terms of the instrument of appointment;
(b) the Company shall be given notice of the appointment, such notice to include the name, address, telephone number and electronic mail address of the proxy holder and the Company shall give to the holder of such proxy notice of all meetings of Members of the Company;
(c) the holder of such proxy shall be the only person entitled to vote the relevant shares at any meeting at which such holder is present; and
(d) the Company shall be obliged to recognise the holder of such proxy until such time as the holder shall notify the Company in writing that such proxy is no longer in force.
35. REPRESENTATION OF MEMBER
35.1 A Member that is not a natural person may, by written instrument, authorise such person or persons as it thinks fit to act as its representative at any meeting and any person so authorised shall be entitled to exercise the same powers on behalf of the Member which such person represents as that Member could exercise if it were a natural person, and that Member shall be deemed to be present in person at any such meeting attended by its authorised representative or representatives.
35.2 Notwithstanding the foregoing, the chairperson of the meeting may accept such assurances as he thinks fit as to the right of any person to attend and vote at general meetings on behalf of a Member that is not a natural person.
36. ADJOURNMENT OF GENERAL MEETING
The chairperson of a general meeting may, with the consent of the Members at any general meeting at which a quorum is present, and shall if so directed by the meeting, adjourn the meeting. Unless the meeting is adjourned to a specific date, place and time announced at the meeting being adjourned, fresh notice of the date, place and time for the resumption of the adjourned meeting shall be given to each Member entitled to attend and vote thereat in accordance with these Bye-laws.
37. WRITTEN RESOLUTIONS
37.1 Subject to these Bye-laws, anything which may be done by resolution of the Company in a general meeting or by resolution of a meeting of any class of the Members may, without a meeting, be done by written resolution in accordance with this Bye-law.
37.2 Notice of a written resolution shall be given, and a copy of the resolution shall be circulated to all Members who would be entitled to attend a meeting and vote thereon. The accidental omission to give notice to, or the non-receipt of a notice by, any Member does not invalidate the passing of a resolution.
37.3 A written resolution is passed when it is signed by (or in the case of a Member that is a corporation, on behalf of) the Members who at the date that the notice is given represent such majority of votes as would be required if the resolution was voted on at a meeting of Members at which all Members entitled to attend and vote thereat were present and voting.
37.4 A resolution in writing may be signed in any number of counterparts.
37.5 A resolution in writing made in accordance with this Bye-law is as valid as if it had been passed by the Company in general meeting or by a meeting of the relevant class of Members, as the case may be,
and any reference in any Bye-law to a meeting at which a resolution is passed or to Members voting in favour of a resolution shall be construed accordingly.
37.6 A resolution in writing made in accordance with this Bye-law shall constitute minutes for the purposes of the Companies Act.
37.7 This Bye-law shall not apply to:
(a) a resolution passed to remove an Auditor from office before the expiration of his or her term of office; or
(b) a resolution passed for the purpose of removing a Director before the expiration of his or her term of office.
37.8 For the purposes of this Bye-law, the effective date of the resolution is the date when the resolution is signed by (or in the case of a Member that is a corporation, on behalf of) the last Member whose signature results in the necessary voting majority being achieved and any reference in any Bye-law to the date of passing of a resolution is, in relation to a resolution made in accordance with this Bye-law, a reference to such date.
38. DIRECTORS' ATTENDANCE AT GENERAL MEETINGS
The Directors shall be entitled to receive notice of, attend, and be heard at any general meeting.
39. NUMBER OF DIRECTORS
The number of Directors shall not be less than eleven (11) and not more than fifteen (15) Directors as the Board may from time to time determine.
40. ELECTION OF DIRECTORS
40.1 Subject to Bye-law 40.5, only persons who are proposed or nominated in accordance with Bye-law 22 shall be eligible to be elected as Directors.
40.2 At the request of the Board, any person nominated by the Board for election as a Director shall furnish to the Secretary the information that is required to be set forth in a Member's notice of nomination.
40.3 The chairperson of any general meeting may, if the facts warrant determine and declare to the general meeting that a nomination was not made in accordance with the procedures prescribed by these Bye-laws, and if the chairperson should so determine, the chairperson shall so declare to the general meeting, and the defective nomination shall be disregarded.
40.4 Except in the case of a Vacancy Event, Class B Directors shall be elected by the Class B Members by a vote of plurality of the votes of the Class B Members cast by written resolution, in accordance with Bye-law 37 or at a meeting at which holders of the majority of the Class B Common Shares are present, and shall serve for a term ending at the next following annual general meeting. For the avoidance of doubt, in any vote for the election of Class B Directors of the Company any limitations and adjustments to the voting power of any shares pursuant to the Voting Cutback Provisions will be taken into account.
40.5 The Shareholder Directors shall be appointed, in accordance with the Shareholders Agreement, pursuant to the following procedures:
(a) one (1) Director (the "Shareholder 1 Director") may be appointed by Shareholder 1 for so long as Shareholder 1 holds at least five million (5,000,000) Class A Common Shares (which number shall be equitably adjusted for any reclassification, stock split (including reverse stock split), subdivision, combination, exchange or readjustment of Class A Common Shares, or any stock dividend or distribution with a record date following the Effective Date);
(b) one (1) Director (the "Shareholder 2 Director") may be appointed by Shareholder 2 for so long as Shareholder 2 holds at least five million (5,000,000) Class A Common Shares (which number shall be equitably adjusted for any reclassification, stock split (including reverse stock split), subdivision, combination, exchange or readjustment of Class A Common Shares, or any stock dividend or distribution with a record date following the Effective Date);
(c) one (1) Director (the "Blackstone Investor Director") may be appointed by the Blackstone Investor for so long as the Blackstone Investor holds at least five million (5,000,000) Class A Common Shares (which number shall be equitably adjusted for any reclassification, stock split (including reverse stock split), subdivision, combination, exchange or readjustment of Class A Common Shares, or any stock dividend or distribution with a record date following the Effective Date); and
(d) one (1) Director (the "Magnitude Investor Director" and, together with the Shareholder 1 Director, the Shareholder 2 Director, and the Blackstone Investor Director, the "Shareholder Directors") may be appointed by the Magnitude Investor for so long as the Magnitude Investor holds at least 7.5 million (7,500,000) Class B Common Shares (which number shall be equitably adjusted for any reclassification, stock split (including reverse stock split), subdivision, combination, exchange or readjustment of Class B Common Shares, or any stock dividend or distribution with a record date following the Effective Date).
40.6 In the event that a Board Shareholder (a "Sold-Down Board Shareholder") ceases to hold the requisite amount of shares described in Bye-law 40.5(a)-(d) to appoint a Shareholder Director with respect to such Board Shareholder (such Shareholder Director, the "Sold-Down Board Shareholder Director"), then such Sold-Down Board Shareholder shall promptly remove its Sold-Down Board Shareholder Director from the Board by written notice to the Company. If a Vacancy Event occurs with respect to a Sold-Down Board Shareholder Director, then such vacancy shall be filled in accordance with Bye-law 45.
40.7 At any general meeting, the Members may authorise the Board to fill any vacancy in their number left unfilled at a general meeting.
41. TERM OF OFFICE OF DIRECTORS
The Directors shall hold office for a term expiring at the next general meeting or until his or her successor shall be elected, subject however, to prior death, resignation, retirement, disqualification or removal from office in accordance with these Bye-laws.
42. DEFECTS IN APPOINTMENT OF DIRECTORS
All otherwise bona fide acts done by any meeting or unanimous written resolutions of the Board or of a committee of the Board or by any person acting as a Director will, notwithstanding that it be afterwards discovered that there was some defect in the appointment of any Director or person
acting as aforesaid, or that they or any of them were disqualified, be as valid as if every such person had been duly appointed and was qualified to be a Director unless the defect relates to that Director being resident or based in the United Kingdom.
43. ALTERNATE DIRECTORS
43.1 Unless the Members otherwise resolve, any Director, including any Shareholder Director may appoint a person or persons to act as a Director in the alternative to himself or herself by notice deposited with the Secretary. An Alternate Director shall cease to be such in respect of any Shareholder Director if (i) the Shareholder Director deposits a notice in writing to the Secretary that such Alternate Director is no longer entitled to act in the alternative to himself or herself or (ii) the Shareholder Director for whom such Alternate Director was appointed ceases for any reason to be a Shareholder Director.
43.2 At any general meeting, the Members may elect (in accordance with Bye-law 40.8) a person or persons to act as a Director in the alternative to any one or more Directors, other than a Shareholder Director, or may authorise the Board to appoint such Alternate Directors.
43.3 Any person elected or appointed pursuant to this Bye-law shall have all the rights and powers of the Director or Directors for whom such person is elected or appointed in the alternative, and shall have one vote for each Director for whom he acts as alternate (in addition to his or her own vote if he is also a Director) provided that such person shall not be counted more than once in determining whether or not a quorum is present.
43.4 An Alternate Director shall be entitled to receive notice of all Board meetings and to attend and vote at any such meeting at which a Director for whom such Alternate Director was appointed in the alternative is not personally present and generally to perform at such meeting all the functions of such Director for whom such Alternate Director was appointed.
43.5 An Alternate Director’s office shall terminate:
(a) in the case of an alternate elected by the Members:
(i) on the occurrence in relation to the Alternate Director of any event which, if it occurred in relation to the Director for whom he was elected to act, would result in the termination of that Director; or
(ii) if the Director for whom he was elected in the alternative ceases for any reason to be a Director, provided that the alternate removed in these circumstances may be re-appointed by the Board as an alternate to the person appointed to fill the vacancy; and
(b) in the case of an alternate appointed by a Director:
(i) on the occurrence in relation to the Alternate Director of any event which, if it occurred in relation to his or her appointor, would result in the termination of the appointor’s directorship; or
(ii) when the Alternate Director’s appointor revokes the appointment by notice to the Company in writing specifying when the appointment is to terminate; or
(iii) if the Alternate Director’s appointor ceases for any reason to be a Director.
43.6 Every person acting as an Alternate Director shall (except as regards powers to appoint an alternate and remuneration) be subject in all respects to the provisions of these Bye-laws relating to Directors and shall alone be responsible to the Company for his or her acts and defaults and shall not be deemed to be the agent of or for any Director for whom he is alternate. An Alternate Director may be paid expenses and shall be entitled to be indemnified by the Company to the same extent mutatis mutandis as if he were a Director.
44. REMOVAL OF DIRECTORS
44.1 Subject to any provision to the contrary in these Bye-laws including Bye-law 44.2, the Members entitled to vote for the election of Directors may, at any special general meeting convened and held in accordance with these Bye-laws, remove a Director only for Cause, by the affirmative vote of Members holding at least 662/3% of the issued and outstanding voting shares entitled to vote for the election of directors; provided that the notice of any such meeting convened for the purpose of removing a Director shall contain a statement of the intention to do so and a summary of the facts justifying the removal and be served on such Director no fewer than 14 days before the meeting and at such meeting the Director shall be entitled to be heard on the motion for such Director’s removal.
44.2 Except as provided in, and subject to, Bye-law 40.6, each Board Shareholder may remove, with or without Cause, the Shareholder Director previously appointed by such Board Shareholder at any time by written notice to the Company. Except as provided in, and subject to Bye-law 40.6, none of the Company, the Board or any Member of the Company shall be permitted to remove a Shareholder Director without the prior written consent of the Board Shareholder that appointed such Shareholder Director, other than for Cause.
44.3 Except as provided in, and subject to Bye-law 45.2, if a Director is removed from the Board under this Bye-law, the Members may fill the vacancy, in accordance with Bye-law 45, at the meeting at which such Director is removed. In the absence of such election, the Board may fill the vacancy.
45. VACANCY IN THE OFFICE OF DIRECTOR
45.1 The office of Director shall be vacated if the Director:
(a) is removed from office pursuant to these Bye-laws or is prohibited from being a Director by law;
(b) is or becomes bankrupt or insolvent;
(c) is or becomes of unsound mind or a patient for any purpose of any statute or applicable law relating to mental health and the Board resolves that his or her office is vacated, or dies; or
(d) resigns his or her office by notice to the Company.
45.2 Except as provided in, and subject to, Bye-law 40.6, in the event that a vacancy is created on the Board by reason of the death, disability, removal (in accordance with Bye-law 44), resignation, retirement or otherwise (each, a "Vacancy Event") of any of the Shareholder Directors, the Board Shareholder that appointed such Shareholder Director shall, at any time, be entitled to appoint an individual to replace such Shareholder Director.
45.3 Subject to Bye-law 45.2, the Board shall have the power from time to time and at any time to appoint any natural person as a Director to fill a vacancy on the Board occurring as a result of a
Vacancy Event or an increase in the size of the Board and to appoint an Alternative Director to any Director so appointed.
46. REMUNERATION OF DIRECTORS
46.1 The remuneration of the Directors (if any) shall be determined by the Board and will be deemed to accrue from day to day. The Directors may also be paid all travel, hotel and other reasonable and documented out-of-pocket expenses incurred by them in attending and returning from meetings of the Board, any committee appointed by the Board, any meeting of the board of directors of any Subsidiary of the Company or any committee thereof, general meetings of the Company, or in connection with the business of the Company or their duties as Directors generally.
46.2 A Director may hold any other office under the Company (other than the office of Auditor) in conjunction with his or her office of Director for such period on such terms as to remuneration and otherwise as the Board may determine.
46.3 The Board may award special remuneration and benefits to any Director undertaking any special work or services for, or undertaking any special mission on behalf of, the Company other than his or her ordinary routine work as a Director. Any fees paid to a Director who is also counsel or attorney to the Company, or otherwise serves it in a professional capacity, will be in addition to his remuneration as a Director.
47. DIRECTORS TO MANAGE BUSINESS
The business of the Company shall be managed and conducted by the Board. In managing the business of the Company, the Board may exercise all such powers of the Company as are not, by the Companies Act or by these Bye-laws, required to be exercised by the Company in general meeting, and the business and affairs of the Company shall be so controlled by the Board.
48. POWERS OF THE BOARD OF DIRECTORS
48.1 Subject to Bye-law 83, the Board may:
(a) appoint, suspend, or remove any manager, secretary, clerk, agent or employee of the Company and may fix their remuneration and determine their duties;
(b) exercise all the powers of the Company to borrow money and to mortgage or charge its undertaking, property and uncalled capital, or any part thereof, and may issue debentures, debenture stock and other securities whether outright or as security for any debt, liability or obligation of the Company or any third party;
(c) appoint one or more Directors to the office of managing director or chief executive officer of the Company, who shall, subject to the control of the Board, supervise and administer all of the general business and affairs of the Company and the Board may entrust and confer upon the manager director or chief executive officer such additional powers and duties as the Board deems appropriate for the transaction or conduct of such business;
(d) appoint a person to act as manager of the Company’s day-to-day business and may entrust to and confer upon such manager such powers and duties as it deems appropriate for the transaction or conduct of such business;
(e) by power of attorney, appoint any company, firm, person or body of persons, whether nominated directly or indirectly by the Board, to be an attorney of the Company for such purposes and with such powers, authorities and discretions (not exceeding those vested in or exercisable by the Board) and for such period (or for unspecified length of time) and subject to such conditions as it may think fit and any such power of attorney may contain such provisions for the protection and convenience of persons dealing with any such attorney as the Board may think fit and may also authorise any such attorney to sub-delegate all or any of the powers, authorities and discretions so vested in the attorney;
(f) procure that the Company pays all expenses incurred in promoting and incorporating the Company;
(g) designate any of its powers (including the power to sub-delegate) to a committee appointed by the Board which may consist partly or entirely of non-Directors, provided that every such committee shall conform to such directions as the Board shall impose on them and provided further that the meetings and proceedings of any such committee shall be governed by the provisions of these Bye-laws regulating the meetings and proceedings of the Board, so far as the same are applicable and are not superseded by directions imposed by the Board, and provided further that (i) no committee may be appointed nor meeting of a committee may take place where there would be a majority of committee members resident or based in the United Kingdom or Ireland, and (ii) if a member of a committee becomes resident or based in the United Kingdom or Ireland and, immediately after that member becoming so resident or based, a majority of the members or of a class of members would be so resident or based, that member shall be treated as having resigned immediately prior to becoming resident or based. Meetings of a committee shall take place in accordance with the tax operating guidelines applicable to the Company in effect at the time of such meeting;
(h) delegate any of its powers (including the power to sub-delegate) to any person on such terms and in such manner as the Board may see fit;
(i) present any petition and make any application in connection with the liquidation or reorganisation of the Company;
(j) in connection with the issue of any share, pay such commission and brokerage as may be permitted by law; and
(k) authorise any company, firm, person or body of persons to act on behalf of the Company for any specific purpose and in connection therewith to execute any deed, agreement, document or instrument on behalf of the Company; provided that it is in compliance with the tax guidelines applicable to the Company.
49. REGISTER OF DIRECTORS AND OFFICERS
The Secretary shall establish and maintain a Register of the Directors and Officers of the Company as required by the Companies Act. The Register of the Directors and Officers shall be open to inspection without charge at the Registered Office of the Company on every Business Day, subject to such reasonable restrictions as the Board may impose, so that not less than two hours in each Business Day be allowed for inspection. The Register of the Directors and Officers may, after notice has been given in accordance with the Companies Act, be closed for any time or times not exceeding in the whole thirty days in each year.
50. APPOINTMENT OF OFFICERS
The Board may appoint such officers (who may or may not be Directors) as the Board may determine.
51. APPOINTMENT OF SECRETARY AND RESIDENT REPRESENTATIVE
The Secretary and Resident Representative (if applicable), shall be appointed by the Board at such remuneration (if any) and upon such terms as it deems fit and any Secretary and Resident Representative (where applicable) so appointed may be removed by the Board.
52. DUTIES OF OFFICERS
The Officers shall have such powers and perform such duties in the management, business and affairs of the Company as may be delegated to them by the Board from time to time.
53. DUTIES OF THE SECRETARY
The duties of the Secretary shall be those prescribed by the Companies Act together with such other duties as shall from time to time be prescribed by the Board.
54. REMUNERATION OF OFFICERS
The Officers shall receive such remuneration as the Board may determine.
55. CONFLICTS OF INTEREST
55.1 Any Director, or any Director’s firm, partner or any company with whom any Director is associated, may act in any capacity for, be employed by or render services to the Company and such Director or such Director’s firm, partner or company shall be entitled to remuneration as if such Director were not a Director. Nothing herein contained shall authorise a Director or Director’s firm, partner or company to act as Auditor to the Company.
55.2 A Director who is directly or indirectly interested in a contract or proposed contract or arrangement with the Company shall declare the nature of such interest as required by the Companies Act.
55.3 Following a declaration being made pursuant to this Bye-law or the Companies Act, unless required to abstain in accordance with Bye-law 57.3, a Director may vote in respect of any contract or proposed contract or arrangement in which such Director is interested and may be counted in the quorum for such meeting and shall not be liable to account to the Company for any profit realised thereby.
55.4 Subject to the Companies Act and any further disclosure required thereby, a general notice to the Directors by a Director or officer declaring that he is a director or officer of or has an interest in any person and is to be regarded as interested in any transaction or arrangement made with that person shall be sufficient declaration of interest in relation to any transaction or arrangement so made.
56. INDEMNIFICATION AND EXCULPATION OF DIRECTORS AND OFFICERS
56.1 The Directors, Resident Representative, Secretary and other Officers (such term to include any person appointed to any committee by the Board) acting in relation to any of the affairs of the Company or any subsidiary thereof and the liquidator or trustees (if any) acting in relation to any of
the affairs of the Company or any subsidiary thereof and every one of them (whether for the time being or formerly), and their heirs, executors and administrators (each of which an "Indemnified Party"), shall be indemnified and secured harmless out of the assets of the Company from and against all actions, costs, charges, losses, damages and expenses which they or any of them, their heirs, executors or administrators, shall or may incur or sustain by or by reason of any act done, concurred in or omitted in or about the execution of their duty, or supposed duty, or in their respective offices or trusts, and no Indemnified Party shall be answerable for the acts, receipts, neglects or defaults of the others of them or for joining in any receipts for the sake of conformity, or for any bankers or other persons with whom any monies or effects belonging to the Company shall or may be lodged or deposited for safe custody, or for insufficiency or deficiency of any security upon which any monies of or belonging to the Company shall be placed out on or invested, or for any other loss, misfortune or damage which may happen in the execution of their respective offices or trusts, or in relation thereto, PROVIDED THAT this indemnity shall not extend to any matter in respect of any fraud or dishonesty in relation to the Company which may attach to any of the indemnified parties.
56.2 Each Member agrees to waive any claim or right of action such Member might have, whether individually or by or in the right of the Company, against any Director or Officer on account of any action taken by such Director or Officer, or the failure of such Director or Officer to take any action in the performance of his or her duties with or for the Company or any subsidiary thereof, PROVIDED THAT such waiver shall not extend to any matter in respect of any fraud or dishonesty in relation to the Company which may attach to such Director or Officer.
56.3 The Company may purchase and maintain insurance for the benefit of any Director or Officer against any liability incurred by him or her under the Companies Act in his or her capacity as a Director or Officer or indemnifying such Director or Officer in respect of any loss arising or liability attaching to him or her by virtue of any rule of law in respect of any negligence, default, breach of duty or breach of trust of which the Director or Officer may be guilty in relation to the Company or any subsidiary thereof.
56.4 The Company may advance monies to an Indemnified Party for the costs, charges and expenses incurred by such Indemnified Party in defending any civil or criminal proceedings against him or her, on condition that the Indemnified Party shall repay such portion of the advance attributable to any claim of fraud or dishonesty if such claim is proved against him or her.
56.5 The indemnification and advancement of expenses provided in these Bye-Laws will not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may now or hereafter be entitled under any statute, agreement, vote of Members or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office.
56.6 The indemnification and advancement of expenses provided by, or granted pursuant to, this Bye-law 56 will, unless otherwise provided when authorised or ratified, continue as to a Person who has ceased to hold the position for which such Person is entitled to be indemnified or advanced expenses and will inure to the benefit of the heirs, executors, administrators, successors and assigns of such a Person.
56.7 The indemnification and advancement of expenses provided by, or granted pursuant to, this Bye-law 56 will be the primary source of indemnification for each Indemnified Person, regardless of whether such Indemnified Person is entitled to indemnification from any Person affiliated with the Indemnified Person. The Company will not be subrogated to the rights of the Indemnified Person or
entitled to seek contribution from any other potential source of indemnification for the indemnified Person.
56.8 No amendment, repeal or termination of any provision of this Bye-Law 56 will alter, to the detriment of any Person, the right of such Person to the indemnification or advancement of expenses related to a claim based on an act or failure to act that took place prior to such amendment, repeal or termination.
57. BOARD MEETINGS
57.1 The Board may meet, subject to the tax operating guidelines applicable to the Company in effect at the time of such meeting, for the transaction of business, adjourn and otherwise regulate its meetings as it sees fit.
57.2 Except as otherwise provided in these Bye-laws or in the Shareholders Agreement, (a) the approval by a vote of a Simple Majority of the Board, or (b) the written consent of all of the Directors then in office shall be required for all actions requiring approval of the Board.
57.3 Notwithstanding Bye-law 57.2, if any Director is conflicted with respect to any action requiring approval of the Board, such Director shall be required to promptly disclose the conflict to the other current Directors serving on the Board. Following such disclosure, the Board may require the conflicted director to abstain from any vote on the conflicted matter, upon approval by a vote of a Simple Majority of the Board (which vote shall exclude the conflicted Director, in which case the conflicted Director shall not be required to be present for the purpose of establishing a quorum with respect to the vote on such matter).
57.4 It is acknowledged and agreed that any vote by the Board, including in connection with the requirements of Bye-law 57.3, with respect to (A) the retention or termination of the Investment Manager, shall constitute a conflicted matter for the Shareholder 1 Director and the Shareholder 2 Director (and shall require the disclosure and vote described in Bye-law 57.3 with respect to each Director), and (B) neither (x) the adoption, modification or termination of any investment policy or guidelines, including the decision to make any investment not in accordance with the then-applicable investment policy, nor (y) any transaction consummated in connection therewith, shall constitute a conflicted matter for the Shareholder 1 Director or the Shareholder 2 Director (and neither shall require the disclosure and vote described in Bye-law 57.3 with respect to either Director).
58. NOTICE OF BOARD MEETINGS
A Director may, and the Secretary on the requisition of a Director shall, at any time summon a meeting of the Board. Notice of a meeting of the Board must be provided at least two (2) Business Days in advance of such meeting unless the Directors unanimously agree to waive notice of such meeting. Attendance of a Person at a meeting shall constitute a waiver of notice of such meeting, except where the Person attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of business because the meeting is not properly called or convened.
59. ELECTRONIC PARTICIPATION IN MEETINGS
With respect to any meeting of the Board, the Board shall determine whether to make available to each member of the Board the option to attend such meeting by conference telephone, subject to the tax operating guidelines applicable to the Company in effect at the time of such meeting. If the
Board determines to make available to any Director the option to attend a meeting by conference telephone, any member of the Board may attend any such meeting through use of such means.
60. REPRESENTATION OF A CORPORATE DIRECTOR
60.1 A Director which is a corporation may, by written instrument, authorise such person or persons as it thinks fit to act as its representative at any meeting and any person so authorised shall be entitled to exercise the same powers on behalf of the corporation which such person represents as that corporation could exercise if it were an individual Director, and that Director shall be deemed to be present in person at any such meeting attended by its authorised representative or representatives.
60.2 Notwithstanding the foregoing, the chairperson of the meeting may accept such assurances as he thinks fit as to the right of any person to attend and vote at Board meetings on behalf of a corporation which is a Director.
61. QUORUM AT BOARD MEETINGS
Except as otherwise required by the Companies Act or other applicable law, the presence of at least a majority of the entire Board is required for a quorum of the Board.
62. BOARD TO CONTINUE IN THE EVENT OF VACANCY
The Board may act notwithstanding any vacancy in its number but, if and so long as its number is reduced below the number fixed by these Bye-laws as the quorum necessary for the transaction of business at meetings of the Board, the continuing Directors or Director may act for the purpose of (i) summoning a general meeting; or (ii) preserving the assets of the Company.
63. CHAIRPERSON TO PRESIDE
Unless otherwise agreed by a majority of the Directors attending, the Chairperson, if there be one, and if not, the principal executive officer, if there be one, shall act as chairperson at all meetings of the Board at which such person is present. In their absence a chairperson shall be appointed or elected by the Directors present at the meeting.
64. WRITTEN RESOLUTIONS
A resolution executed by (or in the case of a Director that is a corporation, on behalf of) all the Directors, which may be in counterparts, shall be as valid as if it had been passed at a meeting of the Board duly called and constituted, such resolution to be effective when the resolution is executed by (or in the case of a Director that is a corporation, on behalf of) the last Director. For the purpose of this Bye-law only, "Director" shall not include an Alternate Director. A copy of the resolution shall be filed with the minutes in accordance with Bye-law 66.
65. VALIDITY OF PRIOR ACTS
No regulation or alteration to these Bye-laws made by the Company in a general meeting shall invalidate any prior act of the Board or by any committee or by any person acting as a Director or
member of a committee or any person duly authorised by the Board or any committee which would have been valid if that regulation or alteration had not been made.
66. MINUTES
66.1 The Board shall cause minutes to be duly entered in books provided for the purpose:
(a) of all elections and appointments of Officers;
(b) of the names of the Directors present at each meeting of the Board and of any committee appointed by the Board; and
(c) of all resolutions and proceedings of general meetings of the Members, meetings of the Board, and meetings of committees appointed by the Board.
67. PLACE WHERE CORPORATE RECORDS KEPT
Minutes prepared in accordance with the Companies Act and these Bye-laws shall be kept by the Secretary at the Registered Office.
68. FORM AND USE OF SEAL
68.1 The Company may adopt a seal in such form as the Board may determine. The Board may adopt one or more duplicate seals for use in or outside Bermuda.
68.2 A seal may, but need not, be affixed to any deed, instrument, share certificate or document, and if the seal is to be affixed thereto, it shall be attested by the signature of (i) any Director, or (ii) any Officer, or (iii) the Secretary, or (iv) any person authorised by the Board for that purpose.
68.3 A Resident Representative may, but need not, affix the seal of the Company to certify the authenticity of any copies of documents.
69. RECORDS OF ACCOUNT
69.1 The Board shall cause to be kept proper records of account with respect to all transactions of the Company and in particular with respect to:
(a) all amounts of money received and expended by the Company and the matters in respect of which the receipt and expenditure relates;
(b) all sales and purchases of goods by the Company; and
(c) all assets and liabilities of the Company.
69.2 Such records of account shall be kept at the Registered Office, or subject to the Companies Act, at such other place as the Board thinks fit and shall be available for inspection by the Directors during normal business hours.
70. FINANCIAL YEAR END
The financial year end of the Company may be determined by resolution of the Board and failing such resolution shall be 31 December in each year.
71. ANNUAL AUDIT
Subject to any rights to waive laying of accounts or appointment of an Auditor pursuant to the Companies Act, the accounts of the Company shall be audited at least once in every year.
72. APPOINTMENT OF AUDITOR
72.1 Subject to the Companies Act and Bye-law 83, the Members shall appoint an auditor to the Company to hold office for such term as the Members deem fit or until a successor is appointed.
72.2 The Auditor may be a Member but no Director, Officer or employee of the Company shall, during his or her continuance in office, be eligible to act as an Auditor of the Company.
72.3 No change to the Company's Auditors may be made save in accordance with the Companies Act and until the same has been approved by a unanimous resolution of the Board and by a resolution of the Members.
73. REMUNERATION OF AUDITOR
73.1 The remuneration of an Auditor appointed by the Members shall be fixed by the Company in general meeting or in such manner as the Members may determine.
73.2 The remuneration of an Auditor appointed by the Board to fill a casual vacancy in accordance with Bye-law 78 shall be fixed by the Board.
74. DUTIES OF AUDITOR
74.1 The financial statements provided for by these Bye-laws shall be audited by the Auditor in accordance with generally accepted auditing standards. The Auditor shall make a written report thereon in accordance with generally accepted auditing standards.
74.2 The generally accepted auditing standards referred to in this Bye-law may be those of a country or jurisdiction other than Bermuda or such other generally accepted auditing standards as may be provided for in the Companies Act. If so, the financial statements and the report of the Auditor shall identify the generally accepted auditing standards used.
75. ACCESS TO RECORDS
The Auditor shall at all reasonable times have access to all books kept by the Company and to all accounts and vouchers relating thereto, and the Auditor may call on the Directors or Officers of the Company for any information in their possession relating to the books or affairs of the Company.
76. FINANCIAL STATEMENTS
76.1 Subject to the following Bye-law, the financial statements and/or the auditor’s report as required by the Companies Act shall:
(a) be laid before the Members at the annual general meeting; or
(b) be received, accepted, adopted, approved or otherwise acknowledged by the Members by written resolution passed in accordance with these Bye-laws; or
(c) in circumstances where the Company has elected to dispense with the holding of an annual general meeting, be made available to the Members in accordance with the Companies Act in such manner as the Board shall determine.
76.2 If all Members and Directors shall agree, either in writing or at a meeting, that in respect of a particular interval no financial statements and/or auditor’s report thereon need be made available to the Members, and/or that no auditor shall be appointed then there shall be no obligation on the Company to do so.
77. DISTRIBUTION OF AUDITOR'S REPORT
The report of the Auditor shall be submitted to the Members in a general meeting.
78. VACANCY IN THE OFFICE OF AUDITOR
The Board may fill any casual vacancy in the office of the Auditor.
79. WINDING UP
If the Company shall be wound up the liquidator may, with the sanction of a resolution of the Members, divide amongst the Members in specie or in kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may, for such purpose, set such value as he deems fair upon any property to be divided as aforesaid and may determine how such division shall be carried out as between the Members or different classes of Members. The liquidator may, with the like sanction, vest the whole or any part of such assets in the trustees upon such trusts for the benefit of the Members as the liquidator shall think fit, but so that no Member shall be compelled to accept any shares or other securities or assets whereon there is any liability.
80. CHANGES TO BYE-LAWS
No Bye-law may be rescinded, altered or amended and no new Bye-law may be made until the same has been approved by a resolution of the Board and by a resolution of a Simple Majority of the Members.
81. CHANGES TO MEMORANDUM OF ASSOCIATION
No alteration or amendment to the Memorandum of Association may be made until same has been approved by a resolution of the Board and by a resolution of a Simple Majority of the Members.
82. DISCONTINUANCE
The Board may exercise all the powers of the Company to discontinue the Company to a jurisdiction outside Bermuda pursuant to the Companies Act.
83. CERTAIN APPROVALS
83.1 Except as otherwise expressly provided for in the Shareholders Agreement and for so long as the Shareholders Agreement is in effect, the Company shall not, and shall not permit any of its Material
Subsidiaries to, directly or indirectly, take any of the following actions without the approval of a Simple Majority of the Members:
(a) amend or restate (whether by merger, amalgamation, consolidation or otherwise), or waive, any provision of the Memorandum of Association or the Bye-laws or similar organizational documents of the Company or a Material Subsidiary of the Company in any material respect; or
(b) agree or otherwise enter into binding commitments to take any actions set forth above (unless subject to the foregoing approval).
83.2 Except as otherwise expressly provided for herein, the Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, take any of the following actions without the approval of a Qualified Majority of the Board:
(a) dissolve, voluntarily liquidate or wind-up the Company;
(b) adopt, materially modify or terminate any investment policy, or make any investment not in accordance with any applicable investment policy; provided, however, that the Company may, and may permit any of its Subsidiaries to, immaterially modify such investment policy; provided, further, that, for purposes of this Bye-law 83.2, the retention or termination of the Investment Manager or any successor investment manager or any investment advisor shall be deemed a "material" modification of such investment policy;
(c) enter into or consummate any transaction or series of transactions involving any merger, amalgamation, consolidation, exchange, scheme of arrangement, recapitalization or similar business combination transaction other than any merger or consolidation solely between or among any two or more wholly owned Subsidiaries of the Company that are not Material Subsidiaries;
(d) enter into or consummate any transaction or series of transactions involving any sale, pledge, transfer or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries;
(e) change the number of directors which the Board shall consist of (which number of directors shall be not less than the minimum nor more than the maximum number of directors specified in Bye-law 39); or
(f) agree or otherwise enter into binding commitments to take any actions set forth above.
83.3 Except as otherwise expressly provided for herein or as otherwise provided for in any charter of any committee of the Board which has been approved by the Board, the Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, take any of the following actions without the approval of a Simple Majority of the Board:
(a) except as otherwise provided for in the Registration Rights Agreement, initiate any registered public offering of Company Shares or shares of any Subsidiary;
(b) redeem or repurchase, or cancel, any Company Securities or any Subsidiary Securities;
(c) recapitalize or reclassify any of the Company Securities, including any stock split, stock dividend, or reverse stock split, or any similar change in capitalization;
(d) enter into or consummate any transaction or series of transactions involving (A) the sale, pledge, transfer or other disposition by the Company or any of its Subsidiaries (except those made to manage the investment portfolio of the Company or the applicable Subsidiary in accordance with the applicable investment policy) of assets having a fair market value that equals or exceeds $5,000,000 individually or $10,000,000 in the aggregate in any 12-month period or (B) the purchase, lease, license or other acquisition by the Company or any of its Subsidiaries of any equity interests, business, assets or operations of any other Person for consideration, including liabilities or obligations assumed in connection therewith, that equals or exceeds $5,000,000 individually or $10,000,000 in the aggregate in any 12-month period;
(e) enter into any joint venture or similar strategic relationship;
(f) enter into any bankruptcy or similar proceedings, including assigning any of the assets of the Company or any of its Subsidiaries for the benefit of a creditor;
(g) (A) adopt or amend any annual business plan (including any new or discontinued lines of business) or annual budget, (B) deviate in any material respect from any annual business plan approved in accordance with this Bye-law 83.3(g) except to the extent such deviation arises from the exercise of discretion granted to the Company or such Subsidiary, as applicable, under the Company Policies or (C) in any period subject to an annual budget approved in accordance with this Bye-law 83.3(g), (1) incur general and administrative expenses or capital expenditures in such period in excess of 110% of the aggregate amount allocated to general and administrative expenses and capital expenditures, respectively, in such annual budget or (2) incur compensation expenses in excess of 110% of the aggregate amount allocated to compensation expenses in such annual budget;
(h) appoint or remove any independent auditor of, or any third party actuary who regularly provides an independent review of the reserves of, the Company or any Material Subsidiary;
(i) form any Material Subsidiary for any purpose whatsoever or cause or permit any Subsidiary of the Company to form a Material Subsidiary;
(j) cause or permit any Subsidiary of the Company the formation or acquisition of which has not been approved by a Simple Majority of the Board to conduct any operations, obtain any assets, including in connection with the initial capitalization of such Subsidiary, or incur any liabilities or obligations of any nature other than, respectively, administrative operations or immaterial assets, liabilities or obligations, in each case that are incident to and necessary for the formation of such Subsidiary;
(k) incur or guarantee any indebtedness (including subjecting any assets to secured liens, unsecured credit or credit lines, credit support or guarantees and other contingent obligations, but excluding indebtedness incurred pursuant to debt facilities approved by a Simple Majority of the Board) over any 12-month period in an aggregate amount in excess of three percent (3%) of the average of the consolidated shareholders equity of the Company and its Subsidiaries, calculated in accordance with GAAP and consistent with past practice of the Company, for the four quarters ended immediately prior to such transaction;
(l) declare, pay or make any dividends or distributions, or set aside funds in order to declare, pay or make any dividends or distributions, other than dividends or distributions by Subsidiaries of the Company to the Company or other Subsidiaries of the Company;
(m) commence, settle or compromise any Action or threatened Action that would reasonably be expected to (A) involve payments in excess of one percent (1%) of the consolidated shareholders equity of the Company and its Subsidiaries, calculated in accordance with GAAP and consistent with past practice of the Company as of the quarter end immediately prior to such action, for an individual proceeding, or five percent (5%) of the consolidated shareholders equity of the Company and its Subsidiaries, calculated in accordance with GAAP and consistent with past practice of the Company as of the quarter end immediately prior to such action, in the aggregate, (B) result in any injunction or other remedy affecting the business, operations, finances or management of the Company or any of its Subsidiaries or (C) otherwise be material to the Company or any of its Subsidiaries;
(n) settle or fail to contest any governmental or regulatory investigation, complaint or other Action;
(o) assign or license-out any intellectual property rights;
(p) adopt, modify or terminate any of such policies, practices and procedures as a Simple Majority of the Board may from time to time designate (such designated policies, practices and procedures, collectively, the "Company Policies"), which Company Policies shall initially consist of all risk tolerance, credit risk, reserving, regulatory, underwriting and rating agency policies and all material tax and accounting policies, including any tax operating guidelines; or
(q) agree or otherwise enter into binding commitments to take any actions set forth above.
84. CERTAIN INFORMATION REPORTING REQUIREMENTS
84.1 Each Member agrees to use commercially reasonable efforts to execute properly and to provide to the Company, subject to reasonable confidentiality provisions, in a timely manner any documentation or other information regarding such Member that the Company or its agents may reasonably request in writing from time to time in connection with the Company's and its Affiliates' obligations under, and compliance with, applicable laws and regulations and the Voting Cutback Provisions, including without limitation, applicable tax and securities laws of the United States or any other relevant jurisdiction. Each Member waives any provision under the laws and regulations of any U.S. or non-U.S. jurisdiction that would, absent a waiver, prevent or inhibit the Company's compliance with applicable law and the Voting Cutback Provisions as described in these Bye-laws, including by preventing either (i) the Member from providing any requested information or documentation, or (ii) the disclosure, subject to reasonable confidentiality provisions, by the Company and its agents of the provided information or documentation to applicable regulatory authorities or as the Company determines is necessary to apply the Voting Cutback Provisions. In particular, but without limitation, each Member agrees to (i) provide any documentation or other information regarding itself and its beneficial owners reasonably requested by Hamilton Group or its agents in connection with the disqualification provisions under Rule 506(d) of Regulation D under the Securities Act, which may prohibit the Company from relying on the Rule 506 offering exemption if one or more of its significant equity holders has had a disqualifying event as described in Rule 506(d); and (ii) use commercially reasonable efforts to provide any documentation or other information regarding itself and its beneficial owners requested by Hamilton Group or its agents in connection with (A) the Foreign Account Tax Compliance Act provisions enacted under the Hiring Incentives to Restore Employment Act ("FATCA"), and any guidance, or U.S. Treasury Regulations relating thereto and published from time to time as well as any legislation, rules or practices adopted pursuant to any applicable intergovernmental agreement entered into in connection with the implementation of
FATCA and (B) determinations, subject to reasonable confidentiality provisions, as to the ownership (direct, indirect, or constructive within the meaning of Section 958 of the Code) of Common Shares by such Member or by any person to which Common Shares may be attributed (indirectly or constructively within the meaning of Section 958 of the Code) as a result of the ownership (direct, indirect, or constructive within the meaning of Section 958 of the Code) of Common Shares by such Member, including the information requested in the sample long form questionnaires attached as Exhibit A hereto.
84.2 Notwithstanding anything to the contrary herein (or in the Memorandum of Association, the Shareholders Agreement or any other agreement between the Members and the Company):
(a) to the extent the Company reasonably needs the following information with respect to a Class A Shareholder, the parties will use commercially reasonable efforts to agree to a method of providing such information to the Company while addressing any confidentiality concerns of such Class A Shareholder. Such methods may include:
(i) for purposes of determining "related person insurance income" under Section 953(c) of the Code, having the Company provide a list of insured parties to a Class A Shareholder and have such Member use commercially reasonable efforts to determine, based on the information it has available, whether such insured party is a "U.S. shareholder" of the Company or a "related person" (within the meaning of section 953(c) of the Code) of a U.S. shareholder that invests directly or indirectly in the Company through such Member;
(ii) for purposes of determining the ownership (within the meaning of Section 958 of the Code) of Common Shares by Members (or other Persons), providing information relating to direct and indirect investors in the Class A Shareholder that are "U.S. persons" (as defined under Section 7701(a)(30) of the Code) to a third party accounting or law firm that is acceptable to the parties, provided that such third party accounting or law firm (x) shall only provide to the Company the conclusions that are necessary to implement the Voting Cut Back Provisions (and no identifying information of the direct and indirect investors in the Class A Shareholder), and (y) shall enter into a confidentiality agreement with the Class A Shareholder that is acceptable to such Class A Shareholder; and
(iii) the methods described in this Bye-law 84.2(a) may apply with respect to a Class B Member only as determined by the Company in its sole discretion.
(b) no Member will be liable to any other Member (or any Affiliate thereof) or the Company (or any Affiliate thereof), except as provided in the Bye-laws in respect of information requested pursuant to clause (ii)(A) of the final sentence of Bye-law 84.1, for any losses or damages resulting from such Member's failure to respond to, or submission of incomplete, inaccurate or invalid information in response to (A) a request by the Company under this Bye-law 83 or (B) any other request for information, the provision (or verification of the accuracy) of which was not within the control of such Member.
(c) Notwithstanding anything to the contrary herein (including Bye-law 84.2(b), or in the Memorandum of Association, the Shareholders Agreement or any other agreement between the parties), under no circumstance shall Shareholder 1, Shareholder 2 or the Blackstone Investor be required to provide any information (i) not in its possession and that cannot be obtained without incurring significant expense or (ii) that discloses the identity of such
Member’s beneficial owners or the identity of such Member’s portfolio investments, and under no circumstance shall such Member be required to indemnify or hold harmless any person from or against any loss, liability, cost or expense (including attorney’s fees and expenses, taxes and penalties) arising as a result, directly or indirectly, from any failure to provide any such information.
Exhibit A
Hamilton Insurance Group, Ltd.
Shareholder Questionnaire (long form)
Provided: [_], 20[_]
Requested Return Date: [_], 20[_]
In accordance with the provisions of Section 84 of the Bye-Laws of Hamilton Insurance Group, Ltd. (the “Company”), in order to update the shareholder ownership analysis for purposes of “controlled foreign corporation” (“CFC”), “passive foreign income company” (“PFIC”), “related person insurance income” (“RPII”), and US-foreign country treaty eligibility analyses of the Company, and in accordance with Section 5 of the Bye-Laws of the Company, in order to determine the allocation of the voting power of the Company among the shareholders holding stock entitled to vote, the Company requests that you answer the questions set forth in this Investor Questionnaire. The Company acknowledges the confidential nature of the requested information and as required by Section 5.2 of the Shareholders Agreement of the Company, the Company shall take appropriate measures to protect the confidentiality of the information provided to the Company by you in response to this Investor Questionnaire.
For the purposes of this Investor Questionnaire “you” shall mean each investing individual or entity.
In each case where a question asks about your ownership or another person’s ownership in any entity, please provide your or the other person’s ownership percentage (in terms of both voting power and value).
Contact Persons:
For tax-related matters: [Name] ([email], [phone])
[Name] ([email], [phone])
Other: [Name] ([email], [phone])
[Name] ([email], [phone])
[Name] ([email], [phone])
Please return the completed Investor Questionnaire by no later than [_], [_], 20[_] to [Name] ([email]).
Questionnaire for Hamilton Insurance Group, Ltd. Investors Treated as
Partnerships for U.S. Federal Income Tax Purposes
1. Please confirm that you are treated as a partnership for U.S. federal income tax purposes. (For the purposes of each of the questions in this questionnaire, “partnership” means an entity or arrangement treated as a partnership and “partner” means a person treated and regarded as a partner in the partnership, in each case for U.S. federal income tax purposes.)
2. Please indicate whether you are considered to be domestic or foreign for U.S. federal income tax purposes and provide your full legal name.
3. Please list each of your partners and his, her or its percentage ownership interest in the partnership.
4. Please list the names of any persons having an option or a right as of the date hereof to acquire an interest in the partnership and the percentage interests subject to such option or right.
5. Please list (A) (i) each partnership in which you own a partnership interest, (ii) each corporation with respect to which you own 10 percent or more of the stock, and (iii) each trust with respect to which you are a beneficiary or owner, and (B) your percentage ownership interest therein. For purposes of this questionnaire, “corporation” means an entity treated as a corporation for U.S. federal income tax purposes, and “own” and “ownership” refers to direct, indirect or constructive ownership within the meaning of Section 958 of the Internal Revenue Code of 1986, as amended.
6. On a separate page, to the extent applicable please identify each investor listed in Schedule I attached hereto that is a partner in your partnership and each entity listed in Schedule I attached hereto in which you own an interest.
Questionnaire for Hamilton Insurance Group, Ltd. Investors Treated as
Corporations for U.S. Federal Income Tax Purposes
1. Please confirm that you are treated as a corporation for U.S. federal income tax purposes. Have you elected to be treated as a Subchapter S corporation for U.S. federal income tax purposes? For the purposes of each of the questions in this questionnaire, “partnership” means an entity or arrangement treated as a partnership, “partner” means a person treated as a partner in the partnership, “corporation” means an entity treated as a corporation, and “shareholder” means a person treated and regarded as a shareholder of the corporation, in each case for U.S. federal income tax purposes.
2. Please indicate whether you are considered to be domestic or foreign for U.S. federal income tax purposes and provide your full legal name.
3. Please list each of your shareholders and his, her or its percentage ownership interest in the corporation. Please list any person having any option, warrant or other right to acquire your stock from you and the percentage ownership interest subject to such option, warrant or other right (without giving effect to the exercise of any unexercised options, warrants or other rights held by any other person). If you are publicly traded, you may identify only those shareholders having a 5% or greater interest in the corporation.
4. Please list (A) (i) each partnership in which you own a partnership interest, (ii) each corporation with respect to which you own 10 percent or more of the stock, and (iii) each trust with respect to which you are a beneficiary or owner, and (B) your percentage ownership interest therein. For purposes of this questionnaire, “own” and “ownership” refers to direct, indirect or constructive ownership within the meaning of Section 958 of the Internal Revenue Code of 1986, as amended.
5. On a separate page, to the extent applicable please identify each investor listed in Schedule I that is a shareholder of your corporation and each entity listed in Schedule I in which you own an interest.
Questionnaire for Hamilton Insurance Group, Ltd. Investors Treated as
Individuals for U.S. Federal Income Tax Purposes
1. For U.S. federal income tax purposes, are you a U.S. citizen or resident or a nonresident alien?
2. Do any of your family members own any interest in the Company (including, shares of stock or warrants to acquire shares of stock)? For the purposes of each of the questions in this questionnaire, “family members” means your spouse, children, grandchildren and parents. If yes, please state the nature of the family relationship and how much stock or other interest each family member owns.
3. Please list (A) (i) each partnership in which you own a partnership interest, (ii) each corporation with respect to which you own 10 percent or more of the stock, and (iii) each trust with respect to which you are a beneficiary or owner, and (B) your percentage ownership interest therein. For the purposes of each of the questions in this questionnaire, “partnership” means an entity or arrangement treated as a partnership, “partner” means a person treated as a partner in the partnership, and “corporation” means an entity treated as a corporation, in each case for U.S. federal income tax purposes. For purposes of this Question 3 and Question 4, “own” and “ownership” refers to direct, indirect or constructive ownership within the meaning of Section 958 of the Internal Revenue Code of 1986, as amended.
4. On a separate page, to the extent applicable please identify any entity listed in Schedule I attached hereto in which you own an interest.
5. On a separate page, to the extent applicable please identify any entity listed in Schedule I attached hereto in which a family member owns an interest.
HAMILTON INSURANCE GROUP, LTD.
Questionnaire for Hamilton Insurance Group, Ltd. Investors Treated as
Trusts for U.S. Federal Income Tax Purposes
1. Please confirm that you are treated as a trust for U.S. federal income tax purposes.
2. Please indicate whether you are considered to be domestic or foreign for U.S. federal income tax purposes and provide your full legal name.
3. Please list each of your beneficiaries or owners (as determined for U.S. federal income tax purposes) and his, her or its percentage ownership interest in the trust.
4. Please list the names of any persons having an option or a right as of the date hereof to acquire an interest in the trust and the percentage interests subject to such option or right.
5. Please list (A) (i) each partnership in which you own a partnership interest, (ii) each corporation with respect to which you own 10 percent or more of the stock, and (iii) each trust with respect to which you are a beneficiary or owner, and (B) your percentage ownership interest therein. For the purposes of each of the questions in this questionnaire, “partnership” means an entity or arrangement treated as a partnership, “partner” means a person treated as a partner in the partnership, and “corporation” means an entity treated as a corporation, in each case for U.S. federal income tax purposes, and “own” and “ownership” refers to direct, indirect or constructive ownership within the meaning of Section 958 of the Internal Revenue Code of 1986, as amended.
6. On a separate page, to the extent applicable please identify each investor listed in Schedule I attached hereto that is a beneficiary or owner in your trust and each entity listed in Schedule I attached hereto in which you own an interest.
SHAREHOLDERS AGREEMENT
dated as of [l], 2023
by and among
HAMILTON INSURANCE GROUP, LTD.
and
THE PARTIES SET FORTH ON SCHEDULE A HERETO
TABLE OF CONTENTS
| | | | | | | | | | | |
| | | Page |
| | | |
| 1. | Definitions. | 1 |
| | | |
| 1.1 | Definitions | 1 |
| 1.2 | Other Definitional and Interpretive Provisions. | 5 |
| | | |
| 2. | The Company. | 6 |
| | | |
| 2.1 | Name | 6 |
| 2.2 | Place of Business | 6 |
| 2.3 | Duration | 6 |
| 2.4 | Title to Company Property | 7 |
| 2.5 | Limited Liability | 7 |
| 2.6 | Purpose | 7 |
| | | |
| 3. | Corporate Governance. | 7 |
| | | |
| 3.1 | Number of Directors | 7 |
| 3.2 | Appointment of Directors. | 7 |
| 3.3 | Removal of Directors | 8 |
| 3.4 | Vacancies. | 8 |
| 3.5 | Board Procedures | 8 |
| 3.6 | Certain Approvals. | 10 |
| 3.7 | Subsidiaries | 13 |
| 3.8 | Other Agreements | 14 |
| 3.9 | Non-Voting Observers. | 14 |
| 3.10 | De-Legending | 15 |
| 3.11 | Transfer of Shares | 16 |
| | | |
| 4. | [Intentionally Omitted]. | 16 |
| | | |
| 5. | Information Rights; Obligations. | 16 |
| | | |
| 5.1 | Provision of Certain Information | 16 |
| 5.2 | Shareholder Obligations | 16 |
| | | |
| 6. | Representations and Warranties; Certain Covenants. | 18 |
| | | |
| 6.1 | Due Organization; Power and Authority, etc. | 18 |
| 6.2 | Authorization; Enforceability | 19 |
| 6.3 | Compliance with Laws and Other Instruments | 19 |
| 6.4 | Executing Parties | 19 |
| 6.5 | Corporate Opportunities. | 19 |
| | | |
| | | | | | | | | | | |
| 7. | Miscellaneous. | 20 |
| | | |
| 7.1 | Binding Effect | 20 |
| 7.2 | Amendments | 20 |
| 7.3 | Notices | 20 |
| 7.4 | Applicable Law | 21 |
| 7.5 | Counterparts | 21 |
| 7.6 | Termination | 21 |
| 7.7 | Entire Agreement | 21 |
| 7.8 | Severability of Provisions | 21 |
| 7.9 | Specific Performance | 21 |
| 7.10 | Jurisdiction | 22 |
| 7.11 | Waiver of Right to Jury Trial | 22 |
| 7.12 | No Conflicting Agreement | 22 |
| 7.13 | Conflicts with Company Organizational Documents | 22 |
SHAREHOLDERS AGREEMENT
This SHAREHOLDERS AGREEMENT, dated as of [l], 2023,1 (the “Effective Date”) is made and entered into by and among the shareholders listed on Schedule A hereto (the “Shareholders”) and Hamilton Insurance Group, Ltd., a Bermuda exempted company (the “Company”).
In consideration of the mutual covenants and agreements set forth herein and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1. Definitions.
1.1 Definitions. As used in this Agreement, the following terms shall have the meanings given to them below:
“Action” shall mean any claim, action, cause of action, suit, litigation, arbitration, investigation, inquiry, hearing, charge, controversy, dispute, subpoena, demand, complaint or legal, administrative or other proceeding, at law or in equity, or before or by any Regulatory Agency.
“Affiliate” shall mean, with respect to any Person, any other Person that controls, is controlled by or is under common control with such Person; provided, however, no Shareholder shall be considered an Affiliate of the Company or any of its Subsidiaries for purposes of this Agreement (and nor shall any Person controlling such Shareholder merely by virtue of such control). For the purposes of this definition, the term “control” (including, with correlative meanings, the terms “controlling,” “controlled by” and “under common control with”), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract, voting power or otherwise.
“Agreement” shall mean this Shareholders Agreement, as this agreement may be further amended, modified, supplemented or restated from time to time in accordance with its terms after the date hereof.
“Blackstone Investor” shall mean, collectively, BSOF Master Fund L.P. and BSOF Master Fund II L.P., and shall include any Permitted Transferee thereof.
“Blackstone Investor Director” shall have the meaning set forth in Section 3.2(c).
“Board of Directors” shall mean the board of directors of the Company in office at the applicable time.
“Board Shareholder” shall mean any of Shareholder 1, Shareholder 2, the Magnitude Investor or the Blackstone Investor.
1 Note to Draft: To be dated as of the consummation of the Qualifying IPO.
“Business Day” shall mean any day except a Saturday, Sunday or other day on which commercial banks in New York City or Hamilton, Bermuda are authorized or required by applicable Law to close.
“Bye-laws” shall mean the bye-laws of the Company, as amended from time to time.
“Cause” as it relates to a Director in such capacity, means (i) the Director’s habitual drug or alcohol use that impairs the ability of the Director to perform his or her duties to the Company or any Subsidiary; (ii) the Director’s indictment by a court of competent jurisdiction, or a pleading of “no contest” or guilty, to a felony (or the equivalent if outside the United States); (iii) the Director’s engaging in fraud, embezzlement or any similar conduct with respect to the Company, any Subsidiary, or any assets of the Company or any Subsidiary; (iv) the Director’s wilful and material failure or refusal to perform his or her duties as a Director; or (v) the Director otherwise materially breaches any written policy of the Company or any Subsidiary regarding the conduct of its respective directors in the performance of his or her duties to the Company or any Subsidiary.
“Class A Common Shares” shall mean the Class A common shares, par value $0.01 per share, of the Company.
“Class A Shareholder” shall mean a holder of Class A Common Shares who is a Shareholder.
“Class B Common Shares” shall mean the Class B common shares, par value $0.01 per share, of the Company.
“Class B Shareholder” shall mean a holder of Class B Common Shares who is a Shareholder.
“Class C Common Shares” shall mean the Class C common shares, par value $0.01 per share, of the Company.
“Class C Shareholder” shall mean the holder of Class C Common Shares who is a Shareholder.
“Code” shall mean the United States Internal Revenue Code of 1986, as amended.
“Common Shares” shall mean, collectively, the Class A Common Shares, the Class B Common Shares and Class C Common Shares.
“Company” shall have the meaning set forth in the preamble hereto.
“Company Policies” shall have the meaning set forth in Section 3.6(c)(xv).
“Company Securities” shall mean the Company Shares and options, warrants or other rights to acquire Company Shares.
“Company Shares” shall mean the shares of the Company (whether Common Shares or preferred shares of the Company, and whether outstanding or issued or acquired hereafter, including all shares of the Company issuable upon the exercise of warrants, options or other rights to acquire shares of the Company, or upon the conversion or exchange of any security).
“Effective Date” shall have the meaning set forth in the preamble hereto.
“ERISA” shall mean the U.S. Employee Retirement Income Security Act of 1974, as amended from time to time.
“Exchange Act” shall mean the Securities Exchange Act of 1934, as amended.
“FATCA” shall have the meaning set forth in Section 5.2(a).
“Fiscal Quarter” shall mean the any of the four (4) quarters of a Fiscal Year.
“Fiscal Year” shall be such date as determined by resolution of the Board of Directors from time to time in accordance with the Bye-laws, or, in the case of the last fiscal year, the fraction thereof ending on the date on which the winding up of the Company is completed.
“GAAP” shall mean United States generally accepted accounting principles, as in effect from time to time.
“Investment Manager” shall mean Two Sigma Investments, LP or any of its Affiliates.
“IRS” shall mean the United States Internal Revenue Service.
“Law” shall mean any domestic, foreign, federal, national, provincial, state, local or multinational law, statute, treaty, convention, common law, ordinance, code, rule, directive, governmental guideline or interpretation having the force of law, permit, regulation or any order, decree, writ, injunction, judgment, stipulation, determination or award entered by or with any Regulatory Agency.
“Magnitude Investor” shall mean, collectively, Magnitude Master Fund, a sub trust of the Magnitude Master Series Trust, Magnitude Institutional, Ltd., Magnitude Partners Master Fund, L.P., and Magnitude Insurance Master Fund, LLC and shall include any Permitted Transferee of any of the foregoing.
“Magnitude Investor Director” shall have the meaning set forth in Section 3.2(d).
“Material Subsidiary” shall mean any Subsidiary of the Company which, at the relevant time, (together with such Subsidiary’s Subsidiaries) represents ten percent (10%) or more of the net income for the trailing four (4) Fiscal Quarters or, on a book value basis, ten percent (10%) or more of the assets of the Company and its Subsidiaries, taken as a whole.
“Memorandum of Association” shall mean the memorandum of association of the Company, as amended from time to time.
“Permitted Transferee” shall mean, as it relates to any Shareholder, (i) any Affiliate of such Shareholder (other than, in the case of a Shareholder which is, or which is an Affiliate of, a private equity fund, merchant bank, investment firm, or other similar investor, an Affiliate which is a portfolio company of such Shareholder), or (ii) such other Persons that the Board of Directors determines in its reasonable discretion have a substantially similar relationship with the Shareholder as any of the foregoing Persons. Any Shareholder shall be a Permitted Transferee of the Permitted Transferees of itself.
“Person” shall mean an individual, company, corporation, partnership, trust, joint venture, limited liability company, unincorporated organization or other legal entity, or a government or any agency or political subdivision thereof.
“PFIC” shall have the meaning set forth in Section 5.2.
“Pro Rata Portion” shall mean, with respect to any Shareholder relative to any specified group of shareholders of the Company at any time, (i) the number of Common Shares (or any shares into which the Common Shares are converted, substituted or exchanged) held by such Shareholder at such time, divided by (ii) the number of Common Shares (or any shares into which the Common Shares are converted, substituted or exchanged) held by all members of such group at such time.
“Qualified Majority” shall mean, in the case of a vote of the Board of Directors, (i) a Simple Majority voting in the affirmative and (ii) directors representing less than fifteen percent (15%) of the entire Board of Directors voting in opposition.
“Registration Rights Agreement” shall mean the registration rights agreement, dated as of December 23, 2013, by and among the Company and the Shareholders, as in effect from time to time.
“Regulatory Agency” shall mean any nation, government, court, regulatory, taxing or administrative agency, commission or authority or other legislative, executive or judicial governmental entity, body, agency, official or instrumentality, domestic or foreign, whether federal, national, provincial, state, local or multinational or self-regulatory organization or agency or other similar quasi-governmental regulatory body or arbitration panel, tribunal or arbitrator.
“SEC” shall mean the United States Securities and Exchange Commission.
“Securities Act” shall mean the Securities Act of 1933, as amended.
“Shareholder 1” shall mean Sango Hoken Holdings, LLC, and shall include any Permitted Transferee thereof.
“Shareholder 1 Director” shall have the meaning set forth in Section 3.2(a).
“Shareholder 2” shall have mean Hopkins Holdings, LLC, and shall include any Permitted Transferee thereof.
“Shareholder 2 Director” shall have the meaning set forth in Section 3.2(b).
“Shareholder Directors” shall have the meaning set forth in Section 3.2(d).
“Shareholders” shall have the meaning set forth in the preamble hereto.
“Simple Majority” shall mean, (i) in the case of a vote of the Board of Directors, directors representing more than fifty percent (50%) of the directors then in office, and (ii) in the case of a vote of the shareholders of the Company, shareholders of the Company holding more than fifty percent (50%) of the total outstanding voting power of the Voting Securities.
“Sold-Down Board Shareholder” shall have the meaning set forth in Section 3.4(b).
“Sold-Down Board Shareholder Director” shall have the meaning set forth in Section 3.4(b).
“Subsidiary” shall mean, for any Person, any other Person (i) in which it directly or indirectly owns at least fifty percent (50%) of such Person’s voting securities, (ii) that, if a general or limited partnership, limited liability company, association or other business entity, a majority of the general or limited partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more Subsidiaries of that Person or a combination thereof, or (iii) with which it is required to be consolidated under GAAP.
“Subsidiary Securities” shall mean any shares or equity securities of any Subsidiary of the Company, any options, warrants or other rights to acquire any shares or equity securities of any Subsidiary of the Company and any other securities convertible into or exercisable or exchangeable for (or entitling the holder thereof to subscribe for) any shares or equity securities of any Subsidiary of the Company.
“Vacancy Event” shall have the meaning set forth in Section 3.4(a).
“Voting Cutback Provisions” shall mean Bye-Law 5 of the Bye-Laws.
“Voting Securities” shall mean the Class A Common Shares and Class B Common Shares and any other securities of the Company entitled to vote together with the Class A Common Shares and Class B Common Shares as a single class on all matters with respect to which the Class A Common Shares and Class B Common Shares are entitled to vote, and subject in each case to the Voting Cutback Provisions.
1.2 Other Definitional and Interpretive Provisions.
(a) When a reference is made in this Agreement to an Article, Section, Exhibit or Schedule, such reference shall be to an Article or Section of, or an Exhibit or Schedule to, this Agreement, unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words “include,” “includes” or “including” are
used in this Agreement, they shall be deemed to be followed by the words “without limitation.” The words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The terms “or,” “any” and “either” are not exclusive. The word “extent” in the phrase “to the extent” shall mean the degree to which a subject or other thing extends, and such phrase shall not mean simply “if.” The word “will” shall be construed to have the same meaning and effect as the word “shall,” and the word “will” or “shall” will be construed as imperative. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such term. Unless otherwise specifically indicated, any agreement or instrument defined or referred to herein or in any agreement or instrument that is referred to herein shall mean such agreement or instrument as from time to time amended, modified or supplemented, including by waiver or consent. Unless otherwise specifically indicated, all references to “dollars” or “$” shall refer to the lawful currency of the United States. References to a Person are also to its successors and Permitted Transferees. Each representation, warranty, covenant, agreement and condition contained in this Agreement shall have independent significance.
(b) The parties hereto have participated jointly in the negotiation and drafting of this Agreement and, in the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as jointly drafted by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party hereto by virtue of the authorship of any provision of this Agreement.
(c) The Board of Directors, acting by a Simple Majority thereof, shall have the power to interpret or construe any term or provision of this Agreement, and all decisions made by a Simple Majority of the Board of Directors in such interpretation or construction shall be binding and conclusive for all purposes.
(d) The designation of a Person as a Permitted Transferee is being made hereunder solely for the purposes of establishing certain rights as specified herein, including calculations of share ownership relating thereto; provided, however, that in no event shall such designation, in and of itself, (x) create joint or aggregate ownership among Shareholders or impute any joint or aggregate legal or beneficial title of Common Shares among Shareholders or (y) impose any transfer restrictions on the Shareholders.
2. The Company.
2.1 Name. The name of the Company shall be “Hamilton Insurance Group, Ltd.,” or such other name as may be approved by a Qualified Majority of the Board of Directors may determine and a simple Majority of the shareholders of the Company.
2.2 Place of Business. The principal place of business of the Company shall be located at Wellesley House North, 90 Pitts Bay Road, Pembroke, HM 08, Bermuda, or such other address as a Simple Majority of the Board of Directors may determine.
2.3 Duration. The Company shall continue in existence until its liquidation.
2.4 Title to Company Property. All property of the Company, whether real or personal, tangible or intangible, shall be deemed to be owned by the Company as an entity, and no Shareholder, in its capacity as such, shall have any direct ownership interest in such property.
2.5 Limited Liability. Except as required by Bermuda Law, the debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company, and no Shareholder shall be obligated personally for any such debt, obligation or liability of the Company solely by reason of being a shareholder of the Company.
2.6 Purpose. The purposes to be conducted or promoted by the Company is to engage in any lawful act or activity for which corporations may be organized under Bermuda law.
3. Corporate Governance.
3.1 Number of Directors. Each Shareholder shall, and shall cause its Affiliates to, vote the Voting Securities (whether now or hereafter acquired) owned by such Shareholder or any such Affiliate, as the case may be, or which such Shareholder or any such Affiliate, as the case may be, is entitled to vote, and shall take all such other action within its control, as is reasonably necessary to ensure that the Board of Directors shall consist of such number of directors as is determined from time to time by the Board of Directors in accordance with the terms hereof, including Section 3.6(b)(v), which number of directors shall be not less than eleven (11) or more than fifteen (15).
3.2 Appointment of Directors.
From and after the Effective Date, the following shall govern the appointment of directors of the Company:
(a) one (1) director (the “Shareholder 1 Director”) may be appointed by Shareholder 1 for so long as Shareholder 1 holds at least five million (5,000,000) Class A Common Shares (which number shall be equitably adjusted for any reclassification, stock split (including reverse stock split), subdivision, combination, exchange or readjustment of Class A Common Shares, or any stock dividend or distribution with a record date following the Effective Date);
(b) one (1) director (the “Shareholder 2 Director”) may be appointed by Shareholder 2 for so long as Shareholder 2 holds at least five million (5,000,000) Class A Common Shares (which number shall be equitably adjusted for any reclassification, stock split (including reverse stock split), subdivision, combination, exchange or readjustment of Class A Common Shares, or any stock dividend or distribution with a record date following the Effective Date);
(c) one (1) director (the “Blackstone Investor Director”) may be appointed by the Blackstone Investor for so long as the Blackstone Investor holds at least five
million (5,000,000) Class A Common Shares (which number shall be equitably adjusted for any reclassification, stock split (including reverse stock split), subdivision, combination, exchange or readjustment of Class A Common Shares, or any stock dividend or distribution with a record date following the Effective Date); and
(d) one (1) director (the “Magnitude Investor Director” and, together with the Shareholder 1 Director, the Shareholder 2 Director, and the Blackstone Investor Director, the “Shareholder Directors”) may be appointed by the Magnitude Investor for so long as the Magnitude Investor holds at least 7.5 million (7,500,000) Class B Common Shares (which number shall be equitably adjusted for any reclassification, stock split (including reverse stock split), subdivision, combination, exchange or readjustment of Class B Common Shares, or any stock dividend or distribution with a record date following the Effective Date).
3.3 Removal of Directors. Each Board Shareholder may remove, with or without Cause, the Shareholder Director previously appointed by such Board Shareholder at any time by written notice to the Company. None of the Company, the Board of Directors or any shareholder of the Company shall be permitted to remove a Shareholder Director without the prior written consent of the Board Shareholder that appointed such Shareholder Director, other than for Cause.
3.4 Vacancies.
(a) Except as provided in, and subject to, Section 3.4(b), in the event a vacancy is created on the Board of Directors by reason of the death, disability, removal (in accordance with Section 3.3 above), resignation, retirement or otherwise (each, a “Vacancy Event”) of any of the Shareholder Directors, the Board Shareholder that appointed such Shareholder Director shall, at any time, be entitled to appoint an individual to replace such Shareholder Director.
(b) In the event that a Board Shareholder (a “Sold-Down Board Shareholder”) ceases to hold the requisite amount of Company Shares described in Section 3.2 to appoint a Shareholder Director with respect to such Board Shareholder (such director, the “Sold-Down Board Shareholder Director”), then such Sold-Down Board Shareholder shall promptly remove its Shareholder Director from the Board of Directors. If a Vacancy Event occurs with respect to a Sold-Down Board Shareholder Director, such vacancy shall be filled in accordance with the Bye-laws.
3.5 Board Procedures. The Board of Directors shall follow the following procedures:
(a) Notice. The Company shall give prior written notice to each director of any meeting of the Board of Directors at least two (2) Business Days prior to such meeting. Attendance of a Person at a meeting shall constitute a waiver of notice of such meeting, except where the Person attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of business because the meeting is not properly called or convened.
(b) Quorum. Except as otherwise required by applicable Law, the presence of at least a majority of the entire Board of Directors is required for a quorum of the Board of Directors. With respect to any meeting of the Board of Directors, the Board of Directors shall determine whether to make available to each member of the Board of Directors the option to attend such meeting by conference telephone, subject to the tax operating guidelines applicable to the Company in effect at the time of such meeting. If the Board of Directors determines to make available to any director the option to attend a meeting by conference telephone, any member of the Board of Directors may attend any such meeting through use of such means.
(c) Voting.
(i) Except as otherwise provided in the Bye-laws or this Agreement, (A) the approval by a vote of a Simple Majority of the Board of Directors or (B) the written consent of all of the directors then in office shall be required for all actions requiring approval of the Board of Directors.
(ii) Notwithstanding Section 3.5(c)(i), if any director is conflicted with respect to any action requiring approval of the Board of Directors, such director shall be required to promptly disclose the conflict to the other current directors serving on the Board of Directors. Following such disclosure, the Board of Directors may require the conflicted director to abstain from any vote on the conflicted matter, upon approval by a vote of a Simple Majority of the Board of Directors (which vote shall exclude the conflicted director).
(iii) It is acknowledged and agreed that any vote by the Board of Directors, including in connection with the requirements of Section 3.6(b)(ii), with respect to (A) the retention or termination of the Investment Manager, shall constitute a conflicted matter for the Shareholder 1 Director and the Shareholder 2 Director (and shall require the disclosure and vote described in Section 3.5(c)(ii) with respect to each director), and (B) neither (x) the adoption, modification or termination of any investment policy or guidelines, including the decision to make any investment not in accordance with the then-applicable investment policy, nor (y) any transaction consummated in connection therewith, shall constitute a conflicted matter for the Shareholder 1 Director or the Shareholder 2 Director (and neither shall require the disclosure and vote described in Section 3.5(c)(ii) with respect to either director).
(d) Insurance. The Company shall maintain directors’ and officers’ liability insurance and fiduciary liability insurance, which, to the extent that coverage is available at a reasonable cost, includes coverage for prior acts, with insurers of recognized financial responsibility in such amounts as the Board of Directors determines to be prudent and customary for the Company’s business and operations.
(e) Compensation. The Company shall reimburse each director for its reasonable and documented out-of-pocket expenses incurred by such director in connection with attending regular and special meetings of (i) the Board of Directors and any committee thereof and (ii) the board of directors of any Subsidiary of the Company and any committee thereof. The Board of Directors or any committee thereof shall have authority to fix the compensation of the directors, including fees, incentive, stock option and other equity-based compensation, retirement contributions, severance commitments and forgiveness of indebtedness.
3.6 Certain Approvals.
(a) Except as otherwise expressly provided for herein, the Company shall not, and shall not permit any of its Material Subsidiaries to, directly or indirectly, take any of the following actions without the approval of a Simple Majority of the shareholders of the Company:
(i) amend or restate (whether by merger, amalgamation, consolidation or otherwise), or waive, any provision of the Memorandum of Association or the Bye-laws or similar organizational documents of the Company or a Material Subsidiary of the Company in any material respect; or
(ii) agree or otherwise enter into binding commitments to take any actions set forth above (unless subject to the foregoing approval).
(b) Except as otherwise expressly provided for herein, the Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, take any of the following actions without the approval of a Qualified Majority of the Board of Directors:
(i) dissolve, voluntarily liquidate or wind-up the Company;
(ii) adopt, materially modify or terminate any investment policy, or make any investment not in accordance with any applicable investment policy; provided, however, that the Company may, and may permit any of its Subsidiaries to, immaterially modify such investment policy; provided, further, that, for purposes of this Section 3.6(b)(ii), the retention or termination of the Investment Manager or any successor investment manager or any investment advisor shall be deemed a “material” modification of such investment policy;
(iii) enter into or consummate any transaction or series of transactions involving any merger, amalgamation, consolidation, exchange, scheme of arrangement, recapitalization or similar business combination transaction other than any merger or consolidation solely
between or among any two or more wholly owned Subsidiaries of the Company that are not Material Subsidiaries;
(iv) enter into or consummate any transaction or series of transactions involving any sale, pledge, transfer or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries;
(v) change the number of directors which the Board of Directors shall consist of (which number of directors shall be not less than the minimum nor more than the maximum number of directors specified in Section 3.1); or
(vi) agree or otherwise enter into binding commitments to take any actions set forth above.
(c) Except as otherwise expressly provided for herein or as otherwise provided for in any charter of any committee of the Board of Directors which has been approved by the Board of the Directors, the Company shall not, and shall not permit any of its Subsidiaries to, directly or indirectly, take any of the following actions without the approval of a Simple Majority of the Board of Directors:
(i) except as otherwise provided for in the Registration Rights Agreement, initiate any registered public offering of Company Shares or shares of any Subsidiary;
(ii) redeem or repurchase, or cancel, any Company Securities or any Subsidiary Securities;
(1) recapitalize or reclassify any of the Company Securities, including any stock split, stock dividend, or reverse stock split, or any similar change in capitalization;
(iii) enter into or consummate any transaction or series of transactions involving (A) the sale, pledge, transfer or other disposition by the Company or any of its Subsidiaries (except those made to manage the investment portfolio of the Company or the applicable Subsidiary in accordance with the applicable investment policy) of assets having a fair market value that equals or exceeds $5,000,000 individually or $10,000,000 in the aggregate in any 12-month period or (B) the purchase, lease, license or other acquisition by the Company or any of its Subsidiaries of any equity interests, business, assets or operations of any other Person for consideration, including liabilities or obligations assumed in connection therewith, that equals or exceeds $5,000,000 individually or $10,000,000 in the aggregate in any 12-month period;
(iv) enter into any joint venture or similar strategic relationship;
(v) enter into any bankruptcy or similar proceedings, including assigning any of the assets of the Company or any of its Subsidiaries for the benefit of a creditor;
(vi) (A) adopt or amend any annual business plan (including any new or discontinued lines of business) or annual budget, (B) deviate in any material respect from any annual business plan approved in accordance with this Section 3.6(c)(vi) except to the extent such deviation arises from the exercise of discretion granted to the Company or such Subsidiary, as applicable, under the Company Policies or (C) in any period subject to an annual budget approved in accordance with this Section 3.6(c)(vi), (1) incur general and administrative expenses or capital expenditures in such period in excess of 110% of the aggregate amount allocated to general and administrative expenses and capital expenditures, respectively, in such annual budget or (2) incur compensation expenses in excess of 110% of the aggregate amount allocated to compensation expenses in such annual budget;
(vii) appoint or remove any independent auditor of, or any third party actuary who regularly provides an independent review of the reserves of, the Company or any Material Subsidiary;
(viii) form any Material Subsidiary for any purpose whatsoever or cause or permit any Subsidiary of the Company to form a Material Subsidiary;
(ix) cause or permit any Subsidiary of the Company the formation or acquisition of which has not been approved by a Simple Majority of the Board of Directors to conduct any operations, obtain any assets, including in connection with the initial capitalization of such Subsidiary, or incur any liabilities or obligations of any nature other than, respectively, administrative operations or immaterial assets, liabilities or obligations, in each case that are incident to and necessary for the formation of such Subsidiary;
(x) incur or guarantee any indebtedness (including subjecting any assets to secured liens, unsecured credit or credit lines, credit support or guarantees and other contingent obligations, but excluding indebtedness incurred pursuant to debt facilities approved by a Simple Majority of the Board of Directors) over any 12-month period in an aggregate amount in excess of three percent (3%) of the average of the consolidated shareholders equity of the Company and its Subsidiaries, calculated in
accordance with GAAP and consistent with past practice of the Company, for the four quarters ended immediately prior to such transaction;
(xi) declare, pay or make any dividends or distributions, or set aside funds in order to declare, pay or make any dividends or distributions, other than dividends or distributions by Subsidiaries of the Company to the Company or other Subsidiaries of the Company;
(xii) commence, settle or compromise any Action or threatened Action that would reasonably be expected to (A) involve payments in excess of one percent (1%) of the consolidated shareholders equity of the Company and its Subsidiaries, calculated in accordance with GAAP and consistent with past practice of the Company as of the quarter end immediately prior to such action, for an individual proceeding, or five percent (5%) of the consolidated shareholders equity of the Company and its Subsidiaries, calculated in accordance with GAAP and consistent with past practice of the Company as of the quarter end immediately prior to such action, in the aggregate, (B) result in any injunction or other remedy affecting the business, operations, finances or management of the Company or any of its Subsidiaries or (C) otherwise be material to the Company or any of its Subsidiaries;
(xiii) settle or fail to contest any governmental or regulatory investigation, complaint or other Action;
(xiv) assign or license-out any intellectual property rights;
(xv) adopt, modify or terminate any of such policies, practices and procedures as a Simple Majority of the Board of Directors may from time to time designate (such designated policies, practices and procedures, collectively, the “Company Policies”), which Company Policies shall initially consist of all risk tolerance, credit risk, reserving, regulatory, underwriting and rating agency policies and all material tax and accounting policies, including any tax operating guidelines; or
(xvi) agree or otherwise enter into binding commitments to take any actions set forth above.
3.7 Subsidiaries. The Company shall take, and shall cause its Material Subsidiaries to take, such actions to ensure that the provisions of its Material Subsidiaries’ organizational documents applicable to corporate governance reflect the provisions of this Agreement and the Memorandum of Association and the Bye-laws, except, in each case, as may be necessary to comply with applicable Law or any formal or informal regulatory order or directive applicable to the Company or any of its Subsidiaries. The Company shall not, and the Company shall not permit any of its Material Subsidiaries to, take any action that would require
approval under Section 3.6 unless any and all requisite approvals of the Board of Directors shall have been obtained in accordance with Section 3.6. Without limiting the foregoing, the Company shall not, and shall not permit its Subsidiaries to, vote any shares of any Material Subsidiary held by the Company or any such Subsidiary with respect to any matters described in Section 3.6 unless any and all requisite approvals of the Board of Directors shall have been obtained in accordance with Section 3.6.
3.8 Other Agreements. Each Shareholder shall vote, and shall cause its Affiliates to vote, all of the Voting Securities owned by such Shareholder or such Affiliates, as the case may be (whether now or hereafter acquired), or which either is entitled to vote, to ensure that the Memorandum of Association and the Bye-laws are consistent with, and do not at any time conflict with, the provisions of this Agreement; provided, however, that this Agreement, and the application of the terms hereof, shall be consistent with, and will not at any time conflict with, the Voting Cutback Provisions. No Shareholder shall, and each Shareholder shall cause its Affiliates not to, (a) grant any proxy (other than to representatives of the Company to vote in accordance with the provisions of this Agreement), (b) enter into or agree to be bound by any voting trust or voting agreement with respect to any Voting Securities or (c) enter into any shareholder agreements or arrangements of any kind with any Person with respect to any Voting Securities, in the case of each of the foregoing (a) through (c), which results in a failure of the Company Shares held by the Shareholder to be voted in accordance with this Agreement (whether or not such agreements and arrangements are with other Shareholders or holders of Voting Securities that are not parties to this Agreement).
3.9 Non-Voting Observers.
(a) For so long as a Board Shareholder, together with its Affiliates, (i) is not a Sold-Down Board Shareholder and (ii) does not have a director appointed to the Board of Directors pursuant to Section 3.2(a)-(d), as applicable, such Board Shareholder shall have the right, exercisable by delivering written notice to the Company, to designate a non-voting observer to attend any meetings of the Board of Directors. Each such Board Shareholder shall have the right to remove and replace its non-voting observer at any time and from time to time. The Company shall furnish to each non-voting observer (a) notices of Board of Directors meetings no later than, and using the same form of communication as, notice of Board of Directors meetings are furnished to directors in accordance with this Agreement and the Memorandum of Association and Bye-laws, and (b) copies of the materials with respect to meetings of the Board of Directors which are furnished to directors no later than such materials are furnished to such directors; provided that failure to deliver notice, or materials, to a non-voting observer in connection with such observer’s right to attend and/or review materials with respect to, any meeting of the Board of Directors shall not, of itself, impair the validity of any action taken by the Board of Directors at such meeting. The foregoing observer rights shall also apply with respect to the board of directors of any Material Subsidiary of the Company.
(b) Each non-voting observer shall be required to execute or otherwise become subject to any codes of conduct (including with respect to confidentiality) of the Company generally applicable to directors of the Company. Notwithstanding the foregoing, the
Company reserves the right to exclude any non-voting observer from access to any materials provided to the Board of Directors or meeting or portion thereof if the Company believes that such exclusion is reasonably necessary to preserve the attorney-client privilege, to protect trade secrets or to comply with applicable law.
3.10 De-Legending.
(a) Subject to receipt by the Company of customary representations and other documentation from a Shareholder reasonably acceptable to the Company in connection with a Shareholder’s request for de-legending of any Company Shares owned by such Shareholder (including, if requested by the Company, an opinion of counsel to such Shareholder from counsel reasonably acceptable to the Company and the transfer agent in a form reasonably acceptable to the Company and the transfer agent) and following the expiration of the Lock-Up Period (as defined below), the Company agrees to direct the transfer agent to remove any restrictive legends on the Company Shares (and, at such Shareholder’s request if such Shareholder elects not to obtain an opinion of counsel, to use reasonable good faith efforts to obtain from its counsel an opinion of counsel required by the transfer agent to remove such restrictive legends from such Company Shares) and to issue a book-entry position to a holder of such Company Shares by electronic delivery at the applicable balance account at the Depository Trust Company if:
(i) such Company Shares are registered for resale under the Securities Act (provided, that, if the applicable Shareholder is selling pursuant to an effective registration statement registering the Company Shares for resale, such Shareholder hereby agrees to only sell such Company Shares during such time that such registration statement is effective and not withdrawn, or suspended, and only as permitted by such registration statement, and provided further, that any restrictive legends shall be reinstated at the time that such registration statement is no longer effective or is withdrawn or suspended);
(ii) such Company Shares are eligible for sale under Rule 144 under the Securities Act, without the requirement of the Company to be in compliance with the current public information required under Rule 144 as to such Company Shares (provided, that the applicable Shareholder provides the Company with any information that the Company deems necessary to determine that the sale of such Company Shares is made in compliance with Rule 144, including, as appropriate, but not limited to, a certification as to facts allowing the Company to determine whether such Shareholder is or is not an affiliate (as defined in Rule 144) of the Company and a certification as to the length of time such Company Shares have been held by the Shareholder); or
(iii) such legends are not required under applicable requirements of the Securities Act (including, without limitation, controlling judicial interpretations and pronouncements issued by the U.S. Securities and Exchange Commission).
(b) For purposes of this Agreement, “Lock-Up Period” shall mean the Holdback Period (as defined in the Registration Rights Agreement) relating to the initial public offering of Company Shares.
3.11 Transfer of Shares. If a Shareholder which holds multiple classes of Company Shares wishes to transfer a portion of its Company Shares, the Shareholder shall be permitted to designate the specific Company Shares that it wishes to transfer and the Company shall observe and give effect to such selection. Without limiting the generality of the foregoing, if a Shareholder holds multiple classes of Company Shares and wishes to prioritize the transfer of shares of a particular class, the Company will effect a transfer on its books and records (or in the case of a registered offering effected in accordance with the Registration Rights Agreement, register) first, those shares of the class designated by the transferring Shareholder and second, shares of another class held by the transferring Shareholder.
4. [Intentionally Omitted].
5. Information Rights; Obligations.
5.1 Provision of Certain Information. The Company shall, and shall procure that each Subsidiary shall, provide all information with respect to the Company and its Subsidiaries which is reasonably requested by a Shareholder to enable such Shareholder (or its direct or indirect owners) to comply with their U.S. federal income tax reporting obligations, including rules relating to “controlled foreign corporations” and “passive foreign investment companies” (“PFIC”). Such assistance shall include providing reasonably requested information to enable Shareholders (or their direct or indirect owners) to comply with their obligations under Sections 1248, 6038, 6038B, 6038D, 6046 of the Code, including information relating to earnings and profits as computed for U.S. federal income tax purposes. The Company shall determine annually if it or any of its Subsidiaries is a PFIC or would be a PFIC were such entity a corporation for U.S. federal income tax purposes. If the Company determines that any such corporation is a PFIC or would be a PFIC were it a corporation for U.S. federal income tax purposes, or if any Shareholder (or its direct or indirect owners) makes a “Qualified Electing Fund” election (including a protective election) with respect to its interest in such corporation pursuant to Section 1295 of the Code, the Company shall cause to be furnished to such Shareholder no later than 90 days following the end of the Company’s taxable year the relevant PFIC annual information statement pursuant to U.S. Treasury Regulation Section 1.1295-1(g).
5.2 Shareholder Obligations.
(a) Each Shareholder agrees to use commercially reasonable efforts to execute properly and to provide to the Company, subject to reasonable confidentiality provisions, in a timely manner any documentation or other information regarding such Shareholder that the Company or its agents may reasonably request in writing from time to time in connection with the Company’s and its Affiliates’ obligations under, and compliance with, applicable Laws and regulations and the Voting Cutback Provisions, including without limitation, applicable tax and securities laws of the United States or any other relevant jurisdiction. Each Shareholder waives any provision under the laws and regulations of any U.S. or non-U.S. jurisdiction that would,
absent a waiver, prevent or inhibit the Company’s compliance with applicable law and the Voting Cutback Provisions as described in this Section 5.2(a), including by preventing either (i) the Shareholder from providing any requested information or documentation, or (ii) the disclosure, subject to reasonable confidentiality provisions, by the Company and its agents of the provided information or documentation to applicable regulatory authorities or as the Company determines is necessary to apply the Voting Cutback Provisions. In particular, but without limitation, each Shareholder agrees to (i) provide any documentation or other information regarding itself and its beneficial owners reasonably requested by the Company or its agents in connection with the disqualification provisions under Rule 506(d) of Regulation D under the Securities Act, which may prohibit the Company from relying on the Rule 506 offering exemption if one or more of its significant equity holders has had a disqualifying event as described in Rule 506(d); and (ii) use commercially reasonable efforts to provide any documentation or other information regarding itself and its beneficial owners requested by the Company or its agents in connection with (A) the Foreign Account Tax Compliance Act provisions enacted under the Hiring Incentives to Restore Employment Act (“FATCA”), and any guidance, or U.S. Treasury Regulations relating thereto and published from time to time as well as any legislation, rules or practices adopted pursuant to any applicable intergovernmental agreement entered into in connection with the implementation of FATCA and (B) determinations, subject to reasonable confidentiality provisions, as to the ownership (direct, indirect, or constructive within the meaning of Section 958 of the Code) of Common Shares by such Shareholder or by any person to which Common Shares may be attributed (indirectly or constructively within the meaning of Section 958 of the Code) as a result of the ownership (direct, indirect, or constructive within the meaning of Section 958 of the Code) of Common Shares by such Shareholder, including the information requested in the sample long form questionnaires attached as Exhibit A hereto.
(b) Notwithstanding anything to the contrary herein (or in the Memorandum of Association, the Bye-Laws and any other agreement between the parties):
(i) to the extent the Company reasonably needs the following information with respect to a Class A Shareholder, the parties will use commercially reasonable efforts to agree to a method of providing such information to the Company while addressing any confidentiality concerns of such Class A Shareholder. Such methods may include,
(1) for purposes of determining “related person insurance income” under Section 953(c) of the Code, having the Company provide a list of insured parties to a Class A Shareholder and have such Shareholder use commercially reasonable efforts to determine, based on the information it has available, whether such insured party is a “U.S. shareholder” of the Company or a “related person” (within the meaning of section 953(c) of the Code) of a U.S. shareholder that invests directly or indirectly in the Company through such Shareholder,
(2) for purposes of determining the ownership (within the meaning of Section 958 of the Code) of Common Shares by Shareholders (or other Persons), providing information relating to direct and indirect investors in the Class A Shareholder that are “U.S. persons” (as defined under Section 7701(a)(30) of the Code) to a third party accounting or law firm that is acceptable to the parties, provided that such third party accounting or law firm (x) shall only provide to the Company the conclusions that are necessary to implement the Voting Cut Back Provisions (and no identifying information of the direct and indirect investors in the Class A Shareholder), and (y) shall enter into a confidentiality agreement with the Class A Shareholder that is acceptable to such Class A Shareholder, and
(3) the methods described in this Section 5.2(b)(i) may apply with respect to a Class B Shareholder only as determined by the Company in its sole discretion.
(ii) no Shareholder will be liable to any other Shareholder (or any Affiliate thereof) or the Company (or any Affiliate thereof), except as provided in the Bye-laws in respect of information requested pursuant to clause (ii)(A) of the final sentence of Section 5.2(a), for any losses or damages resulting from such Shareholder’s failure to respond to, or submission of incomplete, inaccurate or invalid information in response to (A) a request by the Company under this Section 5.2 or (B) any other request for information, the provision (or verification of the accuracy) of which was not within the control of such Shareholder.
(c) Notwithstanding anything to the contrary herein (including Section 5.2(b), or in the Memorandum of Association, the Bye-laws or any other agreement between the parties), under no circumstance shall Shareholder 1, Shareholder 2, the Blackstone Investor or the Magnitude Investor be required to provide any information (i) not in its possession and that cannot be obtained without incurring significant expense or (ii) that discloses the identity of such Shareholder’s beneficial owners or the identity of such Shareholder’s portfolio investments, and under no circumstance shall such Shareholder be required to indemnify or hold harmless any person from or against any loss, liability, cost or expense (including attorney’s fees and expenses, taxes and penalties) arising as a result, directly or indirectly, from any failure to provide any such information.
6. Representations and Warranties; Certain Covenants.
6.1 Due Organization; Power and Authority, etc. Each Shareholder, if an entity, represents and warrants that, as of the Effective Date, it was duly organized, validly existing and in good standing (to the extent such concept is applicable) under the laws of the jurisdiction in which it was then organized. Each Shareholder further represents and warrants that, as of the Effective Date, it had all necessary power and authority to enter into this Agreement and to carry out the transactions contemplated herein.
6.2 Authorization; Enforceability. Each Shareholder represents and warrants that, as of the Effective Date, all actions required to be taken by or on behalf of such Shareholder to authorize it to execute, deliver and perform its obligations under this Agreement have been taken and that this Agreement constitutes a legal, valid and binding obligation of such Shareholder, enforceable against such Shareholder in accordance with its terms, except as the same may be affected by bankruptcy, insolvency, moratorium or similar laws, or by legal or equitable principles relating to or limiting the rights of contracting parties generally.
6.3 Compliance with Laws and Other Instruments. Each Shareholder represents and warrants that, as of the Effective Date, the execution and delivery of this Agreement and the consummation by such Shareholder of the transactions contemplated hereby in the manner contemplated hereby do not conflict with, or result in a breach of any terms of, or constitute a default under, any agreement or instrument or any Law, or any judgment, decree, writ, injunction, order or award of any arbitrator, court or governmental authority which is applicable to such Shareholder or by which such Shareholder or any material portion of its properties is bound, except for conflicts, breaches and defaults that, individually or in the aggregate, would not have a material adverse effect upon the financial condition, business or operations of such Shareholder or upon such Shareholder’s ability to enter into and carry out its obligations under this Agreement.
6.4 Executing Parties. Each Shareholder represents and warrants that, as of the Effective Date, the person executing this Agreement on behalf of such Shareholder has full power and authority to bind such Shareholder to the terms hereof.
6.5 Corporate Opportunities.
(a) Any Shareholder or any of its Affiliates may engage in or possess an interest in other business ventures of any nature or description, independently or with others, similar or dissimilar to the business of the Company or any Subsidiary thereof, and the Company, any Subsidiary thereof, the directors of the Company, the directors of any Subsidiary of the Company and the other Shareholders shall have no rights by virtue of this Agreement in and to such ventures or the income or profits derived therefrom, and the pursuit of any such venture, even if competitive with the business of the Company, shall not be deemed wrongful or improper.
(b) To the fullest extent permitted by applicable Law and except as otherwise provided below, no Shareholder or any of its directors, principals, officers, shareholders, members, limited or general partners, fiduciaries, managers, employees and/or other representatives (the “Investor Equityholders”) or its or their Affiliates or director appointees shall be obligated to refer or present any particular business opportunity to the Company or any Subsidiary thereof even if such opportunity is of a character that, if referred or presented to the Company or any Subsidiary thereof, could be taken by the Company or any Subsidiary thereof, and any such Shareholder, Investor Equityholder or any of its or their Affiliates or director appointees, respectively, shall have the right to take for its own account (individually or as a partner, investor, member, participant or fiduciary) or to recommend to others such particular opportunity.
(c) In the event that a Shareholder Director acquires knowledge of a potential transaction or other matter which may be a corporate or business opportunity for both the Company and the Shareholder that appointed such Shareholder Director or any Affiliate or other related party of such Shareholder, such Shareholder Director shall have fully satisfied and fulfilled the fiduciary duty of such director to the Company with respect to such corporate or other business opportunity, if such director acts in a manner consistent with the following policy: A business or corporate opportunity offered to any person who is a director but not an officer of the Company and who is a director, officer, employee, partner, owner, member or shareholder of a Shareholder or any of its Affiliates or other related parties shall belong to the Company only if such opportunity is expressly offered to such person in writing in his or her capacity as a director of the Company, and otherwise shall belong to such Shareholder or one of its Affiliates.
7. Miscellaneous.2
7.1 Binding Effect. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, legal representatives, successors and Permitted Transferees.
7.2 Amendments. This Agreement may be amended at any time by approval of a Simple Majority of the Board of Directors in order to make corrections to errors in this Agreement. Other than as set forth above, this Agreement may be amended with the affirmative vote or written consent of Shareholders holding a majority of the Common Shares held by all Shareholders; provided that no amendment to this Agreement may adversely affect a Shareholder, including by adding any obligations, restrictions (including transfer restrictions) or limitations on a Shareholder, without the affirmative written consent of such Shareholder; provided that (without limiting the preceding proviso) if an amendment has a disproportionately material adverse effect with respect to the rights of any Shareholder under this Agreement, the affirmative vote or written consent of such Shareholder shall be required to effect such amendment; provided, further, that amendment of this proviso or the preceding proviso shall be deemed to have a disproportionately material adverse effect with respect to the rights of any Shareholder that has not approved such amendment; provided, further, the consent or agreement of the Company shall be required with regard to any termination, amendment, modification or supplement of, or waivers or consents to departures from, the terms hereof, which affect the Company’s obligations hereunder. No provision of this Agreement may be waived except in a written instrument executed by the Shareholder against which such waiver is sought.
7.3 Notices. All notices, requests, demands, waivers and other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given if (a) delivered personally, (b) mailed, certified or registered mail with postage prepaid, (c) sent by next-day or overnight mail or delivery or (d) sent by fax or e-mail, to the address set forth opposite the Company’s name on Schedule B attached hereto, or at such address as such Shareholder may hereafter designate by written notice
2 Note to Draft – TBD - Blackstone’s request that Shareholders (5% plus) shall continue to have certain registration rights under the Registration Rights Agreement after the common shares no longer qualify as Registrable Common Shares under the RRA.
to the Company and maintained on the register of members from time to time. All such notices, requests, demands, waivers and other communications shall be deemed to have been received (w) if by personal delivery, on the day delivered, (x) if by certified or registered mail, on the fifth Business Day after the mailing thereof, (y) if by next-day or overnight mail or delivery, on the day delivered, or (z) if by fax or e-mail, on the day delivered.
7.4 Applicable Law. This Agreement shall be governed by and construed in accordance with the laws of Bermuda.
7.5 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. Executed signature pages to this Agreement may be delivered by facsimile or other electronic means and such electronic signature pages will be deemed as sufficient as if actual signature pages had been delivered
7.6 Termination. The rights and obligations of any Shareholder under this Agreement shall terminate with respect to any Shareholder who owns less than five percent (5%) of the issued and outstanding Common Shares; provided, however, that, to the extent that such Shareholder is a Board Shareholder and has the right to appoint a Shareholder Director pursuant to Section 3.2, this Agreement shall terminate with respect to such Shareholder’s appointment rights when such Board Shareholder ceases to hold the requisite amount of the Company Shares described in Section 3.2 to appoint a Shareholder Director or has irrevocably waived in writing its rights under Section 3.2.
7.7 Entire Agreement. This Agreement and the Registration Rights Agreement (including the Schedules, Exhibits and Annexes hereto and thereto), and the Bye-laws constitutes the entire agreement and understanding of the parties hereto in respect of the subject matter contained herein, and there are no restrictions, promises, representations, warranties, covenants or undertakings with respect to the subject matter hereof, other than those expressly set forth or referred to herein. This Agreement supersedes all prior agreements and understandings among the parties hereto with respect to the subject matter hereof.
7.8 Severability of Provisions. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.
7.9 Specific Performance. The Company and each of the Shareholders acknowledges and agrees that in the event of any breach of this Agreement, the non-breaching party or parties would be irreparably harmed, no adequate remedy at law would exist and damages would be difficult to determine. It is accordingly agreed that (a) in the event of a breach of any provision of this Agreement, the aggrieved party shall be entitled to specific performance of this Agreement and to enjoin any continuing breach of this Agreement (without the necessity of proving actual damages and without posting bond or other security), in addition to any other remedy to which such aggrieved party may be entitled at law or in equity, and (b)
the Shareholders and the Company will waive the defense in any Action for specific performance or other equitable relief that a remedy at law would be adequate.
7.10 Jurisdiction. Any dispute, controversy, claim or action arising out of or relating to this Agreement or its interpretation, breach, validity, enforcement or termination shall be heard and determined in the federal courts of the United States located in the Southern District of the State of New York, or, if such courts do not have jurisdiction, the state courts of the State of New York sitting in the Borough of Manhattan, to whose exclusive jurisdiction and venue the parties hereto hereby irrevocably consent and submit. In any such action: (i) each party irrevocably waives, to the fullest extent it may effectively do so, any objection, including any objection to the laying of venue or based on the grounds of forum non conveniens or any right of objection to jurisdiction on account of its place of incorporation or domicile, which it may now or hereafter have to the bringing of any such action or proceeding in any New York Court; and (ii) each party irrevocably consents to service of process in the manner provided for notices under Section 7.3, or in any other manner permitted by applicable Law. The parties hereto agree 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 applicable Law; provided, however, that nothing in the foregoing shall restrict any party’s rights to seek any post-judgment relief regarding, or any appeal from, a trial court judgment.
7.11 Waiver of Right to Jury Trial. EACH PARTY HERETO WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND WHETHER MADE BY CLAIM, COUNTERCLAIM, THIRD-PERSON CLAIM OR OTHERWISE. EACH PARTY HERETO ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS IN THIS SECTION 7.11.
7.12 No Conflicting Agreement. Neither the Company, nor any Shareholder will, on or after the date of this Agreement, enter into any agreement with respect to the Company Securities beneficially owned or held of record by it which conflicts with the provisions hereof.
7.13 Conflicts with Company Organizational Documents. To the extent that any of the provisions of this Agreement conflict with any of the provisions of the Memorandum of Association or the Bye-laws, the provisions of the Memorandum of Association or Bye-laws, as the case may be, shall prevail and the Shareholders, the Board of Directors and the Company shall take such steps as are necessary, subject to applicable law, to amend this Agreement to not be in conflict with the Memorandum of Association or the Bye-laws, as the case may be.
Schedule A
SHAREHOLDERS OF HAMILTON INSURANCE GROUP, LTD.
Blackstone Investor
Citco Bank of Canada ref BSOF Master Fund LP and BSOF Master Fund II LP
Magnitude Investor
Citco Global Custody (NA) N.V. ref Magnitude Insurance Master Fund, LLC, Citco Global Custody (NA) N.V. ref Magnitude Institutional Ltd., Citco Global Custody (NA) N.V. ref CTL as TT of Magnitude Master Fund CL A, and Citco Global Custody (NA) N.V. ref Magnitude Partners Master Fund LP
Shareholder 1
Sango Hoken Holdings, LLC
Shareholder 2
Hopkins Holdings, LLC
Schedule B
NOTICE INFORMATION
Company
Hamilton Insurance Group, Ltd.
Wellesley House North, 1st Floor
90 Pitts Bay Road
Pembroke HM 08 Bermuda
Attention: General Counsel
Email: legalnotices@hamiltongroup.com
Exhibit A
Hamilton Insurance Group, Ltd.
Shareholder Questionnaire (long form)
Provided: [_], 20[_]
Requested Return Date: [_], 20[_]
In accordance with the provisions of Section 87 of the Bye-Laws of Hamilton Insurance Group, Ltd. (the “Company”), in order to update the shareholder ownership analysis for purposes of “controlled foreign corporation” (“CFC”), “passive foreign income company” (“PFIC”), “related person insurance income” (“RPII”), and US-foreign country treaty eligibility analyses of the Company, and in accordance with Section 5 of the Bye-Laws of the Company, in order to determine the allocation of the voting power of the Company among the shareholders holding stock entitled to vote, the Company requests that you answer the questions set forth in this Investor Questionnaire. The Company acknowledges the confidential nature of the requested information and as required by Section 5.2 of the Shareholders Agreement of the Company, the Company shall take appropriate measures to protect the confidentiality of the information provided to the Company by you in response to this Investor Questionnaire.
For the purposes of this Investor Questionnaire “you” shall mean each investing individual or entity.
In each case where a question asks about your ownership or another person’s ownership in any entity, please provide your or the other person’s ownership percentage (in terms of both voting power and value).
Contact Persons:
| | | | | | | | |
| For tax-related matters: | [Name] ([email], [phone]) |
| | [Name] ([email], [phone]) |
| | |
| Other: | [Name] ([email], [phone]) |
| | [Name] ([email], [phone]) |
| | [Name] ([email], [phone]) |
Please return the completed Investor Questionnaire by no later than [_], [_], 20[_] to [Name] ([email]).
Questionnaire for Hamilton Insurance Group, Ltd. Investors Treated as
Partnerships for U.S. Federal Income Tax Purposes
1. Please confirm that you are treated as a partnership for U.S. federal income tax purposes. (For the purposes of each of the questions in this questionnaire, “partnership” means an entity or arrangement treated as a partnership and “partner” means a person treated and regarded as a partner in the partnership, in each case for U.S. federal income tax purposes.)
2. Please indicate whether you are considered to be domestic or foreign for U.S. federal income tax purposes and provide your full legal name.
3. Please list each of your partners and his, her or its percentage ownership interest in the partnership.
4. Please list the names of any persons having an option or a right as of the date hereof to acquire an interest in the partnership and the percentage interests subject to such option or right.
5. Please list (A) (i) each partnership in which you own a partnership interest, (ii) each corporation with respect to which you own 10 percent or more of the stock, and (iii) each trust with respect to which you are a beneficiary or owner, and (B) your percentage ownership interest therein. For purposes of this questionnaire, “corporation” means an entity treated as a corporation for U.S. federal income tax purposes, and “own” and “ownership” refers to direct, indirect or constructive ownership within the meaning of Section 958 of the Internal Revenue Code of 1986, as amended.
6. On a separate page, to the extent applicable please identify each investor listed in Schedule I attached hereto that is a partner in your partnership and each entity listed in Schedule I attached hereto in which you own an interest.
Questionnaire for Hamilton Insurance Group, Ltd. Investors Treated as
Corporations for U.S. Federal Income Tax Purposes
1. Please confirm that you are treated as a corporation for U.S. federal income tax purposes. Have you elected to be treated as a Subchapter S corporation for U.S. federal income tax purposes? For the purposes of each of the questions in this questionnaire, “partnership” means an entity or arrangement treated as a partnership, “partner” means a person treated as a partner in the partnership, “corporation” means an entity treated as a corporation, and “shareholder” means a person treated and regarded as a shareholder of the corporation, in each case for U.S. federal income tax purposes.
2. Please indicate whether you are considered to be domestic or foreign for U.S. federal income tax purposes and provide your full legal name.
3. Please list each of your shareholders and his, her or its percentage ownership interest in the corporation. Please list any person having any option, warrant or other right to acquire your stock from you and the percentage ownership interest subject to such option, warrant or other right (without giving effect to the exercise of any unexercised options, warrants or other rights held by any other person). If you are publicly traded, you may identify only those shareholders having a 5% or greater interest in the corporation.
4. Please list (A) (i) each partnership in which you own a partnership interest, (ii) each corporation with respect to which you own 10 percent or more of the stock, and (iii) each trust with respect to which you are a beneficiary or owner, and (B) your percentage ownership interest therein. For purposes of this questionnaire, “own” and “ownership” refers to direct, indirect or constructive ownership within the meaning of Section 958 of the Internal Revenue Code of 1986, as amended.
5. On a separate page, to the extent applicable please identify each investor listed in Schedule I that is a shareholder of your corporation and each entity listed in Schedule I in which you own an interest.
Questionnaire for Hamilton Insurance Group, Ltd. Investors Treated as
Individuals for U.S. Federal Income Tax Purposes
1. For U.S. federal income tax purposes, are you a U.S. citizen or resident or a nonresident alien?
2. Do any of your family members own any interest in the Company (including, shares of stock or warrants to acquire shares of stock)? For the purposes of each of the questions in this questionnaire, “family members” means your spouse, children, grandchildren and parents. If yes, please state the nature of the family relationship and how much stock or other interest each family member owns.
3. Please list (A) (i) each partnership in which you own a partnership interest, (ii) each corporation with respect to which you own 10 percent or more of the stock, and (iii) each trust with respect to which you are a beneficiary or owner, and (B) your percentage ownership interest therein. For the purposes of each of the questions in this questionnaire, “partnership” means an entity or arrangement treated as a partnership, “partner” means a person treated as a partner in the partnership, and “corporation” means an entity treated as a corporation, in each case for U.S. federal income tax purposes. For purposes of this Question 3 and Question 4, “own” and “ownership” refers to direct, indirect or constructive ownership within the meaning of Section 958 of the Internal Revenue Code of 1986, as amended.
4. On a separate page, to the extent applicable please identify any entity listed in Schedule I attached hereto in which you own an interest.
5. On a separate page, to the extent applicable please identify any entity listed in Schedule I attached hereto in which a family member owns an interest.
Questionnaire for Hamilton Insurance Group, Ltd. Investors Treated as
Trusts for U.S. Federal Income Tax Purposes
1. Please confirm that you are treated as a trust for U.S. federal income tax purposes.
2. Please indicate whether you are considered to be domestic or foreign for U.S. federal income tax purposes and provide your full legal name.
3. Please list each of your beneficiaries or owners (as determined for U.S. federal income tax purposes) and his, her or its percentage ownership interest in the trust.
4. Please list the names of any persons having an option or a right as of the date hereof to acquire an interest in the trust and the percentage interests subject to such option or right.
5. Please list (A) (i) each partnership in which you own a partnership interest, (ii) each corporation with respect to which you own 10 percent or more of the stock, and (iii) each trust with respect to which you are a beneficiary or owner, and (B) your percentage ownership interest therein. For the purposes of each of the questions in this questionnaire, “partnership” means an entity or arrangement treated as a partnership, “partner” means a person treated as a partner in the partnership, and “corporation” means an entity treated as a corporation, in each case for U.S. federal income tax purposes, and “own” and “ownership” refers to direct, indirect or constructive ownership within the meaning of Section 958 of the Internal Revenue Code of 1986, as amended.
6. On a separate page, to the extent applicable please identify each investor listed in Schedule I attached hereto that is a beneficiary or owner in your trust and each entity listed in Schedule I attached hereto in which you own an interest.
SCHEDULE I
List of Investors
INVESTORS:
[_]
INDEPENDENT INVESTORS:
[_]
INDEMNIFICATION AGREEMENT
HAMILTON INSURANCE GROUP, LTD.
This Indemnification Agreement (this “Agreement”), made and entered into as of ________________, 2023, by and between Hamilton Insurance Group, Ltd., a Bermuda exempted company limited by shares (the “Company”), and [Peter Koffler] [Director/Officer] (“Indemnitee”).
W I T N E S S E T H:
WHEREAS, highly competent persons who serve large, multinational corporations as directors or officers expect to be provided with adequate protection through insurance and/or adequate indemnification against risks of claims and actions against them arising out of their service to and activities on behalf of the corporation.
WHEREAS, the board of directors of the Company (the “Board”) has determined that, in order to attract and retain qualified individuals, as directors of the Company will attempt to maintain on an ongoing basis, at its sole expense, liability insurance to protect persons serving the Company and its subsidiaries from certain liabilities.
WHEREAS, the Amended and Restated Bye-Laws of the Company (the “Bye-Laws”) provide that the Company shall indemnify directors and officers of the Company in the manner set forth therein and to the fullest extent permitted by applicable law.
WHEREAS, this Agreement is a supplement to and in furtherance of the Bye-Laws, insurance and any resolutions adopted pursuant thereto and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder.
WHEREAS, the protection available under the Company’s Bye-Laws and insurance may not be adequate in the present circumstances, and Indemnitee may not be willing to serve as an officer or director of the Company without adequate protection, and the Company desires Indemnitee to serve in such capacity. Indemnitee is willing to serve, continue to serve and to take on additional service for or on behalf of the Company on the condition that he or she be so indemnified.
[WHEREAS, the Indemnitee has resigned as a director of the Company prior to the date hereof; however, the Company wishes to indemnify the Indemnitee in consideration of his past service to the Company on the terms and conditions set forth herein.]
NOW, THEREFORE, in consideration of the premises and the covenants contained herein, the Company and Indemnitee do hereby covenant and agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
Section 1.01. As used in this Agreement:
(a) “Beneficial Owner” has the meaning given to the term “beneficial owner” in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
(b) “Change of Control” shall be deemed to occur upon the earliest to occur after the date of this Agreement of any of the following events:
(i) Acquisition of Shares by Third Party. Any Person (as defined below), other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned directly or indirectly by the shareholders of the Company in substantially the same proportions as their ownership of stock of the Company, is or becomes the Beneficial Owner (as defined above), directly or indirectly, of securities of the Company representing more than 50% of the combined voting power of the Company’s then outstanding securities, unless the change in relative Beneficial Ownership of the Company’s securities by any Person results solely from a reduction in the aggregate number of outstanding securities entitled to vote generally in the election of directors;
(ii) Change in Board of Directors. During any period of two (2) consecutive years (not including any period prior to the execution of this Agreement), individuals who at the beginning of such period constitute the Board, and any new director (other than a director designated by a Person who has entered into an agreement with the Company to effect a transaction described in Section 1.01(b)(i), Section 1.01(b)(iii) or Section 1.01(b)(iv) whose election by the Board or nomination for election by the Company’s shareholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority of the members of the Board;
(iii) Corporate Transactions. The effective date of a merger, amalgamation or consolidation of the Company with any other entity, other than a merger, amalgamation or consolidation that would result in the voting securities of the Company outstanding immediately prior to such merger, amalgamation or consolidation continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 50% of the combined voting power of the voting securities of the surviving entity outstanding immediately after such merger, amalgamation or consolidation and with the power to elect at least a majority of the board of directors or other governing body of such surviving entity; and
(iv) Liquidation. The approval by the shareholders of the Company of a complete liquidation of the Company or an agreement or series of agreements for the sale or disposition by the Company of all or substantially all of the Company’s assets, or, if such approval is not required, the decision by the Board to proceed with such a liquidation, sale, or disposition in one transaction or a series of related transactions.
(c) “Corporate Status” means the status of a person who is or was a director, officer, trustee, general partner, managing member, fiduciary, board of directors’ committee member, employee or agent of the Company or any direct or indirect subsidiary of the Company, or of any other enterprise.
(d) “Disinterested Director” means a director of the Company who is not and was not a party to the Proceeding in respect of which indemnification is sought by Indemnitee.
(e) “Expenses” means any and all direct and indirect costs (including attorneys’ fees, retainers, court costs, transcripts, fees of experts, witness fees, travel expenses, duplicating costs, printing and binding costs, telephone charges, postage, delivery service fees, and all other disbursements or expenses) actually and reasonably incurred in connection with (i) prosecuting, defending, preparing to prosecute or defend, investigating, being or preparing to be a witness, interviewee or deponent in, or otherwise participating in, a Proceeding or (ii) establishing or enforcing a right to indemnification under this Agreement, the Bye-Laws, applicable law or otherwise. Expenses also shall include Expenses incurred in connection with any appeal resulting from any Proceeding and any federal, state, local or foreign taxes imposed on Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement, including without limitation the premium, security for, and other costs relating to any cost bond, supersede as bond, or other appeal bond or its equivalent. For the avoidance of doubt, Expenses, however, shall not include any Liabilities.
(f) “Independent Counsel” means a law firm, or a member of a law firm, that is experienced in matters of corporate law and neither currently is, nor in the five (5) years previous to its selection or appointment has been, retained to represent (i) the Company or Indemnitee in any matter material to either such party (other than with respect to matters concerning Indemnitee under this Agreement or of other indemnitees under similar indemnification agreements) or (ii) any other party to the Proceeding giving rise to a claim for indemnification hereunder. Notwithstanding the foregoing, the term “Independent Counsel” shall not include any person who, under the applicable standards of professional conduct then prevailing, would have a conflict of interest in representing either the Company or Indemnitee in an action to determine Indemnitee’s rights under this Agreement. The Company agrees to pay the reasonable fees and disbursements of the Independent Counsel referred to above and to fully indemnify such counsel against any and all Expenses, claims, liabilities and damages arising out of or relating to this Agreement or its engagement pursuant hereto.
(g) “Liabilities” means any losses or liabilities, including any judgments, fines, penalties and amounts paid in settlement, arising out of or in connection with any Proceeding (including all interest, assessments and other charges paid or payable in connection with or in respect of any such judgments, fines, penalties or amounts paid in settlement).
(h) “Person” means any individual, corporation, firm, partnership, joint venture, limited liability company, estate, trust, business association, organization, governmental entity or other entity and includes the meaning set forth in Sections 13(d) and 14(d) of the Exchange Act.
(i) “Proceeding” means any threatened, pending or completed action, derivative action, suit, claim, counterclaim, cross claim, arbitration, alternate dispute resolution mechanism, investigation, inquiry, administrative hearing or any other actual, threatened or completed proceeding, whether civil (including intentional and unintentional tort claims), criminal, administrative, arbitral or investigative, including any appeal therefrom, whether instituted by or on behalf of the Company or any other party, and whether made pursuant to federal, state or other law, or any inquiry, hearing or investigation that Indemnitee in good faith believes might lead to the institution of any such action, suit or other proceeding hereinabove listed in which Indemnitee was, is or will be involved as a party, potential party, non-party witness, deponent or interviewee or otherwise by reason of any Corporate Status of Indemnitee, or by reason of any action taken (or failure to act) by him or her or of any action (or failure to act) on his or her part while serving in any Corporate Status.
Section 1.02. For the purposes of this Agreement:
(a) References to “Company” shall include, in addition to the resulting, continuing or surviving company, any constituent company (including any constituent of a constituent) absorbed in a consolidation, amalgamation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents, so that if Indemnitee is or was a director, officer, employee, or agent of such constituent company or is or was serving at the request of such constituent company as a director, officer, employee, or agent of another company, partnership, joint venture, trust or other enterprise, then Indemnitee shall stand in the same position under the provisions of this Agreement with respect to the resulting or surviving company as Indemnitee would have with respect to such constituent company if its separate existence had continued.
(b) Reference to “other enterprise” shall include employee benefit plans; references to “fines” shall include any excise tax assessed with respect to any employee benefit plan; references to “serving at the request of the Company” shall include any service as a director, officer, employee or agent of the Company or other enterprise which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner he or she reasonably believed to be in the best interests of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “not opposed to the best interests of the Company” as referred to in this Agreement.
(c) Reference to “including” shall mean “including, without limitation,” regardless of whether the words “without limitation” actually appear, references to the words “herein,” “hereof’ and “hereunder” and other words of similar import shall refer to this Agreement as a whole and not to any particular paragraph, subparagraph, section, subsection or other subdivision.
ARTICLE 2
SERVICES BY INDEMNITEE
Section 2.01. Services By Indemnitee. [Indemnitee previously agreed to serve as a director of the Company, for so long as Indemnitee was duly appointed or until Indemnitee tendered his or her resignation or is no longer serving in such capacity.] [Indemnitee hereby agrees to serve or continue to serve[, at the will of the Company,] as a director of the Company, for so long as Indemnitee is duly elected or appointed or until Indemnitee tenders his or her resignation or is no longer serving in such capacity.] This Agreement shall not be deemed an employment agreement between the Company (or any of its subsidiaries) and Indemnitee. Indemnitee specifically acknowledges that such service to the Company or any of its subsidiaries is at will and the Indemnitee may be discharged at any time for any reason, with or without cause, except as may be otherwise provided in any written agreement between Indemnitee and the Company (or any of its subsidiaries), other applicable formal severance policies duly adopted by the Board or, with respect to service as a director or officer of the Company, by the Company’s Bye-Laws or the laws of Bermuda.
ARTICLE 3
INDEMNIFICATION
Section 3.01. General. Subject to Section 3.04, the Company hereby agrees to and shall indemnify Indemnitee and hold Indemnitee harmless from and against any and all Expenses and Liabilities to the fullest extent permitted by applicable law. The Company’s indemnification obligations set forth in this Section 3.01 shall apply (i) in respect of Indemnitee’s past, present and future service in any Corporate Status and (ii) regardless of whether Indemnitee is serving in any Corporate Status at the time any such Expense or Liability is incurred.
For purposes of this Agreement, the meaning of the phrase “to the fullest extent permitted by applicable law” shall include, but not be limited to:
(i) to the fullest extent permitted by any provision of the Companies Act 1981 of Bermuda, as amended (the “Companies Act”), or the corresponding provision of any successor statute, and
(ii) to the fullest extent authorized or permitted by any amendments to or replacements of the Companies Act adopted after the date of this Agreement that increase the extent to which a corporation may indemnify its officers and directors.
In furtherance of the foregoing indemnification, and without limiting the generality thereof:
(a) Proceedings other than Proceedings by or in the Right of the Company. Subject to Section 3.04, the Indemnitee shall be entitled to the rights of indemnification provided in this Section 3.01(a) if, by reason of Indemnitee’s Corporate Status, Indemnitee is, or is threatened to be made, a party to or participant in, or otherwise becomes involved in, any Proceeding (as hereinafter defined) other than a Proceeding by or in the right of the Company. Pursuant to this
Section 3.01(a), Indemnitee shall be indemnified against all Expenses and Liabilities actually and reasonably incurred by Indemnitee, or on Indemnitee’s behalf, in connection with such Proceeding or any claim, issue or matter therein, unless it is finally determined by a court of competent jurisdiction that Indemnitee did not act in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company, and with respect to any criminal Proceeding, had no reasonable cause to believe Indemnitee’s conduct was unlawful.
(b) Proceedings by or in the Right of the Company. Subject to Section 3.04, the Indemnitee shall be entitled to the rights of indemnification provided in this Section 3.01(b) if, by reason of Indemnitee’s Corporate Status, Indemnitee is, or is threatened to be made, a party to or participant in any Proceeding brought by or in the right of the Company. Pursuant to this Section 3.01(b), Indemnitee shall be indemnified against all Expenses and Liabilities actually and reasonably incurred by Indemnitee, or on Indemnitee’s behalf, in connection with such Proceeding unless it is finally determined by a court of competent jurisdiction that Indemnitee did not act in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company; provided, however, if applicable law so provides, no indemnification against such Expenses shall be made in respect of any claim, issue or matter in such Proceeding as to which Indemnitee shall have been finally adjudged by a court of competent jurisdiction to be liable to the Company unless and only to the extent that the court in which the Proceeding was brought shall determine that Indemnitee is fairly and reasonably entitled to indemnification.
(c) Witness Expenses. Subject to Section 3.04, to the extent that Indemnitee is, by reason of his or her Corporate Status, a witness, deponent or interviewee in any Proceeding to which Indemnitee is not a party, he or she shall be indemnified against all Expenses actually and reasonably incurred by Indemnitee or on his or her behalf in connection therewith.
(d) Expenses as a Party Where Wholly or Partly Successful. Subject to Section 3.04, without limiting the other provisions of this Section 3.01 and Section 3.02, to the fullest extent permitted by applicable law, to the extent that Indemnitee is a party to (or a participant in) and is successful, on the merits or otherwise, in any Proceeding or in defense of any claim, issue or matter therein, including dismissal without prejudice, in whole or in part, the Company shall indemnify Indemnitee against all Expenses actually and reasonably incurred by him or her in connection therewith. If Indemnitee is not wholly successful in such Proceeding, but is successful, on the merits or otherwise, as to one (1) or more but less than all claims, issues or matters in such Proceeding, the Company shall, to the fullest extent permitted by applicable law, indemnify Indemnitee against all Expenses actually and reasonably incurred by Indemnitee or on his or her behalf in connection with each successfully resolved claim, issue or matter. For purposes of this Section and without limitation, the termination of any claim, issue or matter in such a Proceeding by dismissal, with or without prejudice, shall be deemed to be a successful result as to such claim, issue or matter. If a reasonably competent counsel engaged to defend solely the successfully resolved claim, issue or matter actually and reasonably incurred an item of Expenses in defending the successfully resolved claim, issue or matter then such item of Expenses shall be covered by the Company in accordance with the provisions of this Section
3.01(d) irrespective of whether the item also benefited the defense of an unsuccessfully resolved claim, issue or matter.
(e) Indemnification of Principal Shareholder. If (i) Indemnitee is or was affiliated with one or more Shareholders (as such term is defined in the Company’s Shareholders Agreement dated _______________, 2023) (a “Principal Shareholder”), (ii) the Principal Shareholder is, or is threatened to be made, a party to or a participant in any Proceeding, and (iii) the Principal Shareholder’s involvement in the Proceeding relates to the Indemnitee’s Corporate Status, the Principal Shareholder will be entitled to indemnification hereunder for Expenses to the same extent as Indemnitee and advancement of Expenses shall apply to any such indemnification of Principal Shareholder. The Company and Indemnitee agree that each Principal Shareholder is an express third party beneficiary of the terms of this Section 3.01(e).
Section 3.02. Additional Indemnity. In addition to, and without regard to any limitations on, the indemnification provided for in Section 3.01 of this Agreement, subject to Section 3.04, the Company shall and hereby does, to the fullest extent permitted by applicable law (including but not limited to, the Companies Act and any amendments to or replacements of the Companies Act adopted after the date of this Agreement that expand the Company’s ability to indemnify its officers and directors), indemnify and hold harmless Indemnitee against all Expenses, judgments, penalties, fines and amounts paid in settlement actually and reasonably incurred by Indemnitee or on Indemnitee’s behalf if, by reason of Indemnitee’s Corporate Status, Indemnitee is, or is threatened to be made, a party to or participant in any Proceeding (including a Proceeding by or in the right of the Company). The only limitation that shall exist upon the Company’s obligations pursuant to this Agreement, other than those set forth in Section 3.03 hereof, shall be that the Company shall not be obligated to make any payment to Indemnitee that is finally determined (under the procedures, and subject to the presumptions, set forth in Articles 5 and 6 hereof) to be unlawful.
Section 3.03. Exclusions. Notwithstanding any provision of this Agreement and unless Indemnitee ultimately is successful on the merits with respect to any such claim, the Company shall not be obligated under this Agreement to: (i) make any indemnity in connection with any Proceeding (or any part of any Proceeding), except as otherwise provided in Section 6.01(e), prior to a Change of Control, initiated by Indemnitee, including any Proceeding (or any part of any Proceeding) initiated by Indemnitee against the Company or its directors, officers, employees or other indemnitees, unless (A) the Company has joined in or the Board authorized the Proceeding (or any part of any Proceeding) prior to its initiation, (B) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law, or (C) the Proceeding is one to enforce Indemnitee’s rights under this Agreement, (ii) indemnify Indemnitee if a final non-appealable decision by a court of competent jurisdiction determines that such indemnification is prohibited by applicable law, (iii) indemnify or advance funds to Indemnitee for Indemnitee’s reimbursement to the Company of any bonus or other incentive-based or equity- based compensation previously received by Indemnitee or payment of any profits realized by Indemnitee from the sale of securities of the Company, as required in each case under the Exchange Act (including any such reimbursements under Section 304 of the Sarbanes-Oxley Act of 2002 in connection with an accounting restatement of the Company or
the payment to the Company of profits arising from the purchase or sale by Indemnitee of securities in violation of Section 306 of the Sarbanes-Oxley Act of 2002), (iv) to the extent necessary to avoid double-recovery, make any indemnity or advancement of expenses for which payment has actually been made to or on behalf of Indemnitee under any insurance policy or other indemnity provision, except with respect to any excess beyond the amount paid under any insurance policy or other indemnity provision (provided, that the foregoing Section 3.03(iv) shall not affect the rights of Indemnitee or the Principal Shareholder Indemnitor, as applicable (as defined below) set forth in Section 6.01(e)), or (v) make any indemnity or advancement of expenses in connection with any reimbursement of the Company by Indemnitee of any compensation pursuant to any compensation recoupment or clawback policy adopted by the Board or the compensation committee of the Board.
Section 3.04. Limitation on Indemnification. Notwithstanding any other terms of this Agreement, nothing herein shall indemnify the Indemnitee against, or exempt the Indemnitee from, any liability in respect of such Indemnitee’s fraud or dishonesty, as finally determined by a court of competent jurisdiction.
ARTICLE 4
ADVANCEMENT OF EXPENSES; DEFENSE OF CLAIMS
Section 4.01. Advances. Subject to Section 3.04, the Company shall (i) advance all Expenses incurred by or on behalf of Indemnitee in connection with any Proceeding (or part of any Proceeding) not initiated by the Indemnitee or any Proceeding initiated by Indemnitee with the prior approval of the Board (as provided in Section 3.03(i)) or by reason of Indemnitee’s Corporate Status within twenty (20) days after the receipt by the Company of a statement or statements from Indemnitee requesting such advance or advances from time to time, and, if requested by Indemnitee, (ii) reimburse Indemnitee for such Expenses, in each case, within twenty (20) days after the receipt by the Company of each statement requesting such advance from time to time, whether prior to or after final disposition of any Proceeding. Such statement or statements shall reasonably evidence the Expenses incurred by Indemnitee or anticipated to be incurred by Indemnitee. Advances shall be unsecured and interest free; provided, Indemnitee shall not be required to provide any documentation or information to the extent that the provision thereof would undermine or otherwise jeopardize attorney-client privilege. Advances shall be made without regard to Indemnitee’s ability to repay such amounts and without regard to Indemnitee’s ultimate entitlement to indemnification under the other provisions of this Agreement. Advances shall include any and all reasonable Expenses incurred pursuing an action to enforce this right of advancement or Indemnitee’s other rights hereunder, including Expenses incurred preparing and forwarding statements to the Company to support the advances claimed.
Section 4.02. Repayment of Advances or Other Expenses. Indemnitee agrees that Indemnitee shall reimburse the Company for all Expenses advanced by the Company pursuant to Section 4.01 in the event and only to the extent that it shall be determined by final judgment or other final adjudication by a court of competent jurisdiction under the provisions of any applicable law (as to which all rights of appeal therefrom have been exhausted or lapsed) that Indemnitee is not entitled to be indemnified by the Company for such Expenses.
Section 4.03. Defense of Claims. With respect to any Proceeding as to which Indemnitee notifies the Company of the commencement thereof, the Company will be entitled to participate in the Proceeding at its own expense and except as otherwise provided below, to the extent the Company so wishes, it may assume the defense thereof. After notice from the Company to Indemnitee of its election to assume the defense of any Proceeding, approval by Indemnitee (which approval shall not be unreasonably withheld, conditioned or delayed) of counsel designated by the Company and the retention of such counsel by the Company, the Company shall not be liable to Indemnitee under this Agreement or otherwise for any Expenses subsequently incurred by Indemnitee in connection with the defense of such Proceeding. Indemnitee shall have the right to employ legal counsel in such Proceeding, but any Expenses subsequently incurred by Indemnitee in connection with the defense of such Proceeding shall be at Indemnitee’s expense unless: (i) the employment of legal counsel by Indemnitee has been authorized by the Company, (ii) Indemnitee has reasonably determined that there may be a conflict of interest between Indemnitee and the Company in the defense of the Proceeding, (iii) after a Change in Control, Indemnitee’s employment of its own counsel has been approved by the Independent Counsel or (iv) the Company shall not within thirty (30) days in fact have employed counsel to assume the defense of such Proceeding, in each of which cases all Expenses related to such separate counsel in connection with the Proceeding shall be borne by the Company. In the event separate counsel is retained by an Indemnitee pursuant to this Section 4.03, the Company shall cooperate with Indemnitee with respect to the defense of the Proceeding, including making documents, witnesses and other reasonable information related to the defense available to Indemnitee and such separate counsel pursuant to joint-defense agreements or confidentiality agreements, as appropriate. The Company shall not be entitled to assume the defense of any Proceeding brought by or on behalf of the Company or as to which Indemnitee shall have made the determination provided for in (ii), (iii) or (iv) above.
ARTICLE 5
PROCEDURES FOR NOTIFICATION OF AND DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION
Section 5.01. Notification; Request For Indemnification.
(a) As soon as reasonably practicable after receipt by Indemnitee of written notice that he or she is a party to or a participant (as a witness or otherwise) in any Proceeding or of any other matter in respect of which Indemnitee may seek indemnification or advancement of Expenses hereunder, Indemnitee shall provide to the Company written notice thereof, including the nature of and the facts underlying the Proceeding. The omission by Indemnitee to so notify the Company will not relieve the Company from any liability which it may have to Indemnitee hereunder or otherwise unless, and to the extent that, such failure actually and materially prejudices the interests of the Company.
(b) To obtain indemnification under this Agreement, Indemnitee shall deliver to the Company a written request for indemnification, including therewith such information as is reasonably available to Indemnitee and reasonably necessary to determine Indemnitee’s entitlement to indemnification hereunder. An officer of the Company shall, promptly upon
receipt of such a request for indemnification, advise the Board in writing that Indemnitee has requested indemnification. Notwithstanding the foregoing, any failure of Indemnitee to provide such a request to the Company, or to provide such a request in a timely fashion, shall not relieve the Company of any liability that it may have to Indemnitee unless, and to the extent that, such failure actually and materially prejudices the interests of the Company. Indemnitee’s entitlement to indemnification shall be determined according to Section 5.02 of this Agreement and applicable law.
Section 5.02. Determination of Entitlement.
(a) Where there has been a written request by Indemnitee for indemnification pursuant to Section 5.01(b), then as soon as is reasonably practicable (but in any event not later than the period referred to in Section 5.03(b)), a determination, if required by applicable law, with respect to Indemnitee’s entitlement thereto shall be made in the specific case: (i) at the election of the Board, if a Change of Control shall not have occurred, (A) by a majority vote of the Disinterested Directors, even though less than a quorum of the Board, (B) by a committee of Disinterested Directors designated by a majority vote of the Disinterested Directors, even though less than a quorum of the Board or (C) if there are no such Disinterested Directors or, if such Disinterested Directors so direct, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee; or (ii) if a Change of Control shall have occurred, by Independent Counsel in a written opinion to the Board, a copy of which shall be delivered to Indemnitee. If it is so determined that Indemnitee is entitled to indemnification, payment to Indemnitee shall be made within ten (10) days after such determination. Indemnitee shall reasonably cooperate with the person, persons or entity making such determination with respect to Indemnitee’s entitlement to indemnification, including providing to such person, persons or entity upon reasonable advance request any documentation or information which is not privileged or otherwise protected from disclosure and which is reasonably available to Indemnitee and reasonably necessary to such determination. Any costs or expenses (including attorneys’ fees and disbursements) actually and reasonably incurred by Indemnitee in so cooperating with the person, persons or entity making such determination shall be borne by the Company (irrespective of the determination as to Indemnitee’s entitlement to indemnification).
(b) If entitlement to indemnification is to be determined by Independent Counsel pursuant to Section 5.02(a)(ii), such Independent Counsel shall be selected by Indemnitee (unless the Indemnitee shall request that such selection be made by the Board), and Indemnitee shall give written notice to the Company advising it of the identity of the Independent Counsel so selected. If entitlement to indemnification is to be determined by Independent Counsel pursuant to Section 5.02(a)(i)(C) (or if Indemnitee requests that such selection be made by the Board), such Independent Counsel shall be selected by the Board in which case the Company shall give written notice to Indemnitee advising him or her of the identity of the Independent Counsel so selected. In either event, Indemnitee or the Company, as the case may be, may, within ten (10) days after such written notice of selection shall have been received, deliver to the Company or to Indemnitee, as the case may be, a written objection to such selection; provided, however, that such objection may be asserted only on the ground that the Independent Counsel so selected does not meet the requirements of “Independent Counsel” as defined in Article 1 of this Agreement,
and the objection shall set forth with particularity the factual basis of such assertion. Absent a proper and timely objection, the person so selected shall act as Independent Counsel. If such written objection is so made and substantiated, the Independent Counsel so selected may not serve as Independent Counsel unless and until such objection is withdrawn or a court of competent jurisdiction has determined that such objection is without merit. If, within twenty (20) days after the later of submission by Indemnitee of a written request for indemnification pursuant to Section 5.01(b) hereof and the final disposition of the Proceeding, no Independent Counsel shall have been selected and not objected to, either the Company or Indemnitee may petition a court of competent jurisdiction for resolution of any objection which shall have been made by the Company or Indemnitee to the other’s selection of Independent Counsel and/or for the appointment as Independent Counsel of a person selected by the court or by such other person as the court shall designate, and the person with respect to whom all objections are so resolved or the person so appointed shall act as Independent Counsel under Section 5.02(a) hereof. Upon the due commencement of any judicial proceeding or arbitration pursuant to Section 6.01(a) of this Agreement, the Independent Counsel shall be discharged and relieved of any further responsibility in such capacity (subject to the applicable standards of professional conduct then prevailing).
(c) The Company agrees to pay the reasonable fees and expenses of any Independent Counsel incurred by such Independent Counsel in connection with acting pursuant to Section 5.02 hereof, and the Company shall pay all reasonable fees and expenses incident to the procedures of this Section 5.02, regardless of the manner in which such Independent Counsel was selected or appointed.
Section 5.03. Presumptions and Burdens of Proof; Effect of Certain Proceedings.
(a) In making any determination with respect to entitlement to indemnification hereunder, the person or persons or entity making such determination shall, to the fullest extent not prohibited by law, presume that Indemnitee is entitled to indemnification under this Agreement if Indemnitee has submitted a request for indemnification in accordance with Section 5.01(b) of this Agreement, and the Company shall, to the fullest extent not prohibited by law, have the burden of proof to overcome that presumption in connection with the making by any person, persons or entity of any determination contrary to that presumption. Neither the failure of any person, persons or entity to have made a determination prior to the commencement of any action pursuant to this Agreement that indemnification is proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by any person, persons or entity that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct.
(b) If the person, persons or entity empowered or selected under Section 5.02 of this Agreement to determine whether Indemnitee is entitled to indemnification shall not have made a determination within the thirty (30) days after receipt by the Company of the request therefor, the requisite determination of entitlement to indemnification shall, to the fullest extent not prohibited by law, be deemed to have been made and Indemnitee shall be entitled to such indemnification,
absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law; provided, however, that such 30-day period may be extended for a reasonable time, not to exceed an additional fifteen (15) days, if the person, persons or entity making such determination with respect to entitlement to indemnification in good faith requires such additional time to obtain or evaluate documentation and/or information relating thereto.
(c) The Company acknowledges that a settlement or other disposition short of final judgment may be successful if it permits a party to avoid expense, delay, distraction, disruption and uncertainty. In the event that any action, claim or proceeding to which Indemnitee is a party is resolved in any manner other than by adverse judgment against Indemnitee (including, without limitation, settlement of such action, claim or proceeding with or without payment of money or other consideration) it shall be presumed that Indemnitee has been successful on the merits or otherwise in such action, suit or proceeding. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence.
(d) The termination of any Proceeding or of any claim, issue or matter therein, by judgment, order, settlement or conviction, or upon a plea of nolo contendere or its equivalent, shall not (except as otherwise expressly provided in this Agreement) of itself adversely affect the right of Indemnitee to indemnification or create a presumption that Indemnitee did not act in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the Company or, with respect to any criminal Proceeding, that Indemnitee had reasonable cause to believe that his or her conduct was unlawful.
(e) For purposes of any determination of good faith, Indemnitee shall be deemed to have acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the Company if Indemnitee’s action is in good faith reliance on the records or books of account of the Company (or any of its subsidiaries), including financial statements, or on information supplied to Indemnitee by the officers of the Company (or any of its subsidiaries) in the course of their duties, or on the advice of legal counsel for the Company (or any of its subsidiaries) or on information or records given or reports made to the Company (or any of its subsidiaries) by an independent certified public accountant or by an appraiser or other expert selected by the Company (or any of its subsidiaries). Whether or not the foregoing provisions of this 5.03(e) are satisfied, it shall in any event be presumed that Indemnitee has at all times acted in good faith and in a manner Indemnitee reasonably believed to be in or not opposed to the best interests of the Company. Anyone seeking to overcome this presumption shall have the burden of proof and the burden of persuasion by clear and convincing evidence. The provisions of this Section 5.03(e) shall not be deemed to be exclusive or to limit in any way the other circumstances in which Indemnitee may be deemed or found to have met the applicable standard of conduct set forth in this Agreement.
(f) The knowledge and/or actions, or failure to act, of any other director, trustee, partner, managing member, fiduciary, officer, agent or employee of the Company (or any of its
subsidiaries) shall not be imputed to Indemnitee for purposes of determining any right to indemnification under this Agreement.
ARTICLE 6
REMEDIES OF INDEMNITEE
Section 6.01. Adjudication or Arbitration.
(a) In the event of any dispute between Indemnitee and the Company hereunder as to entitlement to indemnification or advancement of Expenses (including where (i) a determination is made pursuant to Section 5.02 of this Agreement that Indemnitee is not entitled to indemnification under this Agreement, (ii) advancement of Expenses is not timely made pursuant to Section 4.01 of this Agreement, (iii) payment of indemnification pursuant to Section 3.01 of this Agreement is not made within ten (10) days after a determination has been made that Indemnitee is entitled to indemnification, (iv) no determination as to entitlement to indemnification is timely made pursuant to Section 5.02 of this Agreement and no payment of indemnification is made within ten (10) days after entitlement is deemed to have been determined pursuant to Section 5.03(b)) or (v) a contribution payment is not made in a timely manner pursuant to Section 8.04 of this Agreement, then Indemnitee shall be entitled to an adjudication by a court of his or her entitlement to such indemnification, contribution or advancement. Alternatively, in such case, Indemnitee, at his or her option, may seek an award in arbitration to be conducted by a single arbitrator pursuant to the Commercial Arbitration Rules of the American Arbitration Association. The Company shall not oppose Indemnitee’s right to seek any such adjudication or award in arbitration.
(b) In the event that a determination shall have been made pursuant to Section 5.02(a) of this Agreement that Indemnitee is not entitled to indemnification, any judicial proceeding or arbitration commenced pursuant to this Section 6.01 shall be conducted in all respects as a de novo trial, or arbitration, on the merits, and Indemnitee shall not be prejudiced by reason of that adverse determination. In any judicial proceeding or arbitration commenced pursuant to this Section 6.01 the Company shall have the burden of proving Indemnitee is not entitled to indemnification or advancement of Expenses, as the case may be, and the Company may not refer to or introduce into evidence any determination pursuant to Section 5.02(a) of this Agreement adverse to Indemnitee for any purpose. If Indemnitee commences a judicial proceeding or arbitration pursuant to this Section 6.01, Indemnitee shall not be required to reimburse the Company for any advances pursuant to Section 4.02 until a final determination is made with respect to Indemnitee’s entitlement to indemnification (as to which all rights of appeal have been exhausted or lapsed).
(c) If a determination shall have been made pursuant to Section 5.02(a) of this Agreement that Indemnitee is entitled to indemnification, the Company shall be bound by such determination in any judicial proceeding or arbitration commenced pursuant to this Section 6.01, absent (i) a misstatement by Indemnitee of a material fact, or an omission of a material fact necessary to make Indemnitee’s statement not materially misleading, in connection with the request for indemnification, or (ii) a prohibition of such indemnification under applicable law.
(d) The Company shall be precluded from asserting in any judicial proceeding or arbitration commenced pursuant to this Section 6.01 that the procedures and presumptions of this Agreement are not valid, binding and enforceable and shall stipulate in any such court or before any such arbitrator that the Company is bound by all the provisions of this Agreement.
(e) The Company shall indemnify Indemnitee to the fullest extent permitted by law against all Expenses and, if requested by Indemnitee, shall (within ten (10) days after the Company’s receipt of such written request) advance such Expenses to Indemnitee, which are reasonably incurred by Indemnitee in connection with any judicial proceeding or arbitration brought by Indemnitee for (i) indemnification or advances of Expenses by the Company (or otherwise for the enforcement, interpretation or defense of his or her rights) under this Agreement or any other agreement, including any other indemnification, contribution or advancement agreement, or any provision of the Bye-Laws now or hereafter in effect or (ii) recovery or advances under any directors’ and officers’ liability insurance policy maintained by the Company, regardless of whether Indemnitee ultimately is determined to be entitled to such indemnification, contribution, advancement or insurance recovery, as the case may be.
ARTICLE 7
DIRECTORS’ AND OFFICERS’ LIABILITY INSURANCE
Section 7.01. D&O Liability Insurance.
(a) The Company shall obtain and maintain in effect during the entire period for which the Company is obligated to indemnify Indemnitee under this Agreement, one or more policies of insurance with reputable insurance companies to provide the directors and officers of the Company with coverage for losses from wrongful acts and omissions (including prior acts and omissions and including actions relating to the Company’s initial public offering) and to ensure the Company’s performance of its indemnification obligations under this Agreement, except to the extent such coverage is not available on commercially reasonable terms, in which case the Company shall secure the best available commercially reasonable coverage. Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any such officer or director under such policy or policies. At the time of the receipt of a notice of a claim pursuant to the terms hereof, the Company shall give prompt notice of the commencement of such proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such proceeding in accordance with the terms of such policies.
(b) If, at the time the Company receives notice of a claim hereunder, the Company has D&O Liability Insurance in effect, the Company shall give prompt notice of such Proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of Indemnitee, all amounts payable as a result of such Proceeding in accordance with the terms of such policies. The failure or refusal of any such insurer to pay any such amount shall not affect or impair the obligations of the Company under this Agreement
Section 7.02. Evidence of Coverage. Upon request by Indemnitee, the Company shall provide copies of all policies of D&O Liability Insurance obtained and maintained in accordance with Section 7.01 of this Agreement. The Company shall provide Indemnitee no less than annually with notice of any material changes in such insurance coverage.
ARTICLE 8
MISCELLANEOUS
Section 8.01. Non-exclusivity of Rights. The rights of indemnification, contribution and advancement of Expenses as provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may at any time be entitled to under applicable law, the Bye-Laws, any agreement, a vote of stockholders or a resolution of directors, or otherwise. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.
Section 8.02. Priority. The Company hereby acknowledges that Indemnitee has or may have in the future certain rights to indemnification, advancement of expenses and/or insurance provided by the Principal Shareholder and/or certain of its affiliates or the general partner, managing member, control person and/or management company of the foregoing (collectively, the “Investor Indemnitors”). The Company hereby agrees (i) that it is the indemnitor of first resort (i.e., its obligations to Indemnitee are primary and any obligation of the Investor Indemnitors to advance expenses or to provide indemnification for the same expenses or liabilities incurred by Indemnitee are secondary), (ii) that it shall be required to advance the full amount of expenses incurred by Indemnitee and shall be liable for the full amount of all Expenses and Liabilities to the extent legally permitted and as required by the terms of this Agreement and the bye-laws of the Company (or any other agreement between the Company and Indemnitee), without regard to any rights Indemnitee may have against the Investor Indemnitors, and (iii) that it irrevocably waives, relinquishes and releases the Investor Indemnitors from any and all claims against the Investor Indemnitors for contribution, subrogation or any other recovery of any kind in respect thereof. The Company further agrees that no advancement or payment by the Investor Indemnitors on behalf of Indemnitee with respect to any claim for which Indemnitee has sought indemnification from the Company shall affect the foregoing and the Investor Indemnitors shall have a right of contribution and/or be subrogated to the extent of such advancement or payment to all of the rights of recovery of Indemnitee against the Company. The Company and Indemnitee agree that the Investor Indemnitors are express third party beneficiaries of the terms of this Section 8.02. For the avoidance of doubt, nothing in this Agreement or this Section 8.02 limits or is intended to limit the obligations of the Company’s directors’ and officers’ liability insurance provider, if any, to the Company pursuant to any policy of directors’ and officers’ liability insurance paid for by the Company.
Section 8.03. Subrogation.
(a) Except as provided in Section 6.01(e), in the event of any payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee (other than against any Principal Shareholder Indemnitors), who shall execute all papers required and take all action necessary to secure such rights, including execution of such documents as are necessary to enable the Company to bring suit to enforce such rights.
(b) Except as provided in Section 6.01(e), the Company shall not be liable under this Agreement to make any payment of amounts otherwise indemnifiable (or for which advancement is provided) hereunder if and to the extent that Indemnitee has actually received such payment under any insurance policy or other indemnity provision.
(c) Except as provided in Section 6.01(e), the Company’s obligation to indemnify or advance Expenses hereunder to Indemnitee who is or was serving at the request of the Company as a director, officer, trustee, partner, managing member, fiduciary, board of directors’ committee member, employee or agent of any subsidiary of the Company shall be reduced by any amount Indemnitee has actually received as indemnification or advancement of Expenses from such subsidiary.
Section 8.04. Contribution.
(a) Whether or not the indemnification provided in Sections 3.01 and 3.02 hereof is available, in respect of any threatened, pending or completed action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), to the fullest extent permitted by applicable law, the Company shall pay, in the first instance, the entire amount of any judgment or settlement of such action, suit or proceeding without requiring Indemnitee to contribute to such payment and the Company hereby waives and relinquishes any right of contribution it may have against Indemnitee. The Company shall not, without the Indemnitee’s prior written consent, enter into any such settlement of any action, suit or proceeding (in whole or in part) unless (i) the Company agrees in writing to pay any amounts payable pursuant to such settlement, compromise or order, (ii) such settlement provides for a full and final release of all claims asserted against Indemnitee and (iii) such settlement does not impose any Expense, judgment, fine, penalty, injunctive relief or limitation on Indemnitee.
(b) Without diminishing or impairing the obligations of the Company set forth in the preceding subparagraph, if, for any reason, Indemnitee shall elect or be required to pay all or any portion of any judgment or settlement in any threatened, pending or completed action, suit or proceeding in which the Company is jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), to the fullest extent permitted by applicable law, the Company shall contribute to the amount of Expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred and paid or payable by Indemnitee in proportion to the relative benefits received by the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, from the transaction or events
from which such action, suit or proceeding arose; provided, however, that the proportion determined on the basis of relative benefit may, to the extent necessary to conform to law, be further adjusted by reference to the relative fault of the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, in connection with the transaction or events that resulted in such expenses, judgments, fines or settlement amounts, as well as any other equitable considerations which the law may require to be considered. The relative fault of the Company and all officers, directors or employees of the Company, other than Indemnitee, who are jointly liable with Indemnitee (or would be if joined in such action, suit or proceeding), on the one hand, and Indemnitee, on the other hand, shall be determined by reference to, among other things, the degree to which their actions were motivated by intent to gain personal profit or advantage, the degree to which their liability is primary or secondary and the degree to which their conduct is active or passive.
(c) To the fullest extent permitted by applicable law, the Company hereby agrees to fully indemnify and hold Indemnitee harmless from any claims of contribution which may be brought by officers, directors or employees of the Company, other than Indemnitee, who may be jointly liable with Indemnitee.
(d) To the fullest extent permissible under applicable law, if the indemnification provided for in this Agreement is unavailable to Indemnitee for any reason whatsoever, the Company, in lieu of indemnifying Indemnitee, shall contribute to the amount incurred by Indemnitee, whether for judgments, fines, penalties, excise taxes, amounts paid or to be paid in settlement and/or for Expenses, in connection with any claim relating to an indemnifiable event under this Agreement, in such proportion as is deemed fair and reasonable in light of all of the circumstances of such Proceeding in order to reflect (i) the relative benefits received by the Company and Indemnitee as a result of the event(s) and/or transaction(s) giving cause to such Proceeding, and/or (ii) the relative fault of the Company (and its directors, officers, employees and agents) and Indemnitee in connection with such event(s) and/or transaction(s).
Section 8.05. Amendment. This Agreement may not be modified or amended except by a written instrument executed by or on behalf of each of the parties hereto. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit, restrict or reduce any right of Indemnitee under this Agreement in respect of any act or omission, or any event occurring, prior to such amendment, alteration or repeal. To the extent that a change in applicable law, whether by statute or judicial decision, (i) permits greater indemnification, contribution or advancement of Expenses than would be afforded currently under the Bye-Laws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change, or (ii) limits rights with respect to indemnification, contribution or advancement of Expenses, it is the intent of the parties hereto that the rights with respect to indemnification, contribution or advancement of Expenses in effect prior to such change shall remain in full force and effect to the extent permitted by applicable law.
Section 8.06. Waivers. The observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) by the party entitled to enforce such term only by a writing signed by the party against which such waiver is to be asserted. Unless otherwise expressly provided herein, no delay on the part of any party hereto in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any party hereto of any right, power or privilege hereunder operate as a waiver of any other right, power or privilege hereunder nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege hereunder.
Section 8.07. Entire Agreement. This Agreement and the documents referred to herein constitute the entire agreement between the parties hereto with respect to the matters covered hereby, and any other prior or contemporaneous oral or written understandings or agreements with respect to the matters covered hereby are superseded by this Agreement, provided that this Agreement is a supplement to and in furtherance of the Bye-Laws and applicable law, and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder.
Section 8.08. Severability. If any provision or provisions of this Agreement shall be held to be invalid, illegal or unenforceable for any reason whatsoever: (a) the validity, legality and enforceability of the remaining provisions of this Agreement (including each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall not in any way be affected or impaired thereby and shall remain enforceable to the fullest extent permitted by law; (b) such provision or provisions shall be deemed reformed to the extent necessary to conform to applicable law and to give the maximum effect to the intent of the parties hereto; and (c) to the fullest extent possible, the provisions of this Agreement (including each portion of any Section of this Agreement containing any such provision held to be invalid, illegal or unenforceable, that is not itself invalid, illegal or unenforceable) shall be construed so as to give effect to the intent manifested thereby. Without limiting the generality of the foregoing, this Agreement is intended to confer upon Indemnitee and Principal Shareholder indemnification rights to the fullest extent permitted by applicable laws.
Section 8.09. Notices. All notices and other communications given or made pursuant to this Agreement shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient, and if not so confirmed, then on the next business day, (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (iv) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent:
(a) To Indemnitee at the address set forth below Indemnitee’s signature hereto.
(b) To the Company at:
Hamilton Insurance Group, Ltd.
Wellesley House North, 1st Floor
90 Pitts Bay Road
Pembroke
Bermuda HM08
Attention: General Counsel
E-mail: Gemma.Carreiro@hamiltongroup.com
Section 8.10. Binding Effect.
(a) The Company expressly confirms and agrees that it has entered into this Agreement and assumed the obligations imposed on it hereby in order to induce Indemnitee to serve as a director or officer of the Company, and the Company acknowledges that Indemnitee is relying upon this Agreement in serving as a director or officer of the Company.
(b) This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company, spouses, heirs, and executors, administrators, personal and legal representatives. The Company shall require and cause any successor (whether direct or indirect by purchase, merger, consolidation or otherwise) to all or substantially all, or a substantial part of the business or assets of the Company, by written agreement in form and substance satisfactory to Indemnitee, expressly to assume and agree to perform this Agreement in the manner and to the same extent that the Company would be required to perform if no such succession had taken place.
(c) The indemnification, contribution and advancement of Expenses provided by, or granted pursuant to this Agreement shall continue as to a person who has ceased to be a director or officer and shall inure to the benefit of the heirs, executors, administrators, legatees and assigns of such a person.
(d) The Company and Indemnitee agree herein that a monetary remedy for breach of this Agreement, at some later date, may be inadequate, impracticable and difficult of proof, and further agree that such breach may cause Indemnitee irreparable harm. Accordingly, the parties hereto agree that Indemnitee may enforce this Agreement by seeking injunctive relief and/or specific performance hereof, without any necessity of showing actual damage or irreparable harm and that by seeking injunctive relief and/or specific performance, Indemnitee shall not be precluded from seeking or obtaining any other relief to which Indemnitee may be entitled. The Company and Indemnitee further agree that Indemnitee shall be entitled to such specific performance and injunctive relief, including temporary restraining orders, preliminary injunctions and permanent injunctions, without the necessity of posting bonds or other undertaking in connection therewith. The Company acknowledges that in the absence of a waiver, a bond or undertaking may be required of Indemnitee by the court, and the Company hereby waives any such requirement of such a bond or undertaking.
Section 8.11. Governing Law. This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of New York, without regard to its conflict of laws rules.
Section 8.12. Consent To Jurisdiction. Except with respect to any arbitration commenced by Indemnitee pursuant to Section 6.01(a) of this Agreement, the Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the courts of the State of New York (the “New York Courts”), and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the New York Courts for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) waive any objection to the laying of venue of any such action or proceeding in the New York Courts, and (iv) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in any New York Court has been brought in an improper or inconvenient forum.
Section 8.13. Headings. The Article and Section headings in this Agreement are for convenience of reference only and shall not be deemed to alter or affect the meaning or interpretation of any provisions hereof.
Section 8.14. Counterparts. This Agreement may be executed in one (1) or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one (1) and the same Agreement. Only one (1) such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.
Section 8.15. Use of Certain Terms. As used in this Agreement, the words “herein,” “hereof,” and “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular paragraph, subparagraph, section, subsection, or other subdivision. Whenever the context may require, any pronoun used in this Agreement shall include the corresponding masculine, feminine or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural and vice versa.
Section 8.16. Non-Disclosure of Payments. Except as expressly required by the securities laws of the United States of America or other applicable law, neither party shall disclose any payments under this Agreement unless prior approval of the other party is obtained. If any payment information must be disclosed, the Company shall afford the Indemnitee an opportunity to review all such disclosures and, if requested, to explain in such statement any mitigating circumstances regarding the events to be reported.
Section 8.17. Duration of Agreement. All agreements and obligations of the Company contained herein shall continue until and terminate upon the later of (i) ten (10) years after the date that Indemnitee shall have ceased to serve as a director or officer of the Company or a director, officer, trustee, partner, managing member, fiduciary, employee or agent of any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise which Indemnitee served at the request of the Company, and (ii) one (1) year after the final termination
of any Proceeding (including any rights of appeal thereto) in respect of which Indemnitee is granted rights of indemnification or advancement of Expenses hereunder and of any Proceeding commenced by Indemnitee pursuant to Article 6 of this Agreement relating thereto (including any rights of appeal of any Proceeding commenced pursuant to Article 6 of this Agreement). Termination of this Agreement shall not adversely affect any right or protection hereunder of any Indemnitee in respect of any Proceeding (regardless of when such Proceeding is first threatened, commenced or completed) arising out of, or related to, any act or omission occurring prior to the time of such termination. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors (including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business or assets of the Company), assigns, spouses, heirs, executors and personal and legal representatives.
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered to be effective as of the date first noted above.
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[Project Nevis – Signature Page to Indemnification Agreement]
Exhibit 10.3
EXECUTION VERSION
REGISTRATION RIGHTS AGREEMENT
by and among
HAMILTON INSURANCE GROUP, LTD.
and
THE PARTIES SET FORTH ON SCHEDULE A HERETO
Dated as of December 23, 2013
TABLE OF CONTENTS
| | | | | | | | | | | |
| 1. | Certain Definitions | 1 |
| 2. | Demand Registrations | 4 |
| (a) | Right to Request Registration | 4 |
| (b) | Number of Demand Registrations | 5 |
| (c) | Priority on Demand Registrations | 5 |
| (d) | Restrictions on Demand Registrations | 6 |
| (e) | Selection of Underwriters | 6 |
| (f) | Effective Period of Demand Registrations | 6 |
| (g) | Registration Statement Form; Offering Requirements | 7 |
| (h) | Shelf Option | 7 |
| 3. | Piggyback Registrations | 7 |
| (a) | Right to Piggyback | 7 |
| (b) | Priority on Primary Registrations | 7 |
| (c) | Priority on Secondary Registrations | 8 |
| (d) | Selection of Underwriters | 8 |
| 4. | Holdback Agreements | 8 |
| 5. | Registration Procedures | 9 |
| 6. | Registration Expenses | 13 |
| 7. | Indemnification | 14 |
| 8. | Participation in Underwritten Registrations | 16 |
| 9. | Rule 144 | 16 |
| 10. | In-Kind Distributions | 16 |
| 11. | Miscellaneous. | 16 |
| (a) | Notices | 16 |
| (b) | No Waivers | 17 |
| (c) | Successors and Assigns | 17 |
| (d) | Governing Law | 17 |
| (e) | Jurisdiction | 17 |
| (f) | Waiver of Jury Trial | 18 |
| (g) | Counterparts and Facsimile | 18 |
| (h) | Entire Agreement | 18 |
| (i) | Captions | 18 |
| (j) | Severability | 18 |
| (k) | Amendments | 18 |
| (l) | Aggregation of Stock | 19 |
| (m) | Specific Performance | 19 |
| (n) | Recapitalizations, Exchanges Affecting the Registrable Common Shares | 19 |
| (o) | No Inconsistent or More Favorable Agreements | 20 |
| (p) | Withdrawal from Agreement | 20 |
| (q) | Effect of Termination | 20 |
REGISTRATION RIGHTS AGREEMENT, dated as of December 23, 2013, by and among Hamilton Insurance Group, Ltd., a Bermuda exempted company (the “Company”), and the shareholders of the Company listed on Schedule A hereto (each, a “Shareholder” and, collectively, the “Shareholders”).
WHEREAS, the Shareholders have purchased the Company’s Class A Common Shares, par value $0.01 per share (the “Class A Common Shares”) and Class B Common Shares, par value $0.01 per share (the “Class B Common Shares” and, together with the Class A Common Shares, the “Common Shares”); and
WHEREAS, concurrently herewith, the Company and the Shareholders are entering into a Shareholders Agreement providing for certain agreements with respect to the corporate governance, shareholdings and certain other matters relating to the Company and its Subsidiaries (the “Shareholders Agreement”).
NOW THEREFORE, in consideration of the foregoing and the mutual covenants and agreements herein contained and other good and valid consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as follows:
1. Certain Definitions.
Capitalized terms used but not defined herein have the meanings set forth in the Shareholders Agreement. In addition, the following terms shall have the following meanings:
“Affiliate” means, with respect to any Person, any other Person that controls, is controlled by or is under common control with such Person; provided, however, no Shareholder shall be considered an Affiliate of the Company or any of its Subsidiaries for purposes of this Agreement (and nor shall any Person controlling such Shareholder merely by virtue of such control). For the purposes of this definition, the term “control” (including, with correlative meanings, the terms “controlling”, “controlled by” and “under common control with”), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract, voting power or otherwise.
“Agreement” means this Registration Rights Agreement, including all amendments, modifications and supplements and any exhibits or schedules to any of the foregoing, and shall refer to this Registration Rights Agreement as the same may be in effect at the time such reference becomes operative.
“Common Shares” has the meaning set forth in the recitals hereto.
“Company” has the meaning set forth in the introductory paragraph.
“Covered Shares” means (i) any Common Shares held by the Shareholders as of the date hereof, (ii) any Common Shares acquired by any Shareholder in addition to those referred to in clause (i) after the date of this Agreement and prior to the date of an Initial Public Offering and (iii) any other security into or for which the Common Shares referred to in clause (i) or (ii) has
been reclassified, converted, substituted or exchanged, and any security issued or issuable with respect thereto upon any stock dividend, stock split, merger, recapitalization or similar event.
“Demand Registration” has the meaning set forth in Section 2(a) hereof.
“Dispute” has the meaning set forth in Section 11(e) hereof.
“Exchange Act” means the Securities Exchange Act of 1934, as amended.
“Governmental Entity” means any nation, government, court, regulatory, taxing or administrative agency, commission or authority or other legislative, executive or judicial governmental entity, body, agency, official or instrumentality, domestic or foreign, whether federal, national, provincial, state, local or multinational or self-regulatory organization or agency or other similar quasi-governmental regulatory body or arbitration panel, tribunal or arbitrator.
“Holdback Period” has the meaning set forth in Section 4(a) hereof.
“Holder” means (i) any holder of record of Registrable Common Shares and any transferees of such Registrable Common Shares from such Holders in accordance with the Shareholders Agreement (if the Shareholders Agreement has not been earlier terminated in accordance with its terms) and the Bye-laws and (ii) solely for purposes of receiving notice of a proposed Demand Registration pursuant to Section 2(a) hereof and proposed Piggyback Registration pursuant to Section 3(a) hereof, any Shareholder who holds warrants issued by the Company to purchase Class B Common Shares (a “Warrant Holder”); provided, however, that any such Warrant Holder shall not have any rights to include in any Demand Registration or Piggyback Registration any of the Common Shares underlying such warrants, or any other rights under this Agreement with respect thereto, unless and until such warrants have been exercised in accordance with their terms and the Common Shares issuable upon the exercise thereof have been so issued. For purposes of this Agreement, the Company may deem and treat the registered holder of Registrable Common Shares as the Holder and absolute owner thereof, and the Company shall not be affected by any notice to the contrary.
“Initial Public Offering” means the first underwritten public offering of the Common Shares (or other equity securities of the Company) to the general public through a Registration Statement filed with the SEC.
“Initiating Holder” has the meaning set forth in Section 2(a) hereof.
“IPO Demand Registration” has the meaning set forth in Section 2(a) hereof.
“New York Courts” has the meaning set forth in Section 11(e) hereof.
“Person” means any individual, sole proprietorship, partnership, limited liability company, joint venture, trust, incorporated organization, association, corporation, institution, public benefit corporation, Governmental Entity or any other entity.
“Piggyback Registration” means (i) an Initial Public Offering where the Company registers any of its common equity securities under the Securities Act for the account of the Company and/or one or more shareholders of the Company and the registration form to be used may be used for any registration of Registrable Common Shares, and (ii) any registration of the Company’s common equity securities under the Securities Act (other than a Registration Statement on Form S-4, S-8 or a comparable form) that is effected at any time following consummation of an Initial Public Offering, whether such registration is effected for the Company’s own account or for the account of one or more shareholders of the Company, and the registration form to be used may be used for any registration of Registrable Common Shares. Notwithstanding anything in this Agreement to the contrary, Piggyback Registrations are governed by Section 3 hereof and do not include any Demand Registrations.
“Principal Holder” means (i) Shareholder 1 and any assignee of any of Shareholder 1’s Demand Registrations pursuant to Section 11(c), (ii) Shareholder 2 and any assignee of any of Shareholder 2’s Demand Registrations pursuant to Section 11(c), (iii) Capital Z Group and any assignee of any of Capital Z Group’s Demand Registrations pursuant to Section 11(c) and (iv) the Blackstone Investor and any assignee of any of the Blackstone Investor’s Demand Registrations pursuant to Section 11(c).
“Prospectus” means the prospectus or prospectuses forming a part of, or deemed to form a part of, or included in, or deemed included in, any Registration Statement, as amended or supplemented by any prospectus supplement with respect to the terms of the offering of any portion of the Registrable Common Shares covered by such Registration Statement and by all other amendments and supplements to the prospectus, including post-effective amendments and all material incorporated by reference in such prospectus or prospectuses.
“Registrable Common Shares” means the Covered Shares; provided, however, that Registrable Common Shares shall not include (i) any securities sold by a Person to the public either pursuant to a Registration Statement or Rule 144 under the Securities Act, (ii) any securities which may be sold without restriction or limitation pursuant to Rule 144 under the Securities Act, including the last sentence of Rule 144(b)(1)(i) under the Securities Act, or (iii) any securities that have ceased to be outstanding.
“Registration Expenses” has the meaning set forth in Section 6(a) hereof.
“Registration Statement” means any registration statement of the Company which covers any of the Registrable Common Shares pursuant to the provisions of this Agreement, including the Prospectus, amendments and supplements to such registration statement, including post-effective amendments, all exhibits and all materials incorporated by reference in such registration statement.
“SEC” means the Securities and Exchange Commission.
“Securities Act” means the Securities Act of 1933, as amended.
“Shareholder” has the meaning set forth in the introductory paragraph.
“Shareholders Agreement” has the meaning set forth in the recitals hereto.
“Shelf Option” has the meaning set forth in Section 2(a) hereof.
“Shelf Registration Statement” has the meaning set forth in Section 2(a) hereof.
“Suspension Notice” has the meaning set forth in Section 5(d) hereof.
“underwritten registration” or “underwritten offering” means a registration in which securities of the Company are sold to one or more underwriters (as defined in Section 2(a)(11) of the Securities Act) for resale to the public.
“Withdrawing Holders” has the meaning set forth in Section 11(p) hereof.
“Withdrawn Shares” has the meaning set forth in Section 11(p) hereof.
2. Demand Registrations.
(a) Right to Request Registration. Subject to the other provisions of this Section 2, at any time that is (i) in the case of any Principal Holder, six (6) months after the earlier of (A) the occurrence of an Initial Public Offering and (B) the effective date of an IPO Demand Registration, or (ii) solely in the case of Shareholder 1 or Shareholder 2, following the second (2nd) anniversary of the date of this Agreement but prior to the consummation of an Initial Public Offering, upon the written request of any Principal Holder (such Principal Holder, whether pursuant to clause (i) or clause (ii) above, the “Initiating Holder”), such Initiating Holder may request that the Company effect the registration under the Securities Act of all or part of the Registrable Common Shares held by such Initiating Holder (any such registration requested by any Principal Holder pursuant to clause (i) or (ii) above, a “Demand Registration,” and any such registration requested by Shareholder 1 or Shareholder 2 pursuant to clause (ii) above, an “IPO Demand Registration”), which written request shall specify the intended method(s) of disposition of such Registrable Common Shares. The Company shall use its reasonable best efforts to cause the Registration Statement relating to such Demand Registration to be declared effective under the Securities Act no later than ninety (90) days (or, in the case of an IPO Demand Registration, one hundred thirty five (135) days) following the date such demand is made. In connection with any Demand Registration, the Initiating Holder thereof may elect that the Company effect such registration by filing a Registration Statement under the Securities Act (a “Shelf Registration Statement”) which provides for the sale by the Initiating Holder of its Registrable Common Shares from time to time on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, which Registration Statement shall provide for the disposition of Registrable Common Shares pursuant to such distribution methods as the Initiating Holder set forth in the written request therefor (the “Shelf Option”); provided that the Company is then eligible to register securities on a delayed or continuous basis pursuant to Rule 415 under the Securities Act. Each request for registration shall specify the approximate number of Registrable Common Shares requested to be registered. Upon the receipt of a request for a Demand Registration, the Company promptly shall give written notice of such proposed Demand Registration and the intended method(s) of disposition stated in the request for such Demand Registration to all Holders other than the Initiating Holder and, subject to the terms of this Agreement, shall include in such Demand Registration (and in all related registrations and qualifications under state “blue sky” laws or in compliance with other registration requirements and in any related underwriting)
all Registrable Common Shares of the Holders with respect to which the Company has received written requests for inclusion therein (which requests, to be effective, shall contain a consent to the intended method(s) of disposition included in the request for such Demand Registration) within fifteen (15) days after the delivery of such notice. The Initiating Holder of any IPO Demand Registration may request in its demand for an IPO Demand Registration that, in connection therewith, the Company complete a Qualifying IPO, in which case the Company shall use reasonable best efforts to complete such Qualifying IPO, including issuing and selling such number of Common Shares as the managing underwriter(s) advise is reasonably necessary for the successful marketing of the Qualifying IPO.
(b) Number of Demand Registrations. Subject to the other provisions of this Section 2, the Principal Holders shall be entitled to request an aggregate of eight (8) Demand Registrations to be allocated as follows: two (2) to Shareholder 1; two (2) to Shareholder 2; two (2) to the Capital Z Group; and two (2) to the Blackstone Investor, it being understood and agreed that an IPO Demand Registration shall not count as one of the permitted Demand Registrations. The Principal Holders shall be entitled to request an unlimited number of underwritten offerings pursuant to a Shelf Registration Statement (provided that the Company is then eligible to register securities on a delayed or continuous basis pursuant to Rule 415 under the Securities Act). A registration will not count as one of the permitted Demand Registrations (i) if the Registration Statement thereto has not become effective, (ii) if the Registration Statement thereto has not remained effective until the earlier of the time when all Registrable Common Shares included therein by the Initiating Holder is sold or the end of the period described in Section 2(f) or (h), as the case may be, (iii) if, after it has become effective, such Registration Statement becomes subject to any stop order, injunction or other order or requirement of the SEC or other Governmental Entity for any reason, unless such order or requirement is lifted and the Registration Statement becomes effective, (iv) if the conditions to closing specified in the purchase agreement or underwriting agreement entered into in connection with the offering and sale of Registrable Common Shares under such Registration Statement are not satisfied or waived (other than as a result of any breach or other action by the Initiating Holder), or (v) if the Initiating Holder is not able to register and sell at least twenty-five percent (25%) of the Registrable Common Shares requested to be included by such Initiating Holder in such Demand Registration, in each case other than by reason of such Initiating Holder withdrawing its request or terminating the offering.
(c) Priority on Demand Registrations. In the case of a Demand Registration that is an underwritten offering, if the managing underwriters of the requested Demand Registration advise the Company in writing (with a copy to the Holders demanding to participate in such registration) that in their opinion the number of Registrable Common Shares proposed to be included in any such registration exceeds the number of securities which can be sold in such offering and/or that the number of Registrable Common Shares proposed to be included in any such registration would adversely affect the price per share of the Registrable Common Shares to be sold in such offering, the Company shall include in such registration only the number of Registrable Common Shares which in the opinion of such managing underwriters can be so sold. If the number of shares which can be sold is less than the number of Registrable Common Shares proposed to be registered, the amount of Registrable Common Shares to be so sold shall be allocated (i) first, pro rata among the Principal Holders and, if applicable, the HI Investor, desiring to participate in such registration on the basis of the amount of such Registrable
Common Shares initially proposed to be registered by such Principal Holders and, if applicable, the HI Investor, (ii) second, pro rata among all other Holders of Registrable Common Shares desiring to participate in such registration on the basis of the amount of such Registrable Common Shares initially proposed to be registered by such other Holders and (iii) third, to the Company.
(d) Restrictions on Demand Registrations. The Company shall not be obligated to effect any Demand Registration (i) within ninety (90) days after the effective date of a previous Demand Registration that is not an IPO Demand Registration or a previous registration under which the Initiating Holder had piggyback rights pursuant to Section 3 hereof, (ii) within six (6) months after the effective date of a previous Demand Registration that is an IPO Demand Registration, or (iii) if the Company has previously received a Demand Registration from another Holder or Holders, and the effectiveness of the applicable Registration Statement is still pending and being diligently pursued by the Company. The Company may postpone for up to ninety (90) days the filing or the effectiveness of a Registration Statement for a Demand Registration if, based on the good faith judgment of the Company’s board of directors, such postponement is necessary in order to avoid premature disclosure of a material matter required, as determined by the Company after consultation with outside counsel, to be otherwise disclosed in the Prospectus that the board has determined would not be in the best interest of the Company to be disclosed at such time; provided, however, that the Company shall not be entitled to so postpone unless it shall (A) concurrently request the suspension of sale by other security holders under Registration Statements covering Company securities held by such other security holders, (B) in accordance with the Company’s policies from time to time in effect, forbid purchases and sales in the open market by senior executives of the Company, and (C) in the case of clause (i) itself refrain from any public offering and open market purchases during the postponement; provided, further, however, that if the Company postpones the filing or effectiveness of a Registration Statement pursuant to this sentence, the Initiating Holder requesting the related Demand Registration shall be entitled to withdraw such request and, if such request is withdrawn, such Demand Registration shall not count as one of the permitted Demand Registrations. The Company shall provide written notice to the Initiating Holder requesting such Demand Registration and all other Holders of (x) any postponement of the filing or effectiveness of a Registration Statement pursuant to this Section 2(d), (y) the Company’s decision to file or seek effectiveness of such Registration Statement following such postponement and (z) the effectiveness of such Registration Statement. The Company may defer the filing of a particular Registration Statement pursuant to this Section 2(d) only once during any twelve (12) -month period.
(e) Selection of Underwriters. If any of the Registrable Common Shares covered by a Demand Registration is to be sold in an underwritten offering, the Initiating Holder shall have the right to select the managing underwriter(s) to administer the offering subject to the approval of the Company, which will not be unreasonably withheld so long as such managing underwriter(s) are prominent investment banking firms experienced in securities offerings by insurance and reinsurance companies; provided that the Company shall have the right to appoint one or more co-managers reasonably acceptable to the Initiating Holder.
(f) Effective Period of Demand Registrations. After any Demand Registration filed pursuant to this Agreement has become effective, the Company shall use its
reasonable best efforts to keep such Demand Registration effective for a period equal to one hundred eighty (180) days from the date on which the SEC declares such Demand Registration effective (or if such Demand Registration is not effective during any period within such one hundred eighty (180) days or if disposition of Registrable Common Shares is suspended in the circumstances described in Section 5(d), such one hundred eighty (180) -day period shall be extended by the number of days during such period when such Demand Registration is not effective or is suspended as provided in Section 5(d)), or such shorter period which shall terminate when all of the Registrable Common Shares covered by such Demand Registration has been sold pursuant to such Demand Registration.
(g) Registration Statement Form; Offering Requirements. Demand Registrations shall be on such appropriate registration form of the SEC as shall be selected by the Initiating Holder in consultation with the Company; provided that the Initiating Holder shall only select a registration form that the Company is then eligible to use.
(h) Shelf Option. If the Initiating Holder elects the Shelf Option, the Company agrees to use its reasonable best efforts to keep the Shelf Registration Statement continuously effective and usable for the resale of the Registrable Common Shares registered thereunder for a period ending on the first date on which all the Registrable Common Shares covered by such Shelf Registration Statement shall have been sold pursuant to such Shelf Registration Statement.
3. Piggyback Registrations.
(a) Right to Piggyback. Whenever the Company proposes to effect a Piggyback Registration, the Company shall give prompt written notice (in any event within ten (10) days after its receipt of notice of any exercise of other demand registration rights) to all Holders of its intention to effect such a registration and, subject to Sections 3(b) and 3(c), shall include in such registration on the same terms as the Company and other Persons selling securities in connection with such registration all Registrable Common Shares with respect to which the Company has received written requests for inclusion therein from a Holder within fifteen (15) days after the receipt by such Holder of the Company’s notice. The Company’s notice shall specify, at a minimum, the number of equity securities proposed to be registered, the proposed date of filing of such Registration Statement with the SEC, the proposed means of distribution, the proposed managing underwriter or underwriters (if any and if known) and a good faith estimate by the Company of the proposed minimum offering price of such equity securities. The Company may postpone or withdraw the filing or the effectiveness of a Piggyback Registration initiated by the Company at any time in its sole discretion; provided that such postponement or withdrawal does not relieve the Company of its obligations to pay registration expenses pursuant to Section 6. Each Holder shall be permitted to withdraw all or part of such Holder’s Registrable Common Shares from a Piggyback Registration at any time prior to the effectiveness of such registration.
(b) Priority on Primary Registrations. If a Piggyback Registration is an underwritten primary registration on behalf of the Company, and the managing underwriters advise the Company in writing that in their opinion the number of equity securities requested to be included in such registration exceeds the number which can be sold in such offering and/or that the number of Registrable Common Shares proposed to be included in any such registration
would adversely affect the price per share of the Company’s equity securities to be sold in such offering, the Company shall include in such registration (i) first, the equity securities the Company proposes to sell, and (ii) second, the other equity securities requested to be included in such registration (including the Registrable Common Shares requested to be included therein), pro rata among the holders of such equity securities on the basis of the number of shares requested to be registered by such holders.
(c) Priority on Secondary Registrations. If a Piggyback Registration is an underwritten secondary registration on behalf of a holder of the Company’s equity securities (other than a Demand Registration hereunder), and the managing underwriters advise the Company in writing that in their opinion the number of equity securities requested to be included in such registration exceeds the number which can be sold in such offering and/or that the number of Registrable Common Shares proposed to be included in any such registration would adversely affect the price per share of the Company’s equity securities to be sold in such offering, the Company shall include in such registration the equity securities requested to be included therein (including the Registrable Common Shares requested to be included in such registration), pro rata among the holders of such equity securities on the basis of the number of shares requested to be registered by such holders.
(d) Selection of Underwriters. If any Piggyback Registration is an underwritten primary offering on behalf of the Company, the Company shall have the right to select the managing underwriter or underwriters to administer any such offering.
4. Holdback Agreements.
(a) The Company agrees not to, directly or indirectly, sell, pledge, contract to sell, grant an option to purchase or otherwise dispose of any equity securities of the Company during the ten (10) days prior to and during the ninety (90) days (or one hundred eighty (180) days in the case of the Company's Initial Public Offering) beginning on the effective date of any underwritten Demand Registration or any underwritten Piggyback Registration (except as part of such underwritten registration or, if applicable, pursuant to registrations on Form S-8 or S-4 or any successor forms thereto) (the “Holdback Period”) unless the underwriters managing the offering otherwise agree to a shorter period.
(b) Each Holder agrees not to, directly or indirectly, sell, pledge, contract to sell, grant an option to purchase or otherwise dispose of any equity securities of the Company during the Holdback Period unless the underwriters managing the offering otherwise agree to a shorter period. In order to enforce the foregoing covenant, the Company shall have the right to place restrictive legends on the certificates representing the securities subject to this Section 4(b) and to impose stop transfer instructions with respect to the Registrable Common Shares and such other securities of each Holder (and the securities of every other Person subject to the foregoing restriction) until the end of such period.
(c) If, in accordance with Section 4(a) or 4(b), the underwriters managing the offering agree to a shorter Holdback Period, then such shorter Holdback Period shall apply equally to the Company and each Holder, such that in no event shall any Holder or the Company,
on the one hand, be subject to a Holdback Period longer or shorter than any other Holder, or the Company, on the other hand.
5. Registration Procedures. (a) Whenever any Registrable Common Shares are to be registered pursuant to Sections 2 or 3 of this Agreement, the Company shall use its reasonable best efforts to effect the registration and the sale of such Registrable Common Shares in accordance with the intended methods of disposition thereof, and pursuant thereto the Company shall as expeditiously as possible:
(i) prepare and as soon as practicable (but in any event within ninety (90) days after receipt of a request pursuant to Section 2(a)) file with the SEC a Registration Statement with respect to such Registrable Common Shares and use its reasonable best efforts to cause such Registration Statement to become effective as soon as practicable thereafter; and before filing a Registration Statement, a Prospectus included in such Registration Statement (including a preliminary Prospectus) or filed under Rule 424 of the Securities Act with the SEC, and each amendment and supplement thereto, furnish to the Holders of Registrable Common Shares covered by such Registration Statement, to the extent requested to do so, copies of all such documents proposed to be filed, including any exhibits thereto and exhibits incorporated by reference; and the Company will give one counsel selected by Holders representing a majority of Registrable Common Shares covered by such Registration Statement the opportunity to participate in the preparation of such Registration Statement, each Prospectus (including a preliminary Prospectus) included therein or filed under Rule 424 of the Securities Act with the SEC, and each amendment thereof or supplement thereto; and the Holders shall have the opportunity to object to any information pertaining to such Holders that is contained therein and the Company will make the corrections reasonably requested by such Holders with respect to such information prior to filing any Registration Statement or amendment thereto or any Prospectus or any supplement thereto; and the Company shall not, without the prior consent of the Holders representing a majority of the Registrable Common Shares covered by such Registration Statement, make any offer relating to the Registrable Securities that would constitute a “free writing prospectus,” as defined in Rule 405 of the Securities Act.
(ii) prepare and file with the SEC such amendments and supplements to such Registration Statement and the Prospectus used in connection therewith as may be necessary to keep such Registration Statement effective for such a period as is necessary to complete the disposition of the securities covered by such Registration Statement (subject to Sections 2(f) and (h) of this Agreement) and comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such Registration Statement during such period in accordance with the intended methods of disposition set forth in such Registration Statement;
(iii) furnish to each seller of Registrable Common Shares such number of copies of such Registration Statement, and each amendment and supplement thereto, the Prospectus included in such Registration Statement (including each preliminary Prospectus) or filed under Rule 424 of the Securities Act with the SEC and such other documents as such seller may reasonably request in order to facilitate the disposition of the Registrable Common Shares owned by such seller;
(iv) use its reasonable best efforts to register or qualify such Registrable Common Shares under such other securities or “blue sky” laws of such jurisdictions as any seller and any underwriter(s) reasonably requests and do any and all other acts and things which may be reasonably requested by such seller or underwriter that is necessary or advisable to enable such seller and any underwriter(s) to consummate the disposition in such jurisdictions of the Registrable Common Shares owned by such seller (provided that the Company will not be required to (A) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph (iv), (B) subject itself to taxation in any such jurisdiction or (C) consent to general service of process in any such jurisdiction);
(v) notify each seller of such Registrable Common Shares at any time when a Prospectus relating thereto is required to be delivered under the Securities Act of the occurrence of any event as a result of which the Prospectus included in such Registration Statement or filed under Rule 424 of the Securities Act with the SEC contains an untrue statement of a material fact or omits any fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and, at the request of any such seller, the Company shall promptly prepare a supplement or amendment to such Prospectus so that, as thereafter delivered to the purchasers of such Registrable Common Shares, such Prospectus shall not contain an untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading;
(vi) in the case of an underwritten offering, enter into customary agreements (including underwriting agreements in customary form) and take such other actions as deemed advisable by the underwriter(s) in order to expedite or facilitate the disposition of such Registrable Common Shares (including, without limitation, effecting a stock split or a combination of shares and making members of senior management of the Company available to participate in, and cause them to cooperate with the underwriters in connection with, “road-show” and other customary marketing activities (including one-on-one meetings with prospective purchasers of the Registrable Common Shares)) and cause to be delivered to the underwriters opinions of counsel to the Company in customary form, covering such matters as are customarily covered by opinions for an underwritten public offering as the underwriters may request and addressed to the underwriters;
(vii) make available, for inspection by any seller of Registrable Common Shares, any underwriter participating in any disposition pursuant to such Registration Statement, and any attorney, accountant or other agent retained by any such seller or underwriter, all financial and other records, pertinent corporate documents and properties of the Company, and cause the Company’s officers, directors, employees and independent accountants to supply all information reasonably requested by any such seller, underwriter, attorney, accountant or agent in connection with such Registration Statement;
(viii) use its reasonable best efforts to cause all such Registrable Common Shares to be listed on each securities exchange or quotation system on which securities of the same class issued by the Company are then listed, or if no such similar securities are then listed, on a national securities exchange selected by the Company;
(ix) provide a transfer agent and registrar for all such Registrable Common Shares not later than the effective date of such Registration Statement;
(x) if requested, cause to be delivered, immediately prior to the effectiveness of the Registration Statement (and, in the case of an underwritten offering, at the time of delivery of any Registrable Common Shares sold pursuant thereto), comfort letters from the Company’s independent certified public accountants addressed to each underwriter, if any, stating that such accountants are independent public accountants within the meaning of the Securities Act and the applicable rules and regulations adopted by the SEC thereunder, and otherwise in customary form and covering such financial and accounting matters as are customarily covered by letters of the independent certified public accountants delivered in connection with primary or secondary underwritten public offerings, as the case may be;
(xi) make generally available to its shareholders a consolidated earnings statement (which need not be audited) for at least the twelve (12) months beginning after the effective date of a Registration Statement as soon as reasonably practicable after the end of such period, which earnings statement shall satisfy the requirements of an earnings statement under Section 11(a) of the Securities Act;
(xii) promptly notify each seller of Registrable Common Shares and the underwriter or underwriters, if any:
(1) when the Registration Statement, any pre-effective amendment, the Prospectus or any Prospectus supplement or post-effective amendment to the Registration Statement has been filed and, with respect to the Registration Statement or any post-effective amendment, when the same has become effective;
(2) of any written request by the SEC for amendments or supplements to the Registration Statement or Prospectus or of any inquiry by the SEC relating to the Registration Statement or the Company’s status as a well-known seasoned issuer, with a copy of the same, and an oral or written summary of any such oral requests;
(3) of the notification to the Company by the SEC of its initiation or threat of any proceeding with respect to the issuance by the SEC of any stop order suspending the effectiveness of the Registration Statement, of the issuance by the SEC of a notification of objection to the use of the form on which the Registration Statement has been filed, and of the happening of any event that causes the Company to become an “ineligible issuer,” as defined in Rule 405 of the Securities Act; and
(4) of the receipt by the Company of any notification or threat with respect to the suspension of the qualification of any Registrable Common Shares for sale under the applicable securities or “blue sky” laws of any jurisdiction;
(xiii) use its reasonable best efforts to obtain the withdrawal of any order suspending the effectiveness of the Registration Statement at the earliest possible moment; and
(xiv) provide a CUSIP number for the Common Shares and take such other customary actions as shall be reasonably requested by Holders holding a majority of the
Registrable Common Shares to be sold or the underwriters in order to expedite or facilitate the disposition of such Registrable Common Shares.
(b) No Registration Statement (including any amendments thereto and Prospectuses contained therein) shall contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or supplement to a Prospectus, in light of the circumstances under which they were made) not misleading; provided, however, that the foregoing shall not apply, with respect to any Holder, for an untrue statement or alleged untrue statement of a material fact or omission or alleged omission of a material fact made in reliance on and in conformity with written information furnished to the Company by or on behalf of such Holder specifically for use in such Registration Statement.
(c) The Company will promptly respond to any and all comments received from the SEC on any Registration Statement, with a view towards causing such Registration Statement or any amendment thereto to be declared effective by the SEC as soon as practicable and shall file an acceleration request as soon as practicable following the resolution or clearance of all SEC comments or, if applicable, following notification by the SEC that any such Registration Statement or any amendment thereto will not be subject to review.
(d) The Company may require each seller of Registrable Common Shares as to which any registration is being effected to furnish to the Company any other information regarding such seller and the distribution of such securities as the Company may from time to time reasonably request in writing in order to comply with applicable securities laws.
(e) Each seller of Registrable Common Shares agrees by having its stock treated as Registrable Common Shares hereunder that, upon written notice from the Company, after consultation with outside counsel, of the happening of any event as a result of which the Prospectus included in such Registration Statement contains an untrue statement of a material fact or omits any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (a “Suspension Notice”), such seller will forthwith discontinue disposition of Registrable Common Shares until such seller is advised in writing by the Company that the use of the Prospectus may be resumed and is furnished with a supplemented or amended Prospectus as required by Section 5(a)(iii) hereof, and, if so directed by the Company, such seller will deliver to the Company (at the Company’s expense) all copies, other than permanent file copies then in such seller’s possession, of the Prospectus covering such Registrable Common Shares current at the time of receipt of such notice; provided, however, that the Company shall promptly use its reasonable best efforts to file a post effective amendment or take such other action so as to obviate the need for a Suspension Notice as soon as reasonably practicable in the good faith judgment of the Company and promptly after filing such amendment (and in any event within twenty-four (24) hours of such filing) deliver sufficient copies of such supplemented or amended Prospectuses pursuant to Section 5(a)(iii) to such sellers to resume such disposition; and provided further that such postponement of sales of Registrable Common Shares by the Holders shall not exceed ninety (90) days in the aggregate in any one (1) year. Each Holder shall be entitled to reimbursement from the Company for any out-of-pocket losses actually incurred in the event, and only to the extent, that such Holder suffers such losses as a result of such Holder’s inability to make delivery of sold securities due to the
Company’s delivery of a Suspension Notice. Each seller of Registrable Common Shares further agrees by having its stock treated as Registrable Common Shares hereunder that it shall maintain in confidence and not disclose the receipt of any Suspension Notice. If the Company shall give any notice to suspend the disposition of Registrable Common Shares pursuant to a Prospectus, the Company shall extend the period of time during which the Company is required to maintain the Registration Statement effective pursuant to this Agreement by the number of days during the period from and including the date of the giving of such notice to and including the date such seller either is advised by the Company that the use of the Prospectus may be resumed or receives the copies of the supplemented or amended Prospectus contemplated by Section 5(a)(iii). In any event, the Company shall not deliver more than three (3) Suspension Notices in any one year.
(f) If any such Registration Statement refers to any Holder by name or otherwise as the holder of any securities of the Company, then such Holder shall have the right to require (i) the insertion therein of language, in form and substance reasonably satisfactory to such Holder, to the effect that the holding by such Holder of such securities does not necessarily make such holder a “controlling person” of the Company within the meaning of the Securities Act and is not to be construed as a recommendation by such Holder of the investment quality of the Company’s securities covered thereby and that such holding does not imply that such Holder will assist in meeting any future financial requirements of the Company, or (ii) in the event that such reference to such Holder by name or otherwise is not required by the SEC or Securities Act or any similar federal statute then in force, the deletion of the reference to such Holder.
(g) In connection with the preparation and filing of each Registration Statement registering the Holders’ Registrable Common Shares under the Securities Act, the Company will give such Holders and the underwriters, if any, and their respective counsel and accountants, drafts of such Registration Statement for their review and comment prior to filing (with a reasonable period of time to review and comment prior to such filing).
6. Registration Expenses. (a) All expenses incident to the Company’s performance of or compliance with this Agreement, including, without limitation, all registration and filing fees, fees and expenses of compliance with securities or “blue sky” laws, listing application fees, printing expenses, transfer agent’s and registrar’s fees, cost of distributing Prospectuses in preliminary and final form as well as any supplements thereto, and fees and disbursements of counsel for the Company and all independent certified public accountants and other Persons retained by the Company (all such expenses being herein called “Registration Expenses”) (but not including any underwriting discounts or commissions attributable to the sale of Registrable Common Shares or fees and expenses of more than one counsel (and, if applicable, one local counsel) representing the Holders of Registrable Common Shares (as set forth in Section 6(b)), shall be borne by the Company. In addition, the Company shall pay its internal expenses (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit or quarterly review, the expense of any liability insurance and the expenses and fees for listing the securities to be registered on each securities exchange on which they are to be listed.
(b) In connection with each registration initiated hereunder, the Company shall reimburse the Holders covered by such registration or sale for the reasonable fees and
disbursements of one law firm (and, if applicable, one local counsel) chosen by the Initiating Holder or if the registration relates to an Initial Public Offering, if any, or to the extent there is no Initiating Holder, one law firm (and, if applicable, one local counsel) chosen by Holders representing a majority of the number of Registrable Common Shares included in such registration or sale.
(c) The obligation of the Company to bear the expenses described in Section 6(a) and to reimburse the Holders for the expenses described in Section 6(b) shall apply irrespective of whether any sales of Registrable Securities ultimately take place.
7. Indemnification
(a) The Company shall indemnify, to the fullest extent permitted by law, each Holder, each member, limited partner or general partner thereof, each member, limited partner or general partner of each such member, limited partner or general partner, each of their respective Affiliates, officers, directors, employees, advisors and agents and each Person who controls (within the meaning of the Securities Act) such Person and each of their respective representatives against all losses, claims, damages, liabilities and expenses (including but not limited to reasonable legal fees and expenses) arising out of or based upon any untrue statement or alleged untrue statement of material fact contained in any Registration Statement, Prospectus, preliminary Prospectus or any “issuer free writing prospectus” (as defined in Securities Act Rule 433) or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or supplement to a Prospectus, in light of the circumstances under which they were made) not misleading or any violation or alleged violation by the Company of the Securities Act, the Exchange Act or applicable “blue sky” laws, except insofar and to the extent as the same are made in reliance and in conformity with information relating to such Holder furnished in writing to the Company by such Holder expressly for use therein.
(b) In connection with any Registration Statement or Prospectus in which a Holder of Registrable Common Shares is participating, each such Holder shall furnish to the Company in writing such information and affidavits as the Company reasonably requests for use in connection with any such Registration Statement or Prospectus and shall indemnify, to the fullest extent permitted by law, the Company, its officers, employees, directors, Affiliates, advisors, agents and representatives, and each Person who controls the Company (within the meaning of the Securities Act), against all losses, claims, damages, liabilities and expenses (including but not limited to reasonable legal fees and expenses) arising out of or based upon any untrue statement or alleged untrue statement of material fact contained in such Registration Statement, Prospectus or preliminary Prospectus or any “issuer free writing prospectus” or any amendment thereof or supplement thereto or any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or supplement to a Prospectus, in light of the circumstances under which they were made) not misleading, but only to the extent that the same are made in reliance on and in conformity with information relating to such Holder furnished in writing to the Company by such Holder expressly for use therein; provided, however, that the obligation to indemnify shall be several, not joint and several, among such Holders and the liability of each such Holder shall be in proportion to and limited to the net amount received (after all underwriting discounts and
commissions) by such Holder from the sale of Registrable Common Shares pursuant to such Registration Statement or Prospectus.
(c) Any Person entitled to indemnification hereunder shall (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) unless in such indemnified party’s reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist with respect to such claim, permit such indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. If such defense is assumed, the indemnifying party shall not be subject to any liability for any settlement made by the indemnified party without its consent (but such consent will not be unreasonably withheld). The indemnifying party shall not enter into any settlement of the claims so assumed without the consent of the indemnified party (but such consent will not be unreasonably withheld); provided that the consent of the indemnified party will not be required if the settlement involves only the payment of money damages all of which are indemnifiable losses hereunder and does not involve the imposition of any equitable remedy or admission of wrongdoing. An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim shall not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such assumed claim, unless in the reasonable judgment of any indemnified party there may be one or more legal or equitable defenses available to such indemnified party which are in addition to or may conflict with those available to another indemnified party with respect to such claim. Failure to give prompt written notice shall not release the indemnifying party from its obligations hereunder.
(d) The indemnification provided for under this Agreement shall remain in full force and effect regardless of any investigation made by or on behalf of the indemnified party or any officer, director or controlling Person of such indemnified party and shall survive the transfer of securities.
(e) If the indemnification provided for in or pursuant to this Section 8 is due in accordance with the terms hereof, but is held by a court to be unavailable or unenforceable in respect of any losses, claims, damages, liabilities or expenses referred to herein, then each applicable indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities or expenses in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions which result in such losses, claims, damages, liabilities or expenses. The relative fault of the indemnifying party on the one hand and of the indemnified party on the other shall be determined by reference to, among other things, whether the untrue statement or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party, and by such party’s relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. In no event shall the liability of any selling Holder be greater in amount than the amount of net proceeds (after underwriting discounts and commissions) received by such Holder upon such sale or the amount for which such indemnifying party would have been obligated to pay by way of indemnification if the
indemnification provided for under Section 7(a) or 7(b) hereof had been available under the circumstances.
8. Participation in Underwritten Registrations. No Person may participate in any registration hereunder which is underwritten unless such Person (a) agrees to sell such Person’s securities on the basis provided in any underwriting arrangements approved by the Person or Persons entitled hereunder to approve such arrangements and (b) completes and executes all customary questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements.
9. Rule 144. The Company covenants that if it becomes subject to the reporting requirements of the Exchange Act, (A) it will file in a timely manner the reports required to be filed by it under the Securities Act and the Exchange Act and the rules and regulations adopted by the SEC thereunder, and (B) it will take such further action as any Holder may reasonably request to make available adequate current public information with respect to the Company meeting the current public information requirements of Rule 144(c) under the Securities Act, to the extent required to enable such Holder to sell Registrable Common Shares without registration under the Securities Act within the limitation of the exemptions provided by (i) Rule 144 under the Securities Act, as such Rule may be amended from time to time, or (ii) any similar rule or regulation hereafter adopted by the SEC.
10. In-Kind Distributions. If any Principal Holder (including, for purposes of this Section 10, the HI Investor) seeks to effectuate an in-kind distribution of all or part of its Registrable Common Shares to its direct or indirect equityholders, the Company will (a) subject to applicable lockups, work with such Principal Holder and the Company’s transfer agent to facilitate such in-kind distribution in the manner reasonably requested by such Principal Holder and (2) at the request of any Principal Holder effecting such an in-kind distribution in connection with the inclusion of Registrable Common Shares in any Demand Registration or Piggyback Registration, include the equityholders receiving such Registrable Common Shares as selling shareholders in the related prospectus, subject to the terms and conditions of this Agreement; provided, however, that notwithstanding anything in this Agreement to the contrary, including Section 11(c), (i) a Principal Holder shall not be permitted to assign any Demand Registrations in connection with any in-kind distribution of Common Shares and (ii) the Capital Z Investor, in acting on behalf of the Capital Z Group or otherwise, cannot seek to or otherwise effectuate an an-kind distribution of all or part of the CapZ Co-Investor’s Registrable Common Shares without the CapZ Co-Investor’s prior written consent, which may be given or withheld in the CapZ Co-Investor’s sole discretion.
11. Miscellaneous.
(a) Notices. All notices, requests, demands, waivers and other communications required or permitted to be given under this Agreement shall be in writing and shall be deemed to have been duly given if (a) delivered personally, (b) mailed, certified or registered mail with postage prepaid, (c) sent by next-day or overnight mail or delivery or (d) sent by fax or e-mail, to the address set forth opposite the Company’s or such Shareholder’s name on Schedule B hereto, or at such other address as such Shareholder may hereafter designate by written notice to the Company. All such notices, requests, demands, waivers and other
communications shall be deemed to have been received (w) if by personal delivery, on the day delivered, (x) if by certified or registered mail, on the fifth Business Day after the mailing thereof, (y) if by next-day or overnight mail or delivery, on the day delivered, or (z) if by fax or e-mail, on the day delivered; provided that such delivery is confirmed.
(b) No Waivers. No failure or delay by any party in exercising any right, power or privilege hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law.
(c) Successors and Assigns. The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns, it being understood that subsequent Holders of the Registrable Common Shares and the indemnified parties under Section 7 are intended third party beneficiaries hereof. No party hereto may assign this Agreement or any of its rights, interests or obligations hereunder without the prior written consent of the other parties; except that the Holders may assign any or all of their rights hereunder in connection with a sale or other transfer of its Registrable Common Shares in compliance with the Shareholders Agreement. If a Principal Holder validly assigns one or more Demand Registrations to which such Principal Holder is entitled, such transferee shall be entitled to be a Principal Holder for purposes of the exercise of such Demand Registrations (provided that any such Principal Holder assigning any of its Demand Registration rights shall give prompt written notice thereof to the Company). If the Company is not the registering entity in an Initial Public Offering, it shall cause the registering entity to assume all of its obligations under this Agreement prior to commencement of such Initial Public Offering. Any purported assignment in contravention hereof shall be null and void.
(d) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York.
(e) Jurisdiction. Any dispute, controversy, claim or action arising out of or relating to this Agreement or its interpretation, breach, validity, enforcement or termination (“Dispute”) shall be heard and determined in the federal courts of the United States located in the Southern District of the State of New York, or, if such courts do not have jurisdiction, the state courts of the State of New York sitting in the Borough of Manhattan (“New York Courts”), to whose exclusive jurisdiction and venue the parties hereto hereby irrevocably consent and submit. In any such action: (i) each party irrevocably waives, to the fullest extent it may effectively do so, any objection, including any objection to the laying of venue or based on the grounds of forum non conveniens or any right of objection to jurisdiction on account of its place of incorporation or domicile, which it may now or hereafter have to the bringing of any such action or proceeding in any New York Court; and (ii) each party irrevocably consents to service of process in the manner provided for notices under Section 8.3, or in any other manner permitted by applicable Law. The parties hereto agree 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 applicable Law; provided, however, that nothing in the foregoing shall restrict any party’s rights to seek any post-judgment relief regarding, or any appeal from, a trial court judgment.
(f) Waiver of Jury Trial. EACH PARTY HERETO WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND WHETHER MADE BY CLAIM, COUNTERCLAIM, THIRD-PERSON CLAIM OR OTHERWISE. EACH PARTY HERETO ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS IN THIS SECTION 11(F).
(g) Counterparts and Facsimile. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. Executed signature pages to this Agreement may be delivered by facsimile or other electronic means and such electronic signature pages will be deemed as sufficient as if actual signature pages had been delivered.
(h) Entire Agreement. This Agreement and the Shareholders Agreement (including the Schedules, Exhibits and Annexes hereto and thereto) and, with respect to each Shareholder, the investment or purchase agreement to which such Shareholder is a party (including the Schedules, Exhibits and Annexes thereto), constitutes the entire agreement and understanding of the parties hereto in respect of the subject matter contained herein, and there are no restrictions, promises, representations, warranties, covenants or undertakings with respect to the subject matter hereof, other than those expressly set forth or referred to herein. This Agreement supersedes all prior agreements and understandings among the parties hereto with respect to the subject matter hereof.
(i) Captions. The headings and other captions in this Agreement are for convenience and reference only and shall not be used in interpreting, construing or enforcing any provision of this Agreement.
(j) Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.
(k) Amendments. The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given without the prior written consent of the holders of a majority of the Registrable Common Shares; provided, however, that each such amendment, modification, supplement or waiver shall always also require the prior written consent of each Principal Holder, as long as such Principal Holder holds 5% or more of the Common Shares (or any shares into which the Common Shares are reclassified or for which the Common Shares are converted, substituted or exchanged) outstanding at such time; provided, further, that without a Holder’s written consent no such amendment, modification, supplement or waiver shall affect adversely such Holder’s rights hereunder in a discriminatory manner inconsistent with its adverse effects on rights of other Holders hereunder (other than as reflected by the different number of shares held by such Holder), it being agreed that amendment of this
proviso without a Holder’s consent shall be deemed to affect adversely such Holder’s rights hereunder in a discriminatory manner inconsistent with its adverse effects on rights of other Holders hereunder; provided, further, that if any amendment would, upon the reasonable determination of outside counsel to a Holder subject to ERISA, have a material adverse effect with respect to rights or obligations relating to ERISA of such Holder(it being understood that any amendment that would require a Shareholder subject to ERISA to participate in a transaction that constitutes a nonexempt prohibited transaction under Section 406(a) of ERISA shall be considered to have a material adverse effect with respect to rights or obligations relating to ERISA of such Shareholder), the affirmative vote or consent of such Holder (or, where more than one Holder subject to ERISA would be adversely affected, a majority in interest of such Holders) shall be required to effect such amendment; provided, further, that the consent or agreement of the Company shall be required with regard to any termination, amendment, modification or supplement of, or waivers or consents to departures from, the terms hereof, which affect the Company’s rights or obligations hereunder. This Agreement cannot be changed, modified, discharged or terminated by oral agreement. Subject to the foregoing, if a Qualified Majority of the Board determines to establish a listing of the Common Shares on a Comparable Exchange, the parties hereto shall negotiate in good faith to amend and restate this Agreement to reflect the rules and regulations of such Comparable Exchange and the Laws of the jurisdiction in which such Comparable Exchange resides, with the intent that such amended and restated agreement shall contain provisions as comparable as practicable to those set forth in this Agreement.
(l) Aggregation of Stock. All Registrable Common Shares held by or acquired by any Affiliated Persons will be aggregated together for the purpose of determining the availability of any rights under this Agreement.
(m) Specific Performance. The Company and each of the Shareholders acknowledges and agrees that in the event of any breach of this Agreement, the non-breaching party or parties would be irreparably harmed, no adequate remedy at law would exist and damages would be difficult to determine. It is accordingly agreed that (a) in the event of a breach of any provision of this Agreement, the aggrieved party shall be entitled to specific performance of this Agreement and to enjoin any continuing breach of this Agreement (without the necessity of proving actual damages and without posting bond or other security), in addition to any other remedy to which such aggrieved party may be entitled at law or in equity, and (b) the Shareholders will waive the defense in any Action for specific performance or other equitable relief that a remedy at law would be adequate.
(n) Recapitalizations, Exchanges Affecting the Registrable Common Shares. The provisions of this Agreement shall apply, to the full extent set forth herein, with respect to the Registrable Common Shares, to any and all shares of the Company or any successor or assign of the Company (whether by merger, consolidation, sale of assets or otherwise) which may be issued in respect of, in exchange for, or in substitution of the Registrable Common Shares, by reason of a stock dividend, stock split, stock issuance, reverse stock split, combination, recapitalization, reclassification, merger, consolidation or otherwise. Upon the occurrence of any of such events, amounts hereunder shall be appropriately adjusted.
(o) No Inconsistent or More Favorable Agreements. None of the parties hereto shall enter into any agreement or other arrangement of any kind with any person with respect to the registration of securities of the Company which is inconsistent with the provisions of this Agreement. The Company has not provided, and shall not provide, more favorable registration rights to any other holder of securities of the Company than those provided to the parties to this Agreement.
(p) Withdrawal from Agreement. Any Principal Holder that, together with its Affiliates, holds less than five percent (5%) of the then outstanding Covered Shares may elect (on behalf of itself and all of its Affiliates that hold Covered Shares), by written notice to the Company and the other Principal Holders, to (a) withdraw all Covered Shares held by such Principal Holder and all of its Affiliates from this Agreement (Covered Shares withdrawn pursuant to this clause (a), the “Withdrawn Shares”) and (b) terminate this Agreement with respect to such Principal Holder and its Affiliates (Principal Holders and Affiliates withdrawing pursuant to this clause (b), the “Withdrawing Holders”). This Agreement will stay in effect with respect to Holders other than the Withdrawing Holders. From the date of delivery of such withdrawal notice, the Withdrawn Shares shall cease to be Covered Shares subject to this Agreement and, if applicable, the Withdrawing Holders shall cease to be parties to this Agreement and shall no longer be subject to the obligations of this Agreement or have rights under this Agreement; provided, however, that any such Withdrawing Holder shall retain the indemnification rights and obligations pursuant to Section 7 with respect to any matter that (a) may be an indemnified liability thereunder, and (b) occurred prior to such withdrawal.
(q) Effect of Termination. No termination under this Agreement shall relieve any Person of liability for breach prior to termination. In the event this Agreement is terminated, each Holder shall retain the indemnification, contribution and reimbursement rights and obligations pursuant to Section 7 with respect to any matter that (a) may be an indemnified liability thereunder, and (b) occurred prior to such termination.
[Signature Pages Follow]
IN WITNESS WHEREOF, this Registration Rights Agreement has been duly executed by each of the parties hereto as of the date first written above.
| | | | | |
HAMILTON INSURANCE GROUP,
LTD. |
| |
| |
| By: | /s/ Brian Duperreault |
| Name: Brian Duperreault |
| Title: CEO |
[Signature Page to Registration Rights Agreement]
HAMILTON INSURANCE GROUP, LTD.
2013 EQUITY INCENTIVE PLAN
(as amended effective 5 September 2018 and as further amended effective 31 March 2021)
1. Purpose. The purpose of the Hamilton Insurance Group, Ltd. 2013 Equity Incentive Plan is to provide a means through which the Company and its Affiliates may attract and retain key personnel and to provide a means whereby directors, officers, employees, consultants and advisors (and prospective directors, officers, employees, consultants and advisors) of the Company and its Affiliates can acquire and maintain an equity interest in the Company, or be paid incentive compensation, which may (but need not) be measured by reference to the value of Common Shares, thereby strengthening their commitment to the welfare of the Company and its Affiliates and aligning their interests with those of the Company's members.
2. Definitions. The following definitions shall be applicable throughout the Plan. Capitalized terms used herein and not otherwise defined shall have the meaning given to them in the Bye-laws of the Company:
(a) "Act" shall have the meaning set forth in Section 15(a) of the Plan.
(b) "Affiliate" means (i) any person or entity that directly or indirectly controls, is controlled by or is under common control with the Company and/or (ii) to the extent provided by the Committee, any person or entity in which the Company has a significant interest; provided, that, with respect to the award of any "stock right" within the meaning of Section 409A of the Code, such affiliate must qualify as a "service recipient" within the meaning of Section 409A of the Code and in applying Section 1563(a)(1), (2) and (3) of the Code for purposes of determining a controlled group of corporations under Section 414(b) of the Code and in applying Treasury Regulation Section 1.414(c)-2 for purposes of determining trades or businesses (whether or not incorporated) that are under common control for purposes of Section 414(c) of the Code, the language "at least 50 percent" is used instead of "at least 80 percent"; provided, further, that, in the case of an Incentive Stock Option, it shall mean a "parent corporation" or a "subsidiary corporation" within the meaning of Section 424 of the Code. The term "control" (including, with correlative meaning, the terms "controlling," "controlled by" and "under common control with"), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting or other securities, by contract or otherwise.
(c) "Award" means, individually or collectively, any Warrant, Incentive Stock Option, Nonqualified Stock Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, and Stock Bonus Award granted under the Plan.
(d) "Award Agreement" means a written agreement (whether in paper or electronic medium (including email or the posting on a web site maintained by the Company or a third party under contract with the Company)), evidencing an Award.
(e) "Bankruptcy Event" shall have the meaning set forth in Section 15(b) of the Plan.
(f) "Board" means the Board of Directors of the Company.
(g) "Bye-laws" means the bye-laws of the Company, as amended from time to time.
(h) "Cause" means, (i) if the Participant is a party to an employment or consulting or similar agreement with the Company or an Affiliate and such agreement provides for a definition of Cause, the definition therein contained, or, (ii) if no such agreement exists, it shall mean: any of the following acts or occurrences as determined by the Company: (1) the Participant's indictment of or charge with respect to, conviction of, or pleading guilty or nolo contendere to a felony or equivalent offense or crime (other than a minor road traffic offense or other non-material offense not subject to a custodial sentence), in any case whether occurring before or after the Effective Date, (2) the Participant's gross negligence or willful misconduct in connection with the Participant's employment that causes or is likely to cause significant loss or damage to the Company or an Affiliate, (3) the Participant's conduct that constitutes fraud, material misrepresentation or embezzlement, (4) the Participant's material breach of any agreement with the Company or an Affiliate, or breach of any policy or procedure of the Company or an Affiliate, which, in the case of a non-recurring breach capable of being cured, remains uncured after five (5) days following notice by the Committee or the Company's Chief Executive Officer of such breach, (5) the Participant's habitual use of alcohol or illegal use of drugs (including narcotics) that materially impairs or is reasonably likely to materially impair the Participant's ability to perform the Participant's duties and responsibilities for the Company or an Affiliate, (6) the Participant's continued failure to substantially and/or satisfactorily perform the Participant's duties and responsibilities, which failure remains uncured after five (5) days following notice by the Committee or the Company's Chief Executive Officer of such failure, and/or (7) the Participant being the subject of a complaint or charge by a governmental agency, rating agency or self-regulatory organization for an alleged violation (whether occurring before or after the Effective Date) of any statute or regulation which has or is reasonably likely to have an adverse impact on the reputation and standing in the community of the Company or any Affiliate.
(i) "Change in Control" means, (i) if the Participant is a party to an employment or consulting or similar agreement with the Company or an Affiliate and such agreement provides for a definition of Change in Control, the definition therein contained, or, (ii) if no such agreement exists, it shall mean: the consummation of any transaction, or series of related transactions, (1) involving a merger, amalgamation, reorganization, consolidation, scheme of arrangement, exchange or other business combination transaction involving the Company or any Material Subsidiary by which the Participant is then employed, which results in any Person or group of related Persons or their Permitted Transferees (other than Persons who are also either (A) existing shareholders of the Company as of the date of such transaction or (B) Subsidiaries of the Company as of the date of such transaction) acquiring more than fifty percent (50%) of the issued and outstanding common shares of the Company or (ii) involving the sale or disposition of all or substantially all of the common stock of any Material Subsidiary of the Company by which the Participant is then employed, other than (A) a sale or disposition to another Subsidiary of the Company or (B) a sale or disposition immediately following which the securities of such Material Subsidiary outstanding immediately prior to such transaction representing more than
fifty percent (50%) of the combined voting power of the voting securities of the entity to which the Material Subsidiary is sold or disposed continue to be held by the Company or its direct or indirect Subsidiaries, or (iii) involving a disposition or all or substantially all of the assets of the Company and its Subsidiaries on a consolidated basis. Notwithstanding the foregoing, for the purposes of this Plan, an initial public offering of the securities of the Company (an "IPO") or any transactions or events constituting part of an IPO shall not be deemed to constitute or in any way effect a Change in Control, save where a Change in Control event as described above results in an IPO of the securities of the Company.
(j) "Code" means the United States Internal Revenue Code of 1986, as amended, and any successor thereto. Reference in the Plan to any section of the Code shall be deemed to include any regulations or other interpretative guidance under such section, and any amendments or successor provisions to such section, regulations or guidance.
(k) "Committee" means the Compensation & Personnel Committee of the Board of Directors or, if no such committee has been appointed by the Board, the Board.
(l) "Common Shares" means the Class B common shares, par value $0.01 per share, of the Company (or, if applicable, any stock or other securities into which such common shares have been converted or into which they have been exchanged).
(m) "Company" means Hamilton Insurance Group, Ltd., a Bermuda exempted company.
(n) "Continuous Service" means that the Participant's service with the Company or an Affiliate, whether as an employee, a director or consultant, is not interrupted or terminated (other than pursuant to a leave approved by the Company). The Participant's Continuous Service shall not be deemed to have terminated or been interrupted merely because of a change in the capacity in which the Participant renders service to the Company or an Affiliate as an employee, a director or consultant or a change in the entity for which the Participant renders such service; provided, that there is no interruption or termination of the Participant's service with the Company or an Affiliate. In a context where Code Section 409A applies or could have an effect on such Award, shall apply the definition of "separation from service" as provided in Section 1.409A-1(h) of the Treasury Regulations promulgated thereunder.
(o) "Date of Grant" means the date on which the Committee (or its authorized designee) grants an Award.
(p) "Disability" means, (i) if the Participant is a party to an employment or consulting or similar agreement with the Company or an Affiliate and such agreement provides for a definition of Disability, the definition therein contained, or, (ii) if no such agreement exists, it shall mean that the Participant has been unable to perform the duties and responsibilities required of the Participant hereunder due to a physical and/or mental disability for a period of more than 90 days, whether or not consecutive, during any one (1) year period; provided that any such periods may be extended at the sole discretion of the Committee.
(q) "Divorce" shall have the meaning set forth in Section 15(c) of the Plan.
(r) "Divorce Purchase Option" shall have the meaning set forth in Section 15(c) of the Plan.
(s) "Effective Date" means December 23, 2013, the date as of which this Plan was originally adopted by the Board.
(t) "Eligible Director" means a person who is a "non-employee director" within the meaning of Rule 16b-3 under the Exchange Act.
(u) "Eligible Person" means any (i) individual employed by the Company or an Affiliate; provided, however, that no such employee covered by a collective bargaining agreement shall be an Eligible Person unless and to the extent that such eligibility is set forth in such collective bargaining agreement or in an agreement or instrument relating thereto; (ii) director of the Company or an Affiliate; (iii) consultant or advisor to the Company or an Affiliate; or (iv) prospective employees, directors, officers, consultants or advisors who have accepted offers of employment or consultancy from the Company or an Affiliate (and would satisfy the provisions of clauses (i) through (iii) above once he or she begins employment with or begins providing services to the Company or an Affiliate).
(v) "Exchange Act" means the U.S. Securities Exchange Act of 1934, as amended, and any reference in the Plan to any section of (or rule promulgated under) the Exchange Act shall be deemed to include any rules, regulations or other interpretative guidance under such section or rule, and any amendments or successor provisions to such section, rules, regulations or guidance.
(w) "Exercise Price" has the meaning given such term in Section 7(b) of the Plan.
(x) "Fair Market Value" means, as of any date, the value of Common Shares determined as follows:
(i) If the Common Shares are listed on a national exchange registered in the United States (or quoted in a securities quotation system), the average closing sale price of such shares on such exchange (or in such quotation system), or, if such shares are listed on (or quoted in) more than one such exchange (or quotation system), the closing sale price of the shares on the principal such exchange (or quotation system) on which such shares are then traded, or, if the Common Shares are not then listed on such an exchange (or quotation system) but are traded in the over-the-counter market, the average of the closing bid and asked quotations for the Common Shares in such market, in each case during the ten trading days ending on the applicable determination date;
(ii) In the absence of an established market for the Common Shares, the Fair Market Value will be determined in good faith by the Committee; or
(iii) To the extent applicable, Fair Market Value shall be determined in accordance with Section 409A of the Code.
(y) “Good Reason” means (i) the assignment to Participant of duties that are significantly different from, and that result in a material diminution in the Participant’s authority, duties or responsibilities. For the avoidance of doubt, a change in reporting structure or title, in and of itself, shall not be sufficient to constitute a Good Reason termination. Such change must also be accompanied by a material diminution of the Participant’s authority, duties or responsibilities in order to satisfy this test; or (ii) a reduction in the rate of Participant’s Base Salary and Target Bonus; or (iii) a material breach by the Company; provided that Participant shall have given the Company written notice specifying in reasonable detail the circumstances claimed to constitute Good Reason within thirty (30) days following the occurrence, without Participant’s consent, of any of the events in clauses (i)–(iii), and the Company shall not have cured the circumstances set forth in Participant’s Notice of Termination within thirty (30) days of receipt of such notice.
(z) "Incentive Stock Option" means an Option that is designated by the Committee as an incentive stock option as described in Section 422 of the Code and otherwise meets the requirements set forth in the Plan.
(aa) "Insolvency Purchase Option" shall have the meaning set forth in Section 15(b) of the Plan.
(bb) "Involuntary Transfer" shall have the meaning set forth in Section 15(c) of the Plan.
(cc) "Nonqualified Stock Option" means an Option that is not designated by the Committee as an Incentive Stock Option.
(dd) "Option" means an Award granted under Section 7 of the Plan.
(ee) "Option Period" has the meaning given such term in Section 7(c) of the Plan.
(ff) "Participant" means an Eligible Person who has been selected by the Committee to participate in the Plan and to receive an Award pursuant to Section 6 of the Plan.
(gg) "Person" means an individual, company, corporation, partnership, trust, joint venture, limited liability company, unincorporated organization or other legal entity, or a government or any agency or political subdivision thereof.
(hh) "Plan" means this Hamilton Insurance Group, Ltd. 2013 Equity Incentive Plan, as amended from time to time.
(ii) "Purchaser" shall have the meaning set forth in Section 15(e) of the Plan.
(jj) "Repurchase Determination Date" shall have the meaning set forth in Section 15(e) of the Plan.
(kk) "Repurchase Notice" shall have the meaning set forth in Section 15(e) of the Plan.
(ll) "Repurchase Option" shall have the meaning set forth in Section 15(a) of the Plan.
(mm) "Repurchase Price" shall have the meaning set forth in Section 15(d) of the Plan.
(nn) "Restricted Period" means the period of time determined by the Committee during which an Award is subject to restrictions.
(oo) "Restricted Stock Unit" means an unfunded and unsecured promise to deliver Common Shares, cash, other securities or other property, subject to certain restrictions (including, without limitation, a requirement that the Participant provide Continuous Service for a specified period of time), granted under Section 10 of the Plan.
(pp) "Restricted Stock" means Common Shares, subject to certain specified restrictions (including, without limitation, a requirement that the Participant provide Continuous Service for a specified period of time), granted under Section 10 of the Plan.
(qq) "SAR Period" has the meaning given such term in Section 9(c) of the Plan.
(rr) "Securities Act" means the U.S. Securities Act of 1933, as amended, and any successor thereto. Reference in the Plan to any section of the Securities Act shall be deemed to include any rules, regulations or other interpretative guidance under such section, and any amendments or successor provisions to such section, rules, regulations or guidance.
(ss) "Shareholders Agreement" means the Shareholders Agreement of Hamilton Insurance Group, Ltd., as amended from time to time.
(tt) "Stock Appreciation Right" or "SAR" means an Award granted under Section 9 of the Plan.
(uu) "Stock Bonus Award" means an Award granted under Section 11 of the Plan.
(vv) "Strike Price" means, except as otherwise provided by the Committee in the case of Substitute Awards, (i) in the case of a SAR granted in tandem with an Option, the Exercise Price of the related Option, or (ii) in the case of a SAR granted independent of an Option, the Fair Market Value on the Date of Grant.
(ww) "Subject Securities" shall have the meaning set forth in Section 15(a) of the Plan.
(xx) "Substitute Award" has the meaning given such term in Section 5(e).
(yy) "Warrant" means an Award granted under Section 8 of the Plan.
(zz) "Warrant Period" has the meaning given such term in Section 8(c) of the Plan.
3. Effective Date; Duration. The Plan shall be effective as of the Effective Date. The expiration date of the Plan, on and after which date no Awards may be granted hereunder, shall be the tenth anniversary of the Effective Date; provided, however, that such expiration shall not affect Awards then outstanding, and the terms and conditions of the Plan shall continue to apply to such Awards.
4. Administration. (a) The Committee (subject to Section 4(d) hereof) shall administer the Plan. To the extent required to comply with the provisions of Rule 16b-3 promulgated under the Exchange Act (if the Board is not acting as the Committee under the Plan), it is intended that each member of the Committee shall, at the time he or she takes any action with respect to an Award under the Plan, be an Eligible Director. However, the fact that a Committee member shall fail to qualify as an Eligible Director shall not invalidate any Award granted by the Committee that is otherwise validly granted under the Plan.
(b) Subject to the provisions of the Plan (including Section 4(d) hereof) and applicable law, the Committee shall have the sole and plenary authority, in addition to other express powers and authorizations conferred on the Committee by the Plan, to: (i) designate Participants; (ii) determine the type or types of Awards to be granted to a Participant; (iii) determine the number of Common Shares to be covered by, or with respect to which payments, rights, or other matters are to be calculated in connection with, Awards; (iv) determine the terms and conditions of any Award; (v) determine whether, to what extent, and under what circumstances Awards may be settled or exercised in cash, Common Shares, other securities, other Awards or other property, or canceled, forfeited, or suspended and the method or methods by which Awards may be settled, exercised, canceled, forfeited, or suspended; (vi) determine whether, to what extent, and under what circumstances the delivery of cash, Common Shares, other securities, other Awards or other property and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the Participant or of the Committee; (vii) interpret, administer, reconcile any inconsistency in, correct any defect in and/or supply any omission in the Plan and any instrument or agreement relating to, or Award granted under, the Plan; (viii) establish, amend, suspend, or waive any rules and regulations and appoint such agents as the Committee may deem appropriate for the proper administration of the Plan; (ix) accelerate the vesting or exercisability of, payment for or lapse of restrictions on, Awards; and (x) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan.
(c) Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations, and other decisions under or with respect to the Plan or any Award or any documents evidencing Awards granted pursuant to the Plan shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon all persons or entities, including, without limitation, the Company, any Affiliate, any Participant, any holder or beneficiary of any Award, and any member of the Company.
(d) Notwithstanding anything to the contrary contained in the Plan, the Board may, in its sole discretion, at any time and from time to time, grant Awards and administer the Plan with
respect to such Awards. In any such case, the Board shall have all the authority granted to the Committee under the Plan.
(e) Notwithstanding anything herein or an Award Agreement to the contrary, all determinations made under the Plan shall be made consistent with the Bye-laws and the Shareholders Agreement, as applicable.
5. Grant of Awards; Shares Subject to the Plan. (a) The Committee may, from time to time, grant Warrants, Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, and/or Stock Bonus Awards to one or more Eligible Persons.
(b) Subject to Section 12 of the Plan, an aggregate of seven million, five hundred thousand (7,500,000) Common Shares shall be available for Awards granted under the Plan.
(c) Use of Common Shares to pay the required Exercise Price or tax obligations, or that are used or withheld to satisfy tax obligations of the Participant shall, notwithstanding anything herein to the contrary, not be available again for other Awards under the Plan. Shares underlying Awards under this Plan that are forfeited, are cancelled, expire unexercised, or are settled in cash are available again for Awards under the Plan.
(d) Common Shares delivered by the Company in settlement of Awards may be authorized and unissued shares, shares held in the treasury of the Company, shares purchased on the open market or by private purchase, or a combination of the foregoing.
(e) Awards may, in the sole discretion of the Committee, be granted under the Plan in assumption of, or in substitution for, outstanding awards previously granted by an entity acquired by the Company or with which the Company combines ("Substitute Awards"). The number of Common Shares underlying any Substitute Awards shall be counted against the aggregate number of Common Shares available for Awards under the Plan.
6. Eligibility. Participation shall be limited to Eligible Persons who have entered into an Award Agreement or who have received written notification from the Committee, or from a person designated by the Committee, that they have been selected to participate in the Plan.
7. Options.
(a) Generally. Each Option granted under the Plan shall be evidenced by an Award Agreement. Each Option so granted shall be subject to the conditions set forth in this Section 7, and to such other conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement. All Options granted under the Plan shall be Nonqualified Stock Options unless the applicable Award Agreement expressly states that the Option is intended to be an Incentive Stock Option. Incentive Stock Options shall be granted only to Eligible Persons who are employees of the Company and its Affiliates, and no Incentive Stock Option shall be granted to any Eligible Person who is ineligible to receive an Incentive Stock Option under the Code. No Option shall be treated as an Incentive Stock Option unless the Plan has been approved by the members of the Company in a manner intended to comply with the stockholder approval
requirements of Section 422(b)(1) of the Code, provided that any Option intended to be an Incentive Stock Option shall not fail to be effective solely on account of a failure to obtain such approval, but rather such Option shall be treated as a Nonqualified Stock Option unless and until such approval is obtained. In the case of an Incentive Stock Option, the terms and conditions of such grant shall be subject to and comply with such rules as may be prescribed by Section 422 of the Code. If for any reason an Option intended to be an Incentive Stock Option (or any portion thereof) shall not qualify as an Incentive Stock Option, then, to the extent of such nonqualification, such Option or portion thereof shall be regarded as a Nonqualified Stock Option appropriately granted under the Plan.
(b) Exercise Price. The exercise price ("Exercise Price") per Common Share for each Option shall not be less than 100% of the Fair Market Value of such share determined as of the Date of Grant; provided, however, that, in the case of an Incentive Stock Option granted to an employee who, at the time of the grant of such Option, owns shares representing more than 10% of the voting power of all classes of shares of the Company or any Affiliate, the Exercise Price per share shall not be less than 110% of the Fair Market Value per share on the Date of Grant and provided further that, notwithstanding any provision herein to the contrary, the Exercise Price shall not be less than the par value per Common Share.
(c) Vesting and Expiration. Options shall vest and become exercisable in such manner and on such date or dates determined by the Committee and set forth in an Award Agreement, and shall expire after such period, not to exceed ten years, as may be determined by the Committee (the "Option Period"); provided, however, that the Option Period shall not exceed five years from the Date of Grant in the case of an Incentive Stock Option granted to a Participant who on the Date of Grant owns shares representing more than 10% of the voting power of all classes of shares of the Company or any Affiliate; provided, further, that, notwithstanding any vesting dates set by the Committee, the Committee may, in its sole discretion, accelerate the exercisability of any Option, which acceleration shall not affect the terms and conditions of such Option other than with respect to exercisability.
(d) Method of Exercise and Form of Payment. No Common Shares shall be delivered pursuant to any exercise of an Option until payment in full of the Exercise Price therefor is received by the Company and the Participant has paid to the Company an amount equal to any U.S. federal, state, local and non-U.S. income and employment taxes required to be withheld and has satisfied any other condition set forth in the applicable Award Agreement for exercise of such Option. Options that have become exercisable may be exercised by delivery of written or electronic notice of exercise to the Company in accordance with the terms of the Option accompanied by payment of the Exercise Price. The Exercise Price shall be payable (i) in cash or by check and; (ii) by such other method as the Committee may permit in accordance with applicable law, in its sole discretion, including without limitation: (A) in Common Shares or other property having a Fair Market Value on the date of exercise at least equal to the Exercise Price or (B) if there is a public market for the Common Shares at such time, by means of a broker-assisted "cashless exercise" pursuant to which the Company is delivered a copy of irrevocable instructions to a stockbroker to sell the Common Shares otherwise deliverable upon the exercise of the Option and to deliver promptly to the Company an amount equal to the
Exercise Price or (C) by a "net exercise" method whereby the Company withholds from the delivery of the Common Shares for which the Option was exercised that number of Common Shares having a Fair Market Value equal to the aggregate Exercise Price for the Common Shares for which the Option was exercised. Any fractional Common Shares shall be settled in cash.
(e) Notification upon Disqualifying Disposition of an Incentive Stock Option. Each Participant awarded an Incentive Stock Option under the Plan shall notify the Company in writing immediately after the date he or she makes a disqualifying disposition of any Common Shares acquired pursuant to the exercise of such Incentive Stock Option. A disqualifying disposition is any disposition (including, without limitation, any sale) of such Common Shares before the later of (A) two years after the Date of Grant of the Incentive Stock Option or (B) one year after the date of exercise of the Incentive Stock Option. The Company may, if determined by the Committee and in accordance with procedures established by the Committee, retain possession of any Common Shares acquired pursuant to the exercise of an Incentive Stock Option as agent for the applicable Participant until the end of the period described in the preceding sentence.
(f) Compliance With Laws, etc. Notwithstanding the foregoing, in no event shall a Participant be permitted to exercise an Option in a manner that the Committee determines would violate the Sarbanes-Oxley Act of 2002, if applicable, or any other applicable law or the applicable rules and regulations of the U.S. Securities and Exchange Commission, the Bermuda Monetary Authority or other similar regulatory authority or the applicable rules and regulations of any securities exchange or inter-dealer quotation system on which the securities of the Company are listed or traded.
8. Warrants.
(a) Generally. Each Warrant granted under the Plan shall be evidenced by an Award Agreement. Each Warrant so granted shall be subject to the conditions set forth in this Section 8, and to such other conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement. No Warrants granted under the Plan shall be Incentive Stock Options.
(b) Exercise Price. The Exercise Price per Common Share for each Warrant shall not be less than 100% of the Fair Market Value of such share determined as of the Date of Grant; provided, however, that, notwithstanding any provision herein to the contrary, the Exercise Price shall not be less than the par value per Common Share.
(c) Vesting and Expiration. Warrants shall vest and become exercisable in such manner and on such date or dates determined by the Committee and set forth in an Award Agreement, and shall expire after such period, not to exceed ten years, as may be determined by the Committee (the "Warrant Period"); provided, however, that, notwithstanding any vesting dates set by the Committee, the Committee may, in its sole discretion, accelerate the exercisability of any Warrant, which acceleration shall not affect the terms and conditions of such Warrant other than with respect to exercisability.
(d) Method of Exercise and Form of Payment. No Common Shares shall be delivered pursuant to any exercise of a Warrant until payment in full of the Exercise Price therefor is received by the Company and the Participant has paid to the Company an amount equal to any U.S. federal, state, local and non-U.S. income and employment taxes required to be withheld and has satisfied any other condition set forth in the applicable Award Agreement for exercise of such Warrant. Warrants that have become exercisable may be exercised by delivery of written or electronic notice of exercise to the Company in accordance with the terms of the Warrant accompanied by payment of the Exercise Price. The Exercise Price shall be payable (i) in cash or by check and; (ii) by such other method as the Committee may permit in accordance with applicable law, in its sole discretion, including without limitation: (A) in Common Shares or other property having a Fair Market Value on the date of exercise equal to the Exercise Price or (B) if there is a public market for the Common Shares at such time, by means of a broker-assisted "cashless exercise" pursuant to which the Company is delivered a copy of irrevocable instructions to a stockbroker to sell the Common Shares otherwise deliverable upon the exercise of the Warrant and to deliver promptly to the Company an amount equal to the Exercise Price or (C) by a "net exercise" method whereby the Company withholds from the delivery of the Common Shares for which the Warrant was exercised that number of Common Shares having a Fair Market Value equal to the aggregate Exercise Price for the Common Shares for which the Warrant was exercised. Any fractional Common Shares shall be settled in cash.
(e) Compliance With Laws, etc. Notwithstanding the foregoing, in no event shall a Participant be permitted to exercise a Warrant in a manner that the Committee determines would violate the Sarbanes-Oxley Act of 2002, if applicable, or any other applicable law or the applicable rules and regulations of the U.S. Securities and Exchange Commission, the Bermuda Monetary Authority or other similar authority or the applicable rules and regulations of any securities exchange or inter-dealer quotation system on which the securities of the Company are listed or traded.
9. Stock Appreciation Rights.
(a) Generally. Each SAR granted under the Plan shall be evidenced by an Award Agreement. Each SAR so granted shall be subject to the conditions set forth in this Section 9, and to such other conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement. Any Option granted under the Plan may include tandem SARs. The Committee also may award SARs to Eligible Persons independent of any Option.
(b) Strike Price. The Strike Price per Common Share for each SAR shall not be less than 100% of the Fair Market Value of such share determined as of the Date of Grant; provided, however, that, notwithstanding any provision herein to the contrary, the Strike Price shall not be less than the par value per Common Share.
(c) Vesting and Expiration. A SAR granted in connection with an Option shall become exercisable and shall expire according to the same vesting schedule and expiration provisions as the corresponding Option. A SAR granted independent of an Option shall vest and become exercisable and shall expire in such manner and on such date or dates determined by the Committee and shall expire after such period, not to exceed ten years, as may be determined by
the Committee (the "SAR Period"); provided, however, that, notwithstanding any vesting dates set by the Committee, the Committee may, in its sole discretion, accelerate the exercisability of any SAR, which acceleration shall not affect the terms and conditions of such SAR other than with respect to exercisability.
(d) Method of Exercise. SARs that have become exercisable may be exercised by delivery of written or electronic notice of exercise to the Company in accordance with the terms of the Award, specifying the number of SARs to be exercised and the date on which such SARs were awarded.
(e) Payment. Upon the exercise of a SAR, the Company shall pay to the Participant an amount equal to the number of shares subject to the SAR that are being exercised multiplied by the excess, if any, of the Fair Market Value of one Common Share on the exercise date over the Strike Price, less an amount equal to any U.S. federal, state, local and non-U.S. income and employment taxes to be withheld. The Company shall pay such amount in cash, in Common Shares valued at Fair Market Value, or any combination thereof, as determined by the Committee. Any fractional Common Share shall be settled in cash.
10. Restricted Stock and Restricted Stock Units.
(a) Generally. Each grant of Restricted Stock and Restricted Stock Units shall be evidenced by an Award Agreement. Each such grant shall be subject to the conditions set forth in this Section 10, and to such other conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement.
(b) Restricted Accounts; Escrow or Similar Arrangement. (i) Upon the grant of Restricted Stock, a book entry in a restricted account shall be established in the Participant's name and, if the Committee determines that the Restricted Stock shall be held by the Company or in escrow rather than held in such restricted account pending the release of the applicable restrictions, the Committee may require the Participant to additionally execute and deliver to the Company (i) an escrow agreement satisfactory to the Committee, if applicable, and (ii) the appropriate share transfer form (endorsed in blank) with respect to the Restricted Stock covered by such agreement. If a Participant shall fail to execute an agreement evidencing an Award of Restricted Stock and, if applicable, an escrow agreement and transfer form (endorsed in blank) within the amount of time specified by the Committee, the Award shall be null and void. Subject to the restrictions set forth in this Section 10 and the applicable Award Agreement, the Participant generally shall have the right to receive dividends, if applicable; provided, that, unless otherwise set forth in an Award Agreement, dividends that are attributable to any particular share of Restricted Stock shall be withheld by the Committee and shall be distributed to the Participant upon the release of restrictions on such share and, if such share is forfeited, the Participant shall have no right to such dividends. To the extent shares of Restricted Stock are forfeited, any share certificates issued to the Participant evidencing such shares shall be returned to the Company, and all rights of the Participant to such shares and as a member with respect thereto shall terminate without further obligation on the part of the Company.
(ii) Upon the grant of Restricted Stock Units, a book entry in a separate ledger restricted unit account shall be established in the Participant's name. If a Participant shall fail to execute an agreement evidencing an Award of Restricted Stock Units within the amount of time specified by the Committee, the Award shall be null and void. Upon the settlement of the Restricted Stock Units pursuant to Section 10(d), such Restricted Stock Units shall no longer be credited to the restricted unit account.
(c) Vesting; Acceleration of Lapse of Restrictions. The vesting terms applicable to Awards granted under this Section 10 shall be set forth in an Award Agreement.
(d) Delivery of Restricted Stock and Settlement of Restricted Stock Units. (i) Upon the expiration of the Restricted Period with respect to any shares of Restricted Stock, the restrictions set forth in the applicable Award Agreement shall be of no further force or effect with respect to such shares, except as set forth in the applicable Award Agreement. If an escrow arrangement is used, upon such expiration, the Company shall deliver to the Participant, or his or her beneficiary, without charge, the share certificate evidencing the shares of Restricted Stock that have not then been forfeited and with respect to which the Restricted Period has expired (rounded down to the nearest full share). Dividends, if any, that may have been withheld by the Committee and attributable to any particular share of Restricted Stock shall be distributed to the Participant in cash or, at the sole discretion of the Committee, in shares of Common Stock having a Fair Market Value equal to the amount of such dividends, upon the release of restrictions on such share and, if such share is forfeited, the Participant shall have no right to such dividends (except as otherwise set forth by the Committee in the applicable Award Agreement).
(ii) Unless otherwise provided by the Committee in an Award Agreement, upon the expiration of the Restricted Period with respect to any outstanding Restricted Stock Units, the Company shall deliver to the Participant, or his or her beneficiary, without charge, one Common Share for each such outstanding Restricted Stock Unit, save in the case of performance vesting Restricted Stock Units under which a Participant shall be eligible to receive up to two Common Shares for each such outstanding performance vesting Restricted Stock Unit; provided, however, that the Committee may, in its sole discretion, elect to (i) pay cash or part cash and part Common Shares in lieu of delivering only Common Shares in respect of such Restricted Stock Units or (ii) defer the delivery of Common Shares (or cash or part Common Shares and part cash, as the case may be) beyond the expiration of the Restricted Period if such delivery would result in a violation of applicable law until such time as is no longer the case. If a cash payment is made in lieu of delivering Common Shares, the amount of such payment shall be equal to the Fair Market Value of the Common Shares as of the date on which the Restricted Period lapsed with respect to such Restricted Stock Units, less an amount equal to any U.S. federal, state, local and non-U.S. income and employment taxes required to be withheld.
11. Stock Bonus Awards. The Committee may issue unrestricted Common Shares, or other Awards denominated in Common Shares, under the Plan to Eligible Persons, either alone or in tandem with other awards, in such amounts as the Committee shall from time to time in its sole discretion determine. Each Stock Bonus Award granted under the Plan shall be evidenced by an
Award Agreement. Each Stock Bonus Award so granted shall be subject to such conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement.
12. Changes in Capital Structure and Similar Events. Unless otherwise provided in an Award Agreement, in the event of (a) any extraordinary dividend or other distribution (whether in the form of cash, Common Shares, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, amalgamation, consolidation, split-up, split-off, combination, repurchase or exchange of Common Shares or other securities of the Company, issuance of warrants or other rights to acquire Common Shares or other securities of the Company, or other similar corporate transaction or event (including, without limitation, a Change in Control) that affects the Common Shares, or (b) unusual or nonrecurring events (including, without limitation, a Change in Control) affecting the Company, any Affiliate, or the financial statements of the Company or any Affiliate, or changes in applicable rules, rulings, regulations or other requirements of any governmental body or securities exchange or inter-dealer quotation system, accounting principles or law, such that in either case an adjustment is determined by the Committee in its sole discretion to be necessary or appropriate, then the Committee shall make any such adjustments in such manner as it may deem equitable, including without limitation any or all of the following:
(i) adjusting any or all of (A) the number of Common Shares or other securities of the Company (or number and kind of other securities or other property, including cash) that may be delivered in respect of Awards or with respect to which Awards may be granted under the Plan and (B) the terms of any outstanding Award, including, without limitation, (1) the number of Common Shares or other securities of the Company (or number and kind of other securities or other property, including cash) subject to outstanding Awards or to which outstanding Awards relate, (2) the Exercise Price or Strike Price with respect to any Award or (3) any applicable performance measures;
(ii) adjusting the performance criteria in respect of an Award;
(iii) providing for a substitution or assumption of Awards, accelerating the exercisability of, lapse of restrictions on, or termination of, Awards or providing for a period of time for exercise prior to the occurrence of such event; and
(iv) canceling any one or more outstanding Awards and causing to be paid to the holders thereof, in cash, Common Shares, other securities or other property, or any combination thereof, the value of such Awards, if any, as determined by the Committee (which if applicable may be based upon the price per Common Share received or to be received by other members of the Company in such event), including without limitation, in the case of an outstanding Warrant, Option or SAR, a cash payment in an amount equal to the excess, if any, of the Fair Market Value (as of a date specified by the Committee) of the Common Shares subject to such Warrant, Option or SAR over the aggregate Exercise Price or Strike Price of such Warrant, Option or SAR, respectively (it being understood that, in such event, any Warrant, Option or SAR having a per share Exercise Price or Strike Price equal to, or in excess of, the Fair Market Value of a Common Share subject thereto may be canceled and terminated without any consideration therefor);
provided, however, that any adjustment in Incentive Stock Options under this Section 12 (other than any cancellation of Incentive Stock Options) shall be made only to the extent not constituting a "modification" within the meaning of Section 424(h)(3) of the Code, and any adjustments under this Section 12 shall be made in a manner that does not adversely affect the exemption provided pursuant to Rule 16b-3 under the Exchange Act, to the extent applicable. Any adjustment made by the Company hereunder shall be conclusive and binding for all purposes.
13. Effect of Change in Control. Unless otherwise determined by the Committee or evidenced in an Award Agreement, the provisions of this Section 13 shall apply, as applicable:
(a) With respect to each outstanding Award that is assumed or substituted by the acquiring entity or ultimate parent in connection with a Change in Control and in the event of a termination of a Participant's employment or service, including termination with Good Reason, (in any case, other than for Cause) within a period of twelve months commencing on the date of the Change in Control, on the date of such termination (i) such Award shall become fully vested and, if applicable, immediately exercisable, (ii) the restrictions, payment conditions and forfeiture conditions applicable to any such Award granted shall lapse, and (iii) all incomplete performance periods in effect on the date of a Change in Control shall end on the date of such Change in Control with all applicable performance conditions being deemed to have been achieved based on the Participant’s estimated performance but, in any event, not less than target performance (as reduced pro-rata to reflect the portion of the year worked by the Participant prior to termination of their employment).
(b) In the event of a Change in Control, in connection with which the Awards are not assumed or substituted by the acquiring entity or ultimate parent, the Committee may provide, in its sole discretion, for the cancellation of any portion of the Awards that remain outstanding as of the date of the Change in Control in exchange for payment in cash or other property, and in the same form as the consideration paid in the transaction resulting in the Change in Control, equal to (i) the excess (if any) of the per share transaction consideration over the Exercise Price or Strike Price multiplied by the number of Common Shares underlying such Warrant, Option or SAR, respectively, and (ii) with respect to an Award other than a Warrant, Option or SAR, the per share transaction consideration, multiplied by the number of any Common Shares subject to such Award.
(c) For purposes of this Section 13, an Award shall be considered assumed or substituted by the acquiring entity or ultimate parent if (i) the Award remains subject to substantially similar terms and conditions that were applicable to the Award immediately prior to the Change in Control except that the Award instead confers the right to receive common stock of the acquiring entity or in the case of an amalgamation, the amalgamated company or its parent and (ii) immediately following the Change in Control, the aggregate economic value of the Award is preserved. By way of example, without limitation, for this purpose the economic value shall mean (i) with respect to a Warrant, the excess (if any) of the per share transaction consideration over the Exercise Price multiplied by the number of Common Shares underlying such Warrant, and (ii) with respect to a Restricted Stock Unit, the per share transaction
consideration, multiplied by the number of any Common Shares subject to such Restricted Stock Unit.
14. Amendments and Termination.
(a) Amendment and Termination of the Plan. The Board may amend, alter, suspend, discontinue, or terminate the Plan or any portion thereof at any time; provided, that no such amendment, alteration, suspension, discontinuation or termination shall be made without member approval if such approval is necessary to comply with any tax or regulatory requirement applicable to the Plan (including, without limitation, as necessary to comply with any rules or requirements of any securities exchange or inter-dealer quotation system on which the Common Shares may be listed or quoted); provided, further, that any such amendment, alteration, suspension, discontinuance or termination that would materially and adversely affect the rights of any Participant or any holder or beneficiary of any Award theretofore granted shall not to that extent be effective without the consent of the affected Participant, holder or beneficiary.
(b) Amendment of Award Agreements. The Committee may, to the extent consistent with the terms of any applicable Award Agreement, waive any conditions or rights under, amend any terms of, or alter, suspend, discontinue, cancel or terminate, any Award theretofore granted or the associated Award Agreement, prospectively or retroactively; provided that any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would materially and adversely affect the rights of any Participant with respect to any Award theretofore granted shall not to that extent be effective without the consent of the affected Participant; provided, further, that the Committee may not take any action without member approval to the extent that member approval is necessary to comply with any applicable tax or regulatory requirement.
15. Repurchase Rights. Unless otherwise determined by the Committee or evidenced in an Award Agreement, the provisions of this Section 15 shall apply, as applicable.
(a) Termination of Service. If a Participant's Continuous Service with the Company or its Affiliates ceases for any reason, then (i) unless otherwise set forth by the Committee in an Award Agreement, all Awards then held by such Participant will be cancelled by the Company and (ii) all Common Shares then held by such Participant in respect of any Award granted under the Plan (or received in respect of any Award exercised thereafter) will be subject to repurchase by the Company in accordance with the Companies Act 1981, as amended (the "Act"), and pursuant to the terms and conditions set forth in this Section 15 (the "Repurchase Option"). For purposes of this Agreement, the term "Subject Securities" shall mean the Common Shares held by the Participant that are subject to the Repurchase Option, the Insolvency Purchase Option, or the Divorce Purchase Option.
(b) Involuntary Purchase Option. If a Participant shall become subject to a bankruptcy or an insolvency proceeding (each, a "Bankruptcy Event"), then all Common Shares then held by such Participant will be subject to repurchase by the Company in accordance with the Act and pursuant to the terms and conditions set forth in this Section 15 (the "Insolvency Purchase Option"). The Participant shall provide written notice to the Company of
the occurrence of a Bankruptcy Event within five (5) business days after the occurrence of such Bankruptcy Event setting forth the circumstances of such Bankruptcy Event and the number of Common Shares then held by such Participant.
(c) Divorce Purchase Option. Upon either the filing of a petition for dissolution of marriage or any similar action for divorce by or against the Participant (a "Divorce" and, together with a Bankruptcy Event, an "Involuntary Transfer"), under no circumstances shall any such person's spouse have or obtain any interest in such person's Common Shares. Upon the occurrence of a Divorce, then all Common Shares then held by such Participant will be subject to repurchase by the Company in accordance with the Act and pursuant to the terms and conditions set forth in this Section 15 (the "Divorce Purchase Option"). The Participant shall provide written notice to the Company of the occurrence of a Divorce within five (5) business days after the occurrence of such Divorce setting forth the circumstances thereof, a copy of any court order or decree, if applicable, the number of Common Shares then held by such Participant.
(d) Repurchase Price. For purposes of this Plan, the term "Repurchase Price" shall mean the applicable price set forth in this subsection (d).
(i) If the Participant's Continuous Service is terminated for any reason other than for Cause, the repurchase price for any Subject Securities shall be the Liquidity Interest Per Share Price (as defined in the Shareholders Agreement) applicable as of the Repurchase Determination Date for Subject Securities granted prior to 1 January 2021. For Subject Securities granted on or after 1 January 2021, the repurchase price of such Subject Securities shall be the prevailing Fair Market Value as of the applicable Repurchase Date.
(ii) If the Participant (A) is terminated by the Company for Cause or (B) violates any of the restrictive covenants set forth in the Participant’s employment agreement, the repurchase price for any Subject Securities shall be the lower of (x) the Exercise Price or Strike Price (in the case of Warrants, Options or SARs, respectively), or the Participant's tax basis in the Subject Securities (in the case of other Awards) or (y) the Liquidity Interest Per Share Price for Subject Securities granted prior to 1 January 2021 or Fair Market Value for Subject Securities granted on or after 1 January 2021, as applicable, as of the Repurchase Determination Date; provided, that if the Participant (A) is terminated by the Company for Cause or (B) violates any of the restrictive covenants set forth in the Participant’s employment agreement, in each case after an initial public offering of the Common Shares, the repurchase price shall be the lower of (x) the Exercise Price or Strike Price (in the case of Warrants, Options or SARs, respectively), or the Participant's tax basis in the Subject Securities (in the case of other Awards) or (y) the ten (10) trading day average of the closing price on and following the date of exercise of the Repurchase Determination Date on the primary stock exchange on which the Common Shares are traded.
(iii) The repurchase price for any Subject Securities subject to the Insolvency Purchase Option or Divorce Purchase Option shall be the Liquidity Interest Per Share Price for Subject Securities granted prior to 1 January 2021 or Fair Market Value for Subject Securities granted on or after 1 January 2021, as applicable, as of the Repurchase Determination Date.
(iv) In the event that a termination of the Participant's Continuous Service other than for Cause or an Involuntary Transfer occurs after an initial public offering of the Common Shares, the repurchase price for any Subject Securities shall be the ten (10) trading day average of the closing price on and following the date of such termination or such Involuntary Transfer on the primary stock exchange on which the Common Shares are traded.
(e) Repurchase Notice. The Company (or its designee) may elect to purchase all or any portion of the Subject Securities by delivering a written notice (the "Repurchase Notice") to the Participant within 180 days (i) after the date of the termination of the Participant's Continuous Service (in the case of Subject Securities held by the Participant as of such termination of Continuous Service), (ii) after the date on which the Company obtains knowledge of the violation by the Participant of the restrictive covenants set forth in the Participant's employment agreement, (iii) in the case of Subject Securities received by the Participant as a result of exercise of an Award following the Participant's Continuous Service, after the date of exercise of any vested Award following the Participant's Continuous Service resulting in the delivery of Subject Securities, or (iv) after the date of the Involuntary Transfer, as applicable (such date upon which the Company delivers the Repurchase Notice referred to herein as the "Repurchase Determination Date"); provided, that such 180 day period may be extended by the Company for each day that the Company (or its designee) may not purchase or elect to purchase the Subject Securities due to such purchase or election to purchase violating applicable law or the terms of any loan or other material documents to which the Company (or its designee) is bound, as reasonably determined by the Company. The Company may assign its repurchase rights hereunder to an Affiliate (such entity having the right to repurchase the Subject Securities shall be referred to herein as the "Purchaser"). Any Repurchase Notice delivered hereunder shall set forth the consideration to be paid for such securities.
(f) Closing of Repurchase. The closing of any repurchase of Subject Securities pursuant to the Repurchase Option, the Involuntary Purchase Option, or Divorce Purchase Option shall take place on the date designated by the Purchaser in the Repurchase Notice (or as soon as practicable thereafter) which date shall be within thirty (30) days following the end of the quarter in which the delivery of the Repurchase Notice occurs. At such closing, the Participant shall deliver all certificates (if any exist) evidencing the Subject Securities to the Purchaser and take all other actions necessary to transfer the Subject Securities to the Purchaser hereunder, and such Purchaser shall pay for the Subject Securities in the aggregate amount of the Repurchase Price for such Subject Securities. The Purchaser hereunder shall be entitled to receive reasonable and customary representations and warranties from the Participant, including representations and warranties regarding the Participant's good title to the Subject Securities and his or her ability to transfer the Subject Securities to the Purchaser free and clear of any liens or encumbrances. Notwithstanding the foregoing, at the closing, the Purchaser shall have the option to pay the Repurchase Price (i) in cash, (ii) pursuant to a promissory note, or (iii) in a combination of the foregoing.
(g) Non-Exclusiveness of Right. The right of repurchase contemplated by this Section 15 is not exclusive and shall apply in addition to, and not in lieu of, any similar or other right of repurchase or other rights provided for in any other Company document or agreement.
16. General.
(a) Award Agreements. Each Award under the Plan shall be evidenced by an Award Agreement, which shall be delivered to the Participant and shall specify the terms and conditions of the Award and any rules applicable thereto, including without limitation, the effect on such Award of the termination of the Participant's Continuous Service with the Company or its Affiliates, or of such other events as may be determined by the Committee.
(b) Non-transferability. Each Award shall be exercisable only by a Participant during the Participant's lifetime, or, if permissible under applicable law, by the Participant's legal guardian or representative. No Award may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant other than by will or by the laws of descent and distribution and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or an Affiliate; provided that the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance.
(c) Tax Withholding. (i) A Participant shall be required to pay to the Company or any Affiliate, and the Company or any Affiliate shall have the right and is hereby authorized to withhold, from any cash, Common Shares, other securities or other property deliverable under any Award or from any compensation or other amounts owing to a Participant, the amount (in cash, Common Shares, other securities or other property) of any withholding taxes or other amounts in respect of an Award, its exercise, or any payment or transfer under an Award or under the Plan and to take such other action as may be necessary in the opinion of the Committee or the Company to satisfy all obligations for the payment of such withholding and taxes.
(ii) Without limiting the generality of clause (i) above, the Committee may, in its sole discretion, permit a Participant to satisfy, in whole or in part, the foregoing withholding liability by (A) the delivery of Common Shares owned by the Participant having a Fair Market Value equal to such withholding liability or (B) having the Company withhold from the number of Common Shares otherwise issuable or deliverable pursuant to the exercise or settlement of the Award a number of shares with a Fair Market Value equal to such withholding liability (but no more than the minimum required statutory withholding liability).
(d) No Claim to Awards; No Rights to Continued Employment; Waiver. No employee of the Company or an Affiliate, or other person, shall have any claim or right to be granted an Award under the Plan or, having been selected for the grant of an Award, to be selected for a grant of any other Award. There is no obligation for uniformity of treatment of Participants or holders or beneficiaries of Awards. The terms and conditions of Awards and the Committee's determinations and interpretations with respect thereto need not be the same with respect to each Participant and may be made selectively among Participants, whether or not such Participants are similarly situated. Neither the Plan nor any action taken hereunder shall be construed as giving any Participant any right to be retained in the Continuous Service of the Company or an Affiliate, nor shall it be construed as giving any Participant any rights to continued service on the Board. The Company or any of its Affiliates may at any time dismiss a Participant from employment or discontinue any consulting or other relationship, free from any
liability or any claim under the Plan, unless otherwise expressly provided in the Plan or any Award Agreement. By accepting an Award under the Plan, a Participant shall thereby be deemed to have waived any claim to continued exercise or vesting of an Award or to damages or severance entitlement related to non-continuation of the Award beyond the period provided under the Plan or any Award Agreement, notwithstanding any provision to the contrary in any written employment contract or other agreement between the Company and its Affiliates and the Participant, whether any such agreement is executed before, on or after the Date of Grant.
(e) International Participants. With respect to Participants who reside or work outside of Bermuda, the Committee may in its sole discretion amend the terms of the Plan or outstanding Awards with respect to such Participants (or adopt a sub-plan) in order to conform such terms with the requirements of local law or to obtain more favorable tax or other treatment for a Participant, the Company or its Affiliates.
(f) Designation and Change of Beneficiary. Each Participant may file with the Committee a written designation of one or more persons as the beneficiary(ies) who shall be entitled to receive the amounts payable with respect to an Award, if any, due under the Plan upon his or her death. A Participant may, from time to time, revoke or change his or her beneficiary designation without the consent of any prior beneficiary by filing a new designation with the Committee. The last such designation received by the Committee shall be controlling; provided, however, that no designation, or change or revocation thereof, shall be effective unless received by the Committee prior to the Participant's death, and in no event shall it be effective as of a date prior to such receipt. If no beneficiary designation is filed by a Participant, the beneficiary shall be deemed to be his or her spouse or, if the Participant is unmarried at the time of death, his or her estate.
(g) Termination of Employment/Service. Unless determined otherwise by the Committee at any point following such event: (i) neither a temporary absence from employment or service due to illness, vacation or leave of absence nor a transfer from employment or service with the Company to employment or service with an Affiliate (or vice-versa) shall be considered a termination of Continuous Service with the Company or an Affiliate; and (ii) if a Participant's employment with the Company and its Affiliates terminates, but such Participant continues to provide Continuous Service to the Company and its Affiliates in a non-employee capacity (or vice-versa), such change in status shall not be considered a cessation of Continuous Service with the Company or an Affiliate.
(h) No Rights as a Member. Except as otherwise specifically provided in the Plan or any Award Agreement, no person shall be entitled to the privileges of ownership in respect of Common Shares that are subject to Awards hereunder until such shares have been issued or delivered to that person, such person's name is entered in the register of members and such person satisfies all conditions hereunder, in the Bye-laws and in the Award Agreement, including, without limitation, executing a joinder to that certain Shareholders Agreement of the Company, as amended from time to time.
(i) Government and Other Regulations. The obligation of the Company to settle Awards in Common Shares or other consideration shall be subject to all applicable laws, rules,
and regulations, and to such approvals by governmental agencies as may be required. The Committee shall have the authority to provide that all certificates for Common Shares or other securities of the Company or any Affiliate delivered under the Plan shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan, the applicable Award Agreement, applicable securities laws, or the rules, regulations and requirements of the U.S. Securities and Exchange Commission or other similar regulatory authority, any securities exchange or inter-dealer quotation system upon which such shares or other securities are then listed or quoted and any other applicable U.S. federal, state, local or non-U.S. laws, and, without limiting the generality of Section 10 of the Plan, the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. Notwithstanding any provision in the Plan to the contrary, the Committee reserves the right to add any additional terms or provisions to any Award granted under the Plan that it in its sole discretion deems necessary or advisable in order that such Award complies with the legal requirements of any governmental entity to whose jurisdiction the Award is subject.
(j) Payments to Persons Other Than Participants. If the Committee shall find that any person to whom any amount is payable under the Plan is unable to care for his or her affairs because of illness or accident, or is a minor, or has died, then any payment due to such person or his or her estate (unless a prior claim therefor has been made by a duly appointed legal representative) may, if the Committee so directs the Company, be paid to his or her spouse, child, relative, an institution maintaining or having custody of such person, or any other person deemed by the Committee to be a proper recipient on behalf of such person otherwise entitled to payment. Any such payment shall be a complete discharge of the liability of the Committee and the Company therefor.
(k) Non-exclusivity of the Plan. Neither the adoption of this Plan by the Board nor the submission of this Plan to the members of the Company for approval, to the extent applicable, shall be construed as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options or other equity-based awards otherwise than under this Plan, and such arrangements may be either applicable generally or only in specific cases.
(l) No Trust or Fund Created. Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate, on the one hand, and a Participant or other person or entity, on the other hand. No provision of the Plan or any Award shall require the Company, for the purpose of satisfying any obligations under the Plan, to purchase assets or place any assets in a trust or other entity to which contributions are made or otherwise to segregate any assets, nor shall the Company maintain separate bank accounts, books, records or other evidence of the existence of a segregated or separately maintained or administered fund for such purposes. Participants shall have no rights under the Plan other than as unsecured general creditors of the Company, except that insofar as they may have become entitled to payment of additional compensation by performance of Continuous Service, they shall have the same rights as other employees under general law.
(m) Reliance on Reports. Each member of the Committee and each member of the Board shall be fully justified in acting or failing to act, as the case may be, and shall not be liable for having so acted or failed to act in good faith, in reliance upon any report made by the independent public accountant of the Company and its Affiliates and/or any other information furnished in connection with the Plan by any agent of the Company or the Committee or the Board, other than himself.
(n) Relationship to Other Benefits. No payment under the Plan shall be taken into account in determining any benefits under any pension, retirement, profit sharing, group insurance or other benefit plan of the Company except as otherwise specifically provided in such other plan.
(o) Governing Law. The Plan, each Award Agreement hereunder and each related agreement shall be governed by and construed in accordance with the laws of Bermuda without reference to the principles of conflict of law thereof and the Company and any Participant accepting an Award hereunder irrevocably agree that any dispute or claim which may arise out of or in connection with the Plan, or Award Agreement, shall be referred to and determined by arbitration in Bermuda by sole arbitrator appointed by agreement between the parties and in default of agreement, then the arbitrator is to be appointed by the Appointments’ Committee of the Chartered Institute of Arbitrators Bermuda Branch. The courts of Bermuda shall have exclusive jurisdiction to hear and determine any application for relief in aid of an arbitration commenced pursuant to this clause 16 (including any application for interim or conservatory measures prior to the appointment of an arbitrator) except that the Company and any Participant may bring proceedings before any court or other judicial authority for the purposes of enforcing any award rendered by the arbitrator hereunder.
(p) Severability. If any provision of the Plan or any Award or Award Agreement is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any person or entity or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be construed or deemed stricken as to such jurisdiction, person or entity or Award and the remainder of the Plan and any such Award shall remain in full force and effect.
(q) Obligations Binding on Successors. The obligations of the Company under the Plan shall be binding upon any successor corporation or organization resulting from the merger, amalgamation, consolidation or other reorganization of the Company, or upon any successor corporation or organization succeeding to substantially all of the assets and business of the Company.
(r) Expenses; Gender; Titles and Headings. The expenses of administering the Plan shall be borne by the Company and its Affiliates. Masculine pronouns and other words of masculine gender shall refer to both men and women. The titles and headings of the sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings shall control.
(s) Other Agreements. Notwithstanding the above, the Committee may require, as a condition to the grant of and/or the receipt of Common Shares under an Award, that the Participant execute lock-up, shareholder or other agreements, as it may reasonably determine in its sole and absolute discretion.
(t) Payments. Participants shall be required to pay, to the extent required by applicable law, any amounts required to receive Common Shares under any Award made under the Plan.
(u) Taxes. The U.S. federal income and other tax consequences of participation in the Plan by a United States person (as defined in the Code) is uncertain and could subject such person to adverse U.S. federal income or other tax consequences, including, but not limited to, through the rules applicable to a holder of stock or warrants and other options in a controlled foreign corporation or a passive foreign investment company (each as defined in the Code). United States persons who participate in the Plan are urged to consult with their own tax advisors regarding the U.S. federal income and other tax consequences associated with their participation in the Plan, and nothing herein or in any Award Agreement or other Plan document shall constitute tax advice for any purpose.
(v) Section 409A/457A. The intent of the Company is that payments and benefits under the Plan comply with Section 409A and 457A of the Code to the extent subject thereto, and, accordingly, to the maximum extent permitted, the Plan shall be interpreted and be administered to be in compliance therewith. Any payments described in the Plan that are due within the "short-term deferral period" as defined in Section 409A of the Code shall not be treated as deferred compensation unless applicable law requires otherwise. Notwithstanding anything to the contrary in the Plan, no payment or distribution under this Plan that constitutes an item of deferred compensation under Section 409A of the Code and becomes payable by reason of a Participant's termination of employment or service with the Company will be made to such Participant until such Participant's termination of employment or service constitutes a "separation from service" (as defined in Section 409A of the Code). Notwithstanding anything to the contrary in the Plan, to the extent required in order to avoid accelerated taxation and/or tax penalties under Section 409A of the Code, amounts that would otherwise be payable and benefits that would otherwise be provided during the six (6) month period immediately following the Participant's termination of employment shall instead be paid on the first business day after the date that is six (6) months following the Participant's separation from service (or upon the Participant's death, if earlier). In addition, for purposes of the Plan, each amount to be paid or benefit to be provided to the Participant pursuant to the Plan that constitutes deferred compensation subject to Section 409A of the Code, shall be construed as a separate identified payment for purposes of Section 409A of the Code. The Company makes no representation that any or all of the payments or benefits described in this Plan will be exempt from or comply with Section 409A or 457A of the Code and makes no undertaking to preclude Section 409A or 457A of the Code from applying to any such payment. The Participant shall be solely responsible for the payment of any taxes and penalties incurred under Section 409A and 457A.
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As adopted by the Board of Directors of Hamilton Insurance Group, Ltd. on 23 December 2013,amended 5 September 2018 and further amended 31 March 2021.
HAMILTON INSURANCE GROUP, LTD.
2013 EQUITY INCENTIVE PLAN
RESTRICTED STOCK UNIT AWARD AGREEMENT
(PERFORMANCE VESTING)
This Restricted Stock Unit Award Agreement (the "Agreement"), made as of this XXXth day of XXX 2023 (the "Date of Grant"), by and between Hamilton Insurance Group, Ltd. (the "Company") and XXX (the "Participant") pursuant to the Hamilton Insurance Group, Ltd. 2013 Equity Incentive Plan as amended from time to time (the “Plan”). Capitalized terms not otherwise defined herein shall have the meanings set forth in the Plan, P and to the extent not set forth in the Plan, the meanings set forth in the Participant’s employment agreement (the "Employment Agreement").
RECITALS:
WHEREAS, the Company has adopted the Plan, pursuant to which awards of restricted stock units ("RSUs") with respect to Class B common shares, par value $0.01 ("Common Shares"), may be granted; and
WHEREAS, the Committee has determined that it is in the best interests of the Company to grant the award of RSUs provided for herein to the Participant in recognition of the Participant's services to the Company, such grant to be subject to the terms set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto hereby agree as follows:
1. Grant of Restricted Stock Unit Award. Pursuant to the Plan, the Company hereby issues to the Participant on the Date of Grant a Restricted Stock Unit Award consisting of, in the aggregate, Y,YYY RSUs (the "RSU Award"). Each RSU represents an unsecured promise of the Company to deliver to the Participant up to two Common Shares on the applicable Settlement Date (as defined below), subject to the terms and conditions hereof. The RSUs shall be credited to a separate ledger account maintained for the Participant on the books of the Company (the "Account"). The RSU Award shall vest and be settled in accordance with Section 3 hereof.
2. Incorporation by Reference; Interpretation. The provisions of the Plan are hereby incorporated herein by reference. Except as otherwise expressly set forth herein, this Agreement shall be construed in accordance with the provisions of the Plan. By signing this Agreement, the Participant acknowledges that the Participant has received a copy of the Plan and has had an opportunity to review the Plan and agrees to be bound by all of the terms and provisions of the Plan. In the event of a conflict or inconsistency between the terms and provisions of the Plan and the provisions of this Agreement, this Agreement shall govern and control. All determinations, interpretations, and other decisions under or with respect to this Agreement shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon all persons or entities, including, without limitation,
the Company, any Affiliate, any Participant, any holder or beneficiary of any Award, and any member of the Company.
3. Vesting and Settlement.
(a) Vesting Eligibility. The RSU Award shall vest in full on [VESTING DATE] (the "Vesting Date") subject to satisfaction of the performance conditions set forth on Schedule A hereto and subject to the Participant's Continuous Service through the Vesting Date, except as otherwise provided herein.
(b) To the extent that the grant or vesting or settlement of the RSU Award or any portion thereof could result in a material adverse tax, legal or regulatory result for the Company, any Subsidiary (as defined in the Bye-laws of the Company) or any of its members (or their Affiliates), the Company may require the Participant to sell the applicable Common Shares otherwise deliverable pursuant to the RSU Award or portion thereof to the Company at a per share price equal to the prevailing Fair Market Value of the Common Shares covered thereby (or settle such RSU Award, in whole or in part, in cash).
(c) Vesting and Settlement. The RSU Award shall vest and settle as follows:
(i) The Company shall prepare a calculation of the number of vested RSUs based on achievement of the performance conditions as set forth on Schedule A (the "Vested RSUs") within ninety (90) days after the Vesting Date, and shall issue to the Participant a number of Common Shares equal to the Vested RSUs within one hundred and twenty (120) days following the Vesting Date and upon such settlement, the Company shall enter the Participant's name as a shareholder of record with respect to the RSU Shares in the same manner as applies to the other shareholders' acquisition of Common Shares (whether by certificate or book entry, as applies).
(ii) For avoidance of doubt:
(1) The Participant shall be entitled to vesting and settlement of the Vested RSUs pursuant to clause (i) of Section 3(c), on the dates provided in such clause. If the Participant’s employment is terminated for any reason after the Vesting Date, the Board may, in its sole discretion, settle the Vested RSUs in cash instead of shares based on the prevailing Fair Market Value of the Common Shares.
(2) The achievement of the performance conditions set forth on Schedule A, and the related calculations described above in Section 3(c), shall be determined in the sole discretion of the Committee and shall be final, conclusive and binding upon all persons or entities, including, without limitation, the Company, any Affiliate, any Participant, any holder or beneficiary of any Award, and any member of the Company.
(d) Forfeiture. Except as provided in Section 3(e), 3(f) and 3(g), any unvested RSUs shall be forfeited without consideration upon the termination of the Participant's Continuous Service for any reason prior to the applicable Vesting Date.
(e) Termination of Employment without Cause or for Good Reason on or after a Change in Control. In the event that (i) the Participant's employment is terminated by the Company or its successor without Cause or (ii) by the Participant with Good Reason, in each case within a period of twelve months commencing on the date of a Change in Control, any RSUs that remain unvested as of the date of termination of employment shall become fully vested based on estimated performance (but not less than target performance) measured as of the date of termination, rather than on the original measurement date provided by Schedule A.
(f) Early Vesting in the Event of Death. In the event of the death of a Participant then all of the pro rata proportion of the RSUs that are unvested at the date of death shall become fully vested based on estimated performance (but not less than target performance) measured as of the date of termination, rather than on the original measurement date provided by Schedule A, and the Company shall immediately issue one Common Share for each vested RSU according to the instructions of the executors of the Participant’s estate (and upon such settlement, the RSUs shall cease to be credited to the Account) and enter the relevant person’s name as a shareholder of record in the same manner as applies to the other shareholders' acquisition of Common Shares (whether by certificate or book entry, as applicable).
(g) Disability and Retirement. In the event of the Disability or Retirement of a Participant, any RSU’s that remain unvested as of the date the Participant’s employment ceases due to their Disability or Retirement Award will vest according to the timetable set out in Section 3.(a) provided that, in the case of Retirement, the Participant is in compliance with the terms of their Non-Compete Agreement at each Vesting Date.
4. Tax Withholding. In the event that the Company determines that tax withholding is required with respect to the Participant, the Participant shall be required to pay to the Company, and the Company shall have the right to deduct from any compensation paid to the Participant pursuant to the Plan, the amount of any required withholding taxes in respect of the RSU Award and to take such other action as the Committee deems necessary to satisfy all obligations for the payment of such withholding and taxes. For the avoidance of doubt, no RSU Shares shall be issued if the Participant has not fully satisfied any withholding obligations. The Committee may permit the Participant to satisfy the withholding liability in its discretion: (a) in cash, (b) by having the Company withhold from the number of Common Shares otherwise issuable or deliverable pursuant to the settlement of the RSU Award a number of Common Shares with a Fair Market Value equal to the minimum withholding obligation, (c) by delivering shares of Common Shares owned by the Participant unless such delivery would result in adverse accounting consequences for the Company, or (d) by a combination of any such methods. For purposes hereof, Common Shares shall be valued at Fair Market Value.
5. Rights as Members. The Participant acknowledges and agrees that, with respect to each RSU credited to his or her Account, the Participant has no voting or other rights with respect to the underlying Common Shares unless and until such RSU is settled in Common
Shares pursuant to Section 3 hereof. As a condition to the award of the RSUs hereunder, prior to settlement of the RSUs in Common Shares, the Participant shall be required (i) to execute a joinder to the Shareholders Agreement and (ii) to deliver such information and documentation as the Committee or the Company may require in its sole discretion from the Participant including for the purpose of determining whether such issuance of Common Shares could result in a violation under clauses 7(i)-(iii) or could otherwise result in adverse tax, legal or regulatory consequence for the Company, any Subsidiary of the Company or any of its or their members (or their Affiliates).
6. Dividend Equivalents. If the Company pays a cash dividend on its outstanding Common Shares for which the Record Date (for purposes of this Agreement, the "Record Date" is the date on which shareholders of record are determined for purposes of paying the cash dividend on Common Shares) occurs after the Date of Grant but prior to the Vesting Date, the Participant shall receive a lump sum cash payment equal to the aggregate amount of the cash dividends paid by the Company on a single Common Share multiplied by the number of Vested RSUs that have not yet been settled under this Agreement (the "Dividend Equivalents"); provided, that, the Dividend Equivalents shall not be paid at the time dividends are paid to the Company's members but rather shall be accumulated and paid on the applicable Settlement Date, if any, with respect to any Common Shares that are issued on such Settlement Date; provided, further, that no Dividend Equivalents shall be payable with respect to any RSUs that do not vest or are not settled and are forfeited pursuant to the terms of this Agreement and any Dividend Equivalents that have accumulated prior to forfeiture shall be forfeited upon the forfeiture of the RSUs to which such Dividend Equivalents relate.
7. Compliance with Laws and Regulations. The issuance and transfer of Common Shares shall not be permitted if the Committee determines that such issuance or transfer would violate (i) applicable law, (ii) the applicable rules and regulations of the U.S. Securities and Exchange Commission, the Bermuda Monetary Authority, or similar regulatory authority or (iii) the applicable rules and regulations of any securities exchange or inter dealer quotation system on which the securities of the Company or any Affiliates are listed or traded. To the extent issued, any Common Shares (or certificates therefor) shall contain a legend, in the form as the Committee determines in its sole and absolute discretion, which describes the restrictions set forth herein.
8. Binding Effect. Subject to Section 18 hereof, this Agreement shall be binding upon the heirs, executors, administrators and successors of the parties hereto
9. No Right to Continued Service. Nothing in this Agreement shall be deemed by implication or otherwise to impose any limitation on any right of the Company to terminate the Participant's Continuous Service at any time.
10. Notice. All notices and other communications hereunder must be in writing and shall be deemed to have been duly given if delivered by hand delivery, facsimile (with confirmation of transmission), or overnight courier, in each case addressed as follows:
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If to the Company: | Hamilton Insurance Group, Ltd. Wellesley House North, First Floor 90 Pitts Bay Road |
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| Pembroke HM 08Bermuda |
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| Attention: General Counsel |
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If to the Participant: | To the Participant's principal address as reflected in the Company's records |
or to such other address as either party shall have furnished to the other in writing in accordance herewith. Any such notice or communication shall be deemed to have been delivered (i) on the date of delivery if delivered by hand, (ii) on the date of transmission if delivered by facsimile (with confirmation of transmission delivered by the recipient to the sender), or (iii) on the date of confirmed delivery if delivered by overnight courier.
11. Beneficiary. The Participant may file with the Committee a written designation of a beneficiary on such form as may be prescribed by the Committee and may, from time to time, amend or revoke such designation. If no designated beneficiary survives the Participant, the executor or administrator of the Participant's estate shall be deemed to be the Participant's beneficiary.
12. Successors. Subject to Section 18 hereof, the terms of this Agreement shall be binding upon and inure to the benefit of the Company, its successors and assigns, and on the Participant and the beneficiaries, executors and administrators, heirs and successors of the Participant.
13. Governing Law. This Agreement shall be construed and interpreted in accordance with the laws of Bermuda without regard to its conflict of law principles. The parties to this Agreement hereby irrevocably agree that any dispute or claim which may arise out of or in connection with this Agreement shall be referred to and determined by arbitration in Bermuda by the sole arbitrator appointed by agreement between the parties and in default of agreement, then the arbitrator is to be appointed by the Appointments’ Committee of the Chartered Institute of Arbitrators Bermuda Branch. The courts of Bermuda shall have exclusive jurisdiction to hear and determined any application for relief in aid of an arbitration commenced pursuant to this clause 13 (including any application for interim or conservatory measures prior to the appointment of an arbitrator) except that either party may bring proceedings before any court or other judicial authority for the purposes of enforcing any award rendered by the arbitrator hereunder.
14. Severability. Every provision of this Agreement is intended to be severable and any illegal or invalid term shall not affect the validity or legality of the remaining terms.
15. Headings. The headings of the Sections hereof are provided for convenience only and are not to serve as a basis for interpretation of construction and shall not constitute a part of this Agreement.
16. Signature in Counterparts. This Agreement may be signed in counterparts, each of which shall be deemed an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
17. Other Agreements. As a condition to the grant and vesting of the RSU Award hereunder, the Participant agrees to execute such other agreements as the Committee may require in its reasonable discretion, including, without limitation, the Shareholders Agreement.
18. Non-Transferability. Except as provided by the Plan or by the Committee, this Award is not transferable by the Participant otherwise than to a designated beneficiary upon death or by will or the laws of descent and distribution. No purported assignment or transfer of this Award, or of the rights represented thereby, whether voluntary or involuntary, by operation of law or otherwise (except to a designated beneficiary, upon death, by will or the laws of descent and distribution as set forth above), shall vest in the purported assignee or transferee any interest or right herein or otherwise with respect to the RSU Award whatsoever, but immediately upon such assignment or transfer this Award shall terminate and become of no further effect.
19. Entire Agreement. This Agreement (together with the Plan) represents the entire agreement of the parties with regard to the subject matter hereof and supersedes all prior understandings of the parties, whether written or oral. The Participant acknowledges and agrees that the Award is subject to the Company's Bye Laws and the repurchase rights of the Company under the Plan.
20. Section 409A/457A. Notwithstanding anything herein to the contrary, this Agreement is intended to be interpreted and applied so that the payments and benefits set forth herein either shall either be exempt from the requirements of Sections 409A and 457A of the Code, or shall comply with the requirements of Code Sections 409A and 457A, and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted to be exempt from or in compliance with Code Sections 409A and 457A. Notwithstanding any provision in this Agreement or elsewhere to the contrary, if the Participant is a "specified employee" within the meaning of Code Section 409A, any payments or benefits due upon a termination of the Participant's employment under any arrangement that constitutes a "deferral of compensation" within the meaning of Code Section 409A and which do not otherwise qualify under the exemptions under Treas. Regs. Section 1.409A-1, shall be delayed and paid or provided on the earlier of (i) the date which is six (6) months after the Participant's separation from service (as such term is defined in Code Section 409A and the regulations and other published guidance thereunder) for any reason other than death, and (ii) the date of the Participant's death. None of
the Company, its Affiliates, officers, directors, employees, or agents guarantees that this Agreement complies with, or is exempt from, the requirements of Code Section 409A or 457A and none of the foregoing shall have any liability for the failure of this Agreement to comply with, or be exempt from, such requirements.
21. Taxes. The tax consequences of participation in the Plan are uncertain, and the participant could be subject to income or other taxes. Participants in the Plan are urged to consult with their own tax advisors regarding the income and other tax consequences associated with their participation in the Plan, and nothing herein or in the Plan shall constitute tax advice for any purpose. The Company makes no warranties or representations whatsoever to the Participant regarding the tax consequences of the RSU Award or the receipt of RSU Shares with respect thereto. The Participant shall be solely responsible for any taxes in respect of the RSU Award.
[signature page follows]
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of the date first set forth above.
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| HAMILTON INSURANCE GROUP, LTD. |
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| By: | |
| Name: | |
| Title: | |
Schedule A - Performance Conditions
HAMILTON INSURANCE GROUP, LTD.
2013 EQUITY INCENTIVE PLAN
RESTRICTED STOCK UNIT AWARD AGREEMENT
This Restricted Stock Unit Award Agreement (the "Agreement"), made as of this XXXth day of XXX 2023 (the "Date of Grant"), by and between Hamilton Insurance Group, Ltd. (the "Company") and XXX (the "Participant") pursuant to the Hamilton Insurance Group, Ltd. 2013 Equity Incentive Plan as amended from time to time (the “Plan”). Capitalized terms not otherwise defined herein shall have the meanings set forth in the Plan, and to the extent not set forth in the Plan, the meanings set forth in the Participant’s employment agreement (the "Employment Agreement").
RECITALS:
WHEREAS, the Company has adopted the Plan, pursuant to which awards of restricted stock units ("RSUs") with respect to Class B common shares, par value $0.01 ("Common Shares"), may be granted; and
WHEREAS, the Committee has determined that it is in the best interests of the Company to grant the award of RSUs provided for herein to the Participant in recognition of the Participant's services to the Company, such grant to be subject to the terms set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the parties hereto hereby agree as follows:
1. Grant of Restricted Stock Unit Award. Pursuant to the Plan, the Company hereby issues to the Participant on the Date of Grant a Restricted Stock Unit Award consisting of, in the aggregate, X,XXX RSUs (the "RSU Award"). Each RSU represents an unsecured promise of the Company to deliver to the Participant one Common Share on the Settlement Date (as defined below), subject to the terms and conditions hereof. The RSUs shall be credited to a separate ledger account maintained for the Participant on the books of the Company (the "Account"). The RSU Award shall vest and be settled in accordance with Section 3 hereof.
2. Incorporation by Reference; Interpretation. The provisions of the Plan are hereby incorporated herein by reference. Except as otherwise expressly set forth herein, this Agreement shall be construed in accordance with the provisions of the Plan. By signing this Agreement, the Participant acknowledges that the Participant has received a copy of the Plan and has had an opportunity to review the Plan and agrees to be bound by all of the terms and provisions of the Plan. In the event of a conflict or inconsistency between the terms and provisions of the Plan and the provisions of this Agreement, this Agreement shall govern and control. All determinations, interpretations, and other decisions under or with respect to this Agreement shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon all persons or entities, including, without limitation, the Company, any Affiliate, any Participant, any holder or beneficiary of any Award, and any member of the Company.
3. Vesting and Settlement.
(a) Vesting. [VESTING SCHEDULE].
(b) Settlement. Except as provided in Section 3(d), the Company shall issue to the Participant one Common Share for each vested RSU (the "RSU Shares") (and upon such settlement, the RSUs shall cease to be credited to the Account) within ninety (90) days following the Vesting Date (the "Settlement Date") and upon such settlement, the Company shall enter the Participant's name as a shareholder of record in the same manner as applies to the other shareholders' acquisition of Common Shares (whether by certificate or book entry, as applies).
(c) Forfeiture. Except as provided in Section 3(d), any unvested RSUs shall be forfeited without consideration upon the termination of the Participant's Continuous Service for any reason prior to the applicable Vesting Date.
(d) Termination of Employment without Cause or for Good Reason on or after a Change in Control. In the event that (i) the Participant's employment is terminated by the Company or its successor without Cause or (ii) by the Participant with Good Reason, in each case within a period of twelve months commencing on the date of a Change in Control, any RSUs that remain unvested as of the date of termination of employment shall become fully vested and the Company shall immediately issue to the Participant one Common Share for each vested RSU (and upon such settlement, the RSUs shall cease to be credited to the Account) and enter the Participant's name as a shareholder of record in the same manner as applies to the other shareholders' acquisition of Common Shares (whether by certificate or book entry, as applicable).
(e) Early Vesting in the Event of Death. In the event of the death of a Participant then all of the pro rata proportion of the RSUs that are unvested at the date of death shall become fully vested and the Company shall immediately issue one Common Share for each vested RSU according to the instructions of the executors of the Participant’s estate (and upon such settlement, the RSUs shall cease to be credited to the Account) and enter the relevant person’s name as a shareholder of record in the same manner as applies to the other shareholders' acquisition of Common Shares (whether by certificate or book entry, as applicable).
(f) Disability and Retirement. In the event of the Disability or Retirement of a Participant, the RSU Award will vest according to the timetable set out in Section 3.(a) provided that, in the case of Retirement, the Participant is in compliance with the terms of their Non-Compete Agreement at each Vesting Date.
4. Tax Withholding. In the event that the Company determines that tax withholding is required with respect to the Participant, the Participant shall be required to pay to the Company, and the Company shall have the right to deduct from any compensation paid to the Participant pursuant to the Plan, the amount of any required withholding taxes in respect of the RSU Award and to take such other action as the Committee deems necessary to satisfy all
obligations for the payment of such withholding and taxes. For the avoidance of doubt, no RSU Shares shall be issued if the Participant has not fully satisfied any withholding obligations. The Committee may permit the Participant to satisfy the withholding liability in its discretion: (a) in cash, (b) by having the Company withhold from the number of Common Shares otherwise issuable or deliverable pursuant to the settlement of the RSU Award a number of Common Shares with a Fair Market Value equal to the minimum withholding obligation, (c) by delivering shares of Common Shares owned by the Participant unless such delivery would result in adverse accounting consequences for the Company, or (d) by a combination of any such methods. For purposes hereof, Common Shares shall be valued at Fair Market Value.
5. Rights as Members. The Participant acknowledges and agrees that, with respect to each RSU credited to his or her Account, the Participant has no voting or other rights with respect to the underlying Common Shares unless and until such RSU is settled in RSU Shares pursuant to Section 3 hereof. As a condition to the award of the RSUs hereunder, prior to settlement of the RSUs in Common Shares, the Participant shall be required (i) to execute a joinder to the Shareholders Agreement and (ii) to deliver such information and documentation as the Committee or the Company may require in its sole discretion from the Participant including for the purpose of determining whether such issuance of Common Shares could result in a violation under clauses 7(i)-(iii) or could otherwise result in adverse tax, legal or regulatory consequence for the Company, any Subsidiary of the Company or any of its or their members (or their Affiliates).
6. Dividend Equivalents. If the Company pays a cash dividend on its outstanding Common Shares for which the Record Date (for purposes of this Agreement, the "Record Date" is the date on which shareholders of record are determined for purposes of paying the cash dividend on Common Shares) occurs after the Date of Grant but prior to the Settlement Date, the Participant shall receive a lump sum cash payment equal to the aggregate amount of the cash dividends paid by the Company on a single Common Share multiplied by the number of RSUs remaining unvested under this Agreement (the "Dividend Equivalents"); provided, that, the Dividend Equivalents shall not be paid at the time dividends are paid to the Company's members but rather shall be accumulated and paid on the applicable Settlement Date, if any, with respect to any RSU Shares that are issued on such Settlement Date; provided, further, that no Dividend Equivalents shall be payable with respect to any RSUs that do not vest and are forfeited pursuant to the terms of this Agreement and any Dividend Equivalents that have accumulated prior to forfeiture shall be forfeited upon the forfeiture of the RSUs to which such Dividend Equivalents relate.
7. Compliance with Laws and Regulations. The issuance and transfer of Common Shares shall not be permitted if the Committee determines that such issuance or transfer would violate (i) applicable law, (ii) the applicable rules and regulations of the U.S. Securities and Exchange Commission, the Bermuda Monetary Authority, or similar regulatory authority or (iii) the applicable rules and regulations of any securities exchange or inter dealer quotation system on which the securities of the Company or any Affiliates are listed or traded. To the extent issued, any Common Shares (or certificates therefor) shall contain a legend, in the
form as the Committee determines in its sole and absolute discretion, which describes the restrictions set forth herein.
8. Binding Effect. Subject to Section 18 hereof, this Agreement shall be binding upon the heirs, executors, administrators and successors of the parties hereto
9. No Right to Continued Service. Nothing in this Agreement shall be deemed by implication or otherwise to impose any limitation on any right of the Company to terminate the Participant's Continuous Service at any time.
10. Notice. All notices and other communications hereunder must be in writing and shall be deemed to have been duly given if delivered by hand delivery, facsimile (with confirmation of transmission), or overnight courier, in each case addressed as follows:
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If to the Company: | Hamilton Insurance Group, Ltd. Wellesley House North, First Floor 90 Pitts Bay Road Pembroke HM 08Bermuda |
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| Attention: General Counsel, Hamilton Insurance Group, Ltd. |
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If to the Participant: | To the Participant's principal address as reflected in the Company's records |
or to such other address as either party shall have furnished to the other in writing in accordance herewith. Any such notice or communication shall be deemed to have been delivered (i) on the date of delivery if delivered by hand, (ii) on the date of transmission if delivered by facsimile (with confirmation of transmission delivered by the recipient to the sender), or (iii) on the date of confirmed delivery if delivered by overnight courier.
11. Beneficiary. The Participant may file with the Committee a written designation of a beneficiary on such form as may be prescribed by the Committee and may, from time to time, amend or revoke such designation. If no designated beneficiary survives the Participant, the executor or administrator of the Participant's estate shall be deemed to be the Participant's beneficiary.
12. Successors. Subject to Section 8 hereof, the terms of this Agreement shall be binding upon and inure to the benefit of the Company, its successors and assigns, and on the Participant and the beneficiaries, executors and administrators, heirs and successors of the Participant.
13. Governing Law. This Agreement shall be construed and interpreted in accordance with the laws of Bermuda without regard to its conflict of law principles. The parties to this Agreement hereby irrevocably agree that any dispute or claim which may arise out of or in
connection with this Agreement shall be referred to and determined by arbitration in Bermuda by sole arbitrator appointed by agreement between the parties and in default of agreement, then the arbitrator is to be appointed by the Appointments’ Committee of the Chartered Institute of Arbitrators Bermuda Branch. The courts of Bermuda shall have exclusive jurisdiction to hear and determine any application for relief in aid of an arbitration commenced pursuant to this clause 13 (including any application for interim or conservatory measures prior to the appointment of an arbitrator) except that either party may bring proceedings before any court or other judicial authority for the purposes of enforcing any award rendered by the arbitrator hereunder.
14. Severability. Every provision of this Agreement is intended to be severable and any illegal or invalid term shall not affect the validity or legality of the remaining terms.
15. Headings. The headings of the Sections hereof are provided for convenience only and are not to serve as a basis for interpretation of construction and shall not constitute a part of this Agreement.
16. Signature in Counterparts. This Agreement may be signed in counterparts, each of which shall be deemed an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
17. Other Agreements. As a condition to the grant and vesting of the RSU Award hereunder, the Participant agrees to execute such other agreements as the Committee may require in its reasonable discretion, including, without limitation, the Shareholders Agreement.
18. Non-Transferability. Except as provided by the Plan or by the Committee, this Award is not transferable by the Participant otherwise than to a designated beneficiary upon death or by will or the laws of descent and distribution. No purported assignment or transfer of this Award, or of the rights represented thereby, whether voluntary or involuntary, by operation of law or otherwise (except to a designated beneficiary, upon death, by will or the laws of descent and distribution as set forth above), shall vest in the purported assignee or transferee any interest or right herein or otherwise with respect to the RSU Award whatsoever, but immediately upon such assignment or transfer this Award shall terminate and become of no further effect.
19. Entire Agreement. This Agreement (together with the Plan) represents the entire agreement of the parties with regard to the subject matter hereof and supersedes all prior understandings of the parties, whether written or oral. The Participant acknowledges and agrees that the Award is subject to the Company's Bye Laws and the repurchase rights of the Company under the Plan.
20. Section 409A/457A. Notwithstanding anything herein to the contrary, this Agreement is intended to be interpreted and applied so that the payments and benefits set forth herein either shall either be exempt from the requirements of Sections 409A and 457A of the Code, or shall comply with the requirements of Code Sections 409A and 457A, and, accordingly,
to the maximum extent permitted, this Agreement shall be interpreted to be exempt from or in compliance with Code Sections 409A and 457A. Notwithstanding any provision in this Agreement or elsewhere to the contrary, if the Participant is a "specified employee" within the meaning of Code Section 409A, any payments or benefits due upon a termination of the Participant's employment under any arrangement that constitutes a "deferral of compensation" within the meaning of Code Section 409A and which do not otherwise qualify under the exemptions under Treas. Regs. Section 1.409A-1, shall be delayed and paid or provided on the earlier of (i) the date which is six (6) months after the Participant's separation from service (as such term is defined in Code Section 409A and the regulations and other published guidance thereunder) for any reason other than death, and (ii) the date of the Participant's death. None of the Company, its Affiliates, officers, directors, employees, or agents guarantees that this Agreement complies with, or is exempt from, the requirements of Code Section 409A or 457A and none of the foregoing shall have any liability for the failure of this Agreement to comply with, or be exempt from, such requirements.
21. Taxes. The tax consequences of participation in the Plan are uncertain, and the participant could be subject to income or other taxes. Participants in the Plan are urged to consult with their own tax advisors regarding the income and other tax consequences associated with their participation in the Plan, and nothing herein or in the Plan shall constitute tax advice for any purpose. The Company makes no warranties or representations whatsoever to the Participant regarding the tax consequences of the RSU Award or the receipt of RSU Shares with respect thereto. The Participant shall be solely responsible for any taxes in respect of the RSU Award.
[signature page follows]
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of the date first set forth above.
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| HAMILTON INSURANCE GROUP, LTD. |
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| By: | | |
| Name: | |
| Title: | |
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| PARTICIPANT |
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| By: | | |
HAMILTON INSURANCE GROUP, LTD.
2023 EQUITY INCENTIVE PLAN
1.Purpose. The purpose of the Hamilton Insurance Group, Ltd. 2023 Equity Incentive Plan is to provide a means through which the Company and its Affiliates may attract and retain key personnel and to provide a means whereby directors, officers, employees, consultants and advisors (and prospective directors, officers, employees, consultants and advisors) of the Company and its Affiliates can acquire and maintain an equity interest in the Company, or be paid incentive compensation, which may (but need not) be measured by reference to the value of Common Shares, thereby strengthening their commitment to the welfare of the Company and its Affiliates and aligning their interests with those of the Company’s stockholders.
The Plan succeeds the Prior Plan for Awards granted on or after the Effective Date and no additional awards may be made under the Prior Plan on or after the Effective Date. The adoption and effectiveness of the Plan will not affect the terms or conditions of any awards granted under the Prior Plan prior to the Effective Date.
2.Definitions. The following definitions shall be applicable throughout the Plan. Capitalized terms used herein and not otherwise defined shall have the meaning given to them in the Bye-laws of the Company:
(a)“Affiliate” means (i) any person or entity that directly or indirectly controls, is controlled by or is under common control with the Company and/or (ii) to the extent provided by the Committee, any person or entity in which the Company has a significant interest; provided, that, with respect to the award of any “stock right” within the meaning of Section 409A of the Code, such affiliate must qualify as a “service recipient” within the meaning of Section 409A of the Code and in applying Section 1563(a)(1), (2) and (3) of the Code for purposes of determining a controlled group of corporations under Section 414(b) of the Code and in applying Treasury Regulation Section 1.414(c)-2 for purposes of determining trades or businesses (whether or not incorporated) that are under common control for purposes of Section 414(c) of the Code, the language “at least 50 percent” is used instead of “at least 80 percent”; provided, further, that, in the case of an Incentive Stock Option, it shall mean a “parent corporation” or a “subsidiary corporation” within the meaning of Section 424 of the Code. The term “control” (including, with correlative meaning, the terms “controlling,” “controlled by” and “under common control with”), as applied to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting or other securities, by contract or otherwise.
(b)“Award” means, individually or collectively, any Incentive Stock Option, Nonqualified Stock Option, Stock Appreciation Right, Restricted Stock, Restricted Stock Unit, or Stock Bonus Award granted under the Plan.
(c)“Award Agreement” means a written agreement (whether in paper or electronic medium (including email or the posting on a web site maintained by the Company or a third party under contract with the Company)), evidencing an Award.
(d)“Board” means the Board of Directors of the Company.
(e)“Bye-laws” means the bye-laws of the Company, as amended from time to time.
(f)“Cause” means, (i) if the Participant is a party to an employment or consulting or similar agreement with the Company or an Affiliate and such agreement provides for a definition of Cause, the definition therein contained, or, (ii) if no such agreement exists, it shall mean: any of the following acts or occurrences as determined by the Company: (A) the Participant’s indictment of or charge with respect to, conviction of, or pleading guilty or nolo contendere to a felony or equivalent offense or crime (other than a minor road traffic offense or other non-material offense not subject to a custodial sentence), in any case whether occurring before or after the Effective Date, (B) the Participant’s gross negligence or willful misconduct in connection with the Participant’s employment that causes or is likely to cause significant loss or damage to the Company or an Affiliate, (C) the Participant’s conduct that constitutes fraud, material misrepresentation or embezzlement, (D) the Participant’s material breach of any agreement with the Company or an Affiliate, or breach of any policy or procedure of the Company or an Affiliate, which, in the case of a non-recurring breach capable of being cured, remains uncured after five (5) days following notice by the Committee or the Company’s Chief Executive Officer of such breach, (E) the Participant’s habitual use of alcohol or illegal use of drugs (including narcotics) that materially impairs or is reasonably likely to materially impair the Participant’s ability to perform the Participant’s duties and responsibilities for the Company or an Affiliate, (F) the Participant’s continued failure to substantially and/or satisfactorily perform the Participant’s duties and responsibilities, which failure remains uncured after five (5) days following notice by the Committee or the Company’s Chief Executive Officer of such failure, and/or (G) the Participant being the subject of a complaint or charge by a governmental agency, rating agency or self-regulatory organization for an alleged violation (whether occurring before or after the Effective Date) of any statute or regulation which has or is reasonably likely to have an adverse impact on the reputation and standing in the community of the Company or any Affiliate.
(g)“Change in Control” means:
(i)a change in ownership or control of the Company effected through a transaction or series of transactions (other than an offering of Common Shares to the general public through a registration statement filed with the U.S. Securities and Exchange Commission or similar non U.S. regulatory agency or pursuant to a Non-Control Transaction) whereby any “person” (as defined in Section 3(a)(9) of the Exchange Act) or any two or more persons deemed to be one “person” (as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act), other than the Company or any of its Affiliates, an employee benefit plan sponsored or maintained by the Company or any of its Affiliates (or its related trust), or any underwriter temporarily holding securities pursuant to an offering of such securities, directly or indirectly acquire “beneficial ownership” (within the meaning of Rule 13d-3 under the Exchange Act) of securities of the Company possessing more than fifty percent (50%) of the total combined voting power of the Company’s securities eligible to vote in the election of the Board (the “Company Voting Securities”);
(ii)the date, within any consecutive twenty-four (24)-month period commencing on or after the Effective Date, upon which individuals who constitute the Board as of the Effective Date (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual who becomes a director subsequent to the Effective Date whose election or nomination for election by the Company’s stockholders was approved by a vote of at least a majority of the directors then constituting the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such individual is named as a nominee for director, without objection to such nomination) shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest (including, but not limited to, a consent solicitation) with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board; or
(iii)the consummation of a merger, consolidation, share exchange, or similar form of corporate transaction involving the Company or any of its Affiliates that requires the approval of the Company’s stockholders (whether for such transaction, the issuance of securities in the transaction or otherwise) (a “Reorganization”), unless immediately following such Reorganization (A) more than fifty percent (50%) of the total voting power of (1) the corporation resulting from such Reorganization (the “Surviving Company”) or (2) if applicable, the ultimate parent corporation that has, directly or indirectly, beneficial ownership of one hundred percent (100%) of the voting securities of the Surviving Company (the “Parent Company”), is represented by Company Voting Securities that were outstanding immediately prior to such Reorganization (or, if applicable, is represented by shares into which such Company Voting Securities were converted pursuant to such Reorganization), and such voting power among the holders thereof is in substantially the same proportion as the voting power of such Company Voting Securities among holders thereof immediately prior to such Reorganization, (B) no person, other than an employee benefit plan sponsored or maintained by the Surviving Company or the Parent Company (or its related trust), is or becomes the beneficial owner, directly or indirectly, of fifty percent (50%) or more of the total voting power of the outstanding voting securities eligible to elect directors of the Parent Company, or if there is no Parent Company, the Surviving Company, and (C) at least a majority of the members of the board of directors of the Parent Company, or if there is no Parent Company, the Surviving Company, following the consummation of such Reorganization are members of the Incumbent Board at the time of the Board’s approval of the execution of the initial agreement providing for such Reorganization (any Reorganization which satisfies all of the criteria specified in clauses (A), (B), and (C) above shall be a “Non-Control Transaction”); or
(iv)the sale or disposition, in one or a series of related transactions, of all or substantially all of the assets of the Company to any “person” (as defined in Section 3(a)(9) of the Exchange Act) or to any two or more persons deemed to be one “person” (as used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act) other than the Company’s Affiliates.
Notwithstanding the foregoing, (A) a Change in Control shall not be deemed to occur solely because any person acquires beneficial ownership of fifty percent (50%) or more of the
Company Voting Securities as a result of an acquisition of Company Voting Securities by the Company that reduces the number of Company Voting Securities outstanding; provided, that if after such acquisition by the Company such person becomes the beneficial owner of additional Company Voting Securities that increases the percentage of outstanding Company Voting Securities beneficially owned by such person, a Change in Control shall then be deemed to occur, and (B) with respect to the payment of any amount that constitutes a deferral of compensation subject to Section 409A of the Code payable upon a Change in Control, a Change in Control shall not be deemed to have occurred, unless the Change in Control constitutes a change in the ownership or effective control of the Company or in the ownership of a substantial portion of the assets of the Company under Section 409A(a)(2)(A)(v) of the Code.
(h)“Code” means the United States Internal Revenue Code of 1986, as amended, and any successor thereto. Reference in the Plan to any section of the Code shall be deemed to include any regulations or other interpretative guidance under such section, and any amendments or successor provisions to such section, regulations or guidance.
(i)“Committee” means the Compensation & Personnel Committee of the Board of Directors or, if no such committee has been appointed by the Board, the Board.
(j)“Common Shares” means the Class B common shares, par value $0.01 per share, of the Company (or, if applicable, any stock or other securities into which such common shares have been converted or into which they have been exchanged).
(k)“Company” means Hamilton Insurance Group, Ltd., a Bermuda exempted company.
(l)“Continuous Service” means that the Participant’s service with the Company or an Affiliate, whether as an employee, a director or consultant, is not interrupted or terminated (other than pursuant to a leave approved by the Company). The Participant’s Continuous Service shall not be deemed to have terminated or been interrupted merely because of a change in the capacity in which the Participant renders service to the Company or an Affiliate as an employee, a director or consultant or a change in the entity for which the Participant renders such service; provided, that there is no interruption or termination of the Participant’s service with the Company or an Affiliate. In a context where Section 409A of the Code applies or could have an effect on such Award, shall apply the definition of “separation from service” as provided in Section 1.409A-1(h) of the Treasury Regulations promulgated thereunder.
(m)“Date of Grant” means the date on which the Committee (or its authorized designee) grants an Award.
(n)“Disability” means, (i) if the Participant is a party to an employment or consulting or similar agreement with the Company or an Affiliate and such agreement provides for a definition of Disability, the definition therein contained, or, (ii) if no such agreement exists, it shall mean that the Participant has been unable to perform the duties and responsibilities required of the Participant hereunder due to a physical and/or mental disability for a period of
more than ninety (90) days, whether or not consecutive, during any one (1) year period; provided that any such periods may be extended at the sole discretion of the Committee.
(o)“Effective Date” means the date immediately preceding the date upon which the registration statement on Form S-1 that is filed by the Company with respect to its initial public offering is declared effective by the Securities and Exchange Commission.
(p)“Eligible Director” means a person who is a “non-employee director” within the meaning of Rule 16b-3 under the Exchange Act.
(q)“Eligible Person” means any (i) individual employed by the Company or an Affiliate; provided, however, that no such employee covered by a collective bargaining agreement shall be an Eligible Person unless and to the extent that such eligibility is set forth in such collective bargaining agreement or in an agreement or instrument relating thereto; (ii) director of the Company or an Affiliate; (iii) consultant or advisor to the Company or an Affiliate; or (iv) prospective employees, directors, officers, consultants or advisors who have accepted offers of employment or consultancy from the Company or an Affiliate (and would satisfy the provisions of clauses (i) through (iii) above once he or she begins employment with or begins providing services to the Company or an Affiliate); provided, that such prospective service provider may not receive any payment or exercise any right relating to an Award until such Person has commenced employment or service with the Company or its Affiliates.
(r)“Exchange Act” means the U.S. Securities Exchange Act of 1934, as amended, and any reference in the Plan to any section of (or rule promulgated under) the Exchange Act shall be deemed to include any rules, regulations or other interpretative guidance under such section or rule, and any amendments or successor provisions to such section, rules, regulations or guidance.
(s)“Exercise Price” has the meaning given such term in Section 7(b) of the Plan.
(t)“Fair Market Value” means, as of any date, the value of Common Shares determined as follows:
(i)If the Common Shares are listed on a national exchange registered in the United States (or quoted in a securities quotation system), the average closing sale price of such shares on such exchange (or in such quotation system), or, if such shares are listed on (or quoted in) more than one such exchange (or quotation system), the closing sale price of the shares on the principal such exchange (or quotation system) on which such shares are then traded, or, if the Common Shares are not then listed on such an exchange (or quotation system) but are traded in the over-the-counter market, the average of the closing bid and asked quotations for the Common Shares in such market, in each case during the ten trading days ending on the applicable determination date;
(ii)In the absence of an established market for the Common Shares, the Fair Market Value will be determined in good faith by the Committee; or
(iii)To the extent applicable, Fair Market Value shall be determined in accordance with Section 409A of the Code.
(u)“Good Reason” (i) if the Participant is a party to an employment or consulting or similar agreement with the Company or an Affiliate and such agreement provides for a definition of Good Reason, the definition therein contained, or, (ii) if no such agreement exists, it means (A) the assignment to Participant of duties that are significantly different from, and that result in a material diminution in the Participant’s authority, duties or responsibilities. For the avoidance of doubt, a change in reporting structure or title, in and of itself, shall not be sufficient to constitute a Good Reason termination. Such change must also be accompanied by a material diminution of the Participant’s authority, duties or responsibilities in order to satisfy this test; or (B) a reduction in the rate of Participant’s Base Salary and Target Bonus; or (C) a material breach by the Company; provided that Participant shall have given the Company written notice specifying in reasonable detail the circumstances claimed to constitute Good Reason within thirty (30) days following the occurrence, without Participant’s consent, of any of the events in clauses (A)–(C), and the Company shall not have cured the circumstances set forth in Participant’s notice of termination within thirty (30) days of receipt of such notice.
(v)“Incentive Stock Option” means an Option that is designated by the Committee as an incentive stock option as described in Section 422 of the Code and otherwise meets the requirements set forth in the Plan.
(w)“Nonqualified Stock Option” means an Option that is not designated by the Committee as an Incentive Stock Option.
(x)“Option” means an Award granted under Section 7 of the Plan.
(y)“Option Period” has the meaning given such term in Section 7(c) of the Plan.
(z)“Participant” means an Eligible Person who has been selected by the Committee to participate in the Plan and to receive an Award pursuant to Section 6 of the Plan.
(aa)“Person” means an individual, company, corporation, partnership, trust, joint venture, limited liability company, unincorporated organization or other legal entity, or a government or any agency or political subdivision thereof.
(bb)“Plan” means this Hamilton Insurance Group, Ltd. 2023 Equity Incentive Plan, as amended from time to time.
(cc)“Prior Plan” means the Hamilton Insurance Group, Ltd. 2013 Equity Incentive Plan, as amended from time to time.
(dd)“Restricted Period” means the period of time determined by the Committee during which an Award is subject to restrictions.
(ee)“Restricted Stock Unit” means an unfunded and unsecured promise to deliver Common Shares, cash, other securities or other property, subject to certain restrictions
(including, without limitation, a requirement that the Participant provide Continuous Service for a specified period of time), granted under Section 9 of the Plan.
(ff)“Restricted Stock” means Common Shares, subject to certain specified restrictions (including, without limitation, a requirement that the Participant provide Continuous Service for a specified period of time), granted under Section 9 of the Plan.
(gg)“SAR Period” has the meaning given such term in Section 8(c) of the Plan.
(hh)“Securities Act” means the U.S. Securities Act of 1933, as amended, and any successor thereto. Reference in the Plan to any section of the Securities Act shall be deemed to include any rules, regulations or other interpretative guidance under such section, and any amendments or successor provisions to such section, rules, regulations or guidance.
(ii)“Stock Appreciation Right” or “SAR” means an Award granted under Section 8 of the Plan.
(jj)“Stock Bonus Award” means an Award granted under Section 10 of the Plan.
(kk)“Strike Price” means, except as otherwise provided by the Committee in the case of Substitute Awards, (i) in the case of a SAR granted in tandem with an Option, the Exercise Price of the related Option, or (ii) in the case of a SAR granted independent of an Option, the Fair Market Value on the Date of Grant.
(ll)“Substitute Award” has the meaning given such term in Section 5(f).
3.Effective Date; Duration. The Plan shall be effective as of the Effective Date. The expiration date of the Plan, on and after which date no Awards may be granted hereunder, shall be the tenth anniversary of the Effective Date, except that no Incentive Stock Options may be granted hereunder following the tenth (10th) anniversary of the earlier of (a) the date the Plan is adopted by the Board and (ii) the date the shareholders of the Company approve the Plan; provided, however, that such expiration shall not affect Awards then outstanding, and the terms and conditions of the Plan shall continue to apply to such Awards.
4.Administration. (a) The Committee (subject to Section 4(d) hereof) shall administer the Plan. To the extent required to comply with the provisions of Rule 16b-3 promulgated under the Exchange Act or the rules under the NYSE Listed Company Manual (if the Board is not acting as the Committee under the Plan), it is intended that each member of the Committee shall, at the time he or she takes any action with respect to an Award under the Plan, be an Eligible Director. However, the fact that a Committee member shall fail to qualify as an Eligible Director shall not invalidate any Award granted by the Committee that is otherwise validly granted under the Plan.
(b)Subject to the provisions of the Plan (including Section 4(d) hereof) and applicable law, the Committee shall have the sole and plenary authority, in addition to other express powers and authorizations conferred on the Committee by the Plan, to: (i) designate Participants; (ii) determine the type or types of Awards to be granted to a Participant;
(iii) determine the number of Common Shares to be covered by, or with respect to which payments, rights, or other matters are to be calculated in connection with, Awards; (iv) determine the terms and conditions of any Award; (v) determine whether, to what extent, and under what circumstances Awards may be settled or exercised in cash, Common Shares, other securities, other Awards or other property, or canceled, forfeited, or suspended and the method or methods by which Awards may be settled, exercised, canceled, forfeited, or suspended; (vi) determine whether, to what extent, and under what circumstances the delivery of cash, Common Shares, other securities, other Awards or other property and other amounts payable with respect to an Award shall be deferred either automatically or at the election of the Participant or of the Committee; (vii) interpret, administer, reconcile any inconsistency in, correct any defect in and/or supply any omission in the Plan, any Award Agreement or other instrument or agreement relating to the Plan or an Award granted thereunder; (viii) establish, amend, suspend, or waive any rules and regulations and appoint such agents as the Committee may deem appropriate for the proper administration of the Plan; (ix) accelerate the vesting or exercisability of, payment for or lapse of restrictions on, Awards; and (x) make any other determination and take any other action that the Committee deems necessary or desirable for the administration of the Plan.
(c)Unless otherwise expressly provided in the Plan, all designations, determinations, interpretations, and other decisions under or with respect to the Plan or any Award Agreement shall be within the sole discretion of the Committee, may be made at any time and shall be final, conclusive and binding upon all persons or entities, including, without limitation, the Company, any Affiliate, any Participant, any holder or beneficiary of any Award, and any stockholder of the Company.
(d)Notwithstanding anything to the contrary contained in the Plan, the Board may, in its sole discretion, at any time and from time to time, grant Awards and administer the Plan with respect to such Awards. In any such case, the Board shall have all the authority granted to the Committee under the Plan.
(e)Notwithstanding anything herein or an Award Agreement to the contrary, all determinations made under the Plan shall be made consistent with the Bye-laws.
5.Grant of Awards; Shares Subject to the Plan.
(a)The Committee may, from time to time, grant Options, Stock Appreciation Rights, Restricted Stock, Restricted Stock Units, and/or Stock Bonus Awards to one or more Eligible Persons.
(b)Subject to Section 11 of the Plan, the total number of Common Shares reserved and available for Awards granted under the Plan shall equal the sum of (i) [l] Common Shares,1 and (ii) to the extent that an award outstanding under the Prior Plan as of the Effective Date is forfeited, cancelled, expires unexercised, is settled in cash or otherwise terminated without a delivery to the grantee of the full number of shares to which the award related, the number of shares th
1 NTD: Initial pool to be 7% of the fully-diluted capitalization as of the IPO, plus an additional number of Common Shares equal to 7% on a fully-diluted basis of the Common Shares sold in the IPO.
at are undelivered, up to a maximum of 3,862,237 Common Shares. Unless the Committee acts, prior to the first day of a given fiscal year, to provide otherwise, the total number of Common Shares reserved and available for delivery in connection with Awards under the Plan will be increased on the first day of each fiscal year, for a period of not more than ten (10) years from the date the Plan was first approved by the stockholders of the Company, commencing on the first day of the second fiscal year following the Company’s fiscal year in which the Effective Date occurs and ending (and including) the first day of the fiscal year commencing in 2033, in an amount equal to the lesser of (A) two percent (2%) of the outstanding Common Shares on the last day of the immediately preceding fiscal year, and (B) such number of Common Shares as is determined by the Committee.
(c)No more than [l]2 Common Shares (subject to adjustment as provided in Section 11 hereof) reserved for issuance hereunder may be issued or transferred upon exercise or settlement of Incentive Stock Options.
(d)Use of Common Shares to pay the required Exercise Price or tax obligations, or that are used or withheld to satisfy tax obligations of the Participant shall, notwithstanding anything herein to the contrary, not be available again for other Awards under the Plan. Other than with respect to Substitute Awards, Common Shares underlying Awards under this Plan that are forfeited, are cancelled, expire unexercised, or are settled in cash are available again for Awards under the Plan.
(e)Common Shares delivered by the Company in settlement of Awards may be authorized and unissued shares, shares held in the treasury of the Company, shares purchased on the open market or by private purchase, or a combination of the foregoing.
(f)Awards may, in the sole discretion of the Committee, be granted under the Plan in assumption of, or in substitution for, outstanding awards previously granted by an entity acquired by the Company or with which the Company combines (“Substitute Awards”). Except as may be required by reason of Section 422 of the Code, the number of Common Shares underlying any Substitute Awards shall not be counted against the aggregate number of Common Shares available for Awards under the Plan as contemplated by, as applicable, NYSE Listed Company Manual Section 303A.08 or other applicable stock exchange rules, and their respective successor rules and listing exchange promulgations.
(g)Notwithstanding anything herein to the contrary, the maximum value of any Awards granted to a non-employee director of the Company in any one calendar year, taken together with any cash fees paid to such non-employee director during such calendar year in respect of the non-employee director’s services as a member of the Board during such year, shall not exceed $750,000 (calculating the value of any such Awards based on the grant date fair value of such Awards for financial reporting purposes).
2 NTD: To be the number of Common Shares equal to the initial pool in Section 5(a).
6.Eligibility. Participation shall be limited to Eligible Persons who have entered into an Award Agreement or who have received written notification from the Committee, or from a person designated by the Committee, that they have been selected to participate in the Plan.
7.Options.
(a)Generally. Each Option granted under the Plan shall be evidenced by an Award Agreement. Each Option so granted shall be subject to the conditions set forth in this Section 7, and to such other conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement. All Options granted under the Plan shall be Nonqualified Stock Options unless the applicable Award Agreement expressly states that the Option is intended to be an Incentive Stock Option. Incentive Stock Options shall be granted only to Eligible Persons who are employees of the Company and its Affiliates, and no Incentive Stock Option shall be granted to any Eligible Person who is ineligible to receive an Incentive Stock Option under the Code. No Option shall be treated as an Incentive Stock Option unless the Plan has been approved by the stockholders of the Company in a manner intended to comply with the stockholder approval requirements of Section 422(b)(1) of the Code, provided that any Option intended to be an Incentive Stock Option shall not fail to be effective solely on account of a failure to obtain such approval, but rather such Option shall be treated as a Nonqualified Stock Option unless and until such approval is obtained. In the case of an Incentive Stock Option, the terms and conditions of such grant shall be subject to and comply with such rules as may be prescribed by Section 422 of the Code. If for any reason an Option intended to be an Incentive Stock Option (or any portion thereof) shall not qualify as an Incentive Stock Option, then, to the extent of such nonqualification, such Option or portion thereof shall be regarded as a Nonqualified Stock Option appropriately granted under the Plan.
(b)Exercise Price. The exercise price (“Exercise Price”) per Common Share for each Option shall not be less than one hundred percent (100%) of the Fair Market Value of such share determined as of the Date of Grant; provided, however, that, in the case of an Incentive Stock Option granted to an employee who, at the time of the grant of such Option, owns shares representing more than ten percent (10%) of the voting power of all classes of shares of the Company or any Affiliate, the Exercise Price per share shall not be less than one hundred ten percent (110%) of the Fair Market Value per share on the Date of Grant and provided further that, notwithstanding any provision herein to the contrary, the Exercise Price shall not be less than the par value per Common Share.
(c)Vesting and Expiration. Options shall vest and become exercisable in such manner and on such date or dates determined by the Committee and set forth in an Award Agreement, and shall expire after such period, not to exceed ten (10) years, as may be determined by the Committee (the “Option Period”); provided, however, that the Option Period shall not exceed five (5) years from the Date of Grant in the case of an Incentive Stock Option granted to a Participant who on the Date of Grant owns shares representing more than ten percent (10%) of the voting power of all classes of shares of the Company or any Affiliate; provided, further, that, notwithstanding any vesting dates set by the Committee, the Committee may, in its sole discretion, accelerate the exercisability of any Option, which acceleration shall
not affect the terms and conditions of such Option other than with respect to exercisability; but in no event shall an Option granted to an employee who is a non-exempt employee for purposes of overtime pay under the U.S. Fair Labor Standards Act of 1938 be exercisable earlier than six months after its date of grant.
(d)Method of Exercise and Form of Payment. No Common Shares shall be delivered pursuant to any exercise of an Option until payment in full of the Exercise Price therefor is received by the Company and the Participant has paid to the Company an amount equal to any U.S. federal, state, local and non-U.S. income and employment taxes required to be withheld and has satisfied any other condition set forth in the applicable Award Agreement for exercise of such Option. Options that have become exercisable may be exercised by delivery of written or electronic notice of exercise to the Company in accordance with the terms of the Option accompanied by payment of the Exercise Price. The Exercise Price shall be payable (i) in cash or by check and; (ii) by such other method as the Committee may permit in accordance with applicable law, in its sole discretion, including without limitation: (A) in Common Shares or other property having a Fair Market Value on the date of exercise at least equal to the Exercise Price or (B) if there is a public market for the Common Shares at such time, by means of a broker-assisted “cashless exercise” pursuant to which the Company is delivered a copy of irrevocable instructions to a stockbroker to sell the Common Shares otherwise deliverable upon the exercise of the Option and to deliver promptly to the Company an amount equal to the Exercise Price or (C) by a “net exercise” method whereby the Company withholds from the delivery of the Common Shares for which the Option was exercised that number of Common Shares having a Fair Market Value equal to the aggregate Exercise Price for the Common Shares for which the Option was exercised. Any fractional Common Shares shall be settled in cash.
(e)Notification upon Disqualifying Disposition of an Incentive Stock Option. Each Participant awarded an Incentive Stock Option under the Plan shall notify the Company in writing immediately after the date he or she makes a disqualifying disposition of any Common Shares acquired pursuant to the exercise of such Incentive Stock Option. A disqualifying disposition is any disposition (including, without limitation, any sale) of such Common Shares before the later of (i) two (2) years after the Date of Grant of the Incentive Stock Option or (ii) one (1) year after the date of exercise of the Incentive Stock Option. The Company may, if determined by the Committee and in accordance with procedures established by the Committee, retain possession of any Common Shares acquired pursuant to the exercise of an Incentive Stock Option as agent for the applicable Participant until the end of the period described in the preceding sentence.
(f)Compliance With Laws, etc. Notwithstanding the foregoing, in no event shall a Participant be permitted to exercise an Option in a manner that the Committee determines would violate the Sarbanes-Oxley Act of 2002, if applicable, or any other applicable law or the applicable rules and regulations of the U.S. Securities and Exchange Commission, the Bermuda Monetary Authority or other similar regulatory authority or the applicable rules and regulations of any securities exchange or inter-dealer quotation system on which the securities of the Company are listed or traded.
8.Stock Appreciation Rights.
(a)Generally. Each SAR granted under the Plan shall be evidenced by an Award Agreement. Each SAR so granted shall be subject to the conditions set forth in this Section 8, and to such other conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement. Any Option granted under the Plan may include tandem SARs. The Committee also may award SARs to Eligible Persons independent of any Option.
(b)Strike Price. The Strike Price per Common Share for each SAR shall not be less than one hundred percent (100%) of the Fair Market Value of such share determined as of the Date of Grant; provided, however, that, notwithstanding any provision herein to the contrary, the Strike Price shall not be less than the par value per Common Share.
(c)Vesting and Expiration. A SAR granted in connection with an Option shall become exercisable and shall expire according to the same vesting schedule and expiration provisions as the corresponding Option. A SAR granted independent of an Option shall vest and become exercisable and shall expire in such manner and on such date or dates determined by the Committee and shall expire after such period, not to exceed ten years, as may be determined by the Committee (the “SAR Period”); provided, however, that, notwithstanding any vesting dates set by the Committee, the Committee may, in its sole discretion, accelerate the exercisability of any SAR, which acceleration shall not affect the terms and conditions of such SAR other than with respect to exercisability.
(d)Method of Exercise. SARs that have become exercisable may be exercised by delivery of written or electronic notice of exercise to the Company in accordance with the terms of the Award, specifying the number of SARs to be exercised and the date on which such SARs were awarded.
(e)Payment. Upon the exercise of a SAR, the Company shall pay to the Participant an amount equal to the number of shares subject to the SAR that are being exercised multiplied by the excess, if any, of the Fair Market Value of one (1) Common Share on the exercise date over the Strike Price, less an amount equal to any U.S. federal, state, local and non-U.S. income and employment taxes to be withheld. The Company shall pay such amount in cash, in Common Shares valued at Fair Market Value, or any combination thereof, as determined by the Committee. Any fractional Common Share shall be settled in cash.
9.Restricted Stock and Restricted Stock Units.
(a)Generally. Each grant of Restricted Stock and Restricted Stock Units shall be evidenced by an Award Agreement. Each such grant shall be subject to the conditions set forth in this Section 9, and to such other conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement.
(b)Restricted Accounts; Escrow or Similar Arrangement. (i) Upon the grant of Restricted Stock, a book entry in a restricted account shall be established in the Participant’s name and, if the Committee determines that the Restricted Stock shall be held by the Company
or in escrow rather than held in such restricted account pending the release of the applicable restrictions, the Committee may require the Participant to additionally execute and deliver to the Company (A) an escrow agreement satisfactory to the Committee, if applicable, and (B) the appropriate share transfer form (endorsed in blank) with respect to the Restricted Stock covered by such agreement. If a Participant shall fail to execute an agreement evidencing an Award of Restricted Stock and, if applicable, an escrow agreement and transfer form (endorsed in blank) within the amount of time specified by the Committee, the Award shall be null and void. Subject to the restrictions set forth in this Section 9 and the applicable Award Agreement, the Participant generally shall have the right to receive dividends, if applicable; provided, that, unless otherwise set forth in an Award Agreement, dividends that are attributable to any particular share of Restricted Stock shall be withheld by the Committee and shall be distributed to the Participant upon the release of restrictions on such share and, if such share is forfeited, the Participant shall have no right to such dividends. To the extent shares of Restricted Stock are forfeited, any share certificates issued to the Participant evidencing such shares shall be returned to the Company, and all rights of the Participant to such shares and as a stockholder with respect thereto shall terminate without further obligation on the part of the Company.
(ii)Upon the grant of Restricted Stock Units, a book entry in a separate ledger restricted unit account shall be established in the Participant’s name. If a Participant shall fail to execute an agreement evidencing an Award of Restricted Stock Units within the amount of time specified by the Committee, the Award shall be null and void. Upon the settlement of the Restricted Stock Units pursuant to Section 9(d), such Restricted Stock Units shall no longer be credited to the restricted unit account. Unless otherwise set forth in an applicable Award Agreement, the Participant generally shall not have the right to receive dividends, if any, or dividend equivalents with respect to Restricted Stock Units prior to the settlement of the Restricted Stock Units; provided, that, if the grant of Restricted Stock Units includes a right to dividend equivalents and dividends are declared during the period that the Restricted Stock Units are outstanding, dividend equivalents that are attributable to any particular Restricted Stock Units shall be withheld by the Committee and shall be distributed to the Participant upon the release of the restrictions on such Restricted Stock Units and, if such Restricted Stock Units are forfeited, the Participant shall have no right to such dividend equivalents.
(c)Vesting; Acceleration of Lapse of Restrictions. The vesting terms applicable to Awards granted under this Section 9 shall be set forth in an Award Agreement.
(d)Delivery of Restricted Stock and Settlement of Restricted Stock Units. (i) Upon the expiration of the Restricted Period with respect to any shares of Restricted Stock, the restrictions set forth in the applicable Award Agreement shall be of no further force or effect with respect to such shares, except as set forth in the applicable Award Agreement. If an escrow arrangement is used, upon such expiration, the Company shall deliver to the Participant, or his or her beneficiary, without charge, the share certificate evidencing the shares of Restricted Stock that have not then been forfeited and with respect to which the Restricted Period has expired (rounded down to the nearest full share). Dividends, if any, that may have been withheld by the Committee and attributable to any particular share of Restricted Stock shall be distributed to the Participant in cash or, at the sole discretion of the Committee, in shares of Common Stock
having a Fair Market Value equal to the amount of such dividends, upon the release of restrictions on such share and, if such share is forfeited, the Participant shall have no right to such dividends (except as otherwise set forth by the Committee in the applicable Award Agreement).
(ii)Unless otherwise provided by the Committee in an Award Agreement, upon the expiration of the Restricted Period with respect to any outstanding Restricted Stock Units, the Company shall deliver to the Participant, or his or her beneficiary, without charge, one (1) Common Share for each such outstanding Restricted Stock Unit, save in the case of performance vesting Restricted Stock Units under which a Participant may be eligible to receive more than one (1) Common Share for each such outstanding performance vesting Restricted Stock Unit, depending on the level of performance attainment relative to objectives and targets established by the Committee; provided, however, that the Committee may, in its sole discretion, elect to (A) pay cash or part cash and part Common Shares in lieu of delivering only Common Shares in respect of such Restricted Stock Units or (B) defer the delivery of Common Shares (or cash or part Common Shares and part cash, as the case may be) beyond the expiration of the Restricted Period if such delivery would result in a violation of applicable law until such time as is no longer the case. If a cash payment is made in lieu of delivering Common Shares, the amount of such payment shall be equal to the Fair Market Value of the Common Shares as of the date on which the Restricted Period lapsed with respect to such Restricted Stock Units, less an amount equal to any U.S. federal, state, local and non-U.S. income and employment taxes required to be withheld.
10.Stock Bonus Awards. The Committee may issue unrestricted Common Shares, or other Awards denominated in Common Shares, under the Plan to Eligible Persons, either alone or in tandem with other awards, in such amounts as the Committee shall from time to time in its sole discretion determine. Each Stock Bonus Award granted under the Plan shall be evidenced by an Award Agreement. Each Stock Bonus Award so granted shall be subject to such conditions not inconsistent with the Plan as may be reflected in the applicable Award Agreement.
11.Changes in Capital Structure and Similar Events. Unless otherwise provided in an Award Agreement, in the event of (a) any extraordinary dividend or other distribution (whether in the form of cash, Common Shares, other securities or other property), recapitalization, stock split, reverse stock split, reorganization, merger, amalgamation, consolidation, split-up, split-off, combination, repurchase or exchange of Common Shares or other securities of the Company, issuance of warrants or other rights to acquire Common Shares or other securities of the Company, or other similar corporate transaction or event (including, without limitation, a Change in Control) that affects the Common Shares, or (b) unusual or nonrecurring events (including, without limitation, a Change in Control) affecting the Company, any Affiliate, or the financial statements of the Company or any Affiliate, or changes in applicable rules, rulings, regulations or other requirements of any governmental body or securities exchange or inter-dealer quotation system, accounting principles or law, such that in either case an adjustment is determined by the Committee in its sole discretion to be necessary or appropriate, then the Committee shall make
any such adjustments in such manner as it may deem equitable, including without limitation any or all of the following:
(i)adjusting any or all of (A) the number of Common Shares or other securities of the Company (or number and kind of other securities or other property, including cash) that may be delivered in respect of Awards or with respect to which Awards may be granted under the Plan and (B) the terms of any outstanding Award, including, without limitation, (1) the number of Common Shares or other securities of the Company (or number and kind of other securities or other property, including cash) subject to outstanding Awards or to which outstanding Awards relate, (2) the Exercise Price or Strike Price with respect to any Award or (3) any applicable performance measures;
(ii)adjusting the performance criteria in respect of an Award;
(iii)providing for a substitution or assumption of Awards, accelerating the exercisability of, lapse of restrictions on, or termination of, Awards or providing for a period of time for exercise prior to the occurrence of such event; and
(iv)canceling any one or more outstanding Awards and causing to be paid to the holders thereof, in cash, Common Shares, other securities or other property, or any combination thereof, the value of such Awards, if any, as determined by the Committee (which if applicable may be based upon the price per Common Share received or to be received by other stockholders of the Company in such event), including without limitation, in the case of an outstanding Option or SAR, a cash payment in an amount equal to the excess, if any, of the Fair Market Value (as of a date specified by the Committee) of the Common Shares subject to such Option or SAR over the aggregate Exercise Price or Strike Price of such Option or SAR, respectively (it being understood that, in such event, Option or SAR having a per share Exercise Price or Strike Price equal to, or in excess of, the Fair Market Value of a Common Share subject thereto may be canceled and terminated without any consideration therefor); provided, however, that any adjustment in Incentive Stock Options under this Section 11 (other than any cancellation of Incentive Stock Options) shall be made only to the extent not constituting a “modification” within the meaning of Section 424(h)(3) of the Code, and any adjustments under this Section 11 shall be made in a manner that does not adversely affect the exemption provided pursuant to Rule 16b-3 under the Exchange Act, to the extent applicable. Any adjustment made by the Company hereunder shall be conclusive and binding for all purposes.
12.Effect of Change in Control. Unless otherwise determined by the Committee or evidenced in an Award Agreement, the provisions of this Section 12 shall apply, as applicable:
(a)With respect to each outstanding Award that is assumed or substituted by the acquiring entity or ultimate parent in connection with a Change in Control and in the event of a termination of a Participant’s employment or service, including termination with Good Reason, (in any case, other than for Cause) within a period of twelve months commencing on the date of the Change in Control, on the date of such termination (i) such Award shall become fully vested and, if applicable, immediately exercisable, (ii) the restrictions, payment conditions and forfeiture conditions applicable to any such Award granted shall lapse, and (iii) all incomplete
performance periods in effect on the date of a Change in Control shall end on the date of such Change in Control with all applicable performance conditions being deemed to have been achieved based on the Participant’s estimated performance but, in any event, not less than target performance (as reduced pro-rata to reflect the portion of the year worked by the Participant prior to termination of their employment).
(b)In the event of a Change in Control, in connection with which the Awards are not assumed or substituted by the acquiring entity or ultimate parent, the Committee may provide, in its sole discretion, for the cancellation of any portion of the Awards that remain outstanding as of the date of the Change in Control in exchange for payment in cash or other property, and in the same form as the consideration paid in the transaction resulting in the Change in Control, equal to (i) the excess (if any) of the per share transaction consideration over the Exercise Price or Strike Price multiplied by the number of Common Shares underlying such Option or SAR, respectively, and (ii) with respect to an Award other than an Option or SAR, the per share transaction consideration, multiplied by the number of any Common Shares subject to such Award.
(c)For purposes of this Section 12, an Award shall be considered assumed or substituted by the acquiring entity or ultimate parent if (i) the Award remains subject to substantially similar terms and conditions that were applicable to the Award immediately prior to the Change in Control except that the Award instead confers the right to receive common stock of the acquiring entity or in the case of an amalgamation, the amalgamated company or its parent and (ii) immediately following the Change in Control, the aggregate economic value of the Award is preserved. By way of example, without limitation, for this purpose the economic value shall mean (A) with respect to an Option, the excess (if any) of the per share transaction consideration over the Exercise Price multiplied by the number of Common Shares underlying such Option, and (B) with respect to a Restricted Stock Unit, the per share transaction consideration, multiplied by the number of any Common Shares subject to such Restricted Stock Unit.
13.Amendments and Termination.
(a)Amendment and Termination of the Plan. The Board may amend, alter, suspend, discontinue, or terminate the Plan or any portion thereof at any time; provided, that no such amendment, alteration, suspension, discontinuation or termination shall be made without stockholder approval if such approval is necessary to comply with any tax or regulatory requirement applicable to the Plan (including, without limitation, as necessary to comply with any rules or requirements of any securities exchange or inter-dealer quotation system on which the Common Shares may be listed or quoted); provided, further, that any such amendment, alteration, suspension, discontinuance or termination that would materially and adversely affect the rights of any Participant or any holder or beneficiary of any Award theretofore granted shall not to that extent be effective without the consent of the affected Participant, holder or beneficiary, except as provided in Section 14(i).
(b)Amendment of Award Agreements. The Committee may, to the extent consistent with the terms of any applicable Award Agreement, waive any conditions or rights under, amend
any terms of, or alter, suspend, discontinue, cancel or terminate, any Award theretofore granted or the associated Award Agreement, prospectively or retroactively; provided that any such waiver, amendment, alteration, suspension, discontinuance, cancellation or termination that would materially and adversely affect the rights of any Participant with respect to any Award theretofore granted shall not to that extent be effective without the consent of the affected Participant; provided, further, that the Committee may not take any action without stockholder approval to the extent that stockholder is necessary to comply with any applicable tax or regulatory requirement.
(c)No Repricing of Awards Without Stockholder Approval. Notwithstanding Sections 13(a) or 13(b) above, or any other provision of the Plan, the repricing of Awards shall not be permitted without stockholder approval. For this purpose, a “repricing” means any of the following (or any other action that has the same effect as any of the following): (i) changing the terms of an Award to lower its exercise or base price (other than on account of capital adjustments resulting from share splits, etc., as described in Section 11 hereof), (ii) any other action that is treated as a repricing under GAAP, and (iii) repurchasing for cash or canceling an Award in exchange for another Award at a time when its exercise or base price is greater than the Fair Market Value of the underlying Stock, unless the cancellation and exchange occurs in connection with an event set forth in Section 11 hereof.
14.General.
(a)Award Agreements. Each Award under the Plan shall be evidenced by an Award Agreement, which shall be delivered to the Participant and shall specify the terms and conditions of the Award and any rules applicable thereto, including without limitation, the effect on such Award of the termination of the Participant’s Continuous Service with the Company or its Affiliates, or of such other events as may be determined by the Committee.
(b)Non-Transferability. Each Award shall be exercisable only by a Participant during the Participant’s lifetime, or, if permissible under applicable law, by the Participant’s legal guardian or representative. No Award may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a Participant other than by will or by the laws of descent and distribution and any such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance shall be void and unenforceable against the Company or an Affiliate; provided that the designation of a beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance.
(c)Clawback/Recoupment Policy. Notwithstanding anything contained herein to the contrary, all Awards granted under the Plan shall be and remain subject to any incentive compensation clawback or recoupment policy currently in effect or as may be adopted by the Board (or a committee or subcommittee of the Board) and, in each case, as may be amended from time to time. No such policy adoption or amendment shall in any event require the prior consent of any Participant. No recovery of compensation under such a clawback policy will be an event giving rise to a right to resign for Good Reason or “constructive termination” (or similar term) under the Plan or any agreement with the Company or any of its Affiliates. In the event
that an Award is subject to more than one such policy, the policy with the most restrictive clawback or recoupment provisions shall govern such Award, subject to applicable law.
(d)Data Privacy. As a condition of receipt of any Award, each Participant explicitly and unambiguously consents to the collection, use, and transfer, in electronic or other form, of personal data as described in this Section 14(d) by and among, as applicable, the Company and its Affiliates for the exclusive purpose of implementing, administering, and managing the Plan and Awards and the Participant’s participation in the Plan. In furtherance of such implementation, administration, and management, the Company and its Affiliates may hold certain personal information about a Participant, including, but not limited to, the Participant’s name, home address, telephone number, date of birth, social security or insurance number or other identification number, salary, nationality, job title(s), information regarding any securities of the Company or any of its Affiliates, and details of all Awards (the “Data”). In addition to transferring the Data amongst themselves as necessary for the purpose of implementation, administration, and management of the Plan and Awards and the Participant’s participation in the Plan, the Company and its Affiliates may each transfer the Data to any third parties assisting the Company in the implementation, administration, and management of the Plan and Awards and the Participant’s participation in the Plan. Recipients of the Data may be located in the Participant’s country or elsewhere, and the Participant’s country and any given recipient’s country may have different data privacy laws and protections. By accepting an Award, each Participant authorizes such recipients to receive, possess, use, retain, and transfer the Data, in electronic or other form, for the purposes of assisting the Company in the implementation, administration, and management of the Plan and Awards and the Participant’s participation in the Plan, including any requisite transfer of such Data as may be required to a broker or other third party with whom the Company or the Participant may elect to deposit any Common Shares. The Data related to a Participant will be held only as long as is necessary to implement, administer, and manage the Plan and Awards and the Participant’s participation in the Plan. A Participant may, at any time, view the Data held by the Company with respect to such Participant, request additional information about the storage and processing of the Data with respect to such Participant, recommend any necessary corrections to the Data with respect to the Participant, or refuse or withdraw the consents herein in writing, in any case without cost, by contacting his or her local human resources representative. The Company may cancel the Participant’s eligibility to participate in the Plan, and in the Committee’s discretion, the Participant may forfeit any outstanding Awards if the Participant refuses or withdraws the consents described herein. For more information on the consequences of refusal to consent or withdrawal of consent, Participants may contact their local human resources representative.
(e)Tax Withholding. (i) A Participant shall be required to pay to the Company or any Affiliate, and the Company or any Affiliate shall have the right and is hereby authorized to withhold, from any cash, Common Shares, other securities or other property deliverable under any Award or from any compensation or other amounts owing to a Participant, the amount (in cash, Common Shares, other securities or other property) of any withholding taxes or other amounts in respect of an Award, its exercise, or any payment or transfer under an Award or
under the Plan and to take such other action as may be necessary in the opinion of the Committee or the Company to satisfy all obligations for the payment of such withholding and taxes.
(ii)Without limiting the generality of clause (i) above, the Committee may, in its sole discretion, permit a Participant to satisfy, in whole or in part, the foregoing withholding liability by (A) the delivery of Common Shares owned by the Participant having a Fair Market Value equal to such withholding liability or (B) having the Company withhold from the number of Common Shares otherwise issuable or deliverable pursuant to the exercise or settlement of the Award or to arrange a mandatory “sell to cover” on the Participant’s behalf (without further authorization) a number of shares with a Fair Market Value equal to such withholding liability (but no more than the maximum required statutory withholding liability in the Participant’s applicable jurisdictions), but in no event will the Company withhold Common Shares or “sell to cover” if such withholding would result in adverse accounting or compliance consequences to the Company. The maximum tax-related obligations are based on the applicable rates of the relevant tax authorities (for example, federal, state and local), including the Participant’s share of payroll or similar taxes, as provided in the tax law, regulations or the authority’s administrative practices, not to exceed the highest statutory rate in that jurisdiction. Any elections to have Common Shares withheld or sold for this purpose will be made in accordance with the requirements established by the Committee for such elections and be in writing in a form acceptable to the Committee.
(f)No Claim to Awards; No Rights to Continued Employment; Waiver. No employee of the Company or an Affiliate, or other person, shall have any claim or right to be granted an Award under the Plan or, having been selected for the grant of an Award, to be selected for a grant of any other Award. There is no obligation for uniformity of treatment of Participants or holders or beneficiaries of Awards. The terms and conditions of Awards and the Committee’s determinations and interpretations with respect thereto need not be the same with respect to each Participant and may be made selectively among Participants, whether or not such Participants are similarly situated. Neither the Plan nor any action taken hereunder shall be construed as giving any Participant any right to be retained in the Continuous Service of the Company or an Affiliate, nor shall it be construed as giving any Participant any rights to continued service on the Board. The Company or any of its Affiliates may at any time dismiss a Participant from employment or discontinue any consulting or other relationship, free from any liability or any claim under the Plan, unless otherwise expressly provided in the Plan or any Award Agreement. By accepting an Award under the Plan, a Participant shall thereby be deemed to have waived any claim to continued exercise or vesting of an Award or to damages or severance entitlement related to non-continuation of the Award beyond the period provided under the Plan or any Award Agreement, notwithstanding any provision to the contrary in any written employment contract or other agreement between the Company and its Affiliates and the Participant, whether any such agreement is executed before, on or after the Date of Grant.
(g)International Participants. With respect to Participants who reside or work outside of Bermuda, the Committee may in its sole discretion amend the terms of the Plan or outstanding Awards with respect to such Participants (or adopt a sub-plan) in order to conform such terms
with the requirements of local law or to obtain more favorable tax or other treatment for a Participant, the Company or its Affiliates.
(h)Designation and Change of Beneficiary. Each Participant may file with the Committee a written designation of one or more persons as the beneficiary(ies) who shall be entitled to receive the amounts payable with respect to an Award, if any, due under the Plan upon his or her death. A Participant may, from time to time, revoke or change his or her beneficiary designation without the consent of any prior beneficiary by filing a new designation with the Committee. The last such designation received by the Committee shall be controlling; provided, however, that no designation, or change or revocation thereof, shall be effective unless received by the Committee prior to the Participant’s death, and in no event shall it be effective as of a date prior to such receipt. If no beneficiary designation is filed by a Participant, the beneficiary shall be deemed to be his or her spouse or, if the Participant is unmarried at the time of death, his or her estate.
(i)Termination of Employment/Service; Change in Time Commitment. Unless determined otherwise by the Committee at any point following such event: (i) neither a temporary absence from employment or service due to illness, vacation or leave of absence nor a transfer from employment or service with the Company to employment or service with an Affiliate (or vice-versa) shall be considered a termination of Continuous Service with the Company or an Affiliate; and (ii) if a Participant’s employment with the Company and its Affiliates terminates, but such Participant continues to provide Continuous Service to the Company and its Affiliates in a non-employee capacity (or vice-versa), such change in status shall not be considered a cessation of Continuous Service with the Company or an Affiliate. In the event a Participant’s regular level of time commitment in the performance of his or her services for the Company or any of its Affiliates is reduced (for example, and without limitation, if the Participant is an employee of the Company and the employee has a change in status from a full-time employee to a part-time employee) after the date of grant of any Award to the Participant, the Committee has the right in its sole discretion to (A) make a corresponding reduction in the number of Common Shares subject to any portion of such Award that is scheduled to vest or become payable after the date of such change in time commitment, and (B) in lieu of or in combination with such a reduction, extend the vesting or payment schedule applicable to such Award. In the event of any such reduction, the Participant will have no right with respect to any portion of the Award that is so reduced or extended.
(j)Treatment of Awards Upon a Retirement. Upon a Participant’s retirement, and as determined by the Committee and set forth in an Award Agreement, Awards (or any part thereof) granted to such Participant may accelerate, continue to vest, provide for an extended period of time in which to exercise an Award upon a Participant’s termination of employment or service with the Company or an Affiliate or contain any other terms and conditions as the Committee deems appropriate; provided, however, that in no event shall a Participant be eligible for retirement benefits for purposes of any Award prior to the completion of at least five (5) complete years of Continuous Service.
(k)No Rights as a Stockholder. Except as otherwise specifically provided in the Plan or any Award Agreement, no person shall be entitled to the privileges of ownership in respect of Common Shares that are subject to Awards hereunder until such shares have been issued or delivered to that person, such person’s name is entered in the register of stockholders and such person satisfies all conditions hereunder, in the Bye-laws and in the Award Agreement.
(l)Government and Other Regulations. The obligation of the Company to settle Awards in Common Shares or other consideration shall be subject to all applicable laws, rules, and regulations, and to such approvals by governmental agencies as may be required. The Committee shall have the authority to provide that all certificates for Common Shares or other securities of the Company or any Affiliate delivered under the Plan shall be subject to such stop transfer orders and other restrictions as the Committee may deem advisable under the Plan, the applicable Award Agreement, applicable securities laws, or the rules, regulations and requirements of the U.S. Securities and Exchange Commission or other similar regulatory authority, any securities exchange or inter-dealer quotation system upon which such shares or other securities are then listed or quoted and any other applicable U.S. federal, state, local or non-U.S. laws, and, without limiting the generality of Section 9 of the Plan, the Committee may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions. Notwithstanding any provision in the Plan to the contrary, the Committee reserves the right to add any additional terms or provisions to any Award granted under the Plan that it in its sole discretion deems necessary or advisable in order that such Award complies with the legal requirements of any governmental entity to whose jurisdiction the Award is subject.
(m)Payments to Persons Other Than Participants. If the Committee shall find that any person to whom any amount is payable under the Plan is unable to care for his or her affairs because of illness or accident, or is a minor, or has died, then any payment due to such person or his or her estate (unless a prior claim therefor has been made by a duly appointed legal representative) may, if the Committee so directs the Company, be paid to his or her spouse, child, relative, an institution maintaining or having custody of such person, or any other person deemed by the Committee to be a proper recipient on behalf of such person otherwise entitled to payment. Any such payment shall be a complete discharge of the liability of the Committee and the Company therefor.
(n)Non-Exclusivity of the Plan. Neither the adoption of this Plan by the Board nor the submission of this Plan to the stockholders of the Company for approval, to the extent applicable, shall be construed as creating any limitations on the power of the Board to adopt such other incentive arrangements as it may deem desirable, including, without limitation, the granting of stock options or other equity-based awards otherwise than under this Plan, and such arrangements may be either applicable generally or only in specific cases.
(o)No Trust or Fund Created. Neither the Plan nor any Award shall create or be construed to create a trust or separate fund of any kind or a fiduciary relationship between the Company or any Affiliate, on the one hand, and a Participant or other person or entity, on the other hand. No provision of the Plan or any Award shall require the Company, for the purpose of satisfying any obligations under the Plan, to purchase assets or place any assets in a trust or other
entity to which contributions are made or otherwise to segregate any assets, nor shall the Company maintain separate bank accounts, books, records or other evidence of the existence of a segregated or separately maintained or administered fund for such purposes. Participants shall have no rights under the Plan other than as unsecured general creditors of the Company, except that insofar as they may have become entitled to payment of additional compensation by performance of Continuous Service, they shall have the same rights as other employees under general law.
(p)No Liability of Committee Members. Neither any member of the Committee nor any of the Committee’s permitted delegates shall be liable personally by reason of any contract or other instrument executed by such member or on his or her behalf in his or her capacity as a member of the Committee or for any mistake of judgment made in good faith, and the Company shall indemnify and hold harmless each member of the Committee and each other employee, officer, or director of the Company to whom any duty or power relating to the administration or interpretation of the Plan may be allocated or delegated, against all costs and expenses (including counsel fees) and liabilities (including sums paid in settlement of a claim) arising out of any act or omission to act in connection with the Plan, unless arising out of such Person’s own fraud or willful misconduct; provided, however, that approval of the Board shall be required for the payment of any amount in settlement of a claim against any such Person. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such Persons may be entitled under the Company’s certificate or articles of incorporation or Bye-laws, each as may be amended from time to time, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.
(q)Reliance on Reports. Each member of the Committee and each member of the Board shall be fully justified in acting or failing to act, as the case may be, and shall not be liable for having so acted or failed to act in good faith, in reliance upon any report made by the independent public accountant of the Company and its Affiliates and/or any other information furnished in connection with the Plan by any agent of the Company or the Committee or the Board, other than himself.
(r)Relationship to Other Benefits. No payment under the Plan shall be taken into account in determining any benefits under any pension, retirement, profit sharing, group insurance or other benefit plan of the Company except as otherwise specifically provided in such other plan.
(s)Governing Law. The Plan, each Award Agreement hereunder and each related agreement shall be governed by and construed in accordance with the laws of Bermuda without reference to the principles of conflict of law thereof and the Company and any Participant accepting an Award hereunder irrevocably agree that any dispute or claim which may arise out of or in connection with the Plan, or Award Agreement, shall be referred to and determined by arbitration in Bermuda by sole arbitrator appointed by agreement between the parties and in default of agreement, then the arbitrator is to be appointed by the Appointments’ Committee of the Chartered Institute of Arbitrators Bermuda Branch. The courts of Bermuda shall have exclusive jurisdiction to hear and determine any application for relief in aid of an arbitration
commenced pursuant to this Section 14(s) (including any application for interim or conservatory measures prior to the appointment of an arbitrator) except that the Company and any Participant may bring proceedings before any court or other judicial authority for the purposes of enforcing any award rendered by the arbitrator hereunder.
(t)Severability. If any provision of the Plan or any Award or Award Agreement is or becomes or is deemed to be invalid, illegal, or unenforceable in any jurisdiction or as to any person or entity or Award, or would disqualify the Plan or any Award under any law deemed applicable by the Committee, such provision shall be construed or deemed amended to conform to the applicable laws, or if it cannot be construed or deemed amended without, in the determination of the Committee, materially altering the intent of the Plan or the Award, such provision shall be construed or deemed stricken as to such jurisdiction, person or entity or Award and the remainder of the Plan and any such Award shall remain in full force and effect.
(u)Obligations Binding on Successors. The obligations of the Company under the Plan shall be binding upon any successor corporation or organization resulting from the merger, amalgamation, consolidation or other reorganization of the Company, or upon any successor corporation or organization succeeding to substantially all of the assets and business of the Company.
(v)Expenses; Gender; Titles and Headings. The expenses of administering the Plan shall be borne by the Company and its Affiliates. Masculine pronouns and other words of masculine gender shall refer to both men and women. The titles and headings of the sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings shall control.
(w)Other Agreements. Notwithstanding the above, the Committee may require, as a condition to the grant of and/or the receipt of Common Shares under an Award, that the Participant execute lock-up, shareholder or other agreements, as it may reasonably determine in its sole and absolute discretion.
(x)Payments. Participants shall be required to pay, to the extent required by applicable law, any amounts required to receive Common Shares under any Award made under the Plan.
(y)Section 409A/457A. The intent of the Company is that payments and benefits under the Plan comply with Section 409A and 457A of the Code to the extent subject thereto, and, accordingly, to the maximum extent permitted, the Plan shall be interpreted and be administered to be in compliance therewith. Any payments described in the Plan that are due within the “short-term deferral period” as defined in Section 409A of the Code shall not be treated as deferred compensation unless applicable law requires otherwise. Notwithstanding anything to the contrary in the Plan, no payment or distribution under this Plan that constitutes an item of deferred compensation under Section 409A of the Code and becomes payable by reason of a Participant’s termination of employment or service with the Company will be made to such Participant until such Participant’s termination of employment or service constitutes a “separation from service” (as defined in Section 409A of the Code). Notwithstanding anything to
the contrary in the Plan, to the extent required in order to avoid accelerated taxation and/or tax penalties under Section 409A of the Code, amounts that would otherwise be payable and benefits that would otherwise be provided during the six (6) month period immediately following the Participant’s termination of employment shall instead be paid on the first business day after the date that is six (6) months following the Participant’s separation from service (or upon the Participant’s death, if earlier). In addition, for purposes of the Plan, each amount to be paid or benefit to be provided to the Participant pursuant to the Plan that constitutes deferred compensation subject to Section 409A of the Code, shall be construed as a separate identified payment for purposes of Section 409A of the Code. The Company makes no representation that any or all of the payments or benefits described in this Plan will be exempt from or comply with Section 409A or 457A of the Code and makes no undertaking to preclude Section 409A or 457A of the Code from applying to any such payment. The Participant shall be solely responsible for the payment of any taxes and penalties incurred under Section 409A and 457A.
* * *
Exhibit 10.6
Execution Version
SECOND AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This SECOND AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”) is made as of September 12, 2023, by and between Giuseppina C. Albo (“Executive”) and Hamilton Insurance Group, Ltd. (the “Company”).
W I T N E S S E T H:
WHEREAS, Executive has been continuously employed by the Company since January 22, 2018, most recently under the terms and conditions exclusively set forth in that certain Amended and Restated Employment Agreement, dated June 24, 2022, by and between the Company and Executive (the “Prior Agreement”); and
WHEREAS¸ the Company desires to continue to employ Executive, and Executive desires to continue to be employed by the Company, under the terms and conditions of this Agreement, as may be amended from time to time.
NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1. Employment. During the Employment Term (as defined below), Executive shall be employed as the Chief Executive Officer of the Company, subject to the terms and conditions set forth herein. Executive represents and warrants that (i) Executive will not use during her employment any documents containing any trade secret, or confidential or proprietary information of any third parties, (ii) effective as of the Effective Date (as defined below), Executive’s employment hereunder and Executive’s performance as contemplated hereby will not, at any time and in any way, conflict with or breach any confidentiality, noncompetition, nonsolicitation or other agreement or obligation to which Executive is a party or to which Executive may be subject, and (iii) Executive has obtained, and at all times since the Effective Date has maintained, the required Bermuda work permit.
2. Employment Term. The parties agree that the Employment Term shall commence on consummation of the Company’s initial public offering (the “Effective Date”) and, subject to earlier termination in accordance with Section 7 below, Executive shall be employed for a term ending on the third anniversary of the Effective Date; provided, however, that on the third anniversary of the Effective Date (and on each succeeding expiration date thereof), such period of employment shall automatically extend for an additional one (l) year period, subject to earlier termination in accordance with Section 7 below (such period of employment from the Effective Date, subject to any earlier termination, the “Employment Term”), unless either the Company or Executive provides written notice of its or her intent to terminate it at least six (6) months prior to the applicable anniversary date. Executive’s employment shall terminate upon any expiration of the Employment Term unless the parties shall otherwise hereafter agree.
3. Duties.
(a) During the Employment Term. Executive shall (i) perform such duties and exercise such powers in relation to the business of the Group Companies (as defined below) as may from time to time be lawfully assigned to or vested in Executive by the Board of Directors of the Company (the “Board”) consistent with her position as the senior-most officer of the Company (including having all employees reporting directly or indirectly to her), (ii) report directly and exclusively to the Board, (iii) use Executive’s best efforts to faithfully and diligently serve the business and affairs of the Group Companies and to establish, promote, develop and extend their business, giving the full benefit of Executive’s knowledge, expertise, technical skill and ingenuity, (iv) devote Executive’s business time, energy and skill to the business of the Group Companies, and shall not engage in any other business, profession or occupation, for compensation or otherwise, that would conflict or materially interfere with the rendition of such services, either directly or indirectly, without the prior written consent of the Board, and (v) comply with all policies and procedures of the Group Companies (including those in the Code of Conduct or any employee manual and those regarding conducting the business affairs of the Group Companies), as may be in effect from time to time. Upon receipt of written consent of the Board, Executive may engage in the activities set forth on Schedule A.
(b) For purposes of this Agreement, (i) “Group Company” or “Group Companies” means the Company and any company that is from time to time a parent or holding company of the Company, a direct or indirect subsidiary company of the Company, a direct or indirect subsidiary company of a holding company of the Company or a company in which the Company owns, directly or indirectly, at least 50% of the issued share capital, or any individual member of such group (excluding the Company) as the context requires; (ii) “holding company” and “subsidiary company” have the respective meanings assigned thereto by Section 86 of the Companies Act 1981 (the “Companies Act”), but irrespective of whether it is a company based in, or organized under the laws of, Bermuda or an overseas company; (iii) “Business” means (a) the insurance or reinsurance business, (b) the contemplation, creation and/or execution of the insurance or reinsurance business, including all aspects of the planning and “start up” of such activities, and (c) any other business in which the Group Companies are engaged on the last day of Executive’s employment with the Company; and (iv) “Change in Control” has the meaning defined in the Hamilton Insurance Group, Ltd. 2023 Stock Incentive Plan (as amended from time to time) (the “Equity Plan”).
(c) Without affecting the general right of the Company to terminate Executive’s employment hereunder for Cause (as defined in Section 7(c)) or the right of Executive to terminate her employment for Good Reason (as defined in Section 7(f)) under this or any other agreement with the Group Companies, the Company reserves the right to require Executive not to attend work and/or not to undertake all or any of Executive’s duties hereunder, without any suspension, reduction or offset of any compensation or benefits due or accruing under Section 4 or under the Annual Target Awards (defined below) during the Employment Term.
(d) Executive shall serve on the Board, and any other Board of Directors of a Group Company as directed by the Board during the Employment Term for no additional compensation; provided, however, that after an initial public offering of the Company, the Company will only be obligated to cause Executive to be nominated for election to the Board; and provided, further, that
the foregoing will not be required to the extent prohibited by legal or regulatory requirements. At the time of her termination of employment with the Company for any reason, Executive agrees that she shall resign from all offices she may hold with any Group Company and, if requested to do so by the Company, the Board, and any other Board of Directors of a Group Company on which Executive serves.
(e) Executive shall have an office at the Company’s principal offices in Hamilton, Bermuda and shall perform her services in that location, as well as in other locations as Executive determines necessary to fulfill her duties and responsibilities, subject to compliance with the Company’s tax operating guidelines.
4. Compensation and Related Matters. As full compensation for Executive’s performance of Executive’s duties and responsibilities hereunder during the Employment Term, the Company shall pay Executive the compensation and provide the benefits set forth below and in Section5. Executive’s compensation and benefits shall be reviewed annually by the Board during the Employment Term, and Executive’s Base Salary, Target Bonus and Annual Target Awards may be increased, but not decreased. All cash payments to be made hereunder shall be in U.S. dollars and shall be paid to a bank account in the United States as designated by Executive.
(a) Base Salary. During the Employment Term, the Company shall pay Executive an annual base salary at a rate of $1,300,000 per annum (the “Base Salary”) in accordance with the Company’s customary payroll practices.
(b) Cash Incentive Program. Each year during the Employment Term, Executive shall be eligible to earn an incentive award under the Company’s annual cash incentive plan as may be in effect from time to time (the “Annual Bonus”). Executive’s target Annual Bonus opportunity shall be calibrated at a target of 160% of Base Salary (the “Target Bonus”), and Executive’s Annual Bonus opportunity shall range from a minimum of 0% of the Target Bonus to a maximum of 200% of the Target Bonus. The Annual Bonus for any fiscal year, if any, shall be determined by the Company’s achievement of financial and non-financial goals, the terms of which shall be established by the Compensation Committee of the Board (the “Committee”), after consultation with Executive. The Committee shall determine achievement of the applicable performance criteria and the amount (if any) of any Annual Bonus. The determinations of the Committee in respect of the Annual Bonus shall be final and binding on all parties absent manifest error. The Annual Bonus, if any, will be paid at the same time that the Company pays annual bonuses to its other executive employees (in the calendar year immediately following the end of the fiscal year to which such Annual Bonus relates), subject to Executive’s continued employment with the Company through the payment date, except as otherwise provided for in this Agreement.
(c) Equity Incentives. Each year during the Employment Term, Executive will be granted restricted stock unit (“RSU”) and performance stock unit (“PSU”) awards (together, the “Annual Target Awards”), as determined by the Committee, all of which will be granted under the Equity Plan (or any successor thereto), and any Annual Target Awards granted to Executive under the Equity Plan (or any successor thereto) shall be communicated by, and be subject to the terms and conditions of, a written award agreement between the Company and Executive. For 2023 and until such time as the Committee may, at their discretion amend the same based on the Company’s achievement of the designated performance metrics established by the Committee and after
consultation with Executive, the target grant date value for the Annual Target Awards shall be calibrated at 250% of Base Salary. These awards shall be issued as follows: (a) 50% of the Annual Target Awards will be in the form of RSUs (determined based on the fair market value) which shall vest over a three year vesting period being: one-third (1/3) of the common shares subject thereto shall vest on January 1 for each successive year over a three year period from the year in which such RSU award was granted and (b) 50% of the Annual Target Awards will be in the form of PSUs (determined based on the fair market value), which PSUs shall cliff-vest on the third anniversary of January 1st of the year in which such PSU award was granted based on the Company’s achievement of the designated performance metrics established by the Committee (with the payout percentage ranging from 0-200%), in each case, subject to Executive’s continued employment with the Company from the grant date through such vesting date (except as otherwise provided pursuant to Section 8(c) and Section 8).
(d) Benefits.
(i) During the Employment Term Executive shall be entitled to participate in the employee benefit plans and insurance programs of the Company (or those plans and programs of a Group Company designated by the Company) sponsored from time to time for its employees generally, including executive life and disability insurance. Nothing herein shall be deemed to prohibit the Company from amending or terminating any such plan or program in its sole and absolute discretion; provided, however, that in the event that the Company terminates, during the Employment Term, any health or welfare insurance benefit plans or programs applicable to Executive and her husband and eligible dependents (and in which any of the foregoing parties participate as of such termination), the Company shall replace such terminated health or welfare insurance benefits with equivalent private health or welfare insurance benefits at its sole cost.
(ii) During the Employment Term, the Company shall, at Executive’s option, contribute an amount equal to 10% of Executive’s Base Salary to a pension plan for the benefit of Executive, in accordance with the terms of such pension plan, or pay such amount to Executive in cash (provided that such amount shall not be considered part of “Base Salary” for any purpose).
(e) Vacation. During the Employment Term, Executive shall be entitled to twenty-five (25) paid business days as vacation, to be accrued, used, paid and forfeited in accordance with the Company’s policies as in effect from time to time.
(f) Legal Fees. Upon presentation of appropriate documentation, the Company shall pay Executive’s reasonable legal fees and costs incurred in connection with the negotiation and documentation of this Agreement and related exhibits, not to exceed $25,000 in the aggregate.
(g) Currency. All amounts (if any) paid or payable by the Company to Executive hereunder shall be denominated in U.S. dollars.
(h) Applicable Withholding. All payments under this Agreement shall be subject to all applicable foreign, federal, state and local withholdings, as well as all authorized or required deductions.
5. Reimbursement. During the Employment Term and subject to any policies from time to time adopted by the Board, Executive shall be reimbursed for business-related expenses reasonably
incurred by Executive in the course of Executive’s duties hereunder. Executive shall be entitled to business class travel and accommodations. All amounts payable under this Section 5 shall be subject to Executive’s presentment to the Company of appropriate documentation.
6. Confidentiality; Disclosure.
(a) Executive shall not, either during Executive’s employment hereunder (other than in the proper good faith performance of Executive’s duties hereunder) or at any time after the termination thereof for any or no reason, divulge to any person, and shall use Executive’s reasonable endeavors to prevent the publication or disclosure of, any trade secret or other confidential information concerning the business, finances, investments, accounts, dealings, transactions, shareholders (other than Executive), persons or entities associated with such shareholders (other than Executive) or affairs of the Group Companies or of any of their respective clients entrusted to Executive or arising or coming to Executive’s knowledge during the course of Executive’s employment hereunder or otherwise; provided that the foregoing shall not prevent or limit Executive from complying with any applicable law or with the directive of any court or administrative body or agency having the legal authority to compel testimony from or the production of documents by Executive; provided, further, that Executive shall (i) promptly notify the Board of any such intended disclosure prior to such disclosure, (ii) at the written request of the Company, diligently contest such disclosure at the expense of the Company, and (iii) at the written request of the Company, seek to obtain, at the expense of the Company, such confidential treatment as may be available under applicable laws for any information so disclosed. The provisions of this Section 6(a) shall not apply to any information that is or becomes publicly known other than as a result of Executive’s wrongful actions.
(b) Executive shall, upon the termination of Executive’s employment hereunder, immediately deliver to the Company all documents, schedules, lists, charts, correspondence and other data, information and other property belonging to any of the Group Companies or related to any of the matters referred to in Section 6(a) that may have been prepared by Executive or have come into Executive’s possession and shall not retain any copies thereof. Executive shall not at any time after the termination of Executive’s employment hereunder wrongfully represent herself as being employed by or connected with the Group Companies.
7. Termination. Executive’s employment shall terminate upon the first to occur of:
(a) Executive’s death;
(b) Executive being unable to perform Executive’s duties and responsibilities hereunder due to Executive’s Disability. For purposes of this Agreement, the term “Disability” means that Executive has been unable to perform the duties and responsibilities required of Executive hereunder due to a physical and/or mental disability for a period of more than 180 days, whether or not consecutive, during any one (l) year period; provided that any such periods may be extended at the sole discretion of the Board;
(c) the termination of Executive’s employment by the Company for Cause. For purposes of this Agreement, “Cause” means any of the following acts or occurrences:
(i) Executive’s conviction of, or pleading guilty or nolo contendere to a felony;
(ii) Executive’s gross negligence or willful misconduct in connection with Executive’s employment that causes or is likely to cause significant loss or damage to any of the Group Companies;
(iii) Executive’s conduct that constitutes fraud, material misrepresentation or embezzlement;
(iv) Executive’s willful material breach of this Agreement or any other agreement with any of the Group Companies, which, in the case of a non-recurring breach capable of being cured, remains uncured after fifteen (15) days following notice by the Board of such breach;
(v) Executive being adjudicated by a governmental agency, rating agency or self- regulatory organization to have violated any statute or regulation under such agency’s or organization’s jurisdiction which has or is reasonably likely to have a material adverse impact on the reputation and standing in the community of the Company; or
(vi) Executive failing to maintain any licenses necessary to perform Executive’s duties hereunder; provided, no act or omission to act by Executive shall be “willful” if such conduct was in good faith and with a reasonable belief that such act or omission was in the best interests of the Company;
(d) the resignation by Executive without Good Reason upon one hundred eighty (180) days’ prior written notice to the Company;
(e) the termination of Executive’s employment by the Company without Cause upon one hundred eighty (180) days’ prior written notice to Executive; and
(f) the termination of Executive’s employment by Executive with Good Reason. For purposes of this Agreement, the term “Good Reason” means:
(i) a material adverse change in Executive’s title, position, duties, authority or responsibilities (including reporting responsibilities);
(ii) a reduction in the rate of Executive’s Base Salary, Target Bonus or Annual Target Awards;
(iii) a relocation of Executive’s principal office outside of Hamilton, Bermuda; or
(iv) a material breach by the Company of any agreement to which it is a party with Executive;
provided, that Executive shall have given the Company written notice specifying in reasonable detail the circumstances claimed to constitute Good Reason within thirty (30) days following Executive’s knowledge of the occurrence, without Executive’s consent, of any of the events in clauses (i)-(iv), and the Company shall not have cured the circumstances set forth in Executive’s Notice of Termination within thirty (30) days of receipt of such notice; and
(g) the expiration of the Employment Term in accordance with Section 2.
8. Termination Procedure and Benefits.
(a) Notice of Termination. Any termination of Executive’s employment by the Company or by Executive (other than by reason of Executive’s death) shall be communicated by a written Notice of Termination to the other party hereto in accordance with Section 15(j) of this Agreement. For purposes of this Agreement, a “Notice of Termination” means a notice that indicates the specific termination provision in this Agreement relied upon and, in circumstances in which the Company is terminating Executive’s employment for Cause, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment for Cause, and specifies the Date of Termination consistent with the provisions of Section 8(b).
(b) Date of Termination. For purposes of this Agreement, “Date of Termination” means:
(i) if Executive’s employment is terminated pursuant to Section 7(a), the date of Executive’s death;
(ii) if Executive’s employment is terminated pursuant to Section 7(b), five (5) days after delivery of the Notice of Termination (provided that Executive has not returned to the substantial performance of Executive’s duties on a full-time basis during such five (5) day period);
(iii) if Executive’s employment is terminated pursuant to Section 7(c), the date set forth in the Notice of Termination; provided, that the Notice of Termination shall not be effective until any applicable cure period under Section 7(c) has expired without the event or events leading to such termination having been cured;
(iv) if Executive’s employment is terminated pursuant to Section 7(d), the date that is between one (1) day following such notice and the six (6)-month anniversary of such notice, as determined by the Company in its sole discretion (but if so determined to be less than six (6) months, the Company shall continue to pay to Executive the Base Salary and provide to Executive the benefits and vacation set forth in Sections 4(d) and 4(e) for the unexpired portion of such six (6)-month notice period), which the Company shall communicate to Executive within five (5) days of receiving such written notice;
(v) if Executive’s employment is terminated pursuant to Section 7(e), the date set forth in the Notice of Termination, which shall not be less than one hundred eighty (180) days from the delivery of such notice;
(vi) if Executive’s employment is terminated pursuant to Section 7(f), the date set forth in the Notice of Termination, which, unless waived by the Company, shall not be less than one hundred eighty (180) days from the delivery of such notice; provided, that (x) any such waiver by the Company shall be disregarded in the event of a Change in Control during such one hundred eighty (180)-day period, and (y) the Notice of Termination shall not be effective until any applicable cure period under Section 7(f) has expired without the event or events leading to such termination having been cured, and;
(vii) if Executive’s employment is terminated pursuant to Section 7(g), upon the last day of the Employment Term.
(c) Termination Payment and Benefits.
(i) In the event that Executive’s employment is terminated for any reason, she shall receive: (1) payment for any accrued but unpaid Base Salary and benefits up to the Date of Termination; (2) any then unpaid Annual Bonus with respect to the year prior to the year in which the Notice of Termination is provided (except in the event of a termination for Cause), but in no event later than the date that is two and one-half (2½) months following the last day of the fiscal year in which such Notice of Termination is provided; (3) any accrued but unused vacation; and (4) any accrued but unpaid reimbursable expenses up to the Date of Termination (all of the foregoing, the “Accrued Benefits”).
(ii) In the event that Executive is terminated pursuant to Sections 7(a), 7(b), 7(e), 7(f) or 7(g) (due to the Company’s non-renewal of this Agreement in accordance with Section 2 (i.e., the Company elects not to renew this Agreement on the same or more favorable terms)), then in addition to the Accrued Benefits, Executive shall receive, subject to her execution and non-revocation of a mutual general release of claims in favor of the Company in the form attached as Schedule B within sixty (60) days of the Date of Termination (the “Release Requirement”): (1) a pro-rated Annual Bonus for the year in which the Notice of Termination was received, pro-rated based on the number of days of Executive’s employment from the commencement of the fiscal year until the Date of Termination, determined based on the Company’s actual performance for the entire year and paid at the time that the Annual Bonus otherwise would have been payable; (2) continued provision of health insurance coverage for Executive and her husband and eligible dependents for the twelve (12)-month period immediately following the Date of Termination; and (3) effective as of the Date of Termination, except as otherwise provided in an agreement between Executive and the Company, vesting of all unvested time-based vesting equity-based compensation awards, including RSUs, that would have vested in the twelve (12)-month period immediately following the Date of Termination.
(iii) In the event that Executive is terminated pursuant to Sections 7(e), 7(f) or 7(g) (due to the Company’s non-renewal of this Agreement in accordance with Section 2 (i.e., the Company elects not to renew this Agreement on the same or more favorable terms)), then in addition to all of the foregoing and subject to her satisfaction of the Release Requirement, Executive shall also receive (1) continued Base Salary payments for the longer of (x) the remainder of the then-current Employment Term (after expiration of any notice period and without any further extension) had such termination not occurred and (y) the twenty-four (24)-month period immediately following the Date of Termination, payable in substantially equal installments in accordance with the Company’s customary payroll practices, provided that to the extent that the payment of any amount constitutes “nonqualified deferred compensation” for purposes of Section 409A of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), any such payment scheduled to occur during the first sixty (60) days following the Date of Termination shall not be paid until the first regularly scheduled pay period following the sixtieth (60th) day following the Date of Termination and shall include payment of any amount that was otherwise scheduled to be paid prior thereto, and (2) a lump sum cash payment equal to 100% of Executive’s Target Bonus
for the year in which the Date of Termination occurs, payable on the sixtieth (60th) day following the Date of Termination.
9. Change in Control. In addition to any amounts payable to Executive set out in Section 8 above or pursuant to any other agreement between Executive and the Company, if there is a Change in Control of the Company and, within twelve (12) months following the Change in Control directly or indirectly in connection with it:
(i) the Company terminates Executive’s employment (other than for Cause pursuant to Section 7(c)); or
(ii) Executive serves notice to terminate her employment in accordance with Section 7(f) with Good Reason, all outstanding RSU and PSU awards shall immediately vest and become immediately exercisable. For the avoidance of doubt, all restrictions, payment conditions and forfeiture conditions applicable to such awards shall lapse and all incomplete performance periods in effect as at the date of the Change in Control shall end effective of the date of the Change in Control, with all performance conditions being deemed to have been achieved based on estimated actual performance (but not less than target performance).
10. Non-Competition; Other Covenants.
(a) Executive acknowledges and agrees that (i) the business of the Group Companies is highly competitive; (ii) the skills and knowledge of the Group Companies’ workforce constitute trade secrets and confidential information; (iii) she will be exposed to, have accesses to, and develop on behalf of the Group Company, trade secrets and confidential information during her employment; (iv) such trade secrets and confidential information are of vital importance to the success of the Group Companies; (v) the disclosure or improper use of any such information would place the Group Companies at a serious competitive disadvantage and could do serious damage, financial and otherwise, to the Group Companies; (vi) Executive may develop relationships with customers, clients or prospective customers or clients of the Group Companies at the time and expense of the Group Companies and that, by Executive’s training, experience and expertise, Executive’s services to the Group Companies are extraordinary, special and unique; (vii) Executive’s experience and capabilities are such that the provisions contained in this Agreement will not prevent Executive from earning a livelihood; (viii) the Group Companies would be seriously and irreparably injured if Executive were to engage in any actions in violation of Section 10 of this Agreement, and that, in the event of such breach or threatened breach, no adequate remedy at law would exist and damages would be difficult to determine; (ix) the provisions contained in Section 10 of this Agreement are justified by, and reasonably necessary to, protect the legitimate business interests of the Group Companies, including the trade secrets, confidential information and goodwill of the Group Companies; (x) Executive is a sophisticated business person and has consulted with an attorney prior to entering into this Agreement; (xi) the Company is entering into this Agreement only because Executive is willing to comply with Section 10 of this Agreement; and (xii) the provisions in this Agreement are fair and reasonable in scope, duration and geographical limitations.
(b) Executive hereby agrees that, during the Non-Compete Period (as defined below), Executive shall not any jurisdiction in the world (the “Geographic Area”), either on Executive’s own account or on behalf of any other person, firm or company, directly or indirectly:
(i) be engaged, interested or concerned with, in or by any business or undertaking that is engaged in or carries on any aspect of the Business (it being agreed that this clause (i) does not prohibit passive ownership by Executive of up to 1% of the issued and outstanding common shares of a company when such class of shares trades publicly on a recognized securities exchange);
(ii) solicit, interfere with, endeavor to entice away from the Group Companies or encourage to reduce the level or change the terms of business conducted with, or ownership by, any person, firm or company who or which as of the Date of Termination or in the period of twelve (12) months immediately prior to such date was a shareholder, customer or client of or regularly dealt with any of the Group Companies, or who at such date was to Executive’s knowledge negotiating with any of the Group Companies in relation to all or part of its business or its ownership, or which or whom Executive learned confidential information, other than any person, firm or company with which or with whom Executive conducted business prior to commencement of employment with the Company; or
(iii) solicit the services of or endeavor to entice away from the Group Companies any director, employee or consultant of a Group Company (whether or not such person would commit any breach of such person’s contract of employment or engagement by reason of leaving the service of such company) who was performing services to the Company on (or within the twelve (12)-month period preceding) the Date of Termination, or employ or engage, or knowingly aid or assist any other person in procuring the employment or engagement of, any such person.
Notwithstanding anything to the contrary in the foregoing, nothing shall prohibit Executive from (A) continuing the activities set forth on Schedule A as permitted under this Agreement, or (B) with the Company’s written consent (not to be unreasonably withheld) serving as an independent member of the Board of Directors of any entity.
(c) The term “Non-Compete Period” means the period beginning on the first day of the Employment Term and ending on the date that is twelve (12) months following the Date of Termination (howsoever caused); provided, however, that (A) the Non-Compete Period shall be extended one (1) day for each day that Executive is not in compliance with the provisions of this Section 10, and (B) the Board, in its discretion, may by written notice to Executive terminate the Non-Compete Period earlier than its scheduled termination.
(d) It is expressly understood and agreed that, although Executive and the Company consider the restrictions contained in this Section 10 to be reasonable, if a determination is made by an arbitrator, arbitration panel or a court of competent jurisdiction that the time or territory or any other restriction contained in this Section 10 is an unenforceable restriction against Executive, then the applicable provision shall not be rendered void, but shall be deemed amended to apply as to the maximum time and territory and to the maximum extent as such court may judicially determine or indicate to be enforceable. If, however, any such arbitrator, arbitration panel or court determines that any such restriction is unenforceable and cannot be amended so as to make it
enforceable, then the provision may be severed and the finding shall not affect the enforceability of any of the other restrictions contained herein.
(e) Executive acknowledges and agrees that the Company’s remedies at law for a breach or threatened breach of any of Executive’s obligations under this Section 10 would be inadequate and, in recognition of this fact, Executive agrees that, in the event of such a breach or threatened breach, in addition to any other remedies available at law or in equity, the Company shall be entitled to an injunction in aid of arbitration without the requirement to post security or a bond.
(f) Executive understands that the provisions of this Section 10 may limit Executive’s ability to earn a livelihood in a business similar to the business of the Company but Executive nevertheless agrees and hereby acknowledges that (i) such provisions do not impose a greater restraint than is necessary to protect the goodwill or other business interests of the Company, (ii) such provisions contain reasonable limitations as to time, geography and scope of activity to be restrained, (iii) such provisions are not harmful to the general public, (iv) such provisions are not unduly burdensome to Executive, (v) the consideration provided hereunder is sufficient to compensate Executive for the restrictions contained in this Section 10, and (vi) the potential harm to the Company of non-enforcement of this Section 10 outweighs any potential harm to Executive of enforcement. In consideration of the foregoing and in light of Executive’s education, skills and abilities, Executive agrees that Executive will not assert that, and it should not be considered that, any provisions of this Section 10 otherwise are void, voidable or unenforceable or should be voided or held unenforceable. The provisions of this Section 10 are an integral part of this Agreement.
(g) Executive shall not at any time (during or after Executive’s employment with the Company) directly or indirectly disparage the reputation of any of the Group Companies or their shareholders, persons or entities associated with such shareholders, officers, directors, agents or employees. The Company through any public statement, the members of the Board and the Company’s officers (while serving in such capacities) shall not at any time (during or after Executive’s employment with the Company) directly or indirectly disparage the reputation of Executive. Notwithstanding the foregoing, truthful statements made by any person in the course of administrative, judicial or arbitral proceedings (including, without limitation, depositions in connection with such proceedings) shall not be subject to these requirements.
(h) Developments. All documents, schedules, lists, charts, correspondence and other data, information and property (and all copies thereof), written or electronic, received, accessed, developed, made or compiled by or on behalf of Executive at any time during or prior to Executive’s employment, relating to any of the Group Companies or their business activities, but excluding Executive’s personal effects and similar items, are and will be the property of the Group Companies, and must, except as otherwise agreed by the Board in writing, be delivered to the Company promptly upon the termination of Executive’s employment with the Company for any or no reason or at any other time upon request. All discoveries, inventions, ideas, technology, formulas, designs, software, programs, algorithms, products, systems, applications, processes, procedures, methods, improvements and enhancements conceived, developed or otherwise made, created or produced by Executive alone or with others, at any time during or prior to Executive’s employment, in any way relating to the business activities, products or services that are the same
as or substantially similar to those utilized or contemplated by any of the Group Companies, whether or not subject to patent, copyright or other protection and whether or not reduced to tangible form (“Developments”), are and will be the sole and exclusive property of the Company. Executive agrees to, and hereby does, assign to the Company, without any further consideration, all of Executive’s right, title and interest throughout the world in and to all Developments. Executive agrees that all Developments that are copyrightable may constitute “works made for hire” under the copyright laws of the United States or “works which are made during and in the course of employment” under section 20(2) of the Copyright and Designs Act 2004 of Bermuda and, as such, acknowledges that the Company is the author of such Developments and owns all of the rights comprised in the copyright of such Developments and Executive hereby assigns to the Company without any further consideration all of the rights comprised in the copyright and other proprietary rights Executive may have in any such Development to the extent that it might not be considered a work made for hire. Executive shall make and maintain adequate and current written records of all Developments and shall disclose all Developments promptly, fully and in writing to the Board promptly after development of the same, and at any time upon request.
11. Cooperation. Following the end of Executive’s employment with the Company, Executive agrees to cooperate fully with the Company in (a) any litigation, administrative proceeding or inquiry that involves the Group Companies or any of their then-current or former shareholders, officers, directors, employees or agents, and/or (b) any investigation or inquiry conducted by or on behalf of the Company or any governmental or regulatory authority, in each case, about which Executive may have knowledge or information. The Company shall reimburse Executive for reasonable expenses incurred in connection with such cooperation. If Executive is participating at the Company’s request and legal counsel is required, the Company shall provide such legal counsel only to the extent permissible by law and if not so permitted will pay (including reasonable advances) all reasonable attorneys’ fees and costs incurred by Executive to engage counsel to the extent permissible by law.
12. No Cooperation with Third Parties. Executive shall not-at any time-counsel or assist any attorneys or their clients in the presentation or prosecution of any disputes, differences, grievances, claims, charges, or complaints known or unknown on behalf of any private third party against the Group Companies or any of their officers, directors, employees, agents, representatives, shareholders or attorneys, unless under a subpoena or other court order to do so.
13. “Key Man” Insurance. Executive agrees to facilitate the Company to purchase and maintain ·’Key Man Insurance” in an amount set by the Board for the benefit of the Group Companies and to reasonably cooperate with the Company and its designated insurance agent to facilitate the purchase and maintenance of such insurance. The Company may determine to purchase and/or maintain such insurance in its sole discretion.
14. Successors. Executive’s performance hereunder is personal to Executive and is not assignable by Executive. The Company may at any time and from time to time delegate its power and authority under this Agreement to any of the Group Companies and such delegation (or the revocation thereof) shall be effective upon the Company’s giving written notice of the same to Executive. The Company may assign this Agreement to any of the Group Companies or to any successor to all or substantially all of the business and/or assets of the Company, whether directly or indirectly, by purchase, merger, amalgamation, consolidation, acquisition of shares, or
otherwise. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. In the event of Executive’s death, the representative of her estate or applicable beneficiary, as the case may be, shall be entitled to all amounts and benefits hereunder that have accrued but remain unpaid or have vested as of the date of her death.
15. Miscellaneous.
(a) Waiver; Amendment. The waiver of or failure of a party to enforce any term, provision or condition of this Agreement at any time or times shall not be deemed a waiver of that term, provision or condition for the future or a waiver of any other term, provision or condition at any time. This Agreement may be amended or modified only by a writing signed by both parties hereto.
(b) Governing Law; Submission to Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to the application of any choice-of-law rules that would result in the application of another state’s laws. The Company and Executive agree that, should any resort to a court be necessary and permitted under this Agreement, then they each consent to the exclusive jurisdiction, forum and venue of the state and federal courts located in New York, New York (Borough of Manhattan).
(c) Arbitration. The Company and Executive mutually consent to the resolution by final and binding arbitration of any and all disputes, controversies or claims related in any way to Executive’s relationship with the Group Companies, including, but not limited to, any dispute, controversy or claim of alleged discrimination, harassment or retaliation (including, but not limited to, claims based on race, sex, sexual preference, religion, national origin, age, marital or family status, medical condition, handicap or disability); any dispute, controversy or claim arising out of or relating to this Agreement or the breach of this Agreement; and any dispute as to the arbitrability of a matter under this Agreement (collectively, “Claims”); provided, however, that nothing in this Agreement shall require arbitration of any Claims which, by law, cannot be the subject of a compulsory arbitration agreement. All Claims and all questions concerning arbitrability of Claims shall be resolved exclusively by arbitration administered by the American Arbitration Association under its National Rules for the Resolution of Employment Disputes then in effect (the “AAA Rules”). Notwithstanding the foregoing, the Company and Executive shall have the right to (i) seek a restraining order or other injunctive or equitable relief or order in aid of arbitration or to compel arbitration, from a court of competent jurisdiction, or (ii) interim injunctive or equitable relief from the arbitrator pursuant to the AAA Rules, in each case to prevent any violation of this Agreement. The Company and Executive must notify the other party in writing of a request to arbitrate any Claims within the same statute of limitations period applicable to such Claims. Any arbitration proceeding brought under this Agreement shall be conducted before one arbitrator in New York, New York (Borough of Manhattan), or such other city to which the parties mutually agree. The arbitrator shall be selected in accordance with the AAA Rules, provided that the arbitrator shall be an attorney with significant experience in employment matters. Each party to any dispute shall pay its own expenses, including attorneys’ fees; provided, however, that the Company shall pay all costs and fees that Executive would not otherwise have been subject to paying if the Claim had been resolved in a court of law. The arbitrator shall be empowered to award either party any remedy at law or in equity that the party would otherwise have been entitled to had the matter been litigated in court, including, but not limited to, general, special and punitive damages, injunctive
relief, costs and attorney fees; provided, however, that the authority to award any remedy is subject to whatever limitations, if any, exist in the applicable law on such remedies. The arbitrator shall issue a decision or award in writing, stating the essential findings of fact and conclusions of law, and the arbitrators shall be required to follow the laws of the State of New York. Any judgment on or enforcement of any award, including an award providing for interim or permanent injunctive relief, rendered by the arbitrator may be entered, enforced or appealed in any court having jurisdiction thereof. Any arbitration proceedings, decision or award rendered hereunder, and the validity, effect and interpretation of this arbitration provision, shall be governed by the Federal Arbitration Act, 9 U.S.C. § 1 et seq. It is part of the essence of this Agreement that any Claims hereunder shall be resolved expeditiously and as confidentially as possible. Accordingly, the Company and Executive agree that all proceedings in any arbitration shall be conducted under seal and kept strictly confidential. In that regard, no party shall use, disclose or permit the disclosure of any information, evidence or documents produced by any other party in the arbitration proceedings or about the existence, contents or results of the proceedings except as necessary and appropriate for the preparation and conduct of the arbitration proceedings, or as may be required by any legal process, or as required in an action in aid of arbitration or for enforcement of or appeal from an arbitral award. Before making any disclosure permitted by the preceding sentence, the party intending to make such disclosure shall give the other party reasonable written notice of the intended disclosure and afford such other party a reasonable opportunity to protect its interests.
(d) Indemnification; Insurance. The Company shall indemnify and hold Executive harmless for all actions and omissions to act while serving as an officer or employee of the Company, a member of the Board, or of the board of directors of any other member of the Group Companies, to the maximum extent permitted by applicable law. The Company shall at all times during Executive’s employment and service as a member of the Board and thereafter during which Executive may be subject to liability for any act or omission subject to such indemnification, cover Executive as an insured under any contract of officers and directors’ liability insurance that covers members of the Board.
(e) Captions. Section and other captions contained in this Agreement are for reference purposes only and are in no way intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof.
(f) Severability. Each provision of this Agreement is intended to be severable. If any term or provision hereof is illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the validity of the remainder of this Agreement.
(g) Interpretation; Counterparts. No provision of this Agreement is to be interpreted for or against any party because that party drafted or did not draft such provision. The words “hereof”, “herein”, “hereunder” and words of similar import refer to this Agreement in its entirety and not to any particular section or paragraph. Except as expressly stated otherwise, references herein to sections or paragraphs refer to the sections or paragraphs of this Agreement. The words “‘including”, “include” and words of similar import shall be deemed to be followed by “without limitation.” References to statutory provisions shall be construed as references to those provisions as amended or re-enacted or as their application is modified by other provisions from time to time and shall include references to any provisions of which they are re-enactments (whether with or without modification). References to the singular include the plural and vice versa and references
to the masculine include the feminine and/or neuter and vice versa. References to persons include natural persons, companies, partnerships, corporations, associations and bodies of persons, whether incorporated or unincorporated. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same instrument Delivery of an executed signature page of this Agreement by facsimile or other electronic means shall be effective as delivery of a manually executed counterpart hereof.
(h) Construction. This Agreement is to be fairly interpreted in accordance with its terms and without any strict construction in favor of or against either of the parties. Each of the parties acknowledges that this Agreement was jointly negotiated, reviewed and approved by them and their respective counsel. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as having been drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement.
(i) U.S. Internal Revenue Code. Notwithstanding anything herein to the contrary, this Agreement is intended to be interpreted and applied so that the payment of the benefits set forth herein either shall either be exempt from the requirements of Sections 409A and 457A of the Code and applicable published guidance thereunder, or shall comply with the requirements of such provisions. Notwithstanding any provision in this Agreement or elsewhere to the contrary, if Executive is a “specified employee” within the meaning of Section 409A of the Code, any payments or benefits due upon a termination of Executive’s employment under any arrangement that constitutes a “deferral of compensation” within the meaning of Section 409A of the Code and which do not otherwise qualify under the exemptions under Treas. Regs. Section 1.409A-1 (including without limitation, the short-term deferral exemption and the permitted payments under Treas. Regs. Section 1.409Al(b)(9)(iii)(A)), shall be delayed and paid or provided on the earlier of (i) the date which is six (6) months after Executive’s separation from service (as such term is defined in Section 409A of the Code and the regulations and other published guidance thereunder) for any reason other than death, and (ii) the date of Executive’s death. Notwithstanding anything in this Agreement or elsewhere to the contrary, distributions upon termination of Executive’s employment may only be made upon a “separation from service” as determined under Section 409A of the Code and such date shall be the Date of Termination for purposes of this Agreement. Each payment under this Agreement or otherwise shall be treated as a separate payment for purposes of Section 409A of the Code. In no event may Executive, directly or indirectly, designate the calendar year of any payment to be made under this Agreement or otherwise which constitutes a “deferral of compensation” within the meaning of Section 409A of the Code. All reimbursements and in-kind benefits provided under this Agreement shall be made or provided in accordance with the requirements of Section 409A of the Code. To the extent that any reimbursements pursuant to this Agreement or otherwise are taxable to Executive, any reimbursement payment due to Executive shall be paid to Executive on or before the last day of Executive’s taxable year following the taxable year in which the related expense was incurred; provided, that, Executive has provided the Company written documentation of such expenses in a timely fashion and such expenses otherwise satisfy the Company’s expense reimbursement policies. Reimbursements pursuant to this Agreement or otherwise are not subject to liquidation or exchange for another benefit and the amount of such reimbursements that Executive receives in one taxable year shall not affect the amount of such reimbursements that Executive receives in any other taxable year. Notwithstanding any of the foregoing to the contrary, the Company and their
respective officers, directors, employees, or agents make no guarantee that the terms of this Agreement as written comply with, or are exempt from, the provisions of Code Sections 409A and 457A, and none of the foregoing shall have any liability for the failure of the terms of this Agreement as written to comply with, or be exempt from, the provisions of Code Sections 409A or 457A.
(i) Liability for Taxes. The issuance of any equity incentive awards described in Section 4 involve complex and substantial tax considerations. Executive should consult with her own tax advisors with respect to any equity incentive awards. The Company makes no warranties or representations whatsoever to Executive regarding the tax consequences of any equity incentive awards or the receipt of shares with respect thereto. Executive shall be solely responsible for any taxes in respect of any equity incentive awards.
(j) Notices. All notices and other communications hereunder must be in writing and shall be deemed to have been duly given if delivered by hand delivery, facsimile (with confirmation of transmission), or overnight courier, in each case addressed as follows:
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| If to the Company: | Hamilton Insurance Group, Ltd. Wellesley House North, First Floor 90 Pitts Bay Road Hamilton HM 08 Bermuda Attention: General Counsel |
| If to Executive: | To Executive’s principal address as reflected in the Company’s records |
or to such other address as either party shall have furnished to the other in writing in accordance herewith. Any such notice or communication shall be deemed to have been delivered on the date of delivery if delivered by hand, on the date of transmission if delivered by facsimile (with confirmation of transmission), on the date of confirmed delivery if delivered by overnight courier.
(k) Clawback Policy. Executive’s compensation will be subject to the Company’s clawback policy in effect from time to time to comply with applicable laws (including without limitation pursuant to the listing standards of any national securities exchange or association on which the Company’s securities are listed or as may be required by the Dodd-Frank Wall Street Reform and Consumer Protection Act) (the “Clawback Policy”). The Company may require Executive to forfeit, return or reimburse the Company or a Group Company all or a portion of Executive’s compensation pursuant to the terms of the Clawback Policy or as necessary or appropriate to comply with applicable laws. No recovery of Executive’s compensation under a Clawback Policy or otherwise will constitute an event that triggers or contributes to any right Executive may have to resign for Good Reason or “constructive termination” (or similar term) under any agreement, arrangement or policy with the Company or a Group Company.
(l) Stock Ownership Requirement. During the Employment Term, Executive shall be expected to maintain ownership of common shares or share equivalents in such amounts and on such terms and conditions as are set forth in the Company’s Share Ownership Guidelines established by the Compensation Committee and in effect from time to time (the “Ownership
Guidelines”). Executive is expected to meet the ownership requirements set forth in the Ownership Guidelines within the time period stated in the Ownership Guidelines.
(m) Entire Agreement. This Agreement (including any schedules or exhibits attached hereto) sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersede all prior agreements, negotiations, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, director, employee or representative of any party hereto in respect of such subject matter, including, without limitation, the Prior Agreement (other than agreements evidencing awards or payments required hereunder or under the Prior Agreement, such as equity grant agreements). Executive and the Company represent that, in executing this Agreement, each party has not relied upon any representation or statement made by the other party, other than those set forth herein, with regard to the subject matter, basis or effect of this Agreement.
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IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement as of the date first above written.
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HAMILTON INSURANCE GROUP, LTD. |
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| By | |
| Name: | Gemma Carreiro |
| Title: | General Counsel |
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EXECUTIVE |
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| Giuseppina C. Albo |
SCHEDULE A
Permissible Activities
Continued service as a member of the Board of Directors of Reinsurance Group of America and nonexecutive senior advisor to Overalls, Inc.
SCHEDULE B
MUTUAL GENERAL RELEASE
On this ____ day of _______________, ____________, I, Giuseppina C. Albo, in consideration of the payments and benefits provided to me pursuant to Section 8(c) of that certain Second Amended and Restated Employment Agreement dated September __, 2023 (the “Employment Agreement”), by and between me and Hamilton Insurance Group, Ltd. (the “Company”), and the release by the Company of the claims against me set forth in paragraph 1 below, do hereby release and forever discharge as of the date hereof the Company and its affiliates and all present, former and future managers, directors, officers, employees, successors and assigns of the Company and its affiliates and direct or indirect owners (collectively, the “Released Parties”) to the extent provided below (this “General Release”). The Released Parties are intended to be third-party beneficiaries of this General Release, and this General Release may be enforced by each of them in accordance with the terms hereof in respect of the rights granted to such Released Parties hereunder.
1. The Company, on its own behalf and on behalf of the Released Parties in their individual and official capacities, hereby releases me and all of my heirs, agents, attorneys, insurers, representatives, and affiliates (each as an intended third party beneficiary) (collectively, the “Executive Released Parties”) from any and all claims from the beginning of time through the date upon which the Company signs this General Release, including claims (a) arising from or in any way relating to my employment and/or service with the Company and/or my separation or termination from such employment and/or service; (b) arising from or in any way related to any agreement with any Released Parties; (c) arising from or in any way related to any awards, policies, plans, programs or practices of any Released Parties that may apply to me or in which I may participate; and/or (d) compensation and/or benefits that] have received from the Company prior to the date hereof; provided that the following claims are not released under this General Release unless the Company had actual knowledge of the underlying facts on or before [date]: (i) claims related to facts concealed by me, (ii) claims for willful misconduct or fraud or (iii) claims based on my material breach of fiduciary duties.
2. Except as provided in paragraphs 5 and 6 below, I knowingly and voluntarily (for myself, my heirs, executors, administrators and assigns) release and forever discharge the Company and the other Released Parties from any and all claims, suits, controversies, actions, causes of action, cross-claims, counter-claims, demands, debts, compensatory damages, liquidated damages, punitive or exemplary damages, other damages, claims for costs and attorneys’ fees, or liabilities of any nature whatsoever in law and in equity, both past and present (through the date on which I execute this General Release) and whether known or unknown, suspected, or claimed against the Company or any of the Released Parties which I, my spouse, or any of my heirs, executors, administrators or assigns, may have, which arise out of or are connected with my employment and/or service with, or my separation or termination from, the Company (including, but not limited to, any allegation, claim or violation, arising under: Title VII of the Civil Rights Act of 1964, as amended; the Civil Rights Act of 1991; the Age Discrimination in Employment Act of 1967, as amended (including the Older Workers Benefit Protection Act); the Equal Pay Act of 1963, as amended; the Americans with Disabilities Act of 1990; the Family and Medical Leave Act of 1993; the Worker Adjustment Retraining and Notification Act; the Employee Retirement
Income Security Act of 1974; any applicable Executive Order Programs; the Fair Labor Standards Act; or their state or local counterparts; or under any other federal, state or local civil or human rights law, or under any other local, state, or federal law, regulation or ordinance; or under any public policy, contract or tort, or under common law; or arising under any policies, practices or procedures of the Company; or any claim for wrongful discharge, breach of contract, infliction of emotional distress, defamation; or any claim for costs, fees, or other expenses, including attorneys’ fees incurred in these matters) (all of the foregoing collectively referred to herein as the “Claims”).
3. The Company represents that it has made no assignment or transfer of any right, claim, demand, cause of action, or other matter covered by paragraph l above. I represent that I have made no assignment or transfer of any right, claim, demand, cause of action, or other matter covered by paragraph 2 above.
4. I agree that this General Release does not waive or release any rights or claims that I may have under the Age Discrimination in Employment Act of 1967 which arise after the date I execute this General Release. I acknowledge and agree that my separation from employment and/or service with the Company shall not serve as the basis for any claim or action (including, without limitation, any claim under the Age Discrimination in Employment Act of 1967).
5. I agree that I hereby waive all rights to sue or obtain equitable, remedial or punitive relief from any or all Released Parties of any kind whatsoever in respect of any Claim, including, without limitation, reinstatement, back pay, front pay, and any form of injunctive relief. Notwithstanding the above, I further acknowledge that I am not waiving and am not being required to waive any right that cannot be waived under law, including the right to file an administrative charge or participate in an administrative investigation or proceeding; provided, however, that I disclaim and waive any right to share or participate in any monetary award resulting from the prosecution of such charge or investigation or proceeding. Additionally, I am not waiving (a) any right to the benefits to which I am entitled under the Employment Agreement, (b) any claim relating to directors’ and officers’ liability insurance coverage or any right of indemnification under the Company’s organizational documents or otherwise, or (c) my rights as an equity or security holder in the Company or its affiliates.
6. In signing this General Release, I acknowledge and intend that it shall be effective as a bar to each and every one of the Claims hereinabove mentioned or implied. I expressly consent that this General Release shall be given full force and effect according to each and all of its express terms and provisions, including those relating to unknown and unsuspected Claims (notwithstanding any state or local statute that expressly limits the effectiveness of a general release of unknown, unsuspected and unanticipated Claims), if any, as well as those relating to any other Claims hereinabove mentioned or implied. I acknowledge and agree that this waiver is an essential and material term of this General Release and that without such waiver the Company would not have agreed to the terms of the Employment Agreement. I further agree that in the event I should bring a Claim seeking damages against the Company, or in the event I should seek to recover against the Company in any Claim brought by a governmental agency on my behalf, this General Release shall serve as a complete defense to such Claims to the maximum extent permitted by law. I further agree that I am not aware of any pending claim of the type described in paragraph 2 above as of the execution of this General Release.
7. I agree that neither this General Release, nor the furnishing of the consideration for this General Release, shall be deemed or construed at any time to be an admission by the Company, any Released Party or myself of any improper or unlawful conduct.
8. The parties agree that if either violates this General Release by suing the other party or the other Released Parties or Executive Released Parties (as applicable), the party that violates the General Release will pay all costs and expenses of defending against the suit incurred by the other party, including reasonable attorneys’ fees.
9. I agree that this General Release and the Employment Agreement are confidential and agree not to disclose any information regarding the terms of this General Release or the Employment Agreement, except to my immediate family and any tax, legal or other counsel I have consulted regarding the meaning or effect hereof or as required by law, and I will instruct each of the foregoing not to disclose the same to anyone.
10. Any non-disclosure provision in this General Release does not prohibit or restrict me (or my attorney) from responding to any inquiry about this General Release or its underlying facts and circumstances by the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), any other self-regulatory organization or any governmental entity.
11. I hereby acknowledge that the Employment Agreement shall survive my execution of this General Release to the extent set forth in the Employment Agreement, including, without limitation, Sections 6, 8, 9, 10, 11, 12, 14 and 15 thereof.
12. I represent that I am not aware of any claim by me other than the Claims that are released by this General Release. I acknowledge that I may hereafter discover claims or facts in addition to or different than those which I now know or believe to exist with respect to the subject matter of the release set forth in paragraph 2 above and which, if known or suspected at the time of entering into this General Release, may have materially affected this General Release and my decision to enter into it.
13. Notwithstanding anything in this General Release to the contrary, this General Release shall not relinquish, diminish, or in any way affect any rights or claims arising out of any breach of the Employment Agreement by either party or by any Released Party or Executive Released Party (as applicable) after the date hereof.
14. Whenever possible, each provision of this General Release shall be interpreted in, such manner as to be effective and valid under applicable law, but if any provision of this General Release is held to be invalid, illegal or unenforceable in any respect under any applicable law or rule in any jurisdiction, such invalidity, illegality or unenforceability shall not affect any other provision or any other jurisdiction, but this General Release shall be reformed, construed and enforced in such jurisdiction as if such invalid, illegal or unenforceable provision had never been contained herein.
15. I agree that, as reasonably requested by the Company with notice, I shall cooperate fully with any pending or future litigation, arbitration, business or investigatory matter. The Company agrees to pay the reasonable expenses associated with such cooperation.
BY SIGNING THIS GENERAL RELEASE, I REPRESENT AND AGREE THAT:
(i) I HAVE READ IT CAREFULLY;
(ii) I UNDERSTAND ALL OF ITS TERMS AND KNOW THAT I AM GIVING UP IMPORTANT RIGHTS, INCLUDING, BUT NOT LIMITED TO, RIGHTS UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, AS AMENDED; TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, AS AMENDED; THE EQUAL PAY ACT OF 1963, THE AMERICANS WITH DISABILITIES ACT OF 1990; AND THE EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974, AS AMENDED;
(iii) I VOLUNTARILY CONSENT TO EVERYTHING IN IT;
(iv) I HAVE BEEN ADVISED TO CONSULT WITH AN ATTORNEY BEFORE EXECUTING IT AND I HAVE DONE SO OR, AFTER CAREFUL READING AND CONSIDERATION, I HAVE CHOSEN NOT TO DO SO OF MY OWN VOLITION;
(v) I HAVE HAD AT LEAST [21][45] DAYS FROM THE DATE OF MY RECEIPT OF THIS RELEASE TO CONSIDER IT, AND THE CHANGES MADE SINCE MY RECEIPT OF THIS RELEASE ARE NOT MATERIAL OR WERE MADE AT MY REQUEST AND WILL NOT RESTART THE REQUIRED [21][45]-DAY PERIOD;
(vi) l UNDERSTAND THAT I HA VE SEVEN (7) DAYS AFTER THE EXECUTION OF THIS RELEASE TO REVOKE IT, AND THAT THIS RELEASE SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE REVOCATION PERIOD HAS EXPIRED;
(vii) I HAVE SIGNED THIS GENERAL RELEASE KNOWINGLY AND VOLUNTARILY AND WITH THE ADVICE OF ANY COUNSEL RETAINED TO ADVISE ME WITH RESPECT TO IT; AND
(viii) I AGREE THAT THE PROVISIONS OF THIS GENERAL RELEASE MAY NOT BE AMENDED, WAIVED, CHANGED OR MODIFIED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY AN AUTHORIZED REPRESENTATIVE OF THE COMPANY AND BY ME.
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HAMILTON INSURANCE GROUP, LTD. |
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| Title: | |
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EXECUTIVE |
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| Giuseppina C. Albo |
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this “Agreement”) is made as of April 27, 2021, by and between Craig Howie (“Executive”) and Hamilton U.S. Services, LLC, a Delaware limited liability company (the “Company”), a wholly owned indirect subsidiary of Hamilton Insurance Group, Ltd. (the “Parent”).
W I T N E S S E T H:
WHEREAS, the Company desires to employ Executive, and Executive desires to be employed by the Company, under the terms and conditions of this Agreement, as may be amended from time to time;
NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1. Employment. During the Employment Term (as defined in Section 2 below), Executive shall be employed as Group Chief Financial Officer, subject to the terms and conditions set forth herein. Executive represents and warrants that (i) Executive is not subject to any impediment, restriction or restraint that would in any way prohibit, hinder or impair Executive’s employment with the Company or Executive’s performance under this Agreement and (ii) Executive’s employment hereunder and Executive’s performance as contemplated hereby, at all times, do not and would not in any way conflict with or breach any confidentiality, noncompetition, non-solicitation or other agreement to which Executive is a party or to which Executive may be subject.
2. Employment Term. Executive agrees to commence employment effective on or around 1 July 2021 (the “Effective Date”), until termination in accordance with Section 7 below (such period of employment, the “Employment Term”).
3. Duties.
(a) During the Employment Term, Executive shall report to the Chief Executive Officer of the Parent (the “CEO”) and shall (i) perform such duties and exercise such powers in relation to the business of the Company, or Group Companies, as may from time to time be assigned to or vested in Executive by the CEO, (ii) use Executive’s best efforts to faithfully and diligently serve the business and affairs of such of the Group Companies as requested by the CEO from time to time and to establish, promote, develop and extend their business, giving the full benefit of Executive’s knowledge, expertise, technical skill and ingenuity, (iii) devote all of Executive’s business time, energy and skill exclusively to the business of Group Companies, and will not, directly or indirectly, engage in any other business or occupation, whether or not pursued for gain, profit or other pecuniary advantage or otherwise that would conflict or materially interfere with the rendition of such services, either directly or indirectly and (iv) comply with all policies and procedures of Group Companies (including without limitation
those in any employee manual and those regarding conducting the business affairs of the Group Companies), as may be in effect from time to time.
(b) For purposes of this Agreement:
(i) “Agreed Benefits” means the provision of medical health insurance coverage in line with the Company’s current medical health insurance policy (the “Policy”), subject to the rules of the Policy, for a maximum of twelve months following the end of the Employment Term or, if sooner, the date on which the Executive obtains substantially comparable medical health insurance under any other contract;
(ii) “Agreed Sum” means a cash amount equivalent to the gross value of one year’s Base Salary as specified in Section 4(a) (as increased from time to time) plus a cash amount equivalent to one year’s Cash Incentive Award (calculated at target) as specified in Section 4(b) (less any sums paid to the Executive by way of notice or payment in lieu of notice);
(iii) “Change in Control” has the meaning defined in the Company’s 2013 Equity Incentive Plan (as amended from time to time);
(iv) “Good Reason” has the meaning defined in the Company’s 2013 Equity Incentive Plan (as amended from time to time);
(v) “Group Company” or “Group Companies” means the Company and any company that is from time to time a parent or holding company of the Company, a direct or indirect subsidiary company of the Company, a direct or indirect subsidiary company of a holding company of the Company or a company in which the Company owns, directly or indirectly, at least fifty percent (50%) of the issued share capital, or any individual member of such group (excluding the Company) as the context requires;
(vi) “holding company” and “subsidiary company” have the respective meaning assigned thereto by Section 86 of The Companies Act 1981 (the “Companies Act”), but irrespective of whether it is a company based in, or organized under the laws of, Bermuda or an overseas company; and
(vii) “Restricted Business” means (i) the insurance or reinsurance business; (ii) the contemplation, creation and/or execution of the insurance or reinsurance business, including all aspects of the planning and “start up” of such activities and (iii) any other business in which the Group Companies are engaged on the last day of Executive’s employment with the Company and with which Executive was materially involved in the twelve months prior to the Date of Termination.
(c) Without affecting the general right of the Company to terminate Executive’s employment hereunder for Cause (as defined in Section 7(b)), the Company reserves the right to require Executive not to attend work and/or not to undertake all or any of Executive’s duties
hereunder during the Employment Term, limited to the duration of the notice period set forth in Section 7(d).
(d) If requested by the Board of Directors of the Parent (the “Parent Board”), Executive will serve as an Executive, officer and/or a member of the board of directors of any the Group Company as requested by the Parent from time to time for no additional compensation.
(e) Executive’s services hereunder generally shall be performed at the Company’s principal offices in the United States from time to time. Executive acknowledges that he may be required to travel to Bermuda on at least a quarterly basis or other locations from time to time in connection with his duties with the applicable Group Companies.
4. Compensation and Related Matters. As full compensation for Executive’s performance of Executive’s duties and responsibilities hereunder during the Employment Term, the Company shall pay Executive the compensation and provide the benefits set forth below and in Section 5:
(a) Base Salary. During the Employment Term, the Company shall pay Executive an annual base salary at a rate of $600,000 (Six Hundred Thousand Dollars) per annum (the “Base Salary”) in accordance with the Company’s customary payroll practices. Executive’s Base Salary will be subject to annual review and increase as determined by the Parent Board in its sole and absolute discretion, and any increased Base Salary will be deemed to then constitute “Base Salary” for all purposes of this Agreement.
(b) Cash Incentive Program. Beginning in the fiscal year 2022 and thereafter during the Employment Term, Executive shall have the opportunity to earn a target cash incentive award of 100% of Base Salary for each fiscal year of the Company (the “Cash Incentive Award”). The Cash Incentive Award, if any, shall be prorated for any partial year of Executive’s employment with the Company, based on actual performance.
The Cash Incentive Award for any fiscal year, if any, shall be determined by, and in the sole and absolute discretion of, the Compensation Committee of the Parent Board (or if no such committee is in place, the Parent Board) in consultation with the CEO. The Compensation Committee of the Parent Board (or if no such committee, the Parent Board) in consultation with the CEO, shall determine the amount (if any) and terms of any Cash Incentive Award (including any applicable performance criteria and/or deferral component). The determinations of the Compensation Committee of the Parent Board (or if no such committee, the Parent Board) in respect of the cash incentive program shall be final and binding on all parties.
(c) 2021 Cash Incentive Award. It is agreed between the Parties that the Cash Incentive Award payable in February 2022 shall be guaranteed to be paid at not less than 100% of Base Salary. For the avoidance of doubt, this payment shall not be pro-rated and shall be calculated against a full year Base Salary.
(d) Long Term Incentive Compensation. During the Employment Term, for any completed fiscal year of the Company, Executive may be eligible to earn an equity incentive
award from the Parent. Equity incentive awards, if any, shall be made under, and subject to the terms of, the Hamilton Insurance Group, Ltd. 2013 Long Term Incentive Plan, as it may be amended from time to time (the “Equity Plan”) and any related written award agreement. Any awards granted to Executive under the Equity Plan shall be communicated by, and be subject to the terms and conditions of, a written award agreement between the Parent and Executive. Notwithstanding the generality of the foregoing, Executive shall be considered annually for eligibility to receive a grant of restricted and/or preferred stock units under the Equity Plan in the discretion of the Parent Board. Any such grant shall vest subject to Executive’s continued employment with the Company through the applicable vesting date(s) and subject to achievement of target performance metrics to be determined by the Compensation Committee of the Parent Board (or if no such committee, the Parent Board) in its sole discretion. Executive’s target annual equity incentive award shall be calibrated at 133% of Base Salary. However, neither the Parent nor the Company shall have any obligation to grant such awards. Executive acknowledges that Executive may be required to execute additional documents in connection with the grant of any equity incentive award or the exercise or settlement of such awards.
(e) Value Appreciation Pool. On the Effective Date, Executive shall be eligible for and granted a one-time award of 250,000 (Two Hundred and Fifty Thousand) Units of the Parent’s Value Appreciation Pool (“VAP”). The VAP award shall be subject to and governed by the VAP Rules, adopted 18 September 2020 (as may be amended from time to time), and the terms and conditions of a written award agreement between the Parent and Executive. Executive acknowledges that Executive may be required to execute additional documents in connection with the grant of the VAP award or the exercise or settlement of such award.
(f) Initial Hire Grants. Notwithstanding any other provision of this Agreement to the contrary, on the Effective Date, Parent shall grant Executive the right to a payment (in cash or an equivalent amount of stock at the election of the Executive) in an amount equal to:
(i) $600,000 (Six Hundred Thousand Dollars) earned and payable on the first payroll after the Effective Date; and
(ii) $600,000 (Six Hundred Thousand Dollars) earned and payable on the first payroll after 1 July 2022.
Executive acknowledges that he may be required to provide such additional information and/or documentation in order to comply with applicable laws, rules or regulations and may be required to execute additional documents in connection with the grant of stock, provided that any such documents shall be consistent with the foregoing provisions of this Section 4(d).
(g) Benefits. During the Employment Term and subject to satisfaction of applicable eligibility criteria, Executive shall be entitled to participate in the employee benefit plans and insurance programs generally provided to Executives of the Company from time to time, in accordance with their terms. Nothing herein shall be deemed to prohibit the Company from amending or terminating any such plan or program in its sole and absolute discretion.
(h) Vacation. During the Employment Term, Executive shall be entitled to twenty-five (25) paid business days as vacation, to be accrued, used, paid and forfeited in accordance with the Company’s policies as in effect from time to time.
(i) Currency. All amounts (if any) paid or payable by the Company to Executive hereunder shall be denominated in U.S. dollars.
(j) Applicable Withholding. All payments under this Agreement shall be subject to all applicable foreign, federal, state and local withholdings, as well as all authorized or required deductions.
5. Reimbursement. During the Employment Term and subject to any policies from time to time adopted by the Company for the benefit of its Subsidiaries, Executive shall be reimbursed for business-related expenses reasonably incurred by Executive in the course of Executive’s duties hereunder. All amounts payable under this Section 5 shall be subject to Executive’s presentment to the Company of appropriate documentation.
6. Confidentiality; Disclosure.
(a) Executive shall not, either during Executive’s employment hereunder (other than in the proper good faith performance of Executive’s duties hereunder) or at any time after his Date of Termination for any or no reason, divulge to any person, and shall use Executive’s reasonable endeavors to prevent the publication or disclosure of, any trade secret or other confidential information concerning the business, finances, investments, accounts, dealings, transactions, shareholders (other than Executive), persons or entities associated with such shareholders (other than Executive) or affairs of the Group Companies or of any of their respective clients entrusted to Executive or arising or coming to Executive’s knowledge during the course of Executive’s employment hereunder or otherwise; provided that the foregoing shall not prevent or limit Executive from complying with any applicable law or with the directive of any court or administrative body or agency having the legal authority to compel testimony from or the production of documents by Executive; provided, further, that Executive shall (i) promptly notify the Company Board and the Parent Board of any such intended disclosure prior to such disclosure, (ii) at the written request of the Company, diligently contest such disclosure at the expense of the Company, and (iii) at the written request of the Company, seek to obtain, at the expense of the Company, such confidential treatment as may be available under applicable laws for any information so disclosed. The provisions of this Section6(a) shall not apply to any information that is or becomes publicly known other than as a result of Executive’s wrongful actions. Notwithstanding the foregoing, nothing in this Agreement restricts or prohibits Executive or the Company from initiating communications directly with, responding to any inquiries from, providing testimony before, providing confidential information to, reporting possible violations of law or regulation to, or from filing a claim or assisting with an investigation directly with a self-regulatory authority or a government agency or entity, including the U.S. Securities and Exchange Commission, or from making other disclosures that are protected under the whistleblower provisions of state or federal law or regulation. Executive does not need the prior authorization of the Company to engage in conduct protected by the
preceding sentence, and Executive does not need to notify the Company that Executive has engaged in such conduct.
(b) Executive shall, upon the Executive’s Date of Termination or earlier at the request of the Company, immediately deliver to the Company all documents, schedules, lists, charts, correspondence and other data, information and other property belonging to any of the Group Companies or related to any of the matters referred to in Section 6(a) that may have been prepared by Executive or have come into Executive’s possession and shall not retain any copies thereof. Executive shall not at any time after Executive’s Date of Termination employment hereunder wrongfully represent himself as being employed by or connected with the Group Companies.
7. Termination. Executive’s employment shall terminate upon the first to occur of:
(a) Executive’s death;
(b) the termination of Executive’s employment by the Company for Cause without notice, where “Cause” means any of the following acts or occurrences as determined by the Company: (i) Executive’s indictment of or charge with respect to, conviction of, or pleading guilty or nolo contendere to a felony or equivalent offense or crime (other than a minor road traffic offense or other non-material offense not subject to a custodial sentence), in any case whether occurring before or after the date of this Agreement, (ii) Executive’s gross negligence or willful misconduct in connection with Executive’s employment that causes or is likely to cause significant loss or damage to any of the Group Companies, (iii) Executive’s conduct that constitutes fraud, material misrepresentation or embezzlement, (iv) Executive’s material breach of this Agreement or any other agreement with any of the Group Companies, or material breach of any policy or procedure of the Group Companies, which, in the case of a non-recurring breach capable of being cured, remains uncured after fourteen (14) days following notice by the Company or CEO of such breach, (v) Executive’s habitual use of alcohol or illegal use of drugs (including narcotics) that materially impairs or is reasonably likely to materially impair Executive’s ability to perform Executive’s duties and responsibilities for the Group Companies, (vi) Executive’s continued failure to substantially and/or satisfactorily perform Executive’s duties and responsibilities hereunder, which failure remains uncured after fourteen (14) days following notice by the Company or CEO of such failure, (vii) Executive being the subject of a complaint or charge by a governmental agency, rating agency or self-regulatory organization for an alleged violation (whether occurring before or after the date of this Agreement) of any statute or regulation which has or is reasonably likely to have an adverse impact on the reputation and standing in the community of any of the Group Companies, (viii) the discovery by any of the Group Companies that any representation by Executive under Section 1 of this Agreement is false, (ix) Executive failing to maintain any licenses necessary to perform the essential functions of Executive’s duties hereunder which remains uncured after thirty (30) days following notice by the Company of such failure and/or (x) repeated misconduct, repeated unsatisfactory performance or being guilty of serious misconduct;
(c) the resignation by Executive upon one hundred and eighty (180) days’ prior written notice to the Company or, if resignation by Executive is on account of Good Reason,
such earlier date specified in the Notice of Termination provided to the Company but not earlier than the date on which any applicable cure periods applicable to Good Reason events have expired; and
(d) the termination of Executive’s employment by the Company without Cause upon at least one hundred and eighty (180) days’ prior written notice to Executive.
8. Termination Procedure.
(a) Notice of Termination. Any termination of Executive’s employment by the Company or by Executive (other than by reason of Executive’s death) shall be communicated by a written Notice of Termination to the other party hereto in accordance with Section 15(j) of this Agreement. For purposes of this Agreement, a “Notice of Termination” means a notice that indicates the specific termination provision in this Agreement relied upon and, in circumstances in which the Company is terminating Executive’s employment for Cause or Executive is terminating for Good Reason, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment for Cause or Good Reason, as applicable, and specifies the Date of Termination consistent with the provisions of Section 8(b).
(b) Date of Termination. For purposes of this Agreement, “Date of Termination” means the date on which Executive’s employment with the Company is terminated (whether by the Company or Executive) for any reason pursuant to a Notice of Termination. For purposes of this Agreement, Executive’s employment with the Company shall terminate (and his Date of Termination shall occur) in accordance with the following: (i) if Executive’s employment is terminated pursuant to Section 7(a), the date of Executive’s death, (ii) if Executive’s employment is terminated pursuant to Section 7(b), the date set forth in the Notice of Termination; provided, that, if applicable, the Notice of Termination shall not be effective (and the Date of Termination shall not occur) until any applicable cure period has expired without the event or events leading to such termination having been cured, (iii) if Executive’s employment is terminated pursuant to Section 7(c), the date that is one hundred and eighty (180) days after delivery of such notice; provided, that the Company may elect to terminate Executive’s employment earlier, pay Executive a cash lump sum in lieu of any Base Salary that would have been paid during the remaining notice period, and continue to provide the benefits set forth in Section 4(g) until such one hundred and eightieth (180th) day (following which termination the Company will have no further obligation to provide compensation or benefits of any kind to or on behalf of Executive), and (iv) if Executive’s employment is terminated pursuant to Section 7(d), the date set forth in the Notice of Termination, which date must be at least one hundred and eighty (180) days after delivery of the Notice of Termination (or if no date or an earlier date is set forth therein, then on the one hundred and eightieth (180th) day after delivery of the Notice of Termination); provided, that the Company may elect to terminate Executive’s employment earlier, pay Executive a cash lump sum in lieu of any Base Salary that would have been paid during the remaining notice period, and continue to provide the compensation and benefits set forth in Section 4(g) until such one hundred and eightieth (180th) day (following which termination the Company will have no further obligation to provide
compensation or benefits of any kind to or on behalf of Executive), in which case the Date of Termination will be the date set forth in the Notice of Termination (or if no date or an earlier date is set forth therein, then on the one hundred and eightieth (180th) day after delivery of the Notice of Termination).
(c) Severance Benefits; Notice Periods.
(i) Except as otherwise expressly provided in Section 8(b) or Section 8(c)(ii), upon any termination of Executive’s employment hereunder, Executive shall not be entitled to any termination payments or other further compensation or benefits, unless such amounts are required by applicable law.
(ii) Upon termination of Executive’s employment due to Executive’s death, Executive’s beneficiary or estate, as applicable, shall be entitled to receive a payment equal to the Cash Incentive Award that would have been payable to the Executive for the fiscal year in which such termination of employment occurred, prorated based on the number of days during such fiscal year on which Executive was employed, to be paid by the Company in a single lump sum within 60 days following the Date of Termination.
(iii) For the avoidance of doubt, any unreimbursed expenses incurred pursuant to Section 5 hereof prior to the termination of Executive’s employment hereunder shall be reimbursed in accordance with the Company’s policy with respect to expense reimbursement.
9. Restrictive Covenants.
(a) Acknowledgment. Executive acknowledges and agrees that (i) the business of the Group Companies is highly competitive; (ii) the skills and knowledge of the Group Companies’ workforce constitute trade secrets and confidential information; (iii) he will be exposed to, have access to, and develop on behalf of the Group Companies, trade secrets and confidential information during his employment; (iv) such trade secrets and confidential information are of vital importance to the success of the Group Companies; (v) the disclosure or improper use of any such information would place the Group Companies at a serious competitive disadvantage and could do serious damage, financial and otherwise, to the Group Companies; (vi) Executive will develop relationships with customers, clients or prospective customers or clients of the Group Companies at the time and expense of the Group Companies during his employment; (vii) by Executive’s training, experience and expertise, Executive’s services to the Group Companies will be extraordinary, special and unique; (viii) Executive’s experience and capabilities are such that the provisions contained in this Agreement will not prevent Executive from earning a livelihood; (ix) the Group Companies would be seriously and irreparably injured if Executive were to engage in any actions in violation of Section 9 of this Agreement, and that, in the event of such breach or threatened breach, no adequate remedy at law would exist and damages would be difficult to determine; (x) the provisions contained in Section 9 of this Agreement are justified by, and reasonably necessary to, protect the legitimate business interests of the Group Companies, including the trade secret, confidential information and goodwill of the Group Companies; (xi) Executive is a sophisticated business person and has
had an opportunity to consult with an attorney prior to entering into this Agreement; (xii) the Company is entering into this Agreement only because Executive is willing to comply with Section 9 of this Agreement; (xiii) the provisions in this Agreement are fair and reasonable in scope, duration and geographical limitations and (xiv) if Executive were to act in concert with one or more current or former employees of the Group Companies to violate any confidentiality or restrictive covenants, the harm to the Group Companies would be significantly greater than the harm that would have resulted if the individuals had acted separately.
(b) Non-Competition; Non-Solicitation. Executive hereby agrees that he shall not in any jurisdiction in the world (the “Geographic Area”), either on Executive’s own account or on behalf of any other person, firm or company, directly or indirectly:
(i) during the Employment Term and prior to the Date of Termination, be engaged, interested or concerned with, in or by any business or undertaking that is engaged in or carries on any aspect of the Business (it being agreed that this clause (i) does not prohibit passive ownership by Executive of up to 1% of the issued and outstanding common shares of a company when such class of shares trades publicly on a recognized securities exchange);
(ii) for a period of six (6) months following the Date of Termination (such period to be read as twelve (12) months following the Date of Termination in respect of a termination of employment directly or indirectly in connection with a Change of Control (in accordance with Section 14)) be engaged, interested or concerned with, in or by any business or undertaking that is (or intends to be) in competition with the Restricted Business (it being agreed that this clause (ii) does not prohibit ownership by Executive of up to 1% of the issued and outstanding common shares of a company whether or not such class of shares trades publicly on a recognized securities exchange);
(iii) during the Employment Term and for a period of six (6) months following the Date of Termination (such period to be read as twelve (12) months following the Date of Termination in respect of a termination of employment directly or indirectly in connection with a Change of Control (in accordance with Section 14)) solicit, interfere with, endeavor to entice away from the Group Companies or encourage to reduce the level, or change the terms, of business conducted with, or ownership by, any person, firm or company who or which as of the Date of Termination or in the period of twelve (12) months immediately prior to such date was a shareholder, customer or client of, or regularly dealt with, any of the Group Companies, or who at such date was to Executive’s knowledge negotiating with any of the Group Companies in relation to all or part of its business or its ownership, or which or whom Executive learned confidential information, other than any person, firm or company with which or with whom Executive conducted business prior to commencement of the Employment Term; and/or
(iv) during the Employment Term and for a period of six (6) months following the Date of Termination (such period to be read as twelve (12) months following the Date of Termination in respect of a termination of employment directly or indirectly in connection with a Change of Control (in accordance with Section 14)) solicit the services of or endeavor to entice away from the Group Companies any director, employee or consultant of any of the Group Companies (whether or not such person would commit any breach of such person’s contract of
employment or engagement by reason of leaving the service of such company), or employ or engage, or knowingly aid or assist any other person in procuring the employment or engagement of, any such person.
(c) Extension/Termination of Post-Employment Period of Time. (A) Any post-employment period of time described in Section 9(b) above shall be extended one (1) day for each day that Executive is not in compliance with the provisions of this Section 9, and (B) the Company Board, in its discretion, may by written notice to Executive terminate any post-employment period of time described in Section 9(b) above earlier than its scheduled termination.
(d) Severability. It is expressly understood and agreed that, although Executive and the Company consider the restrictions contained in this Section 9 to be reasonable, if a determination is made by an arbitrator, arbitration panel or a court of competent jurisdiction that the time or territory or any other restriction contained in this Section 9 is an unenforceable restriction against Executive, then the applicable provision shall not be rendered void, but shall be deemed amended to apply as to the maximum time and territory and to the maximum extent as such court may judicially determine or indicate to be enforceable. If, however, any such arbitrator, arbitration panel or court determines that any such restriction is unenforceable and cannot be amended so as to make it enforceable, then the provision may be severed and the finding shall not affect the enforceability of any of the other restrictions contained herein.
(e) Injunction. Executive acknowledges and agrees that the Company’s remedies at law for a breach or threatened breach of any of Executive’s obligations under this Section 9 would be inadequate and, in recognition of this fact, Executive agrees that, in the event of such a breach or threatened breach, in addition to any other remedies available at law or in equity, the Company shall be entitled to seek an injunction in aid of arbitration without the requirement to post security or a bond.
(f) Restrictions Reasonable. Executive understands that the provisions of this Section 9 may limit Executive’s ability to earn a livelihood in a business similar to the business of the Company but Executive nevertheless agrees and hereby acknowledges that (i) such provisions do not impose a greater restraint than is necessary to protect the goodwill or other business interests of the Company, (ii) such provisions contain reasonable limitations as to time, geography and scope of activity to be restrained, (iii) such provisions are not harmful to the general public, (iv) such provisions are not unduly burdensome to Executive, (v) the consideration provided hereunder is sufficient to compensate Executive for the restrictions contained in this Section 9, and (vi) the potential harm to the Company of non-enforcement of this Section 9 outweighs any potential harm to Executive of enforcement. In consideration of the foregoing and in light of Executive’s education, skills and abilities, Executive agrees that Executive will not assert that, and it should not be considered that, any provisions of this Section 9 otherwise are void, voidable or unenforceable or should be voided or held unenforceable. The provisions of this Section 9 are an integral part of this Agreement.
(g) Non-Disparagement. Executive shall not at any time (during or after Executive’s employment with the Company) directly or indirectly disparage the reputation of any of the
Group Companies or their shareholders, persons or entities associated with such shareholders, officers, directors, agents or executives. The Company and Parent agree that neither them nor any of their officers or members of their board of directors shall, at any time (during or after the Executive’s employment with the Company) directly or indirectly disparage the reputation of the Executive.
(h) Developments. All documents, schedules, lists, charts, correspondence and other data, information and property (and all copies thereof), written or electronic, received, accessed, developed, made or compiled by or on behalf of Executive at any time during Executive’s employment, relating to any of the Group Companies or their business activities, but excluding Executive’s personal effects and similar items, are and will be the property of the Group Companies, and must, except as otherwise agreed by the Company Board in writing, be delivered to the Company promptly upon the termination of Executive’s employment with the Company for any or no reason or at any other time upon request. All discoveries, inventions, ideas, technology, formulas, designs, software, programs, algorithms, products, systems, applications, processes, procedures, methods, improvements and enhancements conceived, developed or otherwise made, created or produced by Executive alone or with others, at any time during or prior to Executive’s employment, in any way relating to the business activities, products or services that are the same as or substantially similar to those utilized or contemplated by any of the Group Companies, whether or not subject to patent, copyright or other protection and whether or not reduced to tangible form (“Developments”), are and will be the sole and exclusive property of the Company. Executive agrees to, and hereby does, assign to the Company, without any further consideration, all of Executive’s right, title and interest throughout the world in and to all Developments. Executive agrees that all Developments that are copyrightable may constitute works made for hire under the copyright laws of the United States or works which are made during and in the course of employment under section 20(2) of the Copyright and Designs Act 2004 of Bermuda and, as such, acknowledges that the Company is the author of such Developments and owns all of the rights comprised in the copyright of such Developments and Executive hereby assigns to the Company without any further consideration all of the rights comprised in the copyright and other proprietary rights Executive may have in any such Development to the extent that it might not be considered a work made for hire. Executive shall make and maintain adequate and current written records of all Developments and shall disclose all Developments promptly, fully and in writing to the Company Board promptly after development of the same, and at any time upon request. Executive is hereby notified in accordance with the Defend Trade Secrets Act of 2016 that an individual will not be held criminally or civilly liable under any federal or state trade secret law for the disclosure of a trade secret that: (x) is made (i) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (ii) solely for the purpose of reporting or investigating a suspected violation of law; or (y) is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding. Executive is further notified that if Executive files a lawsuit for retaliation by an employer for reporting a suspected violation of law, Executive may disclose the employer’s trade secrets to his attorney and use the trade secret information in the court proceeding if Executive: (A) files any document containing the trade secret under seal; and (B) does not disclose the trade secret, except pursuant to court order.
10. Cooperation. Following the Date of Termination, Executive agrees to cooperate fully with the Company in (a) any litigation, administrative proceeding or inquiry that involves the Group Companies or any of their then-current or former shareholders, officers, directors, employees or agents, and/or (b) any investigation or inquiry conducted by or on behalf of the Company or any governmental or regulatory authority, in each case, about which Executive may have knowledge or information. The Company shall reimburse Executive for reasonable expenses incurred in connection with such cooperation. If Executive is participating at the Company’s request and legal counsel is required, the Company shall provide such legal counsel only to the extent permissible by law.
11. No Cooperation with Third Parties. Executive shall not – at any time – counsel or assist any attorneys or their clients in the presentation or prosecution of any disputes, differences, grievances, claims, charges, or complaints known or unknown on behalf of any private third party against the Group Companies or any of their officers, directors, employees, agents, representatives, shareholders or attorneys, unless under a subpoena or other court order to do so or as contemplated by the final two sentences of Section 6(a).
12. Successors. Executive’s performance hereunder is personal to Executive and is not assignable by Executive. The Company may at any time and from time to time delegate its power and authority under this Agreement to any of the Group Companies and such delegation (or the revocation thereof) shall be effective upon the Company’s giving written notice of the same to Executive. The Company may assign this Agreement to any of the Group Companies or to any successor to all or substantially all of the business and/or assets of the Company, whether directly or indirectly, by purchase, merger, amalgamation, consolidation, acquisition of shares, or otherwise. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.
13. Survival. Sections 6, 8, 9, 10, 11, 12, 13, 14 and 15 will survive the expiration or termination of this Agreement in accordance with the terms and conditions thereof.
14. Change of Control
(a) If there is a Change of Control of the Company and, within twelve months following the Change of Control directly or indirectly in connection with it:
(i) the Company terminates the Executive’s employment (other than for Cause pursuant to Section 7(b)); or
(ii) the Executive serves notice to terminate his employment in accordance with Section 7(c) with Good Reason,
the Company shall, subject to Section 14(b) below, pay the Agreed Sum to the Executive within one month following the end of the Employment Term and the Agreed Benefits will commence on the Date of Termination. The Agreed Sum shall be payable less any tax or other statutory deductions which the Company is obliged to deduct in line with normal payroll practices and applicable law.
(b) The payment of the Agreed Sum and provision of the Agreed Benefits shall be conditional on and in consideration of:
(i) the Executive complying with and continuing to comply with his obligations relating to confidentiality, intellectual property and restrictive covenants as set out in clauses 6 and 9 respectively; and
(ii) the Executive executing such documents in a form reasonably acceptable to the Company as it may require.
(c) For the avoidance of doubt, the payment of the Agreed Sum and provision of the Agreed Benefits shall not affect the Executive’s entitlement to any of the following (in each case for the period prior to the Date of Termination):
(i) any accrued but unpaid salary;
(ii) any payment in lieu of accrued but unused holiday; or
(iii) the reimbursement of expenses, provided that all claims for reimbursement are submitted within four weeks after Date of Termination,
(d) To the extent that the Agreed Sum is damages (which is not admitted), the parties agree that the terms of this Section 14 represent a genuine pre-estimate of the loss to the Executive that would arise on termination of the employment in the circumstances described and does not constitute a penalty. The Executive shall, subject to Section 14(c), accept the Agreed Sum in full and final settlement of all and any claims that he may have arising out of the employment or its termination.
15. Miscellaneous.
(a) Waiver; Amendment. The waiver of or failure of a party to enforce any term, provision or condition of this Agreement at any time or times shall not be deemed a waiver of that term, provision or condition for the future or a waiver of any other term, provision or condition at any time. This Agreement may be amended or modified only by a writing signed by both parties hereto.
(b) Governing Law; Submission to Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to the application of any choice-of-law rules that would result in the application of another state’s laws. The Company and Executive agree that, should any resort to a court be necessary and permitted under this Agreement, then they each consent to the exclusive jurisdiction, forum and venue of the state and federal courts located in the State of New York.
(c) Arbitration. In the event of any dispute, controversy or claim arising out of or in relation to this Agreement, or the breach, termination or alleged invalidity hereof, then except as contemplated by Section 9(e), the parties shall proceed to arbitration. The arbitration shall be administered by the American Arbitration Association under its National Rules for the
Resolution of Employment Disputes then in effect (the “AAA Rules”), and shall be conducted before one arbitrator selected in accordance with the AAA Rules, provided that the arbitrator shall be an attorney with significant experience in employment matters. The place of Arbitration shall be New York, New York (Borough of Manhattan), or such other city to which the parties mutually agree, and the language shall be English. The arbitrators shall be required to follow the laws of the State of New York, and any arbitration proceedings, decision or award rendered hereunder, and the validity, effect and interpretation of this arbitration provision, shall be governed by the Federal Arbitration Act, 9 U.S.C. § 1 et seq. The decision and award of the arbitral tribunal shall be final and binding on the parties, and any court of competent jurisdiction may enter judgment upon the award. In the event of any litigation or arbitration in connection with this Agreement, the prevailing party shall be entitled to all reasonable attorneys’ fees, costs and expenses in connection with such dispute. Notwithstanding the foregoing, nothing in this Agreement will bind Executive or the Company to arbitrate any dispute which, by law, may not be the subject of a pre-dispute arbitration agreement, including, but not limited to, any claim under the Dodd-Frank Wall Street Reform and Consumer Protection Act, or any claim to workers compensation or unemployment benefits.
(d) Section Captions. Section and other captions contained in this Agreement are for reference purposes only and are in no way intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof.
(e) Severability. Each provision of this Agreement is intended to be severable. If any term or provision hereof is illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the validity of the remainder of this Agreement.
(f) Interpretation; Counterparts. No provision of this Agreement is to be interpreted for or against any party because that party drafted or did not draft such provision. The words “hereof”, “herein”, “hereunder” and words of similar import refer to this Agreement in its entirety and not to any particular section or paragraph. Except as expressly stated otherwise, references herein to sections or paragraphs refer to the sections or paragraphs of this Agreement. The words “including”, “include” and words of similar import shall be deemed to be followed by “without limitation.” References to statutory provisions shall be construed as references to those provisions as amended or re-enacted or as their application is modified by other provisions from time to time and shall include references to any provisions of which they are re- enactments (whether with or without modification). References to the singular include the plural and vice versa and references to the masculine include the feminine and/or neuter and vice versa. References to persons include natural persons, companies, partnerships, corporations, associations and bodies of persons, whether incorporated or unincorporated. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same instrument. Delivery of an executed signature page of this Agreement by facsimile or other electronic means shall be effective as delivery of a manually executed counterpart hereof.
(g) Construction. This Agreement is to be fairly interpreted in accordance with its terms and without any strict construction in favor of or against either of the parties. Each of the
parties acknowledges that this Agreement was jointly negotiated, reviewed and approved by them and their respective counsel. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as having been drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement.
(h) U.S. Internal Revenue Code. Notwithstanding anything herein to the contrary, this Agreement is intended to be interpreted and applied so that the payment of the benefits set forth herein either shall either be exempt from the requirements of Sections 409A and 457A of the U.S. Internal Revenue Code of 1986, as amended (the “Code”) and applicable published guidance thereunder, or shall comply with the requirements of such provisions. Notwithstanding any provision in this Agreement or elsewhere to the contrary, if Executive is a “specified employee” within the meaning of Section 409A of the Code, any payments or benefits due upon a termination of Executive’s employment under any arrangement that constitutes a “deferral of compensation” within the meaning of Section 409A of the Code and which do not otherwise qualify under the exemptions under Treas. Regs. Section 1.409A-1 (including without limitation, the short-term deferral exemption and the permitted payments under Treas. Regs. Section 1.409A- 1(b)(9)(iii)(A)), shall be delayed and paid or provided on the earlier of (i) the date which is six (6) months after Executive’s separation from service (as such term is defined in Section 409A of the Code and the regulations and other published guidance thereunder) for any reason other than death, and (ii) the date of Executive’s death. Notwithstanding anything in this Agreement or elsewhere to the contrary, distributions upon termination of Executive’s employment that constitute a “deferral of compensation” within the meaning of Section 409A of the Code may only be made upon a “separation from service” as determined under Section 409A of the Code and such date shall be the Date of Termination for purposes of this Agreement. Each payment under this Agreement or otherwise shall be treated as a separate payment for purposes of Section 409A of the Code. In no event may Executive, directly or indirectly, designate the calendar year of any payment to be made under this Agreement or otherwise which constitutes a “deferral of compensation” within the meaning of Section 409A of the Code. All reimbursements and in-kind benefits provided under this Agreement shall be made or provided in accordance with the requirements of Section 409A of the Code. To the extent that any reimbursements pursuant to this Agreement or otherwise are taxable to Executive, any reimbursement payment due to Executive shall be paid to Executive on or before the last day of Executive’s taxable year following the taxable year in which the related expense was incurred; provided, that, Executive has provided the Company written documentation of such expenses in a timely fashion and such expenses otherwise satisfy the Company’s expense reimbursement policies. Reimbursements pursuant to this Agreement or otherwise are not subject to liquidation or exchange for another benefit and the amount of such reimbursements that Executive receives in one taxable year shall not affect the amount of such reimbursements that Executive receives in any other taxable year. Notwithstanding any of the foregoing to the contrary, the Company and their respective officers, directors, Executives, or agents make no guarantee that the terms of this Agreement as written comply with, or are exempt from, the provisions of Code Sections 409A and 457A, and none of the foregoing shall have any liability for the failure of the terms of this Agreement as written to comply with, or be exempt from, the provisions of Code Sections 409A or 457A.
(i) Liability for Taxes. The issuance of any equity incentive awards described in Section 4 involve complex and substantial tax considerations. Executive should consult with his own tax advisors with respect to any equity incentive awards and other payments and benefits under this Agreement. The Company makes no warranties or representations whatsoever to Executive regarding the tax consequences of any equity incentive awards or the receipt of shares with respect thereto, or any other payments and benefits under this Agreement. Executive shall be solely responsible for any taxes in respect of any equity incentive awards and other payments and benefits under this Agreement.
(j) Notices. All notices and other communications hereunder must be in writing and shall be deemed to have been duly given if delivered by hand delivery, facsimile (with confirmation of transmission), or overnight courier, in each case addressed as follows:
| | | | | | | | |
| If to the Company: | | c/o Hamilton Insurance Group, Ltd. |
| | Wellesley House North, First Floor |
| | 90 Pitts Bay Road |
| | Pembroke HM 08 |
| | Bermuda |
| | Attention: General Counsel |
| | |
| If to Executive: | | To Executive’s principal address as reflected |
| | in the Company’s records |
or to such other address as either party shall have furnished to the other in writing in accordance herewith. Any such notice or communication shall be deemed to have been delivered on the date of delivery if delivered by hand, on the date of transmission if delivered by facsimile (with confirmation of transmission), on the date of confirmed delivery if delivered by overnight courier.
(k) Entire Agreement. This Agreement (including the schedules attached hereto) sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersede all prior agreements, negotiations, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, director, employee or representative of any party hereto in respect of such subject matter. Executive and the Company represent that, in executing this Agreement, each party has not relied upon any representation or statement made by the other party, other than those set forth herein, with regard to the subject matter, basis or effect of this Agreement. This Agreement represents the complete understanding of the parties with respect to the subject matter hereof, and, as of the Effective Date, supersedes and terminates all prior agreements and all prior and contemporaneous discussions and agreements between the Group Companies and Executive with respect to the subject matter hereof.
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement as of the date first above written.
| | | | | |
| HAMILTON U.S. SERVICE, LLC |
| |
| |
| By: | /s/ Gemma Carreiro |
| Name: Gemma Carreiro |
| Title: Director |
| |
| |
| EXECUTIVE |
| |
| |
| /s/ Craig Howie |
| CRAIG HOWIE |
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this “Agreement”) is made effective as of September 1st 2020, by and between Megan Thomas (“Executive”) and Hamilton BDA Services Limited (the “Company”), a wholly owned subsidiary of Hamilton Insurance Group, Ltd. (the “Parent”).
WITNESSETH:
WHEREAS, the Company desires to employ Executive, and Executive desires to be employed by the Company, under the terms and conditions of this Agreement, as may be amended from time to time;
NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1. Employment. During the Employment Term, Executive shall be employed as CEO, Hamilton Re, subject to the terms and conditions set forth herein. Executive represents and warrants that (i) Executive is not subject to any impediment, restriction or restraint that would in any way prohibit, hinder or impair Executive’s employment with the Company or Executive’s performance under this Agreement and (ii) Executive’s employment hereunder and Executive’s performance as contemplated hereby, at all times, do not and would not in any way conflict with or breach any confidentiality, noncompetition, non-solicitation or other agreement to which Executive is a party or to which Executive may be subject.
2. Employment Term. Executive agrees to commence employment effective on October 5th 2020 or such other date as agreed in writing by the Executive and the Company and subject to obtaining any required work permits and authorizations (the “Effective Date”), until termination in accordance with Section 7 below (such period of employment, the “Employment Term”). Notwithstanding anything herein to the contrary, if such work permits and authorizations are not obtained, this Agreement shall be void ab initio without any consideration being due hereunder.
3. Duties and Certain Definitions.
(a) During the Employment Term, Executive shall report to the Chief Executive Officer of the Parent (the “CEO”) and shall (i) perform such duties and exercise such powers in relation to the business of the Company, or Group Companies, as may from time to time be assigned to or vested in Executive by the CEO, (ii) use Executive’s best efforts to faithfully and diligently serve the business and affairs of such of the Group Companies and to establish, promote, develop and extend their business, giving the full benefit of Executive’s knowledge, expertise, technical skill and ingenuity, (iii) devote all of Executive’s business time, energy and skill exclusively to the business of the Group Companies, and will not, directly or indirectly, engage in any other business or occupation, whether or not pursued for gain, profit or other pecuniary advantage or otherwise that would conflict or materially interfere with the rendition of
such se1vices, either directly or indirectly and (iv) comply with all policies and procedures of the Group Companies (including without limitation those in any employee manual and those regarding the geographic restrictions applicable to where the Group Companies conduct their respective business affairs), as may be in effect from time to time.
(b) For purposes of this Agreement:
(i) “Agreed Benefits” means the provision of medical health insurance coverage in line with the Company’s current medical health insurance policy (the “Policy”), subject to the rules of the Policy, for a maximum of twelve months following the end of the Employment Term or, if sooner, the date on which the Executive obtains substantially comparable medical health insurance under any other contract;
(ii) “Agreed Sum” means an amount equivalent to the gross value of one year’s base salary as specified in clause 4(a) plus an amount equivalent to one year’s Cash Incentive Award (calculated at target) as specified in clause 4(b) (less any sums paid to the Executive by way of notice or payment in lieu of notice);
(iii) “Change in Control” has the meaning defined in the Company’s 2013 Equity Incentive Plan (as amended from time to time);
(iv) “Good Reason” has the meaning defined in the Company’s 2013 Equity Incentive Plan (as amended from time to time);
(v) “Group Company” or “Group Companies” means the Company and any company that is from time to time a parent or holding company of the Company, a direct or indirect subsidiary company of the Company, a direct or indirect subsidiary company of a holding company of the Company or a company in which the Company owns, directly or indirectly, at least fifty percent (50%) of the issued share capital, or any individual member of such group (excluding the Company) as the context requires;
(vi) “holding company” and “subsidiary company” have the respective meaning assigned thereto by Section 86 of The Companies Act 1981 (the “Companies Act”), but irrespective of whether it is a company based in, or organized under the laws of, Bermuda or an overseas company; and
(vii) “Restricted Business” means (i) the insurance or reinsurance business; (ii) the contemplation, creation and/or execution of insurance or reinsurance business, including all aspects of the planning and “start up” of such activities and (iii) any other business in which the Group Companies are engaged on the last day of Executive’s employment with the Company and with which Executive was materially involved in the twelve months prior to the Date of Termination.
(c) No Performance Duties. Without affecting the general right of the Company to terminate Executive’s employment hereunder for Cause (as defined in Section 7(b)), the Company reserves the right to require Executive not to attend work and/or not to undertake all or
any of Executive’s duties hereunder during the Employment Term, limited to the duration of any applicable notice period set forth in Section 7(d).
(d) Service as Officer or Board Member of Other Group Company. If requested by the Board of Directors of the Parent (the “Parent Board”), Executive will serve as an employee, officer and/or a member of the board of directors of any Group Company as requested by the Parent from time to time for no additional compensation.
(e) Location of Services. Executive’s services hereunder generally shall be performed at the Company’s principal offices in Bermuda. Executive acknowledges that she may be required to travel to other locations from time to time in connection with her duties with the applicable Group Companies.
4. Compensation and Related Matters. As full compensation for Executive’s performance of Executive’s duties and responsibilities hereunder during the Employment Term, the Company shall pay Executive the compensation and provide the benefits set forth below and in Section 5:
(a) Base Salary. During the Employment Te1m, the Company shall pay Executive an annual base salary at a rate of $500,000 (Five hundred Thousand Dollars) per annum (the “Base Salary”) in accordance with the Company’s customary payroll practices. Executive’s Base Salary will be subject to annual review and increase as determined by the Board in its sole and absolute discretion, and any increased Base Salary will be deemed to then constitute “Base Salary” for all purposes of this Agreement.
(b) Cash Incentive Program. During the Employment Term, Executive shall have the opportunity to earn a cash incentive award of up to 100% of Base Salary for each fiscal year of the Company, based on actual performance (the “Cash Incentive Award”). The Cash Incentive Award, if any, shall be determined by, and in the sole and absolute discretion of, the Compensation Committee of the Parent Board (or if no such committee is in place, the Parent Board) in consultation with the CEO. The Compensation Committee of the Parent Board (or if no such committee, the Parent Board) in consultation with the CEO, shall determine the amount (if any) and terms of any Cash Incentive Award (including any applicable performance criteria and/or deferral component). The determinations of the Compensation Committee of the Parent Board (or if no such committee, the Parent Board) in respect of the cash incentive program shall be final and binding on all parties.
Pursuant to the terms of this Agreement, the Executive shall receive a guaranteed minimum Cash Incentive Award for the fiscal year 2020 of $208,000 (Two Hundred and Eight Thousand Dollars), payable in line with customary cash incentive practices.
(c) Long Term Incentive Compensation. During the Employment Term, for any completed fiscal year of the Company, Executive may be eligible to earn an equity incentive award. Equity incentive awards, if any, shall be made under, and subject to the terms of, the Hamilton Insurance Group, Ltd. 2013 Long Term Incentive Plan, as it may be amended from time to time (the “Equity Plan”) and any related written award agreement. Any awards granted
to Executive under the Equity Plan shall be communicated by, and be subject to the terms and conditions of, a written award agreement between the Parent and Executive. Notwithstanding the generality of the foregoing, Executive shall be considered annually for eligibility to receive a grant of restricted and/or preferred stock units under the Equity Plan in the discretion of the Parent Board. Any such grant shall vest subject to Executive’s continued employment with the Company through the applicable vesting date(s) and subject to achievement of target performance metrics to be determined by the Compensation Committee of the Parent Board (or if no such committee, the Parent Board) in its sole discretion. Executive’s target annual equity incentive award shall be calibrated at 100% of Base Salary. However, the Parent shall not have any obligation to grant such awards. Executive acknowledges that Executive may be required to execute additional documents in connection with the grant of any equity incentive award or the exercise or settlement of such awards.
(d) Sign-on Bonus. The Parent agrees to grant 20,000 (Twenty Thousand) restricted stock units under the Equity Plan (“RSUs”) to Executive for the 2020 fiscal year and a further 20,000 (Twenty Thousand) RSUs for the 2021 fiscal year. Each grant shall be subject to a three-year vesting period as more specifically set out in the award agreements. Vesting shall remain subject to Executive remaining, at the time of payment, in full time employment with the Company and without notice of termination having been given by either Executive or the Company on or prior to the respective vesting dates, save as otherwise provided by clause 14 (“Sign-On Bonus”).
(e) The Executive’s Base Salary, Cash Inventive Award target and Long Term Incentive target shall be reviewed within 12 months of joining and increased as determined by the Board in its sole and absolute discretion.
(f) Relocation Costs. The Company agrees to reimburse the Executive all reasonable expenses in connection with the relocation of the Executive from the United States to Bermuda.
(g) Benefits. (i) During the Employment Term, the Company shall pay 100% of the costs (determined as of the Effective Date) of health insurance coverage for Executive and Executive’s eligible dependents, provided that, if the costs of health insurance coverage increase in the future beyond the costs determined as of the Effective Date, then the Company may, but is not obligated to, pay for any such additional costs. Further, during the Employment Term and subject to satisfaction of applicable eligibility criteria, Executive shall be entitled to participate in the Executive benefit plans and insurance programs generally provided to Executives of the Company from time to time, in accordance with their terms. Nothing herein shall be deemed to prohibit the Company from amending or terminating any such plan or program in its sole and absolute discretion.
(h) During the Employment Term, the Company shall contribute an amount equal to ten percent (10%) of Executive’s Base Salary to a pension plan for the benefit of the Executive. in accordance with the terms of such pension plan.
(i) Vacation. During the Employment Term, Executive shall be entitled to twenty-five (25) paid business days as vacation, to be accrued, used, paid and forfeited in accordance
with the Company’s policies as in effect from time to time. For the avoidance of doubt, any vacation days that have accrued and remain unused by Executive while employed by the Company or its subsidiaries or affiliates immediately prior to the Effective Date shall be recognized by the Company after the Effective Date, subject to the Company’s policies in effect from time to time after the Effective Date.
(j) Currency. All amounts (if any) paid or payable by the Company to Executive hereunder shall be denominated in U.S. dollars.
(k) Applicable Withholding. All payments under this Agreement shall be subject to all applicable foreign, federal, state and local withholdings, as well as all authorized or required deductions. The Company shall pay the Bermuda payroll tax (employer and employee portions), except for 1.7% allocated to the Executive in respect of the employ e portion. However, the Company reserves the right to review. amend and terminate this benefit at any time. Executive shall be responsible for amounts not paid by the Company, which amounts may be withheld by the Company from Executive’s compensation.
5. Reimbursement. During the Employment Term and subject to any policies from time to time adopted by the Company, Executive shall be reimbursed for business-related expenses reasonably incurred by Executive in the course of Executive’s duties hereunder. All amounts payable under this Section 5 shall be subject to Executive’s presentment to the Company of appropriate documentation.
6. Confidentiality; Disclosure.
(a) Executive shall not, either during Executive’s employment hereunder (other than in the proper good faith performance of Executive’s duties hereunder) or at any time after the Date of Termination thereof for any or no reason, divulge to any person, and shall use Executive’s reasonable endeavors to prevent the publication or disclosure of, any trade secret or other confidential information concerning the business, finances, investments, accounts, dealings, transactions, shareholders (other than Executive), persons or entities associated with such shareholders (other than Executive) or affairs of the Group Companies or of any of their respective clients entrusted to Executive or arising or coming to Executive’s knowledge during the course of Executive’s employment hereunder or otherwise; provided that the foregoing shall not prevent or limit Executive from complying with any applicable law or with the directive of any court or administrative body or agency having the legal authority to compel testimony from or the production of documents by Executive; provided, further, that Executive shall (i) promptly notify the Board of any such intended disclosure prior to such disclosure, (ii) at the written request of the Company, diligently contest such disclosure at the expense of the Company, and (iii) at the written request of the Company, seek to obtain, at the expense of the Company, such confidential treatment as may be available under applicable laws for any information so disclosed. The provisions of this Section 6(a) shall not apply to any information that is or becomes publicly known other than as a result of Executive’s wrongful actions.
(b) Executive shall, upon Executive’s Date of Termination or earlier at the request of the Company, immediately deliver to the Company all documents, schedules, lists, charts,
correspondence and other data, information and other property belonging to any of the Group Companies or related to any of the matters referred to in Section 6(a) that may have been prepared by Executive or have come into Executive’s possession and shall not retain any copies thereof. Executive shall not at any time after the Date of Termination wrongfully represent himself as being employed by or connected with the Group Companies.
7. Termination. Executive’s employment shall terminate upon the first to occur of:
(a) Executive’s death;
(b) the termination of Executive’s employment by the Company for Cause without notice, where “Cause” means any of the following act or occurrences as determined by the Company: (i) Executive’s indictment of or charge with respect to, conviction of, or pleading guilty or nolo contendere to a felony or equivalent offense or crime (other than a minor road traffic offense or other non-material offense not subject to a custodial sentence), in any case whether occurring before or after the date of this Agreement, (ii) Executive’s gross negligence or willful misconduct in connection with Executive’s employment that causes or is likely to cause significant loss or damage to any of the Group Companies, (iii) Executive’s conduct that constitutes fraud, material misrepresentation or embezzlement, (iv) Executive’s material breach of this Agreement or any other agreement with any of the Group Companies, or material breach of any policy or procedure of the Group Companies, which, in the case of a non-recurring breach capable of being cured, remains uncured after fourteen (14) days following notice by the Company or CEO of such breach, (v) Executive’s habitual use of alcohol or illegal use of drugs (including narcotics) that materially impairs or is reasonably likely to materially impair Executive’s ability to perform Executive’s duties and responsibilities for the Group Companies, (vi) Executive’s continued failure to substantially and/or satisfactorily perform Executive’s duties and responsibilities hereunder, which failure remains uncured after fourteen (14) days following notice by the Company or CEO of such failure, (vii) Executive being the subject of a complaint or charge by a governmental agency, rating agency or self-regulatory organization for an alleged violation (whether occurring before or after the date of this Agreement) of any statute or regulation which has or is reasonably likely to have an adverse impact on the reputation and standing in the community of any of the Group Companies, (viii) the discovery by any of the Group Companies that any representation by Executive under Section l of this Agreement is false, (ix) Executive failing to maintain any licenses necessary to perform the essential functions of Executive’s duties hereunder which remains uncured after thirty (30) days following notice by the Company of such failure and/or (x) repeated misconduct, repeated unsatisfactory performance or being guilty of serious misconduct;
(c) the resignation by Executive upon one hundred and eighty (180) days’ prior written notice to the Company or, if resignation by Executive is on account of Good Reason, such earlier date specified in the Notice of Termination provided to the Company but no earlier than the date on which any applicable cure periods applicable to Good Reason events have expired; and
(d) the termination of Executive’s employment by the Company without Cause upon at least one hundred and eighty (180) days’ prior written notice to Executive.
8. Termination Procedure.
(a) Notice of Termination. Any termination of Executive’s employment by the Company or by Executive (other than by reason of Executive’s death) shall be communicated by a written Notice of Termination to the other party hereto in accordance with Section 15(i) of this Agreement. For purposes of this Agreement, a “Notice of Termination” means a notice that indicates the specific termination provision in this Agreement relied upon and, in circumstances in which the Company is terminating Executive’s employment for Cause or Executive is terminating for Good Reason, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment for Cause or Good Reason, as applicable, and specifies the Date of Termination consistent with the provisions of Section 8(b).
(b) Date of Termination. For purposes of this Agreement, “Date of Termination” means, (i) if Executive’s employment is terminated pursuant to Section 7(a), the date of Executive’s death. (ii) if Executive’s employment is terminated pursuant to Section 7(b), the date set forth in the Notice of Termination; provided, that, if applicable, the Notice of Termination shall not be effective until any applicable cure period has expired without the event or events leading to such termination having been cured, (iii) if Executive’s employment is terminated pursuant to Section 7(c), the date that is one hundred and eighty (180) days after delivery of such notice: provided, that the Company may elect to terminate Executive’s employment earlier, pay Executive a cash lump sum in lieu of any Base Salary that would have been paid during the remaining notice period, and continue to provide the benefits set forth in Section 4(d) until such one hundred and eightieth (180th) day (following which termination the Company will have no further obligation to provide compensation or benefits of any kind to or on behalf of Executive); and (iv) if Executive’s employment is terminated pursuant to Section 7(d), the date set forth in the Notice of Termination, which date must be at least one hundred and eighty (180) days after delivery of the Notice of Termination (or if no date or an earlier date is set forth therein, then on the one hundred and eightieth (180th) day after delivery of the Notice of Termination); provided, that the Company may elect to terminate Executive’s employment earlier, pay Executive a cash lump sum in lieu of any Base Salary that would have been paid during the remaining notice period, and continue to provide the compensation and benefits set forth in Section 4(d) until such one hundred and eightieth (180th) day (following which termination the Company will have no further obligation to provide compensation or benefits of any kind to or on behalf of Executive).
(c) Severance Benefits.
(i) Except as otherwise expressly provided in Section 8(b) or Section 8(c)(ii), upon any termination of Executive’s employment hereunder, Executive shall not be entitled to any termination payments or other further compensation or benefits, unless such amounts are required by applicable law or are otherwise set for the in a separate agreement with Executive.
(ii) Upon termination of Executive’s employment due to Executive’s death, Executive’s beneficiary or estate, as applicable, shall be entitled to receive a payment equal to Executive’s Cash Incentive Award that would have been payable to Executive for any fiscal year ending prior to Executive’s death (if not already paid) and a payment equal to Executive’s target
cash incentive opportunity for the fiscal year in which such termination of employment occurred, prorated based on the number of days during such fiscal year on which Executive was employed, to be paid by the Company in a single lump sum within sixty {60) days following the Date of Termination.
(iii) For the avoidance of doubt, any unreimbursed expenses incurred pursuant to Section 5 hereof prior to the termination of Executive’s employment hereunder shall be reimbursed in accordance with the Company’s policy with respect to expense reimbursement.
9. Restrictive Covenants.
(a) Acknowledgement. Executive acknowledges and agrees that (i) the business of the Group Companies is highly competitive; (ii) the skills and knowledge of the Group Companies’ workforce constitute trade secrets and confidential information; (iii) she will be exposed to and will have access to, and will develop on behalf of the Group Companies, trade secrets and confidential information during her employment; (iv) such trade secrets and confidential information are of vital importance to the success of the Group Companies; (v) the disclosure or improper use of any such information would place the Group Companies at a serious competitive disadvantage and could do serious damage, financial and otherwise, to the Group Companies; (vi) Executive will develop relationships with customers, clients or prospective customers or clients of the Group Companies at the time and expense of the Group Companies during her employment; (vii) by Executive’s training, experience and expertise, Executive’s services to the Group Companies will be extraordinary, special and unique; (viii) Executive’s experience and capabilities are such that the provisions contained in this Agreement will not prevent Executive from earning a livelihood; (ix) the Group Companies would be seriously and irreparably injured if Executive were to engage in any actions in violation of Section 9 of this Agreement, and that, in the event of such breach or threatened breach, no adequate remedy at law would exist and damages would be difficult to determine; (x) the provisions contained in Section 9 of this Agreement are justified by, and reasonably necessary to, protect the legitimate business interests of the Group Companies, including the trade secret, confidential information and goodwill of the Group Companies; (xi) Executive is a sophisticated business person and has had an opportunity to consult with an attorney prior to entering into this Agreement; (xii) the Company is entering into this Agreement only because Executive is willing to comply with Section 9 of this Agreement; (xiii) the provisions in this Agreement are fair and reasonable in scope, duration and geographical limitations and (xiv) if Executive were to act in concert with one or more current or former employees of the Group Companies to violate any confidentiality or restrictive covenants, the harm to the Group Companies would be significantly greater than the harm that would have resulted if the individuals had acted separately.
(b) Non-Competition: Non-Solicitation. Executive hereby agrees that he shall not in any jurisdiction in the world (the “Geographic Area”), either on Executive’s own account or on behalf of any other person, firm or company, directly or indirectly:
(i) during the Employment Term and prior to the Date of Termination, be engaged, interested or concerned with, in or by any business or undertaking that is engaged in or carries on any aspect of the Business (it being agreed that this clause (i) does not prohibit passive
ownership by Executive of up to 1% of the issued and outstanding common shares of a company when such class of shares trades publicly on a recognized securities exchange);
(ii) during the Employment Term and for a period of six (6) months following the Date of Termination (such period to be read as twelve (12) months following the Date of Termination in respect of a termination of employment following a Change of Control (in accordance with clause 14)) solicit, interfere with, endeavor to entice away from the Group Companies or encourage to reduce the level, or change the terms, of business conducted with, or ownership by, any person, firm or company who or which as of the Date of Termination or in the period of twelve (12) months immediately prior to such date was a shareholder, customer or client of, or regularly dealt with, any of the Group Companies, or who at such date was to Executive’s knowledge negotiating with any of the Group Companies in relation to all or part of its business or its ownership, or which or whom Executive learned confidential information, other than any person, firm or company with which or with whom Executive conducted business prior to commencement of the Employment Term; and/or
(iii) during the Employment Term and for a period of six (6) months following the Date of Termination (such period to be read as twelve (12) months following the Date of Termination in respect of a termination of employment following a Change of Control (in accordance with clause 14)) solicit the services of or endeavor to entice away from the Group Companies any director, employee or consultant of any of the Group Companies (whether or not such person would commit any breach of such person’s contract of employment or engagement by reason of leaving the service of such company), or employ or engage, or knowingly aid or assist any other person in procuring the employment or engagement of, any such person.
(c) Extension/Termination of Post-Employment Period of Time. (A) Any post-employment period of time described in Section 9(b) above shall be extended one (1) day for each day that Executive is not in compliance with the provisions of this Section 9, and (B) the Parent Board, in its discretion, may by written notice to Executive terminate any post-employment period of time described in Section 9(b) above earlier than its scheduled termination.
(d) Severability. It is expressly understood and agreed that, although Executive and the Company consider the restrictions contained in this Section 9 to be reasonable, if a determination is made by an arbitrator, arbitration panel or a court of competent jurisdiction that the time or territory or any other restriction contained in this Section 9 is an unenforceable restriction against Executive, then the applicable provision shall not be rendered void, but shall be deemed amended to apply as to the maximum time and territory and to the maximum extent as such court may judicially determine or indicate to be enforceable. If, however, any such arbitrator, arbitration panel or court determines that any such restriction is unenforceable and cannot be amended so as to make it enforceable, then the provision may be severed and the finding shall not affect the enforceability of any of the other restrictions contained herein.
(e) Injunction. Executive acknowledges and agrees that the Company’s remedies at law for a breach or threatened breach of any of Executive’s obligations under this Section 9 would be inadequate and, in recognition of this fact, Executive agrees that in the event of such a
breach or threatened breach, in addition to any other remedies available at law or in equity, the Company shall be entitled to seek an injunction in aid of arbitration without the requirement to post security or a bond.
(f) Restrictions Reasonable. Executive understands that the provisions of this Section 9 may limit Executive’s ability to earn a livelihood in a business similar to the business of the Company but Executive nevertheless agrees and hereby acknowledges that (i) such provisions do not impose a greater restraint than is necessary to protect the goodwill or other business interests of the Company, (ii) such provisions contain reasonable limitations as to time, geography and scope of activity to be restrained, (iii) such provisions are not harmful to the general public, (iv) such provisions are not unduly burdensome to Executive, (v) the consideration provided hereunder is sufficient to compensate Executive for the restrictions contained in this Section 9, and (vi) the potential harm to the Company of non-enforcement of this Section 9 outweighs any potential harm to Executive of enforcement. In consideration of the foregoing and in light of Executive’s education, skills and abilities, Executive agrees that Executive will not assert that, and it should not be considered that, any provisions of this Section 9 otherwise are void, voidable or unenforceable or should be voided or held unenforceable. The provisions of this Section 9 are an integral part of this Agreement
(g) Non-Disparagement. Executive shall not at any time (during or after Executive’s employment with the Company) directly or indirectly disparage the reputation of any of the Group Companies or their shareholders, persons or entities associated with such shareholders, officers, directors, agents or employees. The Company agrees that neither it nor any of its officers or members of its board of directors shall, at any time (during or after Executive’s employment with the Company) directly or indirectly disparage the reputation of the Executive.
(h) Developments. All documents, schedules, lists, charts, correspondence and other data, information and property (and all copies thereof), written or electronic, received, accessed, developed, made or compiled by or on behalf of Executive at any time during Executive’s employment, relating to any of the Group Companies or their business activities, but excluding Executive’s personal effects and similar items, are and will be the property of the Group Companies, and must, except as otherwise agreed by the Board in writing, be delivered to the Company promptly upon the termination of Executive’s employment with the Company for any or no reason or at any other time upon request. All discoveries, inventions, ideas, technology, formulas, designs, software, programs, algorithms, products, systems, applications, processes, procedures, methods, improvements and enhancements conceived, developed or otherwise made, created or produced by Executive alone or with others, at any time during or prior to Executive’s employment, in any way relating to the business activities, products or services that are the same as or substantially similar to those utilized or contemplated by any of the Group Companies, whether or not subject to patent, copyright or other protection and whether or not reduced to tangible form (“Developments”), are and will be the sole and exclusive property of the Company. Executive agrees to, and hereby does, assign to the Company, without any further consideration, all of Executive’s right, title and interest throughout the world in and to all Developments. Executive agrees that all Development that are copyrightable may constitute works made for hire under the copyright laws of the United States or works which are made
during and in the course of employment under section 20(2) of the Copyright and Designs Act 2004 of Bermuda and, as such, acknowledges that the Company is the author of such Developments and owns all of the rights comprised in the copyright of such Developments and Executive hereby assigns to the Company without any further consideration all of the rights comprised in the copyright and other proprietary rights Executive may have in any such Development to the extent that it might not be considered a work made for hire. Executive shall make and maintain adequate and current written records of all Developments and shall disclose all Developments promptly, fully and in writing to the Board promptly after development of the same, and at any time upon request.
10. Cooperation. Following the Date of Termination, Executive agrees to cooperate fully with the Company in (a) any litigation, administrative proceeding or inquiry that involves the Group Companies or any of their then-current or former shareholders, officers, directors, employees or agents, and/or (b) any investigation or inquiry conducted by or on behalf of the Company or any governmental or regulatory authority, in each case, about which Executive may have knowledge or information. The Company shall reimburse Executive for reasonable expenses incurred in connection with such cooperation. If Executive is participating at the Company’s request and legal counsel is required, the Company shall provide or reimburse Executive such legal counsel only to the extent permissible by law.
11. No Cooperation with Third Parties. Executive shall not - at any time - counsel or assist any attorneys or their clients in the presentation or prosecution of any disputes, differences, grievances, claims, charges, or complaints known or unknown on behalf of any private third party against the Group Companies or any of their officers, directors, employees, agents, representatives, shareholders or attorneys, unless under a subpoena or other court order to do so.
12. Successors. Executive’s performance hereunder is personal to Executive and is not assignable by Executive. The Company may at any time and from time to time delegate its power and authority under this Agreement to any of the Group Companies and such delegation (or the revocation thereof) shall be effective upon the Company’s giving written notice of the same to Executive. The Company may assign this Agreement to any of the Group Companies or to any successor to all or substantially all of the business and/or assets of the Company, whether directly or indirectly, by purchase, merger, amalgamation, consolidation, acquisition of shares, or otherwise. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.
13. Survival. Sections 6, 8, 9, 10, 11, 12, 13, 14 and 15 will survive the expiration or termination of this Agreement in accordance with the terms and conditions thereof.
14. Change of Control
(a) If there is a Change of Control of the Company and, within twelve (12) months following the Change of Control:
(i) the Company terminates the Executive’s employment (other than for cause pursuant to clause 7 (b)); or
(ii) the Executive serves notice to terminate her employment in accordance with clause 7(c) with Good Reason,
the Company shall, subject to clause 14 (b) below, pay the Agreed Sum to the Executive within one month following the end of the Employment Term and the Agreed Benefits will commence on the Date of Termination. The Agreed Sum shall be payable less any tax or other statutory deductions which the Company is obliged to deduct in line with normal payroll practices and applicable law.
(b) The payment of the Agreed Sum and provision of the Agreed Benefits shall be conditional on and in consideration of:
(i) the Executive complying with and continuing to comply with his obligations relating to confidentiality, intellectual property and restrictive covenants as set out in clauses 6 and 9 respectively; and
(ii) the Executive executing such documents in a form reasonably acceptable to the Company as it may require.
(c) For the avoidance of doubt, the payment of the Agreed Sum and provision of the Agreed Benefits shall not affect the Executive’s entitlement to any of the following (in each case for the period prior to the Date of Termination):
(i) any accrued but unpaid salary;
(ii) any payment in lieu of accrued but unused holiday; or
(iii) the reimbursement of expenses, provided that all claims for reimbursement are submitted within four (4) weeks after the Date of Termination,
(d) To the extent that the Agreed Sum is damages (which is not admitted), the parties agree that the terms of this clause 14 represent a genuine pre-estimate of the loss to the Executive that would arise on termination of the employment in the circumstances described and does not constitute a penalty. The Executive shall, subject to clause 14 (c), accept the Agreed Sum in full and final settlement of all and any claims that he may have arising out of the employment or its termination.
15. Miscellaneous.
(a) Waiver; Amendment. The waiver of or failure of a party to enforce any term, provision or condition of this Agreement at any time or times shall not be deemed a waiver of that term, provision or condition for the future or a waiver of any other term, provision or condition at any time. This Agreement may be amended or modified only by a writing signed by both parties hereto.
(b) Governing Law: Arbitration. This Agreement will be governed by and construed in accordance with the laws of Bermuda. In the event of any dispute, controversy or claim
arising out of or in relation to this Agreement, or the breach, termination or alleged invalidity hereof, then except as contemplated by Section 9(e), the parties shall proceed to arbitration. There shall be one arbitrator, to be appointed in the absence of the parties’ agreement by the Appointments Committee of the Chartered Institute of Arbitrators (Bermuda Branch). The procedure to be followed shall be that as laid down in the UNCITRAL Model Law in accordance with the Bermuda International Conciliation and Arbitration Act 1993 (as amended from time to time) and the UNCITRAL Arbitration Rules presently in force. The place of Arbitration shall be Bermuda and the language shall be English. The decision and award of the arbitral tribunal shall be final and binding on the parties, and any court of competent jurisdiction may enter judgment upon the award.
(c) Section Captions. Section and other captions contained in this Agreement are for reference purposes only and are in no way intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof.
(d) Severability. Each provision of this Agreement is intended to be severable. If any term or provision hereof is illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the validity of the remainder of this Agreement.
(e) Interpretation: Counterparts. No provision of this Agreement is to be interpreted for or against any party because that party drafted or did not draft such provision. The words “hereof”, “herein”, “hereunder” and words of similar import refer to this Agreement in its entirety and not to any particular section or paragraph. Except as expressly stated otherwise, references herein to sections or paragraphs refer to the sections or paragraphs of this Agreement. The words “including”, “include” and words of similar import shall be deemed to be followed by “without limitation.” References to statutory provisions shall be construed as references to those provisions as amended or re-enacted or as their application is modified by other provisions from time to time and shall include references to any provisions of which they are re enactments (whether with or without modification). References to the singular include the plural and vice versa and references to the masculine include the feminine and/or neuter and vice versa. References to persons include natural persons, companies, partnerships, corporations, associations and bodies of persons, whether incorporated or unincorporated. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same instrument. Delivery of an executed signature page of this Agreement by facsimile or other electronic means shall be effective as delivery of a manually executed counterpart hereof.
(f) Construction. This Agreement is to be fairly interpreted in accordance with its terms and without any strict construction in favor of or against either of the parties. Each of the parties acknowledges that this Agreement was jointly negotiated, reviewed and approved by them and their respective counsel. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as having been drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement.
(g) U.S. Internal Revenue Code. Notwithstanding anything herein to the contrary, this Agreement is intended to be interpreted and applied so that the payment of the benefits set forth herein either shall either be exempt from the requirements of Sections 409A and 457A of the U.S. Internal Revenue Code of 1986, as amended (the “Code”) and applicable published guidance thereunder, or shall comply with the requirements of such provisions. Notwithstanding any provision in this Agreement or elsewhere to the contrary, if Executive is a “specified employee” within the meaning of Section 409A of the Code, any payments or benefits due upon a termination of Executive’s employment under any arrangement that constitutes a “deferral of compensation” within the meaning of Section 409A of the Code and which do not otherwise qualify under the exemptions under Treas. Regs. Section 1.409A-1 (including without limitation, the short-term deferral exemption and the permitted payments under Treas. Regs. Section 1.409A-l(b)(9)(iii)(A)), shall be delayed and paid or provided on the earlier of (i) the date which is six (6) months after Executive’s separation from service (as such term is defined in Section 409A of the Code and the regulations and other published guidance thereunder) for any reason other than death, and (ii) the date of Executive’s death. Notwithstanding anything in this Agreement or elsewhere to the contrary, distributions upon termination of Executive’s employment that constitute a “deferral of compensation” within the meaning of Section 409A of the Code may only be made upon a “separation from service” as determined under Section 409A of the Code and such date shall be the Date of Termination for purposes of this Agreement. Each payment under this Agreement or otherwise shall be treated as a separate payment for purposes of Section 409A of the Code. In no event may Executive, directly or indirectly, designate the calendar year of any payment to be made under this Agreement or otherwise which constitutes a “deferral of compensation” within the meaning of Section 409A of the Code. All reimbursements and in-kind benefits provided under this Agreement shall be made or provided in accordance with the requirements of Section 409A of the Code. To the extent that any reimbursements pursuant to this Agreement or otherwise are taxable to Executive, any reimbursement payment due to Executive shall be paid to Executive on or before the last day of Executive’s taxable year following the taxable year in which the related expense was incurred; provided, that, Executive has provided the Company written documentation of such expenses in a timely fashion and such expenses otherwise satisfy the Company’s expense reimbursement policies. Reimbursements pursuant to this Agreement or otherwise are not subject to liquidation or exchange for another benefit and the amount of such reimbursements that Executive receives in one taxable year shall not affect the amount of such reimbursements that Executive receives in any other taxable year. Notwithstanding any of the foregoing to the contrary, the Company and their respective officers, directors, employees, or agents make no guarantee that the term: of this Agreement as written comply with, or are exempt from, the provisions of Code Sections 409A and 457A, and none of the foregoing shall have any liability for the failure of the terms of this Agreement as written to comply with, or be exempt from, the provisions of Code Sections 409A or 457A.
(h) Liability for Taxes. The issuance of any equity incentive awards described in Section 4 involve complex and substantial tax considerations. Executive should consult with his own tax advisors with respect to any equity incentive awards and other payments and benefits under this Agreement. The Company makes no warranties or representations whatsoever to Executive regarding the tax consequences of any equity incentive awards or the receipt of
shares with respect thereto, or any other payments and benefits under this Agreement. Executive shall be solely responsible for any taxes in respect of any equity incentive awards and other payments and benefits under this Agreement.
(i) Notices. All notices and other communications hereunder must be in writing and shall be deemed to have been duly given if delivered by hand delivery, facsimile (with confirmation of transmission), or overnight courier, in each case addressed as follows:
| | | | | |
| If to the Company: | c/o Hamilton Insurance Group, Ltd. |
| Wellesley House North, First Floor |
| 90 Pitts Bay Road |
| Pembroke HM 08 |
| Bermuda Attention: General Counsel |
| |
| If to Executive: | To Executive’s principal address as reflected in the Company’s records |
or to such other address as either party shall have furnished to the other in writing in accordance herewith. Any such notice or communication shall be deemed to have been delivered on the date of delivery if delivered by hand, on the date of transmission if delivered by facsimile (with confirmation of transmission), on the date of confirmed delivery if delivered by overnight courier.
(j) Entire Agreement. This Agreement (including the schedules attached hereto) sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersede all prior agreements, negotiations, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, director, employee or representative of any party hereto in respect of such subject matter (other than agreements evidencing awards or payments required hereunder, such as equity grant agreements). Executive and the Company represent that, in executing this Agreement, each party has not relied upon any representation or statement made by the other party, other than those set forth herein, with regard to the subject matter, basis or effect of this Agreement. This Agreement represents the complete understanding of the parties with respect to the subject matter hereof, and, as of the Effective Date, supersedes and terminates all prior agreements and all prior and contemporaneous discussions and agreements between the Group Companies and Executive with respect to the subject matter hereof.
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement as of the date first above written.
| | | | | |
| HAMILTON BDA SERVICES LIMITED |
| |
| By: | /s/ Gemma Carreiro |
| Name: Gemma Carreiro |
| Title: Director |
| |
| EXECUTIVE |
| |
| /s/ Megan Thomas |
| MEGAN THOMAS |
CONTRACT OF EMPLOYMENT
This Agreement is made on 18 March 2021 and deemed to take effect as of 08 December 2020
Between:
(1) Hamilton UK Services Limited, a company incorporated in England and Wales (registered number 11381012) whose registered office is at 8 Fenchurch Place, London EC3M 4AJ (the “Company”) and
(2) Adrian Daws of 42 Harlequin Court, 6 Thomasmore St, London E1 W1AR (the “Executive” or “you”)
WHEREAS, the Parties acknowledge that the Executive has been continuously employed by the Company or one of its subsidiaries or affiliates since December 14, 2015 (the “Effective Date”); and
WHEREAS, in consideration of the premises and the mutual covenants and agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:
It Is Agreed:
This Amended and Restated Agreement contains the terms and conditions of your employment. It includes the statement required to be given to you under Section 1 Employment Rights Act 1996.
There are certain conditions that must be satisfied by you in order for your employment to continue. These are:
• that you sign and return all documentation required by the Company;
• that you are entitled to work in the United Kingdom; and
• that you are capable of performing your duties;
1) INTERPRETATION
1.1 In this Agreement:
“Agreed Benefits” means the provision of medical health insurance coverage in line with the Company’s current medical health insurance policy (the “Policy”), subject to the rules of the Policy, for a maximum of twelve months following the end of the Employment Term or, if sooner, the date on which the Executive obtains substantially comparable medical health insurance under any other contract;
“Agreed Sum” means an amount equivalent to the gross value of one year’s Annual Salary plus an amount equivalent to one year’s Cash Incentive Award (calculated at target) (less any sums paid to the Executive by way of notice or payment in lieu of notice);
“Annual Salary” means the annual base salary at the rate of £280,000 per annum (which shall be deemed to accrue from day to day) payable in arrears by equal monthly instalments in a manner consistent with current Company practice;
“Bonus Scheme” means the Hamilton Insurance Group cash incentive plan as amended from time to time;
“Business Day” means a day (other than a Saturday or a Sunday) on which banks are open for business in London;
“Change in Control” has the meaning defined in the Hamilton Insurance Group 2013 Equity Incentive Plan (as amended from time to time);
“Employment Term” means the period commencing on the Effective Date through termination in accordance with the terms of this Agreement;
“Financial Year” means the financial year used for the purposes of the Bonus Scheme as from time to time adjusted;
“Good Reason” has the meaning defined in the Hamilton Insurance Group 2013 Equity Incentive Plan (as amended from time to time);
“Group Board” the board of directors of Hamilton Insurance Group;
“Group CEO”means the Chief Executive Officer of Hamilton Insurance Group;
“Group Company” means the Company and any company that is from time to time a parent or holding company of the Company, a direct or indirect subsidiary company of the Company, a direct or indirect subsidiary company of a holding company of the Company or a company in which the Company owns, directly or indirectly, at least fifty percent (50%) of the issued share capital, or any individual member of such group (excluding the Company) as the context requires;
“Hamilton Insurance Group” or “Parent” means Hamilton Insurance Group, Ltd., a Bermuda company;
“Restricted Business” means (i) the insurance or reinsurance business; (ii) the contemplation, creation and/or execution of insurance or reinsurance business, including all aspects of the planning and “start up” of such activities and (iii) any other business in which the Group Companies are engaged on the last day of Executive’s employment with the Company and with which Executive was materially involved in the twelve months prior to the Date of Termination; and
“Termination Date” means the date on which the employment of the Executive under this Agreement shall terminate.
1.2 In this Agreement, unless the context otherwise requires:
(a) references to clauses, sub-clauses and schedules are, unless otherwise stated, to clauses, sub-clauses of and schedules to this Agreement; and
(b) the headings to the clauses are for convenience only and shall not affect the construction or interpretation of this Agreement.
2. EFFECTIVE DATE
2.1 Pursuant to the terms of this Amended and Restated Agreement, the Effective Date of and your employment will remain December 14, 2015. No employment with any previous employer counts as part of your period of continuous employment.
3. JOB TITLE AND DUTIES
3.1 You are employed as CEO, Hamilton Managing Agency Limited and shall report to the Group CEO or her delegate, as applicable.
3.2 In addition to the duties which this job normally involves, you agree to perform any other duties that may reasonably be assigned or vested in you by the Group CEO in relation to the Company and any Group Company.
3.3 You further agree to comply with all reasonable requests and/or instructions given or made by the Group CEO and to keep her regularly informed and promptly provide such explanations, information and assistance as to your activities or the business of the Company or any Group Company as the Group CEO may require.
3.4 You agree that the Company may assign this contract to another Group Company. You will be given one month’s written notice of any such assignment.
4 PLACE OF WORK
4.1 Your normal place of work is the Company’s premises at 8 Fenchurch Place, London EC3M 4AJ, United Kingdom. The Company shall be entitled to require you to work at other locations or offices within the United Kingdom or overseas whether on a temporary or permanent basis in line with the requirements of the Company. You may be required to work outside the United Kingdom for a period of more than one month. Details of the terms applying to such periods will be provided to you, should this become relevant.
4.2 You may be required to travel anywhere within the United Kingdom or overseas as is necessary for the proper performance of your duties.
5 REMUNERATION
Annual Salary
5.1 As remuneration for the services under this Agreement, the Company shall pay the Executive his Annual Salary. Your Annual Salary will be reviewed annually and may be increased from time to time at the Company’s discretion without affecting the other terms of your employment. There is no obligation to award an increase. There will be no review of the salary after notice has been given by either party to terminate your employment.
5.2 You will not be entitled to additional pay for any overtime worked.
Cash Incentive Program
5.3 During the Employment Term, Executive shall have the opportunity to earn a cash incentive award of up to 100% of Annual Salary for each fiscal year of the Company (the “Cash Incentive Award”). The cash incentive award, if any, shall be prorated for any partial year of Executive’s employment with the Company, based on actual performance. The Cash Incentive Award, if any, shall be determined by, and in the sole and absolute discretion of, the Compensation Committee of the Parent Board (or if no such committee is in place, the Parent Board) in consultation with the Group CEO and the Hamilton Managing Agency Limited Compensation Committee. The Compensation Committee of the Parent Board (or if no such committee, the Parent Board) in consultation with the Group CEO and the Hamilton Managing Agency Limited Compensation Committee, shall determine the amount (if any) and terms of any cash incentive award (including any applicable performance criteria and/or deferral component). The determinations of the Compensation Committee of the Parent Board (or if no such committee, the Parent Board) in respect of the cash incentive program shall be final and binding on all parties. The terms of any cash incentive program shall be communicated to Executive under separate cover.
5.4 No payment under the Cash Incentive Award shall be paid if before the date on which the Company usually pays such bonuses:
(a) Notice of termination has been given by either party to the other; and/or
(b) The Company has instituted disciplinary proceedings against the Executive, or the Executive is subject to an unexpired disciplinary warning.
Long Term Incentive Award
5.5 For any completed fiscal year of employment with the Company, Executive may be eligible to earn an equity incentive award from the Parent. Equity incentive awards, if any, shall be made under, and subject to the terms of, the Hamilton Insurance Group, Ltd. 2013 Long Term Incentive Plan, as amended from time to time (the “Equity
Plan”) and any related written award agreement. Any awards granted to Executive under the Equity Plan shall be communicated by, and be subject to the terms and conditions of, a written award agreement between the Parent and Executive. Notwithstanding the generality of the foregoing, Executive shall be considered annually for eligibility to receive a grant of restricted stock units (“RSUs”) under the Equity Plan and performance stock units (“PSUs”) in the discretion of the Parent Board. Any such grant shall vest subject to Executive’s continued employment with the Company through the applicable vesting date(s) and subject to achievement of target performance metrics to be determined by the Compensation Committee of the Parent Board (or if no such committee, the Parent Board) in its sole discretion. Executive’s target annual equity incentive award shall be calibrated at 100% of Annual Salary. However, neither the Parent nor the Company shall have any obligation to grant such awards. Executive acknowledges that Executive may be required to execute additional documents in connection with the grant of any equity incentive award or the exercise or settlement of such awards.
5.6 For the purposes of the Employment Rights Act 1996 or otherwise, you consent to the deduction of any sums due from you to the Company (including without limitation any overpayments, loans or advances made to you by the Company, any excess holiday taken by you and/or the cost of repairing any damage or loss to the Company’s property caused by you) at any time from your salary or any other payment due from the Company to you. You also agree to make payment to the Company of any sums due from you to the Company upon demand by the Company at any time.
6 OTHER BENEFITS
6.1 You are eligible to participate in the Company’s pension scheme (the “Pension Scheme”) from the first day of your employment, subject to any requirements of the pension provider, particulars of which may be obtained from the Company subject to the terms of the Pension Scheme in force from time to time. The Company reserves the right to amend or terminate the Pension Scheme in its absolute discretion at any time provided that if the Pension Scheme is terminated it will be replaced with a new scheme. The Executive consents to the deduction of any contributions due to the Pension Scheme from his salary.
6.2 You shall also be entitled to participate in other benefit schemes from the first day of your employment, subject to any requirements of the benefit provider, including but not limited to Private Health Insurance, Life Assurance and Permanent Health insurance. Particulars of these schemes may be obtained from the Company. The Company shall have the right to change its arrangements for or withdraw the provision of such benefits as it sees fit.
6.3 Nothing in this clause:
(a) Gives rise to any express or implied limitations on the ability of the Company to terminate this Agreement at any time in accordance with its terms or otherwise; or
(b) Gives the Executive any rights to the continuation of existing benefits and/or any rights to prospective benefits following termination of his employment.
7 EXPENSES
The Company shall reimburse you for all reasonable expenses properly incurred by you in the performance of your duties. Reimbursement will be in accordance with any Company policy on expenses which is in force at the time.
8 HOURS OF WORK
8.1 Your normal working hours are from 9:00 am to 5:30 pm Monday to Friday inclusive with an unpaid lunch break of one hour. However, due to the nature of your employment, including your seniority and the scope of you responsibilities, you may be required to work additional hours without additional remuneration if that is reasonably necessary (in the Company’s view) for the proper performance of your duties.
8.2 You agree to work hours which exceed the maximum average weekly working time limit of 48 hours imposed by the Working Time Regulations 1998. You may withdraw your agreement at any time on giving the Company 6 months’ prior written notice.
9 HOLIDAYS
9.1 In addition to normal English Bank and Public holidays, you are entitled to 25 working days’ paid holiday during each holiday year. The Company’s holiday year runs from 1 January to 31 December. Holidays must be taken at times convenient to the Company and you must give reasonable notice of proposed holiday dates which must be agreed in advance with your supervisor. Not more than two consecutive weeks of holiday may be taken at any one time without the approval of the Company.
9.2 For the holiday year during which your employment begins or ends, you will be entitled to such proportion of your annual holiday entitlement as the period of your employment in that holiday year bears to a full holiday year. The Company may require you to take some, all or none of any outstanding holiday entitlement during your notice period. Upon the termination of your employment for whatever reason you will, as appropriate, either be entitled to salary in lieu of any untaken accrued holiday entitlement or be required to repay to the Company any salary received in respect of holiday taken in excess of your proportionate holiday entitlement. For the purposes of calculating such payment in lieu or such repayment, a day’s paid holiday shall be taken to be your annual basic salary divided by 260.
10 SICKNESS
10.1 If you are absent from work due to sickness, accident or other incapacity, you must inform the Company as soon as possible and in any event by 9 am on your first day of absence. You must keep the Company regularly informed of the reasons for and
expected duration of your absence. Entitlement to sick pay may be affected by late notification.
10.2 When any period of absence continues beyond seven calendar days you must obtain and immediately forward to the Company a medical certificate signed by a doctor. If absence continues after the expiry of the first certificate, further certificates must be obtained as necessary to cover the whole period of absence and forwarded to the Company immediately on each occasion. The Company may require you to be examined at any time by a doctor of its choice.
10.3 Immediately following your return to work after any period of absence for any reason you must complete a self-certification form, copies of which are available from the Company.
10.4 Subject to compliance with the above notification and certification requirements you will be entitled to statutory sick pay and may receive further payments up to the equivalent of your full salary at the Company’s discretion. For the avoidance of doubt, in the event that you receive any additional sums paid either by the Company or by virtue of your entitlement to a payment under a relevant insurance scheme, this additional payment will be deemed to include your entitlement to statutory sick pay.
11 OTHER WORK
11.1 During your employment with the Company you must not be involved either directly or indirectly in any other work without prior written approval, with such approval not being unreasonably withheld.
11.2 You agree that you will not accept any appointments (whether paid or unpaid) as a director or otherwise with any company other than the Company without the Company’s prior written consent.
12 CONFIDENTIALITY AND COMPANY PROPERTY
12.1 You agree both during and after the termination of your employment not to use or disclose to any person any confidential information:
(a) concerning the business of the Company or any Group Company and which comes to your knowledge, directly or indirectly, during the course of or in connection with your employment; or
(b) concerning the business of any client, customer, agent, supplier or distributor having dealings with the Company or any Group Company and which is obtained either directly or indirectly in circumstances subject to a duty of confidentiality.
12.2 This clause shall not apply to information which is:
(a) used or disclosed in the proper performance of your duties or with the consent of the Company or respective Group Company;
(b) disclosed as a protected disclosure within the meaning of section 43A Employment Rights Act 1996;
(c) ordered to be disclosed by a court of competent jurisdiction or otherwise required to be disclosed by law; or
(d) comes into the public domain (otherwise than due to a default by you).
12.3 All documents, manuals, hardware and software provided for your use by the Company or any Group Company, and any data or documents produced, maintained or stored on the Company’s computer systems or other electronic equipment remain the property of the Company or such respective Group Company and upon demand by the Company or such respective Group Company and in any event upon the termination of your employment with the Company for whatever reason you shall immediately return them together with all equipment, notes and memoranda, documents, software, records, codes, keys and passwords, designs, drawings or other property in any medium whatsoever belonging to the Company or such respective Group Company (together with any copies of the same) which is in your possession or under your control. You agree to abide with any obligations of the Company as a licensee of software, including any obligations not to use, disclose or reverse engineer such software.
13 INTELLECTUAL PROPERTY
13.1 You shall give the Company full written details of all Inventions (meaning inventions, ideas and improvements, whether or not patentable, and whether or not recorded in any medium) and of all works embodying Intellectual Property Rights made wholly or partially by you at any time during the course of your employment which relate to, or are reasonably capable of being used in, the business of the Company or any Group Company. You acknowledge that all Intellectual Property Rights subsisting (or which may in the future subsist) in all such Inventions and works shall automatically, on creation, vest in the Company absolutely. To the extent that they do not vest automatically, you hold them on trust for the Company. You agree promptly to execute all documents and do all acts as may, in the opinion of the Company, be necessary to give effect to this clause.
13.2 For the purposes of clause 13.1, “Intellectual Property Rights” consist of patents, rights to Inventions (as defined in clause 13.1 above), copyright and related rights, trademarks, trade names and domain names, rights in get-up, rights in goodwill or to sue for passing off, rights in designs, rights in computer software, database rights, rights in confidential information (including know-how and trade secrets) and any other intellectual property rights, in each case whether registered or unregistered and including all applications (or
rights to apply) for, and renewals or extensions of, such rights and all similar or equivalent rights or forms of protection which may now or in the future subsist in any part of the world.
14 Termination of employment
Executive’s employment shall terminate upon the first to occur of:
14.1 Executive’s death;
14.2 the termination of Executive’s employment by the Company for Cause without notice, where “Cause” means any of the following acts or occurrences as determined by the Company: (i) Executive’s indictment of or charge with respect to, conviction of, or pleading guilty or nolo contendere to a felony or equivalent offense or crime (other than a minor road traffic offense or other non-material offense not subject to a custodial sentence), in any case whether occurring before or after the date of this Agreement, (ii) Executive’s gross negligence or willful misconduct in connection with Executive’s employment that causes or is likely to cause significant loss or damage to any of the Group Companies, (iii) Executive’s conduct that constitutes fraud, material misrepresentation or embezzlement, (iv) Executive’s material breach of this Agreement or any other agreement with any of the Group Companies, or breach of any policy or procedure of the Group Companies, which, in the case of a non-recurring breach capable of being cured, remains uncured after fourteen (14) days following notice by the Company or the Group CEO of such breach, (v) Executive’s habitual use of alcohol or illegal use of drugs (including narcotics) that materially impairs or is reasonably likely to materially impair Executive’s ability to perform Executive’s duties and responsibilities for the Group Companies, (vi) Executive’s continued failure to substantially and/or satisfactorily perform Executive’s duties and responsibilities hereunder, which failure remains uncured after fourteen (14) days following notice by the Company or Group CEO of such failure, (vii) Executive being the subject of a complaint or charge by a governmental agency, rating agency or self-regulatory organization for an alleged violation (whether occurring before or after the date of this Agreement) of any statute or regulation which has or is reasonably likely to have an adverse impact on the reputation and standing in the community of any of the Group Companies, (viii) Executive failing to maintain any licenses necessary to perform the essential functions of Executive’s duties hereunder which remains uncured after thirty (30) days following notice by the Company of such failure, and/or (ix) repeated misconduct, repeated unsatisfactory performance or being guilty of serious misconduct.
14.3 the resignation by Executive upon one hundred and eighty (180) days’ prior written notice to the Company or, if resignation by Executive is on account of Good Reason, such earlier date specified in the Notice of Termination provided to the Company but no earlier than the date on which any applicable cure periods applicable to Good Reason events have expired.
14.4 the termination of Executive’s employment by the Company without Cause upon at least one hundred eighty (180) days’ prior written notice to Executive.
14.5 The Company reserves the right in its absolute discretion to terminate your employment with immediate effect by paying you a sum equal to your Annual Salary for all or any remaining part of your notice period irrespective of who gives notice. In the event of gross misconduct on your part, the Company reserves the right to terminate your employment immediately without notice or payment in lieu of notice.
14.6 During any period of notice or any part thereof, (whether given by you or the Company), the Company shall be under no obligation to assign any duties to you. The Company shall be entitled to exclude you from its premises. The Company may also require you not to have any contact or communication with any employees, suppliers or customers of the Company during any such period. Your right to receive your normal salary and other contractual benefits during your notice period will not be affected by the provisions of this clause 14.
15 TERMINATION PROCEDURE
15.1 Notice of Termination. Any termination of Executive’s employment by the Company or by Executive (other than by reason of Executive’s death) shall be communicated by a written Notice of Termination to the other party hereto. For purposes of this Agreement, a “Notice of Termination” means a notice that indicates the specific termination provision in this Agreement relied upon and, in circumstances in which the Company is terminating Executive’s employment for Cause or Executive is terminating for Good Reason, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment for Cause or Good Reason, as applicable, and specifies the Date of Termination consistent with the provisions of clause 14.2.
15.2 Date of Termination. For purposes of this Agreement, “Date of Termination” means (i) if Executive’s employment is terminated pursuant to clause 14.1, the date of Executive’s death, (ii) if Executive’s employment is terminated pursuant to clause 14.2, the date set forth in the Notice of Termination; provided, that, if applicable, the Notice of Termination shall not be effective until any applicable cure period has expired without the event or events leading to such termination having been cured, (iii) if Executive’s employment is terminated pursuant to clause 14.3, the date that is one hundred eighty (180) days after delivery of such notice; provided, that the Company may elect to terminate Executive’s employment earlier and continue to provide the compensation and benefits until such one hundred eightieth (180th) day (following which termination the Company will have no further obligation to provide compensation or benefits of any kind to or on behalf of Executive), (iv) if Executive’s employment is terminated pursuant to clause 14.4, the date set forth in the Notice of Termination, which date must be at least one hundred eighty (180) days after delivery of the Notice of Termination (or if no date or an earlier date is set forth therein, then on the one hundred eightieth (180th) day after delivery of the Notice of Termination); provided,
that the Company may elect to terminate Executive’s employment earlier and continue to provide the compensation and benefits until such one hundred eightieth (180th) day (following which termination the Company will have no further obligation to provide compensation or benefits of any kind to or on behalf of Executive).
15.3 Severance Benefits; Notice Periods.
15.3.1 Except as otherwise expressly provided in clause 15.2 or clause 15.3.2, upon any termination of Executive’s employment hereunder, Executive shall not be entitled to any termination payments or other further compensation or benefits, unless such amounts are required by applicable law.
15.3.2 Upon termination of Executive’s employment due to Executive’s death, Executive’s beneficiary or estate, as applicable, shall be entitled to receive a payment equal to Executive’s Cash Incentive Award that would have been payable to Executive for any fiscal year ending prior to Executive’s death (if not already paid), prorated based on the number of days during such fiscal year on which Executive was employed, to be paid by the Company in a single lump sum within 60 days following the Date of Termination.
16 RESTRICTIVE COVENANTS
You agree to abide by the provisions set out in the Schedule to this Agreement.
17 DISCIPLINARY AND GRIEVANCE PROCEDURES
17.1 Any disciplinary or dismissal matters affecting the Executive will be dealt with by the Group CEO or her nominee. Should the Executive wish to appeal against any disciplinary or dismissal decision he should submit his appeal in writing to the Group Board whose decision on such appeal shall be final. The Company reserves the right to suspend you with pay pending the outcome of any disciplinary proceedings.
17.2 If the Executive wishes to seek redress for any grievance relating to his employment he should first discuss the matter with the Group CEO. If the matter is not then settled, he should submit his grievance to the Group Board in writing whose decision on such grievance shall be final.
18 COLLECTIVE AGREEMENTS
There are no collective agreements applicable to you or which affect your terms of employment.
19 DATA PROTECTION AND PRIVACY
19.1 The Company and the Group Companies may collect and process information relating to you (and where necessary family members/dependents) in accordance with the Privacy Notice. The Privacy Notice sets out how the Company and/or Group Companies collect
and use personal information about you during and after your working relationship with the Company, in accordance with the principles of the General Data Protection Regulations. You are required to sign and date the Privacy Notice and return the signed version to the Company.
19.2 You shall agree to comply with all applicable policies, procedures and training provided to you regarding data protection and the use of equipment provided to you (including but not limited to mobile phones, computes and i-pads) when handling personal data in the course of your employment. The personal data in question may relate to any employee, worker, contractor, customer, client, supplier or agent of the Company or Group Company.
19.3 Failure to comply with such policies and procedures may be dealt with under the Company’s disciplinary procedure.
20 Changes to Terms and Conditions of Employment
The Company reserves the right to make reasonable changes to any of your terms of employment provided this is agreed in writing by both parties at the time, such consent not to be unreasonable withheld by you.
21 CHANGE IN CONTROL
21.1 If there is a Change of Control of the Company and, within twelve (12) months following the Change of Control:
(a) the Company terminates the Executive’s employment (other than for Cause pursuant to clause 14.2); or
(b) the Executive serves notice to terminate his employment in accordance with clause 14.3 with Good Reason,
the Company shall, subject to clause 21.2 below, pay the Agreed Sum to the Executive within one month following the end of the Employment Term and the Agreed Benefits will commence on the Date of Termination. The Agreed Sum shall be payable less any tax or other statutory deductions which the Company is obliged to deduct in line with normal payroll practices and applicable law.
21.2 The payment of the Agreed Sum and provision of the Agreed Benefits shall be conditional on and in consideration of:
(a) the Executive complying with and continuing to comply with his obligations relating to confidentiality, intellectual property and restrictive covenants as set out in the attached Schedule; and
(b) the Executive executing such documents in a form reasonably acceptable to the Company as it may require.
21.3 For the avoidance of doubt, the payment of the Agreed Sum and provision of the Agreed Benefits shall not affect the Executive’s entitlement to any of the following (in each case for the period prior to the Date of Termination):
(a) any accrued but unpaid salary;
(b) any payment in lieu of accrued but unused holiday; or
(c) the reimbursement of expenses, provided that all claims for reimbursement are submitted within four (4) weeks after the Date of Termination,
21.4 To the extent that the Agreed Sum is damages (which is not admitted), the parties agree that the terms of this clause 21 represent a genuine pre-estimate of the loss to the Executive that would arise on termination of the employment in the circumstances described and does not constitute a penalty. The Executive shall, subject to clause 21.3, accept the Agreed Sum in full and final settlement of all and any claims that he may have arising out of the employment or its termination
22 ENTIRE AGREEMENT
22.1 This Agreement and any documents referred to in it constitute the entire agreement and understanding between the parties and supersedes and extinguishes all previous agreements, promises, assurances, warranties, representations and understandings between them, whether written or oral, relating to its subject matter.
22.2 Each party acknowledges that in entering into this Agreement it does not rely on, and shall have no remedies in respect of, any statement, representation, assurance or warranty (whether made innocently or negligently) that is not set out in this agreement.
22.3 Each party agrees that it shall have no claim for innocent or negligent misrepresentation or negligent misstatement based on any statement in this agreement.
22.4 Nothing In this clause shall limit or exclude any liability for fraud.
23 GENERAL
23.1 These terms and conditions of employment must be read in conjunction with the Staff Handbook which you acknowledge you have received. If any of the terms and conditions in this Agreement conflict with the Staff Handbook or any offer letter, the terms and conditions of this Agreement will prevail.
23.2 Without prejudice to any other rights or remedies that the Company may have, you acknowledge and agree that damages alone would not be an adequate remedy for any breach by you of the terms of clauses 12, 13 and 16. Accordingly, the Employer shall be entitled to the remedies of injunction, specific performance or other equitable relief for any threatened or actual breach by you of the terms of clauses 12, 13 and 16 of this Agreement.
23.3 A person, firm or company which is not a party to this Agreement shall have no right under the Contracts (Rights of Third Parties) Act 1999 to enforce any of its terms.
23.4 English law shall apply to this Agreement and both you and the Company submit to the jurisdiction of the English courts.
In witness whereof, this agreement has been duly executed and delivered the day and year first written.
| | |
| Signed by Daniel Fisher, Director |
| /s/ Daniel Fisher |
| for and on behalf of the Company |
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| Acknowledged and Agreed by |
| /s/ Adrian Daws |
| Adrian Daws |
SCHEDULE
Post-Termination Restrictions
Since you will in the course of your employment hereunder have dealings with customers and obtain knowledge of the trade secrets and other confidential information in regard to the business of the Company and such Group Companies, you hereby agree with the Company for itself and as trustee for the Group Companies that you shall not without the prior written consent of the Group Board (such consent to be withheld only so far as may be reasonably necessary to protect the legitimate interests of the Company or any Group Company), either on your own account or on behalf of any other person, firm or company, directly or indirectly:
A) Non-Competition; Non-Solicitation:
(a) during the Employment Term and prior to the Date of Termination, be engaged, interested or concerned with, in or by any business or undertaking that is engaged in or carries on any aspect of the Restricted Business (it being agreed that this clause (i) does not prohibit passive ownership by Executive of up to 1% of the issued and outstanding common shares of a company when such class of shares trades publicly on a recognized securities exchange);
(b) during the Employment Term and for a period of six (6) months following the Date of Termination (such period to be read as twelve (12) months following the Date of Termination in in respect of a termination of employment directly or indirectly in connection with a Change in Control (in accordance with clause 21)), solicit, interfere with, endeavor to entice away from the Group Companies or encourage to reduce the level or change the terms of business conducted with, or ownership by, any person, firm or company who or which as of the Date of Termination or in the period of twelve (12) months immediately prior to such date was a shareholder, customer or client of or regularly dealt with any of the Group Companies, or who at such date was to Executive’s knowledge negotiating with any of the Group Companies in relation to all or part of its business or its ownership, or which or whom Executive learned confidential information, other than any person, firm or company with which or with whom Executive conducted business prior to commencement of the Employment Term; and/or
(c) during the Employment Term and for a period of six (6) months following the Date of Termination (such period to be read as twelve (12) months following the Date of Termination in in respect of a termination of employment directly or indirectly in connection with a Change in Control (in accordance with clause 21)), solicit the services of or endeavor to entice away from the Group Companies any director, employee or consultant of a Group Company (whether or not such person would commit any breach of such person’s contract of employment or engagement by reason of leaving the service of such company), or employ or engage, or knowingly aid or assist any other person in procuring the employment or engagement of, any such person.
B) Extension/Termination of Post-Employment Period of Time.
(i) Any post-employment period of time described above shall be extended one (1) day for each day that Executive is not in compliance with the provisions of this Schedule, and
(ii) the Board, in its discretion, may by written notice to Executive terminate any post employment period of time described above earlier than its scheduled termination.
C) Severability. It is expressly understood and agreed that, although Executive and the Company consider the restrictions contained in this Schedule to be reasonable, if a determination is made by an arbitrator, arbitration panel or a court of competent jurisdiction that the time or territory or any other restriction contained in this Schedule is an unenforceable restriction against Executive, then the applicable provision shall not be rendered void, but shall be deemed amended to apply as to the maximum time and territory and to the maximum extent as such court may judicially determine or indicate considered a work made for hire. Executive shall make and maintain adequate and current written records of all Developments and shall disclose all Developments promptly, fully and in writing to the Board promptly after development of the same, and at any time upon request.
AMENDED AND RESTATED
EMPLOYMENT AGREEMENT
This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this “Agreement”) is made as of January 4, 2021, by and between Peter Skerlj (“Executive”) and Hamilton BDA Services Limited (the “Company”).
W I T N E S S E T H:
WHEREAS, the Parties acknowledge that the Executive has been continuously employed by the Company or one of its subsidiaries or affiliates since December 23, 2013 (the “Effective Date”).
NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1. Employment. During the Employment Term, Executive has been and continues to be employed as the Chief Risk Officer of Hamilton Insurance Group, Ltd (“Parent”), subject to the terms and conditions set forth herein. Executive represents and warrants that (i) Executive is not subject to any impediment, restriction or restraint that would in any way prohibit, hinder or impair Executive’s employment with the Company or Executive’s performance under this Agreement; (ii) Executive’s employment hereunder and Executive’s performance as contemplated hereby, at all times, do not and would not in any way conflict with or breach any confidentiality, noncompetition, non-solicitation or other agreement to which Executive is a party or to which Executive may be subject; and/or (iii) during Executive’s employment with the Company prior to the Effective Date, Executive is not aware of any of the following conduct by any person against or affecting the Company or any Group Company that has not been properly reported, and has not personally engaged in any of the following conduct: (A) violation of any material policy of the Company or any Group Company; (B) fraudulent or unlawful conduct relating to the Company or any Group Company; (C) violation of any duties to the Company or its shareholders; and/or (D) use or disclosure to third parties, except in the course of performing services for the Company, any trade secret or other confidential information of the Company or any Group Company.
2. Employment Term. The parties agree that the Employment Term shall commence on the Effective Date through termination in accordance with Section 7 below (such period of employment, the “Employment Term”).
3. Duties.
(a) During the Employment Term, Executive shall (i) report to the Chief Executive Officer of the Parent (the “CEO”) and shall perform such duties and exercise such powers in relation to the business of the Group Companies as may from time to time be assigned to or vested in Executive by the CEO, unless otherwise directed by the Board of Directors of the Company and the Parent (the “Board”) or unless such duties are in conflict with a determination
of the Board, (ii) use Executive’s best efforts to faithfully and diligently serve the business and affairs of the Group Companies and to establish, promote, develop and extend their business, giving the full benefit of Executive’s knowledge, expertise, technical skill and ingenuity, (iii) devote all of Executive’s business time, energy and skill exclusively to the business of the Group Companies, and will not, directly or indirectly, engage in any other business or occupation, whether or not pursued for gain, profit or other pecuniary advantage or otherwise that would conflict or materially interfere with the rendition of such services, either directly or indirectly and (iv) comply with all policies and procedures of the Group Companies (including those in any employee manual and those regarding conducting the business affairs of the Group Companies), as may be in effect from time to time.
(b) For purposes of this Agreement:
(i) “Agreed Benefits” means the provision of medical health insurance coverage in line with the Company’s current medical health insurance policy (the “Policy”), subject to the rules of the Policy, for a maximum of twelve months following the end of the Employment Term or, if sooner, the date on which the Executive obtains substantially comparable medical health insurance under any other contract;
(ii) “Agreed Sum” means an amount equivalent to the gross value of one year’s base salary as specified in clause 4(a) plus an amount equivalent to one year’s Cash Incentive Award (calculated at target) as specified in clause 4(b) (less any sums paid to the Executive by way of notice or payment in lieu of notice);
(iii) “Change in Control” has the meaning defined in the Company’s 2013 Equity Incentive Plan (as amended from time to time);
(iv) “Good Reason” has the meaning defined in the Company’s 2013 Equity Incentive Plan (as amended from time to time);
(v) “Group Company” or “Group Companies” means the Company and any company that is from time to time a parent or holding company of the Company, a direct or indirect subsidiary company of the Company, a direct or indirect subsidiary company of a holding company of the Company or a company in which the Company owns, directly or indirectly, at least fifty percent (50%) of the issued share capital, or any individual member of such group (excluding the Company) as the context requires;
(vi) “holding company” and “subsidiary company” have the respective meaning assigned thereto by Section 86 of The Companies Act 1981 (the “Companies Act”), but irrespective of whether it is a company based in, or organized under the laws of, Bermuda or an overseas company; and
(c) “Restricted Business” means (i) the insurance or reinsurance business; (ii) the contemplation, creation and/or execution of insurance or reinsurance business, including all aspects of the planning and “start up” of such activities and (iii) any other business in which the Group Companies are engaged on the last day of Executive’s employment with the Company
and with which Executive was materially involved in the twelve months prior to the Date of Termination. Without affecting the general right of the Company to terminate Executive’s employment hereunder for Cause (as defined in Section 7(b)), the Company reserves the right to require Executive not to attend work and/or not to undertake all or any of Executive’s duties hereunder during the Employment Term, limited to the duration of the notice period set forth in Section 7(d).
(d) If requested by the Board, Executive will serve as an employee, officer and/or a member of the board of directors of any Group Company for no additional compensation.
(e) Executive’s services hereunder generally shall be performed at the Company’s principal offices.
4. Compensation and Related Matters. As full compensation for Executive’s performance of Executive’s duties and responsibilities hereunder during the Employment Term, the Company shall pay Executive the compensation and provide the benefits set forth below and in Section 5:
(a) Base Salary. During the Employment Term, the Company shall pay Executive an annual base salary at a rate of $430,000 per annum (the “Base Salary”) in accordance with the Company’s customary payroll practices. Executive’s Base Salary will be subject to annual review and increase as determined by the Board in its sole and absolute discretion, and any increased Base Salary will be deemed to then constitute “Base Salary” for all purposes of this Agreement.
(b) Cash Incentive Program. During the Employment Term, Executive shall have the opportunity to earn a target cash incentive award of 100% of Base Salary for each fiscal year of the Company (the “Cash Incentive Award”). The cash incentive award, if any, shall be prorated for any partial year of Executive’s employment with the Company, based on actual performance. The cash incentive award, if any, shall be determined by, and in the sole and absolute discretion of, the Compensation Committee of the Board (or if no such committee is in place, the Board) in consultation with the CEO. The Compensation Committee of the Board (or if no such committee, the Board) in consultation with the CEO, shall determine the amount (if any) and terms of any cash incentive award (including any applicable performance criteria and/or deferral component). The determinations of the Compensation Committee of the Board (or if no such committee, the Board) in respect of the cash incentive program shall be final and binding on all parties. The terms of any cash incentive program shall be communicated to Executive under separate cover.
(c) Long Term Incentive Compensation. During the Employment Term, for any completed fiscal year of the Company, Executive may be eligible to earn an equity incentive award from the Parent. Equity incentive awards, if any, shall be made under, and subject to the terms of, the Hamilton Insurance Group, Ltd. 2013 Long Term Incentive Plan, as amended from time to time (the “Equity Plan”) and any related written award agreement. Any awards granted to Executive under the Equity Plan shall be communicated by, and be subject to the terms and conditions of, a written award agreement between the Parent and Executive. Notwithstanding the generality of the foregoing, Executive shall be considered annually for eligibility to receive a grant of restricted stock units (“RSUs”) under the Equity Plan and performance stock units
(“PSUs”) in the discretion of the Board. Any such grant shall vest subject to Executive’s continued employment with the Company through the applicable vesting date(s) and subject to the Company’s achievement of target performance metrics to be determined by the Compensation Committee of the Board (or if no such committee, the Board) in its sole discretion. Executive’s target annual equity incentive award shall be calibrated at 100% of Base Salary. However, neither the Parent nor the Company shall have any obligation to grant such awards. Executive acknowledges that Executive may be required to execute additional documents in connection with the grant of any equity incentive award or the exercise or settlement of such awards.
(d) Benefits.
(i) During the Employment Term, the Company shall pay 100% of the costs (determined as of the Effective Date) of health insurance coverage for Executive and Executive’s eligible dependents, provided, that, if the costs of health insurance coverage increase in the future beyond the costs determined as of the Effective Date, then the Company may, but is not obligated to, pay for any such additional costs. During the Employment Term and subject to satisfaction of applicable eligibility criteria, Executive shall be entitled to participate in the employee benefit plans and insurance programs of the Company that it sponsors from time to time for its employees generally. Nothing herein shall be deemed to prohibit the Company from amending or terminating any such plan or program in its sole and absolute discretion.
(ii) During the Employment Term, the Company shall, at Executive’s Option, contribute an amount equal to ten percent (10%) of Executive’s Base Salary to a pension plan for the benefit of Executive, in accordance with the terms of such pension plan, or pay such amount to Executive in cash (provided that such amount shall not be considered part of “Base Salary” for any purpose).
(e) Vacation. During the Employment Term, Executive shall be entitled to twenty-five (25) paid business days as vacation, to be accrued, used, paid and forfeited in accordance with the Company’s policies as in effect from time to time. For the avoidance of doubt, any vacation days that have accrued and remain unused by Executive while employed by the Company prior to the Effective Date shall be recognized by the Company after the Effective Date, subject to the Company’s policies in effect from time to time after the Effective Date.
(f) Currency. All amounts (if any) paid or payable by the Company to Executive hereunder shall be denominated in U.S. dollars.
(g) Applicable Withholding/Payroll Taxes. All payments under this Agreement shall be subject to all applicable foreign, federal, state and local withholdings, as well as all authorized or required deductions. The Company shall pay the Bermuda payroll tax (employer and employee portions), except for 1.7% allocated to the Executive in respect of the employee portion. However, the Company reserves the right to review, amend and terminate this benefit at any time. Executive shall be responsible for amounts not paid by the Company, which amounts may be withheld by the Company from Executive’s compensation.
5. Reimbursement. During the Employment Term and subject to any policies from time to time adopted by the Board, Executive shall be reimbursed for business-related expenses reasonably incurred by Executive in the course of Executive’s duties hereunder. All amounts payable under this Section 5 shall be subject to Executive’s presentment to the Company of appropriate documentation.
6. Confidentiality; Disclosure.
(a) Executive shall not, either during Executive’s employment hereunder (other than in the proper good faith performance of Executive’s duties hereunder) or at any time after the termination thereof for any or no reason, divulge to any person, and shall use Executive’s reasonable endeavors to prevent the publication or disclosure of, any trade secret or other confidential information concerning the business, finances, investments, accounts, dealings, transactions, shareholders (other than Executive), persons or entities associated with such shareholders (other than Executive) or affairs of the Group Companies or of any of their respective clients entrusted to Executive or arising or coming to Executive’s knowledge during the course of Executive’s employment hereunder or otherwise; provided that the foregoing shall not prevent or limit Executive from complying with any applicable law or with the directive of any court or administrative body or agency having the legal authority to compel testimony from or the production of documents by Executive; provided, further, that Executive shall (i) promptly notify the Board of any such intended disclosure prior to such disclosure, (ii) at the written request of the Company, diligently contest such disclosure at the expense of the Company, and (iii) at the written request of the Company, seek to obtain, at the expense of the Company, such confidential treatment as may be available under applicable laws for any information so disclosed. The provisions of this Section 7(a) shall not apply to any information that is or becomes publicly known other than as a result of Executive’s wrongful actions.
(b) Executive shall, upon the termination of Executive’s employment hereunder or earlier at the request of the Company, immediately deliver to the Company all documents, schedules, lists, charts, correspondence and other data, information and other property belonging to any of the Group Companies or related to any of the matters referred to in Section 7(a) that may have been prepared by Executive or have come into Executive’s possession and shall not retain any copies thereof. Executive shall not at any time after the termination of Executive’s employment hereunder wrongfully represent himself as being employed by or connected with the Group Companies.
7. Termination. Executive’s employment shall terminate upon the first to occur of:
(a) Executive’s death;
(b) the termination of Executive’s employment by the Company for Cause without notice, where “Cause” means any of the following acts or occurrences as determined by the Company: (i) Executive’s indictment of or charge with respect to, conviction of, or pleading guilty or nolo contendere to a felony or equivalent offense or crime (other than a minor road traffic offense or other non-material offense not subject to a custodial sentence), in any case whether occurring before or after the date of this Agreement, (ii) Executive’s gross negligence or
willful misconduct in connection with Executive’s employment that causes or is likely to cause significant loss or damage to any of the Group Companies, (iii) Executive’s conduct that constitutes fraud, material misrepresentation or embezzlement, (iv) Executive’s material breach of this Agreement or any other agreement with any of the Group Companies, or breach of any policy or procedure of the Group Companies, which, in the case of a non-recurring breach capable of being cured, remains uncured after fourteen (14) days following notice by the Company or the CEO of such breach, (v) Executive’s habitual use of alcohol or illegal use of drugs (including narcotics) that materially impairs or is reasonably likely to materially impair Executive’s ability to perform Executive’s duties and responsibilities for the Group Companies, (vi) Executive’s continued failure to substantially and/or satisfactorily perform Executive’s duties and responsibilities hereunder, which failure remains uncured after fourteen (14) days following notice by the Company or CEO of such failure, (vii) Executive being the subject of a complaint or charge by a governmental agency, rating agency or self-regulatory organization for an alleged violation (whether occurring before or after the date of this Agreement) of any statute or regulation which has or is reasonably likely to have an adverse impact on the reputation and standing in the community of any of the Group Companies, (viii) the discovery by any of the Group Companies that any representation by Executive under Section 2 of this Agreement is false, (ix) Executive failing to maintain any licenses necessary to perform the essential functions of Executive’s duties hereunder which remains uncured after thirty (30) days following notice by the Company of such failure, and/or (x) repeated misconduct, repeated unsatisfactory performance or being guilty of serious misconduct;
(c) the resignation by Executive upon one hundred and eighty (180) days’ prior written notice to the Company or, if resignation by Executive is on account of Good Reason, such earlier date specified in the Notice of Termination provided to the Company but no earlier than the date on which any applicable cure periods applicable to Good Reason events have expired; and
(d) the termination of Executive’s employment by the Company without Cause upon at least one hundred eighty (180) days’ prior written notice to Executive.
8. Termination Procedure.
(a) Notice of Termination. Any termination of Executive’s employment by the Company or by Executive (other than by reason of Executive’s death) shall be communicated by a written Notice of Termination to the other party hereto in accordance with Section 15(i) of this Agreement. For purposes of this Agreement, a “Notice of Termination” means a notice that indicates the specific termination provision in this Agreement relied upon and, in circumstances in which the Company is terminating Executive’s employment for Cause or Executive is terminating for Good Reason, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive’s employment for Cause or Good Reason, as applicable, and specifies the Date of Termination consistent with the provisions of Section 8(b).
(b) Date of Termination. For purposes of this Agreement, “Date of Termination” means (i) if Executive’s employment is terminated pursuant to Section 7(a), the date of Executive’s death, (ii) if Executive’s employment is terminated pursuant to Section 7(b), the date
set forth in the Notice of Termination; provided, that, if applicable, the Notice of Termination shall not be effective until any applicable cure period has expired without the event or events leading to such termination having been cured, (iii) if Executive’s employment is terminated pursuant to Section 7(c), the date that is one hundred eighty (180) days after delivery of such notice; provided, that the Company may elect to terminate Executive’s employment earlier and continue to provide the compensation and benefits set forth in Section 4(d) until such one hundred eightieth (180th) day (following which termination the Company will have no further obligation to provide compensation or benefits of any kind to or on behalf of Executive), (iv) if Executive’s employment is terminated pursuant to Section 7(d), the date set forth in the Notice of Termination, which date must be at least one hundred eighty (180) days after delivery of the Notice of Termination (or if no date or an earlier date is set forth therein, then on the one hundred eightieth (180th) day after delivery of the Notice of Termination); provided, that the Company may elect to terminate Executive’s employment earlier and continue to provide the compensation and benefits set forth in Section 4(d) until such one hundred eightieth (180th) day (following which termination the Company will have no further obligation to provide compensation or benefits of any kind to or on behalf of Executive).
(c) Severance Benefits; Notice Periods.
(i) Except as otherwise expressly provided in Section 8(b) or Section 8(c)(ii), upon any termination of Executive’s employment hereunder, Executive shall not be entitled to any termination payments or other further compensation or benefits, unless such amounts are required by applicable law.
(ii) Upon termination of Executive’s employment due to Executive’s death, Executive’s beneficiary or estate, as applicable, shall be entitled to receive a payment equal to Executive’s Cash Incentive Award that would have been payable to Executive for any fiscal year ending prior to Executive’s death (if not already paid) , prorated based on the number of days during such fiscal year on which Executive was employed, to be paid by the Company in a single lump sum within 60 days following the Date of Termination.
(iii) For the avoidance of doubt, any unreimbursed expenses incurred pursuant to Section 5 hereof prior to the termination of Executive’s employment hereunder shall be reimbursed in accordance with the Company’s policy with respect to expense reimbursement.
9. Restrictive Covenants.
(a) Acknowledgment. Executive acknowledges and agrees that (i) the business of the Group Companies is highly competitive; (ii) the skills and knowledge of the Group Companies’ workforce constitute trade secrets and confidential information; (iii) he has been exposed to, has had accesses to, and has developed on behalf of the Group Companies, trade secrets and confidential information during his employment and will continue to do so on and following the Effective Date; (iv) such trade secrets and confidential information are of vital importance to the success of the Group Companies; (v) the disclosure or improper use of any such information would place the Group Companies at a serious competitive disadvantage and could do serious damage, financial and otherwise, to the Group Companies; (vi) Executive has developed
relationships with customers, clients or prospective customers or clients of the Group Companies at the time and expense of the Group Companies and will continue to do so on and following the Effective Date; (vii) by Executive’s training, experience and expertise, Executive’s services to the Group Companies have been extraordinary, special and unique and will continue to be so on and following the Effective Date; (viii) Executive’s experience and capabilities are such that the provisions contained in this Agreement will not prevent Executive from earning a livelihood; (ix) the Group Companies would be seriously and irreparably injured if Executive were to engage in any actions in violation of Section 10 of this Agreement, and that, in the event of such breach or threatened breach, no adequate remedy at law would exist and damages would be difficult to determine; (x) the provisions contained in Section 9 of this Agreement are justified by, and reasonably necessary to, protect the legitimate business interests of the Group Companies, including the trade secret, confidential information and goodwill of the Group Companies; (xi) Executive is a sophisticated business person and has had an opportunity to consult with an attorney prior to entering into this Agreement; (xii) the Company is entering into this Agreement only because Executive is willing to comply with Section 10 of this Agreement; (xiii) the provisions in this Agreement are fair and reasonable in scope, duration and geographical limitations and (xiv) if Executive were to act in concert with one or more current or former employees of the Group Companies to violate any confidentiality or restrictive covenants, the harm to the Group Companies would be significantly greater than the harm that would have resulted if the individuals had acted separately.
(b) Non-Competition; Non-Solicitation. Executive hereby agrees that he shall not in any jurisdiction in the world (the “Geographic Area”), either on Executive’s own account or on behalf of any other person, firm or company, directly or indirectly:
(i) during the Employment Term and prior to the Date of Termination, be engaged, interested or concerned with, in or by any business or undertaking that is engaged in or carries on any aspect of the Business (it being agreed that this clause (i) does not prohibit passive ownership by Executive of up to 1% of the issued and outstanding common shares of a company when such class of shares trades publicly on a recognized securities exchange);
(ii) during the Employment Term and for a period of six (6) months following the Date of Termination (such period to be read as twelve (12) months following the Date of Termination in in respect of a termination of employment directly or indirectly in connection with a Change of Control (in accordance with clause 14)), solicit, interfere with, endeavor to entice away from the Group Companies or encourage to reduce the level or change the terms of business conducted with, or ownership by, any person, firm or company who or which as of the Date of Termination or in the period of twelve (12) months immediately prior to such date was a shareholder, customer or client of or regularly dealt with any of the Group Companies, or who at such date was to Executive’s knowledge negotiating with any of the Group Companies in relation to all or part of its business or its ownership, or which or whom Executive learned confidential information, other than any person, firm or company with which or with whom Executive conducted business prior to commencement of the Employment Term;
(iii) during the Employment Term and for a period of six (6) months following the Date of Termination (such period to be read as twelve (12) months following the Date of Termination in in respect of a termination of employment directly or indirectly in connection with a Change of Control (in accordance with clause 14)), solicit the services of or endeavor to entice away from the Group Companies any director, employee or consultant of a Group Company (whether or not such person would commit any breach of such person’s contract of employment or engagement by reason of leaving the service of such company), or employ or engage, or knowingly aid or assist any other person in procuring the employment or engagement of, any such person; and/or
(iv) during the Employment Term and for a period of twelve (12) months following the Date of Termination (such period to be read as twelve (12) months following the Date of Termination in in respect of a termination of employment directly or indirectly in connection with a Change of Control (in accordance with clause 14)), be engaged, interested or concerned with, in or by any business or undertaking that is (or intends to be) in competition with the Restricted Business (it being agreed that this clause (iv) does not prohibit passive ownership by Executive of up to 1% of the issued and outstanding common shares of a company when such class of shares trades publicly on a recognized securities exchange).
(c) Extension/Termination of Post-Employment Period of Time. (A) Any post-employment period of time described in Section 9(b) above shall be extended one (1) day for each day that Executive is not in compliance with the provisions of this Section 9, and (B) the Board, in its discretion, may by written notice to Executive terminate any post-employment period of time described in Section 9(b) above earlier than its scheduled termination.
(d) Severability. It is expressly understood and agreed that, although Executive and the Company consider the restrictions contained in this Section 9 to be reasonable, if a determination is made by an arbitrator, arbitration panel or a court of competent jurisdiction that the time or territory or any other restriction contained in this Section 9 is an unenforceable restriction against Executive, then the applicable provision shall not be rendered void, but shall be deemed amended to apply as to the maximum time and territory and to the maximum extent as such court may judicially determine or indicate to be enforceable. If, however, any such arbitrator, arbitration panel or court determines that any such restriction is unenforceable and cannot be amended so as to make it enforceable, then the provision may be severed and the finding shall not affect the enforceability of any of the other restrictions contained herein.
(e) Injunction. Executive acknowledges and agrees that the Company’s remedies at law for a breach or threatened breach of any of Executive’s obligations under this Section 9 would be inadequate and, in recognition of this fact, Executive agrees that, in the event of such a breach or threatened breach, in addition to any other remedies available at law or in equity, the Company shall be entitled to an injunction in aid of arbitration without the requirement to post security or a bond.
(f) Restrictions Reasonable. Executive understands that the provisions of this Section 9 may limit Executive’s ability to earn a livelihood in a business similar to the business of the Company but Executive nevertheless agrees and hereby acknowledges that (i) such provisions do
not impose a greater restraint than is necessary to protect the goodwill or other business interests of the Company, (ii) such provisions contain reasonable limitations as to time, geography and scope of activity to be restrained, (iii) such provisions are not harmful to the general public, (iv) such provisions are not unduly burdensome to Executive, (v) the consideration provided hereunder is sufficient to compensate Executive for the restrictions contained in this Section 9, and (vi) the potential harm to the Company of non-enforcement of this Section 9 outweighs any potential harm to Executive of enforcement. In consideration of the foregoing and in light of Executive’s education, skills and abilities, Executive agrees that Executive will not assert that, and it should not be considered that, any provisions of this Section 9 otherwise are void, voidable or unenforceable or should be voided or held unenforceable. The provisions of this Section 9 are an integral part of this Agreement.
(g) Non-Disparagement. Executive shall not at any time (during or after Executive’s employment with the Company) directly or indirectly disparage the reputation of any of the Group Companies or their shareholders, persons or entities associated with such shareholders, officers, directors, agents or employees. The Company agrees that neither it nor any of its officers or members of its board of directors shall, at any time (during or after Executive’s employment with the Company) directly or indirectly disparage the reputation of the Executive.
(h) Developments. All documents, schedules, lists, charts, correspondence and other data, information and property (and all copies thereof), written or electronic, received, accessed, developed, made or compiled by or on behalf of Executive at any time during or prior to Executive’s employment, relating to any of the Group Companies or their business activities, but excluding Executive’s personal effects and similar items, are and will be the property of the Group Companies, and must, except as otherwise agreed by the Board in writing, be delivered to the Company promptly upon the termination of Executive’s employment with the Company for any or no reason or at any other time upon request. All discoveries, inventions, ideas, technology, formulas, designs, software, programs, algorithms, products, systems, applications, processes, procedures, methods, improvements and enhancements conceived, developed or otherwise made, created or produced by Executive alone or with others, at any time during or prior to Executive’s employment, in any way relating to the business activities, products or services that are the same as or substantially similar to those utilized or contemplated by any of the Group Companies, whether or not subject to patent, copyright or other protection and whether or not reduced to tangible form (“Developments”), are and will be the sole and exclusive property of the Company. Executive agrees to, and hereby does, assign to the Company, without any further consideration, all of Executive’s right, title and interest throughout the world in and to all Developments. Executive agrees that all Developments that are copyrightable may constitute works made for hire under the copyright laws of the United States or works which are made during and in the course of employment under section 20(2) of the Copyright and Designs Act 2004 of Bermuda and, as such, acknowledges that the Company is the author of such Developments and owns all of the rights comprised in the copyright of such Developments and Executive hereby assigns to the Company without any further consideration all of the rights comprised in the copyright and other proprietary rights Executive may have in any such Development to the extent that it might not be considered a work made for hire. Executive shall make and maintain adequate and current written records of all Developments and
shall disclose all Developments promptly, fully and in writing to the Board promptly after development of the same, and at any time upon request.
10. Cooperation. Following the Date of Termination, Executive agrees to cooperate fully with the Company in (a) any litigation, administrative proceeding or inquiry that involves the Group Companies or any of their then-current or former shareholders, officers, directors, employees or agents, and/or (b) any investigation or inquiry conducted by or on behalf of the Company or any governmental or regulatory authority, in each case, about which Executive may have knowledge or information. The Company shall reimburse Executive for reasonable expenses incurred in connection with such cooperation. If Executive is participating at the Company’s request and legal counsel is required, the Company shall provide such legal counsel only to the extent permissible by law.
11. No Cooperation with Third Parties. Executive shall not – at any time – counsel or assist any attorneys or their clients in the presentation or prosecution of any disputes, differences, grievances, claims, charges, or complaints known or unknown on behalf of any private third party against the Group Companies or any of their officers, directors, employees, agents, representatives, shareholders or attorneys, unless under a subpoena or other court order to do so.
12. Successors. Executive’s performance hereunder is personal to Executive and is not assignable by Executive. The Company may at any time and from time to time delegate its power and authority under this Agreement to any of the Group Companies and such delegation (or the revocation thereof) shall be effective upon the Company’s giving written notice of the same to Executive. The Company may assign this Agreement to any of the Group Companies or to any successor to all or substantially all of the business and/or assets of the Company, whether directly or indirectly, by purchase, merger, amalgamation, consolidation, acquisition of shares, or otherwise. This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns.
13. Survival. Sections 6, 8, 9, 10, 12, 13, 14 and 15 will survive the expiration or termination of this Agreement in accordance with the terms and conditions thereof.
14. Change of Control
(a) If there is a Change of Control of the Company and, within twelve (12) months following the Change of Control:
(i) the Company terminates the Executive’s employment (other than for Cause pursuant to Section 7 (b)); or
(ii) the Executive serves notice to terminate his employment in accordance with Section 7(c) with Good Reason, the Company shall, subject to Section 14 (b) below, pay the Agreed Sum to the Executive within one month following the end of the Employment Term and the Agreed Benefits will commence on the Date of Termination. The Agreed Sum shall be payable less any tax or other statutory deductions which the Company is obliged to deduct in line with normal payroll practices and applicable law.
(b) The payment of the Agreed Sum and provision of the Agreed Benefits shall be conditional on and in consideration of:
(i) the Executive complying with and continuing to comply with his obligations relating to confidentiality, intellectual property and restrictive covenants as set out in Sections 6 and 9 respectively; and
(ii) the Executive executing such documents in a form reasonably acceptable to the Company as it may require.
(c) For the avoidance of doubt, the payment of the Agreed Sum and provision of the Agreed Benefits shall not affect the Executive’s entitlement to any of the following (in each case for the period prior to the Date of Termination):
(i) any accrued but unpaid salary;
(ii) any payment in lieu of accrued but unused holiday; or
(iii) the reimbursement of expenses, provided that all claims for reimbursement are submitted within four (4) weeks after the Date of Termination,
(d) To the extent that the Agreed Sum is damages (which is not admitted), the parties agree that the terms of this Section 14 represent a genuine pre-estimate of the loss to the Executive that would arise on termination of the employment in the circumstances described and does not constitute a penalty. The Executive shall, subject to Section 14 (c), accept the Agreed Sum in full and final settlement of all and any claims that he may have arising out of the employment or its termination.
15. Miscellaneous.
(a) Waiver; Amendment. The waiver of or failure of a party to enforce any term, provision or condition of this Agreement at any time or times shall not be deemed a waiver of that term, provision or condition for the future or a waiver of any other term, provision or condition at any time. This Agreement may be amended or modified only by a writing signed by both parties hereto.
(b) Governing Law; Arbitration. This Agreement will be governed by and construed in accordance with the laws of Bermuda. In the event of any dispute, controversy or claim arising out of or in relation to this Agreement, or the breach, termination or alleged invalidity hereof, then except as contemplated by Section 10(e), the parties shall proceed to arbitration. There shall be one arbitrator, to be appointed in the absence of the parties’ agreement by the Appointments Committee of the Chartered Institute of Arbitrators (Bermuda Branch). The procedure to be followed shall be that as laid down in the UNCITRAL Model Law in accordance with the Bermuda International Conciliation and Arbitration Act 1993 (as amended from time to time) and the UNCITRAL Arbitration Rules presently in force. The place of Arbitration shall be Bermuda and the language shall be English. The decision and award of the arbitral tribunal shall
be final and binding on the parties, and any court of competent jurisdiction may enter judgment upon the award.
(c) Section Captions. Section and other captions contained in this Agreement are for reference purposes only and are in no way intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof.
(d) Severability. Each provision of this Agreement is intended to be severable. If any term or provision hereof is illegal or invalid for any reason whatsoever, such illegality or invalidity shall not affect the validity of the remainder of this Agreement.
(e) Interpretation; Counterparts. No provision of this Agreement is to be interpreted for or against any party because that party drafted or did not draft such provision. The words “hereof”, “herein”, “hereunder” and words of similar import refer to this Agreement in its entirety and not to any particular section or paragraph. Except as expressly stated otherwise, references herein to sections or paragraphs refer to the sections or paragraphs of this Agreement. The words “including”, “include” and words of similar import shall be deemed to be followed by “without limitation.” References to statutory provisions shall be construed as references to those provisions as amended or re-enacted or as their application is modified by other provisions from time to time and shall include references to any provisions of which they are re- enactments (whether with or without modification). References to the singular include the plural and vice versa and references to the masculine include the feminine and/or neuter and vice versa. References to persons include natural persons, companies, partnerships, corporations, associations and bodies of persons, whether incorporated or unincorporated. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same instrument. Delivery of an executed signature page of this Agreement by facsimile or other electronic means shall be effective as delivery of a manually executed counterpart hereof.
(f) Construction. This Agreement is to be fairly interpreted in accordance with its terms and without any strict construction in favor of or against either of the parties. Each of the parties acknowledges that this Agreement was jointly negotiated, reviewed and approved by them and their respective counsel. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as having been drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provision of this Agreement.
(g) U.S. Internal Revenue Code. Notwithstanding anything herein to the contrary, this Agreement is intended to be interpreted and applied so that the payment of the benefits set forth herein either shall either be exempt from the requirements of Sections 409A and 457A of the U.S. Internal Revenue Code of 1986, as amended (the “Code”) and applicable published guidance thereunder, or shall comply with the requirements of such provisions. Notwithstanding any provision in this Agreement or elsewhere to the contrary, if Executive is a “specified employee” within the meaning of Section 409A of the Code, any payments or benefits due upon a termination of Executive’s employment under any arrangement that constitutes a “deferral of compensation” within the meaning of Section 409A of the Code and which do not otherwise
qualify under the exemptions under Treas. Regs. Section 1.409A-1 (including without limitation, the short-term deferral exemption and the permitted payments under Treas. Regs. Section 1.409A-1(b)(9)(iii)(A)), shall be delayed and paid or provided on the earlier of (i) the date which is six (6) months after Executive’s separation from service (as such term is defined in Section 409A of the Code and the regulations and other published guidance thereunder) for any reason other than death, and (ii) the date of Executive’s death. Notwithstanding anything in this Agreement or elsewhere to the contrary, distributions upon termination of Executive’s employment may only be made upon a “separation from service” as determined under Section 409A of the Code and such date shall be the Date of Termination for purposes of this Agreement. Each payment under this Agreement or otherwise shall be treated as a separate payment for purposes of Section 409A of the Code. In no event may Executive, directly or indirectly, designate the calendar year of any payment to be made under this Agreement or otherwise which constitutes a “deferral of compensation” within the meaning of Section 409A of the Code. All reimbursements and in-kind benefits provided under this Agreement shall be made or provided in accordance with the requirements of Section 409A of the Code. To the extent that any reimbursements pursuant to this Agreement or otherwise are taxable to Executive, any reimbursement payment due to Executive shall be paid to Executive on or before the last day of Executive’s taxable year following the taxable year in which the related expense was incurred; provided, that, Executive has provided the Company written documentation of such expenses in a timely fashion and such expenses otherwise satisfy the Company’s expense reimbursement policies. Reimbursements pursuant to this Agreement or otherwise are not subject to liquidation or exchange for another benefit and the amount of such reimbursements that Executive receives in one taxable year shall not affect the amount of such reimbursements that Executive receives in any other taxable year. Notwithstanding any of the foregoing to the contrary, the Company and their respective officers, directors, employees, or agents make no guarantee that the terms of this Agreement as written comply with, or are exempt from, the provisions of Code Sections 409A and 457A, and none of the foregoing shall have any liability for the failure of the terms of this Agreement as written to comply with, or be exempt from, the provisions of Code Sections 409A or 457A.
(h) Liability for Taxes. The issuance of any equity incentive awards described in Section 5 involve complex and substantial tax considerations. Executive should consult with his own tax advisors with respect to any equity incentive awards. The Company makes no warranties or representations whatsoever to Executive regarding the tax consequences of any equity incentive awards or the receipt of shares with respect thereto. Executive shall be solely responsible for any taxes in respect of any equity incentive awards.
(i) Notices. All notices and other communications hereunder must be in writing and shall be deemed to have been duly given if delivered by hand delivery, facsimile (with confirmation of transmission), or overnight courier, in each case addressed as follows:
If to the Company: Hamilton BDA Services Limited
Wellesley House North, 1st Floor
90 Pitts Bay Road Pembroke
HM 08 Bermuda
Attention: General Counsel
If to Executive: To Executive’s principal address as reflected in the Company’s records
or to such other address as either party shall have furnished to the other in writing in accordance herewith. Any such notice or communication shall be deemed to have been delivered on the date of delivery if delivered by hand, on the date of transmission if delivered by facsimile (with confirmation of transmission), on the date of confirmed delivery if delivered by overnight courier.
(j) Entire Agreement. This Agreement (including the schedules attached hereto) sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and supersede all prior agreements, negotiations, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, director, employee or representative of any party hereto in respect of such subject matter. Executive and the Company represent that, in executing this Agreement, each party has not relied upon any representation or statement made by the other party, other than those set forth herein, with regard to the subject matter, basis or effect of this Agreement. This Agreement represents the complete understanding of the parties with respect to the subject matter hereof, and, as of the Effective Date, supersedes and terminates all prior agreements between the Group Companies and Executive with respect to the subject matter hereof.
[Remainder of page left intentionally blank]
IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement as of the date first above written.
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| HAMILTON BDA SERVICES LIMITED |
| |
| By: | /s/ Gemma Carreiro |
| Name: Gemma Carreiro |
| Title: Director |
| |
| |
| EXECUTIVE |
| |
| /s/ Peter Skerlj |
| Peter Skerlj |
FIRST AMENDMENT TO THE EMPLOYMENT AGREEMENT
This FIRST AMENDMENT, dated 20 December 2022 (this “First Amendment”), amends the Separation Agreement, dated as of September 27, 2022 (the “Agreement”), by and among Hamilton BDA Services Limited (the “Company”) and Peter Skerlj (the “Executive”, and together with the Company, the “Parties”).
RECITALS:
WHEREAS, the Parties are mutually desirous of amending the Agreement as contemplated by this First Amendment;
NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, and intending to be legally bound hereby, the Parties hereto do hereby agree as follows:
1. Definitions.
All capitalized terms used but not defined in this First Amendment shall have the meaning assigned to such terms in the Agreement.
2. First Amendment
Clause 1.1 of the Agreement, under the part entitled “Termination”, shall be deleted and replaced in its entirety as follows:
1.1 Subject to the terms of this Agreement the Executive’s employment by the Company will end on January 2, 2023 (the “Termination Date”).
3. Miscellaneous.
The Agreement remains and shall remain in full force and effect save that, from the date of this First Amendment, the Agreement shall be amended and/or superseded by this First Amendment. This First Amendment shall not constitute an amendment or waiver of any provision of the Agreement, except as expressly set forth herein. This First Amendment and the Agreement shall each be read, taken and construed as one and the same instrument, but such amendments and supplements shall not operate so as to render invalid or improper any action heretofore taken under the Agreement. If and to the extent there are any inconsistencies between the Agreement and this First Amendment with respect to the matters set forth herein, following the date of the First Amendment, the terms of this First Amendment shall control.
[Signature Page Follows]
IN WITNESS WHEREOF, the Parties have executed this First Amendment as of the date first written above.
| | | | | | | | |
| Peter Skerlj | | Hamilton BDA Services Limited |
| | |
| /s/ Peter Skerlj | | /s/ Gemma Carreiro |
| Signature | | Signature |
| | |
| December 20, 2022 | | December 20, 2022 |
| Date | | Date |
| | |
| | Gemma Carreiro |
| | Name |
| | |
| | Director |
| | Title |
HAMILTON INSURANCE GROUP, LTD.
VALUE APPRECIATION POOL
AWARD AGREEMENT
The Hamilton Insurance Group, Ltd. Value Appreciation Pool - Your Award
I am pleased to inform you that you have been granted an Award under the Hamilton Insurance Group, Ltd. Value Appreciation Pool (the "VAP").
Your Award was granted on XXX, or the first day of your employment, if later, and comprises a fixed number of units which form part of the VAP.
The number of VAP units you have been granted is XXX.
Your Award is subject to the terms of the VAP as specified in the Hamilton VAP Rules (see attached). Unless otherwise defined herein, the capitalised terms below shall have the meaning given to them in the VAP Rules.
Your Award gives you the right to a payment in cash, shares or a combination of both (as determined by the Board) equal to the value of the units on the date your award is triggered. In the normal course of events, the first 50% of your Award will vest (i.e. you will become entitled to receive a payment in cash, shares, or a combination of both) on the first anniversary of a Trigger Event (an IPO, a Change in Control or a Major Sale) and the second 50% of your Award will vest one year after the first vesting date. If a Trigger Event has not occurred by 31 December 2025, the first 50% of your Award will vest on that date, and the second 50% of your Award will vest one year later.
If you leave the Group before any part of your Award has vested your Award will ordinarily be forfeited. Exceptionally, if you leave before a Trigger Event due to retirement, disability evidenced to the satisfaction of the Board, or if you die in service, then your Award will vest early.
DECLARATION
1.I understand that this Declaration will apply to the Award granted to me under the VAP.
2.I am aware that the VAP Rules have been made available to me.
3.I agree to be bound by the VAP Rules as amended from time to time.
4.I confirm, understand and agree that:
(a)the fact that I have received an Award under the VAP does not give me any right to receive further Awards under the VAP;
(b)on cessation of employment with the Group, my Award will lapse (save in specific circumstances);
(c)in circumstances where my Award may vest following cessation of employment, the extent of vesting may be less than would have been the case had such employment continued;
(d)my participation in, and the operation of, the VAP will not form part of or affect my contract of employment or my employment relationship nor will it give me the right to continued employment;
(e)specific provisions are included in the VAP Rules under which I waive any claims to compensation in respect of the VAP when I leave employment; and
(f)benefits under the VAP do not constitute pensionable earnings or remuneration.
I agree that any personal data I supply in relation to my Award may be transferred and/or processed for any purpose relating to the operation of the VAP by Hamilton Insurance Group, Ltd. and any other relevant third parties acting on their behalf.
| | |
THE HAMILTON INSURANCE GROUP, LTD. VALUE APPRECIATION POOL RULES |
Adopted by the Board of Directors on 18 September 2020
Amended with effect from 10 March 2023
The Plan is a discretionary benefit offered by Hamilton for the benefit of employees of the Hamilton Insurance Group, Ltd., and its Subsidiaries.
Any cash or shares received under the Plan is not part of salary for any purpose except to any extent required by applicable law.
The Board (as defined herein) of Hamilton Insurance Group, Ltd. shall have the right to decide, at its sole discretion, whether or not awards will be granted under the Plan and to which employees those awards will be granted.
CONTENTS
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| Rule | | Page |
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| 1. | | DEFINITIONS AND INTERPRETATION | 5 |
| | | |
| 2. | | ELIGIBILITY | 8 |
| | | |
| 3. | | GRANT OF AWARDS | 9 |
| | | |
| 4. | | LIMITS | 9 |
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| 5. | | VESTING OF AWARDS | 10 |
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| 6. | | CONSEQUENCES OF TRIGGER EVENT OR DEEMED TRIGGER EVENT | 10 |
| | | |
| 7. | | LAPSE OF AWARDS | 12 |
| | | |
| 8. | | LEAVERS | 12 |
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| 9. | | ADJUSTMENT OF AWARDS | 13 |
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| 10. | | ALTERATIONS | 13 |
| | | |
| 11. | | MISCELLANEOUS | 14 |
1.DEFINITIONS AND INTERPRETATION
1.1In the Plan, unless the context otherwise requires:
"Award" means a number of Units which form part of the Value Appreciation Pool;
“Award Agreement" means an agreement entered into between the Company and a Participant setting forth the terms and provisions applicable to an Award of Units to a Participant;
"Board" means the board of directors of the Company or a duly authorised committee of the Board or a duly authorised person;
"Book Value" means the book value of the Company and its subsidiaries on a consolidated basis, calculated in accordance with US GAAP as at the relevant measurement date. For the avoidance of doubt, unless otherwise stated in these Rules, the “relevant measurement date” for determining the Book Value means:
(a)with respect to an Award that Vests on the Early Vesting Date before a Trigger Event, the Early Vesting Date;
(b)with respect to an Award that Vests on the Early Vesting Date but following a Trigger Event, the Trigger Event Date;
(c)with respect to an Award that Vests following a Trigger Event, the Trigger Event Date; and
(d)with respect to an Award that Vests on the Deemed Trigger Event Date, the Deemed Trigger Event Date;
"Cause" means (i) if a Participant is a party to an employment or consulting or similar agreement with the Group and such agreement provides for a definition of Cause, the definition therein contained, or (ii) if no such agreement exists, it shall mean any of the following acts or occurrences as determined by the Company: (1) a Participant's indictment of or charge with respect to, conviction of, or pleading guilty or nolo contendere to a felony or equivalent offense or crime (other than a minor road traffic offense or other non-material offense not subject to a custodial sentence), (2) a Participant's gross negligence or wilful misconduct in connection with such Participant's employment that causes or is likely to cause significant loss or damage to the Group, (3) a Participant's conduct that constitutes fraud, material misrepresentation or embezzlement, (4) a Participant's material breach of any agreement with the Group, or breach of any policy or procedure of the Group which, in the case of a non-recurring breach capable of being cured, remains uncured after five (5) days following notice by the Board or the Company's Chief Executive Officer of such breach, (5) a Participant's habitual use of alcohol or illegal use of drugs (including narcotics) that materially impairs or is reasonably likely to materially impair a Participant's ability to perform Participant's duties and responsibilities for the Group, (6) a Participant's continued failure to substantially and/or satisfactorily perform Participant's duties and responsibilities, which failure remains uncured after five (5) days following notice by the Board or the Company's Chief Executive Officer of such failure, and/or (7) a Participant being the subject of a complaint or charge by a governmental agency, rating agency or self-regulatory organization for an alleged violation of any statute or regulation which has or is reasonably likely to have an adverse impact on the reputation and standing in the community of the Group;
"Change in Control" means the consummation of any transaction, or series of related transactions (i) involving a merger, amalgamation, reorganization, consolidation, scheme of arrangement, exchange or other business combination transaction involving the Company or any material Subsidiary by which the Participant is then employed, which results in any Person
or group of related Persons or their Permitted Transferees, as defined in the Shareholders Agreement (other than Persons who are also either (A) existing shareholders of the Company as of the date of such transaction or (B) Subsidiaries of the Company as of the date of such transaction) acquiring more than fifty percent (50%) of the issued and outstanding shares of the Company or (ii) involving the sale or disposition of all or substantially all of the common stock of any material Subsidiary of the Company by which the Participant is then employed, other than (A) a sale or disposition to another Subsidiary of the Company or (B) a sale or disposition immediately following which the securities of such material Subsidiary outstanding immediately prior to such transaction representing more than fifty percent (50%) of the combined voting power of the voting securities of the entity to which the material Subsidiary is sold or disposed continue to be held by the Company or its direct or indirect Subsidiaries, or (iii) involving a disposition or all or substantially all of the assets of the Company and its Subsidiaries on a consolidated basis;
"Code" means the United States Internal Revenue Code of 1986, as amended, and any successor thereto. Reference in the Plan to any section of the Code shall be deemed to include any regulations or other interpretative guidance under such section, and any amendments or successor provisions to such section, regulations or guidance;
"Company" means Hamilton Insurance Group, Ltd., a Bermuda exempted company;
“Deemed Trigger Event” means, if a Trigger Event has not occurred on or prior to 31 December 2025 then the “Deemed Trigger Event Date” shall be 31 December 2025;
"Disability" means, (i) if a Participant is a party to an employment or consulting or similar agreement with the Group and such agreement provides for a definition of Disability, the definition therein contained, or (ii) if no such agreement exists, it shall mean that the Participant has been unable to perform the duties and responsibilities required of the Participant hereunder due to a physical and/or mental disability for a period of more than 90 days, whether or not consecutive, during any one (1) year period; provided that any such periods may be extended at the sole discretion of the Board;
"Early Vesting Date" means the date on which an Award Vests due to a Participant ceasing to be employed as a result of their death in service, Disability or Retirement before the Trigger Event Date;
"Fair Market Value" means
(a)for the purposes of the Goodwill Base Value the Fair Market Value of the Company on 30 November 2020 as approved by the Board;
(b)in relation to a Trigger Event which is an IPO, the 30 day average closing share price of the shares of the Company then listed on a national exchange or quotation system, or, if such shares are listed on (or quoted in) more than one such exchange (or quotation system), the closing sale price of the shares on the principal exchange (or quotation system) on which such shares are then traded, for the first thirty trading days immediately following the date of the IPO;
(c)in relation to a Trigger Event which is a Major Sale or a Change in Control the Fair Market Value of the Company determined on the basis of the transaction price to the selling shareholders for the Major Sale, or the transaction price (or the last transaction price in a series of transactions) that leads to a Change in Control;
(d)in relation to an Award that Vests on the Early Vesting Date the prevailing Fair Market Value of the Company on the Early Vesting Date as determined by the Board, absent any liquidity discount as private company;
(e)in relation to a Deemed Trigger Event the Fair Market Value of the Company on 31 December 2025 absent any liquidity discount as a private company as approved by the Board;
“Good Leaver” means the Participants identified in rule 8.1 (Good Leavers before a Trigger Event Date)
"Goodwill Base Value" means Fair Market Value less Book Value on 30 November 2020, as agreed by the Board;
"Goodwill End Value" means Fair Market Value less Book Value at the relevant measurement date as agreed by the Board and subject to application of the Underpin;
"Goodwill Growth Value" means Goodwill End Value less the Goodwill Base Value as determined at the relevant measurement date;
"Group" means the Company and any Subsidiary of the Company;
"IPO" means a firm commitment underwritten public offering of shares of the Company (or the shares of any successor company), which occurs on or after 1 January 2023, for cash pursuant to which there is established a listing on a United States national securities exchange or another exchange with comparable liquidity with aggregate gross proceeds of at least $100,000,000;
"Major Sale" means a transaction (which does not amount to a Change in Control) which occurs on or after 1 January 2023 under which 25% or more of the Company is sold by its existing shareholders to a third party unaffiliated with the Group or any of the existing shareholders;
"Non-Compete Agreement” means an agreement between the Group and a Participant whereby the Participant agrees that they will not enter into competition with, or work for a company that is in competition with, the Group for a period ending on the date of payment in respect of the Award or part of the Award that Vests on the Early Vesting Date, or, in the case of Redundancy, the second Normal Vesting Date;
"Normal Vesting Date" means the date on which an Award Vests under Rule 5.1 (Timing of Vesting: Normal Vesting Date);
"Participant" means a person who holds an Award including their personal representatives;
"Person" means an individual, company, corporation, partnership, trust, joint venture, limited liability company, unincorporated organization or other legal entity, or a government or any agency or political subdivision thereof;
“Plan” means the Hamilton Insurance Group, Ltd. Value Appreciation Pool;
“Plan Commencement Date” means 1 December 2020;
“Pro Rata Reference Date” means the later of 1 December 2020 and the Participant’s first day of employment with the Group;
“Redundancy” means where an employee ceases to be employed by the Group after, and solely as a direct result of, a Trigger Event and not for any other reason;
"Retirement" means ceasing to be employed by the Group where:
(a)the Participant has provided notice of retirement to the Group according to the terms of their employment contract (or such shorter period as the Board may, in its absolute discretion determine) and such notice has been accepted; and
(b)the Participant signs a valid Non-Compete Agreement in such form as determined by the Board;
"Rule" means a rule of the Plan;
“Shareholders Agreement" means the Shareholders Agreement of the Company, as amended from time to time;
"Subsidiary" means a body corporate which is a 50% or greater subsidiary of the Company;
"Tax Liability" means any amount of tax or social security contributions for which a Participant would or may be liable and for which the Group or any former member of the Group would or may be obliged to (or would or may suffer a disadvantage if it were not to) account to any relevant authority;
“Trigger Event” means an IPO, a Change in Control, or a Major Sale;
“Trigger Event Date” means the date on which the Trigger Event occurs;
“Underpin” means where the price-to-book ratio of the Company on the Trigger Event Date is less than 1.15, the amount of the Award Value will be calculated by applying a price-to-book ratio of 1.15 to the Book Value on the Trigger Event Date in order to provide for a minimum payment in respect of an Award;
“Unit” means the number of units granted pursuant to an Award Agreement;
“Value Appreciation Pool” means a pool of 10,000,000 Units which collectively are entitled to 10% of the Goodwill Growth Value;
"Vest" means in relation to an Award a Participant becoming entitled to a cash payment or shares through continuous employment by the Group from the date of the Award to the Vesting Date, subject to the Rules of the Award; and “Vested” and “Vesting” shall be construed accordingly; and
“Vesting Date” means the Normal Vesting Date or the Early Vesting Date, as applicable.
1.2Any reference in the Plan to any enactment includes a reference to that enactment as from time to time modified, extended or re-enacted.
1.3Where the context admits, a reference to the singular includes a reference to the plural.
1.4References to any UK or U.S. provision or enactment shall be taken to include any corresponding provision or enactment in any other jurisdiction.
1.5Expressions in italics, headings and any footnotes are for guidance only and do not form part of the Plan.
2.ELIGIBILITY
An individual is eligible to be granted an Award only if they are a permanent employee (including a permanent employee who is also a director) of the Group.
3.GRANT OF AWARDS
3.1Terms of grant
Subject to Rule 3.3 (Timing and Date of grant), Rule 3.5 (Approvals and consent) and Rule 4 (Limits), the Board may resolve to grant an Award on:
(a)the terms set out in the Plan;
(b)such additional terms, if any, as the Board may specify
to any person who is eligible to be granted an Award under Rule 2 (Eligibility).
3.2Method of grant
Each Award will be evidenced by an Award Agreement that specifies the number of Units awarded, the Vesting of the Award, and such other provisions as the Board determines; provided, however, that the terms of the Award Agreement will not contain any provisions inconsistent with the terms of the Plan, and in the event of any conflict between a provision of the Plan and a provision of an Award Agreement, the provision of the Plan shall supersede and control. Each Participant shall sign and return the Award Agreement to the Company within 30 days (or such longer period as the Board may allow) of receiving the Award Agreement.
3.3Timing and Date of grant
Subject to Rule 3.5 (Approvals and Consents) an Award may be granted at any time at the discretion of the Board.
3.4Method of satisfying Awards
An Award may be satisfied in cash or shares, or a combination of cash and shares, as determined by the Board in its absolute discretion and may vary by Participant and by Award. The making of a cash payment or issue of shares must be lawful in the relevant jurisdictions for that Award and in compliance with any relevant regulation or enactment.
3.5Approvals and consents
The grant of any Award may be subject to obtaining any approval or consent required under any applicable law or regulation.
3.6Non-transferability
An Award granted to any person shall not be transferred, assigned, charged or otherwise disposed of (except on their death to their personal representatives) and shall lapse immediately on any attempt to do so.
4.LIMITS
4.1Award Limit
Subject to Rule 10.3 (Increase to the Value Appreciation Pool), no Award may be granted if it would cause the aggregate number of Units awarded to exceed 10,000,000.
4.2Lapsed Awards
If any Units subject to an Award are forfeited, cancelled or terminated, or expire or lapse for any reason without payment, any such Units thereunder will again be available for an Award under the Plan. For the avoidance of doubt where an Award has lapsed the Units comprising the
Award shall cease to be taken into account for the purpose of the limits in Rule 4.1 (Award Limit), unless and until such Units are re-awarded.
5.VESTING OF AWARDS
5.1Timing of Vesting: Normal Vesting Dates
Subject to Rule 8 (Good Leavers) and Rule 7 (Lapse of Awards), provided that the Participant is employed by the Group and has neither given nor received notice to terminate their employment with the Group, either for Cause or not for Cause:
(a)following the Trigger Event Date each Award shall Vest as follows:
(i)50% on the one year anniversary of the Trigger Event Date, and
(ii)50% on the second anniversary of the Trigger Event Date
(b)on the Deemed Trigger Event Date each Award shall Vest as follows:
(i)50% on the Deemed Trigger Event Date, and
(ii)50% on the one year anniversary of the Deemed Trigger Event Date.
6.CONSEQUENCES OF TRIGGER EVENT OR DEEMED TRIGGER EVENT
6.1Amount of Award
Subject to Rule 8.3 (Pro rata reduction in payment) within 90 days of the first to occur of an Early Vesting Date, the Trigger Event Date or the Deemed Trigger Event Date, the Board shall determine the amount of the Award as;
Goodwill Growth Value x 10% x (number of Units / 10,000,000).
However, if on the Trigger Event Date the price-to-book ratio of the Company is less than 1.15 the Underpin shall apply and the Board shall determine the amount of the Award using the Underpin to provide the Goodwill Growth Value.
The Underpin shall not apply to Awards that Vest on an Early Vesting Date or on the Deemed Trigger Event Date.
6.2Payment
Subject to Rule 5 (Vesting of Awards) and Rule 8 (Good Leavers):
(a)The Company will make a cash payment or issue shares, or a combination of cash and shares (as determined by the Board), to the Participant within 30 days of:
(i)each Normal Vesting Date following a Trigger Event; or
(ii)the date the amount of the Award is determined under Rule 6.1 (Amount of Award) following an Early Vesting Date or the Deemed Vesting Date,
in each case based on the amount of the Award determined under Rule 6.1 (Amount of Award), subject to Rule 6.5 (Payment of Tax Liability).
(b)Where an Award is satisfied in shares, the Company shall issue shares equal to the value of the Award determined under Rule 6.1 (Amount of Award), based on the prevailing Fair Market Value as at the applicable Vesting Date per share.
6.3Conversion
Where an Award is satisfied in cash, any payment shall be converted into the local currency of the employee at the rate of exchange prevailing at the close of business on the Vesting Date as reported on the website openexchangerates.org or equivalent.
6.4Termination of Employment by the Company
Subject to Rule 8.4 (Redundancy), if a Participant leaves the employment of the Group as a result of termination by their employer of their contract of employment or their contract for the provisions of services, for Cause or not for Cause, no payment shall be made in respect of any Award regardless of whether such Award has Vested.
6.5Payment of Tax Liability
The Participant authorises the Company to deduct from the cash payment any Tax Liability due in respect of the cash payment.
Where an Award is satisfied by shares the Participant authorises the Company to withhold from the number of shares otherwise issuable a number of shares with a Fair Market Value equal to the Tax Liability (but no more than the maximum required statutory withholding liability).
6.6Section 409A and Section 457 of the Code
On the basis that the Plan does not confer any right (contingent or otherwise) on a Participant to receive a payment until a Vesting Date (except in the event of death, Disability or Retirement so long as Goodwill Growth Value occurs), any benefit provided under the Plan should not be subject to the provisions of Section 409A. The intent of the Company is that payments under the Plan comply with Section 409A and 457A of the Code to the extent subject thereto, and, accordingly, to the maximum extent permitted, the Plan shall be interpreted and be administered to be in compliance therewith. Any payments described in the Plan that are due within the "short-term deferral period" as defined in Section 409A of the Code shall not be treated as deferred compensation unless applicable law requires otherwise. Notwithstanding anything to the contrary in the Plan no payment or distribution under the Plan that constitutes an item of deferred compensation under Section 409A of the Code and becomes payable by reason of a Participant's termination of employment with the Company will be made to such Participant until such Participant's termination of employment constitutes a "separation from service" (as defined in Section 409A of the Code). Notwithstanding anything to the contrary in the Plan, to the extent required in order to avoid accelerated taxation and/or tax penalties under Section 409A of the Code, amounts that would otherwise be payable and benefits that would otherwise be provided during the six (6) month period immediately following the Participant's termination of employment shall instead be paid on the first business day after the date that is six (6) months following the Participant's “separation from service” (or upon the Participant's death, if earlier). In addition, for purposes of the Plan, each amount to be paid to the Participant pursuant to the Plan that constitutes deferred compensation subject to Section 409A of the Code, shall be construed as a separate identified payment for purposes of Section 409A of the Code. The Company makes no representation that any or all of the payments described in the Plan will be exempt from or comply with Section 409A or 457A of the Code and makes no undertaking to preclude Section 409A or 457A of the Code from applying to any such payment. The Participant shall be solely responsible for the payment of any taxes and penalties incurred under Section 409A and 457A of the Code.
7.LAPSE OF AWARDS
7.1An Award shall lapse:
(a)in accordance with the Rules; or
(b)to the extent it does not Vest under these Rules or becomes incapable of Vesting, if earlier; or
(c)subject to Rule 8 (Good Leavers) on the date that a Participant receives notice of termination of employment for Cause or not for Cause, or on the date of cessation of employment for Cause or not for Cause, whichever is earlier, or where a Participant is subject to redundancy prior to the Trigger Event Date; or
(d)on the date that a Participant gives notice of termination of employment, or on the date of cessation of employment, whichever is earlier, other than where notice is given by a Participant as a Good Leaver.
7.2No payment shall be made in respect of any Award that has lapsed, or in respect of any Award that has Vested but is not yet paid, or where the Participant leaves the company in the circumstances set out in Rule 7.1(c) and 7.1(d) above.
8.GOOD LEAVERS
8.1 Good leavers before a Trigger Event Date
If a Participant ceases to be an employee of the Group before the Trigger Event Date by reason of:
(a)death,
(b)Disability; or
(c)Retirement;
then such Participants shall be considered Good Leavers and, subject to Rule 8.3 (Pro Rata Reduction in Payment), and provided the Participant is not in breach of the terms of their Non-Compete Agreement, if any, all of the Participant’s Award, or any unvested part of their Award, shall Vest on the Early Vesting Date with the amount of the Award calculated by applying the formula in Rule 6.1 (Amount of Award) on the Early Vesting Date, with payment made in accordance with Rule 6.2 (Payment), subject to Rule 6.3 (Payment of Tax Liability).
8.1Good Leavers after a Trigger Event Date
If a Good Leaver ceases to be an employee of the Group after the first Normal Vesting Date, then provided the Participant is not in breach of the terms of their Non-Compete Agreement, if any, any unvested part of the Participant’s Award shall Vest on the Early Vesting Date with the amount of the Award calculated Date by applying the formula in Rule 6.1 (Amount of Award) on the Trigger Event Date, with payment made in accordance with Rule 6.2 (Payment), subject to Rule 6.3 (Payment of Tax Liability).
8.2Pro rata reduction in payment
Where a Good Leaver ceases to be an employee of the Group before a Trigger Event Date the Board shall determine the payment of the Award by applying a pro rata reduction to the number of Units comprising the Award based on the period of time from and including the Pro Rata Reference Date and ending on the Early Vesting Date, relative to the period between the Pro Rata Reference Date and the Deemed Trigger Event Date, unless the Board, acting fairly
and reasonably, decides that the reduction to the value of the Award under this Rule 8.2 is inappropriate in any particular case, when it shall increase the value of the Award to such higher amount as it decides is appropriate up to a maximum of 100% of the Units subject to the Award.
8.4Redundancy
If a Participant ceases to be an employee of the Group by reason of Redundancy after a Trigger Event Date, then all of such Participant’s Award shall vest according to the timetable set out in Rule 5.1 (Timing of Vesting: Normal Vesting Date), with the amount of the Award calculated by applying the formula in Rule 6.1 (Amount of Award) on the Trigger Event Date with payment made in accordance with Rule 6.2 (Payment), subject to Rule 6.3 (Payment of Tax Liability).,
8.5Meaning of ceasing employment
Solely for the purpose of this agreement, a Participant shall be treated for the purposes of this Rule 8 (Good Leavers) as ceasing to be an employee of the Group when: (i) the Participant issues a notice of termination to the Company not as a Good Leaver, or (ii) where the Company issues a notice of termination, either for Cause or not for Cause.
9.ADJUSTMENT OF AWARDS
9.1General rule
In the event of any variation of the structure of the Group, which leads to a material effect on the Plan to the disadvantage of the Participants, the Board may, acting reasonably, make such adjustments as it considers appropriate to the number of Units subject to the Award.
9.2Effect of adjustment
Any adjustment to the number of Units under Rule 9.1 (General Rule) shall not be treated as triggering an increase to the percentage of the Goodwill Growth Value shared by the Value Appreciation Pool (as set out in Rule 10.3 (Increase to the Valuation Appreciation Pool)) unless the Board determines otherwise.
10.ALTERATIONS
10.1.General rule on alterations
Except as described in Rule 10.2 (Alterations to disadvantage of Participants) the Board may at any time alter the Plan or the terms of any Award.
10.2.Alterations to disadvantage of Participants
No alteration to the Plan which results in a material adverse effect on the rights of the Participants shall be made under this Rule 10 unless:
(a)the Board shall have invited every relevant Participant to indicate whether or not they approve the alteration; and
(b)the alteration is approved by a majority of those Participants who have given such an indication,
provided that, if the alteration has a disproportionately material adverse effect on the rights of any group of Participants, the affirmative consent to the alteration by all Participants disproportionately affected is required.
10.3.Increase to the Value Appreciation Pool
The Board may increase the number of Units that comprise the Value Appreciation Pool provided that in such circumstances the percentage of the Goodwill Growth Value shared by the Value Appreciation Pool shall be increased by the same proportion.
By way of example:
If the number of Units increases to 11,000,000 (a 10% increase) the percentage of the Goodwill Growth Value shared by the Value Appreciation Pool shall increase to 11%.
11.MISCELLANEOUS
11.1Employment
The rights and obligations of any individual under the terms of their office or employment with the Group shall not be affected by their participation in the Plan or any right which they may have to participate in it. Save for those Participants identified in Rule 8.1 (Good Leavers before a Trigger Event Date), Rule 8.2 (Good Leavers after a Trigger Event Date) and Rule 8.4 (Redundancy), an individual who participates in the Plan waives any and all rights to compensation or damages in consequence of the termination of their office or employment for any reason whatsoever insofar as those rights arise or may arise from them ceasing to have rights under an Award as a result of such termination. Participation in the Plan shall not confer a right to continued employment upon any individual who participates in it. The grant of any Award does not imply that any further Award will be granted nor that a Participant has any right to receive any further Award.
11.2Disputes
In the event of any dispute or disagreement as to the interpretation of the Plan, or as to any question or right arising from or relating to the Plan, the decision of the Board shall be final and binding upon all persons.
11.3Exercise of powers and discretions
The exercise of any power or discretion by the Board shall not be open to question by any person and a Participant or former Participant shall have no rights in relation to the exercise of or omission to exercise any such power or discretion.
11.4Notices
Any notice or other communication under or in connection with the Plan may be given:
(a)by personal delivery or by internal or ordinary post, in the case of the Company at its registered office, and in the case of an individual to their last known address;
(b)in an electronic communication to their usual business address or such other address for the time being notified for that purpose to the person giving the notice; or
(c)by such other method as the Board determines.
Where a notice or document is sent by ordinary or internal post, it shall be treated as being received 72 hours after it was put into the post properly addressed and, where relevant, stamped. In all other cases, the notice or document shall be treated as received when it is given. A notice or document sent to the Company shall only be effective once it is received by the Company, unless otherwise agreed by the Company. All notices and documents given or sent to the Company shall be given or sent at the risk of the sender.
11.5Third parties
No third party has any rights under the Contracts (Rights of Third Parties) Act 2016 to enforce any term of the Plan.
11.6Benefits not pensionable
Benefits provided under the Plan shall not be pensionable.
11.7Data Protection
Personal data relating to Participants in the Plan may be collected, processed and transferred for any purpose relating to the operation of the Plan in compliance with any applicable laws and any data privacy notice and/or policies of the Group in force from time to time.
11.8Governing law
The Plan and all Awards shall be governed by and construed in accordance with the laws of Bermuda without reference to the principles of conflict of law thereof and the Company and any Participant accepting an Award hereunder irrevocably agree that any dispute or claim which may arise out of or in connection with the Plan, or Award Agreement, shall be referred to and determined by arbitration in Bermuda by sole arbitrator appointed by agreement between the parties and in default of agreement, then the arbitrator is to be appointed by the Appointments’ Committee of the Chartered Institute of Arbitrators Bermuda Branch. The courts of Bermuda shall have exclusive jurisdiction to hear and determine any application for relief in aid of an arbitration commenced pursuant to this Rule 11(including any application for interim or conservatory measures prior to the appointment of an arbitrator) except that the Company and any Participant may bring proceedings before any court or other judicial authority for the purposes of enforcing any award rendered by the arbitrator hereunder.
(1) HAMILTON BDA SERVICES LIMITED
- and -
(2) PETER SKERLJ
SEPARATION AGREEMENT
(with REAFFIRMATION AGREEMENT)
THIS AGREEMENT is entered into as a deed as of the 27 day of September 2022.
BETWEEN
(1)Hamilton BDA Services Limited of Wellesley House North, 90 Pitts Bay Road, Pembroke HM 08, Bermuda (the “Company”); and
(2)Peter Skerlj of 12 Channel View Lane, Crawl, Hamilton Parish, CR 02,, Bermuda (the “Executive”).
WHEREAS:
(A)The Executive has been employed by the Company, or its Parent (Hamilton Insurance Group, Ltd.), or one of its affiliates since 23 December 2013, most recently as Chief Risk Officer of Hamilton Insurance Group pursuant to an Amended and Restated Employment Agreement dated 4 January 2021 (the “Employment Agreement”).
The Executive and Company have mutually decided to agree amicable terms of separation as set forth in this Agreement.
(B)The Company and the Executive have agreed the terms set out in this Agreement in settlement of: (i) all and any claims which the Executive may have against the Company, its Parent, all of its affiliates, successors and assigns, arising out of or in connection with or as a consequence of the Executive’s employment and/or termination; and (ii) any and all claims which the Company may have against the Executive arising out of or in connection with or as a consequence of the Executive’s employment and/or his termination, in either case whether or not those claims are, or could be, in the contemplation of the parties at the time of signing this Agreement. For the avoidance of doubt, this Agreement shall not preclude the Executive from exercising any and all existing and future rights and claims solely in his capacity as a shareholder (including warrants) of Parent, for such time as Executive remains a duly registered shareholder (and warrant holder) of Parent, at all times in accordance with applicable law.
(C)The Company is entering into this Agreement for itself, its Parent, affiliates, successors and assigns, and is duly authorised in that behalf.
Capitalised terms not otherwise defined in this Agreement shall have the meaning given to them in the Employment Agreement.
AGREED TERMS
1TERMINATION
1.1Subject to the terms of this Agreement the Exxecutive’s employment by the Company will end by mutual agreement on the of:
1.1.127 March 2023; or
1.1.2such earlier date as may be mutually agreed by the Company and the Executive subject to satisfactory completion of identified tasks as set out in Schedule 1 hereto as well as orderly transition of the Executive’s responsibilities, save that, in any event, such date shall not be earlier than 30 January 2023 (the “Termination Date”).
1.2The termination of the Employment Agreement shall be treated as a termination under Clause 7(d) of the Employment Agreement.
2PAYMENTS
2.1Subject to:
2.1.1the Executive agreeing to and signing the Reaffirmation Agreement attached at Schedule 2 below (“Schedule 2”) within 7 days after the Termination Date;
2.1.2the Executive adhering to the terms of this Agreement;
2.1.3the Executive continuing to adhere to all obligations of his Employment Agreement as amended by this Agreement and Schedule 1, whether express or implied, in good faith up to and including the Termination Date; and
2.2.The Company will, without any admission of liability, pay the Executive:
2.2.1.accrued salary and benefits in accordance with Clause 8(b)(iii) of the Employment Agreement for the period up to and including the Termination Date; and
2.2.2.on the next payroll date following the Executive’s agreement to and signature on the Reaffirmation Agreement at Schedule 2 unless an earlier Termination Date is agreed pursuant to Clause 1.1.2 herein, in which case, on the next payroll date following the Q4 2022 Board Meeting of the Parent:
(i)cash settlement of the Cash Incentive Award for the 2022 year of employment, pro- rated to the date of this Agreement (being 9 months out of 12), based on actual performance of the Company and personal performance of the Executive as determined in the sole and absolute discretion of the Compensation Committee of the Board.
(collectively, the “Settlement Sum”)
2.3Save for the provision at Clause 2.3.3 of this Agreement, the Executive's rights with respect to the outstanding warrants (“Warrants”) and RSUs granted to the Executive under the Hamilton Insurance Group, Ltd. 2013 Equity Incentive Plan, as amended (the "Equity Plan") shall be governed by the applicable terms of the Equity Plan and the award agreements entered into with the Executive thereunder (collectively, the "Award Agreements") which remain unaffected by this Agreement and are fully enforceable following execution of this Agreement. For the avoidance of doubt:
2.3.1The Company acknowledges and agrees that the outstanding RSU’s and Performance Stock Units (“PSUs”) due to vest on 1 January 2023 will fully vest on 1 January 2023.
2.3.2The Executive acknowledges and agrees that pursuant to the terms of the Equity Plan and the Award Agreements, the remainder of the Executive's unvested RSUs and PSUs outstanding as of the termination Date are forfeited without consideration effective as of the Termination Date.
2.3.3Section 15 of the Equity Plan will cease to apply to the extent that the company will not repurchase any of the shares which have already fully vested to the Executive pursuant to the Equity Plan and Award Agreements through to the Termination Date.
2.4Upon payment of the sums set out in this Agreement there will be no further sums of any kind due and owing to the Executive by the Company. The Executive accepts that on the Termination Date any and all salary, payments and benefits (contractual or discretionary) shall cease, save as otherwise set out in this Clause 2 and in Clause 3 below, and there shall be no further compensation due for the termination of the Executive’s employment and loss of office.
2.5All and any Bermuda Payroll Tax and Social Insurance due on any sums payable under this Agreement shall be paid in line with normal payroll practices as implemented for the Executive under his Employment Agreement as at the date of execution of this Agreement, which for the avoidance of doubt requires the Company paying the employer and employee portion of the payroll tax except for 1.7% allocated to the Executive in respect of the employee portion.
3BENEFITS
3.1Any and all benefits the Executive is entitled to under the Employment Agreement will cease on the Termination Date.
4TERMINATION AND POST- TERMIINATION OBLIGATIONS
4.1Save insofar as expressly modified or amended by this Agreement, all terms in the Employment Agreement that relate to the Executive’s and the Company’s obligations
after the Termination Date shall continue to apply in all respects, including for the avoidance of doubt:
a.Clause 6, Confidentiality;
b.Clause 8, Termination Procedure;
c.Clause 9, Restrictive Covenants;
d.Clause 10, Cooperation;
e.Clause 11, No Cooperation with Third Parties; and
f.Clause 13, Survival varied such that Clause 14 of the Employment Agreement will not continue to apply.
4.2The Executive shall not make any adverse or derogatory comment about the Company, its Parent, affiliates or successors and assigns, its directors or employees and the Company shall use reasonable endeavours to ensure that its employees, directors and officers shall not make any adverse or derogatory comment about the Executive. The Executive shall not do anything which shall, or may, bring the Company, its Parent, affiliates or successors and assigns, or its employees, directors or officers into disrepute and the Company shall use reasonable endeavours to ensure that its employees and officers shall not do anything which shall, or may, bring the Executive into disrepute.
5NON-SOLICITATION
5.1In consideration for entering into this Agreement, the Company agrees to remove Clause 9(b)(i)-(iv) of the Employment Agreement and replace it with this Clause 5.
5.2For the purpose of this Clause 5, the following definitions apply:
Confidential Information: information (whether or not recorded in documentary form, or stored on any magnetic or optical disk or memory) relating to the business, products, affairs and finances of the Company, its Parent, affiliates or successors and assigns (collectively, “Hamilton Group”) for the time being confidential to the Company or Hamilton Group and trade secrets including, but not limited to and without limitation, technical data and know how relating to the business of the Company or Hamilton Group or any of its business contacts.
Restricted Business: those parts of the business of the Company or Hamilton Group with which the Executive was involved in the 12 months before Termination.
Restricted Customer: any company, firm or person who, during the 12 months before Termination, was a customer of or was in the habit of dealing with the Company or Hamilton Group and with whom the Executive had contact with in the course of his employment.
Restricted Person: anyone employed or engaged by the Company or Hamilton Group and who could damage the interests of the Company or Hamilton Group if they were involved in any capacity in any business concern which competes with any Restricted Business and with whom the Executive dealt in the 12 months before Termination in the course of his employment.
5.3In order to protect the Confidential Information and business connections of the Company and Hamilton Group to which you have access as a result of the employment, you covenant with the Company that for aa period of twelve (12) months from the Termination Date, you shall not:
5.3.1solicit or endeavour to entice away from the Company, or Hamilton Group, the business or custom of a Restricted Customer with a view to providing goods or services to that Restricted Customer in competition with any Restricted Business;
5.3.2in the course of any business concern which is in competition with any Restricted Business, offer to employ or engage or otherwise endeavour to entice away from the Company or Hamilton Group any Restricted Person;
5.3.3in the course of any business concern which is in competition with any Restricted Business, employ or engage or otherwise facilitate the employment or engagement of any Restricted Person, whether or not such person would be in breach of contract as a result of such employment or engagement;
5.3.4at any time after termination represent himself as connected with the Company or Hamilton Group in any capacity, other than as a former Executive, or use any registered business names or trading names associated with the Company or Hamilton Group.
5.4.The restrictions imposed on the Executive by this Clause apply to the Executive acting:
5.4.1directly or indirectly; or
5.4.2on his behalf or on behalf of, or in conjunction with, any firm, company or person.
5.5.The restrictions imposed on the Executive by this Clause 5 shall not prohibit:
5.5.1.general solicitations or advertisements of employment (or hiring as a result thereof) not specifically directed at any Restricted Person (and nothing herein shall prohibit the making of any such general solicitations or advertisements);
5.5.2.the solicitation or employment of any Restricted Person who is referred by search firms, employment agencies or other similar entities, provided that such entities have not been specifically instructed by the Executive directly or indirectly, on his behalf or on behalf of, or in conjunction with any firm, company or person, to solicit the Restricted Person; or
5.5.3.the solicitation or employment of any such person whose employment with the Company or any other Hamilton Group entity was terminated prior to commencement of employment discussions between the Executive and such person.
5.6.The Company and Executive enter into the restrictions in this Clause 5 having been separately legally advised.
5.7.Each of the restrictions in this Clause 5 is intended to be separate and severable. If any of the restrictions shall be held to be void but would be valid if part of their wording were deleted, such restrictions shall apply with such deletion as may be necessary to make it valid or effective.
6COMPANY PROPERTY
6.1The Executive confirms that on or before the Termination Date, he will deliver to the Company at its registered office all agreements, documents, statistics, accounts, records, programs, electronic devices provided by the Company and other items of whatsoever nature or description (including all copies) belonging to the Company and which may have been in his possession or under his control (including for the avoidance of doubt any user names, passwords that he can recall or has a record of, and such other like identifying information for access to the Company or its subsidiaries or affiliates, records, accounts and information) which are not items publicly available and relate in any way to the business or affairs of the Company, its Parent and affiliates or its customers, clients or suppliers. In particular the Executive will provide the passwords for all password protected files, sub files and all other records requiring a username and/or password that he can recall or has a record of.
7WARRANTY WAIVER AND RELEASE
7.1.In consideration of the payment of the Settlement Sum and subject to clauses 2.5 and 9.3 of this Agreement, the Executive warrants, undertakes and represents that he has no legal claim against the Company, its Parent, affiliates or successors and assigns, and/or the Company’s or the Parent’s officers, Executives or shareholders arising out of or in connection with his employment with the Company or its termination or otherwise.
7.2.Irrespective of the above, and for the avoidance of doubt, in consideration of the payment of the Settlement Sum, any legal claim of unfair dismissal, wrongful dismissal and breach of contract (save for this agreement) against the Company and/or the Company’s officers, Executives or shareholders (“Alleged Claims”) (solely as such Alleged Claims relate to the Executive’s
employment with the Company) are hereby unconditionally and irrevocably waived by the Executive and will not be repeated, referred to or pursued either by the Executive or by anyone else on his behalf.
7.3.The Company warrants, undertakes and represents on behalf of itself, its directors, officers, employees and shareholders, that it unconditionally and irrevocably waives any claims that it, including all its subsidiaries, affiliates, successors, and assigns has, against the Executive arising out of or in connection with the Executive’s employment with the Company or its termination or otherwise (“Company Claims”).
7.4.The Executive accepts the Settlement Sum and waiver of the Company Claims in full and final settlement of:
7.4.1.any Alleged Claims; and
7.4.2.all other legal claims and rights of action (whether under common law or otherwise) in any jurisdiction in the world, howsoever arising which the Executive (or anyone on his behalf has or may have) against the Company, its Parent, affiliates or successors and assigns, and/or the Company’s or its Parent’s officers, Executives or shareholders arising from or connected with the Executive’s employment by the Company, or its termination as it relates to the Company and/or the Company’s officers, Executives or shareholders, that it would not be just or equitable for his to claim or be awarded any further sum (“Legal Claims”).
7.5For the avoidance of doubt and without in any way limiting the scope, application or effect of Clause 7.4.2, Legal Claims for the purposes of Clause 7.4.2 means any claim for or relating to unfair dismissal, statutory redundancy payment, sex, race or disability discrimination, sexual harassment, discrimination on the grounds of religion or belief, age or sexual orientation, working time, unlawful deduction from wages, unlawful detriment on health and safety grounds, a protective award or any other statutory or common law employment rights which the Executive (or anyone on his behalf), has or may have.
7.6The mutual waivers, settlement and release of the claims in this Clause 7 shall have effect irrespective of whether or not, at the date of this agreement, the Executive or Company as the case may be is or could be aware of such claims or have such claims in any express contemplation (including such claims of which the Executive or Company becomes aware after the date of this Agreement in whole or in part as a result of new legislation or the development of common law or equity) solely as such claims relate to the Executive’s employment with the Company.
7.7It is a fundamental term of this Agreement that:
7.7.1the Settlement Sum and the provision of benefits under the terms of this Agreement shall at all times be conditional on the Executive (and anyone on his behalf) complying with each and every term, condition or warranty of this Agreement and/or refraining from making any allegation, lodging any complaint or pursuing any type of employment related proceedings in respect of the Alleged Claims, any other Legal Claim or any contractual or common law claim (howsoever arising), against the Company, its Parent, affiliates or successors and assigns, and/or the Company’s or its Parent’s officers, Executives or shareholders, and whether in an Employment Tribunal, the Supreme Court of Bermuda, the Human Rights Commission, a Magistrates’ Court, any other judicial or quasi-judicial body in Bermuda and any Court or Tribunal in any jurisdiction in the world; and
7.7.2if the Executive (or anyone on his behalf) subsequently issues or pursues such related proceedings in breach of this Agreement then, subject to any applicable law, the Settlement Sum paid to the Executive shall be repayable to the Company forthwith on demand and no further benefits shall be provided; and
7.7.3the total sum recoverable, subject to any applicable law, is recoverable as a debt, together with all reasonable costs (including reasonable legal costs) incurred by the Company (or by any of its officers, Executives or shareholders, as applicable) in recovering the sum and/or in relation to any proceedings so brought by the Executive in breach of this Agreement.
The repayment provisions of this Clause 7.7 shall be without prejudice to the Company’s right to seek further damages from the Executive in respect of the breach referred to in this Clause and any other breach of this Agreement.
7.8The parties acknowledge that each of them has relied on this Clause 7 in deciding to enter into this Agreement.
7.9Nothing in this Agreement shall prevent either party from taking steps or making claims or bringing proceedings to enforce the terms of either this Agreement or the Award Agreements.
8TAX
8.1Notwithstanding anything herein to the contrary, the Company will be responsible for paying all outstanding non-Bermudian taxes required pursuant to any law or governmental regulation or ruling. Bermuda taxes shall be treated in accordance with clause 2.5 of this Agreement.
9INDEMNITY
9.1If either party breaches any material provision of this Agreement or asserts or pursues a claim against the other including but not limited to an Alleged Claim or a Company Claim or a Legal Claim, that party agrees to indemnify the other party for any losses suffered as a result thereof, including all reasonable legal and professional fees incurred.
9.2The parties specifically acknowledge and agree that it is a breach of a material provision of this Agreement for the purposes of Clause 9.1 to bring, assert or rely upon for any purpose a claim that any provision of this Agreement is unenforceable or void by reason of any law or enactment.
9.3Notwithstanding the above, the Company agrees to wholly indemnify the Executive for any and all government taxes incurred by the Executive personally during the Employment Term directly as a result of performance of his duties for and on behalf of the Company, its Parent or its affiliates.
10GOVERNING LAW AND DISPUTE RESOLUTION
10.1This Agreement and any dispute or claim arising out of or in connection with it or its subject matter or formation (including non-contractual disputes or claims) shall be governed by and construed in accordance with the law of Bermuda.
10.2Clause 15(b) of the Employment Agreement (Governing Law; Arbitration) shall apply (with necessary modification) to this Agreement as read with the Equity Plan and Award Agreements.
11ENTIRE AGREEMENT & FORMALITIES
11.1This Agreement as read with the Employment Agreement, Equity Plan and Award Agreements constitutes the entire agreement between the parties and supersedes all previous contracts, agreements, arrangements and understandings between them relating to the Executive’s employment and its termination.
11.2This Agreement may be executed and delivered in any number of counterparts, each of which, when executed, shall constitute a duplicate original, but all the counterparts shall together constitute one agreement.
12LEGAL FEES
12.1The Company will provide a contribution towards legal fees of the Executive, subject to receipt of an invoice, up to the amount of $1000.
This Agreement has been entered into on the date stated at the beginning of it.
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Signed and delivered by | | | |
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| Gemma Carreiro | | | |
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| for and on behalf of | | /s/Gemma Carreiro | |
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| Hamilton BDA Services Limited | | | |
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Signed and delivered by | | | |
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| Peter Skerlj | | /s/Peter Skerlj | |
FIRST AMENDMENT TO THE SEPARATION
AGREEMENT
This FIRST AMENDMENT, dated 20 December 2022 (this “First Amendment”), amends the Separation Agreement, dated as of September 27, 2022 (the “Agreement”), by and among Hamilton BDA Services Limited (the “Company”) and Peter Skerlj (the “Executive”, and together with the Company, the “Parties”).
RECITALS:
WHEREAS, the Parties are mutually desirous of amending the Agreement as contemplated by this First Amendment;
NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, and intending to be legally bound hereby, the Parties hereto do hereby agree as follows:
1. Definitions.
All capitalized terms used but not defined assigned to such terms in the Agreement.
2. First Amendment
Clause 1.1 of the Agreement, under the part entitled “Termination”, shall be deleted and replaced in its entirety as follows:
1.1 Subject to the terms of this Agreement the Executive’s employment by the Company will end on January 2, 2023 (the “Termination Date”).
3. Miscellaneous.
The Agreement remains and shall remain in full force and effect save that, from the date of this First Amendment, the Agreement shall be amended and/or superseded by this First Amendment. This First Amendment shall not constitute an amendment or waiver of any provision of the Agreement, except as expressly set forth herein. This First Amendment and the Agreement shall each be read, taken and construed as one and the same instrument, but such amendments and supplements shall not operate so as to render invalid or improper any action heretofore taken under the Agreement. If and to the extent there are any inconsistencies between the Agreement and this First Amendment with respect to the matters set forth herein, following the date of the First Amendment, the terms of this First Amendment shall control.
[Signature Page Follows]
IN WITNESS WHEREOF, the Parties have executed this First Amendment as of the date first written above.
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| Peter Skerlj | | Hamilton BDA Services Limited |
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| /s/ Peter Skerlj | | /s/ Gemma Carreiro |
| Signature | | Signature |
| | |
| December 20, 2022 | | 20 December 2022 |
| Date | | Date |
| | |
| | Gemma Carreiro |
| | Name |
| | |
| | Director |
| | Title |
Exhibit 10.13
EXECUTION VERSION
FIFTH AMENDMENT TO TERM LOAN CREDIT AGREEMENT
This FIFTH AMENDMENT TO TERM LOAN CREDIT AGREEMENT (this “Fifth Amendment”), dated as of June 23, 2022 is entered into among HAMILTON INSURANCE GROUP, LTD., an exempted company organized under the laws of Bermuda (the “Borrower”), the Lenders party hereto, and WELLS FARGO BANK, NATIONAL ASSOCIATION, as Administrative Agent.
RECITALS
A. The Borrower, the Lenders, and the Administrative Agent are parties to a Term Loan Credit Agreement dated as of July 26, 2019 (as amended, restated, or amended and restated, the “Credit Agreement”). Capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Credit Agreement.
B. The Borrower, the Lenders, and the Administrative Agent have agreed to extend the maturity of, and make certain other amendments to, the Credit Agreement on the terms and conditions set forth herein.
B. Concurrently with the execution of this Fifth Amendment, the Lenders, certain other financial institution(s) (such financial institution(s), together with the Lenders, the “Revolving Lenders”), the Borrower and Hamilton Re are entering into a Fifth Amended and Restated Credit Agreement, with Wells Fargo Bank, National Association, as administrative agent (the “Revolving Credit Agreement”), pursuant to which the Revolving Lenders will make available certain credit facilities to the Borrower and Hamilton Re. It is a condition to the Revolving Lenders’ entry into the Revolving Credit Agreement that the Borrower agree to the amendments to the Credit Agreement contained in this Fifth Amendment, and the Revolving Lenders would not be willing to enter into the Revolving Credit Agreement in the absence of this Fifth Amendment.
STATEMENT OF AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
AMENDMENTS TO LOAN DOCUMENTS
1.1 Amendments to the Credit Agreement.
(a) The Credit Agreement (other than the schedules and exhibits thereto) is amended in its entirety to read in the form of such Credit Agreement attached hereto as Exhibit A to this Fifth Amendment.
1.2 Amendments to Exhibits of the Credit Agreement.
(a) Exhibit C to the Credit Agreement is hereby deleted in its entirety and replaced with the Exhibit attached hereto as Exhibit C.
(b) Exhibit D to the Credit Agreement is hereby deleted in its entirety and replaced with the Exhibit attached hereto as Exhibit D.
(c) Exhibit E to the Credit Agreement is hereby deleted in its entirety and replaced with the Exhibit attached hereto as Exhibit E.
1.3 Amendments to Schedules of the Credit Agreement. Schedules 5.2, 5.13, 7.1, 7.2, 7.3 and 7.5 of the Credit Agreement are hereby deleted in their entirety and replaced with the corresponding schedules attached hereto.
1.4 Treatment of Existing LIBOR Rate Loans. Effective as of the Fifth Amendment Effective Date (as defined below), (i) each LIBOR Rate Loan (as defined in the Credit Agreement immediately prior to the effectiveness of this Fifth Amendment) outstanding as of the Fifth Amendment Effective Date shall automatically be converted into a SOFR Loan of equivalent tenor and having an Interest Period expiring on the same date as the Interest Period applicable to such LIBOR Rate Loan, and (ii) any such Term Loan shall be deemed a SOFR Loan for all purposes under the Loan Documents.
ARTICLE II
CONDITIONS OF EFFECTIVENESS
2.1 This Fifth Amendment shall become effective as of the date (the “Fifth Amendment Effective Date”) when, and only when, each of the following conditions precedent shall have been satisfied:
(a) The Administrative Agent shall have received an executed counterpart of this Fifth Amendment from the Borrower and the Lenders under the Credit Agreement.
(b) The Administrative Agent shall have received in form and substance reasonably satisfactory to the Administrative Agent:
(i) a certificate from a Responsible Officer of the Borrower to the effect that (i) all representations and warranties of the Borrower contained in the Credit Agreement and the other Loan Documents are true, correct and complete in all material respects (except to the extent any such representation and warranty is qualified by materiality or reference to Material Adverse Effect, in which case, such representation and warranty shall be true, correct and complete in all respects) on and as of the Fifth Amendment Effective Date after giving effect to this Fifth Amendment and (ii) as of the Fifth Amendment Effective Date, no Default or Event of Default has occurred and is continuing or will occur after giving effect to this Fifth Amendment.
(ii) a certificate of a Responsible Officer of the Borrower certifying as to the incumbency and genuineness of the signature of each officer of the Borrower executing Loan Documents to which it is a party and certifying that attached thereto is a
true, correct and complete copy of (A) the articles or certificate of incorporation or formation (or equivalent), as applicable, of the Borrower and all amendments thereto, certified as of a recent date by the appropriate Governmental Authority in its jurisdiction of incorporation, organization or formation (or equivalent), as applicable, (B) the bylaws or other governing document of the Borrower as in effect on the Fifth Amendment Effective Date, (C) resolutions duly adopted by the board of directors (or other governing body) of the Borrower authorizing and approving the transactions contemplated hereunder and the execution, delivery and performance of this Fifth Amendment and the other Loan Documents to which it is a party, and (D) each certificate required to be delivered pursuant to Section 2.1(b)(iii) required to be satisfied as of the Fifth Amendment Effective Date.
(iii) a certificate as of a recent date of the good standing of the Borrower under the laws of its jurisdiction of incorporation, organization or formation (or equivalent), as applicable.
(c) The Borrower shall have paid (i) to the Arranger and the Administrative Agent, the fees required under the Engagement Letter to be paid on the Fifth Amendment Effective Date, in the amounts due and payable on the Fifth Amendment Effective Date as required by the terms thereof, subject to receipt of appropriate invoicing details, and (ii) all other fees and reasonable expenses of the Arranger, the Administrative Agent and the Lenders required hereunder or under any other Loan Document to be paid on or prior to the Fifth Amendment Effective Date (including reasonable fees and expenses of counsel) in connection with this Fifth Amendment, the other Loan Documents and the transactions contemplated hereby.
(d) The Administrative Agent shall have received opinions of counsel to the Borrower addressed to the Administrative Agent and the Lenders with respect to the Borrower, this Fifth Amendment, the Credit Agreement (as amended by this Fifth Amendment) and such other matters as the Administrative Agent shall request.
(e) The Revolving Credit Agreement shall have been amended and restated substantially concurrent with the execution of this Fifth Amendment.
(f) All accrued and unpaid fees outstanding under the Credit Agreement shall have been paid in full.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Lenders to enter into this Fifth Amendment, the Borrower represents and warrants to the Administrative Agent and the Lenders as of the date hereof as follows:
3.1 Authorization; Enforceability. The Borrower has the corporate power, and has taken all necessary corporate action, to execute, deliver and perform this Fifth Amendment and has duly and validly executed and delivered this Fifth Amendment. This Fifth Amendment constitutes the legal, valid and binding obligation of the Borrower, enforceable against it in
accordance with its terms except as enforceability may be limited by bankruptcy, insolvency, reorganization, fraudulent conveyance, fraudulent transfer, moratorium or other similar state of federal Debtor Relief Laws from time to time in effect which affect the enforcement of creditors’ rights generally or by general equitable principles regardless of whether enforceability is considered in a proceeding in equity or at law.
3.2 No Violation. The execution, delivery and performance by the Borrower of this Fifth Amendment, and compliance by it with the terms hereof, do not and will not, by the passage of time, the giving of notice or otherwise, (i) conflict with, result in a breach of or constitute a default under the articles of incorporation, bylaws or other organizational documents of the Borrower, (ii) require any Government Approval or violate any Applicable Law relating to the Borrower, (iii) result in or require the creation of imposition of any Lien upon or with respect to any property now owned or hereafter acquired by such Person other than Permitted Liens, or (iv) conflict with, result in a breach of or constitute a default under any indenture, agreement or other instrument to which such Person is a party or by which any of its properties may be bound or any Governmental Approval relating to such Person other than, in the case of clauses (ii), (iii) and (iv), such contraventions, conflicts, breaches, Liens, payments and defaults that would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
3.3 Governmental and Third-Party Authorization. No consent, approval, authorization or other action by, notice to, or registration or filing with, any Governmental Authority or other third-party Person is required as a condition to or otherwise in connection with the due execution, delivery and performance by the Borrower of this Fifth Amendment or the legality, validity or enforceability hereof.
ARTICLE IV
ACKNOWLEDGEMENT AND CONFIRMATION
The Borrower hereby confirms and agrees that, after giving effect to this Fifth Amendment, and except as expressly modified and amended hereby, the Credit Agreement (as amended by the Fifth Amendment) and the other Loan Documents to which it is a party remain in full force and effect and enforceable against it in accordance with their respective terms and shall not be discharged, diminished, limited or otherwise affected in any respect. This Fifth Amendment shall not, in any manner, be construed to constitute payment of, or impair, limit, cancel or extinguish, or constitute a novation in respect of, the Obligations of the Borrower evidenced by or arising under the Credit Agreement, the other Loan Documents. This acknowledgement and confirmation by the Borrower is made and delivered to induce the Administrative Agent and the Lenders to enter into this Fifth Amendment, and the Borrower acknowledges that the Administrative Agent and the Lenders would not enter into this Fifth Amendment in the absence of the acknowledgement and confirmation contained herein.
ARTICLE V
MISCELLANEOUS
5.1 Governing Law. This Fifth Amendment shall be governed by and construed and enforced in accordance with the laws of the State of New York.
5.2 Loan Document. As used in the Credit Agreement, “this Agreement,” “hereunder,” “hereto,” “hereof,” and each reference in the other Loan Documents to “the Credit Agreement,” “thereunder,” “thereof,” or words of like import referring to the Credit Agreement shall mean and be a reference to the Credit Agreement as modified hereby. This Fifth Amendment is limited to the matters expressly set forth herein, and shall not constitute or be deemed to constitute an amendment, modification or waiver of any provision of the Credit Agreement except as expressly set forth herein. This Fifth Amendment shall constitute a Loan Document under the terms of the Credit Agreement.
5.3 Severability. To the extent any provision of this Fifth Amendment is prohibited by or invalid under the applicable law of any jurisdiction, such provision shall be ineffective only to the extent of such prohibition or invalidity and only in any such jurisdiction, without prohibiting or invalidating such provision in any other jurisdiction or the remaining provisions of this Fifth Amendment in any jurisdiction.
5.4 Successors and Assigns. This Fifth Amendment shall be binding upon, inure to the benefit of and be enforceable by the respective successors and permitted assigns of the parties hereto.
5.5 Construction. The headings of the various sections and subsections of this Fifth Amendment have been inserted for convenience only and shall not in any way affect the meaning or construction of any of the provisions hereof.
5.6 Counterparts; Integration. This Fifth Amendment may be executed and delivered via facsimile or electronic mail with the same force and effect as if an original were executed and may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures hereto were upon the same instrument. The words “execution,” “signed,” “signature,” and words of like import in this Fifth Amendment shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act. For the avoidance of doubt, the authorization under this paragraph may include, without limitation, use or acceptance by the Administrative Agent of a manually signed letter which has been converted into electronic form (such as scanned into “.pdf” format), or an electronically signed letter converted into another format, for transmission, delivery and/or retention. This Fifth Amendment constitutes the entire contract among the parties hereto with respect to the subject matter hereof and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof.
[remainder of page intentionally left blank]
IN WITNESS WHEREOF, the parties hereto have caused this Fifth Amendment to be executed by their duly authorized officers as of the date first above written.
| | | | | | | | | | | |
| HAMILTON INSURANCE GROUP, LTD. |
| | | |
| | | |
| By: | /s/ Gemma Carreiro | |
| | Gemma Carreiro | |
| | General Counsel & Secretary | |
[Signature Page to Fifth Amendment]
| | | | | | | | |
LENDERS: | WELLS FARGO BANK, NATIONAL ASSOCIATION, as the Administrative Agent and a Lender |
| | |
| | |
| By: | /s/ William R. Goley |
| | Name: William R. Goley |
| | Title: Managing Director |
[Signature Page to Fifth Amendment]
| | | | | | | | | | | |
| TRUIST BANK, as a Lender | |
| | | |
| | | |
| By: | /s/ Hays Wood | |
| | Name: Hays Wood | |
| | Title: Director | |
[Signature Page to Fifth Amendment]
| | | | | | | | | | | | | | |
| COMMERZBANK AG, NEW YORK BRANCH, as a Lender | |
| | | | |
| | | | |
| By: | /s/ Michael McCarthy | |
| | Name: | Michael McCarthy | |
| | Title: | Managing Director | |
| | | | |
| | | | |
| | | | |
| By: | /s/ Toan Chu | |
| | Name: | Toan Chu | |
| | Title: | Vice President | |
[Signature Page to Fifth Amendment]
| | | | | | | | | | | |
| BMO HARRIS BANK, N.A., as a Lender |
| | | |
| | | |
| | | |
| | | |
| | By: | /s/ Benjamin Mlot |
| | Name: Benjamin Mlot |
| | Title: Director |
[Signature Page to Fifth Amendment]
EXHIBIT A
Credit Agreement
[See attached.]
As amended through 5th Amendment
Published CUSIP Number: 40784BAA1
Term Loan CUSIP Number: 40784BAB9
$150,000,000
TERM LOAN CREDIT AGREEMENT
dated as of July 26, 2019,
by and among
HAMILTON INSURANCE GROUP, LTD.
as Borrower
the Lenders referred to herein
and
WELLS FARGO BANK, NATIONAL ASSOCIATION
as Administrative Agent
WELLS FARGO SECURITIES, LLC
as Sole Lead Arranger and Sole Bookrunner
BMO CAPITAL MARKETS CORP.
and
COMMERZBANK AG, NEW YORK BRANCH
and
TRUIST BANK
as Co-Syndication Agents
| | | | | | | | | | | | | | |
| | | | Page |
| | | | |
| ARTICLE I | DEFINITIONS | 1 |
| | | | |
| Section 1.1 | Definitions | 1 |
| Section 1.2 | Other Definitions and Provisions | 25 |
| Section 1.3 | Accounting Terms | 26 |
| Section 1.4 | Rounding | 26 |
| Section 1.5 | References to Agreement and Laws | 26 |
| Section 1.6 | Times of Day | 27 |
| Section 1.7 | Rates | 27 |
| Section 1.8 | Divisions | 27 |
| | | | |
| ARTICLE II | TERM LOAN FACILITY | 27 |
| | | | |
| Section 2.1 | Initial Term Loan | 27 |
| Section 2.2 | Procedure for Advance of Initial Term Loan | 27 |
| Section 2.3 | Repayment of Term Loans | 28 |
| Section 2.4 | Prepayments of Term Loans | 28 |
| | | | |
| ARTICLE III | GENERAL LOAN PROVISIONS | 28 |
| | | | |
| Section 3.1 | Interest. | 28 |
| Section 3.2 | Notice and Manner of Conversion or Continuation of Loans | 29 |
| Section 3.3 | Fees | 30 |
| Section 3.4 | Manner of Payment | 30 |
| Section 3.5 | Evidence of Indebtedness | 31 |
| Section 3.6 | Sharing of Payments by Lenders | 31 |
| Section 3.7 | Changed Circumstances | 31 |
| Section 3.8 | Indemnity | 34 |
| Section 3.9 | Increased Costs | 34 |
| Section 3.10 | Taxes | 35 |
| Section 3.11 | Mitigation Obligations; Replacement of Lenders | 39 |
| Section 3.12 | [Reserved] | 40 |
| Section 3.13 | Defaulting Lenders | 40 |
| Section 3.14 | Subsidiary Guarantors | 41 |
| | | | |
| ARTICLE IV | CONDITIONS OF CLOSING AND BORROWING | 41 |
| | | | |
| Section 4.1 | Conditions to Closing and Initial Term Loan | 41 |
| Section 4.2 | Conditions to all Term Loans | 43 |
| | | | |
| ARTICLE V | REPRESENTATIONS AND WARRANTIES OF THE CREDIT PARTIES | 44 |
| | | | |
| Section 5.1 | Organization; Power; Qualification | 44 |
| Section 5.2 | Ownership | 44 |
| Section 5.3 | Authorization; Enforceability | 44 |
| Section 5.4 | Compliance of Agreement, Loan Documents and Borrowing with Laws, Etc | 45 |
| Section 5.5 | Compliance with Law; Governmental Approvals | 45 |
| Section 5.6 | Tax Returns and Payments | 45 |
| Section 5.7 | Intellectual Property Matters | 45 |
| Section 5.8 | Environmental Matters | 46 |
| Section 5.9 | Employee Benefit Matters | 46 |
TABLE OF CONTENTS
(continued)
| | | | | | | | | | | | | | |
| | | | Page |
| | | | |
| Section 5.10 | Margin Stock | 46 |
| Section 5.11 | Government Regulation | 46 |
| Section 5.12 | Financial Statements | 46 |
| Section 5.13 | No Material Adverse Change | 47 |
| Section 5.14 | Solvency | 47 |
| Section 5.15 | Ownership of Properties | 47 |
| Section 5.16 | Insurance Licenses | 47 |
| Section 5.17 | Litigation | 47 |
| Section 5.18 | Anti-Corruption Laws; Anti-Money Laundering Laws and Sanctions | 48 |
| Section 5.19 | Disclosure | 48 |
| | | | |
| ARTICLE VI | AFFIRMATIVE COVENANTS | 48 |
| | | | |
| Section 6.1 | Financial Statements | 49 |
| Section 6.2 | Certificates; Other Reports | 49 |
| Section 6.3 | Notice of Litigation and Other Matters | 50 |
| Section 6.4 | Preservation of Corporate Existence and Related Matters | 50 |
| Section 6.5 | Maintenance of Property and Licenses | 51 |
| Section 6.6 | Insurance | 51 |
| Section 6.7 | Payment of Taxes and Other Obligations | 51 |
| Section 6.8 | Compliance with Laws and Approvals | 51 |
| Section 6.9 | Environmental Laws | 51 |
| Section 6.10 | Compliance with ERISA | 51 |
| Section 6.11 | Maintenance of Books and Records; Inspection | 52 |
| Section 6.12 | Use of Proceeds | 52 |
| Section 6.13 | Compliance with Anti-Corruption Laws; Beneficial Ownership Regulation; Anti-Money Laundering Laws and Sanctions | 52 |
| Section 6.14 | Further Assurances | 53 |
| | | | |
| ARTICLE VII | NEGATIVE COVENANTS | 53 |
| | | | |
| Section 7.1 | Indebtedness | 53 |
| Section 7.2 | Liens | 54 |
| Section 7.3 | Investments | 56 |
| Section 7.4 | Fundamental Changes | 57 |
| Section 7.5 | Asset Dispositions | 57 |
| Section 7.6 | Restricted Payments | 58 |
| Section 7.7 | Transactions with Affiliates | 58 |
| Section 7.8 | Accounting Changes; Organizational Documents | 58 |
| Section 7.9 | No Further Negative Pledges; Restrictive Agreements | 59 |
| Section 7.10 | Nature of Business | 60 |
| Section 7.11 | Sale Leasebacks | 60 |
| Section 7.12 | Financial Strength Rating | 60 |
| Section 7.13 | Financial Covenants | 60 |
| | | | |
| ARTICLE VIII | DEFAULT AND REMEDIES | 61 |
| | | | |
| Section 8.1 | Events of Default | 61 |
| Section 8.2 | Remedies | 62 |
| Section 8.3 | Rights and Remedies Cumulative; Non-Waiver; etc | 63 |
| Section 8.4 | Administrative Agent May File Proofs of Claim | 63 |
| | | | |
TABLE OF CONTENTS
(continued)
| | | | | | | | | | | | | | |
| | | | Page |
| | | | |
| ARTICLE IX | THE ADMINISTRATIVE AGENT | 64 |
| | | | |
| Section 9.1 | Appointment and Authority | 64 |
| Section 9.2 | Rights as a Lender | 64 |
| Section 9.3 | Exculpatory Provisions | 64 |
| Section 9.4 | Reliance by the Administrative Agent | 65 |
| Section 9.5 | Delegation of Duties | 66 |
| Section 9.6 | Resignation of Administrative Agent. | 66 |
| Section 9.7 | Non-Reliance on Administrative Agent and Other Lenders | 67 |
| Section 9.8 | No Other Duties, Etc | 67 |
| Section 9.9 | Certain ERISA Matters | 67 |
| Section 9.10 | Erroneous Payments | 68 |
| | | | |
| ARTICLE X | MISCELLANEOUS | 70 |
| | | | |
| Section 10.1 | Notices | 70 |
| Section 10.2 | Amendments, Waivers and Consents | 72 |
| Section 10.3 | Expenses; Indemnity | 73 |
| Section 10.4 | Right of Setoff. | 75 |
| Section 10.5 | Governing Law; Jurisdiction, Etc | 76 |
| Section 10.6 | Waiver of Jury Trial. | 77 |
| Section 10.7 | Injunctive Relief. | 77 |
| Section 10.8 | Successors and Assigns; Participations | 77 |
| Section 10.9 | Treatment of Certain Information; Confidentiality | 82 |
| Section 10.10 | Performance of Duties | 83 |
| Section 10.11 | All Powers Coupled with Interest | 83 |
| Section 10.12 | Survival. | 83 |
| Section 10.13 | Titles and Captions | 83 |
| Section 10.14 | Severability of Provisions | 83 |
| Section 10.15 | Counterparts; Integration; Effectiveness; Electronic Execution | 83 |
| Section 10.16 | Term of Agreement | 84 |
| Section 10.17 | USA PATRIOT Act; Anti-Money Laundering Laws | 84 |
| Section 10.18 | Independent Effect of Covenants | 85 |
| Section 10.19 | No Advisory or Fiduciary Responsibility. | 85 |
| Section 10.20 | Inconsistencies with Other Documents | 86 |
| Section 10.21 | Acknowledgement and Consent to Bail-In of Affected Financial Institutions | 86 |
| Section 10.22 | Acknowledgment Regarding Any Supported QFCs | 86 |
| | | | | | | | |
| EXHIBITS | | |
| Exhibit A | - | Form of Term Loan Note |
| Exhibit B | - | Form of Notice of Borrowing |
| Exhibit C | - | Form of Notice of Prepayment |
| Exhibit D | - | Form of Notice of Conversion/Continuation |
| Exhibit E | - | Form of Officer’s Compliance Certificate |
| Exhibit F | - | Form of Assignment and Assumption |
| Exhibit G-1 | - | Form of U.S. Tax Compliance Certificate (Non-Partnership
Foreign Lenders) |
| Exhibit G-2 | - | Form of U.S. Tax Compliance Certificate Non-Partnership
Foreign Participants) |
| Exhibit G-3 | - | Form of U.S. Tax Compliance Certificate (Foreign Participant
Partnerships) |
| Exhibit G-4 | - | Form of U.S. Tax Compliance Certificate (Foreign Lender
Partnerships) |
| Exhibit H | - | Form of Subsidiary Guarantee Agreement |
| | |
| SCHEDULES | | |
| Schedule 1.1 | - | Commitments |
| Schedule 5.2 | - | Subsidiaries and Capitalization |
| Schedule 5.13 | - | Material Adverse Changes |
| Schedule 7.1 | - | Existing Indebtedness |
| Schedule 7.2 | - | Existing Liens |
| Schedule 7.3 | - | Existing Investments |
| Schedule 7.5 | - | Asset Dispositions |
TERM LOAN CREDIT AGREEMENT, dated as of July 26, 2019, by and among Hamilton Insurance Group, Ltd., an exempted company organized under the laws of Bermuda, as Borrower, the lenders who are party to this Agreement and the lenders who may become a party to this Agreement pursuant to the terms hereof, as Lenders, and WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association, as Administrative Agent for the Lenders.
STATEMENT OF PURPOSE
The Borrower has requested, and subject to the terms and conditions set forth in this Agreement, the Administrative Agent and the Lenders have agreed to extend, a term loan facility to the Borrower.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, such parties hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions. The following terms when used in this Agreement shall have the meanings assigned to them below:
“2021 Stub Period” means December 1, 2021 through December 31, 2021.
“Acquisition” means any transaction, or any series of related transactions, consummated on or after the date of this Agreement, by which any Credit Party or any of its Subsidiaries (a) acquires any business or all or substantially all of the assets of any Person, or division thereof, whether through purchase of assets, merger, amalgamation or otherwise or (b) directly or indirectly acquires (in one transaction or as the most recent transaction in a series of transactions) at least a majority (in number of votes) of the securities of a corporation which have ordinary voting power for the election of members of the board of directors or the equivalent governing body (other than securities having such power only by reason of the happening of a contingency) or a majority (by percentage or voting power) of the outstanding ownership interests of a partnership or limited liability company.
“Adjusted Term SOFR” means, for purposes of any calculation, the rate per annum equal to (a) Term SOFR for such calculation plus (b) the Term SOFR Adjustment; provided that if Adjusted Term SOFR as so determined shall ever be less than the Floor, then Adjusted Term SOFR shall be deemed to be the Floor.
“Administrative Agent” means Wells Fargo, in its capacity as Administrative Agent hereunder, and any successor thereto appointed pursuant to Section 9.6.
“Administrative Agent’s Office” means the office of the Administrative Agent specified in or determined in accordance with the provisions of Section 10.1(c).
“Administrative Questionnaire” means an administrative questionnaire in a form supplied by the Administrative Agent.
“Affected Financial Institution” shall mean (a) any EEA Financial Institution or (b) any UK Financial Institution.
“Affiliate” means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.
“Agent Parties” has the meaning assigned thereto in Section 10.1(e)(ii).
“Agreement” means this Term Loan Credit Agreement.
“A.M. Best” means A.M. Best Company, Inc.
“Anti-Corruption Laws” means all laws, rules, and regulations of any jurisdiction applicable to the Borrower or its Subsidiaries from time to time concerning or relating to bribery or corruption, including, without limitation, the United States Foreign Corrupt Practices Act of 1977 and the rules and regulations thereunder and the U.K. Bribery Act 2010 and the rules and regulations thereunder.
“Anti-Money Laundering Laws” means any and all laws, statutes, regulations or obligatory government orders, decrees, ordinances or rules applicable to a Credit Party or its Subsidiaries related to terrorism financing or money laundering, including any applicable provision of the Patriot Act and The Currency and Foreign Transactions Reporting Act (also known as the “Bank Secrecy Act,” 31 U.S.C. §§ 5311-5330 and 12U.S.C. §§ 1818(s), 1820(b) and 1951-1959).
“Applicable Law” means all applicable provisions of constitutions, laws, statutes, ordinances, rules, treaties, regulations, permits, licenses, approvals, interpretations and orders of Governmental Authorities and all orders and decrees of all courts and arbitrators.
“Applicable Margin” means the corresponding percentages per annum as set forth below based on the Financial Strength Rating of Hamilton Re pursuant to the following grid:
| | | | | | | | | | | | | | | | | |
| Pricing
Level | Financial Strength
Rating | Applicable
Margin for
SOFR Loans | Applicable
Margin for
Base Rate
Loans | |
| I | ≥ A | 1.625% | 0.625% | |
| II | A- | 1.750% | 0.750% | |
| III | ≤ B++ | 1.875% | 0.875% | |
Each change in the Applicable Margin resulting from a publicly announced change in the Financial Strength Rating of Hamilton Re shall be effective on the date on which the relevant change in such rating is first announced by A.M. Best.
“Approved Fund” means any Fund 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.
“Arranger” means Wells Fargo Securities, LLC, in its capacity as the sole lead arranger and sole bookrunner.
“Asset Disposition” means the sale, transfer, license, lease or other disposition of any Property (including any disposition of Equity Interests or any disposition by way of a division or plan of division or otherwise) by any Credit Party or any Subsidiary thereof, and any issuance of Equity Interests by any Subsidiary of the Borrower to any Person that is not a Credit Party or any Subsidiary thereof.
“Assignment and Assumption” means an assignment and assumption entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 10.8), and accepted by the Administrative Agent, in substantially the form attached as Exhibit F or any other form approved by the Administrative Agent.
“Available Tenor” means, as of any date of determination and with respect to the then-current Benchmark, as applicable, (a) if such Benchmark is a term rate, any tenor for such Benchmark (or component thereof) that is or may be used for determining the length of an interest period pursuant to this Agreement or (b) otherwise, any payment period for interest calculated with reference to such Benchmark (or component thereof) that is or may be used for determining any frequency of making payments of interest calculated with reference to such Benchmark, in each case, as of such date and not including, for the avoidance of doubt, any tenor for such Benchmark that is then-removed from the definition of “Interest Period” pursuant to Section 3.7(c)(iv).
“Bail-In Action” means the exercise of any Write-Down and Conversion Powers by the applicable Resolution Authority in respect of any liability of an Affected Financial Institution.
“Bail-In Legislation” means, (i) with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law, regulation, rule or requirement for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule and (ii) with respect to the United Kingdom, the U.K. Bail-In Legislation.
“Bankruptcy Code” means 11 U.S.C. §§ 101 et seq.
“Barclays Agreement” means that certain Letter of Credit Facility Agreement originally dated as of November 7, 2019, as amended and restated on July 2, 2020, November 4, 2020 and November 3, 2021, between the Borrower, Hamilton Re, HCML, ICC3L, Barclays Bank PLC, as agent and security agent, and certain other financial institutions, as amended, renewed, extended, refinanced or replaced from time to time.
“Base Rate” means, at any time, the highest of (a) the Prime Rate, (b) the Federal Funds Rate plus 0.50% and (c) Adjusted Term SOFR for a one-month tenor in effect on such day plus 1.00%; each change in the Base Rate shall take effect simultaneously with the corresponding change or changes in the Prime Rate, the Federal Funds Rate or Adjusted Term SOFR, as applicable (provided that clause (c) shall not be applicable during any period in which Adjusted Term SOFR is unavailable or unascertainable). Notwithstanding the foregoing, in no event shall the Base Rate be less than 1.00%.
“Base Rate Loan” means any Term Loan bearing interest at a rate based upon the Base Rate as provided in Section 3.1(a).
“Benchmark” means, initially, the Term SOFR Reference Rate; provided that if a Benchmark Transition Event has occurred with respect to the Term SOFR Reference Rate or the then-current Benchmark, then “Benchmark” means the applicable Benchmark Replacement to the extent that such Benchmark Replacement has replaced such prior benchmark rate pursuant to Section 3.7(c)(i).
“Benchmark Replacement” means, with respect to any Benchmark Transition Event, the sum of: (a) the alternate benchmark rate that has been selected by the Administrative Agent and the Borrower giving due consideration to (i) any selection or recommendation of a replacement benchmark rate or the mechanism for determining such a rate by the Relevant Governmental Body or (ii) any evolving or then prevailing market convention for determining a benchmark rate as a replacement to the then-current
Benchmark for Dollar-denominated syndicated credit facilities and (b) the related Benchmark Replacement Adjustment; provided that, if such Benchmark Replacement as so determined would be less than the Floor, such Benchmark Replacement will be deemed to be the Floor for the purposes of this Agreement and the other Loan Documents.
“Benchmark Replacement Adjustment” means, with respect to any replacement of the then-current Benchmark with an Unadjusted Benchmark Replacement for any applicable Available Tenor, the spread adjustment, or method for calculating or determining such spread adjustment, (which may be a positive or negative value or zero) that has been selected by the Administrative Agent and the Borrower giving due consideration to (a) any selection or recommendation of a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement by the Relevant Governmental Body or (b) any evolving or then-prevailing market convention for determining a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement for Dollar-denominated syndicated credit facilities
“Benchmark Replacement Date” means the earliest to occur of the following events with respect to the then-current Benchmark:
(a) in the case of clause (a) or (b) of the definition of “Benchmark Transition Event,” the later of (i) the date of the public statement or publication of information referenced therein and (ii) the date on which the administrator of such Benchmark (or the published component used in the calculation thereof) permanently or indefinitely ceases to provide all Available Tenors of such Benchmark (or such component thereof); or
(b) in the case of clause (c) of the definition of “Benchmark Transition Event,” the first date on which such Benchmark (or the published component used in the calculation thereof) has been determined and announced by the regulatory supervisor for the administrator of such Benchmark (or such component thereof) to be non-representative; provided that such non-representativeness will be determined by reference to the most recent statement or publication referenced in such clause (c) and even if any Available Tenor of such Benchmark (or such component thereof) continues to be provided on such date.
For the avoidance of doubt, the “Benchmark Replacement Date” will be deemed to have occurred in the case of clause (a) or (b) with respect to any Benchmark upon the occurrence of the applicable event or events set forth therein with respect to all then-current Available Tenors of such Benchmark (or the published component used in the calculation thereof).
“Benchmark Transition Event” means the occurrence of one or more of the following events with respect to the then-current Benchmark:
(a) a public statement or publication of information by or on behalf of the administrator of such Benchmark (or the published component used in the calculation thereof) announcing that such administrator has ceased or will cease to provide all Available Tenors of such Benchmark (or such component thereof), permanently or indefinitely; provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark (or such component thereof);
(b) a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof), the FRB, the Federal Reserve Bank of New York, an insolvency official with jurisdiction over the administrator for such Benchmark (or such component), a resolution authority with jurisdiction over the administrator for
such Benchmark (or such component) or a court or an entity with similar insolvency or resolution authority over the administrator for such Benchmark (or such component), which states that the administrator of such Benchmark (or such component) has ceased or will cease to provide all Available Tenors of such Benchmark (or such component thereof) permanently or indefinitely; provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark (or such component thereof); or
(c) a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof) announcing that all Available Tenors of such Benchmark (or such component thereof) are not, or as of a specified future date will not be, representative.
For the avoidance of doubt, a “Benchmark Transition Event” will be deemed to have occurred with respect to any Benchmark if a public statement or publication of information set forth above has occurred with respect to each then-current Available Tenor of such Benchmark (or the published component used in the calculation thereof).
“Benchmark Transition Start Date” means, in the case of a Benchmark Transition Event, the earlier of (a) the applicable Benchmark Replacement Date and (b) if such Benchmark Transition Event is a public statement or publication of information of a prospective event, the 90th day prior to the expected date of such event as of such public statement or publication of information (or if the expected date of such prospective event is fewer than 90 days after such statement or publication, the date of such statement or publication).
“Benchmark Unavailability Period” means the period (if any) (x) beginning at the time that a Benchmark Replacement Date has occurred if, at such time, no Benchmark Replacement has replaced the then-current Benchmark for all purposes hereunder and under any Loan Document in accordance with Section 3.7(c)(i) and (y) ending at the time that a Benchmark Replacement has replaced the then-current Benchmark for all purposes hereunder and under any Loan Document in accordance with Section 3.7(c)(i).
“Beneficial Ownership Certification” means a certification regarding beneficial ownership as required by the Beneficial Ownership Regulation, which certification shall be substantially similar in form and substance to the form of Certification Regarding Beneficial Owners of Legal Entity Customers published jointly, in May 2018, by the Loan Syndications and Trading Association and Securities Industry and Financial Markets Association.
“Beneficial Ownership Regulation” means 31 C.F.R. § 1010.230.
“Benefit Plan” means any of (a) an “employee benefit plan” (as defined in ERISA) that is subject to Title I of ERISA, (b) a “plan” as defined in and subject to Section 4975 of the Code or (c) any Person whose assets include (for purposes of ERISA Section 3(42) or otherwise for purposes of Title I of ERISA or Section 4975 of the Code) the assets of any such “employee benefit plan” or “plan”.
“Borrower” means Hamilton Insurance Group, Ltd., an exempted company organized under the laws of Bermuda.
“Borrower Materials” has the meaning assigned thereto in Section 10.1(e)(i).
“Borrower’s Shareholders Agreement” means that certain Second Amended and Restated Shareholders Agreement, dated as of December 3, 2021, by and among the Borrower and the other parties thereto, as amended, restated, amended and restated or replaced from time to time. All references in this
Agreement to any definition, section or any other provision of the Borrower’s Shareholders Agreement shall be deemed to refer to the Borrower’s Shareholders Agreement as in effect on the date hereof and any amendments thereto made in accordance with Section 7.8(b) hereof.
“Business Day” means any day that (a) is not a Saturday, Sunday or other day on which the Federal Reserve Bank of New York is closed and (b) is not a day on which commercial banks in Charlotte, North Carolina, Hamilton, Bermuda or New York, New York, are closed.
“Cash Equivalents” means, collectively, (a) marketable direct obligations issued or unconditionally guaranteed by the United States or any agency thereof maturing within one hundred twenty (120) days from the date of acquisition thereof, (b) commercial paper maturing no more than one hundred twenty (120) days from the date of creation thereof and currently having the highest rating obtainable from either S&P or Moody’s, (c) certificates of deposit maturing no more than one hundred twenty (120) days from the date of creation thereof issued by commercial banks incorporated under the laws of the United States, each having combined capital, surplus and undivided profits of not less than $500,000,000 and having a rating of “A” or better by a nationally recognized rating agency; provided that the aggregate amount invested in such certificates of deposit shall not at any time exceed $5,000,000 for any one such certificate of deposit and $10,000,000 for any one such bank, or (d) time deposits maturing no more than thirty (30) days from the date of creation thereof with commercial banks or savings banks or savings and loan associations each having membership either in the FDIC or the deposits of which are insured by the FDIC and in amounts not exceeding the maximum amounts of insurance thereunder.
“Change in Control” means an event or series of events by which:
(a) at any time, the Borrower shall fail to own, directly or indirectly, 100% of the Equity Interests of Hamilton Re; or
(b) any Person or group of Persons (other than any Relevant Holder) acting in concert gains control of the Borrower.
For purposes of paragraph (b) above, “control” means (i) the power (whether by way of ownership of shares, proxy, contract, agency or otherwise) to: (A) cast, or control the casting of, more than 50% of the votes that might be cast at a general meeting of the Borrower; or (B) appoint or remove all, or the majority, of the directors or other equivalent officers of the Borrower; or (C) give directions with respect to the management, operating and financial policies of the Borrower which the directors or other equivalent officers of the Borrower are obliged to comply with; or (ii) the holding of more than 50% of the Equity Interests of the Borrower (excluding any part of the Equity Interests that carries no right to participate beyond a specified amount in a distribution of either profits or capital).
For purposes of paragraph (b) above “acting in concert” means, a group of Persons who, pursuant to an agreement or understanding (whether formal or informal), actively co-operate, through the acquisition by any of them, either directly or indirectly, of shares in the Borrower, to obtain or consolidate control of the Borrower.
“Change in Law” means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation, implementation or application thereof by any Governmental Authority or (c) the making or issuance of any request, rule, guideline or directive (whether or not having the force of law) by any Governmental Authority; provided that notwithstanding anything herein to the contrary, (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules,
guidelines or directives thereunder or issued in connection therewith and (ii) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “Change in Law”, regardless of the date enacted, adopted, implemented or issued.
“Closing Date” means the date of this Agreement.
“Code” means the Internal Revenue Code of 1986, and the rules and regulations promulgated thereunder.
“Commitment” means (a) as to any Lender, the obligation of such Lender to make a portion of the Initial Term Loan, to the account of the Borrower hereunder on the Closing Date in an aggregate principal amount not to exceed the amount set forth opposite such Lender’s name on the Register, as such amount may be increased, reduced or otherwise modified at any time or from time to time pursuant to the terms hereof and (b) as to all Lenders, the aggregate commitment of all Lenders to make the Initial Term Loan. The aggregate Commitment with respect to the Initial Term Loan of all Lenders on the Closing Date shall be $150,000,000. The Term Loan Commitment of each Lender as of the Closing Date is set forth opposite the name of such Lender on Schedule 1.1.
“Commitment Letter” means, together, that certain (a) Commitment Letter dated as of March 13, 2019 between the Borrower, the Arranger, Wells Fargo, BMO Capital Markets Corp., BMO Harris Bank N.A. and SunTrust Bank and (b) Joinder to Commitment Letter & Facility Increase dated as of June 26, 2019 between the Borrower, the Arranger, Wells Fargo, BMO Capital Markets Corp., BMO Harris Bank N.A., SunTrust Bank and Commerzbank AG, New York Branch.
“Competitor” means any Person that is a competitor of the Borrower or any of its Subsidiaries in the same industry or a substantially similar industry which offers a substantially similar product or service as the Borrower or any of its Subsidiaries.
“Conforming Changes” means, with respect to either the use or administration of Term SOFR or the use, administration, adoption or implementation of any Benchmark Replacement, any technical, administrative or operational changes (including changes to the definition of “Base Rate,” the definition of “Business Day,” the definition of “U.S. Government Securities Business Day,” the definition of “Interest Period” or any similar or analogous definition (or the addition of a concept of “interest period”), timing and frequency of determining rates and making payments of interest, timing of borrowing requests or prepayment, conversion or continuation notices, the applicability and length of lookback periods, the applicability of Section 3.8 and other technical, administrative or operational matters) that the Administrative Agent decides may be appropriate to reflect the adoption and implementation of any such rate or to permit the use and administration thereof by the Administrative Agent in a manner substantially consistent with market practice (or, if the Administrative Agent decides that adoption of any portion of such market practice is not administratively feasible or if the Administrative Agent determines that no market practice for the administration of any such rate exists, in such other manner of administration as the Administrative Agent decides is reasonably necessary in connection with the administration of this Agreement and the other Loan Documents).
“Connection Income Taxes” means Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are franchise Taxes or branch profits Taxes.
“Consolidated Net Income” means, for any period, an amount equal to the consolidated net income of the Borrower and its Subsidiaries (determined on a consolidated basis in accordance with GAAP) for such period.
“Consolidated Tangible Net Worth” means, as of any date of determination, the total shareholders’ equity of the Borrower and its Subsidiaries (determined on a consolidated basis in accordance with GAAP), less (a) any minority interest in Subsidiaries, including for the avoidance of doubt, the aggregate principal amount of all outstanding preferred Equity Interests (including without limitation trust preferred securities) of the Group, (b) (to the extent included) any amount shown in respect of goodwill arising only on consolidation or other intangible assets of the Group (including for this purpose syndicate participations) and interests of non-members of the Group in the Borrower’s Subsidiaries, and (c) any Disqualified Equity Interests.
“Consolidated Indebtedness” means, as of any date of determination with respect to the Borrower and its Subsidiaries on a consolidated basis without duplication, the sum of all Indebtedness of the Borrower and its Subsidiaries; provided, however, that (a) Indebtedness which is subject to a Permitted Security, (b) undrawn letters of credit issued (1) under the Revolving Credit Agreement to support any Credit Party’s and its Subsidiaries’ insurance obligations, obligations under reinsurance agreements and retrocession agreements and similar risk obligations, (2) under any other letter of credit facility permitted under Section 7.1(c)(i) or (3) for the purpose of providing Funds at Lloyd’s and (c) Indebtedness of any Excluded Subsidiary, in each case, shall be excluded from Consolidated Indebtedness to the extent such Indebtedness is also excluded from “Debt” under the corresponding “Debt to Capitalisation” ratio in the Barclays Agreement (and in the event the Barclays Agreement (or any replacement thereof) is no longer in effect, all such Indebtedness shall be excluded from Consolidated Indebtedness).
“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.
“Covered Party” has the meaning assigned thereto in Section 10.22(a).
“Credit Facility” means the term loan credit facility established pursuant to Article II.
“Credit Parties” means, collectively, the Borrower and each Subsidiary Guarantor.
“Debtor Relief Laws” means the Bankruptcy Code of the United States of America, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect.
“Default” means any event which with the passage of time, the giving of notice or any other condition, would constitute an Event of Default.
“Defaulting Lender” means, subject to Section 3.13(b), any Lender that (a) has failed to (i) fund all or any portion of the Term Loans required to be funded by it hereunder within two Business Days of the date such Term Loans were required to be funded hereunder unless such Lender notifies the Administrative Agent and the Borrower in writing that such failure is the result of such Lender’s determination that one or more conditions precedent to funding (each of which conditions precedent, together with any applicable default, shall be specifically identified in such writing) has not been satisfied, or (ii) pay to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within two Business Days of the date when due, (b) has notified the Borrower or the Administrative Agent in writing that it does not intend to comply with its funding obligations hereunder, or has made a public statement to that effect (unless such writing or public statement relates to such Lender’s obligation to fund a Term Loan hereunder and states that such position is based on such Lender’s determination that a condition precedent to funding (which condition precedent, together with any applicable default, shall be specifically identified
in such writing or public statement) cannot be satisfied), (c) has failed, within three Business Days after written request by the Administrative Agent or the Borrower, to confirm in writing to the Administrative Agent and the Borrower that it will comply with its prospective funding obligations hereunder (provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon receipt of such written confirmation by the Administrative Agent and the Borrower), or (d) has, or has a direct or indirect parent company that has, (i) become the subject of a proceeding under any Debtor Relief Law, (ii) had appointed for it a receiver, custodian, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or assets, including the FDIC or any other state or federal regulatory authority acting in such a capacity or (iii) become the subject of a Bail-In Action; provided that a Lender shall not be a Defaulting Lender solely by virtue of the ownership or acquisition of any equity interest in that Lender or any direct or indirect parent company thereof by a Governmental Authority so long as such ownership interest does not result in or provide such Lender with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Lender (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender. Any determination by the Administrative Agent that a Lender is a Defaulting Lender under any one or more of clauses (a) through (d) above shall be conclusive and binding absent manifest error, and such Lender shall be deemed to be a Defaulting Lender (subject to Section 3.13(b)) upon delivery of written notice of such determination to the Borrower and each Lender.
“Disqualified Equity Interests” means, with respect to any Person, any Equity Interests of such Person that, by their terms (or by the terms of any security or other Equity Interest into which they are convertible or for which they are exchangeable) or upon the happening of any event or condition:
(a) mature or are mandatorily redeemable (other than solely for Qualified Equity Interests), pursuant to a sinking fund obligation or otherwise (except as a result of a change of control or asset sale so long as any rights of the holders thereof upon the occurrence of a change of control or asset sale event shall be subject to the prior repayment in full in cash of the Term Loans and all other Obligations (other than contingent indemnification obligations not then due)),
(b) are redeemable at the option of the holder thereof or may become redeemable following the holder’s exercise of any liquidity or similar rights such as those in Sections 5.3 of the Borrower’s Shareholders Agreement (other than any redemption solely for Qualified Equity Interests) (except as a result of a change of control or asset sale so long as any rights of the holders thereof upon the occurrence of a change of control or asset sale event shall be subject to the prior repayment in full in cash of the Term Loans and all other Obligations (other than contingent indemnification obligations not then due)), in whole or in part,
(c) provide for the scheduled payment of dividends in cash, or
(d) are or become convertible into, or exchangeable for, Indebtedness or any other Equity Interests that would constitute Disqualified Equity Interests,
in each case of clauses (a) through (d), prior to the date that is 91 days after the latest scheduled maturity date of the Term Loans; provided that if any such Equity Interests are issued pursuant to a plan for the benefit of the Borrower or its Subsidiaries or by any such plan to such officers or employees, such Equity Interests shall not constitute Disqualified Equity Interests solely because they may be required to be repurchased by the Borrower or its Subsidiaries in order to satisfy applicable statutory or regulatory obligations or as a result of such employee’s termination, death or disability.
Notwithstanding the foregoing provisions of this definition, the Equity Interests of the Borrower shall not constitute Disqualified Equity Interests solely as a result of Sections 5.3 of the Borrower’s Shareholders Agreement; provided, however, that in the event the board of directors of the Borrower elects to have the Borrower redeem any of its Equity Interests pursuant to Section 5.3(a) of the Borrower’s Shareholders Agreement (or the Borrower otherwise enters into arrangements to redeem such Equity Interests in connection with a Special Liquidity Event), then such Equity Interests (and any other Equity Interests of the Borrower held by any shareholder who elects to participate in any redemption of the Borrower’s Equity Interests in connection with such Special Liquidity Event) shall immediately constitute Disqualified Equity Interests.
“Disqualified Institution” means, on any date, (a) any Person designated by the Borrower as a “Disqualified Institution” by written notice delivered to the Administrative Agent and the Lenders (including by posting such notice to the Platform) not less than five (5) Business Days prior to such date and (b) any other Person that is a Competitor of the Borrower or any of its Subsidiaries, which Person has been designated by the Borrower as a “Disqualified Institution” by written notice to the Administrative Agent (which such notice shall specify such Person by legal name) and the Lenders (including by posting such notice to the Platform) not less than five (5) Business Days prior to such date; provided that “Disqualified Institutions” shall (x) include, with respect to clauses (a) and (b), an Affiliate of such Person to the extent such Affiliate is reasonably identifiable on the basis of such Affiliate’s name or is designated by the Borrower as a “Disqualified Institution” by written notice delivered to the Administrative Agent and the Lenders (including by posting such notice to the Platform) not less than five (5) Business Days prior to such date and (y) exclude any Person that the Borrower has designated as no longer being a “Disqualified Institution” by written notice delivered to the Administrative Agent from time to time; provided further that any bona fide debt fund or investment vehicle that is engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of business which is managed, sponsored or advised by any Person Controlling, Controlled by or under common Control with such Competitor or its Controlling owner and for which no personnel involved with the competitive activities of such Competitor or Controlling owner (i) makes any investment decisions for such debt fund or (ii) has access to any confidential information (other than publicly available information) relating to the Borrower and its Subsidiaries shall be deemed not to be a Competitor of the Borrower or any of its Subsidiaries.
“Dollars” or “$” means, unless otherwise qualified, dollars in lawful currency of the United States.
“DQ List” has the meaning assigned thereto in Section 10.8(f)(iv).
“EEA Financial Institution” means (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.
“EEA Member Country” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
“EEA Resolution Authority” means any public administrative authority or any Person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.
“Eligible Assignee” means any Person that meets the requirements to be an assignee under Section 10.8 (subject to such consents, if any, as may be required under Section 10.8). For the avoidance of doubt, any Disqualified Institution is subject to Section 10.8(f).
“Employee Benefit Plan” means (a) any employee benefit plan within the meaning of Section 3(3) of ERISA that is maintained for employees of any Credit Party or any ERISA Affiliate or (b) any Pension Plan or Multiemployer Plan.
“Engagement Letter” means that certain Engagement Letter dated as of May 24, 2022 between Hamilton Re, the Borrower, Wells Fargo Securities, LLC and Wells Fargo.
“Environmental Claims” means any and all administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, accusations, allegations, notices of noncompliance or violation, investigations (other than internal reports prepared by any Person in the ordinary course of business and not in response to any third party action or request of any kind) or proceedings relating in any way to any actual or alleged violation of or liability under any Environmental Law or relating to any permit issued, or any approval given, under any such Environmental Law, including, without limitation, any and all claims by Governmental Authorities for enforcement, cleanup, removal, response, remedial or other actions or damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from hazardous materials or arising from alleged injury or threat of injury to public health or the environment.
“Environmental Laws” means any and all federal, foreign, state, provincial and local laws, statutes, ordinances, codes, rules, standards and regulations, permits, licenses, approvals, interpretations and orders of courts or Governmental Authorities, relating to the protection of public health or the environment, including, but not limited to, requirements pertaining to the manufacture, processing, distribution, use, treatment, storage, disposal, transportation, handling, reporting, licensing, permitting, investigation or remediation of hazardous materials.
“Equity Interests” means (a) in the case of a corporation, capital stock, (b) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of capital stock, (c) in the case of a partnership, partnership interests (whether general or limited), (d) in the case of a limited liability company, membership interests, (e) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person and (f) any and all warrants, rights or options to purchase any of the foregoing.
“ERISA” means the Employee Retirement Income Security Act of 1974, and the rules and regulations thereunder.
“ERISA Affiliate” means any Person who together with any Credit Party or any of its Subsidiaries is treated as a single employer within the meaning of Section 414(b) or (c) of the Code or Section 4001(b) of ERISA or, solely for purposes of Section 412 of the Code, Section 414(m) or (o) of the Code.
“Erroneous Payment” has the meaning assigned thereto in Section 9.10.
“Erroneous Payment Deficiency Assignment” has the meaning assigned thereto in Section 9.10.
“Erroneous Payment Return Deficiency” has the meaning assigned thereto in Section 9.10.
“EU Bail-In Legislation Schedule” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor thereto), as in effect from time to time.
“Event of Default” means any of the events specified in Section 8.1; provided that any requirement for passage of time, giving of notice, or any other condition, has been satisfied.
“Exchange Act” means the Securities Exchange Act of 1934.
“Excluded Subsidiaries” means, collectively, (a) Turing Re, Ltd. and (b) any similar Subsidiary whether or not existing on the Closing Date which is a special purpose, bankruptcy remote, Subsidiary of the Borrower which is formed for the sole purpose of operating as a reinsurance sidecar, provided that (i) such Subsidiary is not included in the consolidated financial statements of the Borrower, (ii) any Indebtedness of such Subsidiary is nonrecourse to the Borrower and its other Subsidiaries and (iii) such Subsidiary does not own any Insurance Subsidiary, and “Excluded Subsidiary” means any of them individually.
“Excluded Taxes” means any of the following Taxes imposed on or with respect to a Recipient or required to be withheld or deducted from a payment to a Recipient, (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of such Recipient being organized under the laws of, or having an office or fixed place of business or, in the case of any Lender, its applicable Lending Office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) in the case of a Lender, United States federal withholding Taxes imposed on amounts payable to or for the account of such Lender with respect to an applicable interest in a Term Loan or Commitment pursuant to a law in effect on the date on which (i) such Lender acquires such interest in the Term Loan or Commitment (other than pursuant to an assignment request by the Borrower under Section 3.11(b)) or (ii) such Lender changes its Lending Office, except in each case to the extent that, pursuant to Section 3.10, amounts with respect to such Taxes were payable either to such Lender’s assignor immediately before such Lender became a party hereto or to such Lender immediately before it changed its Lending Office, (c) Taxes attributable to such Recipient’s failure to comply with Section 3.10(g) and (d) any United States federal withholding Taxes imposed under FATCA.
“FATCA” means (a) Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof, and any agreements entered into pursuant to Section 1471(b)(1) of the Code, (b) any treaty, law, regulation or other official guidance enacted in any other jurisdiction, or relating to an intergovernmental agreement between the United States and any other jurisdiction with the purpose (in either case) of facilitating the implementation of (a) above, or (c) any agreement pursuant to the implementation of paragraphs (a) or (b) above with the IRS, the United States government or any governmental or taxation authority in the United States.
“FDIC” means the Federal Deposit Insurance Corporation.
“Federal Funds Rate” means, for any day, the rate per annum equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that if such rate is not so published for any day which is a Business Day, the Federal Funds Rate for such day shall be the average of the quotation for such day on such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by the Administrative Agent. Notwithstanding the foregoing, if the Federal Funds Rate shall be less than the Floor, such rate shall be deemed to be the Floor for purposes of this Agreement.
“Fee Letter” means the fee letter agreement dated March 12, 2019, among the Borrower, Wells Fargo and the Arranger.
“Fifth Amendment Effective Date” means June 23, 2022.
“Financial Officer” means, as to any Person, the chief executive officer, chief financial officer, controller, chief accounting officer, or treasurer of such Person or any person authorized by the Credit Parties and reasonably acceptable to the Administrative Agent; provided that, to the extent requested thereby, the Administrative Agent shall have received a certificate of such Person certifying as to the incumbency and genuineness of the signature of each such officer. Any document delivered hereunder or under any other Loan Document that is signed by a Financial Officer of a Person shall be conclusively presumed to have been authorized by all necessary corporate, limited liability company, partnership and/or other action on the part of such Person and such Financial Officer shall be conclusively presumed to have acted on behalf of such Person.
“Financial Strength Rating” means, as to any Person, the rating that has been most recently announced by A.M. Best as the “financial strength rating” of such Person.
“FIS” means cash or investments held as ‘Fund in Syndicate’ in relation to Syndicate 3334 under the terms of HCML’s Premium Trust Deed.
“Fiscal Year” means the fiscal year of the Borrower and its Subsidiaries.
“Floor” means a rate of interest equal to 0.0%.
“Foreign Lender” means a Lender that is resident or organized under the laws of a jurisdiction other than the United States, each State thereof or the District of Columbia.
“FRB” means the Board of Governors of the Federal Reserve System of the United States.
“Fund” means any Person (other than a natural Person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans, bonds and similar extensions of credit in the ordinary course of its activities.
“Funds at Lloyd’s” means those funds which must be lodged with Lloyd’s by its underwriting members as security to support their underwriting business at Lloyd’s for the forthcoming year. Such Funds at Lloyd’s are provided in the forms prescribed in paragraph 16 of the Membership Bylaw (No. 5 of 2005).
“GAAP” means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession in the United States, that are applicable to the circumstances as of the date of determination, consistently applied.
“Governmental Approvals” means all authorizations, consents, approvals, permits, licenses and exemptions of, and all registrations and filings with or issued by, any Governmental Authorities.
“Governmental Authority” means the government of the United States or any other nation, or of 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 (including any supra national bodies such as the European Union or the European Central Bank).
“Group” means the Borrower and its Subsidiaries from time to time, excluding the Excluded Subsidiaries.
“Group Own FAL” means, in relation to any member of the Group, such part of its Funds at Lloyd's as is provided or otherwise supported by such member of the Group or by any other member of the Group by way of cash and/or investments and/or covenant and charge or (except for letters of credit or guarantees issued by a third party) otherwise as permitted by Lloyd's from time to time (which shall be valued by Lloyd's in accordance with Lloyd's usual practice). For the avoidance of doubt, for HCML, Own FAL shall include any FIS.
“Guaranty” means the undertakings by a Subsidiary Guarantor pursuant to the Subsidiary Guarantee Agreement.
“Hamilton Re” means Hamilton Re, Ltd., a company organized under the laws of Bermuda.
“HCML” means Hamilton Corporate Member Limited, a company organized under the laws of England & Wales.
“Hedge Agreement” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement.
“Hedge Termination Value” means, in respect of any one or more Hedge Agreements, after taking into account the effect of any legally enforceable netting agreement relating to such Hedge Agreements, (a) for any date on or after the date such Hedge Agreements have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Hedge Agreements, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Hedge Agreements (which may include a Lender or any Affiliate of a Lender).
“ICC3L” means Ironshore CC (Three) Limited, a company organized under the laws of England & Wales.
“Illegality Notice” has the meaning assigned thereto in Section 3.7(b).
“Indebtedness” means, with respect to any Person at any date and without duplication, the sum of the following:
(a) all obligations of such Person for borrowed money;
(b) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person;
(c) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current ordinary course trade accounts payable, deferred compensation and any purchase price adjustment, earn-out, contingent payment or deferred payment of a similar nature incurred in connection with an acquisition);
(d) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any lien on property owned or acquired by such Person whether or not the Indebtedness secured thereby has been assumed, provided that the amount of Indebtedness of such Person shall be the lesser of (i) the fair market value of such property at such date of determination (determined in good faith by the Borrower) and (ii) the amount of such Indebtedness of such other Person;
(e) all guarantees by such Person of Indebtedness of others;
(f) all capital lease and finance lease obligations of such Person;
(g) all obligations of such Person under transactions in capital market products;
(h) all reimbursement obligations of such Person in respect of drawn letters of credit, letters of guaranty, bankers’ acceptances and similar credit transactions;
(i) the face amount of all undrawn letters of credit issued under the Barclays Agreement;
(j) any Indebtedness of a partnership in which such Person is a general partner unless such Indebtedness is nonrecourse to such Person;
(k) all contingent liabilities of such Person in connection with the foregoing, except for the undrawn amount of letters of credit issued under credit facilities entered into by the Borrower or any of its Subsidiaries in support of the regulatory obligations of such Subsidiaries under its reinsurance or retrocession arrangements; and
(l) all obligations of such Person in respect of Disqualified Equity Interests.
“Indemnified Taxes” means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of any Credit Party under any Loan Document and (b) to the extent not otherwise described in clause (a), Other Taxes.
“Indemnitee” has the meaning assigned thereto in Section 10.3(b).
“Information” has the meaning assigned thereto in Section 10.9.
“Initial Term Loan” means the term loan made, or to be made, to the Borrower by the Lenders pursuant to Section 2.1.
“Insurance Regulatory Authority” means, with respect to any Subsidiary of the Borrower, the insurance department or similar Governmental Authority charged with regulating insurance companies or insurance holding companies, in its jurisdiction of domicile and, to the extent that it has regulatory authority
over such Insurance Subsidiary, in each other jurisdiction in which such Insurance Subsidiary conducts business or is licensed to conduct business.
“Insurance Subsidiary” means any Subsidiary of the Borrower the ability of which to pay dividends is regulated by an Insurance Regulatory Authority or that is otherwise required to be regulated thereby in accordance with the applicable law of its jurisdiction of domicile.
“Interest Period” means, as to any SOFR Loan, the period commencing on the date such SOFR Loan is disbursed or converted to or continued as a SOFR Loan and ending on the date one (1) or three (3) months thereafter, in each case as selected by the Borrower in its Notice of Borrowing or Notice of Conversion/Continuation and subject to availability; provided that:
(a) the Interest Period shall commence on the date of advance of or conversion to any SOFR Loan and, in the case of immediately successive Interest Periods, each successive Interest Period shall commence on the date on which the immediately preceding Interest Period expires;
(b) if any Interest Period would otherwise expire on a day that is not a Business Day, such Interest Period shall expire on the next succeeding Business Day; provided that if any Interest Period would otherwise expire on a day that is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the immediately preceding Business Day;
(c) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the relevant calendar month at the end of such Interest Period;
(d) no Interest Period shall extend beyond the Maturity Date;
(e) there shall be no more than five (5) Interest Periods in effect at any time; and
(f) no tenor that has been removed from this definition pursuant to Section 3.7(c)(iv) shall be available for specification in any Notice of Borrowing or Notice of Conversion/Continuation.
“Investment” means, with respect to any Person, that such Person (a) purchases, owns, invests in or otherwise acquires (in one transaction or a series of transactions), directly or indirectly, any Equity Interests, interests in any partnership or joint venture (including, without limitation, the creation or capitalization of any Subsidiary), evidence of Indebtedness or other obligation or security, substantially all or a portion of the business or assets of any other Person or any other investment or interest whatsoever in any other Person, (b) makes any Acquisition or (c) makes or permits to exist, directly or indirectly, any loans, advances or extensions of credit to, or any investment in cash or by delivery of Property in, any Person.
“Investment Company Act” means the Investment Company Act of 1940 (15 U.S.C. § 80(a)(1), et seq.).
“IRS” means the United States Internal Revenue Service.
“Lender” means the Persons listed on Schedule 1.1 and any other Person that shall have become a party to this Agreement as a Lender pursuant to an Assignment and Assumption or pursuant to Section 3.12, other than any Person that ceases to be a party hereto as a Lender pursuant to an Assignment and Assumption.
“Lender Joinder Agreement” means a joinder agreement in form and substance reasonably satisfactory to the Administrative Agent delivered in connection with Section 3.12.
“Lender-Related Person” has the meaning assigned thereto in Section 10.3(d).
“Lending Office” means, with respect to any Lender, the office of such Lender maintaining such Lender’s Term Loans.
“Lien” means, with respect to any asset, any mortgage, leasehold mortgage, lien, pledge, charge, security interest, hypothecation or encumbrance of any kind in respect of such asset. For the purposes of this Agreement, a Person shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital or finance lease obligation or other title retention agreement relating to such asset.
“Lloyd’s” means the society incorporated by Lloyd’s Act 1871 by the name of Lloyd’s.
“Loan Documents” means, collectively, this Agreement, each Term Loan Note, the Commitment Letter and the Engagement Letter (solely with respect to the fees and any surviving provisions described therein), the Fee Letter, the Subsidiary Guarantee Agreement, and each other document, instrument, certificate and agreement executed and delivered by the Credit Parties or any of their respective Subsidiaries in favor of or provided to the Administrative Agent in connection with this Agreement or otherwise referred to herein or contemplated hereby.
“Material Adverse Effect” means, with respect to the Borrower and its Subsidiaries, taken as a whole, (a) a material adverse effect on the operations, business, properties or financial condition of such Persons, taken as a whole, (b) a material impairment of the ability of any such Person to perform its payment and collateral obligations under the Loan Documents to which it is a party, (c) a material impairment of the rights and remedies of the Administrative Agent or any Lender under any Loan Document or (d) an impairment of the legality, validity, binding effect or enforceability against any Credit Party of any material provision of any Loan Document to which it is a party.
“Material Subsidiaries” means, collectively, each Subsidiary that is a Credit Party and each other Subsidiary that is a “significant subsidiary” as such term is defined in Regulation S-X.
“Maturity Date” means the first to occur of (a) June 23, 2025, and (b) the date of acceleration of the Term Loans pursuant to Section 8.2(a).
“Moody’s” means Moody’s Investors Service, Inc.
“Multiemployer Plan” means a “multiemployer plan” as defined in Section 4001(a)(3) of ERISA that is subject to Title IV of ERISA and to which any Credit Party or any ERISA Affiliate is making, or is accruing an obligation to make, or has accrued an obligation to make contributions within the preceding seven (7) years.
“Non-Consenting Lender” means any Lender that does not approve any consent, waiver, amendment, modification or termination that (a) requires the approval of all Lenders or all affected Lenders in accordance with the terms of Section 10.2 and (b) has been approved by the Required Lenders.
“Non-Defaulting Lender” means, at any time, each Lender that is not a Defaulting Lender at such time.
“Notice of Borrowing” has the meaning assigned thereto in Section 2.2.
“Notice of Conversion/Continuation” has the meaning assigned thereto in Section 3.2.
“Notice of Prepayment” has the meaning assigned thereto in Section 2.4.
“Obligations” means all principal of and interest (including interest and fees accruing after the filing of a petition or commencement of a case by or with respect to any Credit Party seeking relief under any applicable Debtor Relief Laws, whether or not the claim for such interest and fees is allowed in such proceeding) on the Term Loans (whether or not evidenced by any note) and all fees, expenses, indemnities, liabilities, financial accommodations, covenants, duties and other obligations owing, due or payable at any time by any Credit Party to the Administrative Agent, any Lender or any other Person entitled thereto, under this Agreement or any of the other Loan Documents, in each case whether direct or indirect, joint or several, absolute or contingent, matured or unmatured, liquidated or unliquidated, secured or unsecured, and whether existing by contract, operation of law or otherwise.
“OFAC” means the U.S. Department of the Treasury’s Office of Foreign Assets Control.
“Officer’s Compliance Certificate” means a certificate of a Financial Officer of the Borrower substantially in the form attached as Exhibit E.
“Organizational Documents” means, (a) with respect to any corporation (or comparable foreign entity), the certificate or articles of incorporation, the bylaws and any shareholders’ agreement (or equivalent or comparable constitutive documents); (b) with respect to any limited liability company (or comparable foreign entity), the certificate or articles of formation or organization and operating agreement or limited liability company agreement (or equivalent or comparable documents); and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity.
“Other Connection Taxes” means, with respect to any Recipient, Taxes imposed as a result of a present or former connection between such Recipient and the jurisdiction imposing such Tax (other than connections arising from such Recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Term Loan or Loan Document).
“Other Taxes” means all present or future stamp, court, documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to Section 3.11).
“Overnight Rate” means, for any day, the greater of (a) the Federal Funds Rate and (b) an overnight rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.
“Participant” has the meaning assigned thereto in Section 10.8(d).
“Participant Register” has the meaning assigned thereto in Section 10.8(d).
“PATRIOT Act” means the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)).
“Payment Recipient” has the meaning assigned thereto in Section 9.10.
“PBGC” means the Pension Benefit Guaranty Corporation or any successor agency.
“Pembroke Acquisition” means the acquisition by the Borrower and its Subsidiaries of Pembroke Managing Agency Limited and certain of its affiliates pursuant to the Pembroke Acquisition Agreement.
“Pembroke Acquisition Agreement” means the Sale and Purchase Agreement, dated March 14, 2019, between Pembroke JV Limited, Ironshore International Limited, Ironshore Inc., Hamilton UK Holdings Limited, Liberty Mutual Group Inc. and the Borrower.
“Pension Plan” means any Employee Benefit Plan, other than a Multiemployer Plan, which is subject to the provisions of Title IV of ERISA or Section 412 of the Code and which (a) is maintained, funded or administered for the employees of any Credit Party or any ERISA Affiliate or (b) has at any time within the preceding seven (7) years been maintained, funded or administered for the employees of any Credit Party or any current or former ERISA Affiliates.
“Permitted Liens” means the Liens permitted pursuant to Section 7.2.
“Permitted Security” means:
(a) any mortgage, charge, pledge, lien or other security interest which:
(i) is entered into in the ordinary course of business of the Borrower or any of its Subsidiaries and which secure the obligations of the Borrower (or any of its Subsidiaries) under:
(A) certain insurance, reinsurance or retrocession arrangements to which the Borrower (or any of its Subsidiaries) is at any time a party; or
(B) certain working capital facilities or letter of credit facilities, including where provided for the purpose of Funds at Lloyd’s or in connection with securing obligations owed by the Borrower (or any of its Subsidiaries) under, or entered into in accordance with any applicable legal or regulatory requirement that applies in respect of, a reinsurance or retrocession arrangement to which the Borrower (or any of its Subsidiaries) is at any time a party,
including any Syndicate Arrangements, provided that, (A) the aggregate amount of such Permitted Security under this clause (i) (measured, as to each such Permitted Security permitted under this clause (i), as the greater of the amount secured by such Permitted Security and the fair market value at such time of the assets subject to such Permitted Security) shall not, when added to the aggregate amount of all Permitted Security (measured as set forth in this clause (i) above and without double-counting) incurred pursuant to clauses (i)-(iii) inclusive, of this definition, exceed at any time the lesser of (1) $750,000,000 and (2) the lowest amount permitted under the corresponding “Permitted Security” provisions in the Borrower’s or its Subsidiaries’ Funds at Lloyd’s letter of credit facilities (including, without limitation, the Barclays Agreement) (the “Permitted Security Cap”) at the time of incurrence of any new Permitted Security under this clause (i) and (B) immediately after giving
effect to the incurrence of any Permitted Security pursuant to this clause (i), no Event of Default shall have occurred and be continuing;
(ii) is in favor of a custodian or sub-custodian and is granted in respect of the payment of its fees, costs and/or expenses, or its right to be indemnified, pursuant to the terms of a custody agreement or sub-custodian agreement under which any of the assets of the Borrower or any of its Subsidiaries are held;
(iii) is entered into with the prior approval of the Administrative Agent and the Required Lenders; or
(iv) is granted in favor of Lloyd’s and comprises Group Own FAL or is used to secure Group Own FAL.
For the avoidance of doubt, Group Own FAL shall not be counted towards the Permitted Security Cap identified in subsection (a)(i) above.
“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.
“Plan” has the meaning assigned thereto in Section 10.8(f)(iii).
“Platform” means Debt Domain, Intralinks, SyndTrak or a substantially similar electronic transmission system.
“Prime Rate” means, at any time, the rate of interest per annum publicly announced from time to time by the Administrative Agent as its prime rate. Each change in the Prime Rate shall be effective as of the opening of business on the day such change in such prime rate occurs. The parties hereto acknowledge that the rate announced publicly by the Administrative Agent as its prime rate is an index or base rate and shall not necessarily be its lowest or best rate charged to its customers or other banks.
“Property” means any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible, including, without limitation, Equity Interests.
“PTE” means a prohibited transaction class exemption issued by the U.S. Department of Labor, as any such exemption may be amended from time to time.
“Qualified Equity Interests” means any Equity Interests that are not Disqualified Equity Interests.
“Recipient” means (a) the Administrative Agent and (b) any Lender, as applicable.
“Register” has the meaning assigned thereto in Section 10.8(c).
“Related Parties” means, with respect to any Person, such Person’s Affiliates and the partners, directors, officers, employees, agents, trustees, administrators, managers, advisors and representatives of such Person and of such Person’s Affiliates.
“Relevant Governmental Body” means the FRB or the Federal Reserve Bank of New York, or a committee officially endorsed or convened by the FRB or the Federal Reserve Bank of New York or any successor thereto.
“Relevant Holder” means, as of any date of determination, (a) David Siegel and John Overdeck, any of their respective family members and any trusts, family limited partnerships, limited liability companies, or other similar entities created for the benefit of the Persons described in this clause (a) (including Sango Hoken Holdings, LLC and Hopkins Holdings, LLC) or any Affiliates of any of the foregoing and (b) BSOF Master Fund L.P. and any of its Affiliates and funds or partnerships managed or advised by Blackstone Alternative Solutions L.L.C. or any of its Affiliates but not including, however, any portfolio company of any of the foregoing.
“Removal Effective Date” has the meaning assigned thereto in Section 9.6(b).
“Required Lenders” means, at any time, Lenders having Term Loan Exposures representing more than fifty percent (50%) of the Term Loan Exposures of all Lenders. The Term Loan Exposure of any Defaulting Lender shall be disregarded in determining Required Lenders at any time.
“Resignation Effective Date” has the meaning assigned thereto in Section 9.6(a).
“Resolution Authority” means an EEA Resolution Authority or, with respect to any UK Financial Institution, a UK Resolution Authority.
“Responsible Officer” means, as to any Person, the chief executive officer, president, chief financial officer, controller, general counsel, assistant secretary, treasurer or assistant treasurer of such Person or any other officer of such Person designated in writing by the Credit Parties and reasonably acceptable to the Administrative Agent; provided that, to the extent requested thereby, the Administrative Agent shall have received a certificate of such Person certifying as to the incumbency and genuineness of the signature of each such officer. Any document delivered hereunder or under any other Loan Document that is signed by a Responsible Officer of a Person shall be conclusively presumed to have been authorized by all necessary corporate, limited liability company, partnership and/or other action on the part of such Person and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Person.
“Restricted Payment” means any dividend on, or the making of any payment or other distribution on account of, or the purchase, redemption, retirement or other acquisition (directly or indirectly) of, or the setting apart assets for a sinking or other analogous fund for the purchase, redemption, retirement or other acquisition of, any class of Equity Interests of any Credit Party or any Subsidiary thereof, or the making of any distribution of cash, property or assets to the holders of any Equity Interests of any Credit Party or any Subsidiary thereof on account of such Equity Interests.
“Revolving Credit Agreement” means the Fifth Amended and Restated Letter of Credit Agreement, dated as of June 23, 2022, by and among the Borrower, Hamilton Re, as account party, the lenders party thereto, and Wells Fargo, as administrative agent, as amended, renewed or extended from time to time.
“S&P” means Standard & Poor’s Rating Service, a division of S&P Global Inc. and any successor thereto.
“Sanctioned Country” means at any time, a country, territory or region which is itself the subject or target of any Sanctions.
“Sanctioned Person” means, at any time, (a) any Person listed in any Sanctions-related list of designated Persons maintained by OFAC (including, without limitation, OFAC’s Specially Designated Nationals and Blocked Persons List and OFAC’s Consolidated Non-SDN List), the U.S. Department of State, the United Nations Security Council, the European Union, Her Majesty’s Treasury, or other relevant sanctions authority with jurisdiction over any Lender, the Borrower or any of its Subsidiaries or Affiliates,
(b) any Person operating, located, organized or resident in a Sanctioned Country, (c) any Person owned or controlled by any such Person or Persons described in clauses (a) and (b), including a Person that is deemed by OFAC to be a Sanctions target based on the ownership of such legal entity by Sanctioned Person(s) or (d) any Person otherwise the subject of Sanctions.
“Sanctions” means any and all economic or financial sanctions, sectoral sanctions, secondary sanctions, trade embargoes and anti-terrorism laws, including but not limited to those imposed, administered or enforced from time to time by the U.S. government (including those administered by OFAC or the U.S. Department of State), the United Nations Security Council, the European Union, Her Majesty’s Treasury, or other relevant sanctions authority with jurisdiction over any Lender, the Borrower or any of its Subsidiaries or Affiliates.
“Securities Act” means the Securities Act of 1933 (15 U.S.C. § 77 et seq.).
“SOFR” means a rate equal to the secured overnight financing rate as administered by the SOFR Administrator.
“SOFR Administrator” means the Federal Reserve Bank of New York (or a successor administrator of the secured overnight financing rate).
“SOFR Loan” means any Term Loan bearing interest at a rate based on Adjusted Term SOFR as provided in Section 3.1(a).
“Solvent” and “Solvency” mean, with respect to any Person on any date of determination, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including contingent liabilities, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay such debts and liabilities as they mature, (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s property would constitute an unreasonably small capital, and (e) such Person is able to pay its debts and liabilities, contingent obligations and other commitments as they mature in the ordinary course of business. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.
“Special Liquidity Event” has the meaning set forth in the Borrower’s Shareholders Agreement.
“Subordinated Indebtedness” means the collective reference to any Indebtedness incurred by the Borrower or any of its Subsidiaries that is subordinated in right and time of payment to the Obligations on terms and conditions satisfactory to the Administrative Agent.
“Subsidiary” means as to any Person, any corporation, partnership, limited liability company or other entity of which more than fifty percent (50%) of the outstanding Equity Interests having ordinary voting power to elect a majority of the board of directors (or equivalent governing body) or other managers of such corporation, partnership, limited liability company or other entity is at the time owned by (directly or indirectly) or the management is otherwise controlled by (directly or indirectly) such Person (irrespective of whether, at the time, Equity Interests of any other class or classes of such corporation, partnership, limited liability company or other entity shall have or might have voting power by reason of the happening of any contingency). Unless otherwise qualified, references to “Subsidiary” or “Subsidiaries” herein shall refer to those of the Borrower.
“Subsidiary Guarantee Agreement” means the subsidiary guarantee agreement, substantially in the form attached as Exhibit H.
“Subsidiary Guarantor” has the meaning set forth in Section 3.14.
“Syndicate Arrangement” means any arrangement (whether pursuant to guarantees, letters of credit or otherwise) entered into by a managing agent at Lloyd’s on behalf of HCML or ICC3L, together with the other members of a syndicate with respect to financing or reinsurance for the purposes of or in connection with the underwriting business carried on by all such members of that syndicate.
“Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, fines, additions to tax or penalties applicable thereto.
“Term Loan Exposure” means, as to any Lender at any time, the unused Commitments and outstanding Term Loans of such Lender at such time.
“Term Loan Note” means a promissory note made by the Borrower in favor of a Lender evidencing the portion of the Term Loans made by such Lender, substantially in the form attached as Exhibit A, and any substitutes therefor, and any replacements, restatements, renewals or extension thereof, in whole or in part.
“Term Loans” means the Initial Term Loan.
“Term SOFR” means,
(a) for any calculation with respect to a SOFR Loan, the Term SOFR Reference Rate for a tenor comparable to the applicable Interest Period on the day (such day, the “Periodic Term SOFR Determination Day”) that is two (2) U.S. Government Securities Business Days prior to the first day of such Interest Period, as such rate is published by the Term SOFR Administrator; provided, however, that if as of 5:00 p.m. (Eastern time) on any Periodic Term SOFR Determination Day the Term SOFR Reference Rate for the applicable tenor has not been published by the Term SOFR Administrator and a Benchmark Replacement Date with respect to the Term SOFR Reference Rate has not occurred, then Term SOFR will be the Term SOFR Reference Rate for such tenor as published by the Term SOFR Administrator on the first preceding U.S. Government Securities Business Day for which such Term SOFR Reference Rate for such tenor was published by the Term SOFR Administrator so long as such first preceding U.S. Government Securities Business Day is not more than three (3) U.S. Government Securities Business Days prior to such Periodic Term SOFR Determination Day, and
(b) for any calculation with respect to a Base Rate Loan on any day, the Term SOFR Reference Rate for a tenor of one month on the day (such day, the “Base Rate Term SOFR Determination Day”) that is two (2) U.S. Government Securities Business Days prior to such day, as such rate is published by the Term SOFR Administrator; provided, however, that if as of 5:00 p.m. (Eastern time) on any Base Rate Term SOFR Determination Day the Term SOFR Reference Rate for the applicable tenor has not been published by the Term SOFR Administrator and a Benchmark Replacement Date with respect to the Term SOFR Reference Rate has not occurred, then Term SOFR will be the Term SOFR Reference Rate for such tenor as published by the Term SOFR Administrator on the first preceding U.S. Government Securities Business Day for which such Term SOFR Reference Rate for such tenor was published by the Term SOFR Administrator so long as such first preceding U.S. Government Securities Business Day is not more than three (3) U.S. Government Securities Business Days prior to such Base Rate Term SOFR Determination Day
“Term SOFR Adjustment” means, a percentage equal to 0.10% per annum.
“Term SOFR Administrator” means CME Group Benchmark Administration Limited (CBA) (or a successor administrator of the Term SOFR Reference Rate selected by the Administrative Agent in its reasonable discretion).
“Term SOFR Reference Rate” means the forward-looking term rate based on SOFR.
“Termination Event” means the occurrence of any of the following which, individually or in the aggregate, has resulted or would reasonably be expected to result in liability of any Credit Party: (a) a “reportable event” described in Section 4043 of ERISA for which the thirty (30) day notice requirement has not been waived by the PBGC, or (b) the withdrawal of any Credit Party or any ERISA Affiliate from a Pension Plan during a plan year in which it was a “substantial employer” as defined in Section 4001 (a)(2) of ERISA or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA, or (c) the termination of a Pension Plan, the filing of a notice of intent to terminate a Pension Plan or the treatment of a Pension Plan amendment as a termination, under Section 4041 of ERISA, if the plan assets are not sufficient to pay all plan liabilities, or (d) the institution of proceedings to terminate, or the appointment of a trustee with respect to, any Pension Plan by the PBGC, or (e) any other event or condition which would constitute grounds under Section 4042(a) of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan, or (f) the imposition of a Lien pursuant to Section 430(k) of the Code or Section 303(k) of ERISA, or (g) the determination that any Pension Plan is considered an “at-risk” plan within the meaning of Section 430 of the Code or Section 303 of ERISA or the determination that any Multiemployer Plan is in “endangered” or “critical” status within the meaning of Section 432 of the Code or Section 305 of ERISA, or (h) the partial or complete withdrawal of any Credit Party or any ERISA Affiliate from a Multiemployer Plan if withdrawal liability is asserted by such plan, or (i) any event or condition which results in the insolvency of a Multiemployer Plan under Section 4245 of ERISA, or (j) any event or condition which results in the termination of a Multiemployer Plan under Section 4041A of ERISA or the institution by the PBGC of proceedings to terminate a Multiemployer Plan under Section 4042 of ERISA, or (k) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon any Credit Party or any ERISA Affiliate, or (l) the failure to satisfy the minimum funding standard of Section 412 or 430 of the Code or Section 302 or 303 of ERISA, whether or not waived, with respect to any Pension Plan, or (m) the occurrence of a non-exempt prohibited transaction within the meaning of Section 4975 of the Code or Section 406 of ERISA with respect to any Employee Benefit Plan, or (n) the failure of any Employee Benefit Plan intended to be qualified under Section 401(a) of the Code to so qualify, or the failure of any trust forming part of any such plan to qualify for exemption from taxation under Section 501(a) of the Code, or (o) the failure to make by its due date a required installment under Section 430(j) of the Code with respect to any Pension Plan or the failure to make any required contribution to a Multiemployer Plan.
“Threshold Amount” means as of any date of determination, the lesser of (a) five percent (5%) of Consolidated Tangible Net Worth determined as of the last day of the most recently ended fiscal quarter, and (b) any similar cross-default threshold as set forth in the Barclays Agreement, which, by way of illustration, is $60,000,000 as of the Fifth Amendment Effective Date.
“Total Capitalization” means, as of any date of determination, the sum of (i) Consolidated Tangible Net Worth and (ii) Consolidated Indebtedness as of such date.
“Trade Date” has the meaning assigned thereto in Section 10.8(f)(i).
“U.K. Bail-In Legislation” means Part I of the United Kingdom Banking Act 2009 (as amended from time to time) and any other law, regulation or rule applicable in the United Kingdom relating to the
resolution of unsound or failing banks, investment firms or other financial institutions or their affiliates (otherwise than through liquidation, administration or other insolvency proceedings).
“UK Financial Institution” means any BRRD Undertaking (as such term is defined under the PRA Rulebook (as amended from time to time) promulgated by the United Kingdom Prudential Regulation Authority) or any person falling within IFPRU 11.6 of the FCA Handbook (as amended from time to time) promulgated by the United Kingdom Financial Conduct Authority, which includes certain credit institutions and investment firms, and certain affiliates of such credit institutions or investment firms.
“UK Resolution Authority” means the Bank of England or any other public administrative authority having responsibility for the resolution of any UK Financial Institution.
“Unadjusted Benchmark Replacement” means the applicable Benchmark Replacement excluding the related Benchmark Replacement Adjustment.
“United States” and “U.S.” means the United States of America.
“U.S. Government Securities Business Day” means any day except for (a) a Saturday, (b) a Sunday or (c) a day on which the Securities Industry and Financial Markets Association recommends that the fixed income departments of its members be closed for the entire day for purposes of trading in United States government securities; provided, that for purposes of notice requirements in Section 2.4 and Section 3.2, in each case, such day is also a Business Day.
“U.S. Person” means any Person that is a “United States person” as defined in Section 7701(a)(30) of the Code.
“U.S. Tax Compliance Certificate” has the meaning assigned thereto in Section 3.10(g).
“Wells Fargo” means Wells Fargo Bank, National Association, a national banking association.
“Wholly-Owned” means, with respect to a Subsidiary, that all of the Equity Interests of such Subsidiary are, directly or indirectly, owned or controlled by the Borrower and/or one or more of its Wholly-Owned Subsidiaries (except for directors’ qualifying shares or other shares required by Applicable Law to be owned by a Person other than the Borrower and/or one or more of its Wholly-Owned Subsidiaries).
“Withholding Agent” means any Credit Party and the Administrative Agent.
“Write-Down and Conversion Powers” means, (i) with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule and (ii) with respect to the United Kingdom, any powers of the applicable Resolution Authority under the Bail-In Legislation to cancel, reduce, modify or change the form of a liability of any UK Financial Institution or any contract or instrument under which that liability arises, to convert all or part of that liability into shares, securities or obligations of that person or any other person, to provide that any such contract or instrument is to have effect as if a right had been exercised under it or to suspend any obligation in respect of that liability or any of the powers under that Bail-In Legislation that are related to or ancillary to any of those powers.
SECTION 1.2 Other Definitions and Provisions. With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document: (a) the definitions of terms herein shall apply equally to the singular and plural forms of the terms defined, (b) whenever the
context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms, (c) the words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”, (d) the word “will” shall be construed to have the same meaning and effect as the word “shall”, (e) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (f) 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, (g) 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, (h) 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, (i) the term “documents” includes any and all instruments, documents, agreements, certificates, notices, reports, financial statements and other writings, however evidenced, whether in physical or electronic form and (j) in the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including;” the words “to” and “until” each mean “to but excluding;” and the word “through” means “to and including”.
SECTION 1.3 Accounting Terms.
(a) All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with GAAP applied on a consistent basis, as in effect from time to time and in a manner consistent with that used in preparing the audited financial statements required by Section 8.1(a), except as otherwise specifically prescribed herein. Notwithstanding the foregoing, for purposes of determining compliance with any covenant (including the computation of any financial covenant) contained herein, Indebtedness of the Borrower and its Subsidiaries shall be deemed to be carried at 100% of the outstanding principal amount thereof, and the effects of FASB ASC 825 and FASB ASC 470-20 on financial liabilities shall be disregarded.
(b) If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either a Credit Party or the Required Lenders shall so request, the Administrative Agent, the Lenders and the Credit Parties shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Required Lenders); provided that, until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (ii) the Credit Parties shall provide to the Administrative Agent and the Lenders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP.
SECTION 1.4 Rounding. Any financial ratios required to be maintained pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio or percentage is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).
SECTION 1.5 References to Agreement and Laws. Unless otherwise expressly provided herein, (a) any definition or reference to formation documents, governing documents, agreements (including the Loan Documents) and other contractual documents or instruments shall be deemed to include all subsequent amendments, restatements, extensions, supplements and other modifications thereto, but only to the extent that such amendments, restatements, extensions, supplements and other modifications are not prohibited by any Loan Document; and (b) any definition or reference to any Applicable Law, including, without limitation, Anti-Corruption Laws, Anti-Money Laundering Laws, the Bankruptcy Code, the Code, ERISA, the Exchange Act, the PATRIOT Act, the Securities Act, the UCC, the Investment Company Act, the Trading with the Enemy Act of the United States or any of the foreign assets control
regulations of the United States Treasury Department, shall include all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting such Applicable Law.
SECTION 1.6 Times of Day. Unless otherwise specified, all references herein to times of day shall be references to Eastern time (daylight or standard, as applicable).
SECTION 1.7 Rates. The Administrative Agent does not warrant or accept any responsibility for, and shall not have any liability with respect to, (a) the continuation of, administration of, submission of, calculation of or any other matter related to the Term SOFR Reference Rate, Adjusted Term SOFR or Term SOFR, or any component definition thereof or rates referred to in the definition thereof, or with respect to any alternative, successor or replacement rate thereto (including any Benchmark Replacement), including whether the composition or characteristics of any such alternative, successor or replacement rate (including any Benchmark Replacement), as it may or may not be adjusted pursuant to Section 3.7(c), will be similar to, or produce the same value or economic equivalence of, or have the same volume or liquidity as, the Term SOFR Reference Rate, Adjusted Term SOFR, Term SOFR or any other Benchmark prior to its discontinuance or unavailability, or (b) the effect, implementation or composition of any Conforming Changes. The Administrative Agent and its Affiliates or other related entities may engage in transactions that affect the calculation of the Term SOFR Reference Rate, Adjusted Term SOFR, Term SOFR, any alternative, successor or replacement rate (including any Benchmark Replacement) or any relevant adjustments thereto and such transactions may be adverse to the Borrower. The Administrative Agent may select information sources or services in its reasonable discretion to ascertain the Term SOFR Reference Rate, Adjusted Term SOFR or Term SOFR, or any other Benchmark, any component definition thereof or rates referred to in the definition thereof, in each case pursuant to the terms of this Agreement, and shall have no liability to the Borrower, any Lender or any other person or entity for damages of any kind, including direct or indirect, special, punitive, incidental or consequential damages, costs, losses or expenses (whether in tort, contract or otherwise and whether at law or in equity), for any error or calculation of any such rate (or component thereof) provided by any such information source or service.
SECTION 1.8 Divisions. For all purposes under the Loan Documents, in connection with any division or plan of division under Delaware law (or any comparable event under a different jurisdiction’s laws): (a) if any asset, right, obligation or liability of any Person becomes the asset, right, obligation or liability of a different Person, then it shall be deemed to have been transferred from the original Person to the subsequent Person, and (b) if any new Person comes into existence, such new Person shall be deemed to have been organized on the first date of its existence by the holders of its Equity Interests at such time.
ARTICLE II
TERM LOAN FACILITY
SECTION 2.1 Initial Term Loan. Subject to the terms and conditions of this Agreement and the other Loan Documents, and in reliance upon the representations and warranties set forth in this Agreement and the other Loan Documents, each Lender severally agrees to make the Initial Term Loan to the Borrower on the Closing Date in a principal amount equal to such Lender’s Commitment as of the Closing Date. Amounts borrowed under this Section 2.1 and repaid or prepaid may not be reborrowed.
SECTION 2.2 Procedure for Advance of Initial Term Loan. The Borrower shall give the Administrative Agent an irrevocable prior written notice substantially in the form of Exhibit B (a “Notice of Borrowing”) prior to 11:00 a.m. on the Closing Date requesting that the Lenders make the Initial Term Loan as a Base Rate Loan on such date. Upon receipt of such Notice of Borrowing from the Borrower, the Administrative Agent shall promptly notify each Lender thereof. Not later than 1:00 p.m. on the Closing
Date, each Lender will make available to the Administrative Agent for the account of the Borrower, at the Administrative Agent’s Office in immediately available funds, the amount of such Initial Term Loan to be made by such Lender on the Closing Date. The Borrower hereby irrevocably authorizes the Administrative Agent to disburse the proceeds of the Initial Term Loan in immediately available funds by wire transfer to such Person or Persons as may be designated by the Borrower in writing.
SECTION 2.3 Repayment of Term Loans.
(a) If the Pembroke Acquisition is not consummated within thirty (30) calendar days following the Closing Date or the Pembroke Acquisition Agreement is terminated or expires, then the Borrower shall immediately repay the aggregate outstanding principal amount of the Term Loans in full, together with accrued interest thereon.
(b) If not sooner paid, the Borrower shall repay the aggregate outstanding principal amount of the Term Loans in full, together with accrued interest thereon, on the Maturity Date.
SECTION 2.4 Prepayments of Term Loans. The Borrower shall have the right at any time and from time to time, without premium or penalty, to prepay the Term Loans, in whole or in part, upon delivery of an irrevocable prior written notice to the Administrative Agent substantially in the form attached as Exhibit C (a “Notice of Prepayment”) not later than 2:00 p.m. (i) on the same Business Day as each Base Rate Loan and (ii) at least three (3) U.S Government Securities Business Days before prepayment of each SOFR Loan, specifying the date and amount of repayment, whether the repayment is of SOFR Loans or Base Rate Loans or a combination thereof, and if a combination thereof, the amount allocable to each; provided, that any notice delivered pursuant to this Section 2.4 may state that such notice is conditioned upon the effectiveness of other credit facilities or the receipt of the proceeds from the issuance of other Indebtedness or the occurrence of some other reasonable, identifiable event or condition, in which case such notice may be revoked (by notice to the Administrative Agent on or before the specified effective date of prepayment) if such condition is not satisfied. Each prepayment of the Term Loans hereunder shall be in an aggregate principal amount of at least $5,000,000 or any whole multiple of $1,000,000 in excess thereof and shall be applied, as directed by the Borrower, to the outstanding principal of the Term Loans. Each repayment shall be accompanied by any amount required to be paid pursuant to Error! Reference source not found. hereof. A Notice of Prepayment received after 2:00 p.m. shall be deemed received on the next Business Day or U.S. Government Securities Business Day. The Administrative Agent shall promptly notify the applicable Lenders of each Notice of Prepayment.
ARTICLE III
GENERAL LOAN PROVISIONS
SECTION 3.1 Interest.
(a) Interest Rate Options. Subject to the provisions of this Section, at the election of the Borrower, the Term Loans shall bear interest at (A) the Base Rate plus the Applicable Margin or (B) Adjusted Term SOFR plus the Applicable Margin. The Borrower shall select the rate of interest and Interest Period, if any, applicable to any Term Loan at the time a Notice of Borrowing is given or at the time a Notice of Conversion/Continuation is given pursuant to Section 3.2.
(b) Default Rate. Subject to Section 8.3, (i) immediately upon the occurrence and during the continuance of an Event of Default under Section 8.1(h) or Section 8.1(i), or (ii) at the election of the Required Lenders (or the Administrative Agent at the direction of the Required Lenders), upon the occurrence and during the continuance of any other Event of Default, (A) the Borrower shall no longer have
the option to request SOFR Loans, (B) all outstanding SOFR Loans shall bear interest at a rate per annum of two percent (2%) in excess of the rate (including the Applicable Margin) then applicable to SOFR Loans until the end of the applicable Interest Period and thereafter at a rate per annum of two percent (2%) in excess of the rate (including the Applicable Margin) then applicable to Base Rate Loans, (C) all outstanding Base Rate Loans and other Obligations arising hereunder or under any other Loan Document shall bear interest at a rate per annum of two percent (2%) in excess of the rate (including the Applicable Margin) then applicable to Base Rate Loans or such other Obligations arising hereunder or under any other Loan Document and (D) all accrued and unpaid interest shall be due and payable on demand of the Administrative Agent. Interest and fees shall continue to accrue on the Obligations after the filing by or against any Credit Party of any petition seeking any relief in bankruptcy or under any Debtor Relief Law.
(c) Interest Payment and Computation. Interest on each Base Rate Loan shall be due and payable in arrears on the last Business Day of each calendar quarter and interest on each SOFR Loan shall be due and payable in arrears on the last day of each Interest Period applicable thereto; provided that (i) in the event of any repayment or prepayment of any SOFR Loan, accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (ii) in the event of any conversion of any SOFR Loan prior to the end of the Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion. All computations of interest for Base Rate Loans shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All other computations of fees and interest provided hereunder shall be made on the basis of a 360-day year and actual days elapsed (which results in more fees or interest, as applicable, being paid than if computed on the basis of a 365/366-day year).
(d) Maximum Rate. In no contingency or event whatsoever shall the aggregate of all amounts deemed interest under this Agreement charged or collected pursuant to the terms of this Agreement exceed the highest rate permissible under any Applicable Law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. In the event that such a court determines that the Lenders have charged or received interest hereunder in excess of the highest applicable rate, the rate in effect hereunder shall automatically be reduced to the maximum rate permitted by Applicable Law and the Lenders shall at the Administrative Agent’s option (i) promptly refund to the Borrower any interest received by the Lenders in excess of the maximum lawful rate or (ii) apply such excess to the principal balance of the Obligations. It is the intent hereof that the Borrower not pay or contract to pay, and that neither the Administrative Agent nor any Lender receive or contract to receive, directly or indirectly in any manner whatsoever, interest in excess of that which may be paid by the Borrower under Applicable Law.
(e) Term SOFR Conforming Changes. In connection with the use or administration of Term SOFR, the Administrative Agent will have the right to make Conforming Changes from time to time and, notwithstanding anything to the contrary herein or in any other Loan Document, any amendments implementing such Conforming Changes will become effective without any further action or consent of any other party to this Agreement or any other Loan Document. The Administrative Agent will promptly notify the Borrower and the Lenders of the effectiveness of any Conforming Changes in connection with the use or administration of Term SOFR
SECTION 3.2 Notice and Manner of Conversion or Continuation of Loans. Provided that no Event of Default under Section 8.1(a), Section 8.1(b), Section 8.1(d) (but only with respect to a default by any Credit Party or any Subsidiary thereof (other than the Excluded Subsidiaries) in the performance or observance of the covenants and agreements contained in Section 7.13), Section 8.1(h) or Section 8.1(i) has occurred and is then continuing and the Required Lenders (or the Administrative Agent at the direction of the Required Lenders) have not made an election pursuant to Section 3.1(b)Error! Reference source not found.(ii), the Borrower shall have the option to (a) convert at any time following the third U.S. Government Securities Business Day after the Fifth Amendment Effective Date, subject to the notice
requirements herein, all or any portion of any outstanding Base Rate Loans in a principal amount equal to $5,000,000 or any whole multiple of $1,000,000 in excess thereof (or such lesser amount as shall represent all of the Base Rate Loans then outstanding) into one or more SOFR Loans and (b) upon the expiration of any Interest Period therefor, (i) convert all or any part of any outstanding SOFR Loans in a principal amount equal to $3,000,000 or a whole multiple of $1,000,000 in excess thereof (or such lesser amount as shall represent all of the SOFR Loans then outstanding) into Base Rate Loans or (ii) continue any such SOFR Loans as SOFR Loans. Whenever the Borrower desires to convert or continue Term Loans as provided above, the Borrower shall give the Administrative Agent irrevocable prior written notice in the form attached as Exhibit D (a “Notice of Conversion/Continuation”) not later than 11:00 a.m. three (3) U.S. Government Securities Business Days before the day on which a proposed conversion or continuation of such Term Loan is to be effective specifying (A) the Term Loans to be converted or continued, and, in the case of any SOFR Loan to be converted or continued, the last day of the Interest Period therefor, (B) the effective date of such conversion or continuation (which shall be a Business Day), (C) the principal amount of such Term Loans to be converted or continued, and (D) the Interest Period to be applicable to such converted or continued SOFR Loan. If the Borrower fails to give a timely Notice of Conversion/Continuation prior to the end of the Interest Period for any SOFR Loan, then the applicable SOFR Loan shall continue as, or be converted to, as applicable, a SOFR Loan with an Interest Period of one month. Any such automatic conversion to a SOFR Loan with an Interest Period of one month shall be effective as of the last day of the Interest Period then in effect with respect to the applicable SOFR Loan. If the Borrower requests a conversion to, or continuation of, SOFR Loans, but fails to specify an Interest Period, it will be deemed to have specified an Interest Period of one month. The Administrative Agent shall promptly notify the affected Lenders of such Notice of Conversion/Continuation.
SECTION 3.3 Fees.
(a) The Credit Parties shall pay to the Arranger and the Administrative Agent, for their own respective accounts, fees in the amounts and at the times specified in the Engagement Letter.
(b) The Credit Parties shall pay to the Arranger, for the account of each Lender, upfront fees on the Fifth Amendment Effective Date in the amount specified in the Engagement Letter.
SECTION 3.4 Manner of Payment. Each payment by the Borrower on account of the principal of or interest on the Term Loans or of any fee, commission or other amounts payable to the Lenders under this Agreement shall be made not later than 2:00 p.m. on the date specified for payment under this Agreement to the Administrative Agent at the Administrative Agent’s Office for the account of the Lenders entitled to such payment in Dollars, in immediately available funds and shall be made without any setoff, counterclaim or deduction whatsoever. Any payment received after such time but before 3:00 p.m. on such day shall be deemed a payment on such date for the purposes of Section 8.1, but for all other purposes shall be deemed to have been made on the next succeeding Business Day. Any payment received after 3:00 p.m. shall be deemed to have been made on the next succeeding Business Day for all purposes. Upon receipt by the Administrative Agent of each such payment, the Administrative Agent shall distribute to each such Lender at its address for notices set forth herein its ratable share of such payment and shall wire advice of the amount of such credit to each Lender. Each payment to the Administrative Agent of Administrative Agent’s fees or expenses shall be made for the account of the Administrative Agent and any amount payable to any Lender under Error! Reference source not found., Section 3.8, Section 3.10 or Section 10.3 shall be paid to the Administrative Agent for the account of the applicable Lender. Subject to the definition of Interest Period, if any payment under this Agreement shall be specified to be made upon a day which is not a Business Day, it shall be made on the next succeeding day which is a Business Day and such extension of time shall in such case be included in computing any interest if payable along with such payment. Notwithstanding the foregoing, if there exists a Defaulting Lender each payment by the Borrower to such Defaulting Lender hereunder shall be applied in accordance with Section 3.13(a)(ii).
SECTION 3.5 Evidence of Indebtedness. The Term Loans made by each Lender shall be evidenced by one or more accounts or records maintained by such Lender and by the Administrative Agent in the ordinary course of business. The accounts or records maintained by the Administrative Agent and each Lender shall be conclusive, absent manifest error, of the amount of the Term Loans made by the Lenders to the Borrower and its Subsidiaries and the interest and payments thereon. Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Borrower hereunder to pay any amount owing with respect to the Obligations. In the event of any conflict between the accounts and records maintained by any Lender and the accounts and records of the Administrative Agent in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error. Upon the request of any Lender made through the Administrative Agent, the Borrower shall execute and deliver to such Lender (through the Administrative Agent) a Term Loan Note, which shall evidence such Lender’s Term Loans, in addition to such accounts or records. Each Lender may attach schedules to its Term Loan Notes and endorse thereon the date, amount and maturity of its Term Loans and payments with respect thereto.
SECTION 3.6 Sharing of Payments by Lenders. If any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of any principal of or interest on any of its Term Loans or other obligations hereunder resulting in such Lender’s receiving payment of a proportion of the aggregate amount of its Term Loans and accrued interest thereon or other such obligations (other than pursuant to Error! Reference source not found., Section 3.8, Section 3.10 or Section 10.3) greater than its pro rata share thereof as provided herein, then the Lender receiving such greater proportion shall (a) notify the Administrative Agent of such fact, and (b) purchase (for cash at face value) participations in the Loans and such other obligations of the other Lenders, or make such other adjustments as shall be equitable, 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 Term Loans and other amounts owing them; provided that: (a) 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 (b) the provisions of this paragraph shall not be construed to apply to (A) any payment made by the Credit Parties pursuant to and in accordance with the express terms of this Agreement (including the application of funds arising from the existence of a Defaulting Lender or a Disqualified Institution) or (C) any payment obtained by a Lender as consideration for the assignment of, or sale of, a participation in any of its Term Loans to any assignee or participant, other than to any Credit Party or any of their Subsidiaries or Affiliates (as to which the provisions of this paragraph shall apply). Each Credit 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 each Credit Party rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of each Credit Party in the amount of such participation
SECTION 3.7 Changed Circumstances.
(a) Circumstances Affecting Benchmark Availability. Subject to clause (c) below, in connection with any request for a SOFR Loan or a conversion to or continuation thereof or otherwise, if for any reason (i) the Administrative Agent shall determine (which determination shall be conclusive and binding absent manifest error) that reasonable and adequate means do not exist for ascertaining Adjusted Term SOFR for the applicable Interest Period with respect to a proposed SOFR Loan on or prior to the first day of such Interest Period or (ii) the Required Lenders shall determine (which determination shall be conclusive and binding absent manifest error) that Adjusted Term SOFR does not adequately and fairly reflect the cost to such Lenders of making or maintaining such Loans during such Interest Period and, in the case of clause (ii), the Required Lenders have provided notice of such determination to the Administrative Agent, then, in each case, the Administrative Agent shall promptly give notice thereof to the Borrower. Upon notice thereof by the Administrative Agent to the Borrower, any obligation of the
Lenders to make SOFR Loans, and any right of the Borrower to convert any Loan to or continue any Loan as a SOFR Loan, shall be suspended (to the extent of the affected SOFR Loans or the affected Interest Periods) until the Administrative Agent (with respect to clause (ii), at the instruction of the Required Lenders) revokes such notice. Upon receipt of such notice, (A) the Borrower may revoke any pending request for a borrowing of, conversion to or continuation of SOFR Loans (to the extent of the affected SOFR Loans or the affected Interest Periods) or, failing that, the Borrower will be deemed to have converted any such request into a request for a borrowing of or conversion to Base Rate Loans in the amount specified therein and (B) any outstanding affected SOFR Loans will be deemed to have been converted into Base Rate Loans at the end of the applicable Interest Period. Upon any such prepayment or conversion, the Borrower shall also pay accrued interest on the amount so prepaid or converted, together with any additional amounts required pursuant to Section 3.8.
(b) Laws Affecting SOFR Availability. If, after the date hereof, the introduction of, or any Change in Law or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any of the Lenders (or any of their respective Lending Offices) with any request or directive (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency, shall make it unlawful or impossible for any of the Lenders (or any of their respective Lending Offices) to honor its obligations hereunder to make or maintain any SOFR Loan, or to determine or charge interest based upon SOFR, the Term SOFR Reference Rate, Adjusted Term SOFR or Term SOFR, such Lender shall promptly give notice thereof to the Administrative Agent and the Administrative Agent shall promptly give notice to the Borrower and the other Lenders (an “Illegality Notice”). Thereafter, until each affected Lender notifies the Administrative Agent and the Administrative Agent notifies the Borrower that the circumstances giving rise to such determination no longer exist, (i) any obligation of the Lenders to make SOFR Loans, and any right of the Borrower to convert any Loan to a SOFR Loan or continue any Loan as a SOFR Loan shall be suspended and thereafter the Borrower may select only Base Rate Loans from the Lenders and (ii) if necessary to avoid such illegality, the Administrative Agent shall compute the Base Rate without reference to clause (c) of the definition of “Base Rate”. Upon receipt of an Illegality Notice, the Borrower shall, if necessary to avoid such illegality, upon demand from any Lender (with a copy to the Administrative Agent), prepay or, if applicable, convert all SOFR Loans to Base Rate Loans (in each case, if necessary to avoid such illegality, the Administrative Agent shall compute the Base Rate without reference to clause (c) of the definition of “Base Rate”), on the last day of the Interest Period therefor, if all affected Lenders may lawfully continue to maintain such SOFR Loans to such day, or immediately, if any Lender may not lawfully continue to maintain such SOFR Loans to such day. Upon any such prepayment or conversion, the Borrower shall also pay accrued interest on the amount so prepaid or converted, together with any additional amounts required pursuant to Section 3.8.
(c) Benchmark Replacement Setting.
(i) Benchmark Replacement. Notwithstanding anything to the contrary herein or in any other Loan Document, upon the occurrence of a Benchmark Transition Event, the Administrative Agent and the Borrower may amend this Agreement to replace the then-current Benchmark with a Benchmark Replacement. Any such amendment with respect to a Benchmark Transition Event will become effective at 5:00 p.m. on the fifth (5th) Business Day after the Administrative Agent has posted such proposed amendment to all affected Lenders and the Borrower so long as the Administrative Agent has not received, by such time, written notice of objection to such amendment from Lenders comprising the Required Lenders. No replacement of a Benchmark with a Benchmark Replacement pursuant to this Section 3.7(c)(i) will occur prior to the applicable Benchmark Transition Start Date.
(ii) Benchmark Replacement Conforming Changes. In connection with the use, administration, adoption or implementation of a Benchmark Replacement, the Administrative Agent will have the right to make Conforming Changes from time to time and, notwithstanding anything to the contrary herein or in any other Loan Document, any amendments implementing such Conforming Changes will become effective without any further action or consent of any other party to this Agreement or any other Loan Document.
(iii) Notices; Standards for Decisions and Determinations. The Administrative Agent will promptly notify the Borrower and the Lenders of (A) the implementation of any Benchmark Replacement and (B) the effectiveness of any Conforming Changes in connection with the use, administration, adoption or implementation of a Benchmark Replacement. The Administrative Agent will promptly notify the Borrower of the removal or reinstatement of any tenor of a Benchmark pursuant to Section 3.7(c)(iv). Any determination, decision or election that may be made by the Administrative Agent or, if applicable, any Lender (or group of Lenders) pursuant to this Section 3.7(c), including any determination with respect to a tenor, rate or adjustment or of the occurrence or non-occurrence of an event, circumstance or date and any decision to take or refrain from taking any action or any selection, will be conclusive and binding absent manifest error and may be made in its or their sole discretion and without consent from any other party to this Agreement or any other Loan Document, except, in each case, as expressly required pursuant to this Section 3.7(c).
(iv) Unavailability of Tenor of Benchmark. Notwithstanding anything to the contrary herein or in any other Loan Document, at any time (including in connection with the implementation of a Benchmark Replacement), (A) if the then-current Benchmark is a term rate (including the Term SOFR Reference Rate) and either (1) any tenor for such Benchmark is not displayed on a screen or other information service that publishes such rate from time to time as selected by the Administrative Agent in its reasonable discretion or (2) the regulatory supervisor for the administrator of such Benchmark has provided a public statement or publication of information announcing that any tenor for such Benchmark is not or will not be representative, then the Administrative Agent may modify the definition of “Interest Period” (or any similar or analogous definition) for any Benchmark settings at or after such time to remove such unavailable or non-representative tenor and (B) if a tenor that was removed pursuant to clause (A) above either (1) is subsequently displayed on a screen or information service for a Benchmark (including a Benchmark Replacement) or (2) is not, or is no longer, subject to an announcement that it is not or will not be representative for a Benchmark (including a Benchmark Replacement), then the Administrative Agent may modify the definition of “Interest Period” (or any similar or analogous definition) for all Benchmark settings at or after such time to reinstate such previously removed tenor.
(v) Benchmark Unavailability Period. Upon the Borrower’s receipt of notice of the commencement of a Benchmark Unavailability Period, (A) the Borrower may revoke any pending request for a borrowing of, conversion to or continuation of SOFR Loans to be made, converted or continued during any Benchmark Unavailability Period and, failing that, the Borrower will be deemed to have converted any such request into a request for a borrowing of or conversion to Base Rate Loans and (B) any outstanding affected SOFR Loans will be deemed to have been converted to Base Rate Loans at the end of the applicable Interest Period. During any Benchmark Unavailability Period or at any time that a tenor for the then-current Benchmark is not an Available Tenor, the component of the Base Rate based upon the then-current Benchmark or such tenor for such Benchmark, as applicable, will not be used in any determination of the Base Rate.
(d) Illegality. If, in any applicable jurisdiction, the Administrative Agent or any Lender determines that any Applicable Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for the Administrative Agent or any Lender to (i) perform any of its obligations hereunder or under any other Loan Document, (ii) to fund or maintain its participation in any Term Loan or (iii) make, maintain, fund or charge interest or fees with respect to any Term Loans, such Person shall promptly notify the Administrative Agent, then, upon the Administrative Agent notifying the Borrower, and until such notice by such Person is revoked, any obligation of such Person to make, maintain, fund or charge interest or fees with respect to any such Term Loan shall be suspended, and to the extent required by Applicable Law, cancelled. Upon receipt of such notice, the Credit Parties shall, (A) repay that Person’s participation in the Term Loans or other applicable Obligations on the last day of the Interest Period for each Term Loan or other Obligation occurring after the Administrative Agent has notified the Borrower or, if earlier, the date specified by such Person in the notice delivered to the Administrative Agent (being no earlier than the last day of any applicable grace period permitted by Applicable Law) and (B) take all reasonable actions requested by such Person to mitigate or avoid such illegality.
SECTION 3.8 Indemnity. The Borrower hereby indemnifies each of the Lenders against any loss, cost or expense (including any loss, cost or expense arising from the liquidation or reemployment of funds or from any fees payable) which may arise, be attributable to or result due to or as a consequence of (a) any failure by the Borrower to make any payment when due of any amount due hereunder in connection with a SOFR Loan, (b) any failure of the Borrower to borrow or continue a SOFR Loan or convert to a SOFR Loan on a date specified therefor in a Notice of Borrowing or Notice of Conversion/Continuation, (c) any failure of the Borrower to prepay any SOFR Loan on a date specified therefor in any Notice of Prepayment (regardless of whether any such Notice of Prepayment may be revoked under Section 2.4 and is revoked in accordance therewith), (d) any payment, prepayment or conversion of any SOFR Loan on a date other than the last day of the Interest Period therefor (other than as a result of the implementation of a Benchmark Replacement but including as a result of an Event of Default) or (e) the assignment of any SOFR Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrower pursuant to Section 3.11(b). A certificate of such Lender setting forth the basis for determining such amount or amounts necessary to compensate such Lender shall be forwarded to the Borrower through the Administrative Agent and shall be conclusively presumed to be correct save for manifest error. All of the obligations of the Credit Parties under this Section 3.8 shall survive the resignation or replacement of the Administrative Agent or any assignment of rights by, or the replacement of, a Lender, the termination of the Commitments and the repayment, satisfaction or discharge of all obligations under any Loan Document.
SECTION 3.9 Increased Costs.
(a) Increased Costs Generally. If any Change in Law shall:
(i) impose, modify or deem applicable any reserve (including pursuant to regulations issued from time to time by the FRB for determining the maximum reserve requirement (including any emergency, special, supplemental or other marginal reserve requirement) with respect to eurocurrency funding (currently referred to as “Eurocurrency liabilities” in Regulation D of the FRB, as amended and in effect from time to time)), special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or advances, loans or other credit extended or participated in by, any Lender;
(ii) subject any Recipient to any Taxes (other than (A) Indemnified Taxes, (B) Taxes described in clauses (b) through (d) of the definition of Excluded Taxes and (C) Connection Income Taxes) on its loans, loan principal, letters of credit, commitments, or other obligations, or its deposits, reserves, other liabilities or capital attributable thereto; or
(iii) impose on any Lender any other condition, cost or expense (other than Taxes) affecting this Agreement or Loans made by such Lender;
and the result of any of the foregoing shall be to increase the cost to such Lender or such other Recipient of making, converting to, continuing or maintaining any Term Loan (or of maintaining its obligation to make any such Term Loan) or to reduce the amount of any sum received or receivable by such Lender such other Recipient hereunder (whether of principal, interest or any other amount) then, upon written request of such Lender or other Recipient, the Borrower shall promptly pay to any such Lender or other Recipient, as the case may be, such additional amount or amounts as will compensate such Lender or other Recipient, as the case may be, for such additional costs incurred or reduction suffered.
(b) Capital Requirements. If any Lender determines that any Change in Law affecting such Lender or any Lending Office of such Lender or such Lender’s holding company, if any, regarding capital or liquidity 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, the Commitment of such Lender or the Term 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 and liquidity), then from time to time upon written request of such Lender the Borrower shall promptly 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 for Reimbursement. A certificate of a Lender or such other Recipient setting forth the amount or amounts necessary to compensate such Lender, such other Recipient or any of their respective holding companies, as the case may be, as specified in paragraph (a) or (b) of this Section and delivered to the Borrower, shall be conclusive absent manifest error. The Borrower shall pay such Lender or such other Recipient, as the case may be, the amount shown as due on any such certificate within ten (10) Business Days after receipt thereof.
(d) Delay in Requests. Failure or delay on the part of any Lender or such other Recipient to demand compensation pursuant to this Section shall not constitute a waiver of such Lender’s or such other Recipient’s right to demand such compensation; provided that the Borrower shall not be required to compensate any Lender or any other Recipient pursuant to this Section for any increased costs incurred or reductions suffered more than six (6) months prior to the date that such Lender or such other Recipient, as the case may be, notifies the Borrower of the Change in Law giving rise to such increased costs or reductions, and of such Lender’s or such other Recipient’s intention to claim compensation therefor (except that if the Change in Law giving rise to such increased costs or reductions is retroactive, then the six-month period referred to above shall be extended to include the period of retroactive effect thereof).
SECTION 3.10 Taxes.
(a) Defined Terms. For purposes of this Section 3.10, the term “Applicable Law” includes FATCA.
(b) Payments Free of Taxes. Any and all payments by or on account of any obligation of any Credit Party under any Loan Document shall be made without deduction or withholding for any Taxes, except as required by Applicable Law. If any Applicable Law (as determined in the good faith discretion of an applicable Withholding Agent) requires the deduction or withholding of any Tax from any such payment by a Withholding Agent, then the applicable Withholding Agent shall be entitled to make such deduction or withholding and shall timely pay the full amount deducted or withheld to the relevant Governmental Authority in accordance with Applicable Law and, if such Tax is an Indemnified Tax, then
the sum payable by the applicable Credit Party shall be increased as necessary so that, after such deduction or withholding has been made (including such deductions and withholdings applicable to additional sums payable under this Section), the applicable Recipient receives an amount equal to the sum it would have received had no such deduction or withholding been made. Upon becoming aware that it must make a deduction or withholding of any Tax pursuant to this Section 3.10(b) that requires an increased sum payable by a Credit Party or is otherwise an Indemnified Tax, the applicable Withholding Agent shall promptly notify the Credit Parties and the Administrative Agent.
(c) Payment of Other Taxes by the Credit Parties. The Credit Parties shall timely pay to the relevant Governmental Authority in accordance with Applicable Law, or at the option of the Administrative Agent timely reimburse it for the payment of, any Other Taxes.
(d) Indemnification by the Credit Parties. The Credit Parties shall jointly and severally indemnify each Recipient, within ten (10) days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section) payable or paid by such Recipient or required to be withheld or deducted from a payment to such Recipient and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Recipient (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Recipient, shall be conclusive absent manifest error.
(e) Indemnification by the Lenders. Each Lender shall severally indemnify the Administrative Agent, within ten (10) days after demand therefor, for (i) any Indemnified Taxes attributable to such Lender (but only to the extent that any Credit Party has not already indemnified the Administrative Agent for such Indemnified Taxes and without limiting the obligation of the Credit Parties to do so), (ii) any Taxes attributable to such Lender’s failure to comply with the provisions of Section 10.8(d) relating to the maintenance of a Participant Register and (iii) any Excluded Taxes attributable to such Lender, in each case, that are payable or paid by the Administrative Agent in connection with any Loan Document, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error. Each Lender hereby authorizes the Administrative Agent to setoff and apply any and all amounts at any time owing to such Lender under any Loan Document or otherwise payable by the Administrative Agent to the Lender from any other source against any amount due to the Administrative Agent under this paragraph (e).
(f) Evidence of Payments. As soon as practicable after any payment of Taxes by any Credit Party to a Governmental Authority pursuant to this Section 3.10, such Credit 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.
(g) Status of Lenders.
(i) Any Lender that is entitled to an exemption from or reduction of withholding Tax with respect to payments made under any Loan Document shall deliver to the Borrower and the Administrative Agent, at the time or times reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation reasonably requested by the Borrower or the Administrative Agent as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if reasonably requested
by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by Applicable Law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements. Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than such documentation set forth in Section 3.10(g)(ii)(A), (ii)(B), and (ii)(D) below) shall not be required if in the Lender’s reasonable judgment such completion, execution or submission (A) would subject such Lender to any material unreimbursed cost or expense or (B) would materially prejudice the legal or commercial position of such Lender.
(ii) Without limiting the generality of the foregoing:
(A) any Lender that is a U.S. Person shall deliver to the Borrower and the Administrative Agent on or prior to the date on which such Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), executed copies of IRS Form W-9 certifying that such Lender is exempt from United States federal backup withholding tax;
(B) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), whichever of the following is applicable:
(1) in the case of a Foreign Lender claiming the benefits of an income tax treaty to which the United States is a party (x) with respect to payments of interest under any Loan Document, executed copies of IRS Form W-8BEN-E establishing an exemption from, or reduction of, United States federal withholding Tax pursuant to the “interest” article of such tax treaty and (y) with respect to any other applicable payments under any Loan Document, IRS Form W-8BEN-E establishing an exemption from, or reduction of, United States federal withholding Tax pursuant to the “business profits” or “other income” article of such tax treaty;
(2) executed copies of IRS Form W-8ECI;
(3) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code, (x) a certificate substantially in the form of Exhibit G-1 to the effect that such Foreign Lender is not a “bank” within the meaning of Section 881(c)(3)(A) of the Code, a “10 percent shareholder” of the Borrower within the meaning of Section 881(c)(3)(B) of the Code, or a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Code (a “U.S. Tax Compliance Certificate”) and (y) executed copies of IRS Form W-8BEN-E; or
(4) to the extent a Foreign Lender is not the beneficial owner, executed copies of IRS Form W-8IMY, accompanied by IRS Form W-8ECI, IRS Form W-8BEN-E, a U.S. Tax Compliance Certificate substantially in the form of Exhibit G-2 or Exhibit G-3, IRS Form W-9, and/or other certification documents from each beneficial owner, as applicable; provided that if the Foreign Lender is a partnership and one or more direct or indirect partners of such Foreign Lender are
claiming the portfolio interest exemption, such Foreign Lender may provide a U.S. Tax Compliance Certificate substantially in the form of Exhibit G-4 on behalf of each such direct and indirect partner;
(C) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), executed copies of any other form prescribed by Applicable Law as a basis for claiming exemption from or a reduction in United States federal withholding Tax, duly completed, together with such supplementary documentation as may be prescribed by Applicable Law to permit the Borrower or the Administrative Agent to determine the withholding or deduction required to be made; and
(D) if a payment made to a Lender under any Loan Document would be subject to United States federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to the Borrower and the Administrative Agent at the time or times prescribed by law and at such time or times reasonably requested by the Borrower or the Administrative Agent such documentation prescribed by Applicable Law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower or the Administrative Agent as may be necessary for the Borrower and the Administrative Agent to comply with their obligations under FATCA and to determine that such Lender has complied with such Lender’s obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this clause (D), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.
Each Lender agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify the Borrower and the Administrative Agent in writing of its legal inability to do so.
(h) Treatment of Certain Refunds. If any party determines, in its sole discretion exercised in good faith, that it has received a refund of any Taxes as to which it has been indemnified pursuant to this Section 3.10 (including by the payment of additional amounts pursuant to this Section 3.10), it shall pay to the indemnifying party an amount equal to such refund (but only to the extent of indemnity payments made under this Section with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses (including Taxes) of such indemnified party and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund). Such indemnifying party, upon the request of such indemnified party, shall repay to such indemnified party the amount paid over pursuant to this paragraph (h) (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) in the event that such indemnified party is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this paragraph (h), in no event will the indemnified party be required to pay any amount to an indemnifying party pursuant to this paragraph (h) the payment of which would place the indemnified party in a less favorable net after-Tax position than the indemnified party would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts with respect to such Tax had never been paid. This paragraph shall not be construed to require any indemnified party to make available its Tax returns (or any other information relating to its Taxes that it deems confidential) to the indemnifying party or any other Person.
(i) Survival. Each party’s obligations under this Section 3.10 shall survive the resignation or replacement of the Administrative Agent or any assignment of rights by, or the replacement of, a Lender, the termination of the Commitments and the repayment, satisfaction or discharge of all obligations under any Loan Document.
SECTION 3.11 Mitigation Obligations; Replacement of Lenders.
(a) Designation of a Different Lending Office. If any Lender requests compensation under Section 3.8, or is relieved from its obligation to make SOFR Loans (or Term Loans subject to the Benchmark Replacement) as a result of Section 3.7(a) or Section 3.7(d) or requires the Borrower to pay any Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.10, then such Lender shall, at the request of the Borrower, use reasonable efforts to designate a different Lending Office for funding or booking its Term Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 3.8 or Section 3.10, 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. The Borrower 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 3.8, or is no longer required to make SOFR Loans (or Term Loans subject to the Benchmark Replacement) as a result of Section 3.7(a) or Section 3.7(d), or if the Borrower is required to pay any Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.10, and, in each case, such Lender has declined or is unable to designate a different Lending Office in accordance with Section 3.11(a), or if any Lender is a Defaulting Lender or a Non-Consenting Lender, then the Borrower 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, and consents required by, Section 10.8), all of its interests, rights (other than its existing rights to payments pursuant to Section 3.8 or Section 3.10) and obligations under this Agreement and the related Loan Documents to an Eligible Assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that:
(i) the Borrower shall have paid or cause to be paid to the Administrative Agent the assignment fee (if any) specified in Section 10.8;
(ii) such Lender shall have received payment of an amount equal to the outstanding principal of any of its Term Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents (including any amounts under Error! Reference source not found.) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrower (in the case of all other amounts);
(iii) in the case of any such assignment resulting from a claim for compensation under Section 3.8 or payments required to be made pursuant to Section 3.10, such assignment will result in a reduction in such compensation or payments thereafter;
(iv) such assignment does not conflict with Applicable Law; and
(v) in the case of any assignment resulting from a Lender becoming a Non-Consenting Lender, the applicable assignee shall have consented to the applicable amendment, waiver or consent.
A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.
Each party hereto agrees that (x) an assignment required pursuant to this Section 3.11 may be effected pursuant to an Assignment and Assumption executed by the Borrower, the Administrative Agent and the assignee and (y) the Lender required to make such assignment need not be a party thereto in order for such assignment to be effective and shall be deemed to have consented to and be bound by the terms thereof; provided that, following the effectiveness of any such assignment, the other parties to such assignment agree to execute and deliver such documents necessary to evidence such assignment as reasonably requested by the applicable Lender or the Administrative Agent, provided, further that any such documents shall be without recourse to or warranty by the parties thereto.
(c) Selection of Lending Office. Subject to Section 3.1 1(a), each Lender may make Term Loans to the Borrower through any Lending Office, provided that the exercise of this option shall not affect the obligations of the Borrower to repay the Term Loans in accordance with the terms of this Agreement or otherwise alter the rights of the parties hereto.
SECTION 3.12 [Reserved]
SECTION 3.13 Defaulting Lenders.
(a) Defaulting Lender Adjustments. Notwithstanding anything to the contrary contained in this Agreement, if any Lender becomes a Defaulting Lender, then, until such time as such Lender is no longer a Defaulting Lender, to the extent permitted by Applicable Law:
(i) Waivers and Amendments. Such Defaulting Lender’s right to approve or disapprove any amendment, waiver or consent with respect to this Agreement shall be restricted as set forth in the definition of Required Lenders and Section 10.2.
(ii) Defaulting Lender Waterfall. Any payment of principal, interest, fees or other amounts received by the Administrative Agent for the account of such Defaulting Lender (whether voluntary or mandatory, at maturity, pursuant to Article VIII or otherwise) or received by the Administrative Agent from a Defaulting Lender pursuant to Section 10.4 shall be applied at such time or times as may be determined by the Administrative Agent as follows: first, to the payment of any amounts owing by such Defaulting Lender to the Administrative Agent hereunder; second, as the Borrower may request (so long as no Default or Event of Default exists), to the funding of any Term Loan in respect of which such Defaulting Lender has failed to fund its portion thereof as required by this Agreement, as determined by the Administrative Agent; third, if so determined by the Administrative Agent and the Borrower, to be held in a deposit account and released pro rata in order to satisfy such Defaulting Lender’s potential future funding obligations with respect to any Term Loan under this Agreement; fourth, to the payment of any amounts owing to the Lenders as a result of any judgment of a court of competent jurisdiction obtained by any Lender against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement; fifth, so long as no Default or Event of Default exists, to the payment of any amounts owing to the Borrower as a result of any judgment of a court of competent jurisdiction obtained by the Borrower against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement; and sixth, to such Defaulting Lender or as otherwise directed by a court of competent jurisdiction; provided that if (1) such payment is a payment of the principal amount of any Term Loans in respect of which such Defaulting Lender has not fully funded its appropriate share, and (2) such Term Loans were made at a time when the conditions set forth in
Section 4.2 were satisfied or waived, such payment shall be applied solely to pay the Term Loans of all Non-Defaulting Lenders on a pro rata basis prior to being applied to the payment of any Term Loans of such Defaulting Lender until such time as all Term Loans are held by the Lenders pro rata in accordance with their original Commitments. Any payments, prepayments or other amounts paid or payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender pursuant to this Section 3.13(a)(ii) shall be deemed paid to and redirected by such Defaulting Lender, and each Lender irrevocably consents hereto.
(b) Defaulting Lender Cure. If the Borrower and the Administrative Agent agree in writing that a Lender is no longer a Defaulting Lender, the Administrative Agent will so notify the parties hereto, whereupon as of the effective date specified in such notice and subject to any conditions set forth therein, such Lender will, to the extent applicable, purchase at par that portion of outstanding Term Loans of the other Lenders or take such other actions as the Administrative Agent may determine to be necessary to cause the Term Loans to be held pro rata by the Lenders in accordance with their original Commitments, whereupon such Lender will cease to be a Defaulting Lender; provided that no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of the Borrower while that Lender was a Defaulting Lender; and provided, further, that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender’s having been a Defaulting Lender.
SECTION 3.14 Subsidiary Guarantors. The Borrower may at its discretion from time to time cause any Subsidiary that is an entity organized under the laws of the United States or Bermuda to become a guarantor hereunder (each such Subsidiary, an “Subsidiary Guarantor”) by providing at least 30 days’ prior written notice to the Administrative Agent (or such shorter period approved by the Administrative Agent in its sole discretion) and by delivering to the Administrative Agent (a) the Subsidiary Guarantee Agreement executed by such Subsidiary Guarantor (or an accession thereto in the form of Exhibit A thereof), (b) certificates with respect to the Subsidiary Guarantor similar to those delivered pursuant to Section 4.1(b)(ii) and Section 4.1(b)(iii), in form and substance satisfactory to the Administrative Agent, (c) customary legal opinions with respect to the Subsidiary Guarantor in form and substance satisfactory to the Administrative Agent, (d) any documentation and other information requested by the Administrative Agent in order to comply with requirements of any Anti-Money Laundering Laws, including, without limitation, the PATRIOT Act, the Beneficial Ownership Regulation and any applicable “know your customer” rules and regulations with respect to such Subsidiary Guarantor and (e) such other documents as the Administrative Agent may reasonably request.
ARTICLE IV
CONDITIONS OF CLOSING AND BORROWING
SECTION 4.1 Conditions to Closing and Initial Term Loan. The obligation of the Lenders to close this Agreement and to make the Initial Term Loan is subject to the satisfaction of each of the following conditions:
(a) Executed Loan Documents. This Agreement and a Term Loan Note in favor of each Lender requesting a Term Loan Note, together with any other applicable Loan Documents, shall have been duly authorized, executed and delivered to the Administrative Agent by the parties thereto, shall be in full force and effect and no Default or Event of Default shall exist hereunder or thereunder.
(b) Closing Certificates; Etc. The Administrative Agent shall have received each of the following in form and substance reasonably satisfactory to the Administrative Agent:
(i) Officer’s Certificate. A certificate from a Responsible Officer of the Borrower to the effect that (A) all representations and warranties of the Credit Parties contained in this Agreement and the other Loan Documents are true, correct and complete in all material respects (except to the extent any such representation and warranty is qualified by materiality or reference to Material Adverse Effect, in which case, such representation and warranty shall be true, correct and complete in all respects); (B) as of the Closing Date, no Default or Event of Default has occurred and is continuing; (C) except as set forth on Schedule 5.13, since November 30, 2018, no event has occurred or condition arisen, either individually or in the aggregate, that has had or would reasonably be expected to have a Material Adverse Effect; and (D) each of the Credit Parties, as applicable, has satisfied each of the conditions set forth in Section 4.1 and Section 4.2 as of the Closing Date.
(ii) Certificate of Secretary of each Credit Party. A certificate of a Responsible Officer of each Credit Party certifying as to the incumbency and genuineness of the signature of each officer of such Credit Party executing Loan Documents to which it is a party and certifying that attached thereto is a true, correct and complete copy of (A) the articles or certificate of incorporation or formation (or equivalent), as applicable, of such Credit Party and all amendments thereto, certified as of a recent date by the appropriate Governmental Authority in its jurisdiction of incorporation, organization or formation (or equivalent), as applicable, (B) the bylaws or other governing document of such Credit Party as in effect on the Closing Date, (C) resolutions duly adopted by the board of directors (or other governing body) of such Credit Party authorizing and approving the transactions contemplated hereunder and the execution, delivery and performance of this Agreement and the other Loan Documents to which it is a party, and (D) each certificate required to be delivered pursuant to Section 4.1(b)(iii) required to be satisfied as of the Closing Date.
(iii) Certificates of Good Standing. Certificates as of a recent date of the good standing of each Credit Party under the laws of its jurisdiction of incorporation, organization or formation (or equivalent), as applicable, and, to the extent requested by the Administrative Agent, each other jurisdiction where such Credit Party is qualified to do business.
(iv) Opinions of Counsel. Opinions of counsel to the Credit Parties addressed to the Administrative Agent and the Lenders with respect to the Credit Parties, the Loan Documents and such other matters as the Administrative Agent shall request.
(c) Lien Search. The Administrative Agent shall have received the results of a Lien search, in form and substance reasonably satisfactory to the Administrative Agent, indicating among other things that the assets of each such Credit Party are free and clear of any Lien (except for Permitted Liens).
(d) Consents; Defaults.
(i) Governmental and Third Party Approvals. The Credit Parties shall have received all material governmental, shareholder and third party consents and approvals necessary (or any other material consents as determined in the reasonable discretion of the Administrative Agent) in connection with the transactions contemplated by this Agreement and the other Loan Documents and all applicable waiting periods shall have expired without any action being taken by any Person that would reasonably be expected to restrain, prevent or impose any material adverse conditions on any of the Credit Parties or such other transactions or that could seek or threaten any of the foregoing, and no law or regulation shall be applicable which in the reasonable judgment of the Administrative Agent would reasonably be expected to have such effect.
(ii) No Injunction, Etc. No action, proceeding or investigation shall have been instituted, threatened in writing or proposed in writing before any Governmental Authority to enjoin, restrain, or prohibit, or to obtain substantial damages in respect of, or which is related to or arises out of this Agreement or the other Loan Documents or the consummation of the transactions contemplated hereby or thereby, or which, in the Administrative Agent’s sole discretion, would make it inadvisable to consummate the transactions contemplated by this Agreement or the other Loan Documents or the consummation of the transactions contemplated hereby or thereby.
(e) Payment at Closing. The Credit Parties shall have paid (i) to the Arranger and the Administrative Agent, the fees required under the Fee Letter to be paid on the Closing Date, in the amounts due and payable on the Closing Date as required by the terms thereof, (ii) to the Administrative Agent, the initial payment of the annual administrative fee described in the Fee Letter, and (iii) all other fees and reasonable expenses of the Arranger, the Administrative Agent and the Lenders required hereunder or under any other Loan Document to be paid on or prior to the Closing Date (including the ticking fees payable under the Commitment Letter and reasonable fees and expenses of counsel) in connection with this Agreement, the other Loan Documents and the transactions contemplated hereby.
(f) Revolving Credit Agreement. The Revolving Credit Agreement shall have been amended to modify the financial covenants and negative covenants to be consistent with the financial covenants and negative covenants contained in this Agreement.
(g) Barclays Agreement. The Barclays Agreement shall have been amended in a manner reasonably satisfactory to the Administrative Agent to replace the “debt to consolidated tangible net worth” covenant therein with an “indebtedness to consolidated capitalization” covenant consistent with the corresponding covenant contained in Section 7.13(a) and to remove any other restrictions on the Credit Parties’ ability to incur unsecured indebtedness.
(h) Miscellaneous.
(i) PATRIOT Act, etc. The Credit Parties shall have provided to the Administrative Agent and the Lenders the documentation and other information requested in writing at least ten (10) Business Days prior to the Closing Date in order to comply with requirements of any Anti Money Laundering Laws, including, without limitation, the PATRIOT Act and any applicable “know your customer” rules and regulations.
(ii) Beneficial Ownership Certification. At least five Business Days prior to the Closing Date, any Credit Party that qualifies as a “legal entity customer” under the Beneficial Ownership Regulation shall deliver a Beneficial Ownership Certification in relation to such Credit Party.
Without limiting the generality of the provisions of Section 9.3, for purposes of determining compliance with the conditions specified in this Section 4.1, the Administrative Agent and each Lender that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received notice from such Lender prior to the proposed Closing Date specifying its objection thereto.
SECTION 4.2 Conditions to all Term Loans. The obligations of the Lenders to make any Term Loan are subject to the satisfaction of each of the following conditions precedent on the relevant borrowing date:
(a) Continuation of Representations and Warranties. The representations and warranties contained in this Agreement and the other Loan Documents shall be true and correct in all material respects, except for any representation and warranty that is qualified by materiality or reference to Material Adverse Effect, which such representation and warranty shall be true and correct in all respects, on and as of such borrowing with the same effect as if made on and as of such date (except for any such representation and warranty that by its terms is made only as of an earlier date, which representation and warranty shall remain true and correct in all material respects as of such earlier date, except for any representation and warranty that is qualified by materiality or reference to Material Adverse Effect, which such representation and warranty shall be true and correct in all respects as of such earlier date).
(b) No Existing Default. No Default or Event of Default shall have occurred and be continuing on the borrowing date with respect to such Term Loan or after giving effect to the Term Loans to be made on such date.
(c) Notices. The Administrative Agent shall have received a Notice of Borrowing from the Borrower as required hereunder.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE CREDIT PARTIES
To induce the Administrative Agent and Lenders to enter into this Agreement and to induce the Lenders to make Term Loans, the Credit Parties hereby represent and warrant to the Administrative Agent and the Lenders both immediately before and immediately after giving effect to the transactions contemplated hereunder, which representations and warranties shall be deemed made on the Closing Date and as otherwise set forth in Section 4.2, that:
SECTION 5.1 Organization; Power; Qualification. Each Credit Party and each Material Subsidiary thereof (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation, (b) has the power and authority to own its Properties and to carry on its business as now being and hereafter proposed to be conducted and (c) is duly qualified and authorized to do business in each jurisdiction in which the character of its Properties or the nature of its business requires such qualification and authorization except in jurisdictions where the failure to be so qualified or in good standing would not reasonably be expected to result in a Material Adverse Effect. No Credit Party is an Affected Financial Institution.
SECTION 5.2 Ownership. Each Subsidiary of each Credit Party as of the Fifth Amendment Effective Date, and the percentage ownership of each owner in such Subsidiary, is listed on Schedule 5.2. All outstanding shares of the Borrower and each of its applicable Subsidiaries have been duly authorized and validly issued and are fully paid and nonassessable and not subject to any preemptive or similar rights, except as described in Schedule 5.2. Each direct or indirect owner of the Borrower that beneficially owns 10% or more of the aggregate Equity Interests of the Borrower as of the Fifth Amendment Effective Date, together with such owner’s percentage ownership, is described on Schedule 5.2. As of the Fifth Amendment Effective Date, there are no outstanding stock purchase warrants, subscriptions, options, securities, instruments or other rights of any type or nature whatsoever, which are convertible into, exchangeable for or otherwise provide for or require the issuance of Equity Interests of any Credit Party or any Subsidiary thereof, except as described on Schedule 5.2.
SECTION 5.3 Authorization; Enforceability. Each Credit Party has the right, power and authority and has taken all necessary corporate and other action to authorize the execution, delivery and performance of this Agreement and each of the other Loan Documents to which it is a party in accordance
with their respective terms. This Agreement and each of the other Loan Documents have been duly executed and delivered by the duly authorized officers of each Credit Party that is a party thereto, and each such document constitutes the legal, valid and binding obligation of each Credit Party, enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar state or federal Debtor Relief Laws from time to time in effect which affect the enforcement of creditors’ rights in general and the availability of equitable remedies.
SECTION 5.4 Compliance of Agreement, Loan Documents and Borrowing with Laws, Etc. The execution, delivery and performance by each Credit Party of the Loan Documents to which each such Person is a party, in accordance with their respective terms, the Term Loans hereunder and the transactions contemplated hereby or thereby do not and will not, by the passage of time, the giving of notice or otherwise, (a) require any Governmental Approval or violate any Applicable Law relating to any Credit Party where the failure to obtain such Governmental Approval or such violation would reasonably be expected to have a Material Adverse Effect, (b) conflict with, result in a breach of or constitute a default under the articles of incorporation, bylaws or other organizational documents of any Credit Party, (c) conflict with, result in a breach of or constitute a default under any indenture, agreement or other instrument to which such Person is a party or by which any of its properties may be bound or any Governmental Approval relating to such Person, which could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, (d) result in or require the creation or imposition of any Lien upon or with respect to any property now owned or hereafter acquired by such Person other than Permitted Liens or (e) require any consent or authorization of, filing with, or other act in respect of, an arbitrator or Governmental Authority and no consent of any other Person is required in connection with the execution, delivery, performance, validity or enforceability of this Agreement other than consents, authorizations, filings or other acts or consents for which the failure to obtain or make would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
SECTION 5.5 Compliance with Law; Governmental Approvals. Each Credit Party and each Material Subsidiary thereof (a) has all Governmental Approvals required by any Applicable Law for it to conduct its business, each of which is in full force and effect, is final and not subject to review on appeal and is not the subject of any pending or, to its knowledge, threatened in writing attack by direct or collateral proceeding, (b) is in compliance with each Governmental Approval applicable to it and in compliance with all other Applicable Laws relating to it or any of its respective properties and (c) has timely filed all material reports, documents and other materials required to be filed by it under all Applicable Laws with any Governmental Authority and has retained all material records and documents required to be retained by it under Applicable Law, except in each case of clauses (a), (b) or (c) where the failure to have, comply or file would not reasonably be expected to have a Material Adverse Effect.
SECTION 5.6 Tax Returns and Payments. Each Credit Party and each Material Subsidiary thereof has timely filed all federal, state, provincial, local and foreign tax returns and reports required to be filed by it and has paid all Taxes, assessments, fees and other charges levied upon it or upon its properties that are shown thereon as due and payable, other than (i) those Taxes, assessments, fees and other charges that are being contested in good faith and by proper proceedings and for which adequate reserves have been established in accordance with GAAP or (ii) where the failure to file such returns and reports or the failure to pay such Taxes, assessments, fees and other charges would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. To the knowledge of the Credit Parties, there is no ongoing audit or examination or other investigation by any Governmental Authority of the tax liability of any Credit Party or any Subsidiary thereof the outcome of which would reasonably be expected to have a Material Adverse Effect.
SECTION 5.7 Intellectual Property Matters. Each Credit Party and each Material Subsidiary thereof owns or possesses legal rights to use all material franchises, licenses, copyrights, copyright
applications, patents, patent rights or licenses, patent applications, trademarks, trademark rights, service mark, service mark rights, trade names, trade name rights, copyrights and other rights with respect to the foregoing which taken as a whole are reasonably necessary to conduct its business where the failure to own or possess such legal rights would not reasonably be expected to have a Material Adverse Effect.
SECTION 5.8 Environmental Matters. Each of the Credit Parties and its Subsidiaries is in compliance with existing Environmental Laws and there are no pending environmental claims alleging potential liability or responsibility for any violation of any Environmental Law on their respective businesses, operations and properties, in each case that individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect.
SECTION 5.9 Employee Benefit Matters.
(a) Each Credit Party and each ERISA Affiliate is in compliance with all applicable provisions of ERISA, the Code and the regulations and published interpretations thereunder with respect to all Employee Benefit Plans except for any required amendments for which the remedial amendment period as defined in Section 401(b) of the Code has not yet expired and except where a failure to so comply would not reasonably be expected to have a Material Adverse Effect.
(b) [intentionally omitted].
(c) [intentionally omitted].
(d) No Termination Event has occurred or is reasonably expected to occur except for such events that would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.
(e) [intentionally omitted].
(f) [intentionally omitted].
SECTION 5.10 Margin Stock. No Credit Party nor any Subsidiary thereof is engaged principally or as one of its activities in the business of extending credit for the purpose of “purchasing” or “carrying” any “margin stock” (as each such term is defined or used, directly or indirectly, in Regulation U of the Board of Governors of the Federal Reserve System). No part of the proceeds of any Term Loan will be used for purchasing or carrying margin stock or for any purpose which violates, or which would be inconsistent with, the provisions of Regulation T, U or X of such Board of Governors.
SECTION 5.11 Government Regulation. No Credit Party nor any Material Subsidiary thereof is an “investment company” or a company “controlled” by an “investment company” (as each such term is defined or used in the Investment Company Act).
SECTION 5.12 Financial Statements.
(a) The Borrower has heretofore furnished to the Administrative Agent and Lenders copies of (i) the audited consolidated balance sheets of the Borrower and its Subsidiaries for the fiscal years ending November 30, 2020, November 30, 2021 and the related statements of income, shareholders’ equity and cash flows for the fiscal years then ended, together with the opinion of Ernst & Young Ltd. thereon, prepared in accordance with GAAP, (ii) the unaudited consolidated balance sheet of the Borrower and its Subsidiaries as of the last day of the fiscal quarter ending March 31, 2021, and the related statements of income, shareholders’ equity and cash flows for the partial period then ended, prepared in accordance with
GAAP, subject to the absence of notes required by GAAP and normal year-end adjustments, which will include the unaudited 2021 Stub Period, (iii) the audited consolidated balance sheets of Hamilton Re and its Subsidiaries for the fiscal years ending November 30, 2020, November 30, 2021 and the related statements of income, shareholders’ equity and cash flows for the fiscal years then ended, together with the opinion of Ernst & Young Ltd. thereon, prepared in accordance with GAAP, and (iv) the unaudited consolidated balance sheet of Hamilton Re and its Subsidiaries as of the last day of the fiscal quarter ending March 31, 2021, and the related statement of income for the partial period then ended, prepared in accordance with GAAP, subject to the absence of notes required by GAAP and normal year-end adjustments. Such financial statements present fairly in all material respects the financial condition of the Borrower, Hamilton Re and their respective Subsidiaries, and the results of their operations and their cash flows, as of the dates and for the periods indicated, unless expressly disclosed to the Administrative Agent and the Lenders in writing to the contrary prior to the Closing Date.
(b) Neither (i) the board of directors of the Borrower or a committee thereof or an authorized officer of the Borrower or Hamilton Re has concluded that any financial statement previously furnished to the Administrative Agent should no longer be relied upon because of an error, nor (ii) has the Borrower or Hamilton Re been advised by its auditors that a previously issued audit report or interim review cannot be relied on.
SECTION 5.13 No Material Adverse Change. Except as set forth on Schedule 5.13, since December 31, 2021 (a) there has been no material adverse change in the properties, business, operations, or condition (financial or otherwise) of the Borrower and its Subsidiaries (taken as a whole) and (b) no event has occurred or condition arisen, either individually or in the aggregate, that would reasonably be expected to have a Material Adverse Effect.
SECTION 5.14 Solvency. The Credit Parties taken together are Solvent.
SECTION 5.15 Ownership of Properties. Each Credit Party and each Material Subsidiary thereof (i) has good and marketable title to all real property owned by it, (ii) holds interests as lessee under valid leases in full force and effect with respect to all material leased real and personal property used in connection with its business, and (iii) has good title to all of its other material properties and assets necessary or used in the ordinary course of its business, except for such defects in title as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
SECTION 5.16 Insurance Licenses. Each Insurance Subsidiary holds licenses (including licenses or certificates of authority from relevant Insurance Regulatory Authorities), permits or authorizations in all jurisdictions necessary to transact its insurance and reinsurance business (collectively, the “Licenses”), except where the failure to hold such License would not reasonably be expected to have a Material Adverse Effect. (i) No such License is the subject of a proceeding for suspension, revocation or limitation or any similar proceedings, and (ii) no such suspension, revocation or limitation is threatened in writing by any relevant Insurance Regulatory Authority, that, in each instance under (i) and (ii) above, would individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
SECTION 5.17 Litigation. There are no actions, suits or proceedings pending nor, to its knowledge, threatened in writing against any Credit Party or any Subsidiary thereof or any of their respective properties in any court or before any arbitrator of any kind or before or by any Governmental Authority that would reasonably be expected to have a Material Adverse Effect.
SECTION 5.18 Anti-Corruption Laws; Anti-Money Laundering Laws and Sanctions.
(a) None of (i) the Borrower, any Subsidiary, any of their respective directors, officers, or, to the knowledge of the Borrower or such Subsidiary, any of their respective employees or Affiliates, or (ii) any agent or representative of the Borrower or any Subsidiary that will act in any capacity in connection with or benefit from the Credit Facility, (A) is a Sanctioned Person or currently the subject or target of any Sanctions, (B) is controlled by or is acting on behalf of a Sanctioned Person, (C) has its assets located in a Sanctioned Country, (D) is under administrative, civil or criminal investigation for an alleged violation of, or received notice from or made a voluntary disclosure to any governmental entity regarding a possible violation of, Anti-Corruption Laws, Anti-Money Laundering Laws or Sanctions by a governmental authority that enforces Sanctions or any Anti-Corruption Laws or Anti-Money Laundering Laws, or (E) directly or indirectly derives revenues from investments in, or transactions with, Sanctioned Persons.
(b) Each of the Borrower and its Subsidiaries has implemented and maintains in effect policies and procedures designed to ensure compliance by the Borrower and its Subsidiaries and their respective directors, officers, employees, agents and Affiliates with all Anti-Corruption Laws, Anti-Money Laundering Laws, and Sanctions applicable to such Persons.
(c) Each of the Borrower and its Subsidiaries, each director, officer, and to the knowledge of the Borrower, employee, agent and Affiliate of the Borrower and each such Subsidiary, is in compliance with all applicable Anti-Corruption Laws, Anti-Money Laundering Laws, and Sanctions in all material respects.
(d) No proceeds of any Term Loan have been used, directly or, to the Borrower’s knowledge, indirectly, by the Borrower or any of its Subsidiaries or any of its or their respective directors, officers, employees and agents in violation of Section 6.12(c).
SECTION 5.19 Disclosure. No financial statement, material report, material certificate or other material factual information furnished (whether in writing or orally) by or on behalf of any Credit Party or any Material Subsidiary thereof to the Administrative Agent or any Lender in connection with the transactions contemplated hereby and the negotiation of this Agreement or delivered hereunder (as modified or supplemented by other information so furnished), taken together as a whole, contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements therein (taken as a whole), in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, pro forma financial information, estimated financial information and other projected or estimated information, such information was prepared in good faith based upon assumptions believed to be reasonable at the time prepared (it being recognized by the Lenders that projections are not to be viewed as facts and that the actual results during the period or periods covered by such projections may materially vary from such projections). As of the Fifth Amendment Effective Date, the information included in the Beneficial Ownership Certification is true and correct in all respects.
ARTICLE VI
AFFIRMATIVE COVENANTS
Until all of the Obligations (other than contingent indemnification obligations not then due) have been paid and satisfied in full in cash and the Commitments terminated, each Credit Party will, and will cause each of its Subsidiaries (other than the Excluded Subsidiaries) to:
SECTION 6.1 Financial Statements. Deliver to the Administrative Agent, in form and detail satisfactory to the Administrative Agent (which shall promptly make such information available to the Lenders in accordance with its customary practice):
(a) Annual Financial Statements. As soon as practicable and in any event within 90 days (or, if earlier, on the date of any required public filing thereof) after the end of each Fiscal Year (commencing with the Fiscal Year ended December 31, 2022), (i) an audited consolidated balance sheet of the Borrower and its Subsidiaries as of the close of such Fiscal Year and audited consolidated statements of income, retained earnings and cash flows including the notes thereto and (ii) an audited consolidated balance sheet of Hamilton Re and its Subsidiaries as of the close of such Fiscal Year and audited consolidated statements of income, retained earnings and cash flows including the notes thereto, all in reasonable detail setting forth in comparative form the corresponding figures as of the end of and for the preceding Fiscal Year and prepared in accordance with GAAP and, if applicable, containing disclosure of the effect on the financial position or results of operations of any change in the application of accounting principles and practices during the year. Such annual financial statements shall be audited by Ernst & Young LLP or an independent certified public accounting firm of recognized national standing acceptable to the Administrative Agent, and accompanied by a report thereon by such certified public accountants prepared in accordance with generally accepted auditing standards that is not subject to any “going concern” or similar qualification or exception or any qualification as to the scope of such audit or with respect to accounting principles followed by the Borrower, Hamilton Re or any of their respective Subsidiaries not in accordance with GAAP.
(b) Quarterly Financial Statements. As soon as practicable and in any event within 60 days (or, if earlier, on the date of any required public filing thereof) after the end of the first three fiscal quarters of each Fiscal Year (commencing with the fiscal quarter ended June 30, 2022), (i) an unaudited consolidated balance sheet of the Borrower and its Subsidiaries as of the close of such fiscal quarter and unaudited consolidated statements of income, retained earnings and cash flows, including the notes thereto, all in reasonable detail setting forth in comparative form the corresponding figures as of the end of and for the corresponding period in the preceding Fiscal Year and prepared in accordance with GAAP and (ii) an unaudited consolidated balance sheet of Hamilton Re and its Subsidiaries as of the close of such fiscal quarter and an unaudited consolidated statement of income, all in reasonable detail setting forth in comparative form the corresponding figures as of the end of and for the corresponding period in the preceding Fiscal Year and prepared in accordance with GAAP, and, in each case of clauses (i) and (ii), such financial statements present fairly in all material respects the financial condition of the Borrower and its Subsidiaries, as applicable, on a consolidated basis as of their respective dates and the results of operations of the Borrower and its Subsidiaries, as applicable, for the respective periods then ended, subject to normal year-end adjustments and the absence of footnotes.
(c) 2021 Stub Period Financial Statements. As soon as practicable and in any event within 455 days (or, if earlier, on the date of any required public filing thereof) after the end of the 2021 Stub Period, (i) audited consolidated statements of income, retained earnings and cash flows, including any notes thereto, of the Borrower and its Subsidiaries, prepared in accordance with GAAP and (ii) audited consolidated statements of income, retained earnings and cash flows, including any notes thereto, of Hamilton Re and its Subsidiaries, prepared in accordance with GAAP, and, in each case of clauses (i) and (ii), such financial statements present fairly in all material respects the financial condition of the Borrower and its Subsidiaries, as applicable, on a consolidated basis as of their respective dates and the results of operations of the Borrower and its Subsidiaries, as applicable, for the 2021 Stub Period.
SECTION 6.2 Certificates; Other Reports. Deliver to the Administrative Agent (which shall promptly make such information available to the Lenders in accordance with its customary practice):
(a) at each time financial statements are delivered pursuant to Section 6.1(a) or (b), a duly completed Officer’s Compliance Certificate signed by a Financial Officer of a Credit Party;
(b) promptly upon the request thereof, such other information and documentation required by bank regulatory authorities under applicable Anti-Money Laundering Laws (including, without limitation, any applicable “know your customer” rules and regulations and the PATRIOT Act), as from time to time reasonably requested by the Administrative Agent or any Lender; and
(c) such other documents or information regarding the operations, business affairs and financial condition of any Credit Party or any Subsidiary thereof as the Administrative Agent or any Lender may reasonably request (including, without limitation, copies of the Organizational Documents of any Credit Party or any Subsidiary thereof); provided that with respect to each Excluded Subsidiary, each Credit Party shall only be required to use commercially reasonable efforts to provide such information and shall not be required to pay any fees or other amounts or incur expenses to obtain such information.
SECTION 6.3 Notice of Litigation and Other Matters. Promptly notify the Administrative Agent in writing of (which shall promptly make such information available to the Lenders in accordance with its customary practice):
(a) the occurrence of any Default or Event of Default;
(b) the commencement of all proceedings and investigations by or before any Governmental Authority and all actions and proceedings in any court or before any arbitrator against or involving any Credit Party or any Subsidiary thereof (other than the Excluded Subsidiaries) or any of their respective properties, assets or businesses in each case that if adversely determined would reasonably be expected to result in a Material Adverse Effect;
(c) any attachment, judgment, lien, levy or order exceeding the Threshold Amount (other than Permitted Liens) that has been assessed against any Credit Party or any Subsidiary thereof (other than the Excluded Subsidiaries);
(d) (i) any unfavorable determination letter from the IRS regarding the qualification of an Employee Benefit Plan under Section 401(a) of the Code (along with a copy thereof), (ii) all notices received by any Credit Party or any ERISA Affiliate of the PBGC’s intent to terminate any Pension Plan or to have a trustee appointed to administer any Pension Plan, (iii) all notices received by any Credit Party or any ERISA Affiliate from a Multiemployer Plan sponsor concerning the imposition or amount of withdrawal liability pursuant to Section 4202 of ERISA and (iv) the Borrower obtaining knowledge or reason to know that any Credit Party or any ERISA Affiliate has filed or intends to file a notice of intent to terminate any Pension Plan under a distress termination within the meaning of Section 4041(c) of ERISA, in each case, that would reasonably be expected to result in a Material Adverse Effect; and
(e) any announcement by A.M. Best of any change in the Financial Strength Rating of Hamilton Re.
Each notice pursuant to Section 6.3(a) shall be accompanied by a statement of a Responsible Officer of the Borrower setting forth details of the occurrence referred to therein and stating what action the Credit Parties have taken and proposes to take with respect thereto and shall describe with particularity any and all provisions of this Agreement and any other Loan Document that have been breached.
SECTION 6.4 Preservation of Corporate Existence and Related Matters. Except as permitted by Section 7.5, preserve and maintain its separate corporate existence or equivalent form and all rights,
franchises, licenses and privileges necessary to the conduct of its business, and qualify and remain qualified as a foreign corporation or other entity and authorized to do business in each jurisdiction in which the failure to so qualify would reasonably be expected to have a Material Adverse Effect.
SECTION 6.5 Maintenance of Property and Licenses.
(a) Protect and preserve all Properties necessary in and material to its business, including copyrights, patents, trade names, service marks and trademarks; maintain in good working order and condition, ordinary wear and tear excepted, all buildings, equipment and other tangible real and personal property; and from time to time make or cause to be made all repairs, renewals and replacements thereof and additions to such Property necessary for the conduct of its business, so that the business carried on in connection therewith may be conducted in a commercially reasonable manner, in each case except as such action or inaction would not reasonably be expected to result in a Material Adverse Effect.
(b) Maintain, in full force and effect in all material respects, each and every material license, permit, certification, qualification, approval or franchise issued by any Governmental Authority required for each of them to conduct their respective businesses as presently conducted, except where the failure to do so would not reasonably be expected to have a Material Adverse Effect.
SECTION 6.6 Insurance. Maintain insurance with financially sound and reputable insurance companies against at least such risks and in at least such amounts as are customarily maintained in the same general area by companies of established repute engaged in similar businesses and as may be required by Applicable Law.
SECTION 6.7 Payment of Taxes and Other Obligations. Pay and perform all taxes, assessments and other governmental charges that may be levied or assessed upon it or any of its Property; provided, that the Borrower or such Subsidiary may contest any item described in this Section in good faith so long as adequate reserves are maintained with respect thereto in accordance with GAAP, except where the failure to pay or perform such items described in this Section would not reasonably be expected to have a Material Adverse Effect.
SECTION 6.8 Compliance with Laws and Approvals. Observe and remain in compliance in all material respects with all Applicable Laws and maintain in full force and effect all Governmental Approvals, in each case applicable to the conduct of its business except where the failure to do so would not reasonably be expected to have a Material Adverse Effect.
SECTION 6.9 Environmental Laws. In addition to and without limiting the generality of Section 6.8, (a) comply with, and ensure such compliance by all tenants and subtenants with all applicable Environmental Laws and obtain and comply with and maintain, and ensure that all tenants and subtenants, if any, obtain and comply with and maintain, any and all licenses, approvals, notifications, registrations or permits required by applicable Environmental Laws and (b) conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws, and promptly comply with all lawful orders and directives of any Governmental Authority regarding Environmental Laws, in each case, except where such failure to do so would not reasonably be expected to result in a Material Adverse Effect.
SECTION 6.10 Compliance with ERISA. In addition to and without limiting the generality of Section 6.8, (a) except where the failure to so comply would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, (i) comply with applicable provisions of ERISA, the Code and the regulations and published interpretations thereunder with respect to all Employee Benefit Plans, (ii) not take any action or fail to take action the result of which would reasonably be expected to
result in a liability to the PBGC or to a Multiemployer Plan, (iii) not participate in any prohibited transaction that would result in any civil penalty under ERISA or tax under the Code and (iv) operate each Employee Benefit Plan in such a manner that will not incur any tax liability under Section 4980B of the Code or any liability to any qualified beneficiary as defined in Section 4980B of the Code and (b) furnish to the Administrative Agent upon the Administrative Agent’s request such additional information about any Employee Benefit Plan as may be reasonably requested by the Administrative Agent.
SECTION 6.11 Maintenance of Books and Records; Inspection. Each Credit Party shall, and shall cause each of their respective Material Subsidiaries to, (i) maintain adequate books, accounts and records, in which full, true and correct entries shall be made of all financial transactions in relation to its business and properties, and prepare all financial statements required under this Agreement, in each case in accordance with GAAP and in compliance with the requirements of any Governmental Authority having jurisdiction over it, and (ii) permit employees or agents of the Administrative Agent, and after the occurrence and during the continuance of an Event of Default, any Lender, to visit and inspect its properties and examine or audit its books, records, working papers and accounts and make copies and memoranda of them, and at its own cost and expense (other than after the occurrence of an Event of Default), and to discuss its affairs, finances and accounts with its officers and employees and, upon notice to the Borrower, the independent public accountants of the Credit Parties and their Material Subsidiaries (and by this provision the Credit Parties authorize such accountants to discuss the finances and affairs of the Credit Parties and their Material Subsidiaries), all at such times and from time to time, upon reasonable notice and during business hours, as may be reasonably requested; provided that notwithstanding anything herein, none of the Credit Parties or any of their respective Material Subsidiaries will be required to disclose or permit the inspection or discussion of, any document, information or other matter (a) that constitutes non-financial trade secrets or non-financial proprietary information, (b) in respect of which disclosure to the Administrative Agent or the Lenders (or their respective representatives) is prohibited by Applicable Law or any binding agreement or (c) that is subject to attorney client or similar privilege or constitutes attorney work product, provided further except during the continuance of an Event of Default the Administrative Agent shall not exercise such rights described in clause (ii) of this Section more than once per calendar year.
SECTION 6.12 Use of Proceeds.
(a) The Borrower shall use the Initial Term Loan in connection with the Pembroke Acquisition to pay a portion of the purchase price under the Pembroke Acquisition Agreement.
(b) [intentionally omitted].
(c) The Borrower will not request any Term Loans, and the Borrower shall not use, and shall ensure that its Subsidiaries and its and their respective directors and officers and, to the Borrower’s knowledge, its and their respective employees and agents shall not use, the proceeds of any Term Loans, directly or, to the Borrower’s knowledge, indirectly, (i) in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person in violation of any Anti-Corruption Laws, (ii) for the purpose of funding, financing or facilitating any activities, business or transaction of or with any Sanctioned Person or a person subject or target of any Sanctions, or in any Sanctioned Country or (iii) in any manner that would result in the violation of any Sanctions applicable to any party hereto.
SECTION 6.13 Compliance with Anti-Corruption Laws; Beneficial Ownership Regulation; Anti-Money Laundering Laws and Sanctions. The Credit Parties will (a) maintain in effect and enforce policies and procedures designed to ensure compliance by the Credit Parties, their Subsidiaries (other than the Excluded Subsidiaries) and their respective directors, officers, employees and agents with all applicable
Anti-Corruption Laws, Anti-Money Laundering Laws, and Sanctions and (b) promptly upon the reasonable request of the Administrative Agent or any Lender, provide the Administrative Agent or such Lender, as the case may be, any information or documentation reasonably requested by it for purposes of complying with the Beneficial Ownership Regulation.
SECTION 6.14 Further Assurances. Execute any and all further documents, agreements and instruments, and take all such further actions which may be required under any Applicable Law, or which the Administrative Agent or the Required Lenders may reasonably request, to effectuate the transactions contemplated by the Loan Documents.
ARTICLE VII
NEGATIVE COVENANTS
Until all of the Obligations (other than contingent, indemnification obligations not then due) have been paid and satisfied in full in cash and the Commitments terminated, the Credit Parties will not, and will not permit any of their respective Subsidiaries (other than the Excluded Subsidiaries) to:
SECTION 7.1 Indebtedness. Create, incur, assume or suffer to exist any Indebtedness except:
(a) the Obligations;
(b) any Guaranty provided by a Subsidiary Guarantor pursuant to the Subsidiary Guarantee Agreement;
(c) Indebtedness in the form of letters of credit issued under (i) letter of credit facilities of any Insurance Subsidiary to support its and its Subsidiaries’ insurance obligations, obligations under reinsurance agreements and retrocession agreements to which it or any of its Subsidiaries is a party and similar risk obligations (including the Revolving Credit Agreement), and (ii) the Barclays Agreement, provided, that face amounts of letters of credit and related reimbursement obligations outstanding under the Barclays Agreement, at any time shall not exceed $400,000,000;
(d) Indebtedness under any Syndicate Arrangement;
(e) unsecured intercompany Indebtedness:
(i) owed by any Credit Party to another Credit Party;
(ii) owed by any Credit Party to any Subsidiary that is not a Credit Party (provided that such Indebtedness shall be subordinated to the Obligations in a manner reasonably satisfactory to the Administrative Agent); and
(iii) owed by any Subsidiary that is not a Credit Party to a Credit Party or to another Subsidiary that is not a Credit Party;
(f) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or other similar instrument drawn against insufficient funds in the ordinary course of business;
(g) Indebtedness under performance bonds, surety bonds, release, appeal and similar bonds, statutory obligations or with respect to workers’ compensation claims, in each case incurred in the ordinary course of business, and reimbursement obligations in respect of any of the foregoing;
(h) Indebtedness existing on the Fifth Amendment Effective Date and listed on Schedule 7.1, and the renewal, refinancing, extension and replacement (but not the increase in the aggregate principal amount) thereof;
(i) unsecured Indebtedness of any Credit Party, provided, that such Indebtedness does not contain representations and warranties, covenants and events of default that are materially more restrictive than those in this Agreement;
(j) Subordinated Indebtedness of any Credit Party;
(k) Indebtedness owing under Hedge Agreements entered into (i) in order to manage existing or anticipated interest rate, exchange rate or commodity price risks or (ii) in connection with insurance, reinsurance or other parametric, derivative or similar risk transfer arrangements, either assumed or ceded, in the ordinary course, in each case not for speculative purposes;
(l) capital and finance lease obligations and Indebtedness incurred in connection with purchase money Indebtedness in an aggregate amount not to exceed $50,000,000 at any time outstanding;
(m) Indebtedness of a Person existing at the time such Person became a Subsidiary or assets were acquired from such Person in connection with an Investment permitted pursuant to Section 7.3, to the extent that (i) such Indebtedness was not incurred in connection with, or in contemplation of, such Person becoming a Subsidiary or the acquisition of such assets, and (ii) no Credit Party or any Subsidiary thereof (other than such Person or any other Person that such Person merges with or that acquires the assets of such Person) shall have any liability or other obligation with respect to such Indebtedness;
(n) guarantees (A) by any Credit Party of Indebtedness otherwise permitted under this Section 7.1 and (B) by any Subsidiary that is not a Credit Party of Indebtedness permitted under Section 7.1(k), (l) and (o);
(o) Indebtedness not otherwise permitted pursuant to this Section in an aggregate principal amount not to exceed $25,000,000 at any time outstanding; and
(p) Disqualified Equity Interests pursuant to Section 5.3 of the Borrower’s Shareholders Agreement.
SECTION 7.2 Liens. Create, incur, assume or suffer to exist, any Lien on or with respect to any of its Property (other than “margin stock” which if covered hereby would cause the Lenders to be in violation of Regulation U), whether now owned or hereafter acquired, except:
(a) Liens created pursuant to the Loan Documents;
(b) Liens constituting a Permitted Security;
(c) Liens granted in connection with the Revolving Credit Agreement;
(d) Liens granted to the financial institutions under the Barclays Agreement, as in effect on the date hereof (and including the same Liens under any renewals, refinancings or replacements of such agreement after the date hereof);
(e) Liens for taxes, assessments and other governmental charges or levies (excluding any Lien imposed pursuant to any of the provisions of ERISA or Environmental Laws) (i) not yet due or as to which
the period of grace, if any, related thereto has not expired or (ii) which are being contested in good faith and by appropriate proceedings if adequate reserves are maintained to the extent required by GAAP;
(f) Liens in existence on the Fifth Amendment Effective Date and described on Schedule 7.2, and the replacement, renewal or extension thereof (including Liens incurred, assumed or suffered to exist in connection with any refinancing, refunding, renewal or extension of Indebtedness permitted pursuant to Section 7.1(h) (solely to the extent that such Liens were in existence on the Fifth Amendment Effective Date and described on Schedule 7.1)); provided that the scope of any such Lien shall not be increased, or otherwise expanded, to cover any additional property or type of asset, as applicable, other than any future additional property or type of asset required to be included as in existence on the Fifth Amendment Effective Date, including products and proceeds of the foregoing;
(g) the claims of materialmen, mechanics, carriers, warehousemen, processors or landlords for labor, materials, supplies or rentals incurred in the ordinary course of business, which (i) Liens are being contested in good faith and by appropriate proceedings if adequate reserves are maintained to the extent required by GAAP or (ii) do not, individually or in the aggregate, materially impair the use thereof in the operation of the business of the Borrower or any of its Subsidiaries;
(h) deposits or pledges made in the ordinary course of business in connection with, or to secure payment of, obligations under workers’ compensation, unemployment insurance and other types of social security or similar legislation, or to secure the performance of bids, trade contracts and leases (other than Indebtedness), statutory obligations, surety bonds (other than bonds related to judgments or litigation), performance bonds and other obligations of a like nature incurred in the ordinary course of business;
(i) encumbrances in the nature of zoning restrictions, easements and rights or restrictions of record on the use of real property, which in the aggregate are not substantial in amount and which do not, in any case, materially impair the use thereof in the ordinary conduct of business;
(j) Liens arising from the filing of precautionary UCC financing statements relating solely to personal property leased pursuant to operating leases entered into in the ordinary course of business of the Borrower and its Subsidiaries;
(k) Liens securing Indebtedness permitted under Section 7.1(1); provided that (i) such Liens shall be created within one hundred twenty (120) days of the acquisition, repair, construction, improvement or lease, as applicable, of the related Property, (ii) such Liens do not at any time encumber any property other than the Property financed or improved by such Indebtedness, (iii) the amount of Indebtedness secured thereby is not increased and (iv) the principal amount of Indebtedness secured by any such Lien shall at no time exceed one hundred percent (100%) of the original price for the purchase, repair, construction, improvement or lease amount (as applicable) of such Property at the time of purchase, repair, construction, improvement or lease (as applicable);
(l) Liens securing judgments for the payment of money not constituting an Event of Default under Section 8.1(l) or securing appeal or other surety bonds relating to such judgments;
(m) (i) Liens on Property (i) of any Subsidiary which are in existence at the time that such Subsidiary is acquired and (ii) of the Borrower or any of its Subsidiaries existing at the time such tangible property or tangible assets are purchased or otherwise acquired by the Borrower or such Subsidiary thereof pursuant to a transaction permitted pursuant to this Agreement; provided that, with respect to each of the foregoing clauses (i) and (ii), (A) such Liens are not incurred in connection with, or in anticipation of, such purchase or other acquisition, (B) such Liens are applicable only to specific Property, (C) such Liens are not “blanket” or all asset Liens, (D) such Liens do not attach to any other Property of the Borrower or any
of its Subsidiaries and (E) the Indebtedness secured by such Liens is permitted under Section 7.1(m) of this Agreement);
(n) (i) Liens of a collecting bank arising in the ordinary course of business under Section 4- 210 of the Uniform Commercial Code in effect in the relevant jurisdiction and (ii) Liens of any depositary bank in connection with statutory, common law and contractual rights of setoff and recoupment with respect to any deposit account of the Borrower or any Subsidiary thereof;
(o) (i) contractual or statutory Liens of landlords to the extent relating to the property and assets relating to any lease agreements with such landlord, and (ii) contractual Liens of suppliers (including sellers of goods) or customers granted in the ordinary course of business to the extent limited to the property or assets relating to such contract;
(p) any interest or title of a licensor, sublicensor, lessor or sublessor with respect to any assets under any license or lease agreement entered into in the ordinary course of business which do not (i) interfere in any material respect with the business of the Borrower or its Subsidiaries or (ii) secure any Indebtedness; and
(q) Liens not otherwise permitted hereunder securing Indebtedness or other obligations in the aggregate principal amount not to exceed $25,000,000 at any time outstanding.
SECTION 7.3 Investments. Make any Investment, except:
(a) Investments (other than Acquisitions) made in accordance with the investment policy approved by the board of directors of the Borrower from time to time;
(b) Investments in existence on the Fifth Amendment Effective Date set forth on Schedule 7.3;
(c) Investments (including intercompany loans made by a Credit Party pursuant to Section 7.1(e)) by the Borrower in any Subsidiary or any Subsidiary in another Subsidiary;
(d) Investments in cash and Cash Equivalents;
(e) Investments by the Borrower or any of its Subsidiaries consisting of capital expenditures;
(f) deposits made in the ordinary course of business to secure the performance of leases or other obligations as permitted by Section 7.2;
(g) Hedge Agreements permitted pursuant to Section 7.1;
(h) purchases of assets in the ordinary course of business;
(i) Investments consisting of Acquisitions consistent with Section 7.10; provided, that immediately prior and after giving effect to each such Acquisition, (i) no Event of Default shall have occurred and be continuing; (ii) such Acquisition has been duly authorized by (A) the board of directors of the Borrower (to the extent such approval is required by the Borrower’s constituent documents) and (B) such Person to be acquired prior to the commencement of any tender offer, proxy contest or the like in respect thereof, if applicable, and (iii) such Acquisition would not reasonably be expected to result in the Financial Strength Rating of Hamilton Re to fall below A-; and
(j) Investments in the form of Restricted Payments permitted pursuant to Section 7.6.
SECTION 7.4 Fundamental Changes. Except as permitted under Section 7.5, merge, amalgamate consolidate or enter into any similar combination (whether in a single transaction or a series of transactions) with, any other Person or liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution), except that (i) any Credit Party or any Subsidiary may merge into or consolidate with any other Person so long as (a) the surviving corporation is a Credit Party or a Wholly Owned Subsidiary of a Credit Party (and in any event, if a Credit Party is a party to such merger, amalgamation or consolidation, the surviving corporation shall be such Credit Party, it being understood and agreed that in the case of a merger, amalgamation or consolidation between the Borrower and any other Credit Party, the survivor corporation of such merger, amalgamation or consolidation shall be the Borrower), and (b) immediately before and after giving effect thereto, no Default or Event of Default would occur or exist and (ii) any Subsidiary may liquidate, wind up or dissolve if (x) such Subsidiary owns no more than a nominal amount of assets, has no more than a nominal amount of liabilities and does not actively conduct, transact or otherwise engage in any business or operations and (y) such liquidation, winding up or dissolution is not materially disadvantageous to the Lenders.
SECTION 7.5 Asset Dispositions. Make any Asset Disposition except:
(a) any Asset Disposition in the ordinary course of business, including any intra-Group capital contributions;
(b) the transfer of assets to any Credit Party pursuant to any transaction permitted pursuant to Section 7.4;
(c) the write-off, discount, sale or other disposition of defaulted or past-due receivables and similar obligations in the ordinary course of business and not undertaken as part of an accounts receivable financing transaction;
(d) dispositions of Investments in cash and Cash Equivalents, including any disposition as to which the proceeds are applied to the Obligations of any Credit Party under this Agreement or the Revolving Credit Agreement substantially concurrent with such disposition;
(e) the transfer by any Credit Party of its assets to any other Credit Party;
(f) the transfer by any Subsidiary of the Borrower of its assets to any Credit Party (provided that in connection with any new transfer, such Credit Party shall not pay more than an amount equal to the fair market value of such assets as determined in good faith at the time of such transfer);
(g) the transfer by any Wholly-Owned Subsidiary of the Borrower (other than Hamilton Re) of its assets to another Wholly-Owned Subsidiary of the Borrower (other than Hamilton Re);
(h) the sale of obsolete, worn-out or surplus assets no longer used or usable in the business of the Borrower or any of its Subsidiaries;
(i) any Asset Disposition described on Schedule 7.5;
(j) any Restricted Payments permitted pursuant to Section 7.6;
(k) any Asset Disposition as to which the proceeds are applied to the Obligations of any Credit Party under this Agreement or the Revolving Credit Agreement (with a corresponding reduction of the commitments thereunder) substantially concurrent with such Asset Disposition; and
(l) Asset Dispositions not otherwise permitted pursuant to this Section; provided that (i) at the time of such Asset Disposition, no Event of Default shall exist or would result from such Asset Disposition, (ii) such Asset Disposition is made for fair market value, and (iii) the aggregate fair market value of all property disposed of in reliance on this clause (l) shall not exceed $10,000,000 in any Fiscal Year.
SECTION 7.6 Restricted Payments. Declare or pay any Restricted Payments; provided that:
(a) so long as no Default or Event of Default has occurred and is continuing or would result therefrom, the Borrower may declare and pay cash dividends to the holders of its Equity Interests;
(b) so long as no Default or Event of Default has occurred and is continuing or would result therefrom, the Borrower may redeem, retire or otherwise acquire shares of its Equity Interests or options or other equity or phantom equity in respect of its Equity Interests; and
(c) any Subsidiary of the Borrower may (i) declare and pay dividends to any Credit Party or to a Wholly Owned Subsidiary and (ii) declare and pay pro rata dividends to such Subsidiary’s equity holders.
SECTION 7.7 Transactions with Affiliates. Directly or indirectly enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of Property, the rendering of any service or the payment of any management, advisory or similar fees, with (a) any executive officer, director or direct or indirect holder of 10% or more Equity Interests in, or other Affiliate of, the Borrower or any of its Subsidiaries, (b) any Affiliate of any such executive officer, director or holder, other than:
(i) transactions permitted by Section 7.1, 7.3, 7.4, 7.5, and 7.6;
(ii) transactions among Credit Parties not prohibited hereunder;
(iii) other transactions on terms as favorable as would be obtained by it on a comparable arm’s-length transaction with an independent, unrelated third party as determined in good faith by the board of directors (or equivalent governing body) of the Borrower;
(iv) employment and severance arrangements (including equity incentive plans and employee benefit plans and arrangements) with their respective officers and employees in the ordinary course of business; and
(v) payment of customary fees and reasonable out of pocket costs to, and indemnities for the benefit of, directors, officers and employees of the Borrower and its Subsidiaries in the ordinary course of business to the extent attributable to the ownership or operation of the Borrower and its Subsidiaries.
SECTION 7.8 Accounting Changes; Organizational Documents.
(a) Change its Fiscal Year end or make (without the consent of the Administrative Agent) any material change in its accounting treatment and reporting practices except as required by GAAP.
(b) Amend, modify or change its Organizational Documents (including, without limitation, the Borrower’s Shareholders Agreement) in any manner materially adverse to the rights or interests of the Lenders under the Loan Documents, as determined in good faith by the Administrative Agent (it being understood that the Borrower is not required to submit for approval any amendment, modification or change that is not materially adverse to the rights or interests of the Lenders under the Loan Documents). The Administrative Agent’s determination in good faith as to whether any such amendment, modification or change is materially adverse to the rights or interests of the Lenders under the Loan Documents shall be conclusive and binding on all parties hereto, and the Administrative Agent agrees to respond within 10 Business Days to any request by a Credit Party to make such a determination in connection with an amendment, modification or change to an Organizational Document.
SECTION 7.9 No Further Negative Pledges; Restrictive Agreements.
(a) Enter into, assume or be subject to any agreement prohibiting or otherwise restricting the creation or assumption of any Lien upon its properties or assets, whether now owned or hereafter acquired, or requiring the grant of any security for such obligation if security is given for some other obligation, except (i) pursuant to this Agreement and the other Loan Documents, (ii) pursuant to the Barclays Agreement as in effect on the date hereof (and any renewals, refinancings or replacements of such agreement after the date hereof that contain substantially similar restrictions as in effect on the date hereof), (iii) customary restrictions contained in the Organizational Documents of any Subsidiary of the Borrower as of the Closing Date, (iv) customary restrictions in connection with any Permitted Lien or any document or instrument governing any Permitted Lien (provided that any such restriction contained therein relates only to the asset or assets subject to such Permitted Lien), (v) pursuant to any letter of credit facility permitted under Section 7.1(c)(i) containing restrictions that are not materially more restrictive than those in this Agreement and (vi) pursuant to any unsecured Indebtedness incurred pursuant to Section 7.1(i).
(b) Create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Credit Party or any Material Subsidiary thereof to (i) pay dividends or make any other distributions to any Credit Party or any Subsidiary on its Equity Interests or with respect to any other interest or participation in, or measured by, its profits, (ii) pay any Indebtedness or other obligation owed to any Credit Party or (iii) make loans or advances to any Credit Party, except in each case for such encumbrances or restrictions existing under or by reason of (A) this Agreement and the other Loan Documents, (B) Applicable Law, (C) the Barclays Agreement as in effect on the date hereof (and any renewals, refinancings or replacements of such agreement after the date hereof that contain substantially similar restrictions as in effect on the date hereof), (D) pursuant to any letter of credit facility permitted under Section 7.1(c)(i) containing restrictions that are not materially more restrictive than those in this Agreement and (E) pursuant to any unsecured Indebtedness incurred pursuant to Section 7.1(i).
(c) Create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Credit Party or any Material Subsidiary thereof to (i) sell, lease or transfer any of its properties or assets to any Credit Party or (ii) act as a Credit Party pursuant to the Loan Documents or any renewals, refinancings, exchanges, refundings or extension thereof, except in each case for such encumbrances or restrictions existing under or by reason of (A) this Agreement and the other Loan Documents, (B) Applicable Law, (C) the Barclays Agreement as in effect on the date hereof (and any renewals, refinancings or replacements of such agreements after the date hereof that contain substantially similar restrictions as in effect on the date hereof), (D) any Permitted Lien or any document or instrument governing any Permitted Lien (provided that any such restriction contained therein relates only to the asset or assets subject to such Permitted Lien), (E) obligations that are binding on a Subsidiary at the time such Subsidiary first becomes a Subsidiary of the Borrower, so long as such obligations are not entered into in contemplation of such Person becoming a Subsidiary, (F) customary restrictions contained in an agreement related to the sale of Property (to the extent such sale is permitted pursuant to Section 7.5)
that limit the transfer of such Property pending the consummation of such sale, (G) customary restrictions in leases, subleases, licenses and sublicenses or asset sale agreements otherwise permitted by this Agreement so long as such restrictions relate only to the assets subject thereto, (H) customary provisions restricting assignment of any agreement entered into in the ordinary course of business, (I) pursuant to any letter of credit facility permitted under Section 7.1(c)(i) containing restrictions that are not materially more restrictive than those in this Agreement and (J) pursuant to any unsecured Indebtedness incurred pursuant to Section 7.1(i).
SECTION 7.10 Nature of Business. Engage in any business other than the business conducted by the Borrower and its Material Subsidiaries as of the Closing Date and any business or business activities incidental or reasonably related or ancillary thereto or that are reasonable extensions, developments, and expansions thereof. For the avoidance of doubt: (a) ICC3L ceasing to underwrite new insurance business after the 2019 underwriting year of account and (b) any increased underwriting from HCML supporting Syndicate 4000 and Syndicate 2014 (with Syndicate 2014, being a syndicate at Lloyd’s under the management of Hamilton Managing Agency Limited, having been placed into run-off) shall not cause a breach of this Section.
SECTION 7.11 Sale Leasebacks. Directly or indirectly become or remain liable as lessee or as guarantor or other surety with respect to any lease, whether an operating lease, capital lease or finance lease, of any Property (whether real, personal or mixed), whether now owned or hereafter acquired, (a) which any Credit Party or any Subsidiary thereof has sold or transferred or is to sell or transfer to a Person which is not another Credit Party or Subsidiary of a Credit Party or (b) which any Credit Party or any Subsidiary of a Credit Party intends to use for substantially the same purpose as any other Property that has been sold or is to be sold or transferred by such Credit Party or such Subsidiary to another Person which is not another Credit Party or Subsidiary of a Credit Party in connection with such lease.
SECTION 7.12 Financial Strength Rating. At any time, permit the Financial Strength Rating of Hamilton Re and any other present or future material Insurance Subsidiary of the Borrower to fall below B++.
SECTION 7.13 Financial Covenants.
(a) Consolidated Indebtedness to Total Capitalization Ratio. At any time after the Closing Date, permit the ratio of Consolidated Indebtedness to Total Capitalization of the Borrower and its Subsidiaries to be greater than 30%. For the purposes of calculating this ratio:
(i) Consolidated Indebtedness will be calculated on a consolidated basis (and therefore intra-Group balances shall not be treated as Consolidated Indebtedness); and
(ii) Letters of credit outstanding under the Barclays Agreement in relation to which no unreimbursed demand is outstanding will not be treated as Consolidated Indebtedness, provided that such letters of credit are also excluded from “Debt” under the corresponding “Debt to Capitalisation” ratio in the Barclays Agreement.
(b) Consolidated Tangible Net Worth. As of the last day of any fiscal quarter, permit Consolidated Tangible Net Worth to be less than an amount equal to (i) $1,145,198,000 plus, (ii) for each Fiscal Year ending on or after December 31, 2022 for which there is positive Consolidated Net Income during such Fiscal Year, 35% of such positive Consolidated Net Income, plus (iii) 35% of net cash proceeds of the aggregate increases in common Equity Interests (by virtue of net equity issuance, debt conversion or contribution) by the Group at any time after December 31, 2021, excluding the impact of Equity Interests issued to employees or directors of the Group under its long term incentive plan or share purchase programs.
ARTICLE VIII
DEFAULT AND REMEDIES
SECTION 8.1 Events of Default. Each of the following shall constitute an Event of Default:
(a) Default in Payment of Principal of Term Loans. The Borrower shall default in any payment of principal of any Term Loan when and as due (whether at maturity, by reason of acceleration or otherwise).
(b) Other Payment Default. The Borrower shall default in the payment when and as due (whether at maturity, by reason of acceleration or otherwise) of interest on any Term Loan or the payment of any other Obligation, and such default shall continue for a period of five (5) Business Days if such default is caused by an administrative or technical error.
(c) Misrepresentation. Any representation, warranty, certification or statement of fact made or deemed made by or on behalf of any Credit Party or any Subsidiary thereof in this Agreement, in any other Loan Document, or in any document delivered in connection herewith or therewith that is subject to materiality or Material Adverse Effect qualifications, shall be incorrect or misleading in any respect when made or deemed made or any representation, warranty, certification or statement of fact made or deemed made by or on behalf of any Credit Party or any Subsidiary thereof in this Agreement, any other Loan Document, or in any document delivered in connection herewith or therewith that is not subject to materiality or Material Adverse Effect qualifications, shall be incorrect or misleading in any material respect when made or deemed made.
(d) Default in Performance of Certain Covenants. Any Credit Party or any Subsidiary thereof (other than the Excluded Subsidiaries) shall default in the performance or observance of any covenant or agreement contained in Sections 6.1, 6.2(a), 6.3(a), 6.4 (as to existence only), 6.12, or Article VII.
(e) Default in Performance of Other Covenants and Conditions. Any Credit Party or any Subsidiary thereof (other than the Excluded Subsidiaries) shall default in the performance or observance of any term, covenant, condition or agreement contained in this Agreement (other than as specifically provided for in this Section) or any other Loan Document and such default shall continue for a period of thirty (30) days after the earlier of (i) the Administrative Agent’s delivery of written notice thereof to the Borrower and (ii) a Responsible Officer of any Credit Party having obtained knowledge thereof.
(f) Indebtedness Cross-Default. Any Credit Party or any Subsidiary thereof (other than the Excluded Subsidiaries) shall (i) default in the payment of any Indebtedness (other than the Term Loans) the aggregate principal amount (including undrawn committed or available amounts) of which is in excess of the Threshold Amount, or with respect to any Hedge Agreement, the Hedge Termination Value of which is in excess of the Threshold Amount, in each case beyond the period of grace if any, provided in the instrument or agreement under which such Indebtedness was created, or (ii) default in the observance or performance of any other agreement or condition relating to any Indebtedness (other than the Term Loans) the aggregate principal amount (including undrawn committed or available amounts), or with respect to any Hedge Agreement, the Hedge Termination Value, of which is in excess of the Threshold Amount or contained in any instrument or agreement evidencing, securing or relating thereto or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, with the giving of notice and/or lapse of time, if required, any such Indebtedness to (A) become due, or to be repurchased, prepaid, defeased or redeemed (automatically or otherwise), or an offer to repurchase,
prepay, defease or redeem such Indebtedness to be made, prior to its stated maturity (any applicable grace period having expired) or (B) be cash collateralized.
(g) Change in Control. Any Change in Control shall occur.
(h) Voluntary Bankruptcy Proceeding. Any Credit Party or any Material Subsidiary thereof shall (i) commence a voluntary case under any Debtor Relief Laws, (ii) file a petition seeking to take advantage of any Debtor Relief Laws, (iii) consent to or fail to contest in a timely and appropriate manner any petition filed against it in an involuntary case under any Debtor Relief Laws, (iv) apply for or consent to, or fail to contest in a timely and appropriate manner, the appointment of, or the taking of possession by, a receiver, custodian, trustee, or liquidator of itself or of a substantial part of its property, domestic or foreign, (v) admit in writing its inability to pay its debts as they become due, (vi) make a general assignment for the benefit of creditors, or (vii) take any corporate action for the purpose of authorizing any of the foregoing.
(i) Involuntary Bankruptcy Proceeding. A case or other proceeding shall be commenced against any Credit Party or any Material Subsidiary thereof in any court of competent jurisdiction seeking (i) relief under any Debtor Relief Laws, or (ii) the appointment of a trustee, receiver, custodian, liquidator or the like for any Credit Party or any Material Subsidiary thereof or for all or any substantial part of their respective assets, domestic or foreign, and such case or proceeding shall continue without dismissal or stay for a period of sixty (60) consecutive days, or an order granting the relief requested in such case or proceeding (including, but not limited to, an order for relief under such federal bankruptcy laws) shall be entered; provided that the foregoing shall not apply to any winding-up petition which is frivolous or vexatious and is discharged, stayed or dismissed within twenty (20) Business Days of commencement.
(j) Failure of Agreements. Any provision of this Agreement or any provision of any other Loan Document shall for any reason cease to be in full force and effect (other than in accordance with its terms or by reason of the release of a Credit Party or its assets in accordance with the terms of the Loan Documents or the satisfaction in full of the Obligations in accordance with the terms hereof) or any Credit Party or any Subsidiary thereof (other than the Excluded Subsidiaries) party to any Loan Document shall contest the validity or enforceability of the Loan Documents in writing.
(k) ERISA Events. The occurrence of any Termination Event that could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(l) Judgment. One or more judgments, orders or decrees shall be entered against any Credit Party or any Subsidiary thereof (other than the Excluded Subsidiaries) by any court and continues without having been satisfied, discharged, vacated or stayed for a period of thirty (30) consecutive days after the entry thereof and such judgments, orders or decrees are either (i) for the payment of money, individually or in the aggregate (not paid or fully covered by insurance as to which the relevant insurance company has acknowledged coverage) equal to or in excess of the Threshold Amount or (ii) for injunctive relief and would reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.
SECTION 8.2 Remedies. Upon the occurrence and during the continuance of an Event of Default, with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the Borrower:
(a) Acceleration; Termination of Credit Facility. Terminate the Commitments and declare the principal of and interest on the Term Loans at the time outstanding, and all other amounts owed to the Lenders and to the Administrative Agent under this Agreement or any of the other Loan Documents and all other Obligations, to be forthwith due and payable, whereupon the same shall promptly become due and
payable without presentment, demand, protest or other notice of any kind, all of which are expressly waived by each Credit Party, anything in this Agreement or the other Loan Documents to the contrary notwithstanding, and terminate the Credit Facility; provided, that upon the occurrence of an Event of Default specified in Section 8.1(h) or Section 8.1(i), the Credit Facility shall be automatically terminated, all Commitments shall automatically terminate and all Obligations shall automatically become due and payable without presentment, demand, protest or other notice of any kind, all of which are expressly waived by each Credit Party, anything in this Agreement or in any other Loan Document to the contrary notwithstanding.
SECTION 8.3 Rights and Remedies Cumulative; Non-Waiver; etc.
(a) The enumeration of the rights and remedies of the Administrative Agent and the Lenders set forth in this Agreement is not intended to be exhaustive and the exercise by the Administrative Agent and the Lenders of any right or remedy shall not preclude the exercise of any other rights or remedies, all of which shall be cumulative, and shall be in addition to any other right or remedy given hereunder or under the other Loan Documents or that may now or hereafter exist at law or in equity or by suit or otherwise. No delay or failure to take action on the part of the Administrative Agent or any Lender in exercising any right, power or privilege shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege or shall be construed to be a waiver of any Event of Default. No course of dealing between the Borrower, the Administrative Agent and the Lenders or their respective agents or employees shall be effective to change, modify or discharge any provision of this Agreement or any of the other Loan Documents or to constitute a waiver of any Event of Default.
(b) Notwithstanding anything to the contrary contained herein or in any other Loan Document, the authority to enforce rights and remedies hereunder and under the other Loan Documents against the Credit Parties or any of them shall be vested exclusively in, and all actions and proceedings at law in connection with such enforcement shall be instituted and maintained exclusively by, the Administrative Agent in accordance with Section 8.2 for the benefit of all the Lenders; provided that the foregoing shall not prohibit (a) the Administrative Agent from exercising on its own behalf the rights and remedies that inure to its benefit (solely in its capacity as Administrative Agent) hereunder and under the other Loan Documents, (b) any Lender from exercising setoff rights in accordance with Section 10.4 (subject to the terms of Section 3.6), or (c) any Lender from filing proofs of claim or appearing and filing pleadings on its own behalf during the pendency of a proceeding relative to any Credit Party under any Debtor Relief Law; and provided, further, that if at any time there is no Person acting as Administrative Agent hereunder and under the other Loan Documents, then (i) the Required Lenders shall have the rights otherwise ascribed to the Administrative Agent pursuant to Section 8.2 and (ii) in addition to the matters set forth in clauses (b), (c) and (d) of the preceding proviso and subject to Section 3.6, any Lender may, with the consent of the Required Lenders, enforce any rights and remedies available to it and as authorized by the Required Lenders.
SECTION 8.4 Administrative Agent May File Proofs of Claim. In case of the pendency of any proceeding under any Debtor Relief Law or any other judicial proceeding relative to any Credit Party, the Administrative Agent (irrespective of whether any Obligation shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Credit Parties) shall be entitled and empowered (but not obligated) by intervention in such proceeding or otherwise:
(a) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders and the Administrative Agent (including
any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders and the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders and the Administrative Agent under Section 3.3 and Section 10.3) allowed in such judicial proceeding; and
(b) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Section 3.3 and Section 10.3. Nothing contained herein shall be deemed to authorize the Administrative Agent to consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment, or composition affecting the obligations of any Credit Party hereunder or the rights of any Lender or to authorize the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding.
ARTICLE IX
THE ADMINISTRATIVE AGENT
SECTION 9.1 Appointment and Authority.
(a) Each of the Lenders hereby irrevocably appoints Wells Fargo to act on its behalf as the Administrative Agent hereunder and under the other Loan Documents 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 or thereof, together with such actions and powers as are reasonably incidental thereto. The provisions of this Article are solely for the benefit of the Administrative Agent and the Lenders, and neither any Credit Party nor their respective Subsidiaries shall have rights as a third-party beneficiary of any of such provisions. It is understood and agreed that the use of the term “agent” herein or in any other Loan Documents (or any other similar term) with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any Applicable Law. Instead such term is used as a matter of market custom, and is intended to create or reflect only an administrative relationship between contracting parties.
SECTION 9.2 Rights as a Lender. 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 the term “Lender” or “Lenders” shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Administrative Agent hereunder in its individual capacity. Such Person and its Affiliates may accept deposits from, lend money to, own securities of, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if such Person were not the Administrative Agent hereunder and without any duty to account therefor to the Lenders.
SECTION 9.3 Exculpatory Provisions.
(a) The Administrative Agent shall not have any duties or obligations except those expressly set forth herein and in the other Loan Documents, and its duties hereunder and thereunder shall be administrative in nature. Without limiting the generality of the foregoing, the Administrative Agent:
(i) shall not be subject to any fiduciary or other implied duties, regardless of whether a Default or Event of Default has occurred and is continuing;
(ii) shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Administrative Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents), provided that the Administrative Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Loan Document or Applicable Law, including for the avoidance of doubt any action that may be in violation of the automatic stay under any Debtor Relief Law or that may effect a forfeiture, modification or termination of property of a Defaulting Lender in violation of any Debtor Relief Law; and
(iii) shall not, except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to any Credit Party or any of their respective Subsidiaries or Affiliates that is communicated to or obtained by the Person serving as the Administrative Agent or any of its Affiliates in any capacity.
(b) The Administrative Agent shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith shall be necessary, under the circumstances as provided in Section 8.2 and Section 10.2) or (ii) in the absence of its own gross negligence or willful misconduct as determined by a court of competent jurisdiction by final nonappealable judgment. The Administrative Agent shall be deemed not to have knowledge of any Default or Event of Default unless and until notice describing such Default or Event of Default is given to the Administrative Agent by a Credit Party or a Lender.
(c) 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 or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default or Event of Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document or (v) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.
(d) The Administrative Agent shall not be responsible or have any liability for, or have any duty to ascertain, inquire into, monitor or enforce, compliance with the provisions hereof relating to Disqualified Institutions. Without limiting the generality of the foregoing, the Administrative Agent shall not (x) be obligated to ascertain, monitor or inquire as to whether any Lender or Participant or prospective Lender or Participant is a Disqualified Institution or (y) have any liability with respect to or arising out of any assignment or participation of Term Loans, or disclosure of confidential information, to any Disqualified Institution.
SECTION 9.4 Reliance by 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 (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated 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 have been made by the proper Person, and shall not incur any liability for relying thereon. In determining compliance with any condition hereunder to the making of a Term Loan that by its terms must be fulfilled to the satisfaction of a Lender, the Administrative Agent may presume that such condition is satisfactory to such Lender unless the Administrative Agent shall have received notice to the contrary from such Lender prior to the making of such Term Loan. The Administrative Agent may consult with legal counsel (who may be counsel for any Credit 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.
SECTION 9.5 Delegation of Duties. The Administrative Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Document 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 of its duties and exercise its rights and powers by or through their respective Related Parties. The exculpatory provisions of this Article 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 Facility as well as activities as Administrative Agent. The Administrative Agent shall not be responsible for the negligence or misconduct of any sub-agents except to the extent that a court of competent jurisdiction determines in a final and nonappealable judgment that the Administrative Agent acted with gross negligence or willful misconduct in the selection of such sub-agents.
SECTION 9.6 Resignation of Administrative Agent.
(a) The Administrative Agent may at any time give notice of its resignation to the Lenders and the Borrower. Upon receipt of any such notice of resignation, the Required Lenders shall have the right, in consultation with the Borrower and subject to the consent (not to be unreasonably withheld or delayed) of the Borrower (provided no Event of Default has occurred and is continuing at the time of such resignation), to appoint a successor, which shall be a bank with an office in the United States, or an Affiliate of any such bank with an office in the United States. If no such 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 (or such earlier day as shall be agreed by the Required Lenders) (the “Resignation Effective Date”), then the retiring Administrative Agent may (but shall not be obligated to), on behalf of the Lenders, appoint a successor Administrative Agent meeting the qualifications set forth above; provided that in no event shall any such successor Administrative Agent be a Defaulting Lender or a Disqualified Institution. Whether or not a successor has been appointed, such resignation shall become effective in accordance with such notice on the Resignation Effective Date.
(b) If the Person serving as Administrative Agent is a Defaulting Lender pursuant to clause (d) of the definition thereof, the Required Lenders may, to the extent permitted by Applicable Law, by notice in writing to the Borrower and such Person, remove such Person as Administrative Agent and, in consultation with the Borrower appoint a successor. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days (or such earlier day as shall be agreed by the Required Lenders) (the “Removal Effective Date”), then such removal shall nonetheless become effective in accordance with such notice on the Removal Effective Date.
(c) With effect from the Resignation Effective Date or the Removal Effective Date (as applicable), (i) the retiring or removed Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents (except that in the case of any collateral security held by the Administrative Agent on behalf of the Lenders under any of the Loan Documents, the retiring or removed Administrative Agent shall continue to hold such collateral security until such time as a successor Administrative Agent is appointed) and (ii) except for any indemnity payments owed to the
retiring or removed Administrative Agent, all payments, communications and determinations provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender directly, until such time, if any, as the Required Lenders appoint a successor Administrative Agent as provided for above. Upon the acceptance of a successor’s appointment as Administrative Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring or removed Administrative Agent (other than any rights to indemnity payments owed to the retiring or removed Administrative Agent), and the retiring or removed Administrative Agent shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents. The fees payable by the Credit Parties to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Credit Parties and such successor. After the retiring or removed Administrative Agent’s resignation or removal hereunder and under the other Loan Documents, the provisions of this Article and Section 10.3 shall continue in effect for the benefit of such retiring or removed Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring or removed Administrative Agent was acting as Administrative Agent.
SECTION 9.7 Non-Reliance on Administrative Agent and Other Lenders. Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties 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 or any of their Related Parties 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 other Loan Document or any related agreement or any document furnished hereunder or thereunder.
SECTION 9.8 No Other Duties, Etc. Anything herein to the contrary notwithstanding, none of the syndication agents, documentation agents, co-agents, arrangers or bookrunners listed on the cover page hereof shall have any powers, duties or responsibilities under this Agreement or any of the other Loan Documents, except in its capacity, as applicable, as the Administrative Agent or a Lender hereunder.
SECTION 9.9 Certain ERISA Matters.
(a) Each Lender (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto, for the benefit of, the Administrative Agent and not, for the avoidance of doubt, to or for the benefit of any Credit Party, that at least one of the following is and will be true:
(i) such Lender is not using “plan assets” (within the meaning of Section 3(42) of ERISA or otherwise) of one or more Benefit Plans with respect to such Lender’s entrance into, participation in, administration of and performance of the Term Loans, the Commitments or this Agreement,
(ii) the transaction exemption set forth in one or more PTEs, such as PTE 84-14 (a class exemption for certain transactions determined by independent qualified professional asset managers), PTE 95-60 (a class exemption for certain transactions involving insurance company general accounts), PTE 90-1 (a class exemption for certain transactions involving insurance company pooled separate accounts), PTE 91-38 (a class exemption for certain transactions involving bank collective investment funds) or PTE 96-23 (a class exemption for certain transactions determined by in-house asset managers), is applicable with respect to such Lender’s
entrance into, participation in, administration of and performance of the Term Loans, the Commitments and this Agreement,
(iii) (A) such Lender is an investment fund managed by a “Qualified Professional Asset Manager” (within the meaning of Part VI of PTE 84-14), (B) such Qualified Professional Asset Manager made the investment decision on behalf of such Lender to enter into, participate in, administer and perform the Term Loans, the Commitments and this Agreement, (C) the entrance into, participation in, administration of and performance of the Term Loans, the Commitments and this Agreement satisfies the requirements of sub-sections (b) through (g) of Part I of PTE 84-14 and (D) to the best knowledge of such Lender, the requirements of subsection (a) of Part I of PTE 84-14 are satisfied with respect to such Lender’s entrance into, participation in, administration of and performance of the Term Loans, the Commitments and this Agreement, or
(iv) such other representation, warranty and covenant as may be agreed in writing between the Administrative Agent, in its sole discretion, and such Lender.
(b) In addition, unless either (1) sub-clause (i) in the immediately preceding clause (a) is true with respect to a Lender or (2) a Lender has provided another representation, warranty and covenant in accordance with sub-clause (iv) in the immediately preceding clause (a), such Lender further (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto, for the benefit of, the Administrative Agent and not, for the avoidance of doubt, to or for the benefit of any Credit Party, that the Administrative Agent is not a fiduciary with respect to the assets of such Lender involved in such Lender’s entrance into, participation in, administration of and performance of the Term Loans, the Commitments and this Agreement (including in connection with the reservation or exercise of any rights by the Administrative Agent under this Agreement, any Loan Document or any documents related hereto or thereto).
SECTION 9.10 Erroneous Payments.
(a) Each Lender and any other party hereto hereby severally agrees that if (i) the Administrative Agent notifies (which such notice shall be conclusive absent manifest error) such Lender or any other Person that has received funds from the Administrative Agent or any of its Affiliates, either for its own account or on behalf of a Lender (each such recipient, a “Payment Recipient”) that the Administrative Agent has determined in its sole discretion that any funds received by such Payment Recipient were erroneously transmitted to, or otherwise erroneously or mistakenly received by, such Payment Recipient (whether or not known to such Payment Recipient) or (ii) any Payment Recipient receives any payment from the Administrative Agent (or any of its Affiliates) (x) that is in a different amount than, or on a different date from, that specified in a notice of payment, prepayment or repayment sent by the Administrative Agent (or any of its Affiliates) with respect to such payment, prepayment or repayment, as applicable, (y) that was not preceded or accompanied by a notice of payment, prepayment or repayment sent by the Administrative Agent (or any of its Affiliates) with respect to such payment, prepayment or repayment, as applicable, or (z) that such Payment Recipient otherwise becomes aware was transmitted or received in error or by mistake (in whole or in part) then, in each case, an error in payment shall be presumed to have been made (any such amounts specified in clauses (i) or (ii) of this Section 9.10(a), whether received as a payment, prepayment or repayment of principal, interest, fees, distribution or otherwise; individually and collectively, an “Erroneous Payment”), then, in each case, such Payment Recipient is deemed to have knowledge of such error at the time of its receipt of such Erroneous Payment; provided that nothing in this Section shall require the Administrative Agent to provide any of the notices specified in clauses (i) or (ii) above. Each Payment Recipient agrees that it shall not assert any right or claim to any Erroneous Payment, and hereby waives any claim, counterclaim, defense or right of set-off
or recoupment with respect to any demand, claim or counterclaim by the Administrative Agent for the return of any Erroneous Payments, including without limitation waiver of any defense based on “discharge for value” or any similar doctrine.
(b) Without limiting the immediately preceding clause (a), each Payment Recipient agrees that, in the case of clause (a)(ii) above, it shall promptly notify the Administrative Agent in writing of such occurrence.
(c) In the case of either clause (a)(i) or (a)(ii) above, such Erroneous Payment shall at all times remain the property of the Administrative Agent and shall be segregated by the Payment Recipient and held in trust for the benefit of the Administrative Agent, and upon demand from the Administrative Agent such Payment Recipient shall (or, shall cause any Person who received any portion of an Erroneous Payment on its behalf to), promptly, but in all events no later than one Business Day thereafter, return to the Administrative Agent the amount of any such Erroneous Payment (or portion thereof) as to which such a demand was made in same day funds and in the currency so received, together with interest thereon in respect of each day from and including the date such Erroneous Payment (or portion thereof) was received by such Payment Recipient to the date such amount is repaid to the Administrative Agent at the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation from time to time in effect.
(d) In the event that an Erroneous Payment (or portion thereof) is not recovered by the Administrative Agent for any reason, after demand therefor by the Administrative Agent in accordance with immediately preceding clause (c), from any Lender that is a Payment Recipient or an Affiliate of a Payment Recipient (such unrecovered amount as to such Lender, an “Erroneous Payment Return Deficiency”), then at the sole discretion of the Administrative Agent and upon the Administrative Agent’s written notice to such Lender (i) such Lender shall be deemed to have made a cashless assignment of the full face amount of all or a portion of its outstanding Term Loans to the Administrative Agent or, at the option of the Administrative Agent, the Administrative Agent’s applicable lending affiliate, in an amount that is equal to the Erroneous Payment Return Deficiency (or such lesser amount as the Administrative Agent may specify) (such assignment of the Term Loans, the “Erroneous Payment Deficiency Assignment”) plus any accrued and unpaid interest on such assigned amount, without further consent or approval of any party hereto and without any payment by the Administrative Agent or its applicable lending affiliate as the assignee of such Erroneous Payment Deficiency Assignment. Without limitation of its rights hereunder, the Administrative Agent may cancel any Erroneous Payment Deficiency Assignment at any time by written notice to the applicable assigning Lender and upon such revocation all of the Term Loans assigned pursuant to such Erroneous Payment Deficiency Assignment shall be reassigned to such Lender without any requirement for payment or other consideration. The parties hereto acknowledge and agree that (1) any assignment contemplated in this clause (d) shall be made without any requirement for any payment or other consideration paid by the applicable assignee or received by the assignor, (2) the provisions of this clause (d) shall govern in the event of any conflict with the terms and conditions of Section 10.8 and (3) the Administrative Agent may reflect such assignments in the Register without further consent or action by any other Person.
(e) Each party hereto hereby agrees that (x) in the event an Erroneous Payment (or portion thereof) is not recovered from any Payment Recipient that has received such Erroneous Payment (or portion thereof) for any reason, the Administrative Agent (1) shall be subrogated to all the rights of such Payment Recipient with respect to such amount and (2) is authorized to set off, net and apply any and all amounts at any time owing to such Payment Recipient under any Loan Document, or otherwise payable or distributable by the Administrative Agent to such Payment Recipient from any source, against any amount due to the Administrative Agent under this Section 9.10 or under the indemnification provisions of this Agreement, (y) the receipt of an Erroneous Payment by a Payment Recipient shall not for the purpose of this Agreement
be treated as a payment, prepayment, repayment, discharge or other satisfaction of any Obligations owed by the Borrower or any other Credit Party, except, in each case, to the extent such Erroneous Payment is, and solely with respect to the amount of such Erroneous Payment that is, comprised of funds received by the Administrative Agent from the Borrower or any other Credit Party for the purpose of making a payment on the Obligations and (z) to the extent that an Erroneous Payment was in any way or at any time credited as payment or satisfaction of any of the Obligations, the Obligations or any part thereof that were so credited, and all rights of the Payment Recipient, as the case may be, shall be reinstated and continue in full force and effect as if such payment or satisfaction had never been received.
(f) Each party’s obligations under this Section 9.10 shall survive the resignation or replacement of the Administrative Agent or any transfer of right or obligations by, or the replacement of, a Lender, or the repayment, satisfaction or discharge of all Obligations (or any portion thereof) under any Loan Document.
(g) Nothing in this Section 9.10 will constitute a waiver or release of any claim of the Administrative Agent hereunder arising from any Payment Recipient’s receipt of an Erroneous Payment.
ARTICLE X
MISCELLANEOUS
SECTION 10.1 Notices.
(a) Notices Generally. Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in paragraph (b) below), 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 facsimile as follows:
If to any Credit Party:
Hamilton Insurance Group, Ltd.
Wellesley House North, 1st Floor
90 Pitts Bay Road
Pembroke HM08, Bermuda
Attention of: General Counsel
Telephone No.: 1 (441) 405-5200
Facsimile No.: 1 (441) 295-5900
E-mail: legalnotices@hamiltongroup.com
If to Wells Fargo as
Administrative Agent:
Wells Fargo Bank, National Association
MAC D1 109-019
1525 West W.T. Harris Blvd.
Charlotte, NC 28262
Attention of: Syndication Agency Services
Telephone No.: (704) 590-2703
Facsimile No.: (704) 715-0092
With copies to:
Wells Fargo Bank, National Association
550 South Tryon Street, 33rd Floor
Charlotte, NC 28202
Attention of: Will Goley
Telephone No.: (704) 410-0854
Facsimile No.: (704) 715-1652
E-mail: will.goley@wellsfargo.com
If to any Lender:
To the address of such Lender set forth on the Register with respect to deliveries of notices and other documentation that may contain material non-public information.
Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by facsimile shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next business day for the recipient). Notices delivered through electronic communications to the extent provided in paragraph (b) below, shall be effective as provided in said paragraph (b).
(b) Electronic Communications. Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent, provided that the foregoing shall not apply to notices to any Lender pursuant to Article II or III (other than notices and other communications sent by email) if such Lender has notified the Administrative Agent that is incapable of receiving notices under such Article by electronic communication. The Administrative Agent or any Credit 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 (other than notices and other communications sent by email). Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor; provided that, for both clauses (i) and (ii) above, if such notice, email or other communication is not sent during the normal business hours of the recipient, such notice, email or other communication shall be deemed to have been sent at the opening of business on the next business day for the recipient.
(c) Administrative Agent’s Office. The Administrative Agent hereby designates its office located at the address set forth above, or any subsequent office which shall have been specified for such purpose by written notice to the Credit Parties and the Lenders, as the Administrative Agent’s Office referred to herein, to which payments due are to be made.
(d) Change of Address, Etc. Each Credit Party and the Administrative Agent may change its address or facsimile number for notices and other communications hereunder by notice to the other parties hereto. Any Lender may change its address or facsimile number for notices and other communications hereunder by notice to the Borrower and the Administrative Agent.
(e) Platform.
(i) Each Credit Party agrees that the Administrative Agent may, but shall not be obligated to, make available materials and/or information provided by or on behalf of the Credit Parties hereunder (collectively, “Borrower Materials”) to the Lenders by posting the Borrower Materials on the Platform.
(ii) The Platform is provided “as is” and “as available.” The Agent Parties (as defined below) do not warrant the accuracy or completeness of the Borrower Materials or the adequacy of the Platform, and expressly disclaim liability for errors or omissions in the Borrower Materials. No warranty of any kind, express, implied or statutory, including, without limitation, any warranty of merchantability, fitness for a particular purpose, non-infringement of third-party rights or freedom from viruses or other code defects, is made by any Agent Party in connection with the Borrower Materials or the Platform. In no event shall the Administrative Agent or any of its Related Parties (collectively, the “Agent Parties”) have any liability to any Credit Party, any Lender or any other Person or entity for losses, claims, damages, liabilities or expenses of any kind (whether in tort, contract or otherwise) arising out of any Credit Party’s or the Administrative Agent’s transmission of communications through the Internet (including, without limitation, the Platform), except to the extent that such losses, claims, damages, liabilities or expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Agent Party; provided that in no event shall any Agent Party have any liability to any Credit Party, any Lender or any other Person for indirect, special, incidental, consequential or punitive damages, losses or expenses (as opposed to actual damages, losses or expenses).
SECTION 10.2 Amendments, Waivers and Consents. Except as set forth below or as specifically provided in any Loan Document (including Section 3.7(c)), any term, covenant, agreement or condition of this Agreement or any of the other Loan Documents may be amended or waived by the Lenders, and any consent given by the Lenders, if, but only if, such amendment, waiver or consent is in writing signed by the Required Lenders (or by the Administrative Agent with the consent of the Required Lenders) and delivered to the Administrative Agent and, in the case of an amendment, signed by the Borrower; provided, that no amendment, waiver or consent shall:
(a) increase or extend the Commitment of any Lender (or reinstate any Commitment terminated pursuant to Section 8.2) or increase the amount of Term Loans of any Lender, in any case, without the written consent of such Lender;
(b) waive, extend or postpone any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees or other amounts due to the Lenders (or any of them) hereunder or under any other Loan Document without the written consent of each Lender directly and adversely affected thereby;
(c) reduce the principal of, or the rate of interest specified herein on, any Term Loan or (subject to clause (iii) of the proviso set forth in the paragraph below) any fees or other amounts payable hereunder or under any other Loan Document without the written consent of each Lender directly and adversely affected thereby; provided that only the consent of the Required Lenders shall be necessary (i) to waive any obligation of the Borrower to pay interest at the rate set forth in Section 3.1(b) during the continuance of an Event of Default or (ii) to amend any financial covenant hereunder (or any defined term used therein) even if the effect of such amendment would be to reduce the rate of interest on any Term Loan or to reduce any fee payable hereunder;
(d) change Section 3.6 in a manner that would alter the pro rata sharing of payments or order of application required thereby without the written consent of each Lender directly and adversely affected thereby;
(e) change any provision of this Section or reduce the percentages specified in the definitions of “Required Lenders,” or any other provision hereof specifying the number or percentage of Lenders required to amend, waive or otherwise modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender;
(f) consent to the assignment or transfer by any Credit Party of such Credit Party’s rights and obligations under any Loan Document to which it is a party (except as permitted pursuant to Section 7.4), in each case, without the written consent of each Lender; or
(g) [Reserved]
(h) change this Section 10.2, without the written consent of each Lender;
provided further, that (i) no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above, affect the rights or duties of the Administrative Agent under this Agreement or any other Loan Document, (ii) the Commitment Letter and the Engagement Letter may be amended, or rights or privileges thereunder waived, in a writing executed only by the respective parties thereto, (iii) the Administrative Agent and the Borrower shall be permitted to amend any provision of the Loan Documents (and such amendment shall become effective without any further action or consent of any other party to any Loan Document) if the Administrative Agent and the Borrower shall have jointly identified an obvious error or any error, ambiguity, defect or inconsistency or omission of a technical or immaterial nature in any such provision and (iv) and the Administrative Agent and the Borrower may, without the consent of any Lender, enter into amendments or modifications to this Agreement or any of the other Loan Documents or to enter into additional Loan Documents as the Administrative Agent reasonably deems appropriate in order to implement any Benchmark Replacement or any Conforming Changes or otherwise effectuate the terms of Section 3.7(c) in accordance with the terms of Section 3.7(c). Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder, except that (A) the Commitment of such Lender may not be increased or extended without the consent of such Lender, and (B) any amendment, waiver, or consent hereunder which requires the consent of all Lenders or each affected Lender that by its terms disproportionately and adversely affects any such Defaulting Lender relative to other affected Lenders shall require the consent of such Defaulting Lender.
Notwithstanding anything in this Agreement to the contrary, each Lender hereby irrevocably authorizes the Administrative Agent on its behalf, and without further consent of any Lender (but with the consent of the Borrower and the Administrative Agent), to amend and restate this Agreement if, upon giving effect to such amendment and restatement, such Lender shall no longer be a party to this Agreement (as so amended and restated), the Commitments of such Lender shall have terminated, such Lender shall have no other commitment or other obligation hereunder and shall have been paid in full all principal, interest and other amounts owing to it or accrued for its account under this Agreement (and for the avoidance of doubt, such Lender will continue to have the rights that survive termination of this Agreement with respect to such Lender).
SECTION 10.3 Expenses; Indemnity.
(a) Costs and Expenses. Promptly following written demand therefor, the Borrower shall pay (i) all reasonable out of pocket expenses incurred by the Administrative Agent and its Affiliates (limited,
in the case of legal fees, to the reasonable documented fees, charges and disbursements of one firm of counsel, as special counsel to the Administrative Agent, and, if reasonably necessary, a single local counsel in each appropriate jurisdiction and a single regulatory counsel), in connection with the syndication of the Credit Facility, the preparation, negotiation, execution, delivery and administration of this Agreement and the other Loan Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated) and (ii) all reasonable out of pocket expenses incurred by the Administrative Agent or any Lender (limited, in the case of legal fees, to the reasonable documented fees, charges and disbursements of one firm of counsel, as special counsel to the Administrative Agent, and, if reasonably necessary, (x) a single local counsel in each appropriate jurisdiction to all such persons, taken as a whole, and (y) a single regulatory counsel to all such persons, taken as a whole, unless there exists an actual or perceived conflict of interest among the affected Lenders, in which case such legal fees shall include the reasonable documented fees, charges and disbursements of one additional counsel in each appropriate jurisdiction and, if reasonably necessary, of one regulatory counsel, to each group of affected Lenders similarly situated, taken as a whole), in connection with the enforcement or protection of its rights (A) in connection with this Agreement and the other Loan Documents, including its rights under this Section, or (B) in connection with the Term Loans made hereunder, including all such reasonable out of pocket expenses incurred during any workout, restructuring or negotiations in respect of such Term Loans.
(b) Indemnification by the Borrower. The Borrower shall indemnify the Administrative Agent (and any sub-agent thereof) each Lender, and each Related Party of any of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims (including, without limitation, any Environmental Claims), penalties, damages, liabilities and related expenses (limited, in the case of legal fees, to the reasonable documented fees, charges and disbursements of one counsel to the Indemnitees, taken as a whole, and, if reasonably necessary, (x) a single local counsel in each appropriate jurisdiction to all such Indemnitees, taken as a whole, and (y) a single regulatory counsel to all such Indemnitees, taken as a whole, unless there exists an actual or perceived conflict of interest among Indemnitees, in which case such legal fees shall include the reasonable documented fees, charges and disbursements of one additional counsel in each appropriate jurisdiction and, if reasonably necessary, of one regulatory counsel, to each group of affected Indemnitees similarly situated, taken as a whole), incurred by any Indemnitee or asserted against any Indemnitee by any Person (including the Borrower or any other Credit Party), arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby, (ii) any Term Loan or the use or proposed use of the proceeds therefrom, (iii) any actual or alleged presence or release of hazardous materials on or from any property owned or operated by any Credit Party or any Subsidiary thereof, or any Environmental Claim related in any way to any Credit Party or any Subsidiary, (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, whether brought by a third party or by any Credit Party or any Subsidiary thereof, and regardless of whether any Indemnitee is a party thereto, or (v) any claim (including, without limitation, any Environmental Claims), investigation, litigation or other proceeding (whether or not the Administrative Agent or any Lender is a party thereto) and the prosecution and defense thereof, arising out of or in any way connected with the Term Loans, this Agreement, any other Loan Document, or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby, including without limitation, reasonable attorneys and consultant’s fees, provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (A) are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee or (B) result from a claim brought by any Credit Party or any Subsidiary thereof against an Indemnitee for breach in bad faith of such Indemnitee’s obligations hereunder or under any other Loan
Document, if such Credit Party or such Subsidiary has obtained a final and nonappealable judgment in its favor on such claim as determined by a court of competent jurisdiction. This Section 10.3(b) shall not apply with respect to Taxes other than any Taxes that represent losses, claims, damages, etc. arising from any non-Tax claim.
(c) Reimbursement by Lenders. To the extent that the Borrower for any reason fails to indefeasibly pay any amount required under clause (a) or (b) of this Section to be paid by it to the Administrative Agent (or any sub-agent thereof) or any Related Party of any of the foregoing, each Lender severally agrees to pay to the Administrative Agent (or any such sub-agent) or such Related Party, as the case may be, such Lender’s ratable share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount (including any such unpaid amount in respect of a claim asserted by such Lender); 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 (or any such sub-agent) or against any Related Party of any of the foregoing acting for the Administrative Agent (or any such sub-agent) in connection with such capacity. The obligations of the Lenders under this clause (c) are subject to the provisions of Section 3.1.
(d) Waiver of Consequential Damages, Etc. To the fullest extent permitted by Applicable Law, (i) each Credit Party shall not assert, and hereby waives, any claim against the Administrative Agent, each Lender, and each Related Party of any of the foregoing Persons (each such Person a “Lender-Related Person” and (ii) each Lender-Related Person shall not assert, and hereby waives any claim against the Credit Parties and their Related Parties in each case of clauses (i) and (ii), 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, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, the Term Loans or the use of the proceeds thereof, provided, that nothing contained in this sentence shall limit any Credit Party’s indemnity obligations to the extent such special, indirect, consequential or punitive damages are included in any third party claim in connection with which such Indemnitee is entitled to indemnification under Section 10.3(b). No Lender-Related Person shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby.
(e) Payments. All amounts due under this Section shall be payable promptly after demand therefor.
(f) Survival. Each party’s obligations under this Section shall survive the termination of the Loan Documents and payment of the obligations hereunder.
SECTION 10.4 Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender and each of their respective Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by Applicable Law, to setoff and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by such Lender or any such Affiliate to or for the credit or the account of the Borrower or any other Credit Party against any and all of the obligations of the Borrower or such Credit Party now or hereafter existing under this Agreement or any other Loan Document to such Lender or any of their respective Affiliates, irrespective of whether or not such Lender or any such Affiliate shall have made any demand under this Agreement or any other Loan Document and although such obligations of the Borrower or such Credit Party may be contingent or unmatured or are owed to a branch or office of such Lender or such Affiliate different from the branch, office or Affiliate holding such deposit or obligated on such indebtedness; provided that in the event that any Defaulting Lender or any Affiliate
thereof shall exercise any such right of setoff, (x) all amounts so setoff shall be paid over immediately to the Administrative Agent for further application in accordance with the provisions of Section 3.6 and, pending such payment, shall be segregated by such Defaulting Lender or Affiliate of a Defaulting Lender from its other funds and deemed held in trust for the benefit of the Administrative Agent and the Lenders, and (y) the Defaulting Lender or its Affiliate shall provide promptly to the Administrative Agent a statement describing in reasonable detail the Obligations owing to such Defaulting Lender or any of its Affiliates as to which such right of setoff was exercised. The rights of each Lender and their respective Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff) that such Lender or their respective Affiliates may have. Each Lender agrees to notify the Borrower and the Administrative Agent promptly after any such setoff and application; provided that the failure to give such notice shall not affect the validity of such setoff and application.
SECTION 10.5 Governing Law; Jurisdiction, Etc.
(a) Governing Law. This Agreement and the other Loan Documents and any claim, controversy, dispute or cause of action (whether in contract or tort or otherwise) based upon, arising out of or relating to this Agreement or any other Loan Document (except, as to any other Loan Document, as expressly set forth therein) and the transactions contemplated hereby and thereby shall be governed by, and construed in accordance with, the law of the State of New York.
(b) Submission to Jurisdiction. Each Credit Party irrevocably and unconditionally agrees that it will not commence any action, litigation or proceeding of any kind or description, whether in law or equity, whether in contract or in tort or otherwise, against the Administrative Agent, any Lender or any Related Party of the foregoing in any way relating to this Agreement or any other Loan Document or the transactions relating hereto or thereto, in any forum other than the courts 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, and each of the parties hereto irrevocably and unconditionally submits to the exclusive jurisdiction of such courts and agrees that all claims in respect of any such action, litigation or proceeding may be heard and determined in such New York State court or, to the fullest extent permitted by Applicable Law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action, litigation 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 or in any other Loan Document shall affect any right that the Administrative Agent, any Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against the Borrower or any other Credit Party or its properties in the courts of any jurisdiction.
(c) Waiver of Venue. Each Credit Party irrevocably and unconditionally waives, to the fullest extent permitted by Applicable Law, any objection that it may now or hereafter have to the laying of venue of any action or proceeding arising out of or relating to this Agreement or any other Loan Document 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 Applicable Law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.
(d) Service of Process. Each party hereto irrevocably consents to service of process in the manner provided for notices in Section 10.1. Nothing in this Agreement will affect the right of any party hereto to serve process in any other manner permitted by Applicable Law. THE BORROWER HEREBY IRREVOCABLY APPOINTS GEMMA CARREIRO, GENERAL COUNSEL, WITH AN ADDRESS OF HAMILTON U.S. SERVICES, LLC, C/O THE CORPORATION TRUST COMPANY, 1209 ORANGE STREET, CORPORATION TRUST CENTER, WILMINGTON, DELAWARE 19801, USA, AS ITS AGENT TO RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON ITS BEHALF SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS WHICH MAY BE
SERVED IN ANY ACTION OR PROCEEDING. IF FOR ANY REASON SUCH AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, THE BORROWER AGREES TO PROMPTLY DESIGNATE A NEW AGENT SATISFACTORY TO THE ADMINISTRATIVE AGENT TO RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON ITS BEHALF SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN ANY ACTION OR PROCEEDING.
SECTION 10.6 Waiver of Jury Trial.
(a) EACH PARTY HERETO HEREBY IRREVOCABLY 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 ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON 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 AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 10.7 Injunctive Relief. Each Credit Party recognizes that, in the event such Credit Party fails to perform, observe or discharge any of its obligations or liabilities under this Agreement, any remedy of law may prove to be inadequate relief to the Lenders. Therefore, each Credit Party agrees that the Lenders, at the Lenders’ option, shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages.
SECTION 10.8 Successors and Assigns; Participations.
(a) Successors and Assigns 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 neither the Borrower nor any other Credit Party may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Administrative Agent and each Lender and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an assignee in accordance with the provisions of paragraph (b) of this Section, (ii) by way of participation in accordance with the provisions of paragraph (d) of this Section or (iii) by way of pledge or assignment of a security interest subject to the restrictions of paragraph (e) of this Section (and any other attempted assignment or transfer by any party hereto shall be null and void). 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 (d) 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. Any Lender may at any time assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Term Loans at the time owing to it) provided that, any such assignment shall be subject to the following conditions:
(i) Minimum Amounts.
(A) in the case of an assignment of the entire remaining amount of the assigning Lender’s Commitment and/or the Term Loans at the time owing to it or contemporaneous assignments to related Approved Funds (determined after giving effect to such assignments) that equal at least the amount specified in paragraph (b)(i)(B) of this Section in the aggregate or in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, no minimum amount need be assigned; and
(B) in any case not described in paragraph (b)(i)(A) of this Section, the aggregate amount of the Commitment or, if the applicable Commitment is not then in effect, the principal outstanding balance of the Term Loans 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 or, if “Trade Date” is specified in the Assignment and Assumption, as of the Trade Date) shall not be less than $1,000,000, unless each of the Administrative Agent and, so long as no Event of Default has occurred and is continuing, the Borrower otherwise consents (each such consent not to be unreasonably withheld or delayed);
(ii) Proportionate Amounts. 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 with respect to the Commitment assigned;
(iii) Required Consents. No consent shall be required for any assignment except to the extent required by paragraph (b)(i)(B) of this Section and, in addition:
(A) the consent of the Borrower (such consent not to be unreasonably withheld or delayed) shall be required unless (x) an Event of Default has occurred and is continuing at the time of such assignment or (y) such assignment is to a Lender, an Affiliate of a Lender or an Approved Fund; and
(B) the consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed) shall be required for assignments if such assignment is to a Person that is not a Lender, an Affiliate of such Lender or an Approved Fund with respect to such Lender.
(iv) Assignment and Assumption. 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 for each assignment; provided that (A) only one such fee will be payable in connection with simultaneous assignments to two or more related Approved Funds by a Lender and (B) the Administrative Agent may, in its sole discretion, elect to waive such processing and recordation fee in the case of any assignment. The assignee, if it is not a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire.
(v) No Assignment to Certain Persons. No such assignment shall be made to (A) the Borrower or any of its Subsidiaries or Affiliates or (B) any Defaulting Lender or any of its Subsidiaries, or any Person who, upon becoming a Lender hereunder, would constitute any of the foregoing Persons described in this clause (B).
(vi) No Assignment to Natural Persons. No such assignment shall be made to a natural Person (or a holding company, investment vehicle or trust for, or owned and operated for the primary benefit of, a natural Person).
(vii) Certain Additional Payments. In connection with any assignment of rights and obligations of any Defaulting Lender hereunder, no such assignment shall be effective unless and until, in addition to the other conditions thereto set forth herein, the parties to the assignment shall make such additional payments to the Administrative Agent in an aggregate amount sufficient, upon distribution thereof as appropriate (which may be outright payment, purchases by the assignee of participations or subparticipations, or other compensating actions, including funding, with the consent of the Borrower and the Administrative Agent, the applicable pro rata share of Term Loans previously requested, but not funded by, the Defaulting Lender, to each of which the applicable assignee and assignor hereby irrevocably consent), to (A) pay and satisfy in full all payment liabilities then owed by such Defaulting Lender to the Administrative Agent and each other Lender hereunder (and interest accrued thereon), and (B) acquire (and fund as appropriate) its full pro rata share of all Term Loans. Notwithstanding the foregoing, in the event that any assignment of rights and obligations of any Defaulting Lender hereunder shall become effective under Applicable Law without compliance with the provisions of this paragraph, then the assignee of such interest shall be deemed to be a Defaulting Lender for all purposes of this Agreement until such compliance occurs.
Subject to acceptance and recording thereof by the Administrative Agent pursuant to paragraph (c) of this Section, from and after the effective date specified in each Assignment and Assumption, the assignee thereunder shall be a party to this Agreement 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, Section 3.7 0, Section 3.8, Section 3.10 and Section 10.3 with respect to facts and circumstances occurring prior to the effective date of such assignment; provided, that except to the extent otherwise expressly agreed by the affected parties, no assignment by a Defaulting Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender’s having been a Defaulting Lender. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph 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 (d) of this Section (other than a purported assignment to a natural Person or any Credit Party or any Credit Party’s Subsidiaries or Affiliates, which shall be null and void).
(c) Register. The Administrative Agent, acting solely for this purpose as a non-fiduciary agent of the Borrower, shall maintain at one of its offices in Charlotte, North Carolina, a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and Term Loans (and stated interest thereon) owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive, absent manifest error, and the Borrower, the Administrative Agent and the Lenders shall 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. The Register shall be available for inspection by the Borrower and any Lender (but only to the extent of entries in the Register that are applicable to such Lender), at any reasonable time and from time to time upon reasonable prior notice.
(d) Participations. Any Lender may at any time, without the consent of, or notice to, the Borrower or the Administrative Agent, sell participations to any Person (other than a natural Person, (or a
holding company, investment vehicle or trust for, or owned and operated for the primary benefit of, a natural Person, or the Borrower or any of the Borrower’s Subsidiaries or Affiliates) (each, a “Participant”) in all or a portion of such Lender’s rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Term Loans owing to it); provided that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrower, the Administrative Agent and the Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. For the avoidance of doubt, each Lender shall be responsible for the indemnity under Section 10.3(c) with respect to any payments made by such Lender to its Participant(s).
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 to approve any amendment, modification or waiver of any provision of this Agreement; 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 Section 10.2(a), Section 10.2(b), Section 10.2(c), Section 10.2(d) that directly and adversely affects such Participant. The Borrower agrees that each Participant shall be entitled to the benefits of 0, Section 3.8 and Section 3.10 (subject to the requirements and limitations therein (it being understood that the documentation required under Section 3.10(g) shall be delivered to the participating Lender)) to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section; provided that such Participant (A) agrees to be subject to the provisions of Section 3.11 as if it were an assignee under paragraph (b) of this Section; and (B) shall not be entitled to receive any greater payment under Section 3.8 or Section 3.10, with respect to any participation, than its participating Lender would have been entitled to receive, except to the extent such entitlement to receive a greater payment results from a Change in Law that occurs after the Participant acquired the applicable participation. Each Lender that sells a participation agrees, at the Borrower’s request and expense, to use reasonable efforts to cooperate with the Borrower to effectuate the provisions of Section 3.11(b) with respect to any Participant. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 10.4 as though it were a Lender; provided that such Participant agrees to be subject to Section 3.6 and Section 10.4 as though it were a Lender.
Each Lender that sells a participation shall, acting solely for this purpose as a non-fiduciary agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts of (and stated interest on) each Participant’s interest in the Term Loans or other obligations under the Loan Documents (the “Participant Register”); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participant’s interest in any commitments, loans or its other obligations under any Loan Document) to any Person except to the extent that such disclosure is necessary to establish that such commitment, loan or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.
(e) 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 without limitation any pledge or assignment to secure obligations to a Federal Reserve Bank or other central bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.
(f) Disqualified Institutions.
(i) No assignment or participation shall be made to any Person that was a Disqualified Institution as of the date (the “Trade Date”) on which the assigning Lender entered into a binding agreement to sell and assign or participate all or a portion of its rights and obligations under this Agreement to such Person (unless the Borrower has consented to such assignment or participation in writing in its sole and absolute discretion, in which case such Person will not be considered a Disqualified Institution for the purpose of such assignment or participation). For the avoidance of doubt, with respect to any assignee that becomes a Disqualified Institution after the applicable Trade Date (including as a result of the delivery of a notice pursuant to, and/or the expiration of the notice period referred to in, the definition of “Disqualified Institution”), (x) such assignee shall not retroactively be disqualified from becoming a Lender and (y) the execution by the Borrower of an Assignment and Assumption with respect to such assignee will not by itself result in such assignee no longer being considered a Disqualified Institution. Any assignment in violation of this clause (f)(i) shall not be void, but the other provisions of this clause (f) shall apply.
(ii) If any assignment or participation is made to any Disqualified Institution without the Borrower’s prior written consent in violation of clause (f)(i) above, or if any Person becomes a Disqualified Institution after the applicable Trade Date, the Borrower may, at its sole expense and effort, upon notice to the applicable Disqualified Institution and the Administrative Agent, (A) purchase or prepay such Term Loan by paying the lesser of (x) the principal amount thereof and (y) the amount that such Disqualified Institution paid to acquire such Term Loans, in each case plus accrued interest, accrued fees and all other amounts (other than principal amounts) payable to it hereunder or (B) require such Disqualified Institution to assign, without recourse (in accordance with and subject to the restrictions contained in this Section 10.8), all of its interest, rights and obligations under this Agreement to one or more Eligible Assignees at the lesser of (x) the principal amount thereof and (y) the amount that such Disqualified Institution paid to acquire such interests, rights and obligations, in each case plus accrued interest, accrued fees and all other amounts (other than principal amounts) payable to it hereunder.
(iii) Notwithstanding anything to the contrary contained in this Agreement, Disqualified Institutions (A) will not (x) have the right to receive information, reports or other materials provided to Lenders by the Borrower, the Administrative Agent or any other Lender, (y) attend or participate in meetings attended by the Lenders and the Administrative Agent, or (z) access any electronic site established for the Lenders or confidential communications from counsel to or financial advisors of the Administrative Agent or the Lenders and (B) (x) for purposes of any consent to any amendment, waiver or modification of, or any action under, and for the purpose of any direction to the Administrative Agent or any Lender to undertake any action (or refrain from taking any action) under this Agreement or any other Loan Document, each Disqualified Institution will be deemed to have consented in the same proportion as the Lenders that are not Disqualified Institutions consented to such matter, and (y) for purposes of voting on any plan of reorganization or plan of liquidation pursuant to any Debtor Relief Laws (each, a “Plan”), each Disqualified Institution party hereto hereby agrees (1) not to vote on such Plan, (2) if such Disqualified Institution does vote on such Plan notwithstanding the restriction in the foregoing clause (1), such vote will be deemed not to be in good faith and shall be “designated” pursuant to Section 1126(e) of the Bankruptcy Code (or any similar provision in any other Debtor Relief Laws), and such vote shall not be counted in determining whether the applicable class has accepted or rejected such Plan in accordance with Section 1126(c) of the Bankruptcy Code (or any similar provision in any other Debtor Relief Laws) and (3) not to contest any request by any party for a determination by the Bankruptcy Court (or other applicable court of competent jurisdiction) effectuating the foregoing clause (2).
(iv) The Administrative Agent shall have the right, and the Borrower hereby expressly authorizes the Administrative Agent, to (A) post the list of Disqualified Institutions provided by the Borrower and any updates thereto from time to time (collectively, the “DQ List”) on the Platform, including that portion of the Platform that is designated for “public side” Lenders and/or (B) provide the DQ List to each Lender requesting the same.
SECTION 10.9 Treatment of Certain Information; Confidentiality. Each of the Administrative Agent and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its Affiliates and to its and its Affiliates’ respective Related Parties who need to know such information in connection with the Credit Facility, this Agreement, the transactions contemplated hereby or in connection with marketing of services by such Affiliate or Related Party to the Borrower or any of its Subsidiaries (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), (b) to the extent required or requested by, or required to be disclosed to, any regulatory or similar authority purporting to have jurisdiction over such Person or its Related Parties (including any selfregulatory authority, such as the National Association of Insurance Commissioners) or in accordance with the Administrative Agent’s or any Lender’s regulatory compliance policy if the Administrative Agent or such Lender, as applicable, deems such disclosure to be necessary for the mitigation of claims by those authorities against the Administrative Agent or such Lender, as applicable, or any of its Related Parties (in which case, the Administrative Agent or such Lender, as applicable, shall use commercially reasonable efforts to, except with respect to any audit or examination conducted by bank accountants or any governmental bank regulatory authority exercising examination or regulatory authority, promptly notify the Borrower, in advance, to the extent practicable and otherwise permitted by Applicable Law), (c) as to the extent required by Applicable Laws or regulations or in any legal, judicial, administrative proceeding or other compulsory process, (d) to any other party hereto, (e) in connection with the exercise of any remedies under this Agreement or under any other Loan Document or any action or proceeding relating to this Agreement or any other Loan Document, or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights and obligations under this Agreement, (ii) any direct, indirect, actual or prospective party (or its Related Parties) to any swap, derivative or other transaction under which payments are to be made by reference to any Credit Party and its obligations, this Agreement or payments hereunder or (iii) any credit insurance provider relating to any Credit Party and its obligations, (g) on a confidential basis to (i) any rating agency in connection with rating the Borrower or its Subsidiaries or the Credit Facility or (ii) the CUSIP Service Bureau or any similar agency in connection with the issuance and monitoring of CUSIP numbers with respect to the Credit Facility, (h) with the consent of the Borrower, (i) deal terms and other information customarily reported to Thomson Reuters, other bank market data collectors and similar service providers to the lending industry and service providers to the Administrative Agent and the Lenders in connection with the administration of the Loan Documents, (j) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Administrative Agent, any Lender or any of their respective Affiliates from a third party that is not, to such Person’s knowledge, subject to confidentiality obligations to any Credit Party, (k) to the extent that such information is independently developed by such Person, or (l) for purposes of establishing a “due diligence” defense. For purposes of this Section, “Information” means all information received from any Credit Party or any Subsidiary thereof relating to any Credit Party or any Subsidiary thereof or any of their respective businesses, other than any such information that is available to the Administrative Agent or any Lender on a nonconfidential basis prior to disclosure by any Credit Party or any Subsidiary thereof; provided that, in the case of information received from a Credit Party or any Subsidiary thereof 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.
SECTION 10.10 Performance of Duties. Each of the Credit Party’s obligations under this Agreement and each of the other Loan Documents shall be performed by such Credit Party at its sole cost and expense.
SECTION 10.11 All Powers Coupled with Interest. All powers of attorney and other authorizations granted to the Lenders, the Administrative Agent and any Persons designated by the Administrative Agent or any Lender pursuant to any provisions of this Agreement or any of the other Loan Documents shall be deemed coupled with an interest and shall be irrevocable so long as any of the Obligations remain unpaid or unsatisfied, any of the Commitments remain in effect or the Credit Facility has not been terminated.
SECTION 10.12 Survival.
(a) All representations and warranties set forth in Article V and all representations and warranties contained in any certificate, or any of the Loan Documents (including, but not limited to, any such representation or warranty made in or in connection with any amendment thereto) shall constitute representations and warranties made under this Agreement. All representations and warranties made under this Agreement shall be made or deemed to be made at and as of the Closing Date (except those that are expressly made as of a specific date), shall survive the Closing Date and shall not be waived by the execution and delivery of this Agreement, any investigation made by or on behalf of the Lenders or any borrowing hereunder.
(b) Notwithstanding any termination of this Agreement, the indemnities to which the Administrative Agent and the Lenders are entitled under the provisions of this Article X and any other provision of this Agreement and the other Loan Documents shall continue in full force and effect and shall protect the Administrative Agent and the Lenders against events arising after such termination as well as before.
SECTION 10.13 Titles and Captions. Titles and captions of Articles, Sections and subsections in, and the table of contents of, this Agreement are for convenience only, and neither limit nor amplify the provisions of this Agreement.
SECTION 10.14 Severability of Provisions. Any provision of this Agreement or any other Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating the remainder of such provision or the remaining provisions hereof or thereof or affecting the validity or enforceability of such provision in any other jurisdiction. In the event that any provision is held to be so prohibited or unenforceable in any jurisdiction, the Administrative Agent, the Lenders and the Borrower shall negotiate in good faith to amend such provision to preserve the original intent thereof in such jurisdiction (subject to the approval of the Required Lenders).
SECTION 10.15 Counterparts; Integration; Effectiveness; Electronic Execution.
(a) Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and the other Loan Documents, and any separate letter agreements with respect to fees payable to the Administrative Agent and/or the Arranger, constitute the entire contract 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 6.1, 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 that, when taken together, bear the signatures of each of the other parties hereto. Delivery of an executed counterpart of a signature page of this Agreement by facsimile or in electronic (i.e., “pdf” or “tif”) format shall be effective as delivery of a manually executed counterpart of this Agreement.
(b) Electronic Execution. The words “execute,” “execution,” “signed,” “signature,” “delivery” and words of like import in any Assignment and Assumption, this Agreement, any other Loan Document or any document, amendment, approval, consent, waiver, modification, information, notice, certificate, report, statement, disclosure, or authorization to be signed or delivered in connection with this Agreement or any other Loan Document or the transactions contemplated hereby shall be deemed to include Electronic Signatures or execution in the form of an Electronic Record, and contract formations on electronic platforms approved by the Administrative Agent, deliveries or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any Applicable Law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act. Each party hereto agrees that any Electronic Signature or execution in the form of an Electronic Record shall be valid and binding on itself and each of the other parties hereto to the same extent as a manual, original signature. For the avoidance of doubt, the authorization under this paragraph may include, without limitation, use or acceptance by the parties of a manually signed paper which has been converted into electronic form (such as scanned into PDF format), or an electronically signed paper converted into another format, for transmission, delivery and/or retention. Notwithstanding anything contained herein to the contrary, the Administrative Agent is under no obligation to accept an Electronic Signature in any form or in any format unless expressly agreed to by the Administrative Agent pursuant to procedures approved by it; provided that without limiting the foregoing, (a) to the extent the Administrative Agent has agreed to accept such Electronic Signature from any party hereto, the Administrative Agent and the other parties hereto shall be entitled to rely on any such Electronic Signature purportedly given by or on behalf of the executing party without further verification and (b) upon the request of the Administrative Agent or any Lender, any Electronic Signature shall be promptly followed by an original manually executed counterpart thereof. Without limiting the generality of the foregoing, each party hereto hereby (i) agrees that, for all purposes, including without limitation, in connection with any workout, restructuring, enforcement of remedies, bankruptcy proceedings or litigation among the Administrative Agent, the Lenders and any of the Credit Parties, electronic images of this Agreement or any other Loan Document (in each case, including with respect to any signature pages thereto) shall have the same legal effect, validity and enforceability as any paper original, and (ii) waives any argument, defense or right to contest the validity or enforceability of the Loan Documents based solely on the lack of paper original copies of any Loan Documents, including with respect to any signature pages thereto.
SECTION 10.16 Term of Agreement. This Agreement shall remain in effect from the Closing Date through and including the date upon which all Obligations (other than contingent indemnification obligations not then due) arising hereunder or under any other Loan Document shall have been indefeasibly and irrevocably paid and satisfied in full. No termination of this Agreement shall affect the rights and obligations of the parties hereto arising prior to such termination or in respect of any provision of this Agreement which survives such termination.
SECTION 10.17 USA PATRIOT Act; Anti-Money Laundering Laws. The Administrative Agent and each Lender hereby notifies each Credit Party that pursuant to the requirements of the PATRIOT Act or any other Anti-Money Laundering Laws, each of them is required to obtain, verify and record
information that identifies each Credit Party, which information includes the name and address of each Credit Party and other information that will allow such Lender to identify each Credit Party in accordance with the PATRIOT Act or such Anti-Money Laundering Laws.
SECTION 10.18 Independent Effect of Covenants. Each Credit Party expressly acknowledges and agrees that each covenant contained in Article VI and Article VII hereof shall be given independent effect. Accordingly, no Credit Party shall engage in any transaction or other act otherwise permitted under any covenant contained in Article VI or Article VII, if before or after giving effect to such transaction or act, such Credit Party shall or would be in breach of any other covenant contained in Article VI or Article VII.
SECTION 10.19 No Advisory or Fiduciary Responsibility.
(a) In connection with all aspects of each transaction contemplated hereby, each Credit Party acknowledges and agrees, and acknowledges its Affiliates’ understanding, that (i) the facilities provided for hereunder and any related arranging or other services in connection therewith (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document) are an arm’s-length commercial transaction between the Borrower and its Affiliates, on the one hand, and the Administrative Agent, the Arranger and the Lenders, on the other hand, and the Borrower is capable of evaluating and understanding and understands and accepts the terms, risks and conditions of the transactions contemplated hereby and by the other Loan Documents (including any amendment, waiver or other modification hereof or thereof), (ii) in connection with the process leading to such transaction, each of the Administrative Agent, the Arranger and the Lenders is and has been acting solely as a principal and is not the financial advisor, agent or fiduciary, for the Borrower or any of its Affiliates, stockholders, creditors or employees or any other Person, (iii) none of the Administrative Agent, the Arranger or the Lenders has assumed or will assume an advisory, agency or fiduciary responsibility in favor of the Borrower or any of its Affiliates with respect to any of the transactions contemplated hereby or the process leading thereto, including with respect to any amendment, waiver or other modification hereof or of any other Loan Document (irrespective of whether any Arranger or Lender has advised or is currently advising the Borrower or any of its Affiliates on other matters) and none of the Administrative Agent, the Arranger or the Lenders has any obligation to the Borrower or any of its Affiliates with respect to the financing transactions contemplated hereby except those obligations expressly set forth herein and in the other Loan Documents, (iv) the Arranger and the Lenders and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from, and may conflict with, those of the Borrower and its Affiliates, and none of the Administrative Agent, the Arranger or the Lenders has any obligation to disclose any of such interests by virtue of any advisory, agency or fiduciary relationship and (v) the Administrative Agent, the Arranger and the Lenders have not provided and will not provide any legal, accounting, regulatory or tax advice with respect to any of the transactions contemplated hereby (including any amendment, waiver or other modification hereof or of any other Loan Document) and the Credit Parties have consulted their own legal, accounting, regulatory and tax advisors to the extent they have deemed appropriate.
(b) Each Credit Party acknowledges and agrees that each Lender, the Arranger and any Affiliate thereof may lend money to, invest in, and generally engage in any kind of business with, any Credit Party, any Affiliate thereof or any other person or entity that may do business with or own securities of any of the foregoing, all as if such Lender, Arranger or Affiliate thereof were not a Lender or Arranger or an Affiliate thereof (or an agent or any other person with any similar role under the Credit Facilities) and without any duty to account therefor to any other Lender, the Arranger, any Credit Party, or any Affiliate of the foregoing. Each Lender, the Arranger and any Affiliate thereof may accept fees and other consideration from any Credit Party or any Affiliate thereof for services in connection with this Agreement,
the Credit Facilities or otherwise without having to account for the same to any other Lender, the Arranger, any Credit Party or any Affiliate of the foregoing.
SECTION 10.20 Inconsistencies with Other Documents. In the event there is a conflict or inconsistency between this Agreement and any other Loan Document, the terms of this Agreement shall control.
SECTION 10.21 Acknowledgement and Consent to Bail-In of Affected Financial Institutions. Notwithstanding anything to the contrary in any Loan Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any Affected Financial Institution arising under any Loan Document, to the extent such liability is unsecured, may be subject to the Write-Down and Conversion Powers of the applicable Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:
(a) the application of any Write-Down and Conversion Powers by the applicable Resolution Authority to any such liabilities arising hereunder which may be payable to it by any party hereto that is an Affected Financial Institution; and
(b) the effects of any Bail-in Action on any such liability, including, if applicable:
(i) a reduction in full or in part or cancellation of any such liability;
(ii) a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such Affected Financial Institution, its parent undertaking, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Loan Document; or
(iii) the variation of the terms of such liability in connection with the exercise of the Write-Down and Conversion Powers of the applicable Resolution Authority.
SECTION 10.22 Acknowledgment Regarding Any Supported QFCs. To the extent that the Loan Documents provide support, through a guarantee or otherwise, for Hedge Agreements or any other agreement or instrument that is a QFC (such support, “QFC Credit Support” and each such QFC a “Supported QFC”), the parties acknowledge and agree as follows with respect to the resolution power of the Federal Deposit Insurance Corporation under the Federal Deposit Insurance Act and Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act (together with the regulations promulgated thereunder, the “U.S. Special Resolution Regimes”) in respect of such Supported QFC and QFC Credit Support (with the provisions below applicable notwithstanding that the Loan Documents and any Supported QFC may in fact be stated to be governed by the laws of the State of New York and/or of the United States or any other state of the United States):
(a) In the event a Covered Entity that is party to a Supported QFC (each, a “Covered Party”) becomes subject to a proceeding under a U.S. Special Resolution Regime, the transfer of such Supported QFC and the benefit of such QFC Credit Support (and any interest and obligation in or under such Supported QFC and such QFC Credit Support, and any rights in property securing such Supported QFC or such QFC Credit Support) from such Covered Party will be effective to the same extent as the transfer would be effective under the U.S. Special Resolution Regime if the Supported QFC and such QFC Credit Support (and any such interest, obligation and rights in property) were governed by the laws of the United States or a state of the United States. In the event a Covered Party or a BHC Act Affiliate of a Covered Party becomes subject to a proceeding under a U.S. Special Resolution Regime, Default Rights under the Loan Documents
that might otherwise apply to such Supported QFC or any QFC Credit Support that may be exercised against such Covered Party are permitted to be exercised to no greater extent than such Default Rights could be exercised under the U.S. Special Resolution Regime if the Supported QFC and the Loan Documents were governed by the laws of the United States or a state of the United States. Without limitation of the foregoing, it is understood and agreed that rights and remedies of the parties with respect to a Defaulting Lender shall in no event affect the rights of any Covered Party with respect to a Supported QFC or any QFC Credit Support.
(b) As used in this Section 10.22, the following terms have the following meanings:
“BHC Act Affiliate” of a party means an “affiliate” (as such term is defined under, and interpreted in accordance with, 12 U.S.C. 1841(k)) of such party.
“Covered Entity” means any of the following:
(i) a “covered entity” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 252.82(b);
(ii) a “covered bank” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 47.3(b); or
(iii) a “covered FSI” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 382.2(b).
“Default Right” has the meaning assigned to that term in, and shall be interpreted in accordance with, 12 C.F.R. §§ 252.81, 47.2 or 382.1, as applicable.
“QFC” has the meaning assigned to the term “qualified financial contract” in, and shall be interpreted in accordance with, 12 U.S.C. 5390(c)(8)(D).
Exhibit C
FORM OF NOTICE OF PREPAYMENT
Dated as of: ____________
Wells Fargo Bank, National Association,
as Administrative Agent
MAC D 1109-019
1525 West W.T. Harris Blvd.
Charlotte, North Carolina 28262
Attention: Syndication Agency Services
Ladies and Gentlemen:
This irrevocable Notice of Prepayment is delivered to you pursuant to Section 2.4 of the Term Loan Credit Agreement, dated as of July 26, 2019 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among Hamilton Insurance Group, Ltd., an exempted company organized under the laws of Bermuda (the “Borrower”), the lenders from time to time party thereto and Wells Fargo Bank, National Association, as Administrative Agent. Capitalized terms used herein and not defined herein shall have the meanings assigned thereto in the Credit Agreement.
1. The Borrower hereby provides notice to the Administrative Agent that it shall repay the following [Base Rate Loans] and/or [SOFR Loans]: ________________. (Complete with an amount in accordance with Section 2.4 of the Credit Agreement.)
2. The Borrower shall repay the above-referenced Term Loans on the following Business Day: ________________. (Complete with a date no earlier than (i) the same Business Day as of the date of this Notice of Prepayment with respect to any Base Rate Loan and (ii) three (3) U.S. Government Securities Business Days subsequent to date of this Notice of Prepayment with respect to any SOFR Loan.)
[Signature Page Follows]
IN WITNESS WHEREOF, the undersigned has executed this Notice of Prepayment as of the day and year first written above.
| | | | | | | | | | | | | | | | | |
| HAMILTON INSURANCE GROUP, LTD. |
| | | | | |
| | | | | |
| By: | | | |
| | | Name: | | |
| | | Title: | | |
Exhibit D
FORM OF NOTICE OF CONVERSION/CONTINUATION
Dated as of: ____________
Wells Fargo Bank, National Association,
as Administrative Agent
MAC D 1109-019
1525 West W.T. Harris Blvd.
Charlotte, North Carolina 28262
Attention: Syndication Agency Services
Ladies and Gentlemen:
This irrevocable Notice of Conversion/Continuation (this “Notice”) is delivered to you pursuant to Section 3.2 of the Term Loan Credit Agreement, dated as of July 26, 2019 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among Hamilton Insurance Group, Ltd., an exempted company organized under the laws of Bermuda (the “Borrower”), the lenders from time to time party thereto and Wells Fargo Bank, National Association, as Administrative Agent. Capitalized terms used herein and not defined herein shall have the meanings assigned thereto in the Credit Agreement.
1. This Notice is submitted for the purpose of: (Check one and complete applicable information in accordance with the Credit Agreement.)
| | | | | | | | | | | | | | |
| ☐ | Converting all or a portion of a Base Rate Loan into a SOFR Loan | |
| | | | |
| | Outstanding principal balance: | $_____________ | |
| | | | |
| | Principal amount to be converted: | $_____________ | |
| | | | |
| | Requested effective date of conversion: | ______________ | |
| | | | |
| | Requested new Interest Period: | ______________ | |
| | | | |
| | Term SOFR Adjustment: | 0.10 | % | |
| | | | |
| | | | |
| ☐ | Converting all or a portion of a SOFR Loan into a Base Rate Loan | |
| | | | |
| | Outstanding principal balance: | $_____________ | |
| | | | |
| | Principal amount to be converted: | $_____________ | |
| | | | |
| | Last day of the current Interest Period: | ______________ | |
| | | | | | | | | | | | | | |
| | | | |
| | Requested effective date of conversion: | ______________ | |
| | | | |
| | | | |
| ☐ | Continuing all or a portion of a SOFR Loan as a SOFR Loan | |
| | | | |
| | Outstanding principal balance: | $_____________ | |
| | | | |
| | Principal amount to be continued: | $_____________ | |
| | | | |
| | Last day of the current Interest Period: | ______________ | |
| | | | |
| | Requested effective date of continuation: | ______________ | |
| | | | |
| | Requested new Interest Period: | ______________ | |
| | | | |
| | Term SOFR Adjustment: | 0.10 | % | |
[Signature Page Follows]
IN WITNESS WHEREOF, the undersigned has executed this Notice of Conversion/Continuation as of the day and year first written above.
| | | | | | | | | | | | | | | | | |
| HAMILTON INSURANCE GROUP, LTD. |
| | | | | |
| | | | | |
| By: | | | |
| | | Name: | | |
| | | Title: | | |
Exhibit E
FORM OF OFFICER’S COMPLIANCE CERTIFICATE
THIS CERTIFICATE is delivered pursuant to the Term Loan Credit Agreement, dated as of July 26, 2019 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among Hamilton Insurance Group, Ltd., an exempted company organized under the laws of Bermuda (the “Borrower”), the lenders party thereto, and Wells Fargo Bank, National Association, as Administrative Agent. Capitalized terms used herein without definition shall have the meanings given to such terms in the Credit Agreement.
The undersigned hereby certifies, in its capacity as a Financial Officer of the Borrower and not in an individual capacity, that:
1. [He][She] is a duly elected or appointed ________________ of the Borrower.
2. Accompanying this Certificate are copies of the financial statements as of _____________, and for the [quarter] [year] then ended, required to be delivered under Section [6.1(a)][6.1(b)] of the Credit Agreement. Such financial statements have been prepared in accordance with the requirements of Section [6.1(a)][6.1(b)].
3. The undersigned has reviewed the terms of the Credit Agreement and has made, or caused to be made under the supervision of the undersigned, a review in reasonable detail of the transactions and condition of the Borrower and its Subsidiaries during the accounting period covered by such financial statements.
4. The examination described in paragraph 3 above did not disclose, and the undersigned has no knowledge of the existence of, any Default or Event of Default as of the date of this Certificate[, except as set forth below:]
[Describe here or in a separate attachment any exceptions to this paragraph 4 by listing, in reasonable detail, the nature of the Default or Event of Default and the action that the Credit Parties have taken or propose to take with respect thereto.]
5. Attached to this Certificate as Attachment A is a covenant compliance worksheet reflecting the computation of the financial covenants set forth in Article VII of the Credit Agreement as of the last day of and for the period covered by the financial statements enclosed herewith.
IN WITNESS WHEREOF, the undersigned has executed and delivered this Certificate as of the ____ day of ________________, 20__.
| | | | | | | | | | | |
| HAMILTON INSURANCE GROUP, LTD. | |
| | | |
| | | |
| By: | | |
| | | |
| Name: | | |
| | | |
| Title: | | |
SCHEDULE 5.2
SUBSIDIARIES AND CAPITALIZATIONS
Note – capitalized terms used in this Schedule shall have the same meaning assigned to them in the Agreement, unless otherwise defined in this Schedule.
Subsidiary Ownership
See attached under Exhibit A to this Schedule 5.2.
10% or greater owners of the Parent
As at the Closing Date, only one shareholder holds 10% or more of the aggregate of the economic Equity Interests of the Parent, being BSOF Master Fund LP (“BSOF”), which holds approximately 18.1%.
Please note that, under the Bye-laws of the Parent, no shareholder can have more than 9.5% of the voting power, so the voting power of any shareholder who holds more than 9.5% of the economic shares is “cut back” to 9.5%.
BSOF is managed by Blackstone Alternative Solutions L.L.C. (the general partner of BSOF is Blackstone Strategic Opportunity Associates L.L.C.). Both Blackstone Alternative Solutions L.L.C. and Blackstone Strategic Opportunity Associates L.L.C. are affiliates of The Blackstone Group Inc. The Blackstone Group Inc. is a publicly-listed company on the NYSE (ticker symbol = BX). No single individual ultimately owns more than 10% of the Parent through BSOF’s interest in the company.
Equity Interests
As a general note, awards in the form of Equity Interests are granted to, or may be purchased by, directors and specific employees of the Parent and its Subsidiaries in the ordinary course of business to, pursuant to the terms of the Parent’s equity incentive plan and executive and director share purchase program, all of which have been reviewed and approved by the board of directors of the Parent.
In the fourth quarter of 2020, the board of directors of the Parent approved an incremental employee compensation scheme known as the Value Appreciation Pool (“VAP”). The VAP is intended to align long-term Group and shareholder interests by rewarding employees with 10% of any goodwill value created between the December 1, 2020 VAP inception date and either a trigger event or plan maturity on November 30, 2025. The VAP will settle in two tranches: the first settlement upon either plan maturity or the occurrence of a specified trigger event, and the second, twelve months later. All current and future
employees are eligible to participate. Settlement under the VAP may be by cash or the issuance of equity interests.
Exhibit A
Ownership Structure
[see overleaf]
1 Hamilton Insurance Group, Ltd. ("Parent") is the ultimate owner of all entities within the Hamilton Insurance Group corporate group of entities. All subsidiary entities are owned 100%, directly or indirectly, by Parent, unless indicated otherwise.
SCHEDULE 5.13
MATERIAL ADVERSE CHANGES
Note – capitalized terms used in this Schedule shall have the same meaning assigned to them in the Agreement, unless otherwise defined in this Schedule.
None.
SCHEDULE 7.1
EXISTING INDEBTEDNESS
Note – capitalized terms used in this Schedule shall have the same meaning assigned to them in the Agreement, unless otherwise defined in this Schedule.
None, save as otherwise permitted by the exceptions contemplated under Section 7.1 of the Agreement.
SCHEDULE 7.2
EXISTING LIENS
Note – capitalized terms used in this Schedule shall have the same meaning assigned to them in the Agreement, unless otherwise defined in this Schedule.
None, save as otherwise permitted by the exceptions contemplated under Section 7.2 of the Agreement.
SCHEDULE 7.5
ASSET DISPOSITIONS
Note – capitalized terms used in this Schedule shall have the same meaning assigned to them in the Agreement, unless otherwise defined in this Schedule.
None.
Exhibit 10.14
EXECUTION VERSION
$415,000,000
FIFTH AMENDED AND RESTATED CREDIT AGREEMENT
dated as of June 23, 2022,
by and among
HAMILTON INSURANCE GROUP, LTD.
as Borrower and Account Party,
HAMILTON RE, LTD.
as Account Party,
the Lenders referred to herein
and
WELLS FARGO BANK, NATIONAL ASSOCIATION
as Administrative Agent,
L/C Agent
and Fronting Bank
WELLS FARGO SECURITIES, LLC,
BMO CAPITAL MARKETS CORP.,
COMMERZBANK AG, NEW YORK BRANCH,
HSBC BANK USA, NATIONAL ASSOCIATION
and
TRUIST SECURITIES, INC.,
as Joint Lead Arrangers and Joint Bookrunners
TRUIST BANK,
as Syndication Agent
BMO HARRIS BANK N.A.,
COMMERZBANK AG, NEW YORK BRANCH,
and
HSBC BANK USA, NATIONAL ASSOCIATION
as Documentation Agents
| | | | | | | | | | | | | | |
| | | Page |
| | | | |
| ARTICLE I | DEFINITIONS | 1 |
| | | | |
| Section 1.1 | Definitions | 1 |
| Section 1.2 | Other Definitions and Provisions | 28 |
| Section 1.3 | Accounting Terms | 29 |
| Section 1.4 | Rounding | 29 |
| Section 1.5 | References to Agreement and Laws | 29 |
| Section 1.6 | Times of Day | 29 |
| Section 1.7 | Rates | 29 |
| Section 1.8 | Divisions | 30 |
| | | | |
| ARTICLE II | REVOLVING CREDIT FACILITY | 30 |
| | | | |
| Section 2.1 | Loans | 30 |
| Section 2.2 | Procedure for Advances of Loans | 30 |
| Section 2.3 | Repayment and Prepayment of Loans. | 31 |
| Section 2.4 | Termination of Revolving Credit Facility | 32 |
| | | | |
| ARTICLE III | LETTER OF CREDIT FACILITY | 32 |
| | | | |
| Section 3.1 | Syndicated Letters of Credit. | 32 |
| Section 3.2 | Participated Letters of Credit. | 34 |
| Section 3.3 | Expiry Date of Letters of Credit | 36 |
| Section 3.4 | Obligations Absolute. | 37 |
| Section 3.5 | Cash Collateralization of Letters of Credit. | 38 |
| Section 3.6 | Use of Letters of Credit | 39 |
| Section 3.7 | The Fronting Bank and L/C Agent | 39 |
| | | | |
| ARTICLE IV | GENERAL LOAN PROVISIONS | 40 |
| | | | |
| Section 4.1 | Interest | 40 |
| Section 4.2 | Notice and Manner of Conversion or Continuation of Loans | 41 |
| Section 4.3 | Fees | 41 |
| Section 4.4 | Manner of Payment; Recovery of Payments | 42 |
| Section 4.5 | Evidence of Indebtedness. | 43 |
| Section 4.6 | Sharing of Payments by Lenders | 43 |
| Section 4.7 | Administrative Agent’s Clawback. | 44 |
| Section 4.8 | Changed Circumstances | 45 |
| Section 4.9 | Indemnity | 47 |
| Section 4.10 | Increased Costs | 48 |
| Section 4.11 | Taxes | 49 |
| Section 4.12 | Mitigation Obligations; Replacement of Lenders | 52 |
| Section 4.13 | Increase of Commitments | 54 |
| Section 4.14 | Permanent Reduction of the Commitments | 55 |
| Section 4.15 | Defaulting Lenders | 56 |
| Section 4.16 | Provisions Relating to NAIC Qualified Lenders | 58 |
| | | | |
| ARTICLE V | CONDITIONS OF CLOSING AND BORROWING | 59 |
| | | | |
| Section 5.1 | Conditions to Closing and Initial Extensions of Credit | 59 |
| Section 5.2 | Conditions to All Extensions of Credit | 61 |
| | | | |
| ARTICLE VI | REPRESENTATIONS AND WARRANTIES OF THE CREDIT PARTIES | 63 |
| | | | |
TABLE OF CONTENTS
(continued)
| | | | | | | | | | | | | | |
| | | Page |
| | | | |
| Section 6.1 | Organization; Power; Qualification | 63 |
| Section 6.2 | Ownership | 63 |
| Section 6.3 | Authorization; Enforceability | 64 |
| Section 6.4 | Compliance of Agreement, Loan Documents and Extensions of Credit with Laws, Etc | 64 |
| Section 6.5 | Compliance with Law; Governmental Approvals | 64 |
| Section 6.6 | Tax Returns and Payments | 64 |
| Section 6.7 | Intellectual Property Matters | 65 |
| Section 6.8 | Environmental Matters | 65 |
| Section 6.9 | Employee Benefit Matters | 65 |
| Section 6.10 | Margin Stock | 65 |
| Section 6.11 | Government Regulation | 65 |
| Section 6.12 | Financial Statements | 65 |
| Section 6.13 | No Material Adverse Change | 66 |
| Section 6.14 | Solvency | 66 |
| Section 6.15 | Ownership of Properties | 66 |
| Section 6.16 | Insurance Licenses | 66 |
| Section 6.17 | Litigation | 66 |
| Section 6.18 | Anti-Corruption Laws; Anti-Money Laundering Laws and Sanctions | 66 |
| Section 6.19 | Disclosure | 67 |
| | | | |
| ARTICLE VII | AFFIRMATIVE COVENANTS | 67 |
| | | | |
| Section 7.1 | Financial Statements | 67 |
| Section 7.2 | Certificates; Other Reports | 68 |
| Section 7.3 | Notice of Litigation and Other Matters | 69 |
| Section 7.4 | Preservation of Corporate Existence and Related Matters | 69 |
| Section 7.5 | Maintenance of Property and Licenses | 70 |
| Section 7.6 | Insurance | 70 |
| Section 7.7 | Payment of Taxes and Other Obligations | 70 |
| Section 7.8 | Compliance with Laws and Approvals | 70 |
| Section 7.9 | Environmental Laws | 70 |
| Section 7.10 | Compliance with ERISA | 70 |
| Section 7.11 | Maintenance of Books and Records; Inspection | 71 |
| Section 7.12 | Use of Proceeds | 71 |
| Section 7.13 | Compliance with Anti-Corruption Laws; Beneficial Ownership Regulation; Anti-Money Laundering Laws and Sanctions | 72 |
| Section 7.14 | Further Assurances | 72 |
| | | | |
| ARTICLE VIII NEGATIVE COVENANTS | 72 |
| | | | |
| Section 8.1 | Indebtedness | 72 |
| Section 8.2 | Liens | 73 |
| Section 8.3 | Investments | 75 |
| Section 8.4 | Fundamental Changes | 76 |
| Section 8.5 | Asset Dispositions | 76 |
| Section 8.6 | Restricted Payments | 77 |
| Section 8.7 | Transactions with Affiliates | 77 |
| Section 8.8 | Accounting Changes; Organizational Documents | 77 |
| Section 8.9 | No Further Negative Pledges; Restrictive Agreements | 78 |
TABLE OF CONTENTS
(continued)
| | | | | | | | | | | | | | |
| | | Page |
| | | | |
| Section 8.10 | Nature of Business | 79 |
| Section 8.11 | Sale Leasebacks | 79 |
| Section 8.12 | Financial Strength Rating | 79 |
| Section 8.13 | Financial Covenants | 79 |
| | | | |
| ARTICLE IX | DEFAULT AND REMEDIES | 80 |
| | | | |
| Section 9.1 | Events of Default | 80 |
| Section 9.2 | Remedies | 81 |
| Section 9.3 | Rights and Remedies Cumulative; Non-Waiver; etc | 82 |
| Section 9.4 | Crediting of Payments and Proceeds | 83 |
| Section 9.5 | Administrative Agent May File Proofs of Claim | 83 |
| | | | |
| ARTICLE X | THE ADMINISTRATIVE AGENT | 84 |
| | | | |
| Section 10.1 | Appointment and Authority | 84 |
| Section 10.2 | Rights as a Lender | 84 |
| Section 10.3 | Exculpatory Provisions | 84 |
| Section 10.4 | Reliance by the Administrative Agent | 85 |
| Section 10.5 | Delegation of Duties . | 85 |
| Section 10.6 | Resignation of Administrative Agent | 86 |
| Section 10.7 | Non-Reliance on Administrative Agent and Other Lenders | 87 |
| Section 10.8 | No Other Duties, Etc | 87 |
| Section 10.9 | Certain ERISA Matters | 87 |
| Section 10.10 | Erroneous Payments. | 88 |
| | | | |
| ARTICLE XI | MISCELLANEOUS | 90 |
| | | | |
| Section 11.1 | Notices | 90 |
| Section 11.2 | Amendments, Waivers and Consents | 92 |
| Section 11.3 | Expenses; Indemnity | 94 |
| Section 11.4 | Right of Setoff | 96 |
| Section 11.5 | Governing Law; Jurisdiction, Etc | 96 |
| Section 11.6 | Waiver of Jury Trial | 97 |
| Section 11.7 | Reversal of Payments | 97 |
| Section 11.8 | Injunctive Relief | 98 |
| Section 11.9 | Successors and Assigns; Participations. | 98 |
| Section 11.10 | Treatment of Certain Information; Confidentiality | 101 |
| Section 11.11 | Performance of Duties | 102 |
| Section 11.12 | All Powers Coupled with Interest | 102 |
| Section 11.13 | Survival | 102 |
| Section 11.14 | Titles and Captions | 103 |
| Section 11.15 | Severability of Provisions | 103 |
| Section 11.16 | Counterparts; Integration; Effectiveness; Electronic Execution | 103 |
| Section 11.17 | Term of Agreement | 104 |
| Section 11.18 | USA PATRIOT Act; Anti-Money Laundering Laws | 104 |
| Section 11.19 | Independent Effect of Covenants | 104 |
| Section 11.20 | No Advisory or Fiduciary Responsibility | 104 |
| Section 11.21 | Inconsistencies with Other Documents | 105 |
| Section 11.22 | Acknowledgement and Consent to Bail-In of Affected Financial Institutions | 105 |
TABLE OF CONTENTS
(continued)
| | | | | | | | | | | | | | |
| | | Page |
| | | | |
| Section 11.23 | Acknowledgment Regarding Any Supported QFCs | 106 |
| Section 11.24 | Amendment and Restatement; No Novation | 107 |
| | | | |
| ARTICLE XII | GUARANTY | 107 |
| | | | |
| Section 12.1 | The Guaranty | 107 |
| Section 12.2 | Guaranty Unconditional | 107 |
| Section 12.3 | Discharge Only upon Payment in Full; Reinstatement in Certain Circumstances | 108 |
| Section 12.4 | Waiver by the Guarantor | 108 |
| Section 12.5 | Subrogation | 108 |
| Section 12.6 | Stay of Acceleration | 109 |
| Section 12.7 | Continuing Guaranty; Assignments | 109 |
| Section 12.8 | Subordination of Other Obligations | 109 |
| Section 12.9 | Additional Guarantors | 109 |
| | | | | | | | |
| EXHIBITS | | |
| Exhibit A-1 | - | Form of Revolving Credit Note |
| Exhibit A-2 | - | Form of Syndicated Letter of Credit |
| Exhibit B | - | Form of Notice of Borrowing |
| Exhibit C | - | Form of Notice of Account Designation |
| Exhibit D | - | Form of Notice of Prepayment |
| Exhibit E | - | Form of Notice of Conversion/Continuation |
| Exhibit F | - | Form of Officer’s Compliance Certificate |
| Exhibit G | - | Form of Assignment and Assumption |
| Exhibit H-1 | - | Form of U.S. Tax Compliance Certificate (Non-Partnership Foreign Lenders) |
| Exhibit H-2 | - | Form of U.S. Tax Compliance Certificate (Non-Partnership Foreign Participants) |
| Exhibit H-3 | - | Form of U.S. Tax Compliance Certificate (Foreign Participant Partnerships) |
| Exhibit H-4 | - | Form of U.S. Tax Compliance Certificate (Foreign Lender Partnerships) |
| Exhibit I | | Form of Confirming Lender Agreement |
| Exhibit J | - | Form of Lender Joinder Agreement |
| | | | | | | | |
| SCHEDULES | | |
| Schedule 1.1 | - | Commitments and Ratable Shares |
| Schedule 6.2 | - | Subsidiaries and Capitalization |
| Schedule 6.13 | - | Material Adverse Changes |
| Schedule 8.1 | - | Existing Indebtedness |
| Schedule 8.2 | - | Existing Liens |
| Schedule 8.3 | - | Existing Investments |
| Schedule 8.5 | - | Asset Dispositions |
FIFTH AMENDED AND RESTATED CREDIT AGREEMENT, dated as of June 23, 2022, by and among HAMILTON INSURANCE GROUP, LTD., an exempted company organized under the laws of Bermuda, as Borrower and Account Party, HAMILTON RE, LTD., a company organized under the laws of Bermuda, as Account Party, the lenders who are party to this Agreement and the lenders who may become a party to this Agreement pursuant to the terms hereof, as Lenders, and WELLS FARGO BANK, NATIONAL ASSOCIATION, a national banking association, as Administrative Agent for the Lenders.
STATEMENT OF PURPOSE
Reference is made to the Fourth Amended and Restated Letter of Credit Agreement, dated May 25, 2021 (as amended prior to the date hereof, the “Existing Agreement”), among the Borrower, Hamilton Re, the lenders party thereto and the Administrative Agent, providing for a letter of credit facility for the account of Hamilton Re.
The Borrower and Hamilton Re wish to amend and restate the Existing Agreement in order to, among other things, increase the principal amount and extend the maturity of the letter of credit facility. The Administrative Agent and the Lenders have agreed to amend and restate the Existing Agreement and to make available this credit facility to the Credit Parties, subject to the terms and conditions set forth in this Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, such parties hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions. The following terms when used in this Agreement shall have the meanings assigned to them below:
“2021 Stub Period” means December 1, 2021 through December 31, 2021.
“Account Parties” means, collectively, Hamilton Re and the Borrower and “Account Party” means either of them individually.
“Acquisition” means any transaction, or any series of related transactions, consummated on or after the date of this Agreement, by which any Credit Party or any of its Subsidiaries (a) acquires any business or all or substantially all of the assets of any Person, or division thereof, whether through purchase of assets, merger, amalgamation or otherwise or (b) directly or indirectly acquires (in one transaction or as the most recent transaction in a series of transactions) at least a majority (in number of votes) of the securities of a corporation which have ordinary voting power for the election of members of the board of directors or the equivalent governing body (other than securities having such power only by reason of the happening of a contingency) or a majority (by percentage or voting power) of the outstanding ownership interests of a partnership or limited liability company.
“Adjusted Term SOFR” means, for purposes of any calculation, the rate per annum equal to (a) Term SOFR for such calculation plus (b) the Term SOFR Adjustment; provided that if Adjusted Term SOFR as so determined shall ever be less than the Floor, then Adjusted Term SOFR shall be deemed to be the Floor.
“Additional Guarantor” has the meaning set forth in Section 12.9.
“Additional Lender” has the meaning assigned thereto in Section 4.13(a).
“Administrative Agent” means Wells Fargo, in its capacity as Administrative Agent hereunder, and any successor thereto appointed pursuant to Section 10.6.
“Administrative Agent’s Office” means the office of the Administrative Agent specified in or determined in accordance with the provisions of Section 11.1(c).
“Administrative Questionnaire” means an administrative questionnaire in a form supplied by the Administrative Agent.
“Affected Financial Institution” shall mean (a) any EEA Financial Institution or (b) any UK Financial Institution.
“Affiliate” means, with respect to a specified Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.
“Agent Parties” has the meaning assigned thereto in Section 11.1(e)(ii).
“Agreement” means this Fourth Amended and Restated Credit Agreement.
“A.M. Best” means A.M. Best Company, Inc.
“Anti-Corruption Laws” means all laws, rules, and regulations of any jurisdiction applicable to the Borrower or its Subsidiaries from time to time concerning or relating to bribery or corruption, including, without limitation, the United States Foreign Corrupt Practices Act of 1977 and the rules and regulations thereunder and the U.K. Bribery Act 2010 and the rules and regulations thereunder.
“Anti-Money Laundering Laws” means any and all laws, statutes, regulations or obligatory government orders, decrees, ordinances or rules applicable to a Credit Party or its Subsidiaries related to terrorism financing or money laundering, including any applicable provision of the Patriot Act and The Currency and Foreign Transactions Reporting Act (also known as the “Bank Secrecy Act,” 31 U.S.C. §§ 5311-5330 and 12 U.S.C. §§ 1818(s), 1820(b) and 1951-1959).
“Applicable Law” means all applicable provisions of constitutions, laws, statutes, ordinances, rules, treaties, regulations, permits, licenses, approvals, interpretations and orders of Governmental Authorities and all orders and decrees of all courts and arbitrators.
“Applicable Margin” means the corresponding percentages per annum as set forth below based on the Financial Strength Rating of Hamilton Re pursuant to the following grid:
[***]
CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND REPLACED WITH “[***]”. SUCH IDENTIFIED INFORMATION HAS BEEN EXCLUDED FROM THIS EXHIBIT BECAUSE IT IS (I) NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO THE COMPANY IF DISCLOSED.
Each change in the Applicable Margin resulting from a publicly announced change in the Financial Strength Rating of Hamilton Re shall be effective on the date on which the relevant change in such rating is first announced by A.M. Best.
“Approved Fund” means any Fund 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.
“Arrangers” means, collectively, Wells Fargo Securities, LLC, BMO Capital Markets Corp., Commerzbank AG, New York Branch, HSBC Bank USA, National Association and Truist Securities, Inc., in their capacities as the joint lead arrangers and joint bookrunners.
“Asset Disposition” means the sale, transfer, license, lease or other disposition of any Property (including any disposition of Equity Interests or any disposition by way of a division or plan of division or otherwise) by any Credit Party or any Subsidiary thereof, and any issuance of Equity Interests by any Subsidiary of the Borrower to any Person that is not a Credit Party or any Subsidiary thereof.
“Assignment and Assumption” means an assignment and assumption entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 11.9), and accepted by the Administrative Agent, in substantially the form attached as Exhibit G or any other form approved by the Administrative Agent.
“Available Tenor” means, as of any date of determination and with respect to the then-current Benchmark, as applicable, (a) if such Benchmark is a term rate, any tenor for such Benchmark (or component thereof) that is or may be used for determining the length of an interest period pursuant to this Agreement or (b) otherwise, any payment period for interest calculated with reference to such Benchmark (or component thereof) that is or may be used for determining any frequency of making payments of interest calculated with reference to such Benchmark, in each case, as of such date and not including, for the avoidance of doubt, any tenor for such Benchmark that is then-removed from the definition of “Interest Period” pursuant to Section 4.8(c)(iv).
“Availability Period” means the period from and including the Closing Date to, but not including, the Commitment Termination Date.
“Bail-In Action” means the exercise of any Write-Down and Conversion Powers by the applicable Resolution Authority in respect of any liability of an Affected Financial Institution.
“Bail-In Legislation” means, (i) with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law, regulation, rule or requirement for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule and (ii) with respect to the United Kingdom, the U.K. Bail-In Legislation.
“Bankruptcy Code” means 11 U.S.C. §§ 101 et seq.
“Barclays Agreement” means that certain Letter of Credit Facility Agreement originally dated as of November 7, 2019, as amended and restated on July 2, 2020, November 4, 2020 and November 3, 2021, between the Borrower, Hamilton Re, HCML, ICC3L, Barclays Bank PLC, as agent and security agent, and certain other financial institutions, as amended, renewed, extended, refinanced or replaced from time to time.
“Base Rate” means, at any time, the highest of (a) the Prime Rate, (b) the Federal Funds Rate plus 0.50% and (c) Adjusted Term SOFR for a one-month tenor in effect on such day plus 1.00%; each change in the Base Rate shall take effect simultaneously with the corresponding change or changes in the Prime Rate, the Federal Funds Rate or Adjusted Term SOFR, as applicable (provided that clause (c) shall not be applicable during any period in which Adjusted Term SOFR is unavailable or unascertainable). Notwithstanding the foregoing, in no event shall the Base Rate be less than 1.00%.
“Base Rate Loan” means any Loan bearing interest at a rate based upon the Base Rate as provided in Section 4.1.
“Benchmark” means, initially, the Term SOFR Reference Rate; provided that if a Benchmark Transition Event has occurred with respect to the Term SOFR Reference Rate or the then-current Benchmark, then “Benchmark” means the applicable Benchmark Replacement to the extent that such Benchmark Replacement has replaced such prior benchmark rate pursuant to Section 4.8(c)(i).
“Benchmark Replacement” means, with respect to any Benchmark Transition Event, the sum of: (a) the alternate benchmark rate that has been selected by the Administrative Agent and the Borrower giving due consideration to (i) any selection or recommendation of a replacement benchmark rate or the mechanism for determining such a rate by the Relevant Governmental Body or (ii) any evolving or then-prevailing market convention for determining a benchmark rate as a replacement to the then-current Benchmark for Dollar-denominated syndicated credit facilities and (b) the related Benchmark Replacement Adjustment; provided that, if such Benchmark Replacement as so determined would be less than the Floor, such Benchmark Replacement will be deemed to be the Floor for the purposes of this Agreement and the other Loan Documents.
“Benchmark Replacement Adjustment” means, with respect to any replacement of the then-current Benchmark with an Unadjusted Benchmark Replacement for any applicable Available Tenor, the spread adjustment, or method for calculating or determining such spread adjustment, (which may be a positive or negative value or zero) that has been selected by the Administrative Agent and the Borrower giving due consideration to (a) any selection or recommendation of a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement by the Relevant Governmental Body or (b) any evolving or then-prevailing market convention for determining a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement for Dollar-denominated syndicated credit facilities
“Benchmark Replacement Date” means the earliest to occur of the following events with respect to the then-current Benchmark:
(a) in the case of clause (a) or (b) of the definition of “Benchmark Transition Event,” the later of (i) the date of the public statement or publication of information referenced therein and (ii) the date on which the administrator of such Benchmark (or the published component used in the calculation thereof) permanently or indefinitely ceases to provide all Available Tenors of such Benchmark (or such component thereof); or
(b) in the case of clause (c) of the definition of “Benchmark Transition Event,” the first date on which such Benchmark (or the published component used in the calculation thereof) has been determined and announced by the regulatory supervisor for the administrator of such Benchmark (or such component thereof) to be non-representative; provided that such non-representativeness will be determined by reference to the most recent statement or publication referenced in such clause (c) and even if any Available Tenor of such Benchmark (or such component thereof) continues to be provided on such date.
For the avoidance of doubt, the “Benchmark Replacement Date” will be deemed to have occurred in the case of clause (a) or (b) with respect to any Benchmark upon the occurrence of the applicable event or events set forth therein with respect to all then-current Available Tenors of such Benchmark (or the published component used in the calculation thereof).
“Benchmark Transition Event” means the occurrence of one or more of the following events with respect to the then-current Benchmark:
(a) a public statement or publication of information by or on behalf of the administrator of such Benchmark (or the published component used in the calculation thereof) announcing that such administrator has ceased or will cease to provide all Available Tenors of such Benchmark (or such component thereof), permanently or indefinitely; provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark (or such component thereof);
(b) a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof), the FRB, the Federal Reserve Bank of New York, an insolvency official with jurisdiction over the administrator for such Benchmark (or such component), a resolution authority with jurisdiction over the administrator for such Benchmark (or such component) or a court or an entity with similar insolvency or resolution authority over the administrator for such Benchmark (or such component), which states that the administrator of such Benchmark (or such component) has ceased or will cease to provide all Available Tenors of such Benchmark (or such component thereof) permanently or indefinitely; provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark (or such component thereof); or
(c) a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof)announcing that all Available Tenors of such Benchmark (or such component thereof) are not, or as of a specified future date will not be, representative.
For the avoidance of doubt, a “Benchmark Transition Event” will be deemed to have occurred with respect to any Benchmark if a public statement or publication of information set forth above has occurred with respect to each then-current Available Tenor of such Benchmark (or the published component used in the calculation thereof).
“Benchmark Transition Start Date” means, in the case of a Benchmark Transition Event, the earlier of (a) the applicable Benchmark Replacement Date and (b) if such Benchmark Transition Event is a public statement or publication of information of a prospective event, the 90th day prior to the expected date of such event as of such public statement or publication of information (or if the expected date of such prospective event is fewer than 90 days after such statement or publication, the date of such statement or publication).
“Benchmark Unavailability Period” means the period (if any) (x) beginning at the time that a Benchmark Replacement Date has occurred if, at such time, no Benchmark Replacement has replaced the then-current Benchmark for all purposes hereunder and under any Loan Document in accordance with Section 4.8(c)(i) and (y) ending at the time that a Benchmark Replacement has replaced the then-current Benchmark for all purposes hereunder and under any Loan Document in accordance with Section 4.8(c)(i).
“Beneficial Ownership Certification” means a certification regarding beneficial ownership as required by the Beneficial Ownership Regulation, which certification shall be substantially similar in form
and substance to the form of Certification Regarding Beneficial Owners of Legal Entity Customers published jointly, in May 2018, by the Loan Syndications and Trading Association and Securities Industry and Financial Markets Association.
“Beneficial Ownership Regulation” means 31 C.F.R. § 1010.230.
“Benefit Plan” means any of (a) an “employee benefit plan” (as defined in ERISA) that is subject to Title I of ERISA, (b) a “plan” as defined in and subject to Section 4975 of the Code or (c) any Person whose assets include (for purposes of ERISA Section 3(42) or otherwise for purposes of Title I of ERISA or Section 4975 of the Code) the assets of any such “employee benefit plan” or “plan”.
“Borrower” means Hamilton Insurance Group, Ltd., an exempted company organized under the laws of Bermuda.
“Borrower Materials” has the meaning assigned thereto in Section 11.1(e)(i).
“Borrower’s Shareholders Agreement” means that certain Second Amended and Restated Shareholders Agreement, dated as of December 3, 2021, by and among the Borrower and the other parties thereto, as amended, restated, amended and restated or replaced from time to time. All references in this Agreement to any definition, section or any other provision of the Borrower’s Shareholders Agreement shall be deemed to refer to the Borrower’s Shareholders Agreement as in effect on the date hereof and any amendments thereto made in accordance with Section 8.8(b) hereof.
“Business Day” means any day that (a) is not a Saturday, Sunday or other day on which the Federal Reserve Bank of New York is closed and (b) is not a day on which commercial banks in Charlotte, North Carolina, Hamilton, Bermuda or New York, New York, are closed.
“Cash Collateral Account” has the meaning assigned thereto in Section 3.5(a).
“Cash Collateralize” means, to pledge and deposit with, or deliver to, the Administrative Agent, for the benefit of the Lenders as collateral for (i) Letter of Credit Exposure or (ii) obligations of the Lenders to fund participations in respect of Participated Letters of Credit, as applicable, cash or deposit account balances pursuant to Section 3.5. “Cash Collateral” shall have a meaning correlative to the foregoing and shall include the proceeds of such cash collateral and other credit support.
“Cash Equivalents” means, collectively, (a) marketable direct obligations issued or unconditionally guaranteed by the United States or any agency thereof maturing within one hundred twenty (120) days from the date of acquisition thereof, (b) commercial paper maturing no more than one hundred twenty (120) days from the date of creation thereof and currently having the highest rating obtainable from either S&P or Moody’s, (c) certificates of deposit maturing no more than one hundred twenty (120) days from the date of creation thereof issued by commercial banks incorporated under the laws of the United States, each having combined capital, surplus and undivided profits of not less than $500,000,000 and having a rating of “A” or better by a nationally recognized rating agency; provided that the aggregate amount invested in such certificates of deposit shall not at any time exceed $5,000,000 for any one such certificate of deposit and $10,000,000 for any one such bank, or (d) time deposits maturing no more than thirty (30) days from the date of creation thereof with commercial banks or savings banks or savings and loan associations each having membership either in the FDIC or the deposits of which are insured by the FDIC and in amounts not exceeding the maximum amounts of insurance thereunder.
“Change in Control” means an event or series of events by which:
(a) at any time, the Borrower shall fail to own, directly or indirectly, 100% of the Equity Interests of Hamilton Re; or
(b) any Person or group of Persons (other than any Relevant Holder) acting in concert gains control of the Borrower.
For purposes of paragraph (b) above, “control” means (i) the power (whether by way of ownership of shares, proxy, contract, agency or otherwise) to: (A) cast, or control the casting of, more than 50% of the votes that might be cast at a general meeting of the Borrower; or (B) appoint or remove all, or the majority, of the directors or other equivalent officers of the Borrower; or (C) give directions with respect to the management, operating and financial policies of the Borrower which the directors or other equivalent officers of the Borrower are obliged to comply with; or (ii) the holding of more than 50% of the Equity Interests of the Borrower (excluding any part of the Equity Interests that carries no right to participate beyond a specified amount in a distribution of either profits or capital).
For purposes of paragraph (b) above “acting in concert” means, a group of Persons who, pursuant to an agreement or understanding (whether formal or informal), actively co-operate, through the acquisition by any of them, either directly or indirectly, of shares in the Borrower, to obtain or consolidate control of the Borrower.
“Change in Law” means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation, implementation or application thereof by any Governmental Authority or (c) the making or issuance of any request, rule, guideline or directive (whether or not having the force of law) by any Governmental Authority; provided that notwithstanding anything herein to the contrary, (i) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (ii) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “Change in Law”, regardless of the date enacted, adopted, implemented or issued.
“Closing Date” means the date of this Agreement.
“Code” means the Internal Revenue Code of 1986, and the rules and regulations promulgated thereunder.
“Commitment” means, as to any Lender, the obligation of such Lender to make Loans to the Borrower, and to issue Syndicated Letters of Credit and purchase participations in Participated Letters of Credit for the account of any Account Party (or any of its Subsidiaries), hereunder in an aggregate principal amount at any time outstanding not to exceed the amount set forth opposite such Lender’s name on the Register, as such amount may be modified at any time or from time to time pursuant to the terms hereof. The Commitment of each Lender on the Closing Date is set forth opposite the name of such Lender on Schedule 1.1.
“Commitment Fee” has the meaning assigned thereto in Section 4.3(b).
“Commitment Increase” has the meaning assigned thereto in Section 4.13(a).
“Commitment Increase Date” has the meaning assigned thereto in Section 4.13(c).
“Commitment Termination Date” means the earliest to occur of (a) June 23, 2025, (b) the date of termination of the entire Commitments by the Borrower pursuant to Section 4.14, and (c) the date of termination of the Commitments pursuant to Section 9.2(a).
“Confirming Lender” means, with respect to any Non-NAIC Qualified Lender, any other financial institution which is listed on the NAIC Qualified Institution List that has agreed, by delivery of a confirming lender agreement in substantially the form of Exhibit I (a “Confirming Lender Agreement”), that such other financial institution will itself honor the obligations of such Non-NAIC Qualified Lender in respect of a draft complying with the terms of a Syndicated Letter of Credit as if, and to the extent, such other financial institution were the Issuing Lender originally named on such Syndicated Letter of Credit.
“Conforming Changes” means, with respect to either the use or administration of Term SOFR or the use, administration, adoption or implementation of any Benchmark Replacement, any technical, administrative or operational changes (including changes to the definition of “Base Rate,” the definition of “Business Day,” the definition of “U.S. Government Securities Business Day,” the definition of “Interest Period” or any similar or analogous definition (or the addition of a concept of “interest period”), timing and frequency of determining rates and making payments of interest, timing of borrowing requests or prepayment, conversion or continuation notices, the applicability and length of lookback periods, the applicability of Section 4.9 and other technical, administrative or operational matters) that the Administrative Agent decides may be appropriate to reflect the adoption and implementation of any such rate or to permit the use and administration thereof by the Administrative Agent in a manner substantially consistent with market practice (or, if the Administrative Agent decides that adoption of any portion of such market practice is not administratively feasible or if the Administrative Agent determines that no market practice for the administration of any such rate exists, in such other manner of administration as the Administrative Agent decides is reasonably necessary in connection with the administration of this Agreement and the other Loan Documents).
“Connection Income Taxes” means Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are franchise Taxes or branch profits Taxes.
“Consolidated Net Income” means, for any period, an amount equal to the consolidated net income of the Borrower and its Subsidiaries (determined on a consolidated basis in accordance with GAAP) for such period.
“Consolidated Tangible Net Worth” means, as of any date of determination, the total shareholders’ equity of the Borrower and its Subsidiaries (determined on a consolidated basis in accordance with GAAP), less (a) any minority interest in Subsidiaries, including for the avoidance of doubt, the aggregate principal amount of all outstanding preferred Equity Interests (including without limitation trust preferred securities) of the Group, (b) (to the extent included) any amount shown in respect of goodwill arising only on consolidation or other intangible assets of the Group (including for this purpose syndicate participations) and interests of non-members of the Group in the Borrower’s Subsidiaries, and (c) any Disqualified Equity Interests.
“Consolidated Indebtedness” means, as of any date of determination with respect to the Borrower and its Subsidiaries on a consolidated basis without duplication, the sum of all Indebtedness of the Borrower and its Subsidiaries; provided, however, that (a) Indebtedness which is subject to a Permitted Security, (b) undrawn letters of credit issued (1) under this Agreement to support any Credit Party’s and its Subsidiaries’ insurance obligations, obligations under reinsurance agreements and retrocession agreements and similar risk obligations, (2) under any other letter of credit facility permitted under Section 8.1(c)(i) or (3) for the purpose of providing Funds at Lloyd’s and (c) Indebtedness of any Excluded Subsidiary, in each case, shall be excluded from Consolidated Indebtedness to the extent such Indebtedness is also excluded from “Debt”
under the corresponding “Debt to Capitalisation” ratio in the Barclays Agreement (and in the event the Barclays Agreement (or any replacement thereof) is no longer in effect, all such Indebtedness shall be excluded from Consolidated Indebtedness).
“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.
“Covered Party” has the meaning assigned thereto in Section 11.23(a).
“Credit Facility” means, collectively, the Revolving Credit Facility and the L/C Facility.
“Credit Parties” means, collectively, the Borrower, each Account Party and each Guarantor.
“Debtor Relief Laws” means the Bankruptcy Code of the United States of America, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect.
“Default” means any event which with the passage of time, the giving of notice or any other condition, would constitute an Event of Default.
“Defaulting Lender” means, subject to Section 4.15(c), any Lender that (a) has failed to (i) fund all or any portion of the Loans or participations in Letters of Credit required to be funded by it hereunder within two Business Days of the date such Loans or participations were required to be funded hereunder unless such Lender notifies the Administrative Agent and the Borrower in writing that such failure is the result of such Lender’s determination that one or more conditions precedent to funding (each of which conditions precedent, together with any applicable default, shall be specifically identified in such writing) has not been satisfied, or (ii) pay to the Administrative Agent, the L/C Agent, the Fronting Bank or any other Lender any other amount required to be paid by it hereunder within two Business Days of the date when due, (b) has notified the Borrower, the Administrative Agent, the Fronting Bank or the L/C Agent in writing that it does not intend to comply with its funding obligations hereunder, or has made a public statement to that effect (unless such writing or public statement relates to such Lender’s obligation to fund a Loan hereunder and states that such position is based on such Lender’s determination that a condition precedent to funding (which condition precedent, together with any applicable default, shall be specifically identified in such writing or public statement) cannot be satisfied), (c) has failed, within three Business Days after written request by the Administrative Agent or the Borrower, to confirm in writing to the Administrative Agent and the Borrower that it will comply with its prospective funding obligations hereunder (provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon receipt of such written confirmation by the Administrative Agent and the Borrower), or (d) has, or has a direct or indirect parent company that has, (i) become the subject of a proceeding under any Debtor Relief Law, (ii) had appointed for it a receiver, custodian, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or assets, including the FDIC or any other state or federal regulatory authority acting in such a capacity or (iii) become the subject of a Bail-In Action; provided that a Lender shall not be a Defaulting Lender solely by virtue of the ownership or acquisition of any equity interest in that Lender or any direct or indirect parent company thereof by a Governmental Authority so long as such ownership interest does not result in or provide such Lender with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Lender (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender. Any determination by the Administrative Agent that a Lender is a Defaulting Lender under any one or more of
clauses (a) through (d) above shall be conclusive and binding absent manifest error, and such Lender shall be deemed to be a Defaulting Lender (subject to Section 4.15(c)) upon delivery of written notice of such determination to the Borrower, the L/C Agent, the Fronting Bank, and each Lender.
“Disqualified Equity Interests” means, with respect to any Person, any Equity Interests of such Person that, by their terms (or by the terms of any security or other Equity Interest into which they are convertible or for which they are exchangeable) or upon the happening of any event or condition:
(a) mature or are mandatorily redeemable (other than solely for Qualified Equity Interests), pursuant to a sinking fund obligation or otherwise (except as a result of a change of control or asset sale so long as any rights of the holders thereof upon the occurrence of a change of control or asset sale event shall be subject to the prior repayment in full in cash of the Loans and all other Obligations (other than contingent indemnification obligations not then due) and the termination of the Commitments),
(b) are redeemable at the option of the holder thereof or may become redeemable following the holder’s exercise of any liquidity or similar rights such as those in Section 5.3 of the Borrower’s Shareholders Agreement (other than any redemption solely for Qualified Equity Interests) (except as a result of a change of control or asset sale so long as any rights of the holders thereof upon the occurrence of a change of control or asset sale event shall be subject to the prior repayment in full in cash of the Loans and all other Obligations ((other than contingent indemnification obligations not then due) and the termination of the Commitments), in whole or in part,
(c) provide for the scheduled payment of dividends in cash, or
(d) are or become convertible into, or exchangeable for, Indebtedness or any other Equity Interests that would constitute Disqualified Equity Interests,
in each case of clauses (a) through (d), prior to the date that is 91 days after the latest scheduled maturity date of the Loans and Commitments; provided that if any such Equity Interests are issued pursuant to a plan for the benefit of the Borrower or its Subsidiaries or by any such plan to such officers or employees, such Equity Interests shall not constitute Disqualified Equity Interests solely because they may be required to be repurchased by the Borrower or its Subsidiaries in order to satisfy applicable statutory or regulatory obligations or as a result of such employee’s termination, death or disability.
Notwithstanding the foregoing provisions of this definition, the Equity Interests of the Borrower shall not constitute Disqualified Equity Interests solely as a result of Section 5.3 of the Borrower’s Shareholders Agreement; provided, however, that in the event the board of directors of the Borrower elects to have the Borrower redeem any of its Equity Interests pursuant to Section 5.3(a) of the Borrower’s Shareholders Agreement (or the Borrower otherwise enters into arrangements to redeem such Equity Interests in connection with a Special Liquidity Event), then such Equity Interests (and any other Equity Interests of the Borrower held by any shareholder who elects to participate in any redemption of the Borrower’s Equity Interests in connection with such Special Liquidity Event) shall immediately constitute Disqualified Equity Interests.
“Dollars” or “$” means, unless otherwise qualified, dollars in lawful currency of the United States.
“EEA Financial Institution” means (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of
an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.
“EEA Member Country” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
“EEA Resolution Authority” means any public administrative authority or any Person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.
“Eligible Assignee” means any Person that meets the requirements to be an assignee under Section 11.9 (subject to such consents, if any, as may be required under Section 11.9). Notwithstanding the foregoing, unless otherwise agreed by the Borrower, a Person must be a NAIC Qualified Lender to qualify as an Eligible Assignee.
“Employee Benefit Plan” means (a) any employee benefit plan within the meaning of Section 3(3) of ERISA that is maintained for employees of any Credit Party or any ERISA Affiliate or (b) any Pension Plan or Multiemployer Plan.
“Engagement Letter” means that certain Engagement Letter dated as of May 24, 2022 between Hamilton Re, the Borrower, Wells Fargo Securities, LLC and Wells Fargo.
“Environmental Claims” means any and all administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, accusations, allegations, notices of noncompliance or violation, investigations (other than internal reports prepared by any Person in the ordinary course of business and not in response to any third party action or request of any kind) or proceedings relating in any way to any actual or alleged violation of or liability under any Environmental Law or relating to any permit issued, or any approval given, under any such Environmental Law, including, without limitation, any and all claims by Governmental Authorities for enforcement, cleanup, removal, response, remedial or other actions or damages, contribution, indemnification, cost recovery, compensation or injunctive relief resulting from hazardous materials or arising from alleged injury or threat of injury to public health or the environment.
“Environmental Laws” means any and all federal, foreign, state, provincial and local laws, statutes, ordinances, codes, rules, standards and regulations, permits, licenses, approvals, interpretations and orders of courts or Governmental Authorities, relating to the protection of public health or the environment, including, but not limited to, requirements pertaining to the manufacture, processing, distribution, use, treatment, storage, disposal, transportation, handling, reporting, licensing, permitting, investigation or remediation of hazardous materials.
“Equity Interests” means (a) in the case of a corporation, capital stock, (b) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of capital stock, (c) in the case of a partnership, partnership interests (whether general or limited), (d) in the case of a limited liability company, membership interests, (e) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person and (f) any and all warrants, rights or options to purchase any of the foregoing.
“ERISA” means the Employee Retirement Income Security Act of 1974, and the rules and regulations thereunder.
“ERISA Affiliate” means any Person who together with any Credit Party or any of its Subsidiaries is treated as a single employer within the meaning of Section 414(b) or (c) of the Code or Section 4001(b) of ERISA or, solely for purposes of Section 412 of the Code, Section 414(m) or (o) of the Code.
“Erroneous Payment” has the meaning assigned thereto in Section 10.10.
“Erroneous Payment Deficiency Assignment” has the meaning assigned thereto in Section 10.10.
“Erroneous Payment Return Deficiency” has the meaning assigned thereto in Section 10.10.
“EU Bail-In Legislation Schedule” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor thereto), as in effect from time to time.
“Event of Default” means any of the events specified in Section 9.1; provided that any requirement for passage of time, giving of notice, or any other condition, has been satisfied.
“Evergreen Letter of Credit” has the meaning assigned thereto in Section 3.3.
“Exchange Act” means the Securities Exchange Act of 1934.
“Excluded Subsidiaries” means, collectively, (a) Turing Re, Ltd. and (b) any similar Subsidiary whether or not existing on the Closing Date which is a special purpose, bankruptcy remote, Subsidiary of the Borrower which is formed for the sole purpose of operating as a reinsurance sidecar, provided that (i) such Subsidiary is not included in the consolidated financial statements of the Borrower, (ii) any Indebtedness of such Subsidiary is nonrecourse to the Borrower and its other Subsidiaries and (iii) such Subsidiary does not own any Insurance Subsidiary, and “Excluded Subsidiary” means any of them individually.
“Excluded Taxes” means any of the following Taxes imposed on or with respect to a Recipient or required to be withheld or deducted from a payment to a Recipient, (a) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (i) imposed as a result of such Recipient being organized under the laws of, or having an office or fixed place of business or, in the case of any Lender, its applicable Lending Office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (ii) that are Other Connection Taxes, (b) in the case of a Lender, United States federal withholding Taxes imposed on amounts payable to or for the account of such Lender with respect to an applicable interest in a Loan or Commitment pursuant to a law in effect on the date on which (i) such Lender acquires such interest in the Loan or Commitment (other than pursuant to an assignment request by the Borrower under Section 4.12(b)) or (ii) such Lender changes its Lending Office, except in each case to the extent that, pursuant to Section 4.11, amounts with respect to such Taxes were payable either to such Lender’s assignor immediately before such Lender became a party hereto or to such Lender immediately before it changed its Lending Office, (c) Taxes attributable to such Recipient’s failure to comply with Section 3.6(g) and (d) any United States federal withholding Taxes imposed under FATCA.
“Existing Agreement” has the meaning set forth in the “Statement of Purpose” section of this Agreement.
“Existing Letter of Credit” means each letter of credit issued and outstanding under the Existing Agreement as of the Closing Date and continued under this Agreement as a Letter of Credit issued hereunder.
“Extensions of Credit” means, as to any Lender at any time, (a) an amount equal to the sum of (i) the aggregate principal amount of all Loans made by such Lender then outstanding and (ii) such Lender’s Letter of Credit Exposure at such time, or (b) the making of any Loan or issuance or participation in any Letter of Credit by such Lender, as the context requires.
“FATCA” means (a) Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof, and any agreements entered into pursuant to Section 1471(b)(1) of the Code, (b) any treaty, law, regulation or other official guidance enacted in any other jurisdiction, or relating to an intergovernmental agreement between the United States and any other jurisdiction with the purpose (in either case) of facilitating the implementation of (a) above, or (c) any agreement pursuant to the implementation of paragraphs (a) or (b) above with the IRS, the United States government or any governmental or taxation authority in the United States.
“FDIC” means the Federal Deposit Insurance Corporation.
“Federal Funds Rate” means, for any day, the rate per annum equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that if such rate is not so published for any day which is a Business Day, the Federal Funds Rate for such day shall be the average of the quotation for such day on such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by the Administrative Agent. Notwithstanding the foregoing, if the Federal Funds Rate shall be less than the Floor, such rate shall be deemed to be the Floor for purposes of this Agreement.
“Final Expiry Date” means the date when the Final Maturity Date has occurred, all Letters of Credit have expired or terminated and all Obligations owing hereunder and in the other Loan Documents have been paid in full.
“FIS” means cash or investments held as ‘Fund in Syndicate’ in relation to Syndicate 3334 under the terms of HCML’s Premium Trust Deed.
“Final Maturity Date” means the first anniversary of the Commitment Termination Date.
“Financial Officer” means, as to any Person, the chief executive officer, chief financial officer, controller, chief accounting officer, or treasurer of such Person or any other person authorized by the Credit Parties and reasonably acceptable to the Administrative Agent; provided that, to the extent requested thereby, the Administrative Agent shall have received a certificate of such Person certifying as to the incumbency and genuineness of the signature of each such officer. Any document delivered hereunder or under any other Loan Document that is signed by a Financial Officer of a Person shall be conclusively presumed to have been authorized by all necessary corporate, limited liability company, partnership and/or other action on the part of such Person and such Financial Officer shall be conclusively presumed to have acted on behalf of such Person.
“Financial Strength Rating” means, as to any Person, the rating that has been most recently announced by A.M. Best as the “financial strength rating” of such Person.
“Fiscal Year” means the fiscal year of the Borrower and its Subsidiaries.
“Floor” means a rate of interest equal to 0.0%.
“Foreign Lender” means a Lender that is resident or organized under the laws of a jurisdiction other than the United States, each State thereof or the District of Columbia.
“FRB” means the Board of Governors of the Federal Reserve System of the United States.
“Fronting Bank” means Wells Fargo, in its capacity as (a) issuer of Participated Letters of Credit and (b) fronting bank for any Non-NAIC Qualified Lender pursuant to Section 4.16.
“Fronting Exposure” means, at any time with respect to Wells Fargo, the sum of (a) the aggregate Participated Letter of Credit Exposure of the Lenders plus (b) the Syndicated Letter of Credit Exposure attributable to any Non-NAIC Qualified Lender for which Wells Fargo acts as Fronting Bank pursuant to Section 4.16(b).
“Fronting Sublimit” means the lesser of (a) $100,000,000 and (b) the aggregate Commitments as such amount may be reduced pursuant to the terms hereof, it being understood that the Fronting Sublimit is part of, and not in addition to, the aggregate Commitments.
“Fund” means any Person (other than a natural Person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans, bonds and similar extensions of credit in the ordinary course of its activities.
“Funds at Lloyd’s” means those funds which must be lodged with Lloyd’s by its underwriting members as security to support their underwriting business at Lloyd’s for the forthcoming year. Such Funds at Lloyd’s are provided in the forms prescribed in paragraph 16 of the Membership Bylaw (No. 5 of 2005).
“GAAP” means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession in the United States, that are applicable to the circumstances as of the date of determination, consistently applied.
“Governmental Approvals” means all authorizations, consents, approvals, permits, licenses and exemptions of, and all registrations and filings with or issued by, any Governmental Authorities.
“Governmental Authority” means the government of the United States or any other nation, or of 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 (including any supra-national bodies such as the European Union or the European Central Bank).
“Group” means the Borrower and its Subsidiaries from time to time, excluding the Excluded Subsidiaries.
“Group Own FAL” means in relation to any member of the Group, such part of its Funds at Lloyd’s as is provided or otherwise supported by such member of the Group or by any other member of the Group by way of cash and/or investments and/or covenant and charge or (except for letters of credit or guarantees issued by a third party) otherwise as permitted by Lloyd’s from time to time (which shall be valued by Lloyd’s in accordance with Lloyd’s usual practice). For the avoidance of doubt, for HCML, Own FAL shall include any FIS.
“Guarantor” means the Borrower and each Additional Guarantor.
“Guaranty” means the undertakings by the Guarantor and any Additional Guarantor under Article XII.
“Hamilton Re” means Hamilton Re, Ltd., a company organized under the laws of Bermuda.
“HCML” means Hamilton Corporate Member Limited, a company organized under the laws of England & Wales.
“Hedge Agreement” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement.
“Hedge Termination Value” means, in respect of any one or more Hedge Agreements, after taking into account the effect of any legally enforceable netting agreement relating to such Hedge Agreements, (a) for any date on or after the date such Hedge Agreements have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Hedge Agreements, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Hedge Agreements (which may include a Lender or any Affiliate of a Lender).
“ICC3L” means Ironshore CC (Three) Limited, a company organized under the laws of England & Wales.
“Illegality Notice” has the meaning assigned thereto in Section 4.8(b).
“Increasing Lender” has the meaning assigned thereto in Section 4.13(a).
“Indebtedness” means, with respect to any Person at any date and without duplication, the sum of the following:
(a) all obligations of such Person for borrowed money;
(b) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person;
(c) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current ordinary course trade accounts payable, deferred compensation and any purchase price adjustment, earn-out, contingent payment or deferred payment of a similar nature incurred in connection with an acquisition);
(d) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any lien on property owned or acquired by such Person whether or not the Indebtedness secured thereby has been assumed, provided that the amount of Indebtedness of such Person shall be the lesser of (i) the fair market value of such property at such date of determination (determined in good faith by the Borrower) and (ii) the amount of such Indebtedness of such other Person;
(e) all guarantees by such Person of Indebtedness of others;
(f) all capital lease and finance lease obligations of such Person;
(g) all obligations of such Person under transactions in capital market products;
(h) all reimbursement obligations of such Person in respect of drawn letters of credit, letters of guaranty, bankers’ acceptances and similar credit transactions;
(i) the face amount of all undrawn letters of credit issued under the Barclays Agreement;
(j) any Indebtedness of a partnership in which such Person is a general partner unless such Indebtedness is nonrecourse to such Person;
(k) all contingent liabilities of such Person in connection with the foregoing, except for the undrawn amount of letters of credit issued under credit facilities entered into by the Borrower or any of its Subsidiaries in support of the regulatory obligations of such Subsidiaries under its reinsurance or retrocession arrangements; and
(l) all obligations of such Person in respect of Disqualified Equity Interests.
“Indemnified Taxes” means (a) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of any Credit Party under any Loan Document and (b) to the extent not otherwise described in clause (a), Other Taxes.
“Indemnitee” has the meaning assigned thereto in Section 11.3(b).
“Information” has the meaning assigned thereto in Section 11.10.
“Insurance Regulatory Authority” means, with respect to any Subsidiary of the Borrower, the insurance department or similar Governmental Authority charged with regulating insurance companies or insurance holding companies, in its jurisdiction of domicile and, to the extent that it has regulatory authority over such Insurance Subsidiary, in each other jurisdiction in which such Insurance Subsidiary conducts business or is licensed to conduct business.
“Insurance Subsidiary” means any Subsidiary of the Borrower the ability of which to pay dividends is regulated by an Insurance Regulatory Authority or that is otherwise required to be regulated thereby in accordance with the applicable law of its jurisdiction of domicile.
“Interest Period” means, as to any SOFR Loan, the period commencing on the date such SOFR Loan is disbursed or converted to or continued as a SOFR Loan and ending on the date one (1) or three (3) months thereafter, in each case as selected by the Borrower in its Notice of Borrowing or Notice of Conversion/Continuation and subject to availability; provided that:
(a) the Interest Period shall commence on the date of advance of or conversion to any SOFR Loan and, in the case of immediately successive Interest Periods, each successive Interest Period shall commence on the date on which the immediately preceding Interest Period expires;
(b) if any Interest Period would otherwise expire on a day that is not a Business Day, such Interest Period shall expire on the next succeeding Business Day; provided that if any Interest Period would otherwise expire on a day that is not a Business Day but is a day of the month after which no further Business Day occurs in such month, such Interest Period shall expire on the immediately preceding Business Day;
(c) any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the relevant calendar month at the end of such Interest Period;
(d) no Interest Period shall extend beyond the Commitment Termination Date;
(e) there shall be no more than five (5) Interest Periods in effect at any time; and
(f) no tenor that has been removed from this definition pursuant to Section 4.8(c)(iv) shall be available for specification in any Notice of Borrowing or Notice of Conversion/Continuation.
“Investment” means, with respect to any Person, that such Person (a) purchases, owns, invests in or otherwise acquires (in one transaction or a series of transactions), directly or indirectly, any Equity Interests, interests in any partnership or joint venture (including, without limitation, the creation or capitalization of any Subsidiary), evidence of Indebtedness or other obligation or security, substantially all or a portion of the business or assets of any other Person or any other investment or interest whatsoever in any other Person, (b) makes any Acquisition or (c) makes or permits to exist, directly or indirectly, any loans, advances or extensions of credit to, or any investment in cash or by delivery of Property in, any Person.
“Investment Company Act” means the Investment Company Act of 1940 (15 U.S.C. § 80(a)(1), et seq.).
“IRS” means the United States Internal Revenue Service.
“issue” means, with respect to any Letter of Credit, to issue, to amend or to extend the expiry of, or to renew or increase the Stated Amount of, such Letter of Credit; and the terms “issued”, “issuing” and “issuance” have correlative meanings.
“Issuing Lender” means (i) with respect to any Participated Letter of Credit, the Fronting Bank and (ii) with respect to any Syndicated Letter of Credit, the Lenders who have issued such Syndicated Letter of Credit.
“L/C Advance” has the meaning assigned thereto in Section 3.2(d)(i).
“L/C Agent” means Wells Fargo, in such capacity.
“L/C Disbursement” means (i) with respect to any Participated Letter of Credit, any payment made by the Fronting Bank pursuant thereto and (ii) with respect to any Syndicated Letter of Credit, any payment made by an Issuing Lender pursuant thereto.
“L/C Facility” means the letter of credit facility established pursuant to ARTICLE III (including any increase in such letter of credit facility pursuant to Section 4.13).
“Lender” means the Persons listed on Schedule 1.1 and any other Person that shall have become a party to this Agreement as a Lender pursuant to an Assignment and Assumption or Section 4.13, other than any Person that ceases to be a party hereto as a Lender pursuant to an Assignment and Assumption.
“Lender Joinder Agreement” means a joinder agreement in the form of Exhibit J.
“Lender-Related Person” has the meaning assigned thereto in Section 11.3(b).
“Lending Office” means, with respect to any Lender, the office of such Lender maintaining such Lender’s Extensions of Credit, which office may, to the extent the applicable Lender notifies the Administrative Agent in writing, include an office of any Affiliate of such Lender or any domestic or foreign branch of such Lender or Affiliate.
“Letter of Credit Exposure” means, at any time for each Lender, the sum of such Lender’s Participated Letter of Credit Exposure and Syndicated Letter of Credit Exposure.
“Letter of Credit Fee” has the meaning assigned thereto in Section 4.3(c).
“Letters of Credit” means the collective reference to letters of credit issued pursuant to ARTICLE III.
“Letter of Credit Documents” means, with respect to any Letter of Credit, collectively, any Letter of Credit Notice therefor and any other applications, 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.
“Letter of Credit Notice” means a Syndicated Letter of Credit Notice or a Participated Letter of Credit Notice, as the context requires.
“Lien” means, with respect to any asset, any mortgage, leasehold mortgage, lien, pledge, charge, security interest, hypothecation or encumbrance of any kind in respect of such asset. For the purposes of this Agreement, a Person shall be deemed to own subject to a Lien any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital or finance lease obligation or other title retention agreement relating to such asset.
“Lloyd’s” means the society incorporated by Lloyd’s Act 1871 by the name of Lloyd’s.
“Loan” means any revolving loan made to the Borrower pursuant to Section 2.1, and all such loans collectively as the context requires.
“Loan Documents” means, collectively, this Agreement, each Revolving Credit Note, the Letter of Credit Documents, the Engagement Letter (solely with respect to the annual administrative agent fee and the fronting fee described therein), and each other document, instrument, certificate and agreement executed and delivered by the Credit Parties or any of their respective Subsidiaries in favor of or provided to the Administrative Agent in connection with this Agreement or otherwise referred to herein or contemplated hereby.
“Material Adverse Effect” means, with respect to the Borrower and its Subsidiaries, taken as a whole, (a) a material adverse effect on the operations, business, properties or financial condition of such Persons, taken as a whole, (b) a material impairment of the ability of any such Person to perform its payment and collateral obligations under the Loan Documents to which it is a party, (c) a material impairment of the rights and remedies of the Administrative Agent or any Lender under any Loan Document or (d) an impairment of the legality, validity, binding effect or enforceability against any Credit Party of any material provision of any Loan Document to which it is a party.
“Material Subsidiaries” means, collectively, each Subsidiary that is a Credit Party and each other Subsidiary that is a “significant subsidiary” as such term is defined in Regulation S-X.
“Moody’s” means Moody’s Investors Service, Inc.
“Multiemployer Plan” means a “multiemployer plan” as defined in Section 4001(a)(3) of ERISA that is subject to Title IV of ERISA and to which any Credit Party or any ERISA Affiliate is making, or is accruing an obligation to make, or has accrued an obligation to make contributions within the preceding seven (7) years.
“NAIC” means the National Association of Insurance Commissioners and any successor thereto.
“NAIC Qualified Institution List” has the meaning assigned thereto in the definition of “NAIC Qualified Lender.”
“NAIC Qualified Lender” means, at any time, any Lender listed on the “NAIC List of Qualified U.S. Financial Institutions” maintained by the securities valuation office of the NAIC as issuers of letters of credit for which reinsurance reserve credit can be given (the “NAIC Qualified Institution List”) at such time and acting through the legal entity so listed.
“Non-Consenting Lender” means any Lender that does not approve any consent, waiver, amendment, modification or termination that (a) requires the approval of all Lenders or all affected Lenders in accordance with the terms of Section 11.2 and (b) has been approved by the Required Lenders.
“Non-Defaulting Lender” means, at any time, each Lender that is not a Defaulting Lender at such time.
“Non-Extension Notice Date” has the meaning assigned thereto in Section 3.3.
“Non-NAIC Qualified Lender” means, at any time, any Lender that is not a NAIC Qualified Lender at such time.
“Notice of Account Designation” has the meaning assigned thereto in Section 2.2(b).
“Notice of Borrowing” has the meaning assigned thereto in Section 2.2(a).
“Notice of Conversion/Continuation” has the meaning assigned thereto in Section 4.2.
“Notice of Non-Extension” has the meaning assigned thereto in Section 3.3.
“Notice of Prepayment” has the meaning assigned thereto in Section 2.3(c).
“Obligations” means all principal of, and interest (including interest and fees accruing after the filing of a petition or commencement of a case by or with respect to any Credit Party seeking relief under
any applicable Debtor Relief Laws, whether or not the claim for such interest and fees is allowed in such proceeding) on, the Loans and Reimbursement Obligations and all fees, expenses, indemnities, liabilities, financial accommodations, covenants, duties and other obligations owing, due or payable at any time by any Credit Party to the Administrative Agent, the L/C Agent, any Issuing Lender, any Lender or any other Person entitled thereto, under this Agreement or any of the other Loan Documents, in each case whether direct or indirect, joint or several, absolute or contingent, matured or unmatured, liquidated or unliquidated, secured or unsecured, and whether existing by contract, operation of law or otherwise.
“OFAC” means the U.S. Department of the Treasury’s Office of Foreign Assets Control.
“Officer’s Compliance Certificate” means a certificate of a Financial Officer of the Borrower substantially in the form attached as Exhibit F.
“Organizational Documents” means, (a) with respect to any corporation (or comparable foreign entity), the certificate or articles of incorporation, the bylaws and any shareholders’ agreement (or equivalent or comparable constitutive documents); (b) with respect to any limited liability company (or comparable foreign entity), the certificate or articles of formation or organization and operating agreement or limited liability company agreement (or equivalent or comparable documents); and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity.
“Other Connection Taxes” means, with respect to any Recipient, Taxes imposed as a result of a present or former connection between such Recipient and the jurisdiction imposing such Tax (other than connections arising from such Recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document).
“Other Taxes” means all present or future stamp, court, documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to Section 4.12).
“Overnight Rate” means, for any day, the greater of (a) the Federal Funds Rate and (b) an overnight rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.
“Participant” has the meaning assigned thereto in Section 11.9(d).
“Participant Register” has the meaning assigned thereto in Section 11.9(d).
“Participated Letter of Credit Exposure” means, at any time for each Lender, such Lender’s Ratable Share of the sum of (i) the aggregate Stated Amount of all outstanding Participated Letters of Credit and (ii) the aggregate amount of all outstanding Reimbursement Obligations with respect to Participated Letters of Credit at such time.
“Participated Letters of Credit” means Letters of Credit issued by the Fronting Bank under Section 3.2.
“PATRIOT Act” means the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)).
“Payment Recipient” has the meaning assigned thereto in Section 10.10.
“PBGC” means the Pension Benefit Guaranty Corporation or any successor agency.
“Pension Plan” means any Employee Benefit Plan, other than a Multiemployer Plan, which is subject to the provisions of Title IV of ERISA or Section 412 of the Code and which (a) is maintained, funded or administered for the employees of any Credit Party or any ERISA Affiliate or (b) has at any time within the preceding seven (7) years been maintained, funded or administered for the employees of any Credit Party or any current or former ERISA Affiliates.
“Permitted Liens” means the Liens permitted pursuant to Section 8.2.
“Permitted Security” means:
(a) any mortgage, charge, pledge, lien or other security interest which:
(i) is entered into in the ordinary course of business of the Borrower or any of its Subsidiaries and which secure the obligations of the Borrower (or any of its Subsidiaries) under:
(A) certain insurance, reinsurance or retrocession arrangements to which the Borrower (or any of its Subsidiaries) is at any time a party; or
(B) certain working capital facilities or letter of credit facilities, including where provided for the purpose of Funds at Lloyd’s or in connection with securing obligations owed by the Borrower (or any of its Subsidiaries) under, or entered into in accordance with any applicable legal or regulatory requirement that applies in respect of, a reinsurance or retrocession arrangement to which the Borrower (or any of its Subsidiaries) is at any time a party,
including any Syndicate Arrangements, provided that, (A) the aggregate amount of such Permitted Security under this clause (i) (measured, as to each such Permitted Security permitted under this clause (i), as the greater of the amount secured by such Permitted Security and the fair market value at such time of the assets subject to such Permitted Security) shall not, when added to the aggregate amount of all Permitted Security (measured as set forth in this clause (i) above and without double-counting) incurred pursuant to clauses (i)-(iii) inclusive, of this definition, exceed at any time the lesser of (1) $750,000,000 and (2) the lowest amount permitted under the corresponding “Permitted Security” provisions in the Borrower’s or its Subsidiaries’ Funds at Lloyd’s letter of credit facilities (including, without limitation, the Barclays Agreement) (the “Permitted Security Cap”) at the time of incurrence of any new Permitted Security under this clause (i) and (B) immediately after giving effect to the incurrence of any Permitted Security pursuant to this clause (i), no Event of Default shall have occurred and be continuing;
(ii) is in favor of a custodian or sub-custodian and is granted in respect of the payment of its fees, costs and/or expenses, or its right to be indemnified, pursuant to the terms of a custody
agreement or sub-custodian agreement under which any of the assets of the Borrower or any of its Subsidiaries are held;
(iii) is entered into with the prior approval of the Administrative Agent and the Required Lenders; or
(iv) is granted in favor of Lloyd’s and comprises Group Own FAL or is used to secure Group Own FAL.
For the avoidance of doubt, Group Own FAL shall not be counted towards the Permitted Security Cap identified in subsection (a)(i) above.
“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.
“Platform” means Debt Domain, Intralinks, SyndTrak or a substantially similar electronic transmission system.
“Prime Rate” means, at any time, the rate of interest per annum publicly announced from time to time by the Administrative Agent as its prime rate. Each change in the Prime Rate shall be effective as of the opening of business on the day such change in such prime rate occurs. The parties hereto acknowledge that the rate announced publicly by the Administrative Agent as its prime rate is an index or base rate and shall not necessarily be its lowest or best rate charged to its customers or other banks.
“Property” means any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible, including, without limitation, Equity Interests.
“PTE” means a prohibited transaction class exemption issued by the U.S. Department of Labor, as any such exemption may be amended from time to time.
“Qualified Equity Interests” means any Equity Interests that are not Disqualified Equity Interests.
“Ratable Share” of any amount means, at any time for each Lender, a percentage obtained by dividing such Lender’s Commitment at such time by the aggregate Commitments then in effect or, if the Commitment Termination Date has occurred, the Ratable Share of each Lender shall be determined by dividing such Lender’s outstanding Extensions of Credit by the aggregate of all outstanding Extensions of Credit as of any date of determination. The Ratable Share of each Lender on the Closing Date is set forth opposite the name of such Lender on Schedule 1.1.
“Recipient” means (a) the Administrative Agent, (b) any Lender or Issuing Lender or (c) the Fronting Bank, as applicable.
“Register” has the meaning assigned thereto in Section 1 1.9(c).
“Reimbursement Obligation” means the obligation of the applicable Account Party to reimburse the applicable Issuing Lenders for any payment made by such Issuing Lenders under, or in respect of, any Letter of Credit, together with interest thereon payable as provided herein.
“Related Parties” means, with respect to any Person, such Person’s Affiliates and the partners, directors, officers, employees, agents, trustees, administrators, managers, advisors and representatives of such Person and of such Person’s Affiliates.
“Relevant Governmental Body” means the FRB or the Federal Reserve Bank of New York, or a committee officially endorsed or convened by the FRB or the Federal Reserve Bank of New York or any successor thereto.
“Relevant Holder” means, as of any date of determination, (a) David Siegel and John Overdeck, any of their respective family members and any trusts, family limited partnerships, limited liability companies, or other similar entities created for the benefit of the Persons described in this clause (a) (including Sango Hoken Holdings, LLC and Hopkins Holdings, LLC) or any Affiliates of any of the foregoing and (b) BSOF Master Fund L.P. and any of its Affiliates and funds or partnerships managed or advised by Blackstone Alternative Solutions L.L.C. or any of its Affiliates but not including, however, any portfolio company of any of the foregoing.
“Removal Effective Date” has the meaning assigned thereto in Section 10.6(b).
“Required Lenders” means, at any time, Lenders having Total Credit Exposure representing more than fifty percent (50%) of the Total Credit Exposure of all Lenders. The Total Credit Exposure of (i) any Defaulting Lender and (ii) any Lender that ceases to be a NAIC Qualified Lender (unless such Lender has in effect a Confirming Lender Agreement with a Person which is listed on the NAIC Qualified Institution List to act as a Confirming Lender in accordance with Section 4.16), in each case, shall be disregarded in determining Required Lenders at any time.
“Resignation Effective Date” has the meaning assigned thereto in Section 10.6(a).
“Resolution Authority” means an EEA Resolution Authority or, with respect to any UK Financial Institution, a UK Resolution Authority.
“Responsible Officer” means, as to any Person, the chief executive officer, president, chief financial officer, controller, general counsel, assistant secretary, treasurer or assistant treasurer of such Person or any other officer of such Person designated in writing by the Credit Parties and reasonably acceptable to the Administrative Agent; provided that, to the extent requested thereby, the Administrative Agent shall have received a certificate of such Person certifying as to the incumbency and genuineness of the signature of each such officer. Any document delivered hereunder or under any other Loan Document that is signed by a Responsible Officer of a Person shall be conclusively presumed to have been authorized by all necessary corporate, limited liability company, partnership and/or other action on the part of such Person and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Person.
“Restricted Payment” means any dividend on, or the making of any payment or other distribution on account of, or the purchase, redemption, retirement or other acquisition (directly or indirectly) of, or the setting apart assets for a sinking or other analogous fund for the purchase, redemption, retirement or other acquisition of, any class of Equity Interests of any Credit Party or any Subsidiary thereof, or the making of any distribution of cash, property or assets to the holders of any Equity Interests of any Credit Party or any Subsidiary thereof on account of such Equity Interests.
“Revolving Credit Exposure” means, as to any Lender at any time, the aggregate principal amount at such time of its outstanding Loans and such Lender’s Letter of Credit Exposure at such time.
“Revolving Credit Facility” means the revolving credit facility established pursuant to ARTICLE II (including any increase in such revolving credit facility pursuant to Section 4.13).
“Revolving Credit Note” means a promissory note made by the Borrower in favor of a Lender evidencing the Loans made by such Lender, substantially in the form attached as Exhibit A-1, and any
substitutes therefor, and any replacements, restatements, renewals or extension thereof, in whole or in part, to the extent requested in accordance with Section 4.5.
“Revolving Credit Sublimit” means, at any time, the lesser of (a) $150,000,000, as such amount may be increased pursuant to Section 4.13(f), and (b) the aggregate amount of the Commitments at such time.
“S&P” means Standard & Poor’s Rating Service, a division of S&P Global Inc. and any successor thereto.
“Sanctioned Country” means at any time, a country, territory or region which is itself the subject or target of any Sanctions.
“Sanctioned Person” means, at any time, (a) any Person listed in any Sanctions-related list of designated Persons maintained by OFAC (including, without limitation, OFAC’s Specially Designated Nationals and Blocked Persons List and OFAC’s Consolidated Non-SDN List), the U.S. Department of State, the United Nations Security Council, the European Union, Her Majesty’s Treasury, or other relevant sanctions authority with jurisdiction over any Lender, the Borrower or any of its Subsidiaries or Affiliates, (b) any Person operating, located, organized or resident in a Sanctioned Country, (c) any Person owned or controlled by any such Person or Persons described in clauses (a) and (b), including a Person that is deemed by OFAC to be a Sanctions target based on the ownership of such legal entity by Sanctioned Person(s) or (d) any Person otherwise the subject of Sanctions.
“Sanctions” means any and all economic or financial sanctions, sectoral sanctions, secondary sanctions, trade embargoes and anti-terrorism laws, including but not limited to those imposed, administered or enforced from time to time by the U.S. government (including those administered by OFAC or the U.S. Department of State), the United Nations Security Council, the European Union, Her Majesty’s Treasury, or other relevant sanctions authority with jurisdiction over any Lender, the Borrower or any of its Subsidiaries or Affiliates.
“Securities Act” means the Securities Act of 1933 (15 U.S.C. § 77 et seq.).
“SOFR” means a rate equal to the secured overnight financing rate as administered by the SOFR Administrator.
“SOFR Administrator” means the Federal Reserve Bank of New York (or a successor administrator of the secured overnight financing rate).
“SOFR Loan” means any Loan bearing interest at a rate based on Adjusted Term SOFR as provided in Section 4.1(a).
“Solvent” and “Solvency” mean, with respect to any Person on any date of determination, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including contingent liabilities, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay such debts and liabilities as they mature, (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s property would constitute an unreasonably small capital, and (e) such Person is able to pay its debts and liabilities, contingent obligations and other commitments as they mature in the ordinary course of business. The amount of contingent liabilities at any time shall be computed as
the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.
“Special Liquidity Event” has the meaning set forth in the Borrower’s Shareholders Agreement.
“Special Liquidity Option” has the meaning set forth in the Borrower’s Shareholders Agreement.
“Stated Amount” means, with respect to any Letter of Credit at any time, the aggregate amount available to be drawn thereunder at such time (regardless of whether any conditions for drawing could then be met).
“Subordinated Indebtedness” means the collective reference to any Indebtedness incurred by the Borrower or any of its Subsidiaries that is subordinated in right and time of payment to the Obligations on terms and conditions satisfactory to the Administrative Agent.
“Subsidiary” means as to any Person, any corporation, partnership, limited liability company or other entity of which more than fifty percent (50%) of the outstanding Equity Interests having ordinary voting power to elect a majority of the board of directors (or equivalent governing body) or other managers of such corporation, partnership, limited liability company or other entity is at the time owned by (directly or indirectly) or the management is otherwise controlled by (directly or indirectly) such Person (irrespective of whether, at the time, Equity Interests of any other class or classes of such corporation, partnership, limited liability company or other entity shall have or might have voting power by reason of the happening of any contingency). Unless otherwise qualified, references to “Subsidiary” or “Subsidiaries” herein shall refer to those of the Borrower.
“Suspension Period” means the period of time beginning on the date that each Special Liquidity Event occurs and ending (i) on the date that all rights to exercise a Special Liquidity Option with respect to such Special Liquidity Event expire with no shareholder of the Borrower having exercised a Special Liquidity Option with respect to such Special Liquidity Event or (ii) if any shareholder of the Borrower exercises a Special Liquidity Option with respect to such Special Liquidity Event, on the earlier of (a) the date on which the board of directors of the Borrower irrevocably elects, pursuant to Section 5.3(a) of the Borrower’s Shareholders Agreement, to conduct a sale of 100% of the Equity Interests of the Borrower instead of having the Borrower redeem any of its Equity Interests and (b) if the board of directors of the Borrower elects, pursuant to Section 5.3(a) of the Borrower’s Shareholders Agreement, to have the Borrower redeem Equity Interests, the date on which all rights of shareholders to participate in any redemption of the Borrower’s Equity Interests in connection with such Special Liquidity Event have been exercised, have expired or have been irrevocably waived. The Borrower agrees to promptly notify the Administrative Agent of the occurrence of any Special Liquidity Event and any shareholder and board elections made in connection with such Special Liquidity Event under Section 5.3 of the Borrower’s Shareholders Agreement.
“Syndicate Arrangement” means any arrangement (whether pursuant to guarantees, letters of credit or otherwise) entered into by a managing agent at Lloyd’s on behalf of HCML or ICC3L, together with the other members of a syndicate with respect to financing or reinsurance for the purposes of or in connection with the underwriting business carried on by all such members of that syndicate.
“Syndicated Letter of Credit” means Letters of Credit issued severally by the Lenders under Section 3.1.
“Syndicated Letter of Credit Exposure” means, at any time for each Lender, such Lender’s Ratable Share of the sum of (i) the aggregate Stated Amount of all outstanding Syndicated Letters of Credit and (ii)
the aggregate amount of all outstanding Reimbursement Obligations in respect of Syndicated Letters of Credit at such time.
“Syndicated Letter of Credit Notice” has the meaning assigned thereto in Section 3.1(b).
“Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, including any interest, fines, additions to tax or penalties applicable thereto.
“Term Loan Agreement” means the Term Loan Credit Agreement, dated as of July 26, 2019, by and among the Borrower, the lenders party thereto, and Wells Fargo, as administrative agent, as amended, renewed or extended from time to time.
“Term SOFR” means,
(a) for any calculation with respect to a SOFR Loan, the Term SOFR Reference Rate for a tenor comparable to the applicable Interest Period on the day (such day, the “Periodic Term SOFR Determination Day”) that is two (2) U.S. Government Securities Business Days prior to the first day of such Interest Period, as such rate is published by the Term SOFR Administrator; provided, however, that if as of 5:00 p.m. (Eastern time) on any Periodic Term SOFR Determination Day the Term SOFR Reference Rate for the applicable tenor has not been published by the Term SOFR Administrator and a Benchmark Replacement Date with respect to the Term SOFR Reference Rate has not occurred, then Term SOFR will be the Term SOFR Reference Rate for such tenor as published by the Term SOFR Administrator on the first preceding U.S. Government Securities Business Day for which such Term SOFR Reference Rate for such tenor was published by the Term SOFR Administrator so long as such first preceding U.S. Government Securities Business Day is not more than three (3) U.S. Government Securities Business Days prior to such Periodic Term SOFR Determination Day, and
(b) for any calculation with respect to a Base Rate Loan on any day, the Term SOFR Reference Rate for a tenor of one month on the day (such day, the “Base Rate Term SOFR Determination Day”) that is two (2) U.S. Government Securities Business Days prior to such day, as such rate is published by the Term SOFR Administrator; provided, however, that if as of 5:00 p.m. (Eastern time) on any Base Rate Term SOFR Determination Day the Term SOFR Reference Rate for the applicable tenor has not been published by the Term SOFR Administrator and a Benchmark Replacement Date with respect to the Term SOFR Reference Rate has not occurred, then Term SOFR will be the Term SOFR Reference Rate for such tenor as published by the Term SOFR Administrator on the first preceding U.S. Government Securities Business Day for which such Term SOFR Reference Rate for such tenor was published by the Term SOFR Administrator so long as such first preceding U.S. Government Securities Business Day is not more than three (3) U.S. Government Securities Business Days prior to such Base Rate Term SOFR Determination Day
“Term SOFR Adjustment” means, a percentage equal to 0.10% per annum.
“Term SOFR Administrator” means CME Group Benchmark Administration Limited (CBA) (or a successor administrator of the Term SOFR Reference Rate selected by the Administrative Agent in its reasonable discretion).
“Term SOFR Reference Rate” means the forward-looking term rate based on SOFR.
“Termination Event” means the occurrence of any of the following which, individually or in the aggregate, has resulted or would reasonably be expected to result in liability of any Credit Party: (a) a
“reportable event” described in Section 4043 of ERISA for which the thirty (30) day notice requirement has not been waived by the PBGC, or (b) the withdrawal of any Credit Party or any ERISA Affiliate from a Pension Plan during a plan year in which it was a “substantial employer” as defined in Section 4001(a)(2) of ERISA or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA, or (c) the termination of a Pension Plan, the filing of a notice of intent to terminate a Pension Plan or the treatment of a Pension Plan amendment as a termination, under Section 4041 of ERISA, if the plan assets are not sufficient to pay all plan liabilities, or (d) the institution of proceedings to terminate, or the appointment of a trustee with respect to, any Pension Plan by the PBGC, or (e) any other event or condition which would constitute grounds under Section 4042(a) of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan, or (f) the imposition of a Lien pursuant to Section 430(k) of the Code or Section 303(k) of ERISA, or (g) the determination that any Pension Plan is considered an “at-risk” plan within the meaning of Section 430 of the Code or Section 303 of ERISA or the determination that any Multiemployer Plan is in “endangered” or “critical” status within the meaning of Section 432 of the Code or Section 305 of ERISA, or (h) the partial or complete withdrawal of any Credit Party or any ERISA Affiliate from a Multiemployer Plan if withdrawal liability is asserted by such plan, or (i) any event or condition which results in the insolvency of a Multiemployer Plan under Section 4245 of ERISA, or (j) any event or condition which results in the termination of a Multiemployer Plan under Section 4041A of ERISA or the institution by the PBGC of proceedings to terminate a Multiemployer Plan under Section 4042 of ERISA, or (k) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon any Credit Party or any ERISA Affiliate, or (l) the failure to satisfy the minimum funding standard of Section 412 or 430 of the Code or Section 302 or 303 of ERISA, whether or not waived, with respect to any Pension Plan, or (m) the occurrence of a non-exempt prohibited transaction within the meaning of Section 4975 of the Code or Section 406 of ERISA with respect to any Employee Benefit Plan, or (n) the failure of any Employee Benefit Plan intended to be qualified under Section 401(a) of the Code to so qualify, or the failure of any trust forming part of any such plan to qualify for exemption from taxation under Section 501(a) of the Code, or (o) the failure to make by its due date a required installment under Section 430(j) of the Code with respect to any Pension Plan or the failure to make any required contribution to a Multiemployer Plan.
“Threshold Amount” means as of any date of determination, the lesser of (a) five percent (5%) of Consolidated Tangible Net Worth determined as of the last day of the most recently ended fiscal quarter, and (b) any similar cross-default threshold as set forth in the Barclays Agreement, which, by way of illustration, is $60,000,000 as of the Closing Date.
“Total Capitalization” means, as of any date of determination, the sum of (i) Consolidated Tangible Net Worth and (ii) Consolidated Indebtedness as of such date.
“Total Credit Exposure” means, as to any Lender at any time, the unused Commitments and the Revolving Credit Exposure of such Lender at such time.
“U.K. Bail-In Legislation” means Part I of the United Kingdom Banking Act 2009 (as amended from time to time) and any other law, regulation or rule applicable in the United Kingdom relating to the resolution of unsound or failing banks, investment firms or other financial institutions or their affiliates (otherwise than through liquidation, administration or other insolvency proceedings).
“UK Financial Institution” means any BRRD Undertaking (as such term is defined under the PRA Rulebook (as amended from time to time) promulgated by the United Kingdom Prudential Regulation Authority) or any person falling within IFPRU 11.6 of the FCA Handbook (as amended from time to time) promulgated by the United Kingdom Financial Conduct Authority, which includes certain credit institutions and investment firms, and certain affiliates of such credit institutions or investment firms.
“UK Resolution Authority” means the Bank of England or any other public administrative authority having responsibility for the resolution of any UK Financial Institution.
“Unadjusted Benchmark Replacement” means the applicable Benchmark Replacement excluding the related Benchmark Replacement Adjustment.
“United States” and “U.S.” means the United States of America.
“U.S. Government Securities Business Day” means any day except for (a) a Saturday, (b) a Sunday or (c) a day on which the Securities Industry and Financial Markets Association recommends that the fixed income departments of its members be closed for the entire day for purposes of trading in United States government securities; provided, that for purposes of notice requirements in Section 2.2(a), Section 2.3(c) and Section 4.2, in each case, such day is also a Business Day.
“U.S. Person” means any Person that is a “United States person” as defined in Section 7701(a)(30) of the Code.
“U.S. Tax Compliance Certificate” has the meaning assigned thereto in Section 4.11(g).
“Wells Fargo” means Wells Fargo Bank, National Association, a national banking association.
“Wholly-Owned” means, with respect to a Subsidiary, that all of the Equity Interests of such Subsidiary are, directly or indirectly, owned or controlled by the Borrower and/or one or more of its Wholly-Owned Subsidiaries (except for directors’ qualifying shares or other shares required by Applicable Law to be owned by a Person other than the Borrower and/or one or more of its Wholly-Owned Subsidiaries).
“Withholding Agent” means any Credit Party and the Administrative Agent.
“Write-Down and Conversion Powers” means, (i) with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule and (ii) with respect to the United Kingdom, any powers of the applicable Resolution Authority under the Bail-In Legislation to cancel, reduce, modify or change the form of a liability of any UK Financial Institution or any contract or instrument under which that liability arises, to convert all or part of that liability into shares, securities or obligations of that person or any other person, to provide that any such contract or instrument is to have effect as if a right had been exercised under it or to suspend any obligation in respect of that liability or any of the powers under that Bail-In Legislation that are related to or ancillary to any of those powers.
SECTION 1.2 Other Definitions and Provisions. With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document: (a) the definitions of terms herein shall apply equally to the singular and plural forms of the terms defined, (b) whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms, (c) the words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”, (d) the word “will” shall be construed to have the same meaning and effect as the word “shall”, (e) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (f) 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, (g) 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, (h) 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, (i) the term “documents” includes any and all instruments, documents, agreements, certificates, notices, reports, financial statements and other writings, however evidenced, whether in physical or electronic form and (j) in the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including;” the words “to” and “until” each mean “to but excluding;” and the word “through” means “to and including”.
SECTION 1.3 Accounting Terms.
(a) All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with GAAP applied on a consistent basis, as in effect from time to time and in a manner consistent with that used in preparing the audited financial statements required by Section 9.1(a), except as otherwise specifically prescribed herein. Notwithstanding the foregoing, for purposes of determining compliance with any covenant (including the computation of any financial covenant) contained herein, Indebtedness of the Borrower and its Subsidiaries shall be deemed to be carried at 100% of the outstanding principal amount thereof, and the effects of FASB ASC 825 and FASB ASC 470-20 on financial liabilities shall be disregarded.
(b) If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either a Credit Party or the Required Lenders shall so request, the Administrative Agent, the Lenders and the Credit Parties shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Required Lenders); provided that, until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (ii) the Credit Parties shall provide to the Administrative Agent and the Lenders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP.
SECTION 1.4 Rounding. Any financial ratios required to be maintained pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio or percentage is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).
SECTION 1.5 References to Agreement and Laws. Unless otherwise expressly provided herein, (a) any definition or reference to formation documents, governing documents, agreements (including the Loan Documents) and other contractual documents or instruments shall be deemed to include all subsequent amendments, restatements, extensions, supplements and other modifications thereto, but only to the extent that such amendments, restatements, extensions, supplements and other modifications are not prohibited by any Loan Document; and (b) any definition or reference to any Applicable Law, including, without limitation, Anti-Corruption Laws, Anti-Money Laundering Laws, the Bankruptcy Code, the Code, ERISA, the Exchange Act, the PATRIOT Act, the Securities Act, the UCC, the Investment Company Act, the Trading with the Enemy Act of the United States or any of the foreign assets control regulations of the United States Treasury Department, shall include all statutory and regulatory provisions consolidating, amending, replacing, supplementing or interpreting such Applicable Law.
SECTION 1.6 Times of Day. Unless otherwise specified, all references herein to times of day shall be references to Eastern time (daylight or standard, as applicable).
SECTION 1.7 Rates. The Administrative Agent does not warrant or accept any responsibility for, and shall not have any liability with respect to, (a) the continuation of, administration of, submission of, calculation of or any other matter related to the Term SOFR Reference Rate, Adjusted Term SOFR or
Term SOFR, or any component definition thereof or rates referred to in the definition thereof, or with respect to any alternative, successor or replacement rate thereto (including any Benchmark Replacement), including whether the composition or characteristics of any such alternative, successor or replacement rate (including any Benchmark Replacement), as it may or may not be adjusted pursuant to Section 4.8(c), will be similar to, or produce the same value or economic equivalence of, or have the same volume or liquidity as, the Term SOFR Reference Rate, Adjusted Term SOFR, Term SOFR or any other Benchmark prior to its discontinuance or unavailability, or (b) the effect, implementation or composition of any Conforming Changes. The Administrative Agent and its Affiliates or other related entities may engage in transactions that affect the calculation of the Term SOFR Reference Rate, Adjusted Term SOFR, Term SOFR, any alternative, successor or replacement rate (including any Benchmark Replacement) or any relevant adjustments thereto and such transactions may be adverse to the Borrower. The Administrative Agent may select information sources or services in its reasonable discretion to ascertain the Term SOFR Reference Rate, Adjusted Term SOFR or Term SOFR, or any other Benchmark, any component definition thereof or rates referred to in the definition thereof, in each case pursuant to the terms of this Agreement, and shall have no liability to the Borrower, any Lender or any other person or entity for damages of any kind, including direct or indirect, special, punitive, incidental or consequential damages, costs, losses or expenses (whether in tort, contract or otherwise and whether at law or in equity), for any error or calculation of any such rate (or component thereof) provided by any such information source or service.
SECTION 1.8 Divisions. For all purposes under the Loan Documents, in connection with any division or plan of division under Delaware law (or any comparable event under a different jurisdiction’s laws): (a) if any asset, right, obligation or liability of any Person becomes the asset, right, obligation or liability of a different Person, then it shall be deemed to have been transferred from the original Person to the subsequent Person, and (b) if any new Person comes into existence, such new Person shall be deemed to have been organized on the first date of its existence by the holders of its Equity Interests at such time.
ARTICLE II
REVOLVING CREDIT FACILITY
SECTION 2.1 Loans. Subject to the terms and conditions of this Agreement and the other Loan Documents, and in reliance upon the representations and warranties set forth in this Agreement and the other Loan Documents, each Lender severally agrees to make Loans in Dollars to the Borrower from time to time from the Closing Date to, but not including, the Commitment Termination Date as requested by the Borrower in accordance with the terms of Section 2.2; provided, that (a) the outstanding Loans shall not, at any time, exceed the Revolving Credit Sublimit and (b) the Revolving Credit Exposure of any Lender shall not at any time exceed such Lender’s Commitment. Each Loan by a Lender shall be in a principal amount equal to such Lender’s Ratable Share of the aggregate principal amount of Loans requested on such occasion. Subject to the terms and conditions hereof, the Borrower may borrow, repay and reborrow Loans hereunder until the Commitment Termination Date.
SECTION 2.2 Procedure for Advances of Loans.
(a) Requests for Borrowing. The Borrower shall give the Administrative Agent irrevocable prior written notice substantially in the form of Exhibit B (a “Notice of Borrowing”) not later than 11:00 a.m. (i) on the same Business Day as each Base Rate Loan and (ii) at least three (3) U.S. Government Securities Business Days before each SOFR Loan, of its intention to borrow, specifying (A) the date of such borrowing, which shall be a Business Day, (B) the amount of such borrowing, which shall be, (x) with respect to Base Rate Loans in an aggregate principal amount of $1,000,000 or a whole multiple of $500,000 in excess thereof, or (y) with respect to SOFR Loans in an aggregate principal amount of $2,000,000 or a
whole multiple of $1,000,000 in excess thereof (or, in each case, the remaining amount of the Commitments), (C) whether such Loan is to be a SOFR Loan or a Base Rate Loan, and (D) in the case of a SOFR Loan, the duration of the Interest Period applicable thereto. If the Borrower fails to specify a type of Loan in a Notice of Borrowing, then the applicable Loans shall be made as SOFR Loans with an Interest Period of one month. If the Borrower requests a borrowing of a SOFR Loan in any such Notice of Borrowing, but fails to specify an Interest Period, it will be deemed to have specified an Interest Period of one month. A Notice of Borrowing received after 11:00 a.m. shall be deemed received on the next Business Day or U.S. Government Securities Business Day, as applicable. The Administrative Agent shall promptly notify the Lenders of each Notice of Borrowing.
(b) Disbursement of Loans. Not later than 1:00 p.m. on the proposed borrowing date, each Lender will make available to the Administrative Agent, for the account of the Borrower, at the Administrative Agent’s Office in funds immediately available to the Administrative Agent, such Lender’s Ratable Share of the Loans to be made on such borrowing date. The Borrower hereby irrevocably authorizes the Administrative Agent to disburse the proceeds of each borrowing requested pursuant to this Section in immediately available funds by crediting or wiring such proceeds to the deposit account of the Borrower identified in the most recent notice substantially in the form attached as Exhibit C (a “Notice of Account Designation”) delivered by the Borrower to the Administrative Agent or as may be otherwise agreed upon by the Borrower and the Administrative Agent from time to time. Subject to Section 4.7 hereof, the Administrative Agent shall not be obligated to disburse the portion of the proceeds of any Loan requested pursuant to this Section to the extent that any Lender has not made available to the Administrative Agent its Ratable Share of such Loan.
SECTION 2.3 Repayment and Prepayment of Loans.
(a) Repayment on Termination Date. The Borrower hereby agrees to repay the outstanding principal amount of all Loans in full on the Commitment Termination Date, together with all accrued but unpaid interest thereon.
(b) Mandatory Prepayments. If at any time the principal amount of outstanding Loans exceeds the Revolving Credit Sublimit, the Borrower agrees to repay immediately upon notice from the Administrative Agent, by payment to the Administrative Agent for the account of the Lenders, Loans in an amount equal to such excess, together with all accrued and unpaid interest thereon. Such repayment shall be accompanied by any amount required to be paid pursuant to Section 4.9.
(c) Optional Prepayments. The Borrower may at any time and from time to time prepay Loans, in whole or in part, without premium or penalty, with irrevocable prior written notice to the Administrative Agent substantially in the form attached as Exhibit D (a “Notice of Prepayment”) given not later than 11:00 a.m. (i) on the same Business Day as each Base Rate Loan and (ii) at least three (3) U.S. Government Securities Business Days before prepayment of each SOFR Loan, specifying the date and amount of prepayment and whether the prepayment is of SOFR Loans, Base Rate Loans or a combination thereof, and, if of a combination thereof, the amount allocable to each. Upon receipt of such notice, the Administrative Agent shall promptly notify each Lender. If any such notice is given, the amount specified in such notice shall be due and payable on the date set forth in such notice. Partial prepayments shall be in an aggregate amount of $1,000,000 or a whole multiple of $500,000 in excess thereof with respect to Base Rate Loans and $2,000,000 or a whole multiple of $1,000,000 in excess thereof with respect to SOFR Loans. A Notice of Prepayment received after 11:00 a.m. shall be deemed received on the next Business Day or U.S. Government Securities Business Day, as applicable. Each such repayment shall be accompanied by any amount required to be paid pursuant to Section 4.9 hereof. Notwithstanding the foregoing, any Notice of Prepayment delivered in connection with any refinancing of all of the Credit Facility with the proceeds of such refinancing or of any other incurrence of Indebtedness or the occurrence
of some other identifiable event or condition, may be, if expressly so stated to be, contingent upon the consummation of such refinancing or incurrence or occurrence of such other identifiable event or condition and may be revoked by the Borrower in the event such contingency is not met; provided that the delay or failure of such contingency shall not relieve the Borrower from its obligations in respect thereof under Section 4.9.
(d) Limitation on Prepayment of SOFR Loans. The Borrower may not prepay any SOFR Loan on any day other than on the last day of the Interest Period applicable thereto unless such prepayment is accompanied by any amount required to be paid pursuant to Section 4.9 hereof.
(e) Hedge Agreements. No repayment or prepayment of the Loans pursuant to this Section shall affect any of the Borrower’s obligations under any Hedge Agreement entered into with respect to the Loans.
SECTION 2.4 Termination of Revolving Credit Facility. The Revolving Credit Facility and the Commitments shall terminate on the Commitment Termination Date.
ARTICLE III
LETTER OF CREDIT FACILITY
SECTION 3.1 Syndicated Letters of Credit.
(a) General. At the request of any Account Party, each Lender agrees, on and subject to the terms and conditions of this Agreement, to issue Letters of Credit as Syndicated Letters of Credit for the account of such Account Party (or any of its Subsidiaries) in Dollars from time to time during the Availability Period. Each Syndicated Letter of Credit shall be issued severally by all of the Lenders acting through the L/C Agent, at the time of issuance as a single multi-bank letter of credit, and shall be substantially in the form of Exhibit A-2 with such changes therein as the L/C Agent (in consultation with the applicable Account Party) determines are acceptable to it and not adverse to the interests of the Lenders.
(b) Notice of Issuance. To request the issuance of a Syndicated Letter of Credit, the applicable Account Party shall hand deliver or transmit by facsimile (or transmit by electronic communication, if arrangements for doing so have been approved by the L/C Agent; provided that the L/C Agent hereby approves such electronic communication delivered by email) to the L/C Agent and the Administrative Agent (which shall promptly notify the Lenders) not later than 11:00 a.m. three Business Days in advance of the requested date of issuance (or such shorter period as is acceptable to the L/C Agent, including any request for the issuance of a Syndicated Letter of Credit on the Closing Date, subject to approval by the L/C Agent) a letter of credit notice on the L/C Agent’s standard form (with such changes as the L/C Agent shall reasonably deem appropriate) or other electronic notice acceptable to the L/C Agent (a “Syndicated Letter of Credit Notice”) requesting the issuance of a Syndicated Letter of Credit, or identifying the Syndicated Letter of Credit to be amended, renewed, extended or increased, as the case may be, and specifying: (A) the date of issuance (which shall be a Business Day), (B) the date on which such Syndicated Letter of Credit is to expire (which shall comply with Section 3.3), (C) the Stated Amount of such Syndicated Letter of Credit (it being agreed that all Letters of Credit shall be issued in Dollars), (D) the name and address of the beneficiary thereof, and (E) such other information as shall be necessary to prepare, amend, renew, extend or increase, as the case may be, such Syndicated Letter of Credit, it being understood and agreed that Syndicated Letters of Credit may be extended and renewed in accordance with Section 3.3. It is the intention of the parties to this Agreement that Syndicated Letters of Credit issued to support reinsurance-related obligations shall have terms and conditions necessary to qualify such Syndicated Letters of Credit as permissible collateral under applicable law and, subject to the terms and conditions of this
Agreement, the Issuing Lenders agree to issue such Syndicated Letters of Credit. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any Syndicated Letter of Credit Notice or other Letter of Credit Document submitted by any Account Party to, or entered into by any Account Party with, the L/C Agent relating to any Syndicated Letter of Credit, the terms and conditions of this Agreement shall control.
(c) Obligation of Lenders. The obligation of any Issuing Lender under any Syndicated Letter of Credit shall be several and not joint and shall be in an amount equal to such Issuing Lender’s Ratable Share of the aggregate Stated Amount of such Syndicated Letter of Credit at the time such Syndicated Letter of Credit is issued (subject to any amendments to such Syndicated Letter of Credit expressly permitted hereunder) and each Syndicated Letter of Credit shall expressly so provide. Absent the prior written consent of each Issuing Lender, no Syndicated Letter of Credit may be issued that would vary the several and not joint nature of the obligations of the Issuing Lenders thereunder as provided in this Section 3.1(c). The failure of any Issuing Lender to make any L/C Disbursement in respect of any Syndicated Letter of Credit on any date shall not relieve any other Issuing Lender of its corresponding obligation, if any, hereunder to do so on such date, but no Issuing Lender shall be responsible for the failure of any other Issuing Lender to make its L/C Disbursement in respect of any Syndicated Letter of Credit. Concurrently with or promptly following any change in Commitments pursuant to Section 4.12(b), Section 11.9 (to the extent agreed to between the assigning Lender and the assignee), Section 4.13, Section 11.24 or the last paragraph of Section 11.2, the L/C Agent shall amend or replace each outstanding Syndicated Letter of Credit to reflect the new Ratable Shares of the applicable Issuing Lenders. Until a Syndicated Letter of Credit has been so amended or replaced, the Issuing Lenders (both before and after giving effect to the change in Ratable Shares) shall be deemed to have irrevocably and unconditionally sold and purchased participations in such Syndicated Letter of Credit (including each drawing made thereunder and the obligations of each Account Party under this Agreement with respect thereto and any Cash Collateral or other security therefor or guaranty pertaining thereto) as necessary to give effect to the change in Ratable Shares.
(d) Issuance Administration. Each Syndicated Letter of Credit shall be executed and delivered by the L/C Agent in the name and on behalf of, and as attorney-in-fact for, each Issuing Lender, and the L/C Agent shall act under each Syndicated Letter of Credit, and each Syndicated Letter of Credit shall expressly provide that the L/C Agent shall act, as the agent of each such Issuing Lender to (i) execute and deliver such Syndicated Letter of Credit, (ii) receive drafts, other demands for payment and other documents presented by the beneficiary under such Syndicated Letter of Credit, (iii) determine whether such drafts, demands and documents are in compliance with the terms and conditions of such Syndicated Letter of Credit, (iv) notify such Issuing Lender and the applicable Account Party (and, concurrently, any co-applicant Subsidiary of an Account Party, if applicable, with respect to such Syndicated Letter of Credit) that a valid drawing has been made and the date that the related L/C Disbursement is to be made and (v) exercise all rights held by the issuer of a letter of credit under the documents for which such Syndicated Letter of Credit shall provide credit enhancement (or designate any Person as its representative for all such purposes under such documents); provided that the L/C Agent shall have no obligation or liability for any L/C Disbursement under such Syndicated Letter of Credit (other than in its capacity as an Issuing Lender), and each Syndicated Letter of Credit shall expressly so provide. Each Issuing Lender hereby irrevocably appoints and designates the L/C Agent as its attorney-in-fact, acting through any duly authorized officer, to execute and deliver in the name and on behalf of such Issuing Lender each Syndicated Letter of Credit to be issued by such Issuing Lender hereunder and to take such other actions contemplated by this Section 3.1(d). Promptly upon the request of the L/C Agent, each Issuing Lender will furnish to the L/C Agent such additional powers of attorney or other evidence as any beneficiary of any Syndicated Letter of Credit may reasonably request in order to demonstrate that the L/C Agent has the power to act as attorney-in-fact for such Issuing Lender to execute and deliver such Syndicated Letter of Credit.
(e) Disbursement Procedures. The L/C Agent shall, within a reasonable time following its receipt thereof (and, in any event, within any time specified in the text of the relevant Syndicated Letter of Credit), examine all documents purporting to represent a demand for payment under a Syndicated Letter of Credit. The L/C Agent shall promptly after such examination and before such L/C Disbursement notify each applicable Issuing Lender and the applicable Account Party by telephone (confirmed by facsimile or email) of such demand for payment. With respect to any demand for payment made under a Syndicated Letter of Credit which the L/C Agent has informed the applicable Issuing Lenders is valid, each such Issuing Lender will promptly make a L/C Disbursement in respect of such Syndicated Letter of Credit in accordance with the amount of its liability under such Syndicated Letter of Credit and this Agreement, and such L/C Disbursement is to be made to the account of the L/C Agent most recently designated by it for such purpose by notice to the Issuing Lenders. The L/C Agent will make such L/C Disbursement available to the beneficiary of such Syndicated Letter of Credit by promptly crediting the amounts so received, in the funds so received, to the account identified by such beneficiary in connection with such demand for such L/C Disbursement. Promptly following any L/C Disbursement by any Issuing Lender in respect of any Syndicated Letter of Credit, the L/C Agent will notify the applicable Account Party of such L/C Disbursement.
(f) Reimbursement. Each Account Party agrees that it shall reimburse the applicable Issuing Lenders in respect of any L/C Disbursement made under such Account Party’s Syndicated Letters of Credit by paying to the Administrative Agent an amount in Dollars equal to the amount of such L/C Disbursement, with interest payable thereon as provided in Section 4.1, no later than 2:00 p.m., Charlotte time, on the third Business Day after the date of the L/C Disbursement. Each Account Party’s obligation to reimburse the Issuing Lenders with respect to such Account Party’s Reimbursement Obligations shall be absolute and unconditional and subject to the provisions of Section 4.4.
SECTION 3.2 Participated Letters of Credit.
(a) General. At the request of any Account Party, the Fronting Bank agrees, on and subject to the terms and conditions of this Agreement and in reliance upon the agreements of the Lenders set forth in this Section 3.2, to issue Letters of Credit as Participated Letters of Credit for the account of such Account Party (or any of its Subsidiaries) in Dollars from time to time during the Availability Period. Each Participated Letter of Credit shall be in a form customarily used or otherwise approved by the Fronting Bank (in consultation with the applicable Account Party).
(b) Notice of Issuance. To request the Issuance of a Participated Letter of Credit, any Account Party shall hand deliver or transmit by facsimile (or transmit by electronic communication, if arrangements for doing so have been approved by the Fronting Bank; provided that the Fronting Bank hereby approves such electronic communication delivered by email) to the Fronting Bank and the Administrative Agent (which shall promptly notify the Lenders) at least three Business Days in advance of the requested date of issuance (or such shorter period as is acceptable to the Administrative Agent and the Fronting Bank, including any request for the issuance of a Participated Letter of Credit on the Closing Date, subject to approval by the Administrative Agent and the Fronting Bank) a letter of credit notice on the Fronting Bank’s standard form (with such changes as the Fronting Bank shall reasonably deem appropriate) or other electronic notice acceptable to the Fronting Bank (a “Participated Letter of Credit Notice”) requesting the issuance of a Participated Letter of Credit, or identifying the Participated Letter of Credit to be amended, renewed, extended or increased, as the case may be, and specifying: (A) the date of issuance (which shall be a Business Day), (B) the date on which such Participated Letter of Credit is to expire (which shall comply with Section 3.3), (C) the Stated Amount of such Participated Letter of Credit (it being agreed that all Letters of Credit shall be issued in Dollars), (D) the name and address of the beneficiary thereof, and (E) such other information as shall be necessary to prepare, amend, renew, extend or increase, as the case may be, such Participated Letter of Credit, it being understood and agreed that Participated Letters of Credit may
be extended and renewed in accordance with Section 3.3. It is the intention of the parties to this Agreement that Participated Letters of Credit issued to support reinsurance-related obligations shall have terms and conditions necessary to qualify such Participated Letters of Credit as permissible collateral under applicable law and, subject to the terms and conditions of this Agreement, the Fronting Bank agrees to issue such Participated Letters of Credit. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any Participated Letter of Credit Notice or other Letter of Credit Document submitted by any Account Party to, or entered into by such Account Party with, the Fronting Bank relating to any Participated Letter of Credit, the terms and conditions of this Agreement shall control.
(c) Participations. By the Issuance of a Participated Letter of Credit by the Fronting Bank and without any further action on the part of the Fronting Bank or the Lenders, the Fronting Bank shall be deemed to have sold and transferred to each Lender, and each Lender shall be deemed irrevocably and unconditionally to have purchased and received from the Fronting Bank, without recourse or warranty, an undivided interest and participation in such Participated Letter of Credit in an amount equal to such Lender’s Ratable Share of the Stated Amount of such Participated Letter of Credit and the applicable Account Party’s reimbursement obligations with respect thereto. Each Lender acknowledges and agrees that its obligation to acquire participations pursuant to this paragraph in respect of Participated Letters of Credit is absolute, irrevocable and unconditional and shall not be affected by any circumstance whatsoever, including any amendment, renewal or extension of any such Participated Letter of Credit or the occurrence and continuance of a Default or Event of Default or reduction or termination of the aggregate Commitments. In consideration and in furtherance of the foregoing, as set forth in Section 3.2(d)(i) each Lender hereby absolutely and unconditionally agrees to pay in Dollars to the Administrative Agent, for account of the Fronting Bank, such Lender’s Ratable Share of each L/C Disbursement made by the Fronting Bank in respect of any Participated Letter of Credit or at any time after any reimbursement payment is required to be disgorged or refunded to the applicable Account Party 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 any Account Party pursuant to Section 3.2(e), the Administrative Agent shall distribute such payment to the Fronting Bank or, to the extent that any Lenders have made payments pursuant to this paragraph to reimburse the Fronting Bank, then to such Lenders and the Fronting Bank as their interests may appear. Any payment made by a Lender pursuant to this paragraph to reimburse the Fronting Bank for any L/C Disbursement shall not relieve the applicable Account Party of its obligation to reimburse such L/C Disbursement.
(d) Disbursement Procedures; Funding of Participations.
(i) The Fronting Bank shall, within a reasonable time following its receipt thereof (and, in any event, within any time specified in the text of the relevant Participated Letters of Credit), examine all documents purporting to represent a demand for payment under a Participated Letter of Credit. The Fronting Bank shall promptly after such examination notify the Administrative Agent and the applicable Account Party by telephone (confirmed by facsimile or email) of such demand for payment and whether the Fronting Bank has made or will make a L/C Disbursement thereunder; provided that any failure to give or delay in giving such notice shall not relieve the applicable Account Party of its obligation to reimburse the Fronting Bank and the Lenders with respect to any such L/C Disbursement. If the applicable Account Party shall fail to reimburse the Fronting Bank for such L/C Disbursement on the date and time specified in Section 3.2(e), the Administrative Agent shall notify each Lender of the applicable L/C Disbursement, the payment then due from such Account Party in respect thereof and such Lender’s Ratable Share thereof. Each Lender (including the Lender acting as Fronting Bank) shall upon such notice make funds available in Dollars to the Administrative Agent for the account of the Fronting Bank at the Payment Office in an amount equal to its Ratable Share of the unpaid L/C Disbursement (such amount, its “L/C Advance”) not later than 2:00 p.m. on the Business Day specified in such notice
by the Administrative Agent. No such making of a L/C Advance shall relieve or otherwise impair the obligation of such Account Party to reimburse the Fronting Bank for the amount of any payment made by the Fronting Bank under such Letter of Credit, together with interest as provided herein.
(ii) If any Lender fails to make available to the Administrative Agent for the account of the Fronting Bank any amount required to be paid by such Lender pursuant to the foregoing provisions of this Section 3.2(d) by the time specified therein, the Fronting Bank shall be entitled to recover from such Lender (acting through the Administrative Agent), on demand, such amount with interest thereon for the period from the date such payment is required to the date on which such payment is immediately available to the Fronting Bank at a rate per annum equal to the Federal Funds Rate from time to time in effect. A certificate of the Fronting Bank submitted to any Lender (through the Administrative Agent) with respect to any amounts owing under this clause (ii) shall be conclusive absent manifest error. Until a Lender funds its L/C Advance pursuant to this Section 3.2(d) to reimburse the Fronting Bank for any L/C Disbursement, interest in respect of such Lender’s L/C Advance shall be solely for the account of the Fronting Bank.
(e) Reimbursement. Each Account Party agrees that it shall reimburse the Fronting Bank in respect of any L/C Disbursement made under such Account Party’s Participated Letters of Credit by paying to the Administrative Agent an amount in Dollars equal to the amount of such L/C Disbursement, with interest payable thereon as provided in Section 4.1, no later than 2:00 p.m., Charlotte time, on the third Business Day after the date of the L/C Disbursement. Each Account Party’s obligation to reimburse the Fronting Bank with respect to its Reimbursement Obligations shall be absolute and unconditional and subject to the provisions of Section 4.4.
(f) Repayment of Participations.
(i) At any time after the Fronting Bank has made a payment under any Participated Letter of Credit and has received from any Lender such Lender’s L/C Advance in respect of such payment in accordance with Section 3.2(d)(i), if the Administrative Agent receives for the account of the Fronting Bank any payment in respect of the related unpaid L/C Disbursement or interest thereon (whether directly from the applicable Account Party or otherwise, including proceeds of cash collateral applied thereto by the Administrative Agent), the Administrative Agent will distribute to such Lender its Ratable Share thereof (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Lender’s L/C Advance was outstanding) in the same funds as those received by the Administrative Agent.
(ii) If any payment received by the Administrative Agent for the account of the Fronting Bank pursuant to Section 3.2(d) is required to be returned under any of the circumstances described in Section 4.4 (including pursuant to any settlement entered into by the Fronting Bank in its discretion), each Lender shall pay to the Administrative Agent for the account of the Fronting Bank its Ratable Share thereof on demand of the Administrative Agent, plus interest thereon from the date of such demand to the date such amount is returned by such Lender, at a rate per annum equal to the Federal Funds Rate from time to time in effect.
SECTION 3.3 Expiry Date of Letters of Credit. Each Letter of Credit shall expire at or prior to the earlier of (a) the close of business on the date one year after the date of the issuance of such Letter of Credit (or, in the case of any renewal or extension thereof, one year after such renewal or extension), or (b) the Final Maturity Date; provided, however, if any Account Party so requests in any applicable Letter of Credit Notice, the L/C Agent or the Fronting Bank, as applicable, agrees to issue a Letter of Credit that provides for the automatic renewal for successive periods of one year or less (but not beyond the Final Maturity Date) (each, an “Evergreen Letter of Credit”) unless and until the L/C Agent or Fronting Bank, as
applicable, shall have delivered prior written notice of nonrenewal to the beneficiary of such Letter of Credit (a “Notice of Non-Extension”) no later than 60 days prior to the stated maturity date specified in such Letter of Credit (such time, the “Non-Extension Notice Date”). Once an Evergreen Letter of Credit has been issued, the Lenders shall be deemed to have authorized (but may not require) the L/C Agent or Fronting Bank, as applicable, to permit the extension of such Letter of Credit at any time to an expiry date not later than the Final Maturity Date; provided, however, that the L/C Agent or Fronting Bank, as applicable, shall not permit any such extension, nor shall it be required to extend such Letter of Credit, if (x) the L/C Agent or Fronting Bank, as applicable, has determined that it would not be permitted, or would have no obligation, at such time to issue such Letter of Credit (as extended) under the terms hereof (by reason of the provisions of Section 5.2), (y) it has received notice (which may be by telephone or in writing) on or before the day that is five Business Days before the Non-Extension Notice Date (1) from the Administrative Agent that the Required Lenders have elected not to permit such extension or (2) from the Administrative Agent, the Required Lenders or the applicable Account Party that one or more of the applicable conditions specified in Section 5.2 is not then satisfied or (z) the Commitment Termination Date has occurred.
SECTION 3.4 Obligations Absolute.
(a) The Reimbursement Obligations of each Account Party with respect to a L/C Disbursement under any Letter of Credit issued for the account of such Account Party (or any of its Subsidiaries) and the obligation of any Lender to make its L/C Advance to the Fronting Bank with respect to any L/C Disbursement under any Letter of Credit shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement and any Letter of Credit Document under all circumstances, including the following circumstances:
(i) any lack of validity or enforceability of this Agreement, any other Loan Document, any Letter of Credit Document or any other agreement or instrument relating thereto;
(ii) any change in the time, manner or place of payment of, or in any other term of, all or any of the obligations of the applicable Account Party in respect of any Letter of Credit Document or any other amendment or waiver of or any consent to departure from all or any of the Letter of Credit Documents;
(iii) the existence of any claim, set-off, defense or other right that the applicable Account Party may have at any time against any beneficiary or any transferee of a Letter of Credit (or any Persons for which any such beneficiary or any such transferee may be acting), any Issuing Lender, the Administrative Agent, the L/C Agent, any Lender or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or by such Letter of Credit or any other Letter of Credit Document or any unrelated transaction;
(iv) any statement or any other document presented under a Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect;
(v) payment by any Issuing Lender under a Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of such Letter of Credit;
(vi) any exchange, release or non-perfection of any collateral, or any release or amendment or waiver of or consent to departure from any guarantee, for all or any of the Obligations of the applicable Account Party; or
(vii) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or a discharge of, any Account Party, the Guarantor or any other guarantor, other than as may be expressly set forth in this Agreement.
(b) None of the Administrative Agent, the L/C Agent, any Issuing Lender or any Lender, or any of their Related Parties, shall have any liability or responsibility to any Account Party by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder, or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any 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 Fronting Bank or the L/C Agent 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 each Account Party to the extent permitted by applicable law) suffered by such Account Party that are caused by the gross negligence or willful misconduct of the Fronting Bank or the L/C Agent (as determined by a court of competent jurisdiction by a final and nonappealable judgment) when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. It is expressly understood and agreed that (i) the acceptance by the Fronting Bank or the L/C Agent, as the case may be, of documents that appear on their face to comply with the terms of a Letter of Credit, without responsibility for further investigation, (ii) the exclusive reliance by the Fronting Bank or the L/C Agent, as the case may be, on the documents presented to it under a Letter of Credit as to any and all matters set forth therein, including the amount of any draft presented under such Letter of Credit, whether or not the amount due to the beneficiary thereunder equals the amount of such draft and whether or not any document presented pursuant to such Letter of Credit proves to be insufficient in any respect (so long as such document appears on its face to comply with the terms of such Letter of Credit), and whether or not any other statement or any other document presented pursuant to such Letter of Credit proves to be forged or invalid or any statement therein proves to be inaccurate or untrue in any respect whatsoever, and (iii) any noncompliance in any immaterial respect of the documents presented under such Letter of Credit with the terms thereof shall, in each case, be deemed not to constitute gross negligence or willful misconduct of the Fronting Bank or the L/C Agent.
(c) Notwithstanding that a Letter of Credit issued or outstanding hereunder is in support of any obligations of, or is for the account of, a Subsidiary of any Account Party, the applicable Account Party shall be obligated to reimburse, or to cause the applicable Subsidiary to reimburse, the applicable Issuing Lender hereunder for any and all drawings under such Letter of Credit. Each Account Party hereby acknowledges that the issuance of Letters of Credit for the account of any of its Subsidiaries inures to the benefit of such Account Party and that such Account Party’s business derives substantial benefits from the businesses of such Subsidiaries.
SECTION 3.5 Cash Collateralization of Letters of Credit.
(a) If (A) as of the Commitment Termination Date, any Letter of Credit may for any reason remain outstanding, (B) any Event of Default occurs and is continuing and the Administrative Agent or the Required Lenders, as applicable, require the applicable Account Party to Cash Collateralize the aggregate Letter of Credit Exposure pursuant to Section 9.2(b), (C) the Fronting Exposure at any time exceeds the Fronting Sublimit, or (D) the aggregate Letter of Credit Exposure for all Lenders at any time exceeds the aggregate Commitments, then in each case, the applicable Account Parties shall deliver to the Administrative Agent as Cash Collateral an amount of cash in Dollars equal to 102% of the aggregate Stated Amount of all Letters of Credit issued for the account of such Account Party (or any of its Subsidiaries) outstanding at such time (whether or not any beneficiary under any Letter of Credit shall have drawn or be entitled at such time to draw thereunder); provided that in the case of clauses (C) and (D) above, the
applicable Account Parties shall only be required to deliver an amount of Cash Collateral equal to the amount by which the Fronting Exposure exceeds the Fronting Sublimit, or the amount by which the aggregate Letter of Credit Exposure exceeds the aggregate Commitments. The Administrative Agent shall deposit such cash in a special collateral account of the applicable Account Party pursuant to arrangements satisfactory to the Administrative Agent (such account, the “Cash Collateral Account”) for the benefit of the Administrative Agent, the Issuing Lenders and the Lenders.
(b) Each Account Party hereby grants to the Administrative Agent, for the benefit of the Fronting Bank and the other Issuing Lenders, a Lien upon and security interest in its Cash Collateral Account and all amounts held therein from time to time as security for the Letter of Credit Exposure of such Account Party, and for application to its aggregate Obligations, as and when the same shall arise. The Administrative Agent shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account for the benefit of the Fronting Bank and the other Issuing Lenders and the applicable Account Party shall have no interest therein except as set forth in Section 3.5(c). Other than any interest on the investment of such amounts in Cash Equivalents, which investments shall be made at the direction of the applicable Account Party (unless an Event of Default shall have occurred and be continuing, in which case the determination as to investments shall be made at the option and in the discretion of the Administrative Agent), amounts in the Cash Collateral Account shall not bear interest. Interest and profits, if any, on such investments shall accumulate in such account.
(c) In the event of a drawing, and subsequent payment by any Issuing Lender, under any Letter of Credit at any time during which any amounts are held in the applicable Cash Collateral Account, the Administrative Agent will deliver to such Issuing Lender an amount equal to the Reimbursement Obligation created as a result of such payment (or, if the amounts so held are less than such Reimbursement Obligation, all of such amounts) to reimburse the Issuing Lender therefor. Any amounts remaining in any Cash Collateral Account (including interest and profits) after the expiration of the Letters of Credit of any Account Party and the reimbursement in full of the Issuing Lenders for all of their respective obligations thereunder shall be held by the Administrative Agent, for the benefit of such Account Party, to be applied against the Obligations of such Account Party in accordance with Section 9.4 or in such order and manner as the Administrative Agent may direct. If any Account Party is required to provide cash collateral pursuant hereto, such amount (including interest and profits), to the extent not applied as aforesaid, shall be returned to such Account Party, provided that after giving effect to such return (i) the aggregate Letter of Credit Exposure would not exceed the aggregate Commitments at such time and (ii) no Default or Event of Default shall have occurred and be continuing at such time. If any Account Party is required to provide cash collateral as a result of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to such Account Party within three Business Days after all Events of Default have been cured or waived.
SECTION 3.6 Use of Letters of Credit. The Letters of Credit shall be available for, and the Account Parties agree that they shall use the Letters of Credit, in accordance with Section 7.12.
SECTION 3.7 The Fronting Bank and L/C Agent. The Fronting Bank and the L/C Agent shall act on behalf of the Lenders with respect to any Letters of Credit issued or administered by it and the documents associated therewith, and such Fronting Bank and L/C Agent shall have all of the rights, benefits and immunities (i) provided to the Administrative Agent in Article X with respect to any acts taken or omissions suffered in connection with Letters of Credit issued or proposed to be issued by it or administered by it and any documents pertaining to such Letters of Credit as fully as if the term “Administrative Agent” as used in Article X included such Fronting Bank or L/C Agent with respect to such acts or omissions, and (ii) as additionally provided herein with respect to the Fronting Bank or the L/C Agent, as applicable.
ARTICLE IV
GENERAL LOAN PROVISIONS
SECTION 4.1 Interest.
(a) Interest Rate Options. Subject to the provisions of this Section, at the election of the Borrower, Loans shall bear interest at (i) the Base Rate plus the Applicable Margin or (ii) Adjusted Term SOFR plus the Applicable Margin. The Borrower shall select the rate of interest and Interest Period, if any, applicable to any Loan at the time a Notice of Borrowing is given or at the time a Notice of Conversion/Continuation is given pursuant to Section 4.2.
(b) Interest on Reimbursement Obligations. Unless each Account Party reimburses each L/C Disbursement made in respect of Letters of Credit issued for its account in full on the date such L/C Disbursement is made, the unpaid amount of the Reimbursement Obligation thereof shall bear interest from the date of each L/C Disbursement until such amount shall be paid in full at (i) the Base Rate through the third Business Day after the date of such L/C Disbursement and (ii) thereafter, the Base Rate plus an additional 2% per annum, in each case payable on demand.
(c) Default Rate. Subject to Section 9.3, (i) immediately upon the occurrence and during the continuance of an Event of Default under Section 9.1(h) or Section 9.1(i), or (ii) at the election of the Required Lenders (or the Administrative Agent at the direction of the Required Lenders), upon the occurrence and during the continuance of any other Event of Default, (A) the Borrower shall no longer have the option to request SOFR Loans, (B) the Account Parties shall no longer have the option to request Letters of Credit, (C) all outstanding SOFR Loans shall bear interest at a rate per annum of two percent (2%) in excess of the rate (including the Applicable Margin) then applicable to SOFR Loans until the end of the applicable Interest Period and thereafter at a rate per annum of two percent (2%) in excess of the rate (including the Applicable Margin) then applicable to Base Rate Loans, (D) all outstanding Base Rate Loans and other Obligations arising hereunder or under any other Loan Document shall bear interest at a rate per annum of two percent (2%) in excess of the rate (including the Applicable Margin) then applicable to Base Rate Loans or such other Obligations arising hereunder or under any other Loan Document and (E) all accrued and unpaid interest shall be due and payable on demand of the Administrative Agent. Interest and fees shall continue to accrue on the Obligations after the filing by or against any Credit Party of any petition seeking any relief in bankruptcy or under any Debtor Relief Law.
(d) Interest Payment and Computation. Interest on each Base Rate Loan shall be due and payable in arrears on the last Business Day of each calendar quarter and interest on each SOFR Loan shall be due and payable in arrears on the last day of each Interest Period applicable thereto; provided that (i) in the event of any repayment or prepayment of any SOFR Loan, accrued interest on the principal amount repaid or prepaid shall be payable on the date of such repayment or prepayment and (ii) in the event of any conversion of any SOFR Loan prior to the end of the Interest Period therefor, accrued interest on such Loan shall be payable on the effective date of such conversion. All computations of interest for Base Rate Loans shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed. All other computations of fees and interest provided hereunder shall be made on the basis of a 360-day year and actual days elapsed (which results in more fees or interest, as applicable, being paid than if computed on the basis of a 365/366-day year).
(e) Maximum Rate. In no contingency or event whatsoever shall the aggregate of all amounts deemed interest under this Agreement charged or collected pursuant to the terms of this Agreement exceed the highest rate permissible under any Applicable Law which a court of competent jurisdiction shall, in a final determination, deem applicable hereto. In the event that such a court determines that the Lenders have
charged or received interest hereunder in excess of the highest applicable rate, the rate in effect hereunder shall automatically be reduced to the maximum rate permitted by Applicable Law and the Lenders shall at the Administrative Agent’s option (i) promptly refund to the applicable Credit Party any interest received by the Lenders in excess of the maximum lawful rate or (ii) apply such excess to the principal balance of the Obligations. It is the intent hereof that no Credit Party pay or contract to pay, and that neither the Administrative Agent nor any Lender receive or contract to receive, directly or indirectly in any manner whatsoever, interest in excess of that which may be paid by the applicable Credit Party under Applicable Law.
(f) Term SOFR Conforming Changes. In connection with the use or administration of Term SOFR, the Administrative Agent will have the right to make Conforming Changes from time to time and, notwithstanding anything to the contrary herein or in any other Loan Document, any amendments implementing such Conforming Changes will become effective without any further action or consent of any other party to this Agreement or any other Loan Document. The Administrative Agent will promptly notify the Borrower and the Lenders of the effectiveness of any Conforming Changes in connection with the use or administration of Term SOFR.
SECTION 4.2 Notice and Manner of Conversion or Continuation of Loans. Provided that no Event of Default under Section 9.1(a), Section 9.1(b), Section 9.1(d) (but only with respect to a default by any Credit Party or any Subsidiary thereof (other than the Excluded Subsidiaries) in the performance or observance of the covenants and agreements in Section 8.13), Section 9.1(h) or Section 9.1(i) has occurred and is then continuing and the Required Lenders (or the Administrative Agent at the direction of the Required Lenders) have not made an election pursuant to Section 4.1(c)(ii), the Borrower shall have the option to (a) convert at any time following the third U.S. Government Securities Business Day after the Closing Date, subject to the notice requirements herein, all or any portion of any outstanding Base Rate Loans in a principal amount equal to $1,000,000 or any whole multiple of $500,000 in excess thereof (or such lesser amount as shall represent all of the Base Rate Loans then outstanding) into one or more SOFR Loans and (b) upon the expiration of any Interest Period therefor, (i) convert all or any part of any outstanding SOFR Loans in a principal amount equal to $2,000,000 or a whole multiple of $1,000,000 in excess thereof (or such lesser amount as shall represent all of the SOFR Loans then outstanding) into Base Rate Loans or (ii) continue any such SOFR Loans as SOFR Loans. Whenever the Borrower desires to convert or continue Loans as provided above, the Borrower shall give the Administrative Agent irrevocable prior written notice in the form attached as Exhibit E (a “Notice of Conversion/Continuation”) not later than 11:00 a.m. three (3) U.S. Government Securities Business Days before the day on which a proposed conversion or continuation of such Loan is to be effective specifying (A) the Loans to be converted or continued, and, in the case of any SOFR Loan to be converted or continued, the last day of the Interest Period therefor, (B) the effective date of such conversion or continuation (which shall be a Business Day), (C) the principal amount of such Loans to be converted or continued, and (D) the Interest Period to be applicable to such converted or continued SOFR Loan. If the Borrower fails to deliver a timely Notice of Conversion/Continuation prior to the end of the Interest Period for any SOFR Loan, then the applicable SOFR Loan shall continue as, or be converted to, as applicable, a SOFR Loan with an Interest Period of one month. Any such automatic conversion to a SOFR Loan with an Interest Period of one month shall be effective as of the last day of the Interest Period then in effect with respect to the applicable SOFR Loan. If the Borrower requests a conversion to, or continuation of, SOFR Loans, but fails to specify an Interest Period, it will be deemed to have specified an Interest Period of one month. The Administrative Agent shall promptly notify the affected Lenders of such Notice of Conversion/Continuation.
SECTION 4.3 Fees.
(a) Each Credit Party agrees to pay to the fees required under the Engagement Letter to be paid on the Closing Date, in the amounts due and payable as required by the terms thereof;
(b) The Borrower agrees to pay to the Administrative Agent, for the account of each Lender, a commitment fee (a “Commitment Fee”), for each calendar quarter (or portion thereof) at a per annum rate equal to the Applicable Margin in effect for such fee from time to time on such Lender’s Ratable Share of the average daily aggregate unutilized portion of the Commitments, payable in arrears (i) on the last Business Day of each calendar quarter, beginning with the first such day to occur after the Closing Date and (ii) on the Commitment Termination Date;
(c) Each Account Party agrees to pay to the Administrative Agent, for the account of each Lender, a letter of credit fee (the “Letter of Credit Fee”) for each calendar quarter (or portion thereof) in respect of all Letters of Credit issued for the account of such Account Party (or any of its Subsidiaries) and outstanding during such quarter, at a per annum rate equal to Applicable Margin in effect for such fee from time to time on such Lender’s Ratable Share of the average daily aggregate Stated Amount of such Letters of Credit. The Letter of Credit Fee shall be due and payable quarterly in arrears (i) on the last Business Day of each calendar quarter, commencing with the first such date to occur after the Closing Date through the Final Maturity Date, (ii) on the Final Maturity Date and (iii) on the Final Expiry Date. Notwithstanding anything to the contrary contained herein, during any period in which Wells Fargo acts as a Fronting Bank for any Non-NAIC Qualified Lender pursuant to Section 4.16(b), the Letter of Credit Fee payable to such Non-NAIC Qualified Lender shall be reduced by 0.25% per annum, and Wells Fargo shall receive the amount of such reduction from such Account Party for its own account as a fronting fee;
(d) The Borrower agrees to pay to the Administrative Agent, for its own account, the annual administrative fee described in the Engagement Letter, on the terms, in the amount and at the times set forth therein; and
(e) Each Account Party agrees to pay (i) to the Fronting Bank, for its own account, with respect to each Participated Letter of Credit issued by the Fronting Bank for such Account Party hereunder, a fronting fee as described in the Engagement Letter, on the terms, in the amount and at the times set forth therein, and (ii) to the Fronting Bank and the L/C Agent, such reasonable fees and expenses as the Fronting Bank or the L/C Agent customarily require in connection with the issuance, amendment, transfer, negotiation, processing and/or administration of letters of credit.
SECTION 4.4 Manner of Payment; Recovery of Payments.
(a) Each payment by any Credit Party on account of the principal of or interest on the Loans, Reimbursement Obligations or of any fee, commission or other amounts payable to the Lenders under this Agreement shall be made not later than 2:00 p.m. on the date specified for payment under this Agreement to the Administrative Agent at the Administrative Agent’s Office for the account of the Lenders entitled to such payment in Dollars, in immediately available funds and shall be made without any setoff, counterclaim or deduction whatsoever. Any payment received after such time but before 3:00 p.m. on such day shall be deemed a payment on such date for the purposes of Section 9.1, but for all other purposes shall be deemed to have been made on the next succeeding Business Day. Any payment received after 3:00 p.m. shall be deemed to have been made on the next succeeding Business Day for all purposes. Upon receipt by the Administrative Agent of each such payment, the Administrative Agent shall distribute to each such Lender at its address for notices set forth herein its Ratable Share of such payment and shall wire advice of the amount of such credit to each Lender. Each payment to the Administrative Agent of Administrative Agent’s fees or expenses shall be made for the account of the Administrative Agent and any amount payable to any Lender under Section 4.9, Section 4.10, Section 4.11 or Section 11.3 shall be paid to the Administrative Agent for the account of the applicable Lender. Subject to the definition of Interest Period, if any payment under this Agreement shall be specified to be made upon a day which is not a Business Day, it shall be made on the next succeeding day which is a Business Day and such extension of time shall in such case be included in computing any interest if payable along with such payment. Notwithstanding the foregoing, if
there exists a Defaulting Lender each payment by any Credit Party to such Defaulting Lender hereunder shall be applied in accordance with Section 4.15(a)(ii).
(b) Each Credit Party agrees that to the extent such Credit Party makes a payment or payments to or for the account of the Administrative Agent, any Lender or any Issuing Lender, which payment or payments or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid to a trustee, receiver or any other party under any Debtor Relief Law (whether as a result of any demand, settlement, litigation or otherwise), then, to the extent of such payment or repayment, the Obligation intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been received.
(c) If any amounts distributed by the Administrative Agent to any Lender or any Issuing Lender are subsequently returned or repaid by the Administrative Agent to the applicable Credit Party, its representative or successor in interest, or any other Person, whether by court order, by settlement approved by such Lender or such Issuing Lender, or pursuant to applicable law, such Lender or such Issuing Lender will, promptly upon receipt of notice thereof from the Administrative Agent, pay the Administrative Agent such amount. If any such amounts are recovered by the Administrative Agent from such Credit Party, its representative or successor in interest or such other Person, the Administrative Agent will redistribute such amounts to the Lenders or the Issuing Lenders on the same basis as such amounts were originally distributed.
SECTION 4.5 Evidence of Indebtedness.
(a) Extensions of Credit. The Extensions of Credit made by each Lender and each Issuing Lender shall be evidenced by one or more accounts or records maintained by such Lender or such Issuing Lender and by the Administrative Agent in the ordinary course of business. The accounts or records maintained by the Administrative Agent and each Lender or the applicable Issuing Lender shall be conclusive absent manifest error of the amount of the Extensions of Credit made by the Lenders or such Issuing Lender to the Credit Parties and their respective Subsidiaries and the interest and payments thereon. Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of any Credit Party hereunder to pay any amount owing with respect to the Obligations. In the event of any conflict between the accounts and records maintained by any Lender or any Issuing Lender and the accounts and records of the Administrative Agent in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error. Upon the request of any Lender made through the Administrative Agent, the Borrower shall execute and deliver to such Lender (through the Administrative Agent) a Revolving Credit Note, which shall evidence such Lender’s Loans, in addition to such accounts or records. Each Lender may attach schedules to its Revolving Credit Notes and endorse thereon the date, amount and maturity of its Loans and payments with respect thereto.
(b) Participations. In addition to the accounts and records referred to in subsection (a), each Lender and the Administrative Agent shall maintain in accordance with its usual practice accounts or records evidencing the purchases and sales by such Lender of participations in Letters of Credit. In the event of any conflict between the accounts and records maintained by the Administrative Agent and the accounts and records of any Lender in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error.
SECTION 4.6 Sharing of Payments by Lenders. If any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of any obligations hereunder resulting in such Lender’s receiving payment of a proportion of the aggregate amount of such obligations (other than pursuant to Section 4.9, Section 4.10, Section 4.11 or Section 11.3) greater than its Ratable Share thereof as provided herein, then the Lender receiving such greater proportion shall (a) notify the Administrative
Agent of such fact, and (b) purchase (for cash at face value) participations in such obligations of the other Lenders, or make such other adjustments as shall be equitable, so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amounts owing them; provided that:
(a) 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
(b) the provisions of this paragraph shall not be construed to apply to (A) any payment made by the Credit Parties pursuant to and in accordance with the express terms of this Agreement (including the application of funds arising from the existence of a Defaulting Lender), (B) the application of Cash Collateral provided for in Section 3.5 or (C) any payment obtained by a Lender as consideration for the assignment of, or sale of, a participation in any of its Loans or interests in Letters of Credit to any assignee or participant, other than to any Credit Party or any of their Subsidiaries or Affiliates (as to which the provisions of this paragraph shall apply).
Each Credit 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 each Credit Party rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of each Credit Party in the amount of such participation.
SECTION 4.7 Administrative Agent’s Clawback.
(a) Funding by Lenders; Presumption by Administrative Agent. Unless the Administrative Agent shall have received notice from a Lender (i) in the case of Base Rate Loans, not later than 12:00 noon on the date of any proposed borrowing and (ii) otherwise, prior to the proposed date of any 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 Section 2.2(b) and may, in reliance upon such assumption, make available to the Borrower 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 Borrower 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 the Borrower, to but excluding the date of payment to the Administrative Agent, at (A) in the case of a payment to be made by such Lender, the Overnight Rate and (B) in the case of a payment to be made by the Borrower, the interest rate applicable to Base Rate Loans. If the Borrower and such Lender shall pay such interest to the Administrative Agent for the same or an overlapping period, the Administrative Agent shall promptly remit to the Borrower the amount of such interest paid by the Borrower for such period. If such Lender pays its share of the applicable borrowing to the Administrative Agent, then the amount so paid shall constitute such Lender’s Loan included in such borrowing. Any payment by the Borrower shall be without prejudice to any claim the Borrower may have against a Lender that shall have failed to make such payment to the Administrative Agent.
(b) Payments by the Credit Parties; Presumptions by Administrative Agent. Unless the Administrative Agent shall have received notice from any Credit Party prior to the date on which any payment is due to the Administrative Agent for the account of the Lenders or the Issuing Lenders hereunder that such Credit Party will not make such payment, the Administrative Agent may assume that the applicable Credit Party has made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders or the Issuing Lenders, as the case may be, the amount due. In such event, if the applicable Credit Party has not in fact made such payment, then each of the Lenders or the Issuing Lenders, as the case maybe, severally agrees to repay to the Administrative Agent forthwith on
demand the amount so distributed to such Lender or Issuing 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 Overnight Rate.
(c) Nature of Obligations of Lenders. The obligations of the Lenders under this Agreement to make the Loans, to issue or participate in Letters of Credit and to make payments under this Section, Section 4.11(e), Section 10.10, Section 11.3(c) or Section 11.7, as applicable, are several and are not joint or joint and several. The failure of any Lender to make available its Ratable Share of any Loan requested by the Borrower shall not relieve it or any other Lender of its obligation, if any, hereunder to make its Ratable Share of such Loan available on the borrowing date, but no Lender shall be responsible for the failure of any other Lender to make its Ratable Share of such Loan available on the borrowing date.
SECTION 4.8 Changed Circumstances.
(a) Circumstances Affecting Benchmark Availability. Subject to clause (c) below, in connection with any request for a SOFR Loan or a conversion to or continuation thereof or otherwise, if for any reason (i) the Administrative Agent shall determine (which determination shall be conclusive and binding absent manifest error) that reasonable and adequate means do not exist for ascertaining Adjusted Term SOFR for the applicable Interest Period with respect to a proposed SOFR Loan on or prior to the first day of such Interest Period or (ii) the Required Lenders shall determine (which determination shall be conclusive and binding absent manifest error) that Adjusted Term SOFR does not adequately and fairly reflect the cost to such Lenders of making or maintaining such Loans during such Interest Period and, in the case of clause (ii), the Required Lenders have provided notice of such determination to the Administrative Agent, then, in each case, the Administrative Agent shall promptly give notice thereof to the Borrower. Upon notice thereof by the Administrative Agent to the Borrower, any obligation of the Lenders to make SOFR Loans, and any right of the Borrower to convert any Loan to or continue any Loan as a SOFR Loan, shall be suspended (to the extent of the affected SOFR Loans or the affected Interest Periods) until the Administrative Agent (with respect to clause (ii), at the instruction of the Required Lenders) revokes such notice. Upon receipt of such notice, (A) the Borrower may revoke any pending request for a borrowing of, conversion to or continuation of SOFR Loans (to the extent of the affected SOFR Loans or the affected Interest Periods) or, failing that, the Borrower will be deemed to have converted any such request into a request for a borrowing of or conversion to Base Rate Loans in the amount specified therein and (B) any outstanding affected SOFR Loans will be deemed to have been converted into Base Rate Loans at the end of the applicable Interest Period. Upon any such prepayment or conversion, the Borrower shall also pay accrued interest on the amount so prepaid or converted, together with any additional amounts required pursuant to Section 4.9.
(b) Laws Affecting SOFR Availability. If, after the date hereof, the introduction of, or any Change in Law or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any of the Lenders (or any of their respective Lending Offices) with any request or directive (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency, shall make it unlawful or impossible for any of the Lenders (or any of their respective Lending Offices) to honor its obligations hereunder to make or maintain any SOFR Loan, or to determine or charge interest based upon SOFR, the Term SOFR Reference Rate, Adjusted Term SOFR or Term SOFR, such Lender shall promptly give notice thereof to the Administrative Agent and the Administrative Agent shall promptly give notice to the Borrower and the other Lenders (an “Illegality Notice”). Thereafter, until each affected Lender notifies the Administrative Agent and the Administrative Agent notifies the Borrower that the circumstances giving rise to such determination no longer exist, (i) any obligation of the Lenders to make SOFR Loans, and any right of the Borrower to convert any Loan to a SOFR Loan or continue any Loan as a SOFR Loan shall be suspended and thereafter the Borrower may select only Base Rate Loans
from the Lenders and (ii) if necessary to avoid such illegality, the Administrative Agent shall compute the Base Rate without reference to clause (c) of the definition of “Base Rate”. Upon receipt of an Illegality Notice, the Borrower shall, if necessary to avoid such illegality, upon demand from any Lender (with a copy to the Administrative Agent), prepay or, if applicable, convert all SOFR Loans to Base Rate Loans (in each case, if necessary to avoid such illegality, the Administrative Agent shall compute the Base Rate without reference to clause (c) of the definition of “Base Rate”), on the last day of the Interest Period therefor, if all affected Lenders may lawfully continue to maintain such SOFR Loans to such day, or immediately, if any Lender may not lawfully continue to maintain such SOFR Loans to such day. Upon any such prepayment or conversion, the Borrower shall also pay accrued interest on the amount so prepaid or converted, together with any additional amounts required pursuant to Section 4.9.
(c) Benchmark Replacement Setting.
(i) Benchmark Replacement. Notwithstanding anything to the contrary herein or in any other Loan Document, upon the occurrence of a Benchmark Transition Event, the Administrative Agent and the Borrower may amend this Agreement to replace the then-current Benchmark with a Benchmark Replacement. Any such amendment with respect to a Benchmark Transition Event will become effective at 5:00 p.m. on the fifth (5th) Business Day after the Administrative Agent has posted such proposed amendment to all affected Lenders and the Borrower so long as the Administrative Agent has not received, by such time, written notice of objection to such amendment from Lenders comprising the Required Lenders. No replacement of a Benchmark with a Benchmark Replacement pursuant to this Section 4.8(c)(i) will occur prior to the applicable Benchmark Transition Start Date.
(ii) Benchmark Replacement Conforming Changes. In connection with the use, administration, adoption or implementation of a Benchmark Replacement, the Administrative Agent will have the right to make Conforming Changes from time to time and, notwithstanding anything to the contrary herein or in any other Loan Document, any amendments implementing such Conforming Changes will become effective without any further action or consent of any other party to this Agreement or any other Loan Document.
(iii) Notices; Standards for Decisions and Determinations. The Administrative Agent will promptly notify the Borrower and the Lenders of (A) the implementation of any Benchmark Replacement and (B) the effectiveness of any Conforming Changes in connection with the use, administration, adoption or implementation of a Benchmark Replacement. The Administrative Agent will promptly notify the Borrower of the removal or reinstatement of any tenor of a Benchmark pursuant to Section 4.8(c)(iv). Any determination, decision or election that may be made by the Administrative Agent or, if applicable, any Lender (or group of Lenders) pursuant to this Section 4.8(c), including any determination with respect to a tenor, rate or adjustment or of the occurrence or non-occurrence of an event, circumstance or date and any decision to take or refrain from taking any action or any selection, will be conclusive and binding absent manifest error and may be made in its or their sole discretion and without consent from any other party to this Agreement or any other Loan Document, except, in each case, as expressly required pursuant to this Section 4.8(c).
(iv) Unavailability of Tenor of Benchmark. Notwithstanding anything to the contrary herein or in any other Loan Document, at any time (including in connection with the implementation of a Benchmark Replacement), (A) if the then-current Benchmark is a term rate (including the Term SOFR Reference Rate) and either (1) any tenor for such Benchmark is not displayed on a screen or other information service that publishes such rate from time to time as selected by the Administrative Agent in its reasonable discretion or (2) the regulatory supervisor
for the administrator of such Benchmark has provided a public statement or publication of information announcing that any tenor for such Benchmark is not or will not be representative, then the Administrative Agent may modify the definition of “Interest Period” (or any similar or analogous definition) for any Benchmark settings at or after such time to remove such unavailable or non-representative tenor and (B) if a tenor that was removed pursuant to clause (A) above either (1) is subsequently displayed on a screen or information service for a Benchmark (including a Benchmark Replacement) or (2) is not, or is no longer, subject to an announcement that it is not or will not be representative for a Benchmark (including a Benchmark Replacement), then the Administrative Agent may modify the definition of “Interest Period” (or any similar or analogous definition) for all Benchmark settings at or after such time to reinstate such previously removed tenor.
(v) Benchmark Unavailability Period. Upon the Borrower’s receipt of notice of the commencement of a Benchmark Unavailability Period, (A) the Borrower may revoke any pending request for a borrowing of, conversion to or continuation of SOFR Loans to be made, converted or continued during any Benchmark Unavailability Period and, failing that, the Borrower will be deemed to have converted any such request into a request for a borrowing of or conversion to Base Rate Loans and (B) any outstanding affected SOFR Loans will be deemed to have been converted to Base Rate Loans at the end of the applicable Interest Period. During any Benchmark Unavailability Period or at any time that a tenor for the then-current Benchmark is not an Available Tenor, the component of the Base Rate based upon the then-current Benchmark or such tenor for such Benchmark, as applicable, will not be used in any determination of the Base Rate.
(d) Illegality. If, in any applicable jurisdiction, the Administrative Agent, any Issuing Lender or any Lender determines that any Applicable Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for the Administrative Agent, any Issuing Lender or any Lender to (i) perform any of its obligations hereunder or under any other Loan Document, (ii) to fund or maintain its participation in any Extension of Credit or (iii) issue, make, maintain, fund or charge interest or fees with respect to any Extension of Credit, such Person shall promptly notify the Administrative Agent, then, upon the Administrative Agent notifying the Credit Parties, and until such notice by such Person is revoked, any obligation of such Person to issue, make, maintain, fund or charge interest or fees with respect to any such Extension of Credit shall be suspended, and to the extent required by Applicable Law, cancelled. Upon receipt of such notice, the Credit Parties shall, (A) repay that Person’s participation in the Loans on the last day of the Interest Period for each Loan occurring after the Administrative Agent has notified the Borrower or, if earlier, the date specified by such Person in the notice delivered to the Administrative Agent (being no earlier than the last day of any applicable grace period permitted by Applicable Law) (B) Cash Collateralize that Person’s participation in such Letters of Credit or other applicable Obligations in accordance with Section 3.5 occurring after the Administrative Agent has notified the Account Parties or, if earlier, the date specified by such Person in the notice delivered to the Administrative Agent (being no earlier than the last day of any applicable grace period permitted by Applicable Law) and (C) take all reasonable actions requested by such Person to mitigate or avoid such illegality.
SECTION 4.9 Indemnity. The Borrower hereby indemnifies each of the Lenders against any loss, cost or expense (including any loss, cost or expense arising from the liquidation or reemployment of funds or from any fees payable) which may arise, be attributable to or result due to or as a consequence of (a) any failure by the Borrower to make any payment when due of any amount due hereunder in connection with a SOFR Loan, (b) any failure of the Borrower to borrow or continue a SOFR Loan or convert to a SOFR Loan on a date specified therefor in a Notice of Borrowing or Notice of Conversion/Continuation, (c) any failure of the Borrower to prepay any SOFR Loan on a date specified therefor in any Notice of Prepayment (regardless of whether any such Notice of Prepayment may be revoked under Section 2.3(c) and is revoked in accordance therewith), (d) any payment, prepayment or conversion of any SOFR Loan
on a date other than the last day of the Interest Period therefor (other than as a result of the implementation of a Benchmark Replacement but including as a result of an Event of Default) or (e) the assignment of any SOFR Loan other than on the last day of the Interest Period applicable thereto as a result of a request by the Borrower pursuant to Section 4.12(b). A certificate of such Lender setting forth the basis for determining such amount or amounts necessary to compensate such Lender shall be forwarded to the Borrower through the Administrative Agent and shall be conclusively presumed to be correct save for manifest error. All of the obligations of the Credit Parties under this Section 4.9 shall survive the resignation or replacement of the Administrative Agent or any assignment of rights by, or the replacement of, a Lender, the termination of the Commitments and the repayment, satisfaction or discharge of all obligations under any Loan Document.
SECTION 4.10 Increased Costs.
(a) Increased Costs Generally. If any Change in Law shall:
(i) impose, modify or deem applicable any reserve (including pursuant to regulations issued from time to time by the FRB for determining the maximum reserve requirement (including any emergency, special, supplemental or other marginal reserve requirement) with respect to eurocurrency funding (currently referred to as “Eurocurrency liabilities” in Regulation D of the FRB, as amended and in effect from time to time)), special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or advances, loans or other credit extended or participated in by, any Lender or any Issuing Lender;
(ii) subject any Recipient to any Taxes (other than (A) Indemnified Taxes, (B) Taxes described in clauses (b) through (d) of the definition of Excluded Taxes and (C) Connection Income Taxes) on its loans, loan principal, letters of credit, commitments, or other obligations, or its deposits, reserves, other liabilities or capital attributable thereto; or
(iii) impose on any Lender or any Issuing Lender any other condition, cost or expense (other than Taxes) affecting this Agreement or Loans made by such Lender or any Letter of Credit or participation therein;
and the result of any of the foregoing shall be to increase the cost to such Lender, any Issuing Lender or such other Recipient of making, converting to, continuing or maintaining any Loan (or of maintaining its obligation to make any such Loan), or to increase the cost to such Lender, such Issuing Lender or such other Recipient of participating in, issuing or maintaining any Letter of Credit (or of maintaining its obligation to participate in or to issue any Letter of Credit), or to reduce the amount of any sum received or receivable by such Lender, such Issuing Lender or such other Recipient hereunder (whether of principal, interest or any other amount) then, upon written request of such Lender, such Issuing Lender or other Recipient, the Borrower shall promptly pay to any such Lender, such Issuing Lender or other Recipient, as the case may be, such additional amount or amounts as will compensate such Lender, such Issuing Lender or other Recipient, as the case may be, for such additional costs incurred or reduction suffered.
(b) Capital Requirements. If any Lender or any Issuing Lender determines that any Change in Law affecting such Lender or such Issuing Lender or any Lending Office of such Lender or such Lender’s or such Issuing Lender’s holding company, if any, regarding capital or liquidity requirements, has or would have the effect of reducing the rate of return on such Lender’s or such Issuing Lender’s capital or on the capital of such Lender’s or such Issuing Lender’s holding company, if any, as a consequence of this Agreement, the Commitment of such Lender or the Loans made by, or participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by such Issuing Lender or the Lenders, to a level below that which such Lender or such Issuing Lender or such Lender’s or such Issuing Lender’s holding company
could have achieved but for such Change in Law (taking into consideration such Lender’s or such Issuing Lender’s policies and the policies of such Lender’s or such Issuing Lender’s holding company with respect to capital adequacy and liquidity), then from time to time upon written request of such Lender or such Issuing Lender the Borrower shall promptly pay to such Lender or such Issuing Lender, as the case may be, such additional amount or amounts as will compensate such Lender or such Issuing Lender or such Lender’s or such Issuing Lender’s holding company for any such reduction suffered.
(c) Certificates for Reimbursement. A certificate of a Lender, or an Issuing Lender or such other Recipient setting forth the amount or amounts necessary to compensate such Lender or such Issuing Lender, such other Recipient or any of their respective holding companies, as the case may be, as specified in paragraph (a) or (b) of this Section and delivered to the Borrower, shall be conclusive absent manifest error. The Borrower shall pay such Lender or such Issuing Lender or such other Recipient, as the case may be, the amount shown as due on any such certificate within ten (10) Business Days after receipt thereof.
(d) Delay in Requests. Failure or delay on the part of any Lender or any Issuing Lender or such other Recipient to demand compensation pursuant to this Section shall not constitute a waiver of such Lender’s or such Issuing Lender’s or such other Recipient’s right to demand such compensation; provided that the Borrower shall not be required to compensate any Lender or any Issuing Lender or any other Recipient pursuant to this Section for any increased costs incurred or reductions suffered more than six (6) months prior to the date that such Lender or such Issuing Lender or such other Recipient, as the case may be, notifies the Borrower of the Change in Law giving rise to such increased costs or reductions, and of such Lender’s or such Issuing Lender’s or such other Recipient’s intention to claim compensation therefor (except that if the Change in Law giving rise to such increased costs or reductions is retroactive, then the six-month period referred to above shall be extended to include the period of retroactive effect thereof).
(e) Survival. All of the obligations of the Credit Parties under this Section 4.10 shall survive the resignation or replacement of the Administrative Agent or any assignment of rights by, or the replacement of, a Lender, the termination of the Commitments and the repayment, satisfaction or discharge of all obligations under any Loan Document.
SECTION 4.11 Taxes.
(a) Defined Terms. For purposes of this Section 4.11, the term “Lender” includes any Issuing Lender and the term “Applicable Law” includes FATCA.
(b) Payments Free of Taxes. Any and all payments by or on account of any obligation of any Credit Party under any Loan Document shall be made without deduction or withholding for any Taxes, except as required by Applicable Law. If any Applicable Law (as determined in the good faith discretion of an applicable Withholding Agent) requires the deduction or withholding of any Tax from any such payment by a Withholding Agent, then the applicable Withholding Agent shall be entitled to make such deduction or withholding and shall timely pay the full amount deducted or withheld to the relevant Governmental Authority in accordance with Applicable Law and, if such Tax is an Indemnified Tax, then the sum payable by the applicable Credit Party shall be increased as necessary so that, after such deduction or withholding has been made (including such deductions and withholdings applicable to additional sums payable under this Section), the applicable Recipient receives an amount equal to the sum it would have received had no such deduction or withholding been made. Upon becoming aware that it must make a deduction or withholding of any Tax pursuant to this Section 4.11(b) that requires an increased sum payable by a Credit Party or is otherwise an Indemnified Tax, the applicable Withholding Agent shall promptly notify the Credit Parties and the Administrative Agent.
(c) Payment of Other Taxes by the Credit Parties. The Credit Parties shall timely pay to the relevant Governmental Authority in accordance with Applicable Law, or at the option of the Administrative Agent timely reimburse it for the payment of, any Other Taxes.
(d) Indemnification by the Credit Parties. The Credit Parties shall jointly and severally indemnify each Recipient, within ten (10) days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section) payable or paid by such Recipient or required to be withheld or deducted from a payment to such Recipient and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrower by a Recipient (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Recipient, shall be conclusive absent manifest error.
(e) Indemnification by the Lenders. Each Lender shall severally indemnify the Administrative Agent, within ten (10) days after demand therefor, for (i) any Indemnified Taxes attributable to such Lender (but only to the extent that any Credit Party has not already indemnified the Administrative Agent for such Indemnified Taxes and without limiting the obligation of the Credit Parties to do so), (ii) any Taxes attributable to such Lender’s failure to comply with the provisions of Section 11.9(d) relating to the maintenance of a Participant Register and (iii) any Excluded Taxes attributable to such Lender, in each case, that are payable or paid by the Administrative Agent in connection with any Loan Document, and any reasonable expenses arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to any Lender by the Administrative Agent shall be conclusive absent manifest error. Each Lender hereby authorizes the Administrative Agent to setoff and apply any and all amounts at any time owing to such Lender under any Loan Document or otherwise payable by the Administrative Agent to the Lender from any other source against any amount due to the Administrative Agent under this paragraph (e).
(f) Evidence of Payments. As soon as practicable after any payment of Taxes by any Credit Party to a Governmental Authority pursuant to this Section 4.11, such Credit 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.
(g) Status of Lenders.
(i) Any Lender that is entitled to an exemption from or reduction of withholding Tax with respect to payments made under any Loan Document shall deliver to the Borrower and the Administrative Agent, at the time or times reasonably requested by the Borrower or the Administrative Agent, such properly completed and executed documentation reasonably requested by the Borrower or the Administrative Agent as will permit such payments to be made without withholding or at a reduced rate of withholding. In addition, any Lender, if reasonably requested by the Borrower or the Administrative Agent, shall deliver such other documentation prescribed by Applicable Law or reasonably requested by the Borrower or the Administrative Agent as will enable the Borrower or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements. Notwithstanding anything to the contrary in the preceding two sentences, the completion, execution and submission of such documentation (other than such documentation set forth in Section 4.11(g)(ii)(A), (ii)(B), and (ii)(D) below) shall not be required if in the Lender’s reasonable judgment such completion,
execution or submission (A) would subject such Lender to any material unreimbursed cost or expense or (B) would materially prejudice the legal or commercial position of such Lender.
(ii) Without limiting the generality of the foregoing:
(A) any Lender that is a U.S. Person shall deliver to the Borrower and the Administrative Agent on or prior to the date on which such Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), executed copies of IRS Form W-9 certifying that such Lender is exempt from United States federal backup withholding tax;
(B) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), whichever of the following is applicable:
(1) in the case of a Foreign Lender claiming the benefits of an income tax treaty to which the United States is a party (x) with respect to payments of interest under any Loan Document, executed copies of IRS Form W-8BEN-E establishing an exemption from, or reduction of, United States federal withholding Tax pursuant to the “interest” article of such tax treaty and (y) with respect to any other applicable payments under any Loan Document, IRS Form W-8BEN-E establishing an exemption from, or reduction of, United States federal withholding Tax pursuant to the “business profits” or “other income” article of such tax treaty;
(2) executed copies of IRS Form W-8ECI;
(3) in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code, (x) a certificate substantially in the form of Exhibit H-1 to the effect that such Foreign Lender is not a “bank” within the meaning of Section 881(c)(3)(A) of the Code, a “10 percent shareholder” of the Borrower within the meaning of Section 881(c)(3)(B) of the Code, or a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Code (a “U.S. Tax Compliance Certificate”) and (y) executed copies of IRS Form W-8BEN-E; or
(4) to the extent a Foreign Lender is not the beneficial owner, executed copies of IRS Form W-8IMY, accompanied by IRS Form W-8ECI, IRS Form W-8BEN-E, a U.S. Tax Compliance Certificate substantially in the form of Exhibit H-2 or Exhibit H-3, IRS Form W-9, and/or other certification documents from each beneficial owner, as applicable; provided that if the Foreign Lender is a partnership and one or more direct or indirect partners of such Foreign Lender are claiming the portfolio interest exemption, such Foreign Lender may provide a U.S. Tax Compliance Certificate substantially in the form of Exhibit H-4 on behalf of each such direct and indirect partner;
(C) any Foreign Lender shall, to the extent it is legally entitled to do so, deliver to the Borrower and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes
a Lender under this Agreement (and from time to time thereafter upon the reasonable request of the Borrower or the Administrative Agent), executed copies of any other form prescribed by Applicable Law as a basis for claiming exemption from or a reduction in United States federal withholding Tax, duly completed, together with such supplementary documentation as may be prescribed by Applicable Law to permit the Borrower or the Administrative Agent to determine the withholding or deduction required to be made; and
(D) if a payment made to a Lender under any Loan Document would be subject to United States federal withholding Tax imposed by FATCA if such Lender were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such Lender shall deliver to the Borrower and the Administrative Agent at the time or times prescribed by law and at such time or times reasonably requested by the Borrower or the Administrative Agent such documentation prescribed by Applicable Law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by the Borrower or the Administrative Agent as may be necessary for the Borrower and the Administrative Agent to comply with their obligations under FATCA and to determine that such Lender has complied with such Lender’s obligations under FATCA or to determine the amount to deduct and withhold from such payment. Solely for purposes of this clause (D), “FATCA” shall include any amendments made to FATCA after the date of this Agreement.
Each Lender agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify the Borrower and the Administrative Agent in writing of its legal inability to do so.
(h) Treatment of Certain Refunds. If any party determines, in its sole discretion exercised in good faith, that it has received a refund of any Taxes as to which it has been indemnified pursuant to this Section 4.11 (including by the payment of additional amounts pursuant to this Section 4.11), it shall pay to the indemnifying party an amount equal to such refund (but only to the extent of indemnity payments made under this Section with respect to the Taxes giving rise to such refund), net of all out-of-pocket expenses (including Taxes) of such indemnified party and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund). Such indemnifying party, upon the request of such indemnified party, shall repay to such indemnified party the amount paid over pursuant to this paragraph (h) (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) in the event that such indemnified party is required to repay such refund to such Governmental Authority. Notwithstanding anything to the contrary in this paragraph (h), in no event will the indemnified party be required to pay any amount to an indemnifying party pursuant to this paragraph (h) the payment of which would place the indemnified party in a less favorable net after-Tax position than the indemnified party would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts with respect to such Tax had never been paid. This paragraph shall not be construed to require any indemnified party to make available its Tax returns (or any other information relating to its Taxes that it deems confidential) to the indemnifying party or any other Person.
(i) Survival. Each party’s obligations under this Section 4.11 shall survive the resignation or replacement of the Administrative Agent or any assignment of rights by, or the replacement of, a Lender, the termination of the Commitments and the repayment, satisfaction or discharge of all obligations under any Loan Document.
SECTION 4.12 Mitigation Obligations; Replacement of Lenders.
(a) Designation of a Different Lending Office. If any Lender requests compensation under Section 4.10, or is relieved from its obligation to make SOFR Loans (or Loans subject to the Benchmark Replacement) as a result of Section 4.8(b) or Section 4.8(d) or requires any Credit Party to pay any Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 4.11, then such Lender shall, at the request of the Borrower, use reasonable efforts to designate a different Lending Office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 4.10 or Section 4.11, 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. The Borrower 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 4.10, or if any Credit Party is required to pay any Indemnified Taxes or additional amounts to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 4.11, and, in each case, such Lender has declined or is unable to designate a different Lending Office in accordance with Section 4.12(a), or if any Lender is a Defaulting Lender or a Non-Consenting Lender or ceases to be a NAIC Qualified Lender (unless such Lender has in effect a Confirming Lender Agreement with a Person which is listed on the NAIC Qualified Institution List to act as a Confirming Lender in accordance with Section 4.16), then the Borrower 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, and consents required by, Section 11.9), all of its interests, rights (other than its existing rights to payments pursuant to Section 4.10 or Section 4.11) and obligations under this Agreement, the related Loan Documents and any outstanding Letters of Credit to an Eligible Assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment); provided that:
(i) the Borrower shall have paid or cause to be paid to the Administrative Agent the assignment fee (if any) specified in Section 11.9;
(ii) such Lender shall have received payment of an amount equal to the outstanding principal of any of its Loans and L/C Advances, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents (including any amounts under Section 4.9) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Credit Parties (in the case of all other amounts);
(iii) in the case of any such assignment resulting from a claim for compensation under Section 4.10 or payments required to be made pursuant to Section 4.11, such assignment will result in a reduction in such compensation or payments thereafter;
(iv) such assignment does not conflict with Applicable Law; and
(v) in the case of any assignment resulting from a Lender becoming a Non-Consenting Lender, the applicable assignee shall have consented to the applicable amendment, waiver or consent.
A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrower to require such assignment and delegation cease to apply.
Each party hereto agrees that (x) an assignment required pursuant to this Section 4.12 may be effected pursuant to an Assignment and Assumption executed by the Borrower, the Administrative Agent and the assignee and (y) the Lender required to make such assignment need not be a party thereto in order for such assignment to be effective and shall be deemed to have consented to and be bound by the terms thereof; provided that, following the effectiveness of any such assignment, the other parties to such assignment agree to execute and deliver such documents necessary to evidence such assignment as reasonably requested by the applicable Lender or the Administrative Agent, provided, further that any such documents shall be without recourse to or warranty by the parties thereto.
(c) Selection of Lending Office. Subject to Section 4.12(a), each Lender may make any Loan to the Borrower and issue Letters of Credit for any Account Party through any Lending Office, provided that the exercise of this option shall not affect the obligations of each Credit Party to repay the Loan or reimburse the Letter of Credit, as applicable, in accordance with the terms of this Agreement or otherwise alter the rights of the parties hereto.
SECTION 4.13 Increase of Commitments.
(a) The Borrower shall have the right, at any time and from time to time after the Closing Date but prior to the date 30 days prior to the Commitment Termination Date by written notice to and in consultation with the Administrative Agent, to request an increase in the aggregate Commitments (each such requested increase, a “Commitment Increase”), by (i) having one or more existing Lenders increase their respective Commitments then in effect (each, an “Increasing Lender”), (ii) adding as a Lender with a new Commitment hereunder one or more Persons that are not already Lenders (each, an “Additional Lender”), or a combination of (i) and (ii); provided that (A) any such request for a Commitment Increase shall be in a minimum amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof, (B) immediately after giving effect to any Commitment Increase, the aggregate of all Commitment Increases effected after the Closing Date shall not exceed $200,000,000, and (C) no existing Lender shall be obligated to increase its Commitment as a result of any request for a Commitment Increase by the Borrower unless it agrees in its sole discretion to do so.
(b) Each Additional Lender must (i) be a NAIC Qualified Lender, (ii) not be a Defaulting Lender and (iii) be approved by the Administrative Agent and the Fronting Bank (such approval not to be unreasonably withheld or delayed). The Credit Parties and each Additional Lender shall execute a Lender Joinder Agreement together with all such other documentation as the Administrative Agent and the Credit Parties may reasonably require, all in form and substance reasonably satisfactory to the Administrative Agent and the Credit Parties, to evidence the Commitment of such Additional Lender and its status as a Lender hereunder. Without limiting the foregoing, in connection with the execution of a Lender Joinder Agreement by an Additional Lender, the Administrative Agent and the Credit Parties shall have the right to amend this Agreement, including the title page hereof, without the consent of any other party hereto, to appoint such Additional Lender as a syndication agent, documentation agent, arranger and/or bookrunner.
(c) If the aggregate Commitments are increased in accordance with this Section, the Administrative Agent and the Borrower shall determine the effective date (the “Commitment Increase Date,” which shall be a Business Day) and the final allocation of such increase. The Administrative Agent shall promptly notify the Credit Parties and the Lenders of the final allocation of such increase and the Commitment Increase Date. The Administrative Agent is hereby authorized, on behalf of the Lenders, to enter into any amendments to this Agreement and the other Loan Documents as the Administrative Agent shall reasonably deem appropriate to effect such Commitment Increase.
(d) Notwithstanding anything set forth in this Section 4.13, no increase in the aggregate Commitments pursuant to this Section 4.13 shall be effective unless the Administrative Agent shall have
received the following, each dated the Commitment Increase Date and in form and substance reasonably satisfactory to the Administrative Agent: (i) as to each Increasing Lender, evidence of its agreement to provide a portion of the Commitment Increase, and as to each Additional Lender, a duly executed Lender Joinder Agreement together with all other documentation required by the Administrative Agent and the Account Parties pursuant to this Section 4.13; (ii) a certificate of the secretary or an assistant secretary of the Borrower and Account Parties, certifying to and attaching the resolutions adopted by the board of directors (or similar governing body) of such Persons approving or consenting to such Commitment Increase (which may consist of resolutions adopted in connection with the original closing of this Agreement provided that such resolutions have not been rescinded); and (iii) a certificate of a Responsible Officer of the Borrower, certifying that (y) as of the Commitment Increase Date, all representations and warranties of each Credit Party contained in this Agreement and the other Loan Documents are true and correct in all material respects (or if qualified by materiality or Material Adverse Effect, in all respects), both immediately before and after giving effect to the Commitment Increase and any Letters of Credit issued in connection therewith (except to the extent any such representation or warranty is expressly stated to have been made as of a specific date, in which case such representation or warranty is true and correct in all material respects (or if qualified by materiality or Material Adverse Effect, in all respects), in each case as of such date), and (z) no Default or Event of Default has occurred and is continuing, both immediately before and after giving effect to such Commitment Increase (including any Letters of Credit issued in connection therewith and the application of the proceeds thereof).
(e) If the Commitment Increase is not made on a pro rata basis with the Commitments of the Lenders as in effect immediately prior to such increase, then (i) the outstanding Loans and the Letter of Credit Exposure in respect of any Participated Letters of Credit shall be automatically reallocated among the Lenders as of the Commitment Increase Date based on their Ratable Shares after giving effect to the Commitment Increase (and the Lenders agree to make all payments and adjustments necessary to effect such reallocation, and the Borrower shall indemnify the Lenders for any losses incurred as a result of any such reallocation of Loans consistent with the terms of Section 4.9) and (ii) the Syndicated Letters of Credit shall be amended in accordance with Section 3.1(c) based on the Ratable Shares of the Lenders after giving effect to the Commitment Increase.
(f) Upon any Commitment Increase under this Section 4.13 and effective on the Commitment Increase Date, the Revolving Credit Sublimit shall be deemed to have increased by the same amount as such Commitment Increase (it being understood that the Borrower is not obligated to utilize the Revolving Credit Sublimit and that all or a portion of such Commitment Increase may be used for Letters of Credit).
SECTION 4.14 Permanent Reduction of the Commitments. The Borrower shall have the right at any time and from time to time, upon at least three Business Days’ prior irrevocable written notice to the Administrative Agent, to permanently reduce, without premium or penalty, (i) the entire Commitments at any time or (ii) portions of the Commitments, from time to time, in an aggregate principal amount not less than $3,000,000 or any whole multiple of $1,000,000 in excess thereof. Any reduction of the Commitments shall be applied to the Commitment of each Lender according to its Ratable Share. All Commitment Fees accrued until the effective date of any termination of the Commitment shall be paid on the effective date of such termination. Notwithstanding the foregoing, any notice to reduce the Commitments delivered in connection with any refinancing of all of the Credit Facility with the proceeds of such refinancing or of any incurrence of Indebtedness or the occurrence of some other identifiable event or condition, may be, if expressly so stated to be, contingent upon the consummation of such refinancing or incurrence or occurrence of such identifiable event or condition and may be revoked by the Borrower in the event such contingency is not met (provided that the failure of such contingency shall not relieve the Borrower from its obligations in respect thereof under Section 4.9).
(b) Corresponding Payment. Each permanent reduction permitted pursuant to this Section shall be accompanied by a payment of principal sufficient to reduce the aggregate outstanding Loans and Letter of Credit Exposure, as applicable, after such reduction to the Commitments as so reduced, and if the aggregate Letter of Credit Exposure exceeds the Commitments as so reduced, each Account Party shall be required to deposit cash collateral in a Cash Collateral Account in accordance with Section 3.5. Any reduction of the Commitments to zero shall be accompanied by payment of all outstanding Loans (and furnishing of Cash Collateral satisfactory to the Administrative Agent for all Letter of Credit Exposure or other arrangements satisfactory to the respective Issuing Lenders) and shall result in the termination of the Commitments and the Credit Facility. If the reduction of the Commitments requires the repayment of any SOFR Loan, such repayment shall be accompanied by any amount required to be paid pursuant to Section 4.9 hereof.
SECTION 4.15 Defaulting Lenders.
(a) Defaulting Lender Adjustments. Notwithstanding anything to the contrary contained in this Agreement, if any Lender becomes a Defaulting Lender, then, until such time as such Lender is no longer a Defaulting Lender, to the extent permitted by Applicable Law:
(i) Waivers and Amendments. Such Defaulting Lender’s right to approve or disapprove any amendment, waiver or consent with respect to this Agreement shall be restricted as set forth in the definition of Required Lenders and Section 11.2.
(ii) Defaulting Lender Waterfall. Any payment of principal, interest, fees or other amounts received by the Administrative Agent for the account of such Defaulting Lender (whether voluntary or mandatory, at maturity, pursuant to Article IX or otherwise) or received by the Administrative Agent from a Defaulting Lender pursuant to Section 11.4 shall be applied at such time or times as may be determined by the Administrative Agent as follows: first, to the payment of any amounts owing by such Defaulting Lender to the Administrative Agent hereunder; second, to the payment on a pro rata basis of any amounts owing by such Defaulting Lender to the Fronting Bank hereunder; third, to Cash Collateralize the Defaulting Lender’s Participated Letter of Credit Exposure in accordance with Section 4.15(a)(v); fourth, as the Borrower may request (so long as no Default or Event of Default exists), to the funding of any Loan or funded participation in respect of which such Defaulting Lender has failed to fund its portion thereof as required by this Agreement, as determined by the Administrative Agent; fifth, if so determined by the Administrative Agent and the Borrower, to be held in a deposit account and released pro rata in order to (A) satisfy such Defaulting Lender’s potential future funding obligations with respect to Loans and Letters of Credit under this Agreement and (B) Cash Collateralize the Defaulting Lender’s future Participated Letter of Credit Exposure with respect to future Letters of Credit issued under this Agreement, in accordance with Section 4.15(a)(v); sixth, to the payment of any amounts owing to the Lenders or the Fronting Bank as a result of any judgment of a court of competent jurisdiction obtained by any Lender or the Fronting Bank against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement; seventh, so long as no Default or Event of Default exists, to the payment of any amounts owing to the Credit Parties as a result of any judgment of a court of competent jurisdiction obtained by the Credit Parties against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement; eighth, to any Account Party as reimbursement for any expenses and cost incurred as a result of any requirement to provide Cash Collateral as set forth in Section 4.15(a)(v); and ninth, to such Defaulting Lender or as otherwise directed by a court of competent jurisdiction; provided that if (1) such payment is a payment of the principal amount of any Loans or funded participations in Participated Letters of Credit in respect of which such Defaulting Lender has not fully funded its appropriate share, and (2) such Loans were made or the related Participated Letters of Credit
were issued at a time when the conditions set forth in Section 5.2 were satisfied or waived, such payment shall be applied solely to pay the Loans of, and funded participations in Participated Letters of Credit owed to, all Non-Defaulting Lenders on a pro rata basis prior to being applied to the payment of any Loans of, or funded participations in Letters of Credit owed to, such Defaulting Lender until such time as all Loans and funded and unfunded participations in Participated Letters of Credit are held by the Lenders pro rata in accordance with the Commitments without giving effect to Section 4.15(a)(iv). Any payments, prepayments or other amounts paid or payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender or to post Cash Collateral pursuant to this Section 4.15(a)(ii) shall be deemed paid to and redirected by such Defaulting Lender, and each Lender irrevocably consents hereto.
(iii) Certain Fees.
(A) No Defaulting Lender shall be entitled to receive any Commitment Fee for any period during which that Lender is a Defaulting Lender (and the Borrower shall not be required to pay any such fee that otherwise would have been required to have been paid to that Defaulting Lender).
(B) A Defaulting Lender shall be entitled to receive Letter of Credit Fees pursuant to Section 4.3 for any period during which that Lender is a Defaulting Lender only to the extent allocable to its Ratable Share of the Stated Amount of Letters of Credit for which such Defaulting Lender has provided Cash Collateral required pursuant to Section 4.15(a)(v).
(C) With respect to any Letter of Credit Fee not required to be paid to any Defaulting Lender pursuant to clause (B) above, the applicable Account Party shall pay to each Non-Defaulting Lender that portion of any such fee otherwise payable to such Defaulting Lender with respect to such Defaulting Lender’s Participated Letter of Credit Exposure that has been reallocated to such Non-Defaulting Lender pursuant to clause (iv) below.
(D) Notwithstanding the foregoing, if any Defaulting Lender’s Participated Letter of Credit Exposure is not Cash Collateralized or reallocated pursuant to Section 4.15(a)(iv), then, without prejudice to any rights or remedies of the Fronting Bank or any Lender hereunder, all Letter of Credit Fees that otherwise would have been payable to such Defaulting Lender with respect to such Defaulting Lender’s Participated Letter of Credit Exposure shall be payable to the Fronting Bank until such Defaulting Lender’s Participated Letter of Credit Exposure is Cash Collateralized.
(iv) Reallocation of Participations. All or any part of such Defaulting Lender’s Participated Letter of Credit Exposure shall be automatically reallocated (effective on the day such Lender becomes a Defaulting Lender) among the Non-Defaulting Lenders in accordance with their respective Ratable Shares (calculated without regard to such Defaulting Lender’s Commitment) but only to the extent that such reallocation does not cause the Revolving Credit Exposure of any Non-Defaulting Lender to exceed such Non-Defaulting Lender’s Commitment. Subject to Section 11.22, no reallocation hereunder shall constitute a waiver or release of any claim of any party hereunder against a Defaulting Lender arising from that Lender having become a Defaulting Lender, including any claim of a Non-Defaulting Lender as a result of such Non-Defaulting Lender’s increased exposure following such reallocation.
(v) Cash Collateral. If the reallocation described in clause (iv) above cannot, or can only partially, be effected, and the Defaulting Lender has failed to provide Cash Collateral for its Ratable Share of the Stated Amount of Letters of Credit, each Account Party shall within five Business Days following notice by the Administrative Agent, without prejudice to any right or remedy available to it hereunder or under law, Cash Collateralize the Defaulting Lender’s Participated Letter of Credit Exposure (after giving effect to any partial reallocation pursuant to paragraph (iv) above) in accordance with the procedures set forth in Section 3.5. Notwithstanding Section 4.15(a)(iii)(B) above, if any Account Party Cash Collateralizes any portion of such Defaulting Lender’s Participated Letter of Credit Exposure pursuant to this Section 4.15(a)(v), such Account Party shall not be required to pay any Letter of Credit Fees to such Defaulting Lender with respect to such portion of the Defaulting Lender’s Participated Letter of Credit Exposure during the period such Defaulting Lender’s Letter of Credit Exposure is Cash Collateralized and any such Cash Collateral shall be applied to the applicable Letter of Credit if drawn.
(b) Fronting Bank. So long as any Lender is a Defaulting Lender, the Fronting Bank shall not be required to issue any Participated Letter of Credit unless the Commitments of the Non-Defaulting Lenders and/or Cash Collateral provided by the applicable Account Party or the Defaulting Lender are at least equal to the Stated Amount of such Participated Letter of Credit, and participating interests in any such newly issued Participated Letter of Credit shall be allocated among non-Defaulting Lenders (and Defaulting Lenders shall not participate therein).
(c) Defaulting Lender Cure. If the Borrower, the Administrative Agent, the L/C Agent and the Fronting Bank agree in writing that a Lender is no longer a Defaulting Lender, the Administrative Agent will so notify the parties hereto, whereupon as of the effective date specified in such notice and subject to any conditions set forth therein (which may include arrangements with respect to any Cash Collateral), such Lender will, to the extent applicable, purchase at par that portion of outstanding Loans of the other Lenders or take such other actions as the Administrative Agent may determine to be necessary to cause the Loans and funded and unfunded participations in Letters of Credit to be held pro rata by the Lenders in accordance with the Commitments without giving effect to Section 4.15(a)(iv)), whereupon such Lender will cease to be a Defaulting Lender; provided that no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of any Credit Party while that Lender was a Defaulting Lender; and provided, further, that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender’s having been a Defaulting Lender.
SECTION 4.16 Provisions Relating to NAIC Qualified Lenders.
(a) Each Lender represents that on the date of this Agreement (or, if later, the date such Lender becomes a party to this Agreement), it is a NAIC Qualified Lender. Each Lender agrees to use commercially reasonable efforts in order to, at all times, (i) be listed on the NAIC Qualified Institution List or (ii) if such Lender ceases to be listed on the NAIC Qualified Institution List, maintain in effect a Confirming Lender Agreement with a Person which is listed on the NAIC Qualified Institution List to act as a Confirming Lender for such Lender in respect of its obligations under the Syndicated Letters of Credit (which Person, prior to entering in such Confirming Lender Agreement, shall be subject to the prior written consent of each of the Account Parties and the Administrative Agent, such consent, in each case, shall not be unreasonably withheld). If any Lender shall enter into a Confirming Lender Agreement hereunder at any time, it shall promptly furnish a copy thereof to the Account Parties and the Administrative Agent. In connection with the execution or termination of any Confirming Lender Agreement, the L/C Agent is authorized to amend or replace each outstanding Syndicated Letter to add or remove the applicable Lender and Confirming Lender, as the case may be. Each Lender shall promptly provide evidence to the
Administrative Agent or the Account Parties of such Lender’s compliance with the requirements of this Section 4.16 upon request by the Administrative Agent or the Account Parties.
(b) If at any time any Lender shall cease to be a NAIC Qualified Lender, such Lender shall promptly notify the Account Parties and the Administrative Agent and forthwith comply with its obligations under this Section 4.16. Upon receipt of such notice, the Account Parties may request to have Wells Fargo act as Fronting Bank for such Non-NAIC Qualified Lender with respect to any Syndicated Letter of Credit Exposure attributable to such Non-NAIC Qualified Lender. Wells Fargo may, in its sole discretion, agree to act as a Fronting Bank with respect to such Syndicated Letter of Credit Exposure, but Wells Fargo has no obligation to do so. After giving effect to the issuance of any such Syndicated Letter of Credit for which Wells Fargo has so agreed to act as Fronting Bank, the Fronting Exposure shall not exceed the Fronting Sublimit.
(c) In the event Wells Fargo agrees to act as a Fronting Bank pursuant to Section 4.16(b), the L/C Agent is authorized, upon the Account Parties’ request, to amend or replace each outstanding Syndicated Letter of Credit to remove the applicable Non-NAIC Qualified Lender and add Wells Fargo to reflect the application of this Section 4.16 and to issue new Syndicated Letters of Credit reflecting the application of this Section 4.16. With respect to any Syndicated Letter of Credit as to which Wells Fargo acts as a Fronting Bank for a Non-NAIC Qualified Lender, Wells Fargo shall be deemed to have sold and transferred to such Non-NAIC Qualified Lender, and such Non-NAIC Qualified Lender shall be deemed irrevocably and unconditionally to have purchased and received from Wells Fargo, without recourse or warranty, an undivided interest and participation in such Non-NAIC Qualified Syndicated Letter of Credit Exposure. The purchase and funding of such participation shall be governed by the provisions of Section 3.2(c), Section 3.2(d) and Section 3.2(f), mutatis mutandis.
(d) No Non-NAIC Qualified Lender shall be entitled to receive any Commitment Fee for any period during which that Lender is a Non-NAIC Qualified Lender (and no Credit Party shall be required to pay any such fee that otherwise would have been required to have been paid to that Non-NAIC Qualified Lender), in each case unless such Lender has in effect a Confirming Lender Agreement with a Person which is listed on the NAIC Qualified Institution List to act as a Confirming Lender in accordance with this Section 4.16 or Wells Fargo acts as a Fronting Bank for such Non-NAIC Qualified Lender in accordance with this Section 4.16.
ARTICLE V
CONDITIONS OF CLOSING AND BORROWING
SECTION 5.1 Conditions to Closing and Initial Extensions of Credit. The obligation of the Lenders to close this Agreement and to make the initial Loans, and the obligation of the Issuing Lenders to issue any Letters of Credit, if any, on the Closing Date, is subject to the satisfaction of each of the following conditions:
(a) Executed Loan Documents. This Agreement, together with any other applicable Loan Documents, shall have been duly authorized, executed and delivered to the Administrative Agent by the parties thereto, shall be in full force and effect and no Default or Event of Default shall exist hereunder or thereunder.
(b) Closing Certificates; Etc. The Administrative Agent shall have received each of the following in form and substance reasonably satisfactory to the Administrative Agent:
(i) Officer’s Certificate of the Borrower. A certificate from a Responsible Officer of the Borrower to the effect that (A) all representations and warranties of the Credit Parties contained in this Agreement and the other Loan Documents are true, correct and complete in all material respects (except to the extent any such representation and warranty is qualified by materiality or reference to Material Adverse Effect, in which case, such representation and warranty shall be true, correct and complete in all respects); (B) as of the Closing Date, no Default or Event of Default has occurred and is continuing; (C) except as set forth on Schedule 6.13, since December 31, 2021, no event has occurred or condition arisen, either individually or in the aggregate, that has had or would reasonably be expected to have a Material Adverse Effect; and (D) each of the Credit Parties, as applicable, has satisfied each of the conditions set forth in Section 5.1 and Section 5.2 as of the Closing Date.
(ii) Certificate of Secretary of each Credit Party. A certificate of a Responsible Officer of each Credit Party certifying as to the incumbency and genuineness of the signature of each officer of such Credit Party executing Loan Documents to which it is a party and certifying that attached thereto is a true, correct and complete copy of (A) the articles or certificate of incorporation or formation (or equivalent), as applicable, of such Credit Party and all amendments thereto, certified as of a recent date by the appropriate Governmental Authority in its jurisdiction of incorporation, organization or formation (or equivalent), as applicable, (B) the bylaws or other governing document of such Credit Party as in effect on the Closing Date, (C) resolutions duly adopted by the board of directors (or other governing body) of such Credit Party authorizing and approving the transactions contemplated hereunder and the execution, delivery and performance of this Agreement and the other Loan Documents to which it is a party, and (D) each certificate required to be delivered pursuant to Section 5.1(b)(iii) required to be satisfied as of the Closing Date.
(iii) Certificates of Good Standing. Certificates as of a recent date of the good standing of each Credit Party under the laws of its jurisdiction of incorporation, organization or formation (or equivalent), as applicable, and, to the extent requested by the Administrative Agent, each other jurisdiction where such Credit Party is qualified to do business.
(iv) Opinions of Counsel. Opinions of counsel to the Credit Parties addressed to the Administrative Agent and the Lenders with respect to the Credit Parties, the Loan Documents and such other matters as the Administrative Agent shall request.
(c) Consents; Defaults.
(i) Governmental and Third Party Approvals. The Credit Parties shall have received all material governmental, shareholder and third party consents and approvals necessary (or any other material consents as determined in the reasonable discretion of the Administrative Agent) in connection with the transactions contemplated by this Agreement and the other Loan Documents and all applicable waiting periods shall have expired without any action being taken by any Person that would reasonably be expected to restrain, prevent or impose any material adverse conditions on any of the Credit Parties or such other transactions or that could seek or threaten any of the foregoing, and no law or regulation shall be applicable which in the reasonable judgment of the Administrative Agent would reasonably be expected to have such effect.
(ii) No Injunction, Etc. No action, proceeding or investigation shall have been instituted, threatened in writing or proposed in writing before any Governmental Authority to enjoin, restrain, or prohibit, or to obtain substantial damages in respect of, or which is related to or arises out of this Agreement or the other Loan Documents or the consummation of the transactions contemplated hereby or thereby, or which, in the Administrative Agent’s sole discretion, would
make it inadvisable to consummate the transactions contemplated by this Agreement or the other Loan Documents or the consummation of the transactions contemplated hereby or thereby.
(d) Payment at Closing. The Credit Parties shall have paid (i) to the Arrangers and the Administrative Agent, the fees required under the Engagement Letter to be paid on the Closing Date, in the amounts due and payable on the Closing Date as required by the terms thereof, subject to receipt of appropriate invoicing details, and (ii) all other fees and reasonable expenses of the Arrangers, the Administrative Agent, the L/C Agent, the Issuing Lenders and the Lenders required hereunder or under any other Loan Document to be paid on or prior to the Closing Date (including reasonable fees and expenses of counsel) in connection with this Agreement, the other Loan Documents and the transactions contemplated hereby.
(e) Miscellaneous.
(i) PATRIOT Act, etc. The Credit Parties shall have provided to the Administrative Agent and the Lenders the documentation and other information requested by the Administrative Agent prior to the Closing Date in order to comply with requirements of any Anti-Money Laundering Laws, including, without limitation, the PATRIOT Act and any applicable “know your customer” rules and regulations.
(ii) Beneficial Ownership Certification. At least five Business Days prior to the Closing Date, any Credit Party that qualifies as a “legal entity customer” under the Beneficial Ownership Regulation shall deliver a Beneficial Ownership Certification in relation to such Credit Party.
(f) Existing Agreement. All accrued and unpaid interest and fees outstanding under the Existing Agreement shall have been paid in full.
(g) Term Loan Agreement Amendment. The Term Loan Agreement shall have been amended substantially concurrent with the execution of this Agreement in a manner satisfactory to the Administrative Agent.
Without limiting the generality of the provisions of Section 10.3, for purposes of determining compliance with the conditions specified in this Section 5.1, the Administrative Agent and each Lender that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received notice from such Lender prior to the proposed Closing Date specifying its objection thereto.
SECTION 5.2 Conditions to All Extensions of Credit. The obligations of the Lenders to make or participate in any Extensions of Credit and/or any Issuing Lender to issue or extend any Letter of Credit are subject to the satisfaction of the following conditions precedent on the relevant borrowing, issuance or extension date:
(a) Continuation of Representations and Warranties. The representations and warranties contained in this Agreement and the other Loan Documents shall be true and correct in all material respects, except for any representation and warranty that is qualified by materiality or reference to Material Adverse Effect, which such representation and warranty shall be true and correct in all respects, on and as of such borrowing, issuance or extension date with the same effect as if made on and as of such date (except for any such representation and warranty that by its terms is made only as of an earlier date, which representation and warranty shall remain true and correct in all material respects as of such earlier date,
except for any representation and warranty that is qualified by materiality or reference to Material Adverse Effect, which such representation and warranty shall be true and correct in all respects as of such earlier date).
(b) No Existing Default. No Default or Event of Default shall have occurred and be continuing (i) on the borrowing date with respect to such Loan or after giving effect to the Loans to be made on such date or (ii) on the issuance or extension date with respect to such Letter of Credit or after giving effect to the issuance or extension of such Letter of Credit on such date.
(c) No Suspension Period. No Suspension Period shall be in effect on the relevant borrowing, issuance or extension date; provided, however that the foregoing shall not be a condition to (i) the extension of the expiry date of any outstanding Evergreen Letters of Credit during a Suspension Period or (ii) the issuance of any Letters of Credit permitted under Section 7.12(b)(i) during a Suspension Period, unless in the case of this clause (ii), any shareholder has exercised a Special Liquidity Option.
(d) Notices. The Administrative Agent shall have received a Notice of Borrowing or a Letter of Credit Notice, as applicable, from the Borrower or the applicable Account Party as required hereunder.
(e) Miscellaneous. In addition to the foregoing, each Issuing Lender shall be under no obligation to issue any Letter of Credit (and, with respect to Syndicated Letters of Credit, the L/C Agent shall not Issue any Syndicated Letter of Credit on behalf of the Issuing Lenders) if:
(i) any order, judgment or decree of any Governmental Authority or arbitrator having jurisdiction over such Issuing Lender shall by its terms enjoin or restrain the issuance of such Letter of Credit or any law applicable to such Issuing Lender, the Administrative Agent or any Lender or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over it shall prohibit, or request that it refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon it with respect to such Letter of Credit any restriction or reserve or capital requirement (for which such issuing Lender is not otherwise compensated) not in effect on the Closing Date, or any unreimbursed loss, cost or expense which was not applicable or in effect as of the Closing Date and which such Issuing Lender in good faith deems material to it;
(ii) the L/C Agent or the Fronting Bank, as applicable, shall have delivered a Notice of Non-Extension with respect to such Letter of Credit;
(iii) the Administrative Agent has received written notice from the Fronting Bank, the L/C Agent or the Required Lenders, as the case may be, or from any Credit Party, on or prior to the Business Day prior to the requested date of the issuance of such Letter of Credit, that one or more of the applicable conditions under this Section 5.2 is not then satisfied;
(iv) the expiry date of such Letter of Credit would occur more than twelve months after the date of issuance or last extension unless the Required Lenders have approved such expiry date;
(v) the expiry date of such Letter of Credit occurs after the Final Maturity Date, unless all of the Lenders have approved such expiry date in writing;
(vi) such Letter of Credit is not substantially in form and substance reasonably acceptable to the Fronting Bank or the L/C Agent (acting on behalf of the Issuing Lenders);
(vii) such Letter of Credit is denominated in a currency other than Dollars;
(viii) immediately after giving effect thereto, either (A) any Lender’s Revolving Credit Exposure would exceed such Lender’s Commitment at such time, or (B) the aggregate Revolving Credit Exposure of the Lenders would exceed the aggregate Commitments at such time;
(ix) with respect to the issuance of any Letter of Credit, immediately after giving effect thereto, the Fronting Exposure would exceed the Fronting Sublimit at such time; or
(x) in the case of a Syndicated Letter of Credit, any Lender is a Non-NAIC Qualified Lender at such time (unless such Lender has in effect a Confirming Lender Agreement with a Person which is listed on the NAIC Qualified Institution List to act as a Confirming Lender in accordance with Section 4.16 or Wells Fargo acts as a Fronting Bank for such Non-NAIC Qualified Lender in accordance with Section 4.16(b)).
(f) PATRIOT Act, etc. With respect to the first time a Letter of Credit is to be issued for the account of any Subsidiary of any Account Party, the Credit Parties shall have provided the Administrative Agent at least 10 Business Days’ prior written notice of such requested issuance (or such shorter period of time acceptable to the Administrative Agent if the Lenders have advised the Administrative Agent that they have received all documentation and other information required under this Section), and the Administrative Agent and the Lenders shall have received the documentation and other information reasonably requested by the Administrative Agent and the Lenders in order to comply with requirements of any Anti-Money Laundering Laws, including, without limitation, the PATRIOT Act and any applicable “know your customer” rules and regulations, with respect to such Subsidiary.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE CREDIT PARTIES
To induce the Administrative Agent and Lenders to enter into this Agreement and to induce the Lenders to make Extensions of Credit, the Credit Parties hereby represent and warrant to the Administrative Agent, the Issuing Lenders and the Lenders both immediately before and immediately after giving effect to the transactions contemplated hereunder, which representations and warranties shall be deemed made on the Closing Date and as otherwise set forth in Section 5.2, that:
SECTION 6.1 Organization; Power; Qualification. Each Credit Party and each Material Subsidiary thereof (a) is duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or formation, (b) has the power and authority to own its Properties and to carry on its business as now being and hereafter proposed to be conducted and (c) is duly qualified and authorized to do business in each jurisdiction in which the character of its Properties or the nature of its business requires such qualification and authorization except in jurisdictions where the failure to be so qualified or in good standing would not reasonably be expected to result in a Material Adverse Effect. No Credit Party is an Affected Financial Institution.
SECTION 6.2 Ownership. Each Subsidiary of each Credit Party as of the Closing Date, and the percentage ownership of each owner in such Subsidiary, is listed on Schedule 6.2. All outstanding shares of the Borrower and each of its applicable Subsidiaries have been duly authorized and validly issued and are fully paid and nonassessable and not subject to any preemptive or similar rights, except as described in Schedule 6.2. Each direct or indirect owner of the Borrower that beneficially owns 10% or more of the aggregate Equity Interests of the Borrower as of the Closing Date, together with such owner’s percentage ownership, is described on Schedule 6.2. As of the Closing Date, there are no outstanding stock purchase warrants, subscriptions, options, securities, instruments or other rights of any type or nature whatsoever,
which are convertible into, exchangeable for or otherwise provide for or require the issuance of Equity Interests of any Credit Party or any Subsidiary thereof, except as described on Schedule 6.2.
SECTION 6.3 Authorization; Enforceability. Each Credit Party has the right, power and authority and has taken all necessary corporate and other action to authorize the execution, delivery and performance of this Agreement and each of the other Loan Documents to which it is a party in accordance with their respective terms. This Agreement and each of the other Loan Documents have been duly executed and delivered by the duly authorized officers of each Credit Party that is a party thereto, and each such document constitutes the legal, valid and binding obligation of each Credit Party, enforceable in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or similar state or federal Debtor Relief Laws from time to time in effect which affect the enforcement of creditors’ rights in general and the availability of equitable remedies.
SECTION 6.4 Compliance of Agreement, Loan Documents and Extensions of Credit with Laws, Etc. The execution, delivery and performance by each Credit Party of the Loan Documents to which each such Person is a party, in accordance with their respective terms, the Extensions of Credit hereunder and the transactions contemplated hereby or thereby do not and will not, by the passage of time, the giving of notice or otherwise, (a) require any Governmental Approval or violate any Applicable Law relating to any Credit Party where the failure to obtain such Governmental Approval or such violation would reasonably be expected to have a Material Adverse Effect, (b) conflict with, result in a breach of or constitute a default under the Organizational Documents of any Credit Party, (c) conflict with, result in a breach of or constitute a default under any indenture, agreement or other instrument to which such Person is a party or by which any of its properties may be bound or any Governmental Approval relating to such Person, which could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, (d) result in or require the creation or imposition of any Lien upon or with respect to any property now owned or hereafter acquired by such Person other than Permitted Liens or (e) require any consent or authorization of, filing with, or other act in respect of, an arbitrator or Governmental Authority and no consent of any other Person is required in connection with the execution, delivery, performance, validity or enforceability of this Agreement other than consents, authorizations, filings or other acts or consents for which the failure to obtain or make would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
SECTION 6.5 Compliance with Law; Governmental Approvals. Each Credit Party and each Material Subsidiary thereof (a) has all Governmental Approvals required by any Applicable Law for it to conduct its business, each of which is in full force and effect, is final and not subject to review on appeal and is not the subject of any pending or, to its knowledge, threatened in writing attack by direct or collateral proceeding, (b) is in compliance with each Governmental Approval applicable to it and in compliance with all other Applicable Laws relating to it or any of its respective properties and (c) has timely filed all material reports, documents and other materials required to be filed by it under all Applicable Laws with any Governmental Authority and has retained all material records and documents required to be retained by it under Applicable Law, except in each case of clauses (a), (b) or (c) where the failure to have, comply or file would not reasonably be expected to have a Material Adverse Effect.
SECTION 6.6 Tax Returns and Payments. Each Credit Party and each Material Subsidiary thereof has timely filed all federal, state, provincial, local and foreign tax returns and reports required to be filed by it and has paid all Taxes, assessments, fees and other charges levied upon it or upon its properties that are shown thereon as due and payable, other than (i) those Taxes, assessments, fees and other charges that are being contested in good faith and by proper proceedings and for which adequate reserves have been established in accordance with GAAP or (ii) where the failure to file such returns and reports or the failure to pay such Taxes, assessments, fees and other charges would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. To the knowledge of the Credit Parties, there is
no ongoing audit or examination or other investigation by any Governmental Authority of the tax liability of any Credit Party or any Subsidiary thereof the outcome of which would reasonably be expected to have a Material Adverse Effect.
SECTION 6.7 Intellectual Property Matters. Each Credit Party and each Material Subsidiary thereof owns or possesses legal rights to use all material franchises, licenses, copyrights, copyright applications, patents, patent rights or licenses, patent applications, trademarks, trademark rights, service mark, service mark rights, trade names, trade name rights, copyrights and other rights with respect to the foregoing which taken as a whole are reasonably necessary to conduct its business where the failure to own or possess such legal rights would not reasonably be expected to have a Material Adverse Effect.
SECTION 6.8 Environmental Matters. Each of the Credit Parties and its Subsidiaries is in compliance with existing Environmental Laws and there are no pending environmental claims alleging potential liability or responsibility for any violation of any Environmental Law on their respective businesses, operations and properties, in each case that individually or in the aggregate, would reasonably be expected to have a Material Adverse Effect.
SECTION 6.9 Employee Benefit Matters.
(a) Each Credit Party and each ERISA Affiliate is in compliance with all applicable provisions of ERISA, the Code and the regulations and published interpretations thereunder with respect to all Employee Benefit Plans except for any required amendments for which the remedial amendment period as defined in Section 401(b) of the Code has not yet expired and except where a failure to so comply would not reasonably be expected to have a Material Adverse Effect.
(b) No Termination Event has occurred or is reasonably expected to occur except for such events that would not reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.
SECTION 6.10 Margin Stock. No Credit Party nor any Subsidiary thereof is engaged principally or as one of its activities in the business of extending credit for the purpose of “purchasing” or “carrying” any “margin stock” (as each such term is defined or used, directly or indirectly, in Regulation U of the FRB). No part of the proceeds of any Extensions of Credit will be used for purchasing or carrying margin stock or for any purpose which violates, or which would be inconsistent with, the provisions of Regulation T, U or X of such Board of Governors.
SECTION 6.11 Government Regulation. No Credit Party nor any Material Subsidiary thereof is an “investment company” or a company “controlled” by an “investment company” (as each such term is defined or used in the Investment Company Act).
SECTION 6.12 Financial Statements.
(a) The Borrower has heretofore furnished to the Administrative Agent and Lenders copies of (i) the audited consolidated balance sheets of the Borrower and its Subsidiaries for the fiscal years ending November 30, 2020, November 30, 2021 and the related statements of income, shareholders’ equity and cash flows for the fiscal years then ended, together with the opinion of Ernst & Young Ltd. thereon, prepared in accordance with GAAP, (ii) the unaudited consolidated balance sheet of the Borrower and its Subsidiaries as of the last day of the fiscal quarter ending March 31, 2021, and the related statements of income, shareholders’ equity and cash flows for the partial period then ended, prepared in accordance with GAAP, subject to the absence of notes required by GAAP and normal year-end adjustments, which will include the unaudited 2021 Stub Period, (iii) the audited consolidated balance sheets of Hamilton Re and
its Subsidiaries for the fiscal years ending November 30, 2020, November 30, 2021 and the related statements of income, shareholders’ equity and cash flows for the fiscal years then ended, together with the opinion of Ernst & Young Ltd. thereon, prepared in accordance with GAAP, and (iv) the unaudited consolidated balance sheet of Hamilton Re and its Subsidiaries as of the last day of the fiscal quarter ending March 31, 2021, and the related statement of income for the partial period then ended, prepared in accordance with GAAP, subject to the absence of notes required by GAAP and normal year-end adjustments. Such financial statements present fairly in all material respects the financial condition of the Borrower, Hamilton Re and their respective Subsidiaries, and the results of their operations and their cash flows, as of the dates and for the periods indicated, unless expressly disclosed to the Administrative Agent and the Lenders in writing to the contrary prior to the Closing Date.
(b) Neither (i) the board of directors of the Borrower or a committee thereof or an authorized officer of the Borrower or Hamilton Re has concluded that any financial statement previously furnished to the Administrative Agent should no longer be relied upon because of an error, nor (ii) has the Borrower or Hamilton Re been advised by its auditors that a previously issued audit report or interim review cannot be relied on.
SECTION 6.13 No Material Adverse Change. Except as set forth on Schedule 6.13, since December 31, 2021 (a) there has been no material adverse change in the properties, business, operations, or condition (financial or otherwise) of the Borrower and its Subsidiaries (taken as a whole) and (b) no event has occurred or condition arisen, either individually or in the aggregate, that would reasonably be expected to have a Material Adverse Effect.
SECTION 6.14 Solvency. The Credit Parties taken together are Solvent.
SECTION 6.15 Ownership of Properties. Each Credit Party and each Material Subsidiary thereof (i) has good and marketable title to all real property owned by it, (ii) holds interests as lessee under valid leases in full force and effect with respect to all material leased real and personal property used in connection with its business, and (iii) has good title to all of its other material properties and assets necessary or used in the ordinary course of its business, except for such defects in title as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
SECTION 6.16 Insurance Licenses. Each Insurance Subsidiary holds licenses (including licenses or certificates of authority from relevant Insurance Regulatory Authorities), permits or authorizations in all jurisdictions necessary to transact its insurance and reinsurance business (collectively, the “Licenses”), except where the failure to hold such License would not reasonably be expected to have a Material Adverse Effect. (i) No such License is the subject of a proceeding for suspension, revocation or limitation or any similar proceedings, and (ii) no such suspension, revocation or limitation is threatened in writing by any relevant Insurance Regulatory Authority, that, in each instance under (i) and (ii) above, would individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
SECTION 6.17 Litigation. There are no actions, suits or proceedings pending nor, to its knowledge, threatened in writing against any Credit Party or any Subsidiary thereof or any of their respective properties in any court or before any arbitrator of any kind or before or by any Governmental Authority that would reasonably be expected to have a Material Adverse Effect.
SECTION 6.18 Anti-Corruption Laws; Anti-Money Laundering Laws and Sanctions.
(a) None of (i) each Credit Party, any Subsidiary, any of their respective directors, officers, or, to the knowledge of any Credit Party, or such Subsidiary, any of their respective employees or Affiliates, or (ii) any agent or representative of any Credit Party or any Subsidiary that will act in any capacity in
connection with or benefit from the Credit Facility, (A) is a Sanctioned Person or currently the subject or target of any Sanctions, (B) is controlled by or is acting on behalf of a Sanctioned Person, (C) has its assets located in a Sanctioned Country, (D) is under administrative, civil or criminal investigation for an alleged violation of, or received notice from or made a voluntary disclosure to any governmental entity regarding a possible violation of, Anti-Corruption Laws, Anti-Money Laundering Laws or Sanctions by a governmental authority that enforces Sanctions or any Anti-Corruption Laws or Anti-Money Laundering Laws, or (E) directly or indirectly derives revenues from investments in, or transactions with, Sanctioned Persons.
(b) Each of the Borrower and its Subsidiaries has implemented and maintains in effect policies and procedures designed to ensure compliance by the Borrower and its Subsidiaries and their respective directors, officers, employees, agents and Affiliates with all applicable Anti-Corruption Laws, Anti-Money Laundering Laws, and Sanctions applicable to such Persons.
(c) Each of the Borrower and its Subsidiaries, each director, officer, and to the knowledge of the Borrower, employee, agent and Affiliate of the Borrower and each such Subsidiary, is in compliance with all applicable Anti-Corruption Laws, Anti-Money Laundering Laws, and Sanctions in all material respects.
(d) No proceeds of any Loans or Letters of Credit have been used, directly or, to the Borrower’s knowledge, indirectly, by the Borrower or any of its Subsidiaries or any of its or their respective directors, officers, employees and agents in violation of Section 7.12(c).
SECTION 6.19 Disclosure. No financial statement, material report, material certificate or other material factual information furnished (whether in writing or orally) by or on behalf of any Credit Party or any Material Subsidiary thereof to the Administrative Agent or any Lender in connection with the transactions contemplated hereby and the negotiation of this Agreement or delivered hereunder (as modified or supplemented by other information so furnished), taken together as a whole, contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements therein (taken as a whole), in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, pro forma financial information, estimated financial information and other projected or estimated information, such information was prepared in good faith based upon assumptions believed to be reasonable at the time prepared (it being recognized by the Lenders that projections are not to be viewed as facts and that the actual results during the period or periods covered by such projections may materially vary from such projections). As of the Closing Date, the information included in the Beneficial Ownership Certification is true and correct in all respects.
ARTICLE VII
AFFIRMATIVE COVENANTS
Until all of the Obligations (other than contingent indemnification obligations not then due) have been paid and satisfied in full in cash, all Letters of Credit have terminated, expired or been Cash Collateralized and the Commitments terminated, each Credit Party will, and will cause each of its Subsidiaries (other than the Excluded Subsidiaries) to:
SECTION 7.1 Financial Statements. Deliver to the Administrative Agent, in form and detail satisfactory to the Administrative Agent (which shall promptly make such information available to the Lenders in accordance with its customary practice):
(a) Annual Financial Statements. As soon as practicable and in any event within 90 days (or, if earlier, on the date of any required public filing thereof) after the end of each Fiscal Year (commencing with the Fiscal Year ended December 31, 2022), (i) an audited consolidated balance sheet of the Borrower and its Subsidiaries as of the close of such Fiscal Year and audited consolidated statements of income, retained earnings and cash flows including the notes thereto and (ii) an audited consolidated balance sheet of Hamilton Re and its Subsidiaries as of the close of such Fiscal Year and audited consolidated statements of income, retained earnings and cash flows including the notes thereto, all in reasonable detail setting forth in comparative form the corresponding figures as of the end of and for the preceding Fiscal Year and prepared in accordance with GAAP and, if applicable, containing disclosure of the effect on the financial position or results of operations of any change in the application of accounting principles and practices during the year. Such annual financial statements shall be audited by Ernst & Young LLP or an independent certified public accounting firm of recognized national standing acceptable to the Administrative Agent, and accompanied by a report thereon by such certified public accountants prepared in accordance with generally accepted auditing standards that is not subject to any “going concern” or similar qualification or exception or any qualification as to the scope of such audit or with respect to accounting principles followed by the Borrower, Hamilton Re or any of their respective Subsidiaries not in accordance with GAAP.
(b) Quarterly Financial Statements. As soon as practicable and in any event within 60 days (or, if earlier, on the date of any required public filing thereof) after the end of the first three fiscal quarters of each Fiscal Year (commencing with the fiscal quarter ended June 30, 2022), (i) an unaudited consolidated balance sheet of the Borrower and its Subsidiaries as of the close of such fiscal quarter and unaudited consolidated statements of income, retained earnings and cash flows, including the notes thereto, all in reasonable detail setting forth in comparative form the corresponding figures as of the end of and for the corresponding period in the preceding Fiscal Year and prepared in accordance with GAAP and (ii) an unaudited consolidated balance sheet of Hamilton Re and its Subsidiaries as of the close of such fiscal quarter and an unaudited consolidated statement of income, all in reasonable detail setting forth in comparative form the corresponding figures as of the end of and for the corresponding period in the preceding Fiscal Year and prepared in accordance with GAAP, and, in each case of clauses (i) and (ii), such financial statements present fairly in all material respects the financial condition of the Borrower and its Subsidiaries, as applicable, on a consolidated basis as of their respective dates and the results of operations of the Borrower and its Subsidiaries, as applicable, for the respective periods then ended, subject to normal year-end adjustments and the absence of footnotes.
(c) 2021 Stub Period Financial Statements. As soon as practicable and in any event within 455 days (or, if earlier, on the date of any required public filing thereof) after the end of the 2021 Stub Period, (i) audited consolidated statements of income, retained earnings and cash flows, including any notes thereto, of the Borrower and its Subsidiaries, prepared in accordance with GAAP and (ii) audited consolidated statements of income, retained earnings and cash flows, including any notes thereto, of Hamilton Re and its Subsidiaries, prepared in accordance with GAAP, and, in each case of clauses (i) and (ii), such financial statements present fairly in all material respects the financial condition of the Borrower and its Subsidiaries, as applicable, on a consolidated basis as of their respective dates and the results of operations of the Borrower and its Subsidiaries, as applicable, for the 2021 Stub Period.
SECTION 7.2 Certificates; Other Reports. Deliver to the Administrative Agent (which shall promptly make such information available to the Lenders in accordance with its customary practice):
(a) at each time financial statements are delivered pursuant to Section 7.1(a) or (b), a duly completed Officer’s Compliance Certificate signed by a Financial Officer of the Borrower;
(b) promptly upon the request thereof, such other information and documentation required by bank regulatory authorities under applicable Anti-Money Laundering Laws (including, without limitation,
any applicable “know your customer” rules and regulations and the PATRIOT Act), as from time to time reasonably requested by the Administrative Agent or any Lender; and
(c) such other documents or information regarding the operations, business affairs and financial condition of any Credit Party or any Subsidiary thereof as the Administrative Agent or any Lender may reasonably request (including, without limitation, copies of the Organizational Documents of any Credit Party or any Subsidiary thereof); provided that with respect to each Excluded Subsidiary, each Credit Party shall only be required to use commercially reasonable efforts to provide such information and shall not be required to pay any fees or other amounts or incur expenses to obtain such information.
SECTION 7.3 Notice of Litigation and Other Matters. Promptly notify the Administrative Agent in writing of (which shall promptly make such information available to the Lenders in accordance with its customary practice):
(a) the occurrence of any Default or Event of Default;
(b) the commencement of all proceedings and investigations by or before any Governmental Authority and all actions and proceedings in any court or before any arbitrator against or involving any Credit Party or any Subsidiary thereof (other than the Excluded Subsidiaries) or any of their respective properties, assets or businesses in each case that if adversely determined would reasonably be expected to result in a Material Adverse Effect;
(c) any attachment, judgment, lien, levy or order exceeding the Threshold Amount (other than Permitted Liens) that has been assessed against any Credit Party or any Subsidiary thereof (other than the Excluded Subsidiaries);
(d) (i) any unfavorable determination letter from the IRS regarding the qualification of an Employee Benefit Plan under Section 401(a) of the Code (along with a copy thereof), (ii) all notices received by any Credit Party or any ERISA Affiliate of the PBGC’s intent to terminate any Pension Plan or to have a trustee appointed to administer any Pension Plan, (iii) all notices received by any Credit Party or any ERISA Affiliate from a Multiemployer Plan sponsor concerning the imposition or amount of withdrawal liability pursuant to Section 4202 of ERISA and (iv) the Borrower obtaining knowledge or reason to know that any Credit Party or any ERISA Affiliate has filed or intends to file a notice of intent to terminate any Pension Plan under a distress termination within the meaning of Section 4041(c) of ERISA, in each case, that would reasonably be expected to result in a Material Adverse Effect; and
(e) any announcement by A.M. Best of any change in the Financial Strength Rating of Hamilton Re.
Each notice pursuant to Section 7.3(a) shall be accompanied by a statement of a Responsible Officer of the Borrower or Hamilton Re setting forth details of the occurrence referred to therein and stating what action the Credit Parties have taken and proposes to take with respect thereto and shall describe with particularity any and all provisions of this Agreement and any other Loan Document that have been breached.
SECTION 7.4 Preservation of Corporate Existence and Related Matters. Except as permitted by Section 8.5, preserve and maintain its separate corporate existence or equivalent form and all rights, franchises, licenses and privileges necessary to the conduct of its business, and qualify and remain qualified as a foreign corporation or other entity and authorized to do business in each jurisdiction in which the failure to so qualify would reasonably be expected to have a Material Adverse Effect.
SECTION 7.5 Maintenance of Property and Licenses.
(a) Protect and preserve all Properties necessary in and material to its business, including copyrights, patents, trade names, service marks and trademarks; maintain in good working order and condition, ordinary wear and tear excepted, all buildings, equipment and other tangible real and personal property; and from time to time make or cause to be made all repairs, renewals and replacements thereof and additions to such Property necessary for the conduct of its business, so that the business carried on in connection therewith may be conducted in a commercially reasonable manner, in each case except as such action or inaction would not reasonably be expected to result in a Material Adverse Effect.
(b) Maintain, in full force and effect in all material respects, each and every material license, permit, certification, qualification, approval or franchise issued by any Governmental Authority required for each of them to conduct their respective businesses as presently conducted, except where the failure to do so would not reasonably be expected to have a Material Adverse Effect.
SECTION 7.6 Insurance. Maintain insurance with financially sound and reputable insurance companies against at least such risks and in at least such amounts as are customarily maintained in the same general area by companies of established repute engaged in similar businesses and as may be required by Applicable Law.
SECTION 7.7 Payment of Taxes and Other Obligations. Pay and perform all taxes, assessments and other governmental charges that may be levied or assessed upon it or any of its Property; provided, that the Borrower or such Subsidiary may contest any item described in this Section in good faith so long as adequate reserves are maintained with respect thereto in accordance with GAAP, except where the failure to pay or perform such items described in this Section would not reasonably be expected to have a Material Adverse Effect.
SECTION 7.8 Compliance with Laws and Approvals. Observe and remain in compliance in all material respects with all Applicable Laws and maintain in full force and effect all Governmental Approvals, in each case applicable to the conduct of its business except where the failure to do so would not reasonably be expected to have a Material Adverse Effect.
SECTION 7.9 Environmental Laws. In addition to and without limiting the generality of Section 7.8, (a) comply with, and ensure such compliance by all tenants and subtenants with all applicable Environmental Laws and obtain and comply with and maintain, and ensure that all tenants and subtenants, if any, obtain and comply with and maintain, any and all licenses, approvals, notifications, registrations or permits required by applicable Environmental Laws and (b) conduct and complete all investigations, studies, sampling and testing, and all remedial, removal and other actions required under Environmental Laws, and promptly comply with all lawful orders and directives of any Governmental Authority regarding Environmental Laws, in each case, except where such failure to do so would not reasonably be expected to result in a Material Adverse Effect.
SECTION 7.10 Compliance with ERISA. In addition to and without limiting the generality of Section 7.8, (a) except where the failure to so comply would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, (i) comply with applicable provisions of ERISA, the Code and the regulations and published interpretations thereunder with respect to all Employee Benefit Plans, (ii) not take any action or fail to take action the result of which would reasonably be expected to result in a liability to the PBGC or to a Multiemployer Plan, (iii) not participate in any prohibited transaction that would result in any civil penalty under ERISA or tax under the Code and (iv) operate each Employee Benefit Plan in such a manner that will not incur any tax liability under Section 4980B of the Code or any liability to any qualified beneficiary as defined in Section 4980B of the Code and (b) furnish to the
Administrative Agent upon the Administrative Agent’s request such additional information about any Employee Benefit Plan as may be reasonably requested by the Administrative Agent.
SECTION 7.11 Maintenance of Books and Records; Inspection. Each Credit Party shall, and shall cause each of their respective Material Subsidiaries to, (i) maintain adequate books, accounts and records, in which full, true and correct entries shall be made of all financial transactions in relation to its business and properties, and prepare all financial statements required under this Agreement, in each case in accordance with GAAP and in compliance with the requirements of any Governmental Authority having jurisdiction over it, and (ii) permit employees or agents of the Administrative Agent, and after the occurrence and during the continuance of an Event of Default, any Lender, to visit and inspect its properties and examine or audit its books, records, working papers and accounts and make copies and memoranda of them, and at its own cost and expense (other than after the occurrence of an Event of Default), and to discuss its affairs, finances and accounts with its officers and employees and, upon notice to the Borrower, the independent public accountants of the Credit Parties and their Material Subsidiaries (and by this provision the Credit Parties authorize such accountants to discuss the finances and affairs of the Credit Parties and their Material Subsidiaries), all at such times and from time to time, upon reasonable notice and during business hours, as may be reasonably requested; provided that notwithstanding anything herein, none of the Credit Parties or any of their respective Material Subsidiaries will be required to disclose or permit the inspection or discussion of, any document, information or other matter (a) that constitutes non-financial trade secrets or non-financial proprietary information, (b) in respect of which disclosure to the Administrative Agent or the Lenders (or their respective representatives) is prohibited by Applicable Law or any binding agreement or (c) that is subject to attorney client or similar privilege or constitutes attorney work product, provided further except during the continuance of an Event of Default the Administrative Agent shall not exercise such rights described in clause (ii) of this Section more than once per calendar year.
SECTION 7.12 Use of Proceeds.
(a) The Borrower shall use the proceeds of Loans for working capital and general corporate purposes of the Borrower and its Subsidiaries; provided that no part of the proceeds of any of the Loans shall be used for purchasing or carrying margin stock (within the meaning of Regulation T, U or X of the FRB) or for any purpose which violates the provisions of Regulation T, U or X of the FRB.
(b) Each Account Party shall use the L/C Facility (i) to support its and its Subsidiaries’ insurance obligations, obligations under reinsurance agreements and retrocession agreements to which it or any of its Subsidiaries is a party and similar risk obligations and (ii) to support its and its Subsidiaries’ general corporate purposes; provided, however, that the aggregate Letter of Credit Exposure at any time with respect to Letters of Credit issued pursuant to clause (b)(ii) shall not exceed $1,000,000 or such higher amount as may be approved by the Required Lenders.
(c) No Credit Party will request any Extension of Credit, and the Borrower shall not use, and shall ensure that its Subsidiaries and its or their respective directors and officers and, to the Borrower’s knowledge, its and their respective employees and agents shall not use, the proceeds of any Extensions of Credit, directly or, to the Borrower’s knowledge, indirectly, (i) in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person in violation of any Anti-Corruption Laws, (ii) for the purpose of funding, financing or facilitating any activities, business or transaction of or with any Sanctioned Person or a person subject or target of any Sanctions, or in any Sanctioned Country or (iii) in any manner that would result in the violation of any Sanctions applicable to any party hereto.
SECTION 7.13 Compliance with Anti-Corruption Laws; Beneficial Ownership Regulation; Anti-Money Laundering Laws and Sanctions. The Credit Parties will (a) maintain in effect and enforce policies and procedures designed to ensure compliance by the Credit Parties, their Subsidiaries (other than the Excluded Subsidiaries) and their respective directors, officers, employees and agents with all applicable Anti-Corruption Laws, Anti-Money Laundering Laws, and Sanctions and (b) promptly upon the reasonable request of the Administrative Agent or any Lender, provide the Administrative Agent or such Lender, as the case may be, any information or documentation reasonably requested by it for purposes of complying with the Beneficial Ownership Regulation.
SECTION 7.14 Further Assurances. Execute any and all further documents, agreements and instruments, and take all such further actions which may be required under any Applicable Law, or which the Administrative Agent or the Required Lenders may reasonably request, to effectuate the transactions contemplated by the Loan Documents.
ARTICLE VIII
NEGATIVE COVENANTS
Until all of the Obligations (other than contingent, indemnification obligations not then due) have been paid and satisfied in full in cash, all Letters of Credit have terminated, expired or been Cash Collateralized, and the Commitments terminated, the Credit Parties will not, and will not permit any of their respective Subsidiaries (other than the Excluded Subsidiaries) to.
SECTION 8.1 Indebtedness. Create, incur, assume or suffer to exist any Indebtedness except:
(a) the Obligations;
(b) the guaranty provided by the Guarantor pursuant to Article XII;
(c) Indebtedness in the form of letters of credit issued under (i) letter of credit facilities of any Insurance Subsidiary to support its and its Subsidiaries’ insurance obligations, obligations under reinsurance agreements and retrocession agreements to which it or any of its Subsidiaries is a party and similar risk obligations, and (ii) the Barclays Agreement, provided, that face amounts of letters of credit and related reimbursement obligations outstanding under the Barclays Agreement at any time shall not exceed $400,000,000;
(d) Indebtedness under any Syndicate Arrangement;
(e) unsecured intercompany Indebtedness:
(i) owed by any Credit Party to another Credit Party;
(ii) owed by any Credit Party to any Subsidiary that is not a Credit Party (provided that such Indebtedness shall be subordinated to the Obligations in a manner reasonably satisfactory to the Administrative Agent); and
(iii) owed by any Subsidiary that is not a Credit Party to a Credit Party or to another Subsidiary that is not a Credit Party;
(f) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or other similar instrument drawn against insufficient funds in the ordinary course of business;
(g) Indebtedness under performance bonds, surety bonds, release, appeal and similar bonds, statutory obligations or with respect to workers’ compensation claims, in each case incurred in the ordinary course of business, and reimbursement obligations in respect of any of the foregoing;
(h) Indebtedness existing on the Closing Date and listed on Schedule 8.1, and the renewal, refinancing, extension and replacement (but not the increase in the aggregate principal amount) thereof;
(i) unsecured Indebtedness of any Credit Party, provided, that such Indebtedness does not contain representations and warranties, covenants and events of default that are materially more restrictive than those in this Agreement;
(j) Subordinated Indebtedness of any Credit Party;
(k) Indebtedness owing under Hedge Agreements entered into (i) in order to manage existing or anticipated interest rate, exchange rate or commodity price risks or (ii) in connection with insurance, reinsurance or other parametric, derivative or similar risk transfer arrangements, either assumed or ceded, in the ordinary course, in each case not for speculative purposes;
(l) capital and finance lease obligations and Indebtedness incurred in connection with purchase money Indebtedness in an aggregate amount not to exceed $50,000,000 at any time outstanding;
(m) Indebtedness of a Person existing at the time such Person became a Subsidiary or assets were acquired from such Person in connection with an Investment permitted pursuant to Section 8.3, to the extent that (i) such Indebtedness was not incurred in connection with, or in contemplation of, such Person becoming a Subsidiary or the acquisition of such assets, and (ii) no Credit Party or any Subsidiary thereof (other than such Person or any other Person that such Person merges with or that acquires the assets of such Person) shall have any liability or other obligation with respect to such Indebtedness;
(n) guarantees (A) by any Credit Party of Indebtedness otherwise permitted under this Section 8.1 and (B) by any Subsidiary that is not a Credit Party of Indebtedness permitted under Section 8.1(k), (l) and (o);
(o) Indebtedness under the Term Loan Agreement;
(p) Indebtedness not otherwise permitted pursuant to this Section in an aggregate principal amount not to exceed $25,000,000 at any time outstanding; and
(q) Disqualified Equity Interests pursuant to Section 5.3 of the Borrower’s Shareholders Agreement.
SECTION 8.2 Liens. Create, incur, assume or suffer to exist, any Lien on or with respect to any of its Property (other than “margin stock” which if covered hereby would cause the Lenders to be in violation of Regulation U), whether now owned or hereafter acquired, except:
(a) Liens on Cash Collateral granted pursuant to the Loan Documents;
(b) Liens constituting a Permitted Security;
(c) Liens granted to the financial institutions under the Barclays Agreement, in each case as in effect on the date hereof (and including the same Liens under any renewals, refinancings or replacements of such agreement after the date hereof);
(d) Liens for taxes, assessments and other governmental charges or levies (excluding any Lien imposed pursuant to any of the provisions of ERISA or Environmental Laws) (i) not yet due or as to which the period of grace, if any, related thereto has not expired or (ii) which are being contested in good faith and by appropriate proceedings if adequate reserves are maintained to the extent required by GAAP;
(e) Liens in existence on the Closing Date and described on Schedule 8.2, and the replacement, renewal or extension thereof (including Liens incurred, assumed or suffered to exist in connection with any refinancing, refunding, renewal or extension of Indebtedness permitted pursuant to Section 8.1(h) (solely to the extent that such Liens were in existence on the Closing Date and described on Schedule 8.1)); provided that the scope of any such Lien shall not be increased, or otherwise expanded, to cover any additional property or type of asset, as applicable, other than any future additional property or type of asset required to be included as in existence on the Closing Date, including products and proceeds of the foregoing;
(f) the claims of materialmen, mechanics, carriers, warehousemen, processors or landlords for labor, materials, supplies or rentals incurred in the ordinary course of business, which (i) Liens are being contested in good faith and by appropriate proceedings if adequate reserves are maintained to the extent required by GAAP or (ii) do not, individually or in the aggregate, materially impair the use thereof in the operation of the business of the Borrower or any of its Subsidiaries;
(g) deposits or pledges made in the ordinary course of business in connection with, or to secure payment of, obligations under workers’ compensation, unemployment insurance and other types of social security or similar legislation, or to secure the performance of bids, trade contracts and leases (other than Indebtedness), statutory obligations, surety bonds (other than bonds related to judgments or litigation), performance bonds and other obligations of a like nature incurred in the ordinary course of business;
(h) encumbrances in the nature of zoning restrictions, easements and rights or restrictions of record on the use of real property, which in the aggregate are not substantial in amount and which do not, in any case, materially impair the use thereof in the ordinary conduct of business;
(i) Liens arising from the filing of precautionary UCC financing statements relating solely to personal property leased pursuant to operating leases entered into in the ordinary course of business of the Borrower and its Subsidiaries;
(j) Liens securing Indebtedness permitted under Section 8.1(1); provided that (i) such Liens shall be created within one hundred twenty (120) days of the acquisition, repair, construction, improvement or lease, as applicable, of the related Property, (ii) such Liens do not at any time encumber any property other than the Property financed or improved by such Indebtedness, (iii) the amount of Indebtedness secured thereby is not increased and (iv) the principal amount of Indebtedness secured by any such Lien shall at no time exceed one hundred percent (100%) of the original price for the purchase, repair, construction, improvement or lease amount (as applicable) of such Property at the time of purchase, repair, construction, improvement or lease (as applicable);
(k) Liens securing judgments for the payment of money not constituting an Event of Default under Section 9.1(1) or securing appeal or other surety bonds relating to such judgments;
(l) (i) Liens on Property (i) of any Subsidiary which are in existence at the time that such Subsidiary is acquired and (ii) of the Borrower or any of its Subsidiaries existing at the time such tangible property or tangible assets are purchased or otherwise acquired by the Borrower or such Subsidiary thereof pursuant to a transaction permitted pursuant to this Agreement; provided that, with respect to each of the foregoing clauses (i) and (ii), (A) such Liens are not incurred in connection with, or in anticipation of, such
purchase or other acquisition, (B) such Liens are applicable only to specific Property, (C) such Liens are not “blanket” or all asset Liens, (D) such Liens do not attach to any other Property of the Borrower or any of its Subsidiaries and (E) the Indebtedness secured by such Liens is permitted under Section 8.1(m) of this Agreement);
(m) (i) Liens of a collecting bank arising in the ordinary course of business under Section 4-210 of the Uniform Commercial Code in effect in the relevant jurisdiction and (ii) Liens of any depositary bank in connection with statutory, common law and contractual rights of setoff and recoupment with respect to any deposit account of the Borrower or any Subsidiary thereof;
(n) (i) contractual or statutory Liens of landlords to the extent relating to the property and assets relating to any lease agreements with such landlord, and (ii) contractual Liens of suppliers (including sellers of goods) or customers granted in the ordinary course of business to the extent limited to the property or assets relating to such contract;
(o) any interest or title of a licensor, sublicensor, lessor or sublessor with respect to any assets under any license or lease agreement entered into in the ordinary course of business which do not (i) interfere in any material respect with the business of the Borrower or its Subsidiaries or (ii) secure any Indebtedness; and
(p) Liens not otherwise permitted hereunder securing Indebtedness or other obligations in the aggregate principal amount not to exceed $25,000,000 at any time outstanding.
SECTION 8.3 Investments. Make any Investment, except:
(a) Investments (other than Acquisitions) made in accordance with the investment policy approved by the board of directors of the Borrower from time to time;
(b) Investments in existence on the Closing Date set forth on Schedule 8.3;
(c) Investments (including intercompany loans made by a Credit Party pursuant to Section 8.1(e)) by the Borrower in any Subsidiary or any Subsidiary in another Subsidiary;
(d) Investments in cash and Cash Equivalents;
(e) Investments by the Borrower or any of its Subsidiaries consisting of capital expenditures;
(f) deposits made in the ordinary course of business to secure the performance of leases or other obligations as permitted by Section 8.2;
(g) Hedge Agreements permitted pursuant to Section 8.1;
(h) purchases of assets in the ordinary course of business;
(i) Investments consisting of Acquisitions consistent with Section 8.10; provided, that immediately prior and after giving effect to each such Acquisition, (i) no Event of Default shall have occurred and be continuing; (ii) such Acquisition has been duly authorized by (A) the board of directors of the Borrower (to the extent such approval is required by the Borrower’s constituent documents) and (B) such Person to be acquired prior to the commencement of any tender offer, proxy contest or the like in respect thereof, if applicable, and (iii) such Acquisition would not reasonably be expected to result in the Financial Strength Rating of Hamilton Re to fall below A-; and
(j) Investments in the form of Restricted Payments permitted pursuant to Section 8.6.
SECTION 8.4 Fundamental Changes. Except as permitted under Section 8.5, merge, amalgamate consolidate or enter into any similar combination (whether in a single transaction or a series of transactions) with, any other Person or liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution), except that (i) any Credit Party or any Subsidiary may merge into or consolidate with any other Person so long as (a) the surviving corporation is a Credit Party or a Wholly Owned Subsidiary of a Credit Party (and in any event, if a Credit Party is a party to such merger, amalgamation or consolidation, the surviving corporation shall be such Credit Party, it being understood and agreed that in the case of a merger, amalgamation or consolidation between the Borrower and any other Credit Party, the survivor corporation of such merger, amalgamation or consolidation shall be the Borrower), and (b) immediately before and after giving effect thereto, no Default or Event of Default would occur or exist and (ii) any Subsidiary may liquidate, wind up or dissolve if (x) such Subsidiary owns no more than a nominal amount of assets, has no more than a nominal amount of liabilities and does not actively conduct, transact or otherwise engage in any business or operations and (y) such liquidation, winding up or dissolution is not materially disadvantageous to the Lenders.
SECTION 8.5 Asset Dispositions. Make any Asset Disposition except:
(a) any Asset Disposition in the ordinary course of business, including any intra-Group capital contributions;
(b) the transfer of assets to any Credit Party pursuant to any transaction permitted pursuant to Section 8.4;
(c) the write-off, discount, sale or other disposition of defaulted or past-due receivables and similar obligations in the ordinary course of business and not undertaken as part of an accounts receivable financing transaction;
(d) dispositions of Investments in cash and Cash Equivalents, including any disposition as to which the proceeds are applied to the Obligations of any Credit Party under this Agreement or the Term Loan Agreement substantially concurrent with such disposition;
(e) the transfer by any Credit Party of its assets to any other Credit Party;
(f) the transfer by any Subsidiary of the Borrower of its assets to any Credit Party (provided that in connection with any new transfer, such Credit Party shall not pay more than an amount equal to the fair market value of such assets as determined in good faith at the time of such transfer);
(g) the transfer by any Wholly-Owned Subsidiary of the Borrower (other than Hamilton Re) of its assets to another Wholly-Owned Subsidiary of the Borrower (other than Hamilton Re);
(h) the sale of obsolete, worn-out or surplus assets no longer used or usable in the business of the Borrower or any of its Subsidiaries;
(i) any Asset Disposition described on Schedule 8.5;
(j) any Restricted Payments permitted pursuant to Section 8.6;
(k) any Asset Disposition as to which the proceeds are applied to the Obligations of any Credit Party under this Agreement (with a corresponding reduction of the Commitments hereunder) or the Term Loan Agreement substantially concurrent with such Asset Disposition; and
(l) Asset Dispositions not otherwise permitted pursuant to this Section; provided that (i) at the time of such Asset Disposition, no Event of Default shall exist or would result from such Asset Disposition, (ii) such Asset Disposition is made for fair market value, and (iii) the aggregate fair market value of all property disposed of in reliance on this clause (1) shall not exceed $10,000,000 in any Fiscal Year.
SECTION 8.6 Restricted Payments. Declare or pay any Restricted Payments; provided that:
(a) so long as no Default or Event of Default has occurred and is continuing or would result therefrom, the Borrower may declare and pay cash dividends to the holders of its Equity Interests;
(b) so long as no Default or Event of Default has occurred and is continuing or would result therefrom, the Borrower may redeem, retire or otherwise acquire shares of its Equity Interests or options or other equity or phantom equity in respect of its Equity Interests; and
(c) any Subsidiary of the Borrower may (i) declare and pay dividends to any Credit Party or to a Wholly Owned Subsidiary and (ii) declare and pay pro rata dividends to such Subsidiary’s equity holders.
SECTION 8.7 Transactions with Affiliates. Directly or indirectly enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of Property, the rendering of any service or the payment of any management, advisory or similar fees, with (a) any executive officer, director or direct or indirect holder of 10% or more Equity Interests in, or other Affiliate of, the Borrower or any of its Subsidiaries, (b) any Affiliate of any such executive officer, director or holder, other than:
(i) transactions permitted by Section 8.1, 8.3, 8.4, 8.5, and 8.6;
(ii) transactions among Credit Parties not prohibited hereunder;
(iii) other transactions on terms as favorable as would be obtained by it on a comparable arm’s-length transaction with an independent, unrelated third party as determined in good faith by the board of directors (or equivalent governing body) of the Borrower;
(iv) employment and severance arrangements (including equity incentive plans and employee benefit plans and arrangements) with their respective officers and employees in the ordinary course of business; and
(v) payment of customary fees and reasonable out of pocket costs to, and indemnities for the benefit of, directors, officers and employees of the Borrower and its Subsidiaries in the ordinary course of business to the extent attributable to the ownership or operation of the Borrower and its Subsidiaries.
SECTION 8.8 Accounting Changes; Organizational Documents.
(a) Change its Fiscal Year end or make (without the consent of the Administrative Agent) any material change in its accounting treatment and reporting practices except as required by GAAP.
(b) Amend, modify or change its Organizational Documents (including, without limitation, the Borrower’s Shareholders Agreement) in any manner materially adverse to the rights or interests of the Lenders under the Loan Documents, as determined in good faith by the Administrative Agent (it being understood that the Borrower is not required to submit for approval any amendment, modification or change that is not materially adverse to the rights or interests of the Lenders under the Loan Documents). The Administrative Agent’s determination in good faith as to whether any such amendment, modification or change is materially adverse to the rights or interests of the Lenders under the Loan Documents shall be conclusive and binding on all parties hereto, and the Administrative Agent agrees to respond within 10 Business Days to any request by a Credit Party to make such a determination in connection with an amendment, modification or change to an Organizational Document.
SECTION 8.9 No Further Negative Pledges; Restrictive Agreements.
(a) Enter into, assume or be subject to any agreement prohibiting or otherwise restricting the creation or assumption of any Lien upon its properties or assets, whether now owned or hereafter acquired, or requiring the grant of any security for such obligation if security is given for some other obligation, except (i) pursuant to this Agreement and the other Loan Documents, (ii) pursuant to the Barclays Agreement as in effect on the date hereof (and any renewals, refinancings or replacements of such agreement after the date hereof that contain substantially similar restrictions as in effect on the date hereof), (iii) customary restrictions contained in the Organizational Documents of any Subsidiary of the Borrower as of the Closing Date, (iv) customary restrictions in connection with any Permitted Lien or any document or instrument governing any Permitted Lien (provided that any such restriction contained therein relates only to the asset or assets subject to such Permitted Lien), (v) pursuant to any letter of credit facility permitted under Section 8.1(c)(i) containing restrictions that are not materially more restrictive than those in this Agreement, (vi) pursuant to any unsecured Indebtedness incurred pursuant to Section 8.1(i) and (vii) pursuant to the Term Loan Agreement.
(b) Create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Credit Party or any Material Subsidiary thereof to (i) pay dividends or make any other distributions to any Credit Party or any Subsidiary on its Equity Interests or with respect to any other interest or participation in, or measured by, its profits, (ii) pay any Indebtedness or other obligation owed to any Credit Party or (iii) make loans or advances to any Credit Party, except in each case for such encumbrances or restrictions existing under or by reason of (A) this Agreement and the other Loan Documents, (B) Applicable Law, (C) the Barclays Agreement as in effect on the date hereof (and any renewals, refinancings or replacements of such agreement after the date hereof that contain substantially similar restrictions as in effect on the date hereof), (D) pursuant to any letter of credit facility permitted under Section 8.1(c)(i) containing restrictions that are not materially more restrictive than those in this Agreement, (E) pursuant to any unsecured Indebtedness incurred pursuant to Section 8.1(i) and (F) pursuant to the Term Loan Agreement.
(c) Create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Credit Party or any Material Subsidiary thereof to (i) sell, lease or transfer any of its properties or assets to any Credit Party or (ii) act as a Credit Party pursuant to the Loan Documents or any renewals, refinancings, exchanges, refundings or extension thereof, except in each case for such encumbrances or restrictions existing under or by reason of (A) this Agreement and the other Loan Documents, (B) Applicable Law, (C) the Barclays Agreement as in effect on the date hereof (and any renewals, refinancings or replacements of such agreement after the date hereof that contain substantially similar restrictions as in effect on the date hereof), (D) any Permitted Lien or any document or instrument governing any Permitted Lien (provided that any such restriction contained therein relates only to the asset or assets subject to such Permitted Lien), (E) obligations that are binding on a Subsidiary at the time such Subsidiary first becomes a Subsidiary of the Borrower, so long as such obligations are not
entered into in contemplation of such Person becoming a Subsidiary, (F) customary restrictions contained in an agreement related to the sale of Property (to the extent such sale is permitted pursuant to Section 8.5) that limit the transfer of such Property pending the consummation of such sale, (G) customary restrictions in leases, subleases, licenses and sublicenses or asset sale agreements otherwise permitted by this Agreement so long as such restrictions relate only to the assets subject thereto, (H) customary provisions restricting assignment of any agreement entered into in the ordinary course of business, (I) pursuant to any letter of credit facility permitted under Section 8.1(c)(i) containing restrictions that are not materially more restrictive than those in this Agreement, (J) pursuant to any unsecured Indebtedness incurred pursuant to Section 8.1(i) and (K) pursuant to the Term Loan Agreement.
SECTION 8.10 Nature of Business. Engage in any business other than the business conducted by the Borrower and its Material Subsidiaries as of the Closing Date and any business or business activities incidental or reasonably related or ancillary thereto or that are reasonable extensions, developments, and expansions thereof. For the avoidance of doubt: (a) ICC3L ceasing to underwrite new insurance business after the 2019 underwriting year of account and (b) any increased underwriting from HCML supporting Syndicate 4000 and Syndicate 2014 (with Syndicate 2014, being a syndicate at Lloyd’s under the management of Hamilton Managing Agency Limited, having been placed into run-off) shall not cause a breach of this Section.
SECTION 8.11 Sale Leasebacks. Directly or indirectly become or remain liable as lessee or as guarantor or other surety with respect to any lease, whether an operating lease, capital lease or finance lease, of any Property (whether real, personal or mixed), whether now owned or hereafter acquired, (a) which any Credit Party or any Subsidiary thereof has sold or transferred or is to sell or transfer to a Person which is not another Credit Party or Subsidiary of a Credit Party or (b) which any Credit Party or any Subsidiary of a Credit Party intends to use for substantially the same purpose as any other Property that has been sold or is to be sold or transferred by such Credit Party or such Subsidiary to another Person which is not another Credit Party or Subsidiary of a Credit Party in connection with such lease.
SECTION 8.12 Financial Strength Rating. At any time, permit the Financial Strength Rating of Hamilton Re and any other present or future material Insurance Subsidiary of the Borrower to fall below B++.
SECTION 8.13 Financial Covenants.
(a) Consolidated Indebtedness to Total Capitalization Ratio. At any time after the Closing Date, permit the ratio of Consolidated Indebtedness to Total Capitalization of the Borrower and its Subsidiaries to be greater than 30%. For the purposes of calculating this ratio:
(i) Consolidated Indebtedness will be calculated on a consolidated basis (and therefore intra-Group balances shall not be treated as Consolidated Indebtedness); and
(ii) Letters of credit outstanding under the Barclays Agreement in relation to which no unreimbursed demand is outstanding will not be treated as Consolidated Indebtedness, provided that such letters of credit are also excluded from “Debt” under the corresponding “Debt to Capitalisation” ratio in the Barclays Agreement.
(b) Consolidated Tangible Net Worth. As of the last day of any fiscal quarter, permit Consolidated Tangible Net Worth to be less than an amount equal to (i) $1,145,198,000 plus (ii) for each Fiscal Year ending on or after December 31, 2022 for which there is positive Consolidated Net Income during such Fiscal Year, 35% of such positive Consolidated Net Income plus (iii) 35% of net cash proceeds of the aggregate increases in common Equity Interests (by virtue of net equity issuance, debt conversion or
contribution) by the Group at any time after December 31, 2021, excluding the impact of Equity Interests issued to employees or directors of the Group under its long term incentive plan or share purchase programs.
ARTICLE IX
DEFAULT AND REMEDIES
SECTION 9.1 Events of Default. Each of the following shall constitute an Event of Default:
(a) Default in Payment of Principal of Loans and Reimbursement Obligations. Any Credit Party shall default in any payment of principal of any Loan or Reimbursement Obligation when and as due (whether at maturity, by reason of acceleration or otherwise).
(b) Other Payment Default. Any Credit Party shall default in the payment when and as due (whether at maturity, by reason of acceleration or otherwise) of interest on any Loan or Reimbursement Obligation or the payment of any other Obligation, and such default shall continue for a period of five (5) Business Days if such default is caused by an administrative or technical error.
(c) Misrepresentation. Any representation, warranty, certification or statement of fact made or deemed made by or on behalf of any Credit Party or any Subsidiary thereof in this Agreement, in any other Loan Document, or in any document delivered in connection herewith or therewith that is subject to materiality or Material Adverse Effect qualifications, shall be incorrect or misleading in any respect when made or deemed made or any representation, warranty, certification or statement of fact made or deemed made by or on behalf of any Credit Party or any Subsidiary thereof in this Agreement, any other Loan Document, or in any document delivered in connection herewith or therewith that is not subject to materiality or Material Adverse Effect qualifications, shall be incorrect or misleading in any material respect when made or deemed made.
(d) Default in Performance of Certain Covenants. Any Credit Party or any Subsidiary thereof (other than the Excluded Subsidiaries) shall default in the performance or observance of any covenant or agreement contained in Sections 7.1, 7.2(a), 7.3(a), 7.4 (as to existence only), 7.12, or Article VIII.
(e) Default in Performance of Other Covenants and Conditions. Any Credit Party or any Subsidiary thereof (other than the Excluded Subsidiaries) shall default in the performance or observance of any term, covenant, condition or agreement contained in this Agreement (other than as specifically provided for in this Section) or any other Loan Document and such default shall continue for a period of thirty (30) days after the earlier of (i) the Administrative Agent’s delivery of written notice thereof to the Credit Parties and (ii) a Responsible Officer of any Credit Party having obtained knowledge thereof.
(f) Indebtedness Cross-Default. Any Credit Party or any Subsidiary thereof (other than the Excluded Subsidiaries) shall (i) default in the payment of any Indebtedness (other than the Loans or any Reimbursement Obligation) the aggregate principal amount (including undrawn committed or available amounts) of which is in excess of the Threshold Amount, or with respect to any Hedge Agreement, the Hedge Termination Value of which is in excess of the Threshold Amount, in each case beyond the period of grace if any, provided in the instrument or agreement under which such Indebtedness was created, or (ii) default in the observance or performance of any other agreement or condition relating to any Indebtedness (other than the Loans or any Reimbursement Obligation) the aggregate principal amount (including undrawn committed or available amounts), or with respect to any Hedge Agreement, the Hedge Termination Value, of which is in excess of the Threshold Amount or contained in any instrument or agreement evidencing, securing or relating thereto or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, with the giving of notice and/or lapse of time, if required, any such Indebtedness to (A) become due, or to be repurchased, prepaid, defeased or redeemed (automatically or otherwise), or an offer to repurchase, prepay, defease or redeem such Indebtedness to be made, prior to its stated maturity (any applicable grace period having expired) or (B) be cash collateralized.
(g) Change in Control. Any Change in Control shall occur.
(h) Voluntary Bankruptcy Proceeding. Any Credit Party or any Material Subsidiary thereof shall (i) commence a voluntary case under any Debtor Relief Laws, (ii) file a petition seeking to take advantage of any Debtor Relief Laws, (iii) consent to or fail to contest in a timely and appropriate manner any petition filed against it in an involuntary case under any Debtor Relief Laws, (iv) apply for or consent to, or fail to contest in a timely and appropriate manner, the appointment of, or the taking of possession by, a receiver, custodian, trustee, or liquidator of itself or of a substantial part of its property, domestic or foreign, (v) admit in writing its inability to pay its debts as they become due, (vi) make a general assignment for the benefit of creditors, or (vii) take any corporate action for the purpose of authorizing any of the foregoing.
(i) Involuntary Bankruptcy Proceeding. A case or other proceeding shall be commenced against any Credit Party or any Material Subsidiary thereof in any court of competent jurisdiction seeking (i) relief under any Debtor Relief Laws, or (ii) the appointment of a trustee, receiver, custodian, liquidator or the like for any Credit Party or any Material Subsidiary thereof or for all or any substantial part of their respective assets, domestic or foreign, and such case or proceeding shall continue without dismissal or stay for a period of sixty (60) consecutive days, or an order granting the relief requested in such case or proceeding (including, but not limited to, an order for relief under such federal bankruptcy laws) shall be entered; provided that the foregoing shall not apply to any winding-up petition which is frivolous or vexatious and is discharged, stayed or dismissed within twenty (20) Business Days of commencement.
(j) Failure of Agreements. Any provision of this Agreement or any provision of any other Loan Document shall for any reason cease to be in full force and effect (other than in accordance with its terms or by reason of the release of a Credit Party or its assets in accordance with the terms of the Loan Documents or the satisfaction in full of the Obligations in accordance with the terms hereof) or any Credit Party or any Subsidiary thereof (other than the Excluded Subsidiaries) party to any Loan Document shall contest the validity or enforceability of the Loan Documents in writing.
(k) ERISA Events. The occurrence of any Termination Event that could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
(l) Judgment. One or more judgments, orders or decrees shall be entered against any Credit Party or any Subsidiary thereof (other than the Excluded Subsidiaries) by any court and continues without having been satisfied, discharged, vacated or stayed for a period of thirty (30) consecutive days after the entry thereof and such judgments, orders or decrees are either (i) for the payment of money, individually or in the aggregate (not paid or fully covered by insurance as to which the relevant insurance company has acknowledged coverage) equal to or in excess of the Threshold Amount or (ii) for injunctive relief and would reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect.
SECTION 9.2 Remedies. Upon the occurrence and during the continuance of an Event of Default, with the consent of the Required Lenders, the Administrative Agent may, or upon the request of the Required Lenders, the Administrative Agent shall, by notice to the Credit Parties:
(a) Acceleration; Termination of Credit Facility. Terminate the Commitments and declare the principal of and interest on the Loans and the Reimbursement Obligations at the time outstanding, and all other amounts owed to the Lenders and to the Administrative Agent under this Agreement or any of the other Loan Documents and all other Obligations, to be forthwith due and payable, whereupon the same shall promptly become due and payable without presentment, demand, protest or other notice of any kind, all of which are expressly waived by each Credit Party, anything in this Agreement or the other Loan Documents to the contrary notwithstanding, and terminate the Credit Facility and any right of the Borrower to request borrowings or any Account Party to request Letters of Credit thereunder; provided, that upon the occurrence of an Event of Default specified in Section 9.1(h) or Section 9.1(i), the Credit Facility shall be automatically terminated, all Commitments shall automatically terminate and all Obligations shall automatically become due and payable without presentment, demand, protest or other notice of any kind, all of which are expressly waived by each Credit Party, anything in this Agreement or in any other Loan Document to the contrary notwithstanding.
(b) Letters of Credit. With respect to all Letters of Credit of an Account Party with respect to which presentment for honor shall not have occurred upon the occurrence of the Event of Default, (i) demand that such Account Party (and each such Account Party hereby agrees to) deposit in a Cash Collateral Account opened by the Administrative Agent an amount of cash equal to 102% of the aggregate then undrawn and unexpired amount of such Letters of Credit to be held and applied in accordance with Section 3.5 and Section 9.4 and/or (ii) terminate or cause the L/C Agent or Fronting Bank, as applicable, to terminate any or all of the Letters of Credit or give Notices of Non-Extension in respect thereof if permitted in accordance with its terms.
SECTION 9.3 Rights and Remedies Cumulative; Non-Waiver; etc.
(a) The enumeration of the rights and remedies of the Administrative Agent and the Lenders set forth in this Agreement is not intended to be exhaustive and the exercise by the Administrative Agent and the Lenders of any right or remedy shall not preclude the exercise of any other rights or remedies, all of which shall be cumulative, and shall be in addition to any other right or remedy given hereunder or under the other Loan Documents or that may now or hereafter exist at law or in equity or by suit or otherwise. No delay or failure to take action on the part of the Administrative Agent or any Lender in exercising any right, power or privilege shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or privilege preclude any other or further exercise thereof or the exercise of any other right, power or privilege or shall be construed to be a waiver of any Event of Default. No course of dealing between the Credit Parties, the Administrative Agent and the Lenders or their respective agents or employees shall be effective to change, modify or discharge any provision of this Agreement or any of the other Loan Documents or to constitute a waiver of any Event of Default.
(b) Notwithstanding anything to the contrary contained herein or in any other Loan Document, the authority to enforce rights and remedies hereunder and under the other Loan Documents against the Credit Parties or any of them shall be vested exclusively in, and all actions and proceedings at law in connection with such enforcement shall be instituted and maintained exclusively by, the Administrative Agent in accordance with Section 9.2 for the benefit of all the Lenders and the Issuing Lenders; provided that the foregoing shall not prohibit (a) the Administrative Agent from exercising on its own behalf the rights and remedies that inure to its benefit (solely in its capacity as Administrative Agent) hereunder and under the other Loan Documents, (b) any Issuing Lender from exercising the rights and remedies that inure to its benefit (solely in its capacity as an Issuing Lender) hereunder and under the other Loan Documents, (c) any Lender from exercising setoff rights in accordance with Section 11.4 (subject to the terms of Section 4.6), or (d) any Lender from filing proofs of claim or appearing and filing pleadings on its own behalf during the pendency of a proceeding relative to any Credit Party under any Debtor Relief Law; and provided, further, that if at any time there is no Person acting as Administrative Agent hereunder and under
the other Loan Documents, then (i) the Required Lenders shall have the rights otherwise ascribed to the Administrative Agent pursuant to Section 9.2 and (ii) in addition to the matters set forth in clauses (b), (c) and (d) of the preceding proviso and subject to Section 4.6, any Lender may, with the consent of the Required Lenders, enforce any rights and remedies available to it and as authorized by the Required Lenders.
SECTION 9.4 Crediting of Payments and Proceeds. In the event that the Obligations have been accelerated pursuant to Section 9.2 or the Administrative Agent or any Lender has exercised any remedy set forth in this Agreement or any other Loan Document, all payments received on account of the Obligations and all net proceeds from the enforcement of the Obligations shall, subject to the provisions of Section 3.5 and Section 4.15, be applied by the Administrative Agent as follows:
First, to payment of that portion of the Obligations constituting fees, indemnities, expenses and other amounts, including attorney fees, payable to the Administrative Agent in its capacity as such;
Second, to payment of that portion of the Obligations constituting fees (other than Commitment Fees and Letter of Credit Fees), indemnities and other amounts (other than principal and interest) payable to the Lenders and the Issuing Lenders under the Loan Documents, including attorney fees, ratably among the Lenders and the Issuing Lenders in proportion to the respective amounts described in this clause Second payable to them;
Third, to payment of that portion of the Obligations constituting accrued and unpaid Commitment Fees, Letter of Credit Fees and interest on the Loans and Reimbursement Obligations, ratably among the Lenders and the Issuing Lenders in proportion to the respective amounts described in this clause Third payable to them;
Fourth, to payment of that portion of the Obligations constituting unpaid principal of the Loans and Reimbursement Obligations then owing and to Cash Collateralize any Letter of Credit Exposure then outstanding, ratably among the holders of such obligations in proportion to the respective amounts described in this clause Fourth payable to them; and
Last, the balance, if any, after all of the Obligations have been paid in full, to the Credit Parties or as otherwise required by Applicable Law.
SECTION 9.5 Administrative Agent May File Proofs of Claim. In case of the pendency of any proceeding under any Debtor Relief Law or any other judicial proceeding relative to any Credit Party, the Administrative Agent (irrespective of whether any Obligation shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Credit Parties) shall be entitled and empowered (but not obligated) by intervention in such proceeding or otherwise:
(a) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders, the Issuing Lenders and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders, the Issuing Lenders and the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders, the Issuing Lenders and the Administrative Agent under Section 4.3 and Section 11.3) allowed in such judicial proceeding; and
(b) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender and each Issuing Lender to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders and the Issuing Lenders, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Section 4.3 and Section 11.3. Nothing contained herein shall be deemed to authorize the Administrative Agent to consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment, or composition affecting the obligations of any Credit Party hereunder or the rights of any Lender or to authorize the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding.
ARTICLE X
THE ADMINISTRATIVE AGENT
SECTION 10.1 Appointment and Authority.
(a) Each of the Lenders and each Issuing Lender hereby irrevocably appoints Wells Fargo to act on its behalf as the Administrative Agent hereunder and under the other Loan Documents 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 or thereof, together with such actions and powers as are reasonably incidental thereto. The provisions of this Article are solely for the benefit of the Administrative Agent, the Lenders and the Issuing Lenders, and neither any Credit Party nor their respective Subsidiaries shall have rights as a third-party beneficiary of any of such provisions. It is understood and agreed that the use of the term “agent” herein or in any other Loan Documents (or any other similar term) with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any Applicable Law. Instead such term is used as a matter of market custom, and is intended to create or reflect only an administrative relationship between contracting parties.
SECTION 10.2 Rights as a Lender. 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 the term “Lender” or “Lenders” shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Administrative Agent hereunder in its individual capacity. Such Person and its Affiliates may accept deposits from, lend money to, own securities of, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with the Borrower or any Subsidiary or other Affiliate thereof as if such Person were not the Administrative Agent hereunder and without any duty to account therefor to the Lenders.
SECTION 10.3 Exculpatory Provisions.
(a) The Administrative Agent shall not have any duties or obligations except those expressly set forth herein and in the other Loan Documents, and its duties hereunder and thereunder shall be administrative in nature. Without limiting the generality of the foregoing, the Administrative Agent:
(i) shall not be subject to any fiduciary or other implied duties, regardless of whether a Default or Event of Default has occurred and is continuing;
(ii) shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by
the other Loan Documents that the Administrative Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents), provided that the Administrative Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Loan Document or Applicable Law, including for the avoidance of doubt any action that may be in violation of the automatic stay under any Debtor Relief Law or that may effect a forfeiture, modification or termination of property of a Defaulting Lender in violation of any Debtor Relief Law; and
(iii) shall not, except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to any Credit Party or any of their respective Subsidiaries or Affiliates that is communicated to or obtained by the Person serving as the Administrative Agent or any of its Affiliates in any capacity.
(b) The Administrative Agent shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith shall be necessary, under the circumstances as provided in Section 9.2 and Section 11.2) or (ii) in the absence of its own gross negligence or willful misconduct as determined by a court of competent jurisdiction by final nonappealable judgment. The Administrative Agent shall be deemed not to have knowledge of any Default or Event of Default unless and until notice describing such Default or Event of Default is given to the Administrative Agent by a Credit Party, a Lender or an Issuing Lender.
(c) 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 or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default or Event of Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document 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.
SECTION 10.4 Reliance by 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 (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated 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 have been made by the proper Person, and shall not incur any liability for relying thereon. In determining compliance with any condition hereunder to the issuance, extension, renewal or increase of a Letter of Credit, that by its terms must be fulfilled to the satisfaction of an Issuing Lender, the Administrative Agent may presume that such condition is satisfactory to such Issuing Lender unless the Administrative Agent shall have received notice to the contrary from such Issuing Lender prior to the issuance of such Letter of Credit. The Administrative Agent may consult with legal counsel (who may be counsel for any Credit 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.
SECTION 10.5 Delegation of Duties. The Administrative Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Document 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 of its duties and exercise its rights and powers by or through their respective Related Parties. The exculpatory provisions of this Article 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 Facility as well as activities as Administrative Agent. The Administrative Agent shall not be responsible for the negligence or misconduct of any sub-agents except to the extent that a court of competent jurisdiction determines in a final and nonappealable judgment that the Administrative Agent acted with gross negligence or willful misconduct in the selection of such sub-agents.
SECTION 10.6 Resignation of Administrative Agent.
(a) The Administrative Agent may at any time give notice of its resignation to the Lenders, the Issuing Lenders and the Account Parties. Upon receipt of any such notice of resignation, the Required Lenders shall have the right, in consultation with the Account Parties and subject to the consent (not to be unreasonably withheld or delayed) of the Account Parties (provided no Event of Default has occurred and is continuing at the time of such resignation), to appoint a successor, which shall be a bank with an office in the United States, or an Affiliate of any such bank with an office in the United States. If no such 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 (or such earlier day as shall be agreed by the Required Lenders) (the “Resignation Effective Date”), then the retiring Administrative Agent may (but shall not be obligated to), on behalf of the Lenders and the Issuing Lenders, appoint a successor Administrative Agent meeting the qualifications set forth above; provided that in no event shall any such successor Administrative Agent be a Defaulting Lender. Whether or not a successor has been appointed, such resignation shall become effective in accordance with such notice on the Resignation Effective Date.
(b) If the Person serving as Administrative Agent is a Defaulting Lender pursuant to clause (d) of the definition thereof, the Required Lenders may, to the extent permitted by Applicable Law, by notice in writing to the Account Parties and such Person, remove such Person as Administrative Agent and, in consultation with the Account Parties appoint a successor. If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days (or such earlier day as shall be agreed by the Required Lenders) (the “Removal Effective Date”), then such removal shall nonetheless become effective in accordance with such notice on the Removal Effective Date.
(c) With effect from the Resignation Effective Date or the Removal Effective Date (as applicable), (i) the retiring or removed Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents (except that in the case of any collateral security held by the Administrative Agent on behalf of the Lenders or the Issuing Lenders under any of the Loan Documents, the retiring or removed Administrative Agent shall continue to hold such collateral security until such time as a successor Administrative Agent is appointed) and (ii) except for any indemnity payments owed to the retiring or removed Administrative Agent, all payments, communications and determinations provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender and each Issuing Lender directly, until such time, if any, as the Required Lenders appoint a successor Administrative Agent as provided for above. Upon the acceptance of a successor’s appointment as Administrative Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring or removed Administrative Agent (other than any rights to indemnity payments owed to the retiring or removed Administrative Agent), and the retiring or removed Administrative Agent shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents. The fees payable by the Credit Parties to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Credit Parties and such successor. After the retiring or removed Administrative Agent’s resignation or removal hereunder and under the other Loan Documents, the provisions of this Article and Section 11.3 shall continue in effect for
the benefit of such retiring or removed Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring or removed Administrative Agent was acting as Administrative Agent.
(d) Any resignation by, or removal of, Wells Fargo as Administrative Agent pursuant to this Section shall also constitute its resignation as Fronting Bank and L/C Agent. Upon the acceptance of a successor’s appointment as Administrative Agent hereunder, (i) such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring Fronting Bank and L/C Agent, if in its sole discretion it elects to, (ii) each of the retiring Fronting Bank and L/C Agent shall be discharged from all of its respective duties and obligations hereunder or under the other Loan Documents, and (iii) the successor Fronting Bank and L/C Agent, if in its sole discretion it elects to, shall issue Letters of Credit in substitution for the Letters of Credit, if any, outstanding at the time of such succession or make other arrangements satisfactory to the retiring Fronting Bank and L/C Agent to effectively assume the obligations of the retiring Fronting Bank and L/C Agent with respect to such Letters of Credit.
SECTION 10.7 Non-Reliance on Administrative Agent and Other Lenders. Each Lender and each Issuing Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties 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 and each Issuing Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties 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 other Loan Document or any related agreement or any document furnished hereunder or thereunder.
SECTION 10.8 No Other Duties, Etc. Anything herein to the contrary notwithstanding, none of the syndication agents, documentation agents, co-agents, arrangers or bookrunners listed on the cover page hereof shall have any powers, duties or responsibilities under this Agreement or any of the other Loan Documents, except in its capacity, as applicable, as the Administrative Agent, a Lender or an Issuing Lender hereunder.
SECTION 10.9 Certain ERISA Matters.
(a) Each Lender (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto, for the benefit of, the Administrative Agent and not, for the avoidance of doubt, to or for the benefit of any Credit Party, that at least one of the following is and will be true:
(i) such Lender is not using “plan assets” (within the meaning of Section 3(42) of ERISA or otherwise) of one or more Benefit Plans with respect to such Lender’s entrance into, participation in, administration of and performance of the Letters of Credit, the Commitments or this Agreement,
(ii) the transaction exemption set forth in one or more PTEs, such as PTE 84-14 (a class exemption for certain transactions determined by independent qualified professional asset managers), PTE 95-60 (a class exemption for certain transactions involving insurance company general accounts), PTE 90-1 (a class exemption for certain transactions involving insurance company pooled separate accounts), PTE 91-38 (a class exemption for certain transactions involving bank collective investment funds) or PTE 96-23 (a class exemption for certain transactions determined by in-house asset managers), is applicable with respect to such Lender’s
entrance into, participation in, administration of and performance of the Letters of Credit, the Commitments and this Agreement,
(iii) (A) such Lender is an investment fund managed by a “Qualified Professional Asset Manager” (within the meaning of Part VI of PTE 84-14), (B) such Qualified Professional Asset Manager made the investment decision on behalf of such Lender to enter into, participate in, administer and perform the Letters of Credit, the Commitments and this Agreement, (C) the entrance into, participation in, administration of and performance of the Letters of Credit, the Commitments and this Agreement satisfies the requirements of sub-sections (b) through (g) of Part I of PTE 84-14 and (D) to the best knowledge of such Lender, the requirements of subsection (a) of Part I of PTE 84-14 are satisfied with respect to such Lender’s entrance into, participation in, administration of and performance of the Letters of Credit, the Commitments and this Agreement, or
(iv) such other representation, warranty and covenant as may be agreed in writing between the Administrative Agent, in its sole discretion, and such Lender.
(b) In addition, unless either (1) sub-clause (i) in the immediately preceding clause (a) is true with respect to a Lender or (2) a Lender has provided another representation, warranty and covenant in accordance with sub-clause (iv) in the immediately preceding clause (a), such Lender further (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto, for the benefit of, the Administrative Agent and not, for the avoidance of doubt, to or for the benefit of any Credit Party, that the Administrative Agent is not a fiduciary with respect to the assets of such Lender involved in such Lender’s entrance into, participation in, administration of and performance of the Letters of Credit, the Commitments and this Agreement (including in connection with the reservation or exercise of any rights by the Administrative Agent under this Agreement, any Loan Document or any documents related hereto or thereto).
SECTION 10.10 Erroneous Payments.
(a) Each Lender, each Issuing Lender and any other party hereto hereby severally agrees that if (i) the Administrative Agent notifies (which such notice shall be conclusive absent manifest error) such Lender or Issuing Lender or any other Person that has received funds from the Administrative Agent or any of its Affiliates, either for its own account or on behalf of a Lender or Issuing Lender (each such recipient, a “Payment Recipient”) that the Administrative Agent has determined in its sole discretion that any funds received by such Payment Recipient were erroneously transmitted to, or otherwise erroneously or mistakenly received by, such Payment Recipient (whether or not known to such Payment Recipient) or (ii) any Payment Recipient receives any payment from the Administrative Agent (or any of its Affiliates) (x) that is in a different amount than, or on a different date from, that specified in a notice of payment, prepayment or repayment sent by the Administrative Agent (or any of its Affiliates) with respect to such payment, prepayment or repayment, as applicable, (y) that was not preceded or accompanied by a notice of payment, prepayment or repayment sent by the Administrative Agent (or any of its Affiliates) with respect to such payment, prepayment or repayment, as applicable, or (z) that such Payment Recipient otherwise becomes aware was transmitted or received in error or by mistake (in whole or in part) then, in each case, an error in payment shall be presumed to have been made (any such amounts specified in clauses (i) or (ii) of this Section 10.10(a), whether received as a payment, prepayment or repayment of principal, interest, fees, distribution or otherwise; individually and collectively, an “Erroneous Payment”), then, in each case, such Payment Recipient is deemed to have knowledge of such error at the time of its receipt of such Erroneous Payment; provided that nothing in this Section shall require the Administrative Agent to provide any of the notices specified in clauses (i) or (ii) above. Each Payment Recipient agrees that it shall not assert
any right or claim to any Erroneous Payment, and hereby waives any claim, counterclaim, defense or right of set-off or recoupment with respect to any demand, claim or counterclaim by the Administrative Agent for the return of any Erroneous Payments, including without limitation waiver of any defense based on “discharge for value” or any similar doctrine.
(b) Without limiting the immediately preceding clause (a), each Payment Recipient agrees that, in the case of clause (a)(ii) above, it shall promptly notify the Administrative Agent in writing of such occurrence.
(c) In the case of either clause (a)(i) or (a)(ii) above, such Erroneous Payment shall at all times remain the property of the Administrative Agent and shall be segregated by the Payment Recipient and held in trust for the benefit of the Administrative Agent, and upon demand from the Administrative Agent such Payment Recipient shall (or, shall cause any Person who received any portion of an Erroneous Payment on its behalf to), promptly, but in all events no later than one Business Day thereafter, return to the Administrative Agent the amount of any such Erroneous Payment (or portion thereof) as to which such a demand was made in same day funds and in the currency so received, together with interest thereon in respect of each day from and including the date such Erroneous Payment (or portion thereof) was received by such Payment Recipient to the date such amount is repaid to the Administrative Agent at the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation from time to time in effect.
(d) In the event that an Erroneous Payment (or portion thereof) is not recovered by the Administrative Agent for any reason, after demand therefor by the Administrative Agent in accordance with immediately preceding clause (c), from any Lender that is a Payment Recipient or an Affiliate of a Payment Recipient (such unrecovered amount as to such Lender, an “Erroneous Payment Return Deficiency”), then at the sole discretion of the Administrative Agent and upon the Administrative Agent’s written notice to such Lender (i) such Lender shall be deemed to have made a cashless assignment of the full face amount of all or a portion of its outstanding Loans (but not its Commitments) to the Administrative Agent or, at the option of the Administrative Agent, the Administrative Agent’s applicable lending affiliate, in an amount that is equal to the Erroneous Payment Return Deficiency (or such lesser amount as the Administrative Agent may specify) (such assignment of the Loans (but not Commitments), the “Erroneous Payment Deficiency Assignment”) plus any accrued and unpaid interest on such assigned amount, without further consent or approval of any party hereto and without any payment by the Administrative Agent or its applicable lending affiliate as the assignee of such Erroneous Payment Deficiency Assignment. Without limitation of its rights hereunder, the Administrative Agent may cancel any Erroneous Payment Deficiency Assignment at any time by written notice to the applicable assigning Lender and upon such revocation all of the Loans assigned pursuant to such Erroneous Payment Deficiency Assignment shall be reassigned to such Lender without any requirement for payment or other consideration. The parties hereto acknowledge and agree that (1) any assignment contemplated in this clause (d) shall be made without any requirement for any payment or other consideration paid by the applicable assignee or received by the assignor, (2) the provisions of this clause (d) shall govern in the event of any conflict with the terms and conditions of Section 11.9 and (3) the Administrative Agent may reflect such assignments in the Register without further consent or action by any other Person.
(e) Each party hereto hereby agrees that (x) in the event an Erroneous Payment (or portion thereof) is not recovered from any Payment Recipient that has received such Erroneous Payment (or portion thereof) for any reason, the Administrative Agent (1) shall be subrogated to all the rights of such Payment Recipient with respect to such amount and (2) is authorized to set off, net and apply any and all amounts at any time owing to such Payment Recipient under any Loan Document, or otherwise payable or distributable by the Administrative Agent to such Payment Recipient from any source, against any amount due to the Administrative Agent under this Section 10.10 or under the indemnification provisions of this Agreement,
(y) the receipt of an Erroneous Payment by a Payment Recipient shall not for the purpose of this Agreement be treated as a payment, prepayment, repayment, discharge or other satisfaction of any Obligations owed by the Borrower or any other Credit Party, except, in each case, to the extent such Erroneous Payment is, and solely with respect to the amount of such Erroneous Payment that is, comprised of funds received by the Administrative Agent from the Borrower or any other Credit Party for the purpose of making a payment on the Obligations and (z) to the extent that an Erroneous Payment was in any way or at any time credited as payment or satisfaction of any of the Obligations, the Obligations or any part thereof that were so credited, and all rights of the Payment Recipient, as the case may be, shall be reinstated and continue in full force and effect as if such payment or satisfaction had never been received.
(f) Each party’s obligations under this Section 10.10 shall survive the resignation or replacement of the Administrative Agent or any transfer of right or obligations by, or the replacement of, a Lender, the termination of the Commitments or the repayment, satisfaction or discharge of all Obligations (or any portion thereof) under any Loan Document.
(g) Nothing in this Section 10.10 will constitute a waiver or release of any claim of the Administrative Agent hereunder arising from any Payment Recipient’s receipt of an Erroneous Payment.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Notices.
(a) Notices Generally. Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in paragraph (b) below), 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 facsimile as follows:
If to any Credit Party:
Hamilton Insurance Group, Ltd.
Wellesley House North, 1st Floor
90 Pitts Bay Road
Pembroke HM08, Bermuda
Attention of: General Counsel
Telephone No.: 1 (441) 405-5200
Facsimile No.: 1 (441) 295-5900
E-mail: legalnotices@hamiltongroup.com
If to Wells Fargo as
Administrative Agent, Fronting Bank or L/C Agent:
Wells Fargo Bank, National Association
MAC D1109-019
1525 West W.T. Harris Blvd.
Charlotte, NC 28262
Attention of: Syndication Agency Services
Telephone No.: (704) 590-2703
Facsimile No.: (704) 715-0092
With copies to:
Wells Fargo Bank, National Association
550 South Tryon Street, 33rd Floor
Charlotte, NC 28202
Attention of: Will Goley
Telephone No.: (704) 410-0854
Facsimile No.: (704) 715-1652
E-mail: will.goley@wellsfargo.com
If to any Lender:
To the address of such Lender set forth on the Register with respect to deliveries of notices and other documentation that may contain material non-public information.
Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by facsimile shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next business day for the recipient). Notices delivered through electronic communications to the extent provided in paragraph (b) below, shall be effective as provided in said paragraph (b). Any notice made or delivered to a Credit Party in accordance with this clause will be deemed to have been made or delivered to all Credit Parties.
(b) Electronic Communications. Notices and other communications to the Lenders and the Issuing Lenders hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent, provided that the foregoing shall not apply to notices to any Lender or any Issuing Lender pursuant to Article II or IV (other than notices and other communications sent by email) if such Lender or such Issuing Lender, as applicable, has notified the Administrative Agent that is incapable of receiving notices under such Article by electronic communication. The Administrative Agent or any Credit 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 (other than notices and other communications sent by email). Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor; provided that, for both clauses (i) and (ii) above, if such notice, email or other communication is not sent during the normal business hours of the recipient, such notice, email or other communication shall be deemed to have been sent at the opening of business on the next business day for the recipient.
(c) Administrative Agent’s Office. The Administrative Agent hereby designates its office located at the address set forth above, or any subsequent office which shall have been specified for such purpose by written notice to the Credit Parties and the Lenders, as the Administrative Agent’s Office referred to herein, to which payments due are to be made and at which Letters of Credit are to be requested.
(d) Change of Address, Etc. Each Credit Party, the Administrative Agent, the L/C Agent and any Issuing Lender may change its address or facsimile number for notices and other communications
hereunder by notice to the other parties hereto. Any Lender may change its address or facsimile number for notices and other communications hereunder by notice to the Credit Parties, the Administrative Agent, and each Issuing Lender.
(e) Platform.
(i) Each Credit Party agrees that the Administrative Agent may, but shall not be obligated to, make available materials and/or information provided by or on behalf of the Credit Parties hereunder (collectively, “Borrower Materials”) to the Issuing Lenders and the other Lenders by posting the Borrower Materials on the Platform.
(ii) The Platform is provided “as is” and “as available.” The Agent Parties (as defined below) do not warrant the accuracy or completeness of the Borrower Materials or the adequacy of the Platform, and expressly disclaim liability for errors or omissions in the Borrower Materials. No warranty of any kind, express, implied or statutory, including, without limitation, any warranty of merchantability, fitness for a particular purpose, non-infringement of third-party rights or freedom from viruses or other code defects, is made by any Agent Party in connection with the Borrower Materials or the Platform. In no event shall the Administrative Agent or any of its Related Parties (collectively, the “Agent Parties”) have any liability to any Credit Party, any Lender or any other Person or entity for losses, claims, damages, liabilities or expenses of any kind (whether in tort, contract or otherwise) arising out of any Credit Party’s or the Administrative Agent’s transmission of communications through the Internet (including, without limitation, the Platform), except to the extent that such losses, claims, damages, liabilities or expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Agent Party; provided that in no event shall any Agent Party have any liability to any Credit Party, any Lender, the Issuing Lender or any other Person for indirect, special, incidental, consequential or punitive damages, losses or expenses (as opposed to actual damages, losses or expenses).
SECTION 11.2 Amendments, Waivers and Consents. Except as set forth below or as specifically provided in any Loan Document (including Section 4.8(c)), any term, covenant, agreement or condition of this Agreement or any of the other Loan Documents may be amended or waived by the Lenders, and any consent given by the Lenders, if, but only if, such amendment, waiver or consent is in writing signed by the Required Lenders (or by the Administrative Agent with the consent of the Required Lenders) and delivered to the Administrative Agent and, in the case of an amendment, signed by the Account Parties; provided, that no amendment, waiver or consent shall:
(a) increase or extend the Commitment of any Lender (or reinstate any Commitment terminated pursuant to Section 9.2) without the written consent of such Lender;
(b) waive, extend or postpone any date fixed by this Agreement or any other Loan Document for any payment of principal, interest, fees or other amounts due to the Lenders (or any of them) hereunder or under any other Loan Document without the written consent of each Lender directly and adversely affected thereby;
(c) reduce the principal of, or the rate of interest specified herein on, any Loan or Reimbursement Obligation, or (subject to clause (iii) of the proviso set forth in the paragraph below) any fees or other amounts payable hereunder or under any other Loan Document without the written consent of each Lender directly and adversely affected thereby; provided that only the consent of the Required Lenders shall be necessary (i) to waive any obligation of any Credit Party to pay interest at the rate set forth in Section 4.1(c) during the continuance of an Event of Default or (ii) to amend any financial covenant
hereunder (or any defined term used therein) even if the effect of such amendment would be to reduce the rate of interest on any Obligation or to reduce any fee payable hereunder;
(d) change Section 4.6 or Section 9.4 in a manner that would alter the pro rata sharing of payments or order of application required thereby without the written consent of each Lender directly and adversely affected thereby;
(e) change any provision of this Section or reduce the percentages specified in the definitions of “Required Lenders,” or any other provision hereof specifying the number or percentage of Lenders required to amend, waive or otherwise modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender;
(f) consent to the assignment or transfer by any Credit Party of such Credit Party’s rights and obligations under any Loan Document to which it is a party (except as permitted pursuant to Section 8.4), in each case, without the written consent of each Lender;
(g) release the Guarantor from the Guaranty set forth in Article XII, without the written consent of each Lender; or
(h) change this Section 11.2, without the written consent of each Lender;
provided further, that (i) no amendment, waiver or consent shall, unless in writing and signed by the Fronting Bank or the L/C Agent in addition to the Lenders required above, affect the rights or duties of the Fronting Bank or the L/C Agent, as applicable, under this Agreement, (ii) no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above, affect the rights or duties of the Administrative Agent under this Agreement or any other Loan Document, (iii) the Engagement Letter may be amended, or rights or privileges thereunder waived, in a writing executed only by the parties thereto, (iv) the Administrative Agent and the Account Parties shall be permitted to amend any provision of the Loan Documents (and such amendment shall become effective without any further action or consent of any other party to any Loan Document) if the Administrative Agent and the Account Parties shall have jointly identified an obvious error or any error, ambiguity, defect or inconsistency or omission of a technical or immaterial nature in any such provision, and (v) the Administrative Agent and the Borrower may, without the consent of any Lender, enter into amendments or modifications to this Agreement or any of the other Loan Documents or to enter into additional Loan Documents as the Administrative Agent reasonably deems appropriate in order to implement any Benchmark Replacement or any Conforming Changes or otherwise effectuate the terms of Section 4.8(c) in accordance with the terms of Section 4.8(c). Notwithstanding anything to the contrary herein, no Defaulting Lender or Lender that ceases to be a NAIC Qualified Lender (unless such Lender has in effect a Confirming Lender Agreement with a Person which is listed on the NAIC Qualified Institution List to act as a Confirming Lender in accordance with Section 4.16) shall have any right to approve or disapprove any amendment, waiver or consent hereunder, except that (A) the Commitment of such Lender may not be increased or extended without the consent of such Lender, and (B) any amendment, waiver, or consent hereunder which requires the consent of all Lenders or each affected Lender that by its terms disproportionately and adversely affects any such Defaulting Lender or Non-NAIC Qualified Lender relative to other affected Lenders shall require the consent of such Defaulting Lender or Non-NAIC Qualified Lender.
Notwithstanding anything in this Agreement to the contrary, each Lender hereby irrevocably authorizes the Administrative Agent on its behalf, and without further consent of any Lender (but with the consent of the Credit Parties and the Administrative Agent), to amend and restate this Agreement if, upon giving effect to such amendment and restatement, such Lender shall no longer be a party to this Agreement (as so amended
and restated), the Commitments of such Lender shall have terminated, such Lender shall have no other commitment or other obligation hereunder or under any Letter of Credit (after giving effect to any reallocations of Commitments and deemed purchases and sales of participations in Syndicated Letters of Credit pursuant to Section 3.1(c)) and shall have been paid in full all principal, interest and other amounts owing to it or accrued for its account under this Agreement (and for the avoidance of doubt, such Lender will continue to have the rights that survive termination of this Agreement with respect to such Lender).
SECTION 11.3 Expenses; Indemnity.
(a) Costs and Expenses. Promptly following written demand therefor, the Borrower shall pay (i) all reasonable out of pocket expenses incurred by the Administrative Agent and its Affiliates (limited, in the case of legal fees, to the reasonable documented fees, charges and disbursements of one firm of counsel for the Administrative Agent, and, if reasonably necessary, a single local counsel in each appropriate jurisdiction and a single regulatory counsel), in connection with the syndication of the Credit Facility, the preparation, negotiation, execution, delivery and administration of this Agreement and the other Loan Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all reasonable out of pocket expenses incurred by the Administrative Agent, the L/C Agent or any Issuing Lender in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder and (iii) all reasonable out of pocket expenses incurred by the Administrative Agent, the L/C Agent, any Lender or any Issuing Lender (limited, in the case of legal fees, to the reasonable documented fees, charges and disbursements of one firm of counsel, as special counsel to the Administrative Agent and L/C Agent, and, if reasonably necessary, (x) a single local counsel in each appropriate jurisdiction to all such persons, taken as a whole, and (y) a single regulatory counsel to all such persons, taken as a whole, unless there exists an actual or perceived conflict of interest among the affected Lenders, in which case such legal fees shall include the reasonable documented fees, charges and disbursements of one additional counsel in each appropriate jurisdiction and, if reasonably necessary, of one regulatory counsel, to each group of affected Lenders similarly situated, taken as a whole), in connection with the enforcement or protection of its rights (A) in connection with this Agreement and the other Loan Documents, including its rights under this Section, or (B) in connection with the Loans and Letters of Credit issued hereunder, including all such reasonable out of pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans and Letters of Credit.
(b) Indemnification by the Credit Parties. Each Credit Party shall indemnify the Administrative Agent (and any sub-agent thereof), the L/C Agent each Lender and each Issuing Lender, and each Related Party of any of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims (including, without limitation, any Environmental Claims), penalties, damages, liabilities and related expenses (limited, in the case of legal fees, to the reasonable documented fees, charges and disbursements of one firm of counsel, as special counsel to the Indemnitees, taken as a whole, and, if reasonably necessary, (x) a single local counsel in each appropriate jurisdiction to all such Indemnitees, taken as a whole, and (y) a single regulatory counsel to all such Indemnitees, taken as a whole, unless there exists an actual or perceived conflict of interest among Indemnitees, in which case such legal fees shall include the reasonable documented fees, charges and disbursements of one additional counsel in each appropriate jurisdiction and, if reasonably necessary, of one regulatory counsel, to each group of affected Indemnitees similarly situated, taken as a whole), incurred by any Indemnitee or asserted against any Indemnitee by any Person (including any Credit Party), arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby, (ii) any Loan or Letter of Credit or the use or proposed use of the proceeds therefrom (including any refusal by the L/C Agent or any Issuing 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 Credit Party or any Subsidiary thereof, or any Environmental Claim related in any way to any Credit Party or any Subsidiary, (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, whether brought by a third party or by any Credit Party or any Subsidiary thereof, and regardless of whether any Indemnitee is a party thereto, or (v) any claim (including, without limitation, any Environmental Claims), investigation, litigation or other proceeding (whether or not the Administrative Agent or any Lender is a party thereto) and the prosecution and defense thereof, arising out of or in any way connected with this Agreement, any other Loan Document, or any documents contemplated by or referred to herein or therein or the transactions contemplated hereby or thereby, including without limitation, reasonable attorneys and consultant’s fees, provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (A) are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee or (B) result from a claim brought by any Credit Party or any Subsidiary thereof against an Indemnitee for breach in bad faith of such Indemnitee’s obligations hereunder or under any other Loan Document, if such Credit Party or such Subsidiary has obtained a final and nonappealable judgment in its favor on such claim as determined by a court of competent jurisdiction. This Section 11.3(b) shall not apply with respect to Taxes other than any Taxes that represent losses, claims, damages, etc. arising from any non-Tax claim.
(c) Reimbursement by Lenders. To the extent that any Credit Party for any reason fails to indefeasibly pay any amount required under clause (a) or (b) of this Section to be paid by it to the Administrative Agent (or any sub-agent thereof), the L/C Agent, the Fronting Bank, or any Related Party of any of the foregoing, each Lender severally agrees to pay to the Administrative Agent (or any such sub-agent), the L/C Agent, the Fronting Bank, or such Related Party, as the case may be, such Lender’s Ratable Share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount (including any such unpaid amount in respect of a claim asserted by such Lender); 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 (or any such sub-agent) or the L/C Agent or the Fronting Bank in its capacity as such, or against any Related Party of any of the foregoing acting for the Administrative Agent (or any such sub-agent) or the L/C Agent or the Fronting Bank in connection with such capacity. The obligations of the Lenders under this clause (c) are subject to the provisions of Section 4.4.
(d) Waiver of Consequential Damages, Etc. To the fullest extent permitted by Applicable Law, (i) each Credit Party shall not assert, and hereby waives, any claim against the Administrative Agent, the L/C Agent (and any sub-agent thereof), each Lender, each Issuing Lender and each Related Party of any of the foregoing Persons (each such Person a “Lender-Related Person”) and (ii) each Lender-Related Person shall not assert, and hereby waives, any claim against the Credit Parties and their Related Parties, in each case of clauses (i) and (ii), 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, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Loan or Letter of Credit or the use of the proceeds thereof, provided, that nothing contained in this sentence shall limit any Credit Party’s indemnity obligations to the extent such special, indirect, consequential or punitive damages are included in any third party claim in connection with which such Indemnitee is entitled to indemnification under Section 11.3(b). No Lender-Related Person shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby.
(e) Payments. All amounts due under this Section shall be payable promptly after demand therefor.
(f) Survival. Each party’s obligations under this Section shall survive the termination of the Loan Documents and payment of the obligations hereunder.
SECTION 11.4 Right of Setoff. If an Event of Default shall have occurred and be continuing, each Lender, each Issuing Lender, and each of their respective Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by Applicable Law, to setoff and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by such Lender, such Issuing Lender, or any such Affiliate to or for the credit or the account of any Credit Party against any and all of the obligations of such Credit Party now or hereafter existing under this Agreement or any other Loan Document to such Lender, such Issuing Lender or any of their respective Affiliates, irrespective of whether or not such Lender, such Issuing Lender, or any such Affiliate shall have made any demand under this Agreement or any other Loan Document and although such obligations of such Credit Party may be contingent or unmatured or are owed to a branch or office of such Lender, such Issuing Lender or such Affiliate different from the branch, office or Affiliate holding such deposit or obligated on such indebtedness; provided that in the event that any Defaulting Lender or any Affiliate thereof shall exercise any such right of setoff, (x) all amounts so setoff shall be paid over immediately to the Administrative Agent for further application in accordance with the provisions of Section 4.6 and, pending such payment, shall be segregated by such Defaulting Lender or Affiliate of a Defaulting Lender from its other funds and deemed held in trust for the benefit of the Administrative Agent, the Issuing Lenders, and the Lenders, and (y) the Defaulting Lender or its Affiliate shall provide promptly to the Administrative Agent a statement describing in reasonable detail the Obligations owing to such Defaulting Lender or any of its Affiliates as to which such right of setoff was exercised. The rights of each Lender, each Issuing Lender, and their respective Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff) that such Lender, such Issuing Lender, or their respective Affiliates may have. Each Lender, and such Issuing Lender agree to notify the applicable Credit Party and the Administrative Agent promptly after any such setoff and application; provided that the failure to give such notice shall not affect the validity of such setoff and application.
SECTION 11.5 Governing Law; Jurisdiction, Etc.
(a) Governing Law. This Agreement and the other Loan Documents and any claim, controversy, dispute or cause of action (whether in contract or tort or otherwise) based upon, arising out of or relating to this Agreement or any other Loan Document (except, as to any other Loan Document, as expressly set forth therein) and the transactions contemplated hereby and thereby shall be governed by, and construed in accordance with, the law of the State of New York.
(b) Submission to Jurisdiction. Each Credit Party irrevocably and unconditionally agrees that it will not commence any action, litigation or proceeding of any kind or description, whether in law or equity, whether in contract or in tort or otherwise, against the Administrative Agent, the L/C Agent, any Lender, any Issuing Lender, or any Related Party of the foregoing in any way relating to this Agreement or any other Loan Document or the transactions relating hereto or thereto, in any forum other than the courts 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, and each of the parties hereto irrevocably and unconditionally submits to the exclusive jurisdiction of such courts and agrees that all claims in respect of any such action, litigation or proceeding may be heard and determined in such New York State court or, to the fullest extent permitted by Applicable Law, in such federal court. Each of the parties hereto agrees that a final judgment in any such action, litigation 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 or in any other Loan Document shall affect any right that the Administrative Agent, any Lender or any Issuing Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against any Credit Party or its properties in the courts of any jurisdiction.
(c) Waiver of Venue. Each Credit Party irrevocably and unconditionally waives, to the fullest extent permitted by Applicable Law, any objection that it may now or hereafter have to the laying of venue of any action or proceeding arising out of or relating to this Agreement or any other Loan Document 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 Applicable Law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.
(d) Service of Process. Each party hereto irrevocably consents to service of process in the manner provided for notices in Section 11.1. Nothing in this Agreement will affect the right of any party hereto to serve process in any other manner permitted by Applicable Law. EACH CREDIT PARTY HEREBY IRREVOCABLY APPOINTS GEMMA CARREIRO, GENERAL COUNSEL, WITH AN ADDRESS OF HAMILTON U.S. SERVICES, LLC, C/O THE CORPORATION TRUST COMPANY, 1209 ORANGE STREET, CORPORATION TRUST CENTER, WILMINGTON, DELAWARE 19801, USA, AS ITS AGENT TO RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON ITS BEHALF SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN ANY ACTION OR PROCEEDING. IF FOR ANY REASON SUCH AGENT SHALL CEASE TO BE AVAILABLE TO ACT AS SUCH, EACH CREDIT PARTY AGREES TO PROMPTLY DESIGNATE A NEW AGENT SATISFACTORY TO THE ADMINISTRATIVE AGENT TO RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON ITS BEHALF SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN ANY ACTION OR PROCEEDING.
SECTION 11.6 Waiver of Jury Trial.
(a) EACH PARTY HERETO HEREBY IRREVOCABLY 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 ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON 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 AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
SECTION 11.7 Reversal of Payments. To the extent any Credit Party makes a payment or payments to the Administrative Agent for the ratable benefit of the Lenders or the Issuing Lenders or to any such Lender or Issuing Lender directly or the Administrative Agent or any such Lender or Issuing Lender receives any payment or proceeds of the Cash Collateral or any such party exercises its right of setoff, which payments or proceeds (including any proceeds of such setoff) or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside and/or required to be repaid to a trustee, receiver or any other party under any Debtor Relief Law, other Applicable Law or equitable cause, then, to the extent of such payment or proceeds repaid, the Obligations or part thereof intended to be satisfied shall be revived and continued in full force and effect as if such payment or proceeds had not been
received by the Administrative Agent, and each Lender and each Issuing Lender severally agrees to pay to the Administrative Agent upon demand its (or its applicable Affiliate’s) applicable ratable share (without duplication) of any amount so recovered from or repaid by the Administrative Agent plus interest thereon at a per annum rate equal to the Overnight Rate from time to time in effect.
SECTION 11.8 Injunctive Relief. Each Credit Party recognizes that, in the event such Credit Party fails to perform, observe or discharge any of its obligations or liabilities under this Agreement, any remedy of law may prove to be inadequate relief to the Lenders. Therefore, each Credit Party agrees that the Lenders, at the Lenders’ option, shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages.
SECTION 11.9 Successors and Assigns; Participations.
(a) Successors and Assigns 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 no Credit Party may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Administrative Agent and each Lender and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an assignee in accordance with the provisions of paragraph (b) of this Section, (ii) by way of participation in accordance with the provisions of paragraph (d) of this Section or (iii) by way of pledge or assignment of a security interest subject to the restrictions of paragraph (e) of this Section (and any other attempted assignment or transfer by any party hereto shall be null and void). 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 (d) 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. Any Lender may at any time assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it; provided that, any such assignment shall be subject to the following conditions:
(i) Minimum Amounts.
(A) in the case of an assignment of the entire remaining amount of the assigning Lender’s Commitment and/or the Loans at the time owing to it or contemporaneous assignments to related Approved Funds (determined after giving effect to such assignments) that equal at least the amount specified in paragraph (b)(i)(B) of this Section in the aggregate or in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, no minimum amount need be assigned; and
(B) in any case not described in paragraph (b)(i)(A) of this Section, the aggregate amount of the Commitment (which for this purpose includes Loans outstanding thereunder) or, if the applicable Commitment is not then in effect, the principal outstanding balance of the Loans 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 or, if “Trade Date” is specified in the Assignment and Assumption, as of the Trade Date) shall not be less than $5,000,000, unless each of the Administrative Agent and, so long as no Event of Default has occurred and is continuing, the Borrower otherwise consents (each such consent not to be unreasonably withheld or delayed);
(ii) Proportionate Amounts. 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 with respect to the Commitment assigned;
(iii) Required Consents. No consent shall be required for any assignment except to the extent required by paragraph (b)(i)(B) of this Section and, in addition:
(A) the consent of the Borrower (such consent not to be unreasonably withheld or delayed) shall be required unless (x) an Event of Default has occurred and is continuing at the time of such assignment or (y) such assignment is to a Lender, an Affiliate of a Lender or an Approved Fund;
(B) the consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed) shall be required for assignments if such assignment is to a Person that is not a Lender, an Affiliate of such Lender or an Approved Fund with respect to such Lender; and
(C) the consent of the Fronting Bank shall be required for any assignment.
(iv) Assignment and Assumption. 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 for each assignment; provided that (A) only one such fee will be payable in connection with simultaneous assignments to two or more related Approved Funds by a Lender and (B) the Administrative Agent may, in its sole discretion, elect to waive such processing and recordation fee in the case of any assignment. The assignee, if it is not a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire.
(v) No Assignment to Certain Persons. No such assignment shall be made to (A) the Borrower or any of its Subsidiaries or Affiliates, (B) any Defaulting Lender or any of its Subsidiaries, or any Person who, upon becoming a Lender hereunder, would constitute any of the foregoing Persons described in this clause (B) or (C) a Person that is a Non-NAIC Qualified Lender.
(vi) No Assignment to Natural Persons. No such assignment shall be made to a natural Person (or a holding company, investment vehicle or trust for, or owned and operated for the primary benefit of, a natural Person).
(vii) Certain Additional Payments. In connection with any assignment of rights and obligations of any Defaulting Lender hereunder, no such assignment shall be effective unless and until, in addition to the other conditions thereto set forth herein, the parties to the assignment shall make such additional payments to the Administrative Agent in an aggregate amount sufficient, upon distribution thereof as appropriate (which may be outright payment, purchases by the assignee of participations or subparticipations, or other compensating actions, including funding, with the consent of the Borrower and the Administrative Agent, the applicable Ratable Share of Loans previously requested, but not funded by, the Defaulting Lender, to each of which the applicable assignee and assignor hereby irrevocably consent), to (A) pay and satisfy in full all payment liabilities then owed by such Defaulting Lender to the Administrative Agent, the Issuing Lenders, and each other Lender hereunder (and interest accrued thereon), and (B) acquire (and fund as appropriate) its Ratable Share of all Loans and participations in Participated Letters of Credit and drawn Syndicated Letters of Credit. Notwithstanding the foregoing, in the event that any assignment of rights and obligations of any Defaulting Lender hereunder shall become effective under Applicable Law without compliance with the provisions of this paragraph, then the assignee
of such interest shall be deemed to be a Defaulting Lender for all purposes of this Agreement until such compliance occurs.
Subject to acceptance and recording thereof by the Administrative Agent pursuant to paragraph (c) of this Section, from and after the effective date specified in each Assignment and Assumption, the assignee thereunder shall be a party to this Agreement 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, Section 4.10, Section 4.11 and Section 11.3 with respect to facts and circumstances occurring prior to the effective date of such assignment; provided, that except to the extent otherwise expressly agreed by the affected parties, no assignment by a Defaulting Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender’s having been a Defaulting Lender. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this paragraph 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 (d) of this Section (other than a purported assignment to a natural Person or any Credit Party or any Credit Party’s Subsidiaries or Affiliates, which shall be null and void).
(c) Register. The Administrative Agent, acting solely for this purpose as a non-fiduciary agent of the Credit Parties, shall maintain at one of its offices in Charlotte, North Carolina, a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and Loans and Reimbursement Obligations (and stated interest thereon) owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive, absent manifest error, and the Credit Parties, the Administrative Agent and the Lenders shall 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. The Register shall be available for inspection by the Credit Parties and any Lender (but only to the extent of entries in the Register that are applicable to such Lender), at any reasonable time and from time to time upon reasonable prior notice.
(d) Participations. Any Lender may at any time, without the consent of, or notice to, any Credit Party or the Administrative Agent, sell participations to any Person (other than a natural Person, (or a holding company, investment vehicle or trust for, or owned and operated for the primary benefit of, a natural Person, or the Borrower or any of the Borrower’s Subsidiaries or Affiliates) (each, a “Participant”) in all or a portion of such Lender’s rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans or Reimbursement Obligations owing to it); provided that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Credit Parties, the Administrative Agent, the Issuing Lender, 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. For the avoidance of doubt, each Lender shall be responsible for the indemnity under Section 11.3(c) with respect to any payments made by such Lender to its Participant(s).
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 to approve any amendment, modification or waiver of any provision of this Agreement; 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 Section 11.2(a), Section 11.2(b), Section 11.2(c), Section 11.2(d) that directly and adversely affects such Participant. The Credit Parties agree that each Participant shall be entitled to the benefits of Section 4.10, and Section 4.11 (subject to the requirements and limitations
therein (it being understood that the documentation required under Section 4.11(g) shall be delivered to the participating Lender)) to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to paragraph (b) of this Section; provided that such Participant (A) agrees to be subject to the provisions of Section 4.12 as if it were an assignee under paragraph (b) of this Section; and (B) shall not be entitled to receive any greater payment under Section 4.10 or Section 4.11, with respect to any participation, than its participating Lender would have been entitled to receive, except to the extent such entitlement to receive a greater payment results from a Change in Law that occurs after the Participant acquired the applicable participation. Each Lender that sells a participation agrees, at any Account Party’s request and expense, to use reasonable efforts to cooperate with such Account Party to effectuate the provisions of Section 4.12(b) with respect to any Participant. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 11.4 as though it were a Lender; provided that such Participant agrees to be subject to Section 4.6 and Section 11.4 as though it were a Lender.
Each Lender that sells a participation shall, acting solely for this purpose as a non-fiduciary agent of the Credit Parties, maintain a register on which it enters the name and address of each Participant and the principal amounts of (and stated interest on) each Participant’s interest in the obligations under the Loan Documents (the “Participant Register”); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participant’s interest in any commitments, loans, letters of credit or its other obligations under any Loan Document) to any Person except to the extent that such disclosure is necessary to establish that such commitment, loan, letter of credit or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.
(e) 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 without limitation any pledge or assignment to secure obligations to a Federal Reserve Bank or other central bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.
SECTION 11.10 Treatment of Certain Information; Confidentiality. Each of the Administrative Agent, the Lenders and the Issuing Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its Affiliates and to its and its Affiliates’ respective Related Parties in connection with the Credit Facility, this Agreement, the transactions contemplated hereby or in connection with marketing of services by such Affiliate or Related Party to the Borrower or any of its Subsidiaries (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), (b) to the extent required or requested by, or required to be disclosed to, any regulatory or similar authority purporting to have jurisdiction over such Person or its Related Parties (including any self-regulatory authority, such as the National Association of Insurance Commissioners) or in accordance with the Administrative Agent’s, such Issuing Lender’s or any Lender’s regulatory compliance policy if the Administrative Agent, such Issuing Lender or such Lender, as applicable, deems such disclosure to be necessary for the mitigation of claims by those authorities against the Administrative Agent, such Issuing Lender or such Lender, as applicable, or any of its Related Parties (in which case, the Administrative Agent, such Issuing Lender or such Lender, as applicable, shall use commercially reasonable efforts to, except with respect to any audit or examination conducted by bank accountants or any governmental bank regulatory authority exercising examination or regulatory authority, promptly notify the Borrower, in advance, to the extent practicable and otherwise permitted by Applicable Law), (c) as to the extent required
by Applicable Laws or regulations or in any legal, judicial, administrative proceeding or other compulsory process, (d) to any other party hereto, (e) in connection with the exercise of any remedies under this Agreement or under any other Loan Document or any action or proceeding relating to this Agreement or any other Loan Document, or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights and obligations under this Agreement, (ii) any direct, indirect, actual or prospective party (or its Related Parties) to any swap, derivative or other transaction under which payments are to be made by reference to any Credit Party and its obligations, this Agreement or payments hereunder or (iii) any credit insurance provider relating to any Credit Party and its Obligations (g) on a confidential basis to (i) any rating agency in connection with rating the Borrower or its Subsidiaries or the Credit Facility or (ii) the CUSIP Service Bureau or any similar agency in connection with the issuance and monitoring of CUSIP numbers with respect to the Credit Facility, (h) with the consent of the Borrower, (i) deal terms and other information customarily reported to Thomson Reuters, other bank market data collectors and similar service providers to the lending industry and service providers to the Administrative Agent and the Lenders in connection with the administration of the Loan Documents, (j) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Administrative Agent, any Lender, any Issuing Lender or any of their respective Affiliates from a third party that is not, to such Person’s knowledge, subject to confidentiality obligations to any Credit Party, (k) to the extent that such information is independently developed by such Person, or (l) for purposes of establishing a “due diligence” defense. For purposes of this Section, “Information” means all information received from any Credit Party or any Subsidiary thereof relating to any Credit Party or any Subsidiary thereof or any of their respective businesses, other than any such information that is available to the Administrative Agent, any Lender or any Issuing Lender on a nonconfidential basis prior to disclosure by any Credit Party or any Subsidiary thereof; provided that, in the case of information received from a Credit Party or any Subsidiary thereof 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.
SECTION 11.11 Performance of Duties. Each of the Credit Party’s obligations under this Agreement and each of the other Loan Documents shall be performed by such Credit Party at its sole cost and expense.
SECTION 11.12 All Powers Coupled with Interest. All powers of attorney and other authorizations granted to the Lenders, the Administrative Agent and any Persons designated by the Administrative Agent or any Lender pursuant to any provisions of this Agreement or any of the other Loan Documents shall be deemed coupled with an interest and shall be irrevocable so long as any of the Obligations remain unpaid or unsatisfied, any of the Commitments remain in effect or the Credit Facility has not been terminated.
SECTION 11.13 Survival.
(a) All representations and warranties set forth in Article VIII and all representations and warranties contained in any certificate, or any of the Loan Documents (including, but not limited to, any such representation or warranty made in or in connection with any amendment thereto) shall constitute representations and warranties made under this Agreement. All representations and warranties made under this Agreement shall be made or deemed to be made at and as of the Closing Date (except those that are expressly made as of a specific date), shall survive the Closing Date and shall not be waived by the execution and delivery of this Agreement, any investigation made by or on behalf of the Lenders or any borrowing hereunder.
(b) Notwithstanding any termination of this Agreement, the indemnities to which the Administrative Agent and the Lenders are entitled under the provisions of this Article XI and any other provision of this Agreement and the other Loan Documents shall continue in full force and effect and shall protect the Administrative Agent and the Lenders against events arising after such termination as well as before.
SECTION 11.14 Titles and Captions. Titles and captions of Articles, Sections and subsections in, and the table of contents of, this Agreement are for convenience only, and neither limit nor amplify the provisions of this Agreement.
SECTION 11.15 Severability of Provisions. Any provision of this Agreement or any other Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating the remainder of such provision or the remaining provisions hereof or thereof or affecting the validity or enforceability of such provision in any other jurisdiction. In the event that any provision is held to be so prohibited or unenforceable in any jurisdiction, the Administrative Agent, the Lenders and the Credit Parties shall negotiate in good faith to amend such provision to preserve the original intent thereof in such jurisdiction (subject to the approval of the Required Lenders).
SECTION 11.16 Counterparts; Integration; Effectiveness; Electronic Execution.
(a) Counterparts; Integration; Effectiveness. This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement and the other Loan Documents, and any separate letter agreements with respect to fees payable to the Administrative Agent, the Issuing Lenders, and/or the Arrangers, constitute the entire contract 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 7.1, 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 that, when taken together, bear the signatures of each of the other parties hereto. Delivery of an executed counterpart of a signature page of this Agreement by facsimile or in electronic (i.e., “pdf” or “tif”) format shall be effective as delivery of a manually executed counterpart of this Agreement.
(b) Electronic Execution. The words “execute,” “execution,” “signed,” “signature,” “delivery” and words of like import in or related to this Agreement, any other Loan Document or any document, amendment, approval, consent, waiver, modification, information, notice, certificate, report, statement, disclosure, or authorization to be signed or delivered in connection with this Agreement or any other Loan Document or the transactions contemplated hereby shall be deemed to include Electronic Signatures or execution in the form of an Electronic Record, and contract formations on electronic platforms approved by the Administrative Agent, deliveries or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any Applicable Law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act. Each party hereto agrees that any Electronic Signature or execution in the form of an Electronic Record shall be valid and binding on itself and each of the other parties hereto to the same extent as a manual, original signature. For the avoidance of doubt, the authorization under this paragraph may include, without limitation, use or acceptance by the parties of a manually signed paper which has been converted into electronic form (such as scanned into PDF format), or an electronically signed paper converted into another format, for transmission, delivery and/or retention. Notwithstanding
anything contained herein to the contrary, the Administrative Agent is under no obligation to accept an Electronic Signature in any form or in any format unless expressly agreed to by the Administrative Agent pursuant to procedures approved by it; provided that without limiting the foregoing, (a) to the extent the Administrative Agent has agreed to accept such Electronic Signature from any party hereto, the Administrative Agent and the other parties hereto shall be entitled to rely on any such Electronic Signature purportedly given by or on behalf of the executing party without further verification and (b) upon the request of the Administrative Agent or any Lender, any Electronic Signature shall be promptly followed by an original manually executed counterpart thereof. Without limiting the generality of the foregoing, each party hereto hereby (i) agrees that, for all purposes, including without limitation, in connection with any workout, restructuring, enforcement of remedies, bankruptcy proceedings or litigation among the Administrative Agent, the Lenders and any of the Credit Parties, electronic images of this Agreement or any other Loan Document (in each case, including with respect to any signature pages thereto) shall have the same legal effect, validity and enforceability as any paper original, and (ii) waives any argument, defense or right to contest the validity or enforceability of the Loan Documents based solely on the lack of paper original copies of any Loan Documents, including with respect to any signature pages thereto.
SECTION 11.17 Term of Agreement. This Agreement shall remain in effect from the Closing Date through and including the date upon which all Obligations (other than contingent indemnification obligations not then due) arising hereunder or under any other Loan Document shall have been indefeasibly and irrevocably paid and satisfied in full, all Letters of Credit have been terminated or expired and the Commitments have been terminated. No termination of this Agreement shall affect the rights and obligations of the parties hereto arising prior to such termination or in respect of any provision of this Agreement which survives such termination.
SECTION 11.18 USA PATRIOT Act; Anti-Money Laundering Laws. The Administrative Agent and each Lender hereby notifies each Credit Party that pursuant to the requirements of the PATRIOT Act or any other Anti-Money Laundering Laws, each of them is required to obtain, verify and record information that identifies each Credit Party, which information includes the name and address of each Credit Party and other information that will allow such Lender to identify each Credit Party in accordance with the PATRIOT Act or such Anti-Money Laundering Laws.
SECTION 11.19 Independent Effect of Covenants. Each Credit Party expressly acknowledges and agrees that each covenant contained in Article VII and Article VIII hereof shall be given independent effect. Accordingly, no Credit Party shall engage in any transaction or other act otherwise permitted under any covenant contained in Article VII or Article VIII, if before or after giving effect to such transaction or act, such Credit Party shall or would be in breach of any other covenant contained in Article VII or Article VIII.
SECTION 11.20 No Advisory or Fiduciary Responsibility.
(a) In connection with all aspects of each transaction contemplated hereby, each Credit Party acknowledges and agrees, and acknowledges its Affiliates’ understanding, that (i) the facilities provided for hereunder and any related arranging or other services in connection therewith (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document) are an arm’s-length commercial transaction between each Credit Party and its Affiliates, on the one hand, and the Administrative Agent, the Arrangers and the Lenders, on the other hand, and each Credit Party is capable of evaluating and understanding and understands and accepts the terms, risks and conditions of the transactions contemplated hereby and by the other Loan Documents (including any amendment, waiver or other modification hereof or thereof), (ii) in connection with the process leading to such transaction, each of the Administrative Agent, the Arrangers and the Lenders is and has been acting solely as a principal and is not the financial advisor, agent or fiduciary, for any Credit Party or any of their Affiliates, stockholders,
creditors or employees or any other Person, (iii) none of the Administrative Agent, the Arrangers or the Lenders has assumed or will assume an advisory, agency or fiduciary responsibility in favor of any Credit Party or any of its Affiliates with respect to any of the transactions contemplated hereby or the process leading thereto, including with respect to any amendment, waiver or other modification hereof or of any other Loan Document (irrespective of whether any Arranger or Lender has advised or is currently advising any Credit Party or any of their Affiliates on other matters) and none of the Administrative Agent, the Arrangers or the Lenders has any obligation to any Credit Party or any of its Affiliates with respect to the financing transactions contemplated hereby except those obligations expressly set forth herein and in the other Loan Documents, (iv) the Arrangers and the Lenders and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from, and may conflict with, those of any Credit Party or any of its Affiliates, and none of the Administrative Agent, the Arrangers or the Lenders has any obligation to disclose any of such interests by virtue of any advisory, agency or fiduciary relationship and (v) the Administrative Agent, the Arrangers and the Lenders have not provided and will not provide any legal, accounting, regulatory or tax advice with respect to any of the transactions contemplated hereby (including any amendment, waiver or other modification hereof or of any other Loan Document) and the Credit Parties have consulted their own legal, accounting, regulatory and tax advisors to the extent they have deemed appropriate.
(b) Each Credit Party acknowledges and agrees that each Lender, the Arrangers and any Affiliate thereof may lend money to, invest in, and generally engage in any kind of business with, any Credit Party, any Affiliate thereof or any other person or entity that may do business with or own securities of any of the foregoing, all as if such Lender, Arranger or Affiliate thereof were not a Lender or Arranger or an Affiliate thereof (or an agent or any other person with any similar role under the Credit Facilities) and without any duty to account therefor to any other Lender, the Arrangers, any Credit Party, or any Affiliate of the foregoing. Each Lender, the Arrangers and any Affiliate thereof may accept fees and other consideration from any Credit Party or any Affiliate thereof for services in connection with this Agreement, the Credit Facilities or otherwise without having to account for the same to any other Lender, the Arrangers, any Credit Party or any Affiliate of the foregoing.
SECTION 11.21 Inconsistencies with Other Documents. In the event there is a conflict or inconsistency between this Agreement and any other Loan Document, the terms of this Agreement shall control.
SECTION 11.22 Acknowledgement and Consent to Bail-In of Affected Financial Institutions. Notwithstanding anything to the contrary in any Loan Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any Affected Financial Institution arising under any Loan Document, to the extent such liability is unsecured, may be subject to the Write-Down and Conversion Powers of the applicable Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:
(a) the application of any Write-Down and Conversion Powers by the applicable Resolution Authority to any such liabilities arising hereunder which may be payable to it by any party hereto that is an Affected Financial Institution; and
(b) the effects of any Bail-In Action on any such liability, including, if applicable:
(i) a reduction in full or in part or cancellation of any such liability;
(ii) a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such Affected Financial Institution, its parent undertaking, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of
ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Loan Document; or
(iii) the variation of the terms of such liability in connection with the exercise of the Write-Down and Conversion Powers of the applicable Resolution Authority.
SECTION 11.23 Acknowledgment Regarding Any Supported QFCs. To the extent that the Loan Documents provide support, through a guarantee or otherwise, for Hedge Agreements or any other agreement or instrument that is a QFC (such support, “QFC Credit Support” and each such QFC a “Supported QFC”), the parties acknowledge and agree as follows with respect to the resolution power of the FDIC under the Federal Deposit Insurance Act and Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act (together with the regulations promulgated thereunder, the “U.S. Special Resolution Regimes”) in respect of such Supported QFC and QFC Credit Support (with the provisions below applicable notwithstanding that the Loan Documents and any Supported QFC may in fact be stated to be governed by the laws of the State of New York and/or of the United States or any other state of the United States):
(a) In the event a Covered Entity that is party to a Supported QFC (each, a “Covered Party”) becomes subject to a proceeding under a U.S. Special Resolution Regime, the transfer of such Supported QFC and the benefit of such QFC Credit Support (and any interest and obligation in or under such Supported QFC and such QFC Credit Support, and any rights in property securing such Supported QFC or such QFC Credit Support) from such Covered Party will be effective to the same extent as the transfer would be effective under the U.S. Special Resolution Regime if the Supported QFC and such QFC Credit Support (and any such interest, obligation and rights in property) were governed by the laws of the United States or a state of the United States. In the event a Covered Party or a BHC Act Affiliate of a Covered Party becomes subject to a proceeding under a U.S. Special Resolution Regime, Default Rights under the Loan Documents that might otherwise apply to such Supported QFC or any QFC Credit Support that may be exercised against such Covered Party are permitted to be exercised to no greater extent than such Default Rights could be exercised under the U.S. Special Resolution Regime if the Supported QFC and the Loan Documents were governed by the laws of the United States or a state of the United States. Without limitation of the foregoing, it is understood and agreed that rights and remedies of the parties with respect to a Defaulting Lender shall in no event affect the rights of any Covered Party with respect to a Supported QFC or any QFC Credit Support.
(b) As used in this Section 11.23, the following terms have the following meanings:
“BHC Act Affiliate” of a party means an “affiliate” (as such term is defined under, and interpreted in accordance with, 12 U.S.C. 1841(k)) of such party.
“Covered Entity” means any of the following:
(i) a “covered entity” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 252.82(b);
(ii) a “covered bank” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 47.3(b); or
(iii) a “covered FSI” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 382.2(b).
“Default Right” has the meaning assigned to that term in, and shall be interpreted in accordance with, 12 C.F.R. §§ 252.81, 47.2 or 382.1, as applicable.
“QFC” has the meaning assigned to the term “qualified financial contract” in, and shall be interpreted in accordance with, 12 U.S.C. 5390(c)(8)(D).
SECTION 11.24 Amendment and Restatement; No Novation. This Agreement constitutes an amendment and restatement of the Existing Agreement, effective from and after the Closing Date. The execution and delivery of this Agreement shall not constitute a novation of any indebtedness or other obligations owing to the L/C Agent, the Issuing Lenders, the Lenders or the Administrative Agent under the Existing Agreement based on facts or events occurring or existing prior to the execution and delivery of this Agreement. On the Closing Date, the credit facilities described in the Existing Agreement, shall be amended, supplemented, modified and restated in its entirety by the credit facilities described herein, without any further action by any Person (including, without limitation, any Assignment and Assumption), and all loans and other obligations of the Credit Parties outstanding as of such date under the Existing Agreement shall be deemed to be obligations outstanding under the corresponding facilities described herein, except that the Administrative Agent shall make such transfers of funds as are necessary in order that the outstanding balance of such Loans, together with any Loans funded on the Closing Date, reflect the respective Commitments of the Lenders hereunder. Each Existing Letter of Credit issued for the account of any Account Party and outstanding on the Closing Date will continue and be deemed Issued under this Agreement for the account of such Account Party, provided that (a) the Letter of Credit Exposure in respect of any Participated Letters of Credit shall be automatically reallocated among the Lenders as of the Closing Date based on their Ratable Shares after giving effect to the Closing Date and (b) the Syndicated Letters of Credit shall be amended in accordance with Section 3.1(c) based on the Ratable Shares of the Lenders after giving effect to the Closing Date.
ARTICLE XII
GUARANTY
SECTION 12.1 The Guaranty.
(a) In order to induce the Lenders to enter into this Agreement and to make Loans and issue Letters of Credit hereunder and in recognition of the direct benefits to be received by the Guarantor from the Extensions of Credit hereunder, the Guarantor hereby unconditionally, absolutely and irrevocably, guarantees, as a primary obligor and not merely as surety, the full and punctual payment of all Obligations of each of the other Credit Parties under the Loan Documents. This Guaranty is a guaranty of payment and not of collection. Upon failure by any Credit Party to pay punctually any such amount, the Guarantor agrees to pay forthwith on demand the amount not so paid at the place and in the manner specified in this Agreement.
SECTION 12.2 Guaranty Unconditional. The obligations of the Guarantor under this Article XII shall be unconditional, absolute and irrevocable, and, without limiting the generality of the foregoing, shall not be released, discharged or otherwise affected by:
(i) any extension, renewal, settlement, compromise, waiver or release (including with respect to any Cash Collateral) in respect of any obligation of any other obligor under any of the Loan Documents, by operation of law or otherwise;
(ii) any modification or amendment of or supplement to any of the Loan Documents;
(iii) any release, non-perfection or invalidity of any direct or indirect security for any obligation of any other obligor under any of the Loan Documents;
(iv) any change in the corporate existence, structure or ownership of any obligor, or any filing by or against any Credit Party of any petition seeking any relief in bankruptcy or under any Debtor Relief Law or other similar proceeding affecting any other obligor or its assets or any resulting release or discharge of any obligation of any other obligor contained in any of the Loan Documents;
(v) the existence of any claim, set-off or other rights which any obligor may have at any time against any other obligor, the Administrative Agent, the L/C Agent, any Issuing Lender, any Lender or any other corporation or person, whether in connection with any of the Loan Documents or any unrelated transactions, provided that nothing herein shall prevent the assertion of any such claim by separate suit or compulsory counterclaim;
(vi) any invalidity or unenforceability relating to or against any other obligor for any reason of any of the Loan Documents, or any provision of applicable law or regulation purporting to prohibit the payment by any other obligor of principal, interest or any other amount payable under any of the Loan Documents;
(vii) any law, regulation or order of any jurisdiction, or any other event, affecting any term of any obligation or the Lenders’ rights with respect thereto;
(viii) the addition or release of the Guarantor hereunder or the taking, acceptance or release of other guarantees of the Obligations; or
(ix) any other act or omission to act or delay of any kind by any obligor, the Administrative Agent, the L/C Agent, any Issuing Lender, any Lender or any other corporation or person or any other circumstance whatsoever (other than the defense of payment) which might, but for the provisions of this paragraph, constitute a legal or equitable discharge of or defense to such Guarantor’s obligations under this Article XII.
SECTION 12.3 Discharge Only upon Payment in Full; Reinstatement in Certain Circumstances. The Guarantor’s obligations under this Article XII shall remain in full force and effect until the Commitments of the Lenders hereunder shall have terminated, no Letters of Credit shall be outstanding and all Obligations payable by the Credit Parties under the Loan Documents shall have been paid in full. If at any time any payment of any Obligation payable by a Credit Party under the Loan Documents is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of such Credit Party or otherwise, the Guarantor’s obligations under this Article XII with respect to such payment shall be reinstated as though such payment had been due but not made at such time.
SECTION 12.4 Waiver by the Guarantor. The Guarantor irrevocably waives acceptance hereof, presentment, demand, protest and any notice not provided for herein, as well as any requirement that at any time any action be taken by any corporation or person against any other obligor or any other corporation or person. The Guarantor warrants and agrees that each waiver set forth in this Section 12.4 is made with full knowledge of its significance and consequences, and such waivers shall be effective to the maximum extent permitted by law.
SECTION 12.5 Subrogation. The Guarantor hereby unconditionally and irrevocably agrees not to exercise any rights that it may now have or hereafter acquire against any Credit Party, or any other insider guarantor that arises from the existence, payment, performance or enforcement of the Guarantor’s
obligations under or in respect of this Guaranty or any other Loan Document, including any right of subrogation, reimbursement, exoneration, contribution or indemnification and any right to participate in any claim or remedy of any Lender, any Issuing Lender or the Administrative Agent against any Credit Party or any other insider guarantor or any Cash Collateral, whether or not such claim, remedy or right arises in equity or under contract, statute or common law, including the right to take or receive from any other Credit Party or any other insider guarantor, directly or indirectly, in cash or other property or by set-off or in any other manner, payment or security on account of such claim, remedy or right, unless and until all Obligations payable under this Agreement shall have been paid in full in cash, no Letters of Credit shall be outstanding and the Commitments of the Lenders hereunder shall have expired or been terminated. If any amount shall be paid to the Guarantor in violation of the immediately preceding sentence at any time prior to the later of (a) the payment in full in cash of all amounts payable under this Guaranty, and (b) the Final Maturity Date, such amount shall be received and held in trust for the benefit of the Lenders, shall be segregated from other property and funds of such Guarantor and shall forthwith be paid or delivered to the Administrative Agent in the same form as so received (with any necessary endorsement or assignment) to be credited and applied to all amounts payable under this Guaranty, whether matured or unmatured, in accordance with the terms of the Loan Documents, or to be held as collateral for any amounts payable under this Guaranty thereafter arising. If (i) the Guarantor shall make payment to the Lenders, the Issuing Lenders and the Administrative Agent of all or any amounts payable under this Guaranty, (ii) all amounts payable under this Guaranty shall have been paid in full in cash, and (iii) the Final Maturity Date shall have occurred, the Lenders, the Issuing Lenders and the Administrative Agent will, at such Guarantor’s request and expense, execute and deliver to such Guarantor appropriate documents, without recourse and without representation or warranty, necessary to evidence the transfer by subrogation to such Guarantor of an interest in the obligations resulting from such payment made by such Guarantor pursuant to this Guaranty.
SECTION 12.6 Stay of Acceleration. If acceleration of the time for payment of any amount payable by any Credit Party under any of the Loan Documents is stayed upon the occurrence of any filing by or against any Credit Party of any petition seeking any relief in bankruptcy or under any Debtor Relief Law, all such amounts otherwise subject to acceleration under the terms of this Agreement shall nonetheless be payable by the Guarantor under this Article XII forthwith on demand by the Administrative Agent made at the request, or with the consent, of the Required Lenders.
SECTION 12.7 Continuing Guaranty; Assignments. This Guaranty is a continuing guaranty and shall (a) remain in full force and effect until the later of (i) the payment in full in cash of all Obligations payable under this Agreement and (ii) the Final Maturity Date, (b) be binding upon the Guarantor, its successors and assigns and (c) inure to the benefit of and be enforceable by the Lenders, the Issuing Lenders and the Administrative Agent and their successors, transferees and assigns. Without limiting the generality of clause (c) of the immediately preceding sentence, any Lender may assign or otherwise transfer all or any portion of its rights and obligations under this Agreement to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to such Lender herein or otherwise, in each case as and to the extent provided in Section 11.9.
SECTION 12.8 Subordination of Other Obligations. Any Indebtedness of any other Credit Party now or hereafter held by the Guarantor is hereby subordinated in right of payment to the Obligations of such Credit Party, and any such Indebtedness collected or received by the Guarantor after receipt of notice of an Event of Default (which has occurred and is continuing) by Administrative Agent shall be held in trust for Administrative Agent on behalf of the Lenders and shall forthwith be paid over to Administrative Agent for the benefit of Lenders to be credited and applied against such Obligations but without affecting, impairing or limiting in any manner the liability of the Guarantor under any other provision hereof.
SECTION 12.9 Additional Guarantors. The Borrower may from time to time cause any Subsidiary that is an entity organized under the laws of the United States or Bermuda to become a Guarantor
hereunder (each such Subsidiary, an “Additional Guarantor”) by providing at least 30 days’ prior written notice to the Administrative Agent (or such shorter period approved by the Administrative Agent in its sole discretion) and by delivering to the Administrative Agent (a) a joinder agreement executed by such Additional Guarantor in form and substance satisfactory to the Administrative Agent, pursuant to which such Additional Guarantor becomes a party to this Agreement and unconditionally guarantees the Obligations pursuant to this Article XII, (b) certificates with respect to the Additional Guarantor similar to those delivered pursuant to Section 5.1(b)(ii) and Section 5.1(b)(iii), in form and substance satisfactory to the Administrative Agent, (c) legal opinions with respect to the Additional Guarantor in form and substance satisfactory to the Administrative Agent, (d) any documentation and other information requested by the Administrative Agent in order to comply with requirements of any Anti-Money Laundering Laws, including, without limitation, the PATRIOT Act, the Beneficial Ownership Regulation and any applicable “know your customer” rules and regulations with respect to such Additional Guarantor and (e) such other documents as the Administrative Agent may reasonably request.
[signature pages follow]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed under seal by their duly authorized officers, all as of the day and year first written above.
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| HAMILTON INSURANCE GROUP, LTD. |
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| By: | /s/ Gemma Carreiro |
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| Gemma Carreiro |
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| General Counsel & Secretary |
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| HAMILTON RE, LTD. |
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| By: | /s/ Minesh Shah |
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| Minesh Shah |
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| Chief Actuary & Chief Risk Officer |
Fifth Amended and Restated Letter of Credit Agreement
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| LENDERS: |
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| WELLS FARGO BANK, NATIONAL ASSOCIATION, as Administrative Agent, L/C Agent, Fronting Bank, Issuing Lender and Lender |
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| By: | /s/ William R. Goley |
| Name: William R. Goley |
| Title: Managing Director |
Fifth Amended and Restated Letter of Credit Agreement
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| TRUIST BANK, as Issuing Lender and Lender |
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| By: | /s/ Hays Wood |
| Name: Hays Wood |
| Title: Director |
Fifth Amended and Restated Letter of Credit Agreement
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| COMMERZBANK AG, NEW YORK BRANCH, as Issuing Lender and Lender | |
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| By: | /s/ Michael McCarthy | |
| Name: Michael McCarthy | |
| Title: Managing Director | |
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| By: | /s/ Toan Chu | |
| Name: Toan Chu | |
| Title: Vice President | |
Fifth Amended and Restated Letter of Credit Agreement
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| BMO HARRIS BANK, N.A., as Issuing Lender and Lender |
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| By: | /s/ Benjamin Mlot | |
| Name: Benjamin Mlot | |
| Title: Director | |
Fifth Amended and Restated Letter of Credit Agreement
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| HSBC BANK USA, NATIONAL ASSOCIATION, as Issuing Lender and Lender |
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| By: | /s/ Teresa Pereyra |
| Name: Teresa Pereyra |
| Title: Vice President, Financial Institutions Group |
Fifth Amended and Restated Letter of Credit Agreement
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| BARCLAYS BANK PLC, as a Lender |
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| By: | /s/ Nathalie Majlis |
| Name: Nathalie Majlis |
| Title: Director, Corporate Bank |
Fifth Amended and Restated Letter of Credit Agreement
EXHIBIT A-1
FORM OF REVOLVING CREDIT NOTE
EXHIBIT A-2
FORM OF SYNDICATED LETTER OF CREDIT
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| Issue Date | | | | | | | For Internal Identification Purposes Only | |
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| Clean, Irrevocable Stand By Letter of Credit No.: | | | | Applicant: (Name) | |
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| To Beneficiary: | (Name) | | | | | | | |
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| (Address) | | | | | | |
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Dear Sir or Madam:
The banks and financial institutions set forth in Schedule 1 hereto (the “Lenders”) hereby open this clean, unconditional and irrevocable for the term hereof Syndicated Letter of Credit in your favor as beneficiary (the “Beneficiary”) through Wells Fargo Bank, National Association, acting as administrative agent (in such capacity, the “Administrative Agent” and attorney-in-fact for the Lenders) (this “Letter of Credit”) in the aggregate amount of U.S. [$__________], effective immediately and remaining in full force and effect, and expiring at the Administrative Agent’s address at 401 N. Research Parkway, First Floor, Winston-Salem, North Carolina, 27101, Attention International Operations, Standby Letters of Credit, D4004-017 no later than 5:00 p.m., Charlotte, North Carolina time, on __________________ (the “Expiration Date”, as such date may be extended as set forth below).
The term “Beneficiary” includes any successor by operation of law of the named Beneficiary including, without limitation, any liquidator, rehabilitator, receiver or conservator. The term “Business Day” means a day which is not a Saturday, Sunday, legal holiday or any other day on which banking institutions in Charlotte, North Carolina or New York, New York or the city in which the payment office of the Administrative Agent is located are required by law to be closed.
The Lenders hereby severally undertake to promptly honor your sight draft(s) drawn on us, duly endorsed by the Beneficiary expressly specifying the Letter of Credit No. _________ for all or any part of this credit if presented at the Administrative Agent’s office specified in the first paragraph hereof on a Business Day on or prior to the Expiration Date, as such date may be extended.
Each of the Lenders agrees, for itself alone and not jointly with any other Lender, to promptly honor a draft drawn by you and presented to the Administrative Agent in an amount not to exceed the aggregate amount available to be drawn hereunder multiplied by such Lender’s percentage obligation as set forth on Schedule 1 to this Syndicated Letter of Credit (the “Percentage Obligations”) and in accordance with the terms and conditions hereinafter set forth. The obligations of the Lenders hereunder shall be several and not joint, and multiple draws shall be available under this Letter of Credit. Upon the transfer by a Lender to the Administrative Agent for your account of the amount specified in a draft drawn on such Lender hereunder, such Lender shall be fully discharged of its obligations under this Letter of Credit with respect to such draft,
such Lender shall not be obligated thereafter to make any further payments under this Letter of Credit with respect to such draft, and the amount available to be drawn thereafter under this Letter of Credit shall be automatically and permanently reduced by an amount equal to the amount of such draft. The failure of any Lender to make funds available to the Administrative Agent for payment under this Letter of Credit shall not relieve any other Lender of its obligation hereunder to make funds available to the Administrative Agent. Neither the Administrative Agent nor any Lender shall be responsible for the failure of any other Lender to honor its share of any drawings hereunder or to make funds available to the Administrative Agent.
Except to the extent the amount of this Letter of Credit may be increased, this Letter of Credit cannot be modified or revoked without your written consent; provided that this Letter of Credit may be amended to delete a Lender or add a Lender or change Percentage Obligations so long as such amendment does not decrease the amount of this Letter of Credit, and need only be signed by the Administrative Agent so long as any Lender added shall be listed on the “NAIC List of Qualified U.S. Financial Institutions” maintained by the securities valuation office of the National Association of Insurance Commissioners as issuers of letters of credit for which reinsurance reserve credit can be given.
Wells Fargo Bank, National Association has been appointed by the Lenders to act as, has been granted the authority by the Lenders to act as, and has been irrevocably granted a power of attorney by the Lenders to act as Administrative Agent for the Lenders obligated under this Letter of Credit. As Administrative Agent, Wells Fargo Bank, National Association has full power of attorney from such Lenders to act on their behalf hereunder to (i) execute and deliver this Letter of Credit, (ii) receive drafts, other demands for payment and other documents presented by you hereunder, (iii) determine whether such drafts, demands and documents are in compliance with the terms of this Letter of Credit, and (iv) notify the Lenders that a valid drawing has been made and the date that the related payment under this Letter of Credit is to be made; provided, however, that the Administrative Agent shall have no obligation or liability for any payment under this Letter of Credit (other than payment to you of such funds as have been made available to it by the Lenders pursuant to your draw).
This Letter of Credit will be automatically extended without amendment for a one year period upon the Expiration Date and upon each anniversary of such date, unless at least sixty (60) days prior to such Expiration Date, or prior to any anniversary of such date, we notify you in writing by registered mail or courier that we elect not to so extend this Letter of Credit.
Upon receipt by you of our notice of election not to extend this Letter of Credit, you may draw hereunder by your sight draft(s) drawn on us and bearing the clause “Drawn under Credit No. ______________.”
This Letter of Credit sets forth in full the terms of the Administrative Agent’s undertaking and of each Lender’s undertaking. Such undertaking shall not in any way be modified, amended or amplified by reference to any document or instrument referred to herein or in which this Letter of Credit is referred to or to which this Letter of Credit relates and any such reference shall not be deemed to incorporate herein by reference any document or instrument.
All bank charges and commissions incurred in this transaction are for the applicant’s account.
We hereby agree with you that drafts drawn under and in compliance with the terms of this Letter of Credit will be duly honored upon presentation to the drawee. The obligation of the Administrative Agent and of each Lender under this Letter of Credit is the individual obligation of the Administrative Agent and each Lender, respectively, and is in no way contingent upon reimbursement with respect thereto.
Except as otherwise expressly stated herein, this Letter of Credit is subject to and governed by the Laws of the State of New York and the 2007 revision of the Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce (Publication 600) and, in the event of any conflict, the Laws of the State of New York will control. If this Letter of Credit expires during an interruption of business as described in Article 36 of said I.C.C. publication, we agree to effect payment if this Letter of Credit is drawn against within 30 days after the resumption of business.
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| | |
| Signature | | Title |
| | |
| Wells Fargo Bank, National Association | |
| as Administrative Agent and attorney-in fact for | |
| the Lenders set forth in Schedule 1 | |
| to this Syndicated Letter of Credit | |
SCHEDULE 1
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| LENDER | PERCENTAGE OBLIGATION |
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EXHIBIT B
FORM OF NOTICE OF BORROWING
Dated as of: ____________
| | |
| Wells Fargo Bank, National Association, as Administrative Agent |
| MAC D 1109-019 |
| 1525 West W.T. Harris Blvd. |
| Charlotte, North Carolina 28262 |
| Attention: Syndication Agency Services |
Ladies and Gentlemen:
This irrevocable Notice of Borrowing is delivered to you pursuant to Section 2.2(a) of the Fifth Amended and Restated Credit Agreement dated as of June 23, 2022 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among Hamilton Insurance Group, Ltd., an exempted company organized under the laws of Bermuda (the “Borrower”), Hamilton Re, Ltd., the Lenders party thereto and Wells Fargo Bank, National Association, as Administrative Agent. Capitalized terms used herein and not defined herein shall have the meanings assigned thereto in the Credit Agreement.
1. The Borrower hereby requests that the Lenders make a Loan to the Borrower in the aggregate principal amount of $____________. (Complete with an amount in accordance with Section 2.2 of the Credit Agreement.)
2. The Borrower hereby requests that such Loan(s) be made on the following Business Day: ___________________. (Complete with a Business Day in accordance with Section 2.2 of the Credit Agreement).
3. The Borrower hereby requests that such Loan(s) bear interest at the following interest rate, plus the Applicable Margin, as set forth below:
| | | | | | | | | | | | | | | | | | | | |
Component
of Loan1 | | Interest Rate | | | Interest Period
(SOFR only) | |
| | | | | | |
| | [Base Rate or SOFR]2 | | | |
1 Complete with the Dollar amount of that portion of the overall Loan requested that is to bear interest at the selected interest rate and/or Interest Period (e.g., for a $20,000,000 loan, $5,000,000 may be requested at Base Rate, $8,000,000 may be requested at SOFR with an interest period of three months and $7,000,000 may be requested at SOFR with an interest period of one month).
2 Complete with (i) the Base Rate or (ii) SOFR.
4. The aggregate principal amount of all Loans outstanding as of the date hereof (including the Loan(s) requested herein) does not exceed the maximum amount permitted to be outstanding pursuant to the terms of the Credit Agreement.
5. All of the conditions applicable to the Loan(s) requested herein as set forth in the Credit Agreement have been satisfied as of the date hereof and will remain satisfied to the date of such Loan.
[Remainder of page intentionally left blank; signature page follows]
IN WITNESS WHEREOF, the undersigned has executed this Notice of Borrowing as of the day and year first written above.
| | | | | | | | | | | | | | |
| HAMILTON INSURANCE GROUP, LTD. | |
| | | | |
| | | | |
| By: | | |
| Name: | | |
| Title: | | |
EXHIBIT C
FORM OF NOTICE OF ACCOUNT DESIGNATION
Dated as of: ___________
| | |
| Wells Fargo Bank, National Association, as Administrative Agent |
| MAC D 1109-019 |
| 1525 West W.T. Harris Blvd. |
| Charlotte, North Carolina 28262 |
| Attention: Syndication Agency Services |
Ladies and Gentlemen:
This Notice of Account Designation is delivered to you pursuant to Section 2.2(b) of the Fifth Amended and Restated Credit Agreement dated as of June 23, 2022 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among Hamilton Insurance Group, Ltd., as Borrower and Account Party, Hamilton Re, Ltd., as Account Party, the Lenders party thereto and Wells Fargo Bank, National Association, as Administrative Agent. Capitalized terms used herein and not defined herein shall have the meanings assigned thereto in the Credit Agreement.
1. The Administrative Agent is hereby authorized to disburse all Loan proceeds into the following account(s):
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| Bank Name: | |
| ABA Routing Number: | |
| Account Number: | |
2. This authorization shall remain in effect until revoked or until a subsequent Notice of Account Designation is provided to the Administrative Agent.
[Remainder of page intentionally left blank; signature page follows]
IN WITNESS WHEREOF, the undersigned has executed this Notice of Account Designation as of the day and year first written above.
| | | | | | | | | | | | | | |
| HAMILTON INSURANCE GROUP, LTD. | |
| | | | |
| | | | |
| By: | | |
| Name: | | |
| Title: | | |
EXHIBIT D
FORM OF NOTICE OF PREPAYMENT
Dated as of: _____________
| | |
| Wells Fargo Bank, National Association, as Administrative Agent |
| MAC D 1109-019 |
| 1525 West W.T. Harris Blvd. |
| Charlotte, North Carolina 28262 |
| Attention: Syndication Agency Services |
Ladies and Gentlemen:
This irrevocable Notice of Prepayment is delivered to you pursuant to Section 2.3(c) of the Fifth Amended and Restated Credit Agreement dated as of June 23, 2022 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among Hamilton Insurance Group, Ltd., an exempted company organized under the laws of Bermuda (the “Borrower”), Hamilton Re, Ltd., the Lenders party thereto and Wells Fargo Bank, National Association, as Administrative Agent. Capitalized terms used herein and not defined herein shall have the meanings assigned thereto in the Credit Agreement.
1. The Borrower hereby provides notice to the Administrative Agent that it shall repay the following [Base Rate Loans] and/or [SOFR Loans]: _______________. (Complete with an amount in accordance with Section 2.3 of the Credit Agreement.)
2. The Borrower shall repay the above-referenced Loans on the following Business Day or U.S. Government Securities Business Day, as applicable: _______________. (Complete with a date no earlier than (i) the same Business Day as of the date of this Notice of Prepayment with respect to any Base Rate Loan and (ii) three (3) U.S. Government Securities Business Days subsequent to date of this Notice of Prepayment with respect to any SOFR Loan.)
[Remainder of page intentionally left blank; signature page follows]
IN WITNESS WHEREOF, the undersigned has executed this Notice of Prepayment as of the day and year first written above.
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| HAMILTON INSURANCE GROUP, LTD. | |
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| | | | |
| By: | | |
| Name: | | |
| Title: | | |
EXHIBIT E
FORM OF NOTICE OF CONVERSION/CONTINUATION
Dated as of: _____________
| | |
| Wells Fargo Bank, National Association, as Administrative Agent |
| MAC D 1109-019 |
| 1525 West W.T. Harris Blvd. |
| Charlotte, North Carolina 28262 |
| Attention: Syndication Agency Services |
Ladies and Gentlemen:
This irrevocable Notice of Conversion/Continuation (this “Notice”) is delivered to you pursuant to Section 4.2 of the Fifth Amended and Restated Credit Agreement dated as of June 23, 2022 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among Hamilton Insurance Group, Ltd., an exempted company organized under the laws of Bermuda (the “Borrower”), Hamilton Re, Ltd., the Lenders party thereto and Wells Fargo Bank, National Association, as Administrative Agent. Capitalized terms used herein and not defined herein shall have the meanings assigned thereto in the Credit Agreement.
1. This Notice is submitted for the purpose of: (Check one and complete applicable information in accordance with the Credit Agreement.)
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o | Converting all or a portion of a Base Rate Loan into a SOFR Loan | |
| | | | |
| Outstanding principal balance: | $ | | |
| | | | |
| Principal amount to be converted: | $ | | |
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| Requested effective date of conversion: | | | |
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| Requested new Interest Period: | | | |
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o | Converting all or a portion of a SOFR Loan into a Base Rate Loan | |
| | | | |
| Outstanding principal balance: | $ | | |
| | | | |
| Principal amount to be converted: | $ | | |
| | | | |
| Last day of the current Interest Period: | | | |
| | | | |
| Requested effective date of conversion: | | | |
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o | Continuing all or a portion of a SOFR Loan as a SOFR Loan | |
| | | | |
| Outstanding principal balance: | $ | | |
| | | | |
| Principal amount to be continued: | $ | | |
| | | | |
| Last day of the current Interest Period: | | | |
| | | | |
| Requested effective date of continuation: | | | |
| | | | |
| Requested new Interest Period: | | | |
2. The aggregate principal amount of all Loans outstanding as of the date hereof does not exceed the maximum amount permitted to be outstanding pursuant to the terms of the Credit Agreement.
[Remainder of page intentionally left blank; signature page follows]
IN WITNESS WHEREOF, the undersigned has executed this Notice of Conversion/Continuation as of the day and year first written above.
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| HAMILTON INSURANCE GROUP, LTD. | |
| | | | |
| | | | |
| By: | | |
| Name: | | |
| Title: | | |
EXHIBIT F
FORM OF OFFICER’S COMPLIANCE CERTIFICATE
THIS CERTIFICATE is delivered pursuant to the Fifth Amended and Restated Credit Agreement dated as of June 23, 2022 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among Hamilton Insurance Group, Ltd., an exempted company organized under the laws of Bermuda (the “Borrower”), Hamilton Re, Ltd., a company organized under the laws of Bermuda (collectively with the Borrower, the “Credit Parties”), the lenders party thereto, and Wells Fargo Bank, National Association, as Administrative Agent, the Fronting Bank and L/C Agent. Capitalized terms used herein without definition shall have the meanings given to such terms in the Credit Agreement.
The undersigned hereby certifies, in its capacity as a Financial Officer of the Borrower and not in an individual capacity, that:
1. [He][She] is [a duly elected or appointed ________________of the Borrower] [duly authorized to represent the Borrower in connection with this Compliance Certificate].
2. Accompanying this Certificate are copies of the financial statements as of ________________ , and for the [quarter] [year] then ended, required to be delivered under Section [7.1(a)][7.1(b)] of the Credit Agreement. Such financial statements have been prepared in accordance with the requirements of Section [7.1(a)][7.1(b)].
3. The undersigned has reviewed the terms of the Credit Agreement and has made, or caused to be made under the supervision of the undersigned, a review in reasonable detail of the transactions and condition of the Borrower and its Subsidiaries during the accounting period covered by such financial statements.
4. The examination described in paragraph 3 above did not disclose, and the undersigned has no knowledge of the existence of, any Default or Event of Default as of the date of this Certificate[, except as set forth below:]
[Describe here or in a separate attachment any exceptions to this paragraph 4 by listing, in reasonable detail, the nature of the Default or Event of Default and the action that the Credit Parties have taken or propose to take with respect thereto.]
5. Attached to this Certificate as Attachment A is a covenant compliance worksheet reflecting the computation of the financial covenants set forth in Section 8.13 of the Credit Agreement as of the last day of and for the period covered by the financial statements enclosed herewith.
[Remainder of page intentionally left blank; signature page follows]
IN WITNESS WHEREOF, the undersigned has executed and delivered this Certificate as of the ____ day of _____________, 20 __.
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| HAMILTON INSURANCE GROUP, LTD. | |
| | | |
| | | |
| By: | | |
| Name: | |
| Title: | |
EXHIBIT G
FORM OF ASSIGNMENT AND ASSUMPTION
THIS ASSIGNMENT AND ASSUMPTION (this “Assignment and Assumption”) is dated as of the Effective Date set forth below and is entered into by and between [Insert name of Assignor] (the “Assignor”) and [Insert name of Assignee] (the “Assignee”). Capitalized terms used but not defined herein shall have the meanings given to them in the Credit Agreement identified below, receipt of a copy of which is hereby acknowledged by the Assignee. The Standard Terms and Conditions set forth in Annex 1 attached hereto (the “Standard Terms and Conditions”) are hereby agreed to and incorporated herein by reference and made a part of this Assignment and Assumption as if set forth herein in full.
For an agreed consideration, the Assignor hereby irrevocably sells and assigns to the Assignee, and the Assignee hereby irrevocably purchases and assumes from the Assignor, subject to and in accordance with the Standard Terms and Conditions and the Credit Agreement, as of the Effective Date inserted by the Administrative Agent as contemplated below (i) all of the Assignor’s rights and obligations in its capacity as a Lender under the Credit Agreement and any other documents or instruments delivered pursuant thereto to the extent related to the amount and percentage interest identified below of all of such outstanding rights and obligations of the Assignor under the respective facilities identified below (including any guarantees included in such facilities) and (ii) to the extent permitted to be assigned under applicable law, all claims, suits, causes of action and any other right of the Assignor (in its capacity as a Lender) against any Person, whether known or unknown, arising under or in connection with the Credit Agreement, any other documents or instruments delivered pursuant thereto or the transactions governed thereby or in any way based on or related to any of the foregoing, including, but not limited to, contract claims, tort claims, malpractice claims, statutory claims and all other claims at law or in equity related to the rights and obligations sold and assigned pursuant to clause (i) above (the rights and obligations sold and assigned pursuant to clauses (i) and (ii) above being referred to herein collectively as the “Assigned Interest”). Such sale and assignment is without recourse to the Assignor and, except as expressly provided in this Assignment and Assumption, without representation or warranty by the Assignor.
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| 1. | Assignor: | | |
| | | | |
| 2. | Assignee: | | |
| | | [and is an Affiliate/Approved Fund of [identify Lender]]3 |
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| 3. | Borrower: | Hamilton Insurance Group, Ltd. | |
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| 4. | Account Parties: | The Borrower and Hamilton Re, Ltd. | |
3Select as applicable.
5. Administrative Agent: Wells Fargo Bank, National Association, as the Administrative Agent under the Credit Agreement.
6. Credit Agreement: Fifth Amended and Restated Credit Agreement dated as of June 23, 2022 (as amended, modified, restated or supplemented from time to time, the “Credit Agreement”), among each Account Party, certain Lenders from time to time parties thereto (the “Lenders”), and Wells Fargo Bank, National Association, as Administrative Agent, L/C Agent and Fronting Bank.
7. Assigned Interest:
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| Aggregate Amount of Commitment/ Revolving Credit Exposure for all Lenders4 | Amount of
Commitment/Revolving Credit
Exposure Assigned5 | Percentage Assigned
of Commitment/
Revolving Credit
Exposure6 | CUSIP Number7 | |
| $ | $ | % | | |
| $ | $ | % | | |
| $ | $ | % | | |
[8. Trade Date: ____________]8
9. Effective Date: ____________ [TO BE INSERTED BY THE ADMINISTRATIVE AGENT AND WHICH SHALL BE THE EFFECTIVE DATE OF RECORDATION OF TRANSFER IN THE REGISTER THEREFOR.]
4 Amount to be adjusted by the counterparties to take into account any payments or prepayments made between the Trade Date and the Effective Date.
5Amount to be adjusted by the counterparties to take into account any payments or prepayments made between the Trade Date and the Effective Date.
6Set forth, to at least 9 decimals, as a percentage of the Commitment/Revolving Credit Exposure of all Lenders thereunder.
7Insert if applicable.
8To be completed if the Assignor and the Assignee intend that the minimum assignment amount is to be determined as of the Trade Date.
The terms set forth in this Assignment and Assumption are hereby agreed to:
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| ASSIGNOR: |
| | |
| [NAME OF ASSIGNOR] |
| | |
| | |
| By: | |
| Title: | |
| | |
| | |
| ASSIGNEE: |
| | |
| [NAME OF ASSIGNEE] |
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| | |
| By: | |
| Title: | |
[Consented to and]9 Accepted:
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WELLS FARGO BANK, NATIONAL ASSOCIATION, as Administrative Agent |
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| By: | | |
| Title: | | |
[Consented to:]10
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| HAMILTON INSURANCE GROUP, LTD. |
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| | |
| By: | | |
| Title: | | |
9To be added only if the consent of the Administrative Agent is required by the terms of the Credit Agreement.
10To be added only if the consent of the Borrower is required by the terms of the Credit Agreement.
ANNEX 1 to Assignment and Assumption
Fifth Amended and Restated Credit Agreement dated as of June 23, 2022 (as amended, restated, supplemented or otherwise modified from time to time, (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), among Hamilton Re, Ltd., Hamilton Insurance Group, Ltd., certain Lenders from time to time parties thereto, and Wells Fargo Bank, National Association, as Administrative Agent, L/C Agent and Fronting Bank
STANDARD TERMS AND CONDITIONS FOR
ASSIGNMENT AND ASSUMPTION
1. Representations and Warranties.
1.1 Assignor. The Assignor (a) represents and warrants that (i) it is the legal and beneficial owner of the Assigned Interest, (ii) the Assigned Interest is free and clear of any lien, encumbrance or other adverse claim, (iii) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and (iv) it is not a Defaulting Lender; and (b) assumes no responsibility with respect to (i) any statements, warranties or representations made in or in connection with the Credit Agreement or any other Loan Document, (ii) the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Loan Documents or any collateral thereunder, (iii) the financial condition of the Borrower, any of its Subsidiaries or Affiliates or any other Person obligated in respect of any Loan Document or (iv) the performance or observance by the Borrower, any of its Subsidiaries or Affiliates or any other Person of any of their respective obligations under any Loan Document.
1.2. Assignee. The Assignee (a) represents and warrants that (i) it has full power and authority, and has taken all action necessary, to execute and deliver this Assignment and Assumption and to consummate the transactions contemplated hereby and to become a Lender under the Credit Agreement, (ii) it meets all requirements of an Eligible Assignee under the Credit Agreement (subject to receipt of such consents as may be required under the Credit Agreement), (iii) from and after the Effective Date, it shall be bound by the provisions of the Credit Agreement as a Lender thereunder and, to the extent of the Assigned Interest, shall have the obligations of a Lender thereunder, (iv) it has received a copy of the Credit Agreement, together with copies of the most recent financial statements delivered pursuant to Section 7.1 thereof, as applicable, and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Assumption and to purchase the Assigned Interest on the basis of which it has made such analysis and decision independently and without reliance on the Administrative Agent or any other Lender, and (v) attached to the Assignment and Assumption is any documentation required to be delivered by it pursuant to the terms of the Credit Agreement (including, without limitation, any such documentation required to be delivered pursuant to Section 4.11(g)), duly completed and executed by the Assignee; and (b) agrees that (i) it will, independently and without reliance on the Administrative Agent, the Assignor or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under the Loan Documents, and (ii) it will perform in accordance with their terms all of the obligations that by the terms of the Loan Documents are required to be performed by it as a Lender.
2. Payments. From and after the Effective Date, the Administrative Agent shall make all payments in respect of the Assigned Interest (including payments of principal, interest, fees and other amounts) to the Assignor for amounts that have accrued to but excluding the Effective Date and to the Assignee for amounts that have accrued from and after the Effective Date.
3. General Provisions. This Assignment and Assumption shall be binding upon, and inure to the benefit of, the parties hereto and their respective successors and assigns. This Assignment and Assumption may be executed in any number of counterparts, which together shall constitute one instrument. Delivery of an executed counterpart of a signature page of this Assignment and Assumption by telecopy shall be effective as delivery of a manually executed counterpart of this Assignment and Assumption. This Assignment and Assumption shall be governed by, and construed in accordance with, the laws of the State of New York.
EXHIBIT H-1
FORM OF U.S. TAX COMPLIANCE CERTIFICATE
(For Foreign Lenders That Are Not Partnerships For U.S. Federal Income Tax Purposes)
Reference is hereby made to the Fifth Amended and Restated Credit Agreement dated as of June 23, 2022 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among Hamilton Insurance Group, Ltd. (the “Borrower”), Hamilton Re, Ltd. (collectively with the Borrower, the “Credit Parties”), the lenders party thereto (the “Lenders”) and Wells Fargo Bank, National Association, as agent (the “Agent”).
Pursuant to the provisions of Section 4.11 of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record and beneficial owner of the Commitment in respect of which it is providing this certificate, (ii) it is not a bank within the meaning of Section 881(c)(3)(A) of the Code, (iii) it is not a ten percent shareholder of any Credit Party within the meaning of Section 881(c)(3)(B) of the Code and (iv) it is not a controlled foreign corporation related to the Credit Parties as described in Section 881(c)(3)(C) of the Code.
The undersigned has furnished the Agent and the Credit Parties with a certificate of its non-U.S. Person status on IRS Form W-8BEN-E. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform the Credit Parties and the Agent, and (2) the undersigned shall have at all times furnished the Credit Parties and the Agent, to the extent it is legally able to do so, with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.
Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.
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| [NAME OF LENDER] | | | |
| | | | | | | |
| By: | |
| | Name: | | | | | |
| | Title: | | | | | |
| Date: | ____________ __, 20__ |
EXHIBIT H-2
FORM OF U.S. TAX COMPLIANCE CERTIFICATE
(For Foreign Participants That Are Not Partnerships For U.S. Federal Income Tax Purposes)
Reference is hereby made to the Fifth Amended and Restated Credit Agreement dated as of June 23, 2022 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among Hamilton Insurance Group, Ltd. (the “Borrower”), Hamilton Re, Ltd. (collectively with the Borrower, the “Credit Parties”), the lenders party thereto (the “Lenders”) and Wells Fargo Bank, National Association, as agent (the “Agent”).
Pursuant to the provisions of Section 4.11 of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record and beneficial owner of the participation in respect of which it is providing this certificate, (ii) it is not a bank within the meaning of Section 881(c)(3)(A) of the Code, (iii) it is not a ten percent shareholder of any Credit Party within the meaning of Section 881(c)(3)(B) of the Code, and (iv) it is not a controlled foreign corporation related to the Credit Parties as described in Section 881(c)(3)(C) of the Code.
The undersigned has furnished its participating Lender with a certificate of its non-U.S. Person status on IRS Form W-8BEN-E. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform such Lender in writing, and (2) the undersigned shall have at all times furnished such Lender with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.
Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.
| | | | | | | | | | | | | | | | | | | | | | | |
| [NAME OF PARTICIPANT] |
| | | | | | | |
| By: | |
| | Name: | | | | | |
| | Title: | | | | | |
| | | | | | | |
| Date: | ____________ __, 20__ |
EXHIBIT H-3
FORM OF U.S. TAX COMPLIANCE CERTIFICATE
(For Foreign Participants That Are Partnerships For U.S. Federal Income Tax Purposes)
Reference is hereby made to the Fifth Amended and Restated Credit Agreement dated as of June 23, 2022 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among Hamilton Insurance Group, Ltd. (the “Borrower”), Hamilton Re, Ltd. (collectively with the Borrower, the “Credit Parties”), the lenders party thereto (the “Lenders”) and Wells Fargo Bank, National Association, as agent (the “Agent”).
Pursuant to the provisions of Section 4.11 of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record owner of the participation in respect of which it is providing this certificate, (ii) its direct or indirect partners/members are the sole beneficial owners of such participation, (iii) with respect such participation, neither the undersigned nor any of its direct or indirect partners/members that is claiming the portfolio interest exemption is a bank extending credit pursuant to a loan agreement entered into in the ordinary course of its trade or business within the meaning of Section 881(c)(3)(A) of the Code, (iv) none of its direct or indirect partners/members that is claiming the portfolio interest exemption is a ten percent shareholder of any Credit Party within the meaning of Section 881(c)(3)(B) of the Code and (v) none of its direct or indirect partners/members is a controlled foreign corporation related to the Credit Parties as described in Section 881(c)(3)(C) of the Code.
The undersigned has furnished its participating Lender with IRS Form W-8IMY accompanied by one of the following forms from each of its partners/members that is claiming the portfolio interest exemption: (i) an IRS Form W-8BEN-E or (ii) an IRS Form W-8IMY accompanied by an IRS Form W-8BEN-E from each of such partner’s/member’s beneficial owners that is claiming the portfolio interest exemption. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform such Lender and (2) the undersigned shall have at all times furnished such Lender with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.
Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.
| | | | | | | | | | | | | | | | | | | | | | | |
| [NAME OF PARTICIPANT] |
| | | | | | | |
| By: | |
| | Name: | | | | | |
| | Title: | | | | | |
| | | | | | | |
| Date: | ____________ __, 20__ |
EXHIBIT H-4
FORM OF U.S. TAX COMPLIANCE CERTIFICATE
(For Foreign Lenders That Are Partnerships For U.S. Federal Income Tax Purposes)
Reference is hereby made to the Fifth Amended and Restated Credit Agreement dated as of June 23, 2022 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among Hamilton Insurance Group, Ltd. (the “Borrower”), Hamilton Re, Ltd. (collectively with the Borrower, the “Credit Parties”), the lenders party thereto (the “Lenders”) and Wells Fargo Bank, National Association, as agent (the “Agent”).
Pursuant to the provisions of Section 4.11 of the Credit Agreement, the undersigned hereby certifies that (i) it is the sole record owner of the Commitment in respect of which it is providing this certificate, (ii) its direct or indirect partners/members are the sole beneficial owners of such Commitment, (iii) with respect to the extension of credit pursuant to the Credit Agreement or any other Loan Document, neither the undersigned nor any of its direct or indirect partners/members that is claiming the portfolio interest exemption is a bank extending credit pursuant to a loan agreement entered into in the ordinary course of its trade or business within the meaning of Section 881(c)(3)(A) of the Code, (iv) none of its direct or indirect partners/members that is claiming the portfolio interest exemption is a ten percent shareholder of any Credit Party within the meaning of Section 881(c)(3)(B) of the Code and (v) none of its direct or indirect partners/members is a controlled foreign corporation related to the Credit Parties as described in Section 881(c)(3)(C) of the Code.
The undersigned has furnished the Agent and the Credit Parties with IRS Form W-8IMY accompanied by one of the following forms from each of its partners/members that is claiming the portfolio interest exemption: (i) an IRS Form W-8BEN-E or (ii) an IRS Form W-8IMY accompanied by an IRS Form W-8BEN-E from each of such partner’ s/member’ s beneficial owners that is claiming the portfolio interest exemption. By executing this certificate, the undersigned agrees that (1) if the information provided on this certificate changes, the undersigned shall promptly so inform the Credit Parties and the Agent, and (2) the undersigned shall have at all times furnished the Credit Parties and the Agent with a properly completed and currently effective certificate in either the calendar year in which each payment is to be made to the undersigned, or in either of the two calendar years preceding such payments.
Unless otherwise defined herein, terms defined in the Credit Agreement and used herein shall have the meanings given to them in the Credit Agreement.
| | | | | | | | | | | | | | | | | | | | | | | |
| [NAME OF LENDER] | | | |
| | | | | | | |
| By: | |
| | Name: | | | | | |
| | Title: | | | | | |
| | | | | | | |
| Date: | ____________ __, 20__ |
EXHIBIT I
FORM OF CONFIRMING LENDER AGREEMENT
__________________, 20___
[Name of Confirming Lender]
[Address]
Ladies and Gentlemen:
Reference is made to the Fifth Amended and Restated Credit Agreement dated as of June 23, 2022 (as amended, restated, supplemented and otherwise modified from time to time and in effect on the date hereof, the “Credit Agreement”), among Hamilton Re, Ltd., Hamilton Insurance Group, Ltd. (the “Borrower”), the Lenders party thereto, and Wells Fargo, National Association (“Wells Fargo”), as Administrative Agent for the Lenders, as L/C Agent and as the Fronting Bank. Capitalized terms used but not otherwise defined herein have the same meaning as in the Credit Agreement.
The undersigned (the “Non-NAIC Issuing Lender”) is an Issuing Lender under the Credit Agreement in respect of Syndicated Letters of Credit but is not on the date hereof a bank listed on the most current NAIC Qualified Institution List. Accordingly, in order to be an NAIC Qualified Lender for the purposes of the Credit Agreement, the Non-NAIC Issuing Lender hereby requests that you be a Confirming Lender with respect to the Non-NAIC Issuing Lender for the purposes of the Credit Agreement and each Syndicated Letter of Credit that is issued thereunder.
By your signature below, you undertake that any draft drawn under and in strict compliance with the terms of any Syndicated Letter of Credit for which the Non-NAIC Issuing Lender has an obligation under the Credit Agreement will be duly honored by you as if, and to the extent, you were originally named on such Syndicated Letter of Credit in place of the Non-NAIC Issuing Lender. Notwithstanding the foregoing, your liability under all Syndicated Letters of Credit at any one time issued under the Credit Agreement shall be limited to an amount equal to the Non-NAIC Issuing Lender’s Ratable Share of the Letter of Credit Commitment under the Credit Agreement in effect on the date hereof (an amount equal to $________), as such amount may be increased after the date hereof with your prior written consent. In addition, you hereby irrevocably appoint and designate the L/C Agent as your attorney-in-fact, acting through any duly authorized officer of Wells Fargo, to execute and deliver, at any time prior to the Commitment Termination Date in effect on the date of this letter agreement, in your name and on your behalf each Syndicated Letter of Credit to be confirmed by you in accordance herewith and with the Credit Agreement. You agree that, promptly upon the request of the L/C Agent, you will furnish to the L/C 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 L/C Agent has the power to act as attorney-in-fact for you in connection with the execution and delivery of such Syndicated Letter of Credit.
In consideration of the foregoing, the Non-NAIC Issuing Lender agrees that if you shall make any L/C Disbursement in respect of any Syndicated Letter of Credit, the Non-NAIC Issuing Lender shall reimburse you by paying to you an amount equal to the amount of the L/C Disbursement made by you, such payment to be made not later than 12:00 P.M., New York City time, on (i) the Business Day that the Non-NAIC Issuing Lender receives notice of such L/C 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 Non-NAIC Issuing Lender receives such notice, if such notice is received on a day which is not a Business Day or is not received prior to 10:00 A.M., New York City time, on a Business Day. The Non-NAIC Issuing Lender’s obligations to reimburse you as provided in the foregoing sentence shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this letter agreement under any and all circumstances whatsoever, and irrespective of any event or circumstance of the type described in Section 3.4 of the Credit Agreement (or of any analogous event or circumstance relating to the Non-NAIC Issuing Lender).
If any L/C Disbursement is made by you, then, unless the Non-NAIC Issuing Lender shall reimburse the amount of such L/C Disbursement to you in full on the date such L/C Disbursement is made by you, the unpaid amount thereof shall bear interest, for each day from and including the date such L/C Disbursement is made to but excluding the date of reimbursement, at the rate per annum equal to (i) the Federal Funds Rate to but excluding the date three Business Days after such L/C Disbursement and (ii) from and including the date three Business Days after such L/C Disbursement, 2% plus the Federal Funds Rate.
This letter agreement shall be governed by and construed in accordance with the law of the State of New York.
[Signatures are on the next page.]
Please indicate your acceptance of the foregoing terms and conditions by signing the three enclosed copies of this letter agreement and returning (a) one such signed copy to the Non-NAIC Issuing Lender at the address indicated above, (b) one such signed copy to the Administrative Agent at Wells Fargo, National Association, 1525 West W.T. Harris Blvd., Mailcode D1109-019, Charlotte, North Carolina 28262, Attention: Syndication Agency Services, Telephone: (704) 590 2706, Facsimile: (704) 590 2790, and (c) one such signed copy to the Borrower.
| | | | | | | | |
| [NAME OF NON-NAIC ISSUING LENDER] |
| | |
| By | | |
| Title: |
| | |
| AGREED AS AFORESAID: |
| | |
| [NAME OF CONFIRMING LENDER] |
| | |
| By | | |
| Title: |
EXHIBIT J
FORM OF LENDER JOINDER AGREEMENT
THIS LENDER JOINDER AGREEMENT (this “Lender Joinder Agreement”) is made this _____day of __________, 20___, by ________________, a ________________ (the “New Lender”). Reference is made to the Fifth Amended and Restated Credit Agreement dated as of June 23, 2022 (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among Hamilton Insurance Group, Ltd., an exempted company organized under the laws of Bermuda (the “Borrower”), Hamilton Re, Ltd., a company organized under the laws of Bermuda (collectively with the Borrower, the “Credit Parties”), the lenders party thereto, and Wells Fargo Bank, National Association, as Administrative Agent, the Fronting Bank and L/C Agent. Capitalized terms used herein without definition shall have the meanings given to such terms in the Credit Agreement.
The New Lender hereby agrees as follows:
1. Lender Joinder Agreement. Subject to the terms and conditions hereof and of the Credit Agreement, the New Lender hereby agrees to become a Lender under the Credit Agreement with a Commitment of________________ Dollars ($__________). After giving effect to this Lender Joinder Agreement and the adjustments required under Section 4.13(e) of the Credit Agreement, the New Lender’s Commitment and the aggregate Letter of Credit Exposure of the New Lender will be as set forth in Item 4 of Annex I attached hereto. The New Lender agrees that all references in the Loan Documents to “Lender” or “Lenders” include the New Lender.
2. New Lender Representations. The New Lender (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements of the Credit Parties delivered to the Administrative Agent pursuant to the Credit Agreement and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Lender Joinder Agreement, (ii) agrees 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 deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement, (iii) appoints and authorizes the Administrative Agent to take such action as Administrative Agent on its behalf under the Loan Documents, and to exercise such powers and to perform such duties, as are specifically delegated to or required of the Administrative Agent by the terms thereof, together with such other powers as are reasonably incidental thereto, (iv) agrees that it will perform in accordance with their terms all of the obligations that by the terms of the Credit Agreement are required to be performed by it as a Lender, (vi) specifies as its address for payments and notices the office set forth beneath its name on its signature page hereto and (v) represents that it is a NAIC Qualified Lender and is not a Defaulting Lender.
3. Effective Date. Following the execution of this Lender Joinder Agreement by the New Lender, an executed original hereof, together with all attachments hereto, shall be delivered to the Administrative Agent. The effective date of this Lender Joinder Agreement (the “Effective Date”) shall be the date of execution hereof by each Credit Party, the Administrative Agent and the New Lender. As of the Effective Date, the Lender shall be a party to the Credit Agreement
and, to the extent provided in this Lender Joinder Agreement, shall have the rights and obligations of a Lender thereunder and under the other Loan Documents.
4. Governing Law. This Lender Joinder Agreement shall be governed by, and construed in accordance with, the law of the State of New York (including Sections 5-1401 and 5-1402 of the New York General Obligations Law, but excluding all other choice of law and conflicts of law rules).
5. Entire Agreement. This Lender Joinder Agreement, together with the Credit Agreement and the other Loan Documents, embody the entire agreement and understanding between the parties hereto and supersede all prior agreements and understandings of the parties, verbal or written, relating to the subject matter hereof.
6. Successors and Assigns. This Lender Joinder Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their successors and assigns.
7. Counterparts. This Lender Joinder Agreement may be executed in any number of counterparts and by different parties hereto on separate counterparts, each of which, when so executed and delivered, shall be an original, but all of which shall together constitute one and the same instrument.
[Signatures appear on following page]
IN WITNESS WHEREOF, the parties have caused this Lender Joinder Agreement to be executed by their duly authorized officers as of the date first above written.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | [insert name of New Lender] | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | By: | | |
| | | | | | | Name: | | |
| | | | | | | Title: | | |
| | | | | | | | | |
| | | | | | | | | |
Accepted this _____ day of | | | |
_____________, ______: | | | |
WELLS FARGO BANK, NATIONAL ASSOCIATION, as Administrative Agent
Consented and agreed to:
HAMILTON INSURANCE GROUP, LTD.
HAMILTON RE, LTD.
ANNEX I
1. Credit Parties: Hamilton Insurance Group, Ltd. and Hamilton Re, Ltd.
2. Name and Date of Credit Agreement: Fifth Amended and Restated Letter of Credit Agreement, dated as of June 23, 2022 by and among Hamilton Insurance Group, Ltd., an exempted company organized under the laws of Bermuda (the “Borrower”), Hamilton Re, Ltd., a company organized under the laws of Bermuda (collectively with the Borrower, the “Credit Parties”), the lenders party thereto, and Wells Fargo Bank, National Association, as Administrative Agent, the Fronting Bank and L/C Agent.
3. Date of Lender Joinder Agreement: ______________, ________
4. Amounts (after giving effect to adjustments pursuant to Section 4.13(e) of the Credit Agreement):
| | | | | | | | | | | | | | |
| Aggregate Amount of
Revolving Credit
Exposure for all
Lenders | Amount of Revolving Credit Exposure of New Lender | Percentage of Revolving Credit Exposure1 | |
| $ | $ | % | |
5. Addresses for Payments and Notices:
| | | | | | | | | | | |
| New Lender: | For Funding/Notices: |
| | |
| | |
| | |
| | |
| | |
| Facsimile: (___) _______ | |
| Reference | | |
| | | |
| For Payments: | | |
| | |
| | |
| | |
| | |
| | |
| Facsimile: (___) _______ | |
| Reference | | |
6. Effective Date: ______________, ________ (in accordance with Section 3).
1 Set forth, to at least 9 decimals, as a percentage of the Commitment/Revolving Credit Exposure of all Lenders thereunder.
SCHEDULE 6.2
SUBSIDIARIES AND CAPITALIZATIONS
Note – capitalized terms used in this Schedule shall have the same meaning assigned to them in the Agreement, unless otherwise defined in this Schedule.
Subsidiary Ownership
See attached under Exhibit A to this Schedule 6.2.
10% or greater owners of the Parent
As at the Closing Date, only one shareholder holds 10% or more of the aggregate of the economic Equity Interests of the Parent, being BSOF Master Fund LP (“BSOF”), which holds approximately 18.1%.
Please note that, under the Bye-laws of the Parent, no shareholder can have more than 9.5% of the voting power, so the voting power of any shareholder who holds more than 9.5% of the economic shares is “cut back” to 9.5%.
BSOF is managed by Blackstone Alternative Solutions L.L.C. (the general partner of BSOF is Blackstone Strategic Opportunity Associates L.L.C.). Both Blackstone Alternative Solutions L.L.C. and Blackstone Strategic Opportunity Associates L.L.C. are affiliates of The Blackstone Group Inc. The Blackstone Group Inc. is a publicly-listed company on the NYSE (ticker symbol = BX). No single individual ultimately owns more than 10% of the Parent through BSOF’s interest in the company.
Equity Interests
As a general note, awards in the form of Equity Interests are granted to, or may be purchased by, directors and specific employees of the Parent and its Subsidiaries in the ordinary course of business to, pursuant to the terms of the Parent’s equity incentive plan and executive and director share purchase program, all of which have been reviewed and approved by the board of directors of the Parent.
In the fourth quarter of 2020, the board of directors of the Parent approved an incremental employee compensation scheme known as the Value Appreciation Pool (“VAP”). The VAP is intended to align long-term Group and shareholder interests by rewarding employees with 10% of any goodwill value created between the December 1, 2020 VAP inception date and either a trigger event or plan maturity on November 30, 2025. The VAP will settle in two tranches: the first settlement upon either plan maturity or the occurrence of a specified trigger event, and the second, twelve months later. All current and future
employees are eligible to participate. Settlement under the VAP may be by cash or the issuance of equity interests.
Exhibit A
Ownership Structure
[see overleaf]
SCHEDULE 6.13
MATERIAL ADVERSE CHANGES
Note – capitalized terms used in this Schedule shall have the same meaning assigned to them in the Agreement, unless otherwise defined in this Schedule.
None.
SCHEDULE 8.1
EXISTING INDEBTEDNESS
Note – capitalized terms used in this Schedule shall have the same meaning assigned to them in the Agreement, unless otherwise defined in this Schedule.
None, save as otherwise permitted by the exceptions contemplated under Section 8.1 of the Agreement.
SCHEDULE 8.2
EXISTING LIENS
Note – capitalized terms used in this Schedule shall have the same meaning assigned to them in the Agreement, unless otherwise defined in this Schedule.
None, save as otherwise permitted by the exceptions contemplated under Section 8.2 of the Agreement.
SCHEDULE 8.5
ASSET DISPOSITIONS
Note – capitalized terms used in this Schedule shall have the same meaning assigned to them in the Agreement, unless otherwise defined in this Schedule.
None.
Exhibit 10.15
EXECUTION VERSION
Amendment and Restatement Agreement
Hamilton Re, Ltd.
as Borrower
Hamilton Corporate Member Limited
Ironshore CC (Three) Limited
as Applicants
Hamilton Insurance Group, Ltd.
as Guarantor
Barclays Bank PLC, ING Bank N.V., London Branch
and Bank of Montreal, London Branch
as Lenders
Barclays Bank PLC
as Agent
and
Barclays Bank PLC
as Security Agent
relating to a facility agreement originally dated 7 November 2019 as amended and restated on 2 July 2020, 4 November 2020, 3 November 2021 and further amended and restated by this agreement
1 November 2022
CONTENTS
| | | | | | | | |
| CLAUSE | | PAGE |
| | |
| 1. | INTERPRETATION | 1 |
| 2. | AMENDMENT AND RESTATEMENT OF FACILITY AGREEMENT | 2 |
| 3. | STATUS OF DOCUMENTS | 2 |
| 4. | REPRESENTATIONS AND WARRANTIES | 3 |
| 5. | MISCELLANEOUS | 3 |
| 6. | GOVERNING LAW AND SUBMISSION TO JURISDICTION | 3 |
| SCHEDULE 1 | 5 |
| Lenders | 5 |
| SCHEDULE 2 | 6 |
| Conditions Precedent | 6 |
| SCHEDULE 3 | 8 |
| Restated Facility Agreement | 8 |
THIS AMENDMENT AND RESTATEMENT AGREEMENT is made on 1 November 2022
BETWEEN:
(1) HAMILTON RE, LTD. (Registration No. 46635 an exempted company incorporated in Bermuda registered as a Class 4 insurer under the Bermuda Insurance Act 1978, as amended, and having its registered office at Wellesley House, North 1st Floor, 90 Pitts Bay Road, Pembroke, HM 08, Bermuda (the "Borrower");
(2) HAMILTON CORPORATE MEMBER LIMITED (Registration No. 05996460) a company incorporated in England and Wales and having its registered office at Level 3, 8 Fenchurch Place, London, England, EC3M 4AJ ("HCML");
(3) IRONSHORE CC (THREE) LIMITED (Registration No. 07041930) a company incorporated in England and Wales and having its registered office at Level 3, 8 Fenchurch Place, London, England, EC3M 4AJ ("ICC3L", together with HCML, the "Applicants", each an "Applicant");
(4) HAMILTON INSURANCE GROUP, LTD. (Registration No. 48117) an exempted company incorporated in Bermuda and having its registered office at c/o Conyers Corporate Services (Bermuda) Limited, Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda (the "Guarantor");
(5) THE FINANCIAL INSTITUTIONS listed in schedule 1 (Lenders) as lenders (individually or together, the "Lenders");
(6) BARCLAYS BANK PLC as agent of the other Finance Parties (the "Agent"); and
(7) BARCLAYS BANK PLC as security agent of the Secured Parties (the "Security Agent").
WHEREAS:
(A) The parties to this agreement entered into a letter of credit facility agreement originally dated 7 November 2019, as amended and restated on 2 July 2020, 4 November 2020 and 3 November 2021, and which will be further amended and restated by this agreement, pursuant to which the Lenders (amongst others) made available to the Borrower a letter of credit facility (the "Facility Agreement").
(B) The parties to this agreement have agreed to enter into this agreement in order to amend and restate the terms of the Facility Agreement in the manner set out below;
THE PARTIES AGREE AS FOLLOWS:
1. INTERPRETATION
1.1 Definitions
(a) Unless a contrary intention appears in this agreement, any word or expression defined in schedule 3 (Restated Facility Agreement) will have the same meaning when it is used in this agreement.
(b) In this agreement:
"Effective Date" means the date on which the Agent notifies the Borrower that all the conditions precedent listed in schedule 2 have been satisfied (acting reasonably);
"Existing Letters of Credit" mean the Letters of Credit with reference:
(i) LDDC55047289 IRONSHORE CC (THREE) LIMITED; and
(ii) LDGI 55047291 HAMILTON CORPORATE MEMBER LIMITED;
"Restated Facility Agreement" means the Facility Agreement as amended and restated in accordance with this agreement in the form set out in schedule 3 (Restated Facility Agreement);
1.2 Construction
Clause 1.2 (Construction) of the Restated Facility Agreement will be deemed to be set out in full in this agreement, but as if references in that clause to the Facility Agreement were references to this agreement.
1.3 Consideration
The parties to this agreement acknowledge that obligations under this agreement are supported by the consideration provided under the Restated Facility Agreement, pursuant to which the Borrower obtains the benefit of being able to draw on the Facility. The parties to this agreement acknowledge the sufficiency and adequacy of such consideration.
2. AMENDMENT AND RESTATEMENT OF FACILITY AGREEMENT
2.1 Amendment and Restatement
(a) The Facility Agreement will, with effect from (and including) the Effective Date, be amended and restated in the form set out in schedule 3 (Restated Facility Agreement) so that the rights and obligations of the parties to this agreement relating to their performance under the Facility Agreement from (and including) the Effective Date shall be governed by, and construed in accordance with, the terms of the Restated Facility Agreement.
(b) The parties to this agreement agree that, with effect from (and including) the Effective Date, they shall have the rights and take on the obligations ascribed to them under the Restated Facility Agreement.
2.2 Effective Date
(a) The Agent will notify the Borrower and the Lenders promptly in writing when the Effective Date occurs.
(b) If the Effective Date has not occurred by the 2022 Tier 2 Asset Submission Deadline (or any later date which the Agent and the Borrower may agree), then clauses 2.1 (Amendment and Restatement) and 3 (Status of Documents) will lapse and none of the amendments recorded in clause 2.1 (Amendment and Restatement) will take effect.
3. STATUS OF DOCUMENTS
3.1 Continuing Obligations
(a) Except as specifically varied by the terms of this agreement, the Facility Agreement and the other Finance Documents will remain unchanged and in full force and effect. Each party to this agreement reconfirms all of its obligations under the Facility Agreement (as amended and restated by this agreement) and under the other Finance Documents.
(b) Any reference in the Finance Documents to the Facility Agreement or to any provision of the Facility Agreement will be construed as a reference to the Facility Agreement, or that provision, as amended and restated by this agreement.
3.2 Finance Document
This agreement will constitute a Finance Document for the purposes of the Restated Facility Agreement.
3.3 Guarantee Confirmation
The Guarantor confirms and agrees that with effect from (and including) the Effective Date, the guarantees and indemnities set out in clause 14 (Guarantee and Indemnity) of the Restated Facility Agreement shall apply and extend to the obligations of the Borrower under the Finance Documents (as defined in the Restated Facility Agreement).
4. REPRESENTATIONS AND WARRANTIES
Each Obligor makes to each Finance Party each of the Repeating Representations, in each case:
(a) on the date of this agreement and on the Effective Date;
(b) by reference to the facts and circumstances then existing; and
(c) on the basis that references in the Repeating Representations to the Finance Documents include this agreement,
and acknowledges that each Finance Party has entered into this agreement and has agreed to the amendment and restatement effected by this agreement in full reliance on those representations and warranties.
5. MISCELLANEOUS
5.1 Fees and Expenses
The Borrower shall, promptly on demand, pay the Agent and the Security Agent the amount of all costs and expenses (including legal fees) reasonably incurred by any of them in connection with the negotiation, preparation, printing, execution, syndication and perfection of this agreement and all documents referred to in this agreement.
5.2 Invalidity of any Provision
If, at any time, any provision of this agreement is or becomes invalid, illegal or unenforceable in any respect under any law of any jurisdiction, neither the legality, validity or enforceability of the remaining provisions nor the legality, validity or enforceability of such provision under the law of any other jurisdiction will in any way be affected or impaired.
5.3 Counterparts
This agreement may be executed in any number of counterparts and this has the same effect as if the signatures on the counterparts were on a single copy of this agreement.
6. GOVERNING LAW AND SUBMISSION TO JURISDICTION
6.1 Governing Law
This agreement and any non-contractual obligations arising out of or in connection with it are governed by English law.
6.2 Jurisdiction of English Courts
(a) The courts of England have exclusive jurisdiction to settle any dispute arising out of or in connection with this agreement (including a dispute regarding the existence, validity or termination of this agreement or any non-contractual obligation arising out of or in connection with this agreement) (a “Dispute”).
(b) The parties to this agreement agree that the courts of England are the most appropriate and convenient courts to settle Disputes and accordingly no party will argue to the contrary.
IN WITNESS whereof this agreement has been duly executed on the date first above written.
SCHEDULE 1
Lenders
Barclays Bank PLC
ING Bank N.V., London Branch
Bank of Montreal, London Branch
SCHEDULE 2
Conditions Precedent
1. CORPORATE DOCUMENTS
1.1 A certificate in the agreed form from each Obligor signed by an officer confirming that there has been no amendment to its constitutional documents since 7 November 2019 or, if there has been any such amendment, attaching a certified copy of the constitutional documents of that Obligor.
1.2 A copy of a resolution of the board of directors of each Obligor:
(a) approving the terms of and the transactions contemplated by this agreement and resolving that it executes, deliver and perform this agreement; and
(b) authorising a specified person or persons to execute this agreement and any documents to be signed or delivered under it.
1.3 A specimen of the signature of each person authorised by the resolution referred to in paragraph 1.2 above.
1.4 A certificate from each of the Borrower and the Guarantor (signed by a director or authorised signatory) confirming that borrowing or guaranteeing or securing, as appropriate, the Total Commitments would not cause any borrowing, guarantee or similar limit binding on it to be exceeded.
1.5 A certificate of an authorised signatory of each Obligor certifying that each copy document relating to it specified in this schedule 2 is correct, complete and in full force and effect as at a date no earlier than the date of this agreement.
2. FINANCE DOCUMENTS
2.1 This agreement duly executed by the parties thereto.
2.2 Duly completed Utilisation Requests documenting the required amendments to the Existing Letters of Credit.
3. LEGAL OPINIONS
3.1 A legal opinion of Ashurst LLP, legal advisers to the Agent and Security Agent in England, substantially in the form distributed to the Lenders prior to signing this agreement.
3.2 A legal opinion of Carey Olsen Bermuda Limited, legal advisers to the Borrower in Bermuda, substantially in the form distributed to the Lenders prior to signing this agreement.
4. OTHER DOCUMENTS AND EVIDENCE
4.1 Evidence that the fees, costs and expenses then due from the Borrower pursuant to clause 5.1 (Fees and Expenses) of this agreement and/or pursuant to the Mandate Letter have been paid or will be paid by the Effective Date subject to receipt by the Borrower of appropriate invoicing information (where applicable).
4.2 A copy of any other Authorisation or other document, opinion or assurance which the Agent considers to be necessary or desirable (if it has notified the Borrower accordingly) in connection with the entry into and performance of the transactions contemplated by any Finance Document or for the validity and enforceability of any Finance Document.
4.3 A group structure chart showing the name, company registration number, jurisdiction of incorporation and/or establishment of each member of the Group and a list of shareholders of the Guarantor as at the date of this agreement (or confirmation that the Group Structure Chart delivered to the Agent on 7 November 2019 remains correct, complete and up to date).
4.4 A certificate of compliance issued by the Bermuda Registrar of Companies in respect of each Obligor incorporated in Bermuda as at a date no earlier than 7 calendar days prior to the date of this agreement.
4.5 A certificate of compliance issued by the Bermuda Monetary Authority in respect of the Borrower as at a date no earlier than 10 calendar days prior to the date of this agreement.
4.6 A certificate of the Borrower and the Guarantor (signed by a director or authorised signatory thereof) certifying that it has not been served with, nor has it received any notice of, nor has it itself filed any winding up or other insolvency petition as at the date of this agreement.
SCHEDULE 3
Restated Facility Agreement
US$205,000,000
Letter of Credit Facility Agreement
Hamilton Re, Ltd.
as Borrower
Hamilton Corporate Member Limited
Ironshore CC (Three) Limited
as Applicants
Hamilton Insurance Group, Ltd.
as Guarantor
and
Barclays Bank PLC, ING Bank N.V., London Branch, and
Bank of Montreal, London Branch
as Lenders and
Barclays Bank PLC
as Agent
Barclays Bank PLC
as Security Agent
Dated 7 November 2019 as amended and restated on 2 July 2020, 4 November 2020, 3 November 2021 and on the 2022 Restatement Date
CONTENTS
| | | | | | | | |
| CLAUSE | | PAGE |
| | |
| 1. | DEFINITIONS AND INTERPRETATION | 1 |
| 2. | THE FACILITY | 23 |
| 3. | UTILISATION | 28 |
| 4. | PREPAYMENT, CANCELLATION AND COLLATERALISATION | 30 |
| 5. | INTEREST AND LETTER OF CREDIT COMMISSION | 35 |
| 6. | DEFAULT INTEREST AND BREAKAGE COSTS | 35 |
| 7. | FEES | 36 |
| 8. | BORROWER’S INDEMNITY TO THE LENDERS | 37 |
| 9. | TAX GROSS UP AND INDEMNITIES | 38 |
| 10. | INCREASED COSTS | 43 |
| 11. | OTHER INDEMNITIES | 44 |
| 12. | MITIGATION BY THE LENDERS | 46 |
| 13. | COSTS AND EXPENSES | 46 |
| 14. | GUARANTEE AND INDEMNITY | 47 |
| 15. | REPRESENTATIONS | 50 |
| 16. | INFORMATION UNDERTAKINGS | 54 |
| 17. | FINANCIAL CONDITION | 58 |
| 18. | GENERAL UNDERTAKINGS | 61 |
| 19. | EVENTS OF DEFAULT | 68 |
| 20. | CHANGES TO THE LENDERS | 73 |
| 21. | CHANGES TO THE OBLIGORS | 78 |
| 22. | ROLE OF THE AGENT | 78 |
| 23. | THE SECURITY AGENT | 87 |
| 24. | CONDUCT OF BUSINESS BY THE FINANCE PARTIES | 95 |
| 25. | SHARING AMONG THE FINANCE PARTIES | 95 |
| 26. | PAYMENT MECHANICS | 96 |
| 27. | SET-OFF | 100 |
| 28. | APPLICATION OF PROCEEDS | 101 |
| 29. | NOTICES | 102 |
| 30. | CALCULATIONS AND CERTIFICATES | 105 |
| 31. | PARTIAL INVALIDITY | 105 |
| 32. | REMEDIES AND WAIVERS | 105 |
| 33. | AMENDMENTS AND WAIVERS | 106 |
| 34. | LENDER UNDERTAKINGS | 109 |
| 35. | CONFIDENTIALITY | 109 |
| 36. | COUNTERPARTS | 112 |
| 37. | GOVERNING LAW | 113 |
| 38. | ENFORCEMENT | 113 |
| 39. | CONTRACTUAL RECOGNITION OF BAIL-IN | 113 |
schedule 1 | 116 |
The Original Lenders | 116 |
schedule 2 | 117 |
Conditions Precedent to Initial Utilisation | 117 |
schedule 3 | 119 |
Form of Utilisation Request | 119 |
schedule 4 | 121 |
Form of Transfer Certificate | 121 |
schedule 5 | 123 |
Form of Assignment Agreement | 123 |
schedule 6 | 126 |
Form of Compliance Certificate | 126 |
schedule 7 | 128 |
Form of Letter of Credit | 128 |
schedule 8 | 133 |
| | | | | | | | |
Letter of Comfort | 133 |
schedule 9 | 136 |
Timetables | 136 |
schedule 10 | 137 |
Required Rating/Maximum Tenor Table | 137 |
schedule 11 | 139 |
Form of Revocation Notice | 139 |
schedule 12 | 140 |
Form of Increase Confirmation | 140 |
THE SCHEDULE | 141 |
THIS AGREEMENT is made on 7 November 2019 and amended and restated on 2 July 2020, 4 November 2020, 3 November 2021 and on the 2022 Restatement Date.
BETWEEN:
(1) HAMILTON RE, LTD. (Registration No. 46635) an exempted company incorporated in Bermuda registered as a Class 4 insurer under the Bermuda Insurance Act 1978, as amended, and having its registered office at Wellesley House, North 1st Floor, 90 Pitts Bay Road, Pembroke, HM08, Bermuda (the "Borrower");
(2) HAMILTON CORPORATE MEMBER LIMITED (Registration No. 05996460) a company incorporated in England and Wales and having its registered office at Level 3, 8 Fenchurch Place, London, England, EC3M 4AJ (“HCML”);
(3) IRONSHORE CC (THREE) LIMITED. (No. 07041930) a company incorporated in England and Wales and having its registered office at Level 3, 8 Fenchurch Place, London, England, EC3M 4AJ (“ICC3L”, together with HCML, the “Applicants”, each an “Applicant”);
(4) HAMILTON INSURANCE GROUP, LTD. (Registration No. 48117) an exempted company incorporated in Bermuda and having its registered office at c/o Conyers Corporate Services (Bermuda) Limited, Clarendon House, 2 Church Street, Hamilton HM 11, Bermuda (the “Guarantor”);
(5) THE FINANCIAL INSTITUTIONS listed in schedule 1 (The Original Lenders) as original lenders (individually or together, the “ Original Lenders”);
(6) BARCLAYS BANK PLC as agent of the other Finance Parties (the “Agent”); and
(7) BARCLAYS BANK PLC as security agent of the Secured Parties (the “Security Agent”).
THE PARTIES AGREE AS FOLLOWS:
1. DEFINITIONS AND INTERPRETATION
1.1 Definitions
In this Agreement:
“2020 Amendment and Restatement Agreement” means an amendment and restatement agreement dated 4 November 2020 between, among others, the Borrower, the Agent and the Security Agent;
“2020 Restatement Date” means the “Effective Date” as defined in the 2020 Amendment and Restatement Agreement;
“2021 ·Amendment and Restatement Agreement” means an amendment and restatement agreement dated 3 November 2021 between, among others, the Borrower, the Agent and the Security Agent;
“2021 Restatement Date” means the “Effective Date” as defined in the 2021 Amendment and Restatement Agreement;
“2021 SHA Amendment Date” means the date on which the Guarantor’s Shareholders Agreement is amended and restated, in substantially the form provided to the Agent prior to the 2021 Amendment Date, such date of amendment and restatement being expected to occur in December 2021;
“2022 Amendment and Restatement Agreement” means an amendment and restatement agreement dated 1 November 2022 between, among others, the Borrower, the Agent and the Security Agent;
“2022 Restatement Date” means the “Effective Date” as defined in the 2022 Amendment and Restatement Agreement;
“2023 Tier 2 Asset Submission Deadline” means the deadline for the submission of letters of credit in support of the 2023 underwriting year of account, as specified by Lloyd’s, which is expected to occur on or around 2 November 2022;
“2024 Tier 2 Asset Submission Deadline” means the “Cut-Off Date” as defined in the M&URs;
“Acceptable Bank” means:
(a) a bank or financial institution which has a rating for its long-term unsecured and non credit-enhanced debt obligations of A or higher by S&P Global Ratings or Fitch Ratings Ltd or A2 or higher by Moody’s Investors Service Limited or a comparable rating from an internationally recognised credit rating agency; or
(b) any other bank or financial institution approved by the Agent;
“Accepting Lender” has the meaning given to that term in clause 4.6 (Funds at Lloyd’s Ineligibility);
“Affected Lender” has the meaning given to that term in clause 4.6 (Funds at Lloyd’s Ineligibility);
“Affected Ineligible Lender” has the meaning given to that term in clause 4.6 (Funds at Lloyd’s Ineligibility);
“Affected Ineligible Lender Amount” has the meaning given to that term in clause 4.6(Funds at Lloyd’s Ineligibility);
“Affiliate” means, in relation to any person, a Subsidiary of that person or a Holding Company of that person or any other Subsidiary of that Holding Company;
“A.M. Best” means A.M. Best Company, Inc. and any successors to its ratings business;
“Approved Credit Institution” means a credit institution which has been approved by the Council of Lloyd’s, in accordance with the “criteria to be applied in the approval of credit institutions” as made by the Council of Lloyd’s from time to time, for the purpose of providing guarantees and issuing or confirming letters of credit comprising a member’s Funds at Lloyd’s;
“Authorisation” means an authorisation, consent, approval, resolution, licence, exemption, filing, notarisation or registration in any applicable jurisdiction;
“Assignment Agreement” means an agreement substantially in the form set out in schedule 5 (Form of Assignment Agreement) or any other form agreed between the relevant assignor and assignee;
“Availability Period” means the period:
(a) from and including the date of this Agreement to and including the Mid-Year Cut-Off Date (as defined in the M&URs) (the “Initial Availability Period”); and
(b) following an ICC3L LC Repayment Event, from such date until the date falling 10 Business Days thereafter (the “Extended Availability Period”);
“Available Commitment” means, in relation to a Lender at any time and save as otherwise provided in this Agreement, its Commitment minus:
(a) the amount of its participation in any Outstandings at that time;
(b) in relation to any proposed Utilisation, the amount of its participation in any Utilisations that are due to be made on or before the proposed Utilisation Date,
other than that Lender’s participation in, or share of, any Outstandings that are due to be repaid or prepaid on or before the proposed Utilisation Date;
“Available Facility” means, at any time, the aggregate of the Available Commitments of the Lenders;
“Bank Levy” means:
(a) the UK bank levy set out in the Finance Act 2011;
(b) the French taxe bancaire de risqué systémique as set out in Article 235 ter ZE of the French code général des impôts; and
(c) the German bank levy as set out in the German Restructuring Fund Act 2010 ( as amended); or
(d) any substantively similar Tax in any other jurisdiction which is imposed on banks by a governmental body in that jurisdiction and which is imposed on or calculated by reference to the balance sheet, capital base, liabilities or minimal regulatory capital of that bank (or any part of it or the foregoing);
“Base Currency” means US dollars;
“Basel III” means:
(a) the agreements on capital requirements, a leverage ratio and liquidity standards contained in “Basel III: A global regulatory framework for more resilient banks and banking systems”, “Basel III: International framework for liquidity risk measurement, standards and monitoring and Guidance for national authorities operating the countercyclical capital buffer” published by the Basel Committee on Banking Supervision in December 2010, each as amended, supplemented or restated;
(b) the rules for global systemically important banks contained in “Global systemically important banks: assessment methodology and the additional loss absorbency requirement - Rules text” published by the Basel Committee on Banking Supervision in November 2011, as amended, supplemented or restated; and
(c) any further guidance or standards published by the Basel Committee on Banking Supervision relating to Basel III;
“Base Rate” means the Federal Open Market Committee’s federal funds rate from time to time, provided always that if such rate is less an zero, the Base Rate shall be deemed to be zero;
“Break Costs” means the amount (if any) by which:
(a) the interest (excluding the L/C Commission Rate) which a Lender should have received for the period from the date of receipt of all or any part of its participation in any Unpaid Sum to the last day of the current Interest Period in respect of that Unpaid Sum, had the Unpaid Sum received been paid on the last day of that Interest Period;
exceeds:
(b) the amount(which cannot be negative) which that Lender would be able to obtain by placing an amount equal to the Unpaid Sum received by it on deposit with a leading bank for a period starting on the Business Day following receipt or recovery and ending on the last day of the current Interest Period;
“Business Day” means a day (other than a Saturday or Sunday) on which banks are open for general business in London, Bermuda, Dublin, New York and:
(a) (in relation to any date for payment or purchase of a currency other than euro) the principal financial centre of the country of that currency; or
(b) (in relation to any date for payment or purchase of euro) any TARGET Day;
“Business Plan” means the most recent business plan prepared in relation to the Managed Syndicate;
“Cash and Cash Equivalents” has the meaning given to that term in clause 17.3 (Financial Definitions);
“Charged Property” means all of the assets of the Obligors which from time to time are, or are expressed to be the subject of the Transaction Security;
“Code” means the US Internal Revenue Code of 1986;
“Commencement Date” means, in relation to any Letter of Credit, the date as and from which the Lenders’ liabilities (whether actual or contingent) under that Letter of Credit start to accrue;
“Commitment” means:
(a) in relation to an Original Lender, the amount in the Base Currency set opposite its name under the heading “Commitments” in schedule 1 (The Original Lenders) and the amount of any other Commitment transferred to it under this Agreement or assumed by it in accordance with clause 2.2 (Increase); and
(b) in relation to any other Lender, the amount in the Base Currency of any Commitment transferred to it under this Agreement or assumed by it in accordance with clause 2.2 (Increase),
to the extent not cancelled, reduced, increased or transferred by it under this Agreement;
“Commitment Ratio” has the meaning given to that term in clause 4.6 (Funds at Lloyd’s Ineligibility);
“Compliance Certificate” means a certificate substantially in the form set out in schedule 6 (Form of Compliance Certificate);
“Confidential Information” means all information relating to the Borrower, any Obligor, the Group, the Finance Documents or the Facility of which a Finance Party becomes aware
in its capacity as, or for the purpose of becoming, a Finance Party or which is received by a Finance Party in relation to, or for the purpose of becoming a Finance Party under, the Finance Documents or the Facility from either:
(a) any member of the Group or any of its advisers; or
(b) another Finance Party, if the information was obtained by that Finance Party directly or indirectly from any member of the Group or any of its advisers,
in whatever form, and includes information given orally and any document, electronic file or any other way of representing or recording information which contains or is derived or copied from such information but excludes information that:
(i) is or becomes public information other than as a direct or indirect result of any breach by that Finance Party of clause 35 (Confidentiality); or
(ii) is identified in writing at the time of delivery as non-confidential by any member of the Group or any of its advisers; or
(iii) is known by that Finance Party before the date the information is disclosed to it in accordance with paragraphs (a) or (b) above or is lawfully obtained by that Finance Party after that date, from a source which is, as far as that Finance Party is aware, unconnected with the Group and which, in either case, as far as that Finance Party is aware, has not been obtained in breach of, and is not otherwise subject to, any obligation of confidentiality;
“Confidentiality Undertaking” means a confidentiality undertaking substantially in a recommended form of the LMA or such other form agreed between the Borrower and the Agent;
“Confirming Bank” means any bank or financial institution acting as a confirming bank to a Lender in connection with this Facility;
“Corresponding Commitment” has the meaning given to that term in clause 4.6 (Funds at Lloyd’s Ineligibility);
“CRD IV” means EU CRD IV and UK CRD IV;
“Counterparty Exposure Benchmark” has the meaning given to that term in clause 4.6 (Funds at Lloyd’s Ineligibility);
“Default” means an Event of Default or any event or circumstance specified in clause 19 (Events of Default) which would (with the expiry of a grace period, the giving of notice, the making of any determination under the Finance Documents or any combination of any of the foregoing) be an Event of Default;
“Defaulting Lender” means any Lender:
(a) which has failed to make its participation in the Facility available (or has notified the Agent or the Borrower (which has notified the Agent) that it will not make its participation in a Letter of Credit available) by the Utilisation Date of that Letter of Credit in accordance with clause 3.5 (Lenders’ Participation);
(b) which has otherwise rescinded or repudiated a Finance Document; or
(c) with respect to which an Insolvency Event has occurred and is continuing,
unless, in the case of paragraph (a) above:
(i) administrative or technical error; or
(ii) a Disruption Event; and
payment is made within five Business Days of its due date; or
(d) the Lender is disputing in good faith whether it is contractually obliged to make the payment in question;
“Delegate” means any delegate, agent, attorney or co-trustee appointed by the Security Agent;
“Disqualified Equity Interests” means, with respect to any Person, any Equity Interests of such Person that, by their terms (or by the terms of any security or other Equity Interest into which they are convertible or for which they are exchangeable) or upon the happening of any event or condition:
(a) mature or are mandatorily redeemable (other than solely for Qualified Equity Interests), pursuant to a sinking fund obligation or otherwise (except as a result of a change of control or asset sale so long as any rights of the holders thereof upon the occurrence of a change of control or asset sale event shall be subject to the prior repayment in full in cash of the Letter of Credit and all other obligations (other than contingent indemnification obligations not then due) and the termination of the Letter of Credit);
(b) are redeemable at the option of the holder thereof or may become redeemable following the holder’s exercise of any liquidity or similar rights such as those in Sections 5.3 and, until the 2021 SHA Amendment Date, section 5.4 of the Guarantor’s Shareholders Agreement (other than any redemption solely for Qualified Equity Interests) (except as a result of a change of control or asset sale so long as any rights of the holders thereof upon the occurrence of a change of control or asset sale event shall be subject to the prior repayment in full in cash of the Letter of Credit and all other obligations ((other than contingent indemnification obligations not then due) and the termination of the Letter of Credit), in whole or in part;
(c) provide for the scheduled payment of dividends in cash; or
(d) are or become convertible into, or exchangeable for, Indebtedness or any other Equity Interests that would constitute Disqualified Equity Interests,
in each case of clauses (a) through (d), prior to December 23, 2021; provided that if any such Equity Interests are issued pursuant to a plan for the benefit of the Guarantor or its Subsidiaries or by any such plan to officers or employees, such Equity Interests shall not constitute Disqualified Equity Interests solely because they may be required to be repurchased by the Guarantor or its Subsidiaries in order to satisfy applicable statutory or regulatory obligations or as a result of such employee’s termination, death or disability.
Notwithstanding the foregoing provisions of this definition, the Equity Interests of the Guarantor shall not constitute Disqualified Equity Interests solely as a result of Section 5.3 and, until the 2021 SHA Amendment Date, Section 5.4 of the Guarantor’s Shareholders Agreement; provided, however, that in the event the board of directors of the Guarantor elects to have the Guarantor redeem any of its Equity Interests pursuant to Section 5.3(a) of the Guarantor’s Shareholders Agreement (or the Guarantor otherwise enters into arrangements to redeem such Equity Interests in connection with a Special Liquidity Event), then such Equity Interests (and any other Equity Interests of the Guarantor held by any shareholder who elects to participate in any redemption of the Guarantor’s Equity Interests
in connection with such Special Liquidity Event) shall immediately constitute Disqualified Equity Interests;
“Disruption Event” means either or both of:
(a) a material disruption to those payment or communications systems or to those financial markets which are, in each case, required to operate in order for payments to be made in connection with the Facility (or otherwise in order for the transactions contemplated by the Finance Documents to be carried out) which disruption is not caused by, and is beyond the control of, any of the Parties; or
(b) the occurrence of any other event which results in a disruption (of a technical or systems-related nature) to the treasury or payments operations of a Party preventing that, or any other Party:
(i) from performing its payment obligations under the Finance Documents; or
(ii) from communicating with other Parties in accordance with the terms of the Finance Documents,
and which (in either such case) is not caused by, and is beyond the control of, the Party whose operations are disrupted;
“Eligible Institution” has the meaning given to that term in clause 4.6 (Funds at Lloyd’s Ineligibility);
“Erroneous Payment” means a payment of an amount by the Agent to another Party which the Agent determines (in its sole discretion) was made in error;
“Equity Interests” means (a) in the case of a corporation, capital stock, (b) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of capital stock, ( c) in the case of a partnership, partnership interests (whether general or limited), (d) in the case of a limited liability company, membership interests, (e) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person and (f) any and all warrants, rights or options to purchase any of the foregoing;
“EU CRD IV” means:
(a) Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012; and
(b) Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC;
“Event of Default” means any event or circumstance specified as such in clause 19 (Events of Default);
“Excluded Subsidiary” means Turing Re, Ltd, a company incorporated under the laws of Bermuda;
“Existing Facilities” means:
(a) the $135,000,000 letter of credit facility agreement originally dated 31 October 2016 as amended and restated from time to time, most recently on 9 July 2019
between the Borrower, HCML as the applicant, the Guarantor, Barclays Bank PLC, ING Bank N.V., London Branch and Bank of Montreal, London Branch as original lenders and Barclays Bank PLC as agent, and security agent; and
(b) the $100,000,000 letter of credit facility agreement dated 13 May 2019 between, among others, Hamilton Insurance Group, Ltd as borrower, Barclays Bank PLC and ING Bank N.V., London Branch as original lenders and Barclays Bank PLC as agent and security agent;
“Expiry Date” means, for a Letter of Credit, the date on which the maximum aggregate liability thereunder is to be reduced to zero;
“Facility” means the US dollar letter of credit facility made available to the Borrower pursuant to clause 2.1 (The Facility) of this Agreement;
“Facility Office” means, in relation to the Agent and the Security Agent, the office identified with its signature below or such other office as it may select by notice and, in relation to any Lender, the office notified by it to the Agent in writing prior to the date hereof (or, in the case of a Transferee, at the end of the Transfer Certificate to which it is a party as Transferee) or such other office as it may from time to time select by notice to the Agent, in each case as the offices through which such Finance Party will perform its obligations under this Agreement;
“Fallback Interest Period” means a period of one week;
“FATCA” means:
(a) sections 1471 to 1474 of the Code or any associated regulations;
(b) any treaty, law or regulation of ‘any other jurisdiction, or relating to an intergovernmental agreement between the US and any other jurisdiction, which (in either case) facilitates the implementation of any law or regulation referred to in paragraph (a) above; or
(c) any agreement pursuant to the implementation of any treaty, law or regulation referred to in paragraphs (a) or (b) above with the US Internal Revenue Service, the US government or any governmental or taxation authority in any other jurisdiction;
“FATCA Application Date” means:
(a) in relation to a “withholdable payment” described in section 1473(1)(A)(i) of the Code (which relates to payments of interest and certain other payments from sources within the US), 1 July 2014; or
(b) in relation to a “passthru payment” described in section 1471(d)(7) of the Code not falling within paragraph (a) above, the first date from which such payment may become subject to a deduction or withholding required by FATCA;
“FATCA Deduction” means a deduction or withholding from a payment under a Finance Document required by FATCA;
“FATCA Exempt Party” means a Party that is entitled to receive payments free from any FATCA Deduction;
“FCA" means the Financial Conduct Authority in the United Kingdom and any regulatory body which succeeds to one or more of the functions and/or duties performed by it as at the date of this Agreement;
”Fee Letter” means any letter or letters between the Borrower and the Agent or the Borrower and the Security Agent, setting out any of the fees referred to in clause 7 (Fees) or clause 2.2(h) (Increase);
“Finance Documents” means this Agreement, any Fee Letter, any Transaction Security Document and any other document designated as such by the Agent and the Borrower;
“Finance Party” means the Agent, the Security Agent or a Lender;
“Financial Indebtedness” means (without double counting) any indebtedness for or in respect of:
(a) moneys borrowed;
(b) any amount raised by acceptance under any acceptance credit facility or dematerialised equivalent;
(c) any amount raised pursuant to any note purchase facility or the issue of bonds, notes, debentures, loan stock or any similar instrument;
(d) the amount of any liability in respect of any lease or hire purchase contract which would, in accordance with GAAP, be treated as a balance sheet liability (other than any liability in respect of a lease or hire purchase contract which would, in accordance with GAAP in force prior to 1 January 2019, have been treated as an operating lease);
(e) receivables sold or discounted (other than any receivables to the extent they are sold on a non-recourse basis);
(f) any amount raised under any other transaction (including any forward sale or purchase agreement) of a type not referred to in any other paragraph of this definition having the commercial effect of a borrowing;
(g) any derivative transaction entered into in connection with protection against or benefit from fluctuation in any rate or price (and, when calculating the value of all derivative transactions, only the net marked to market value (or, if any actual amount is due as a result of the termination or close out of that derivative transaction, that amount) shall be taken into account);
(h) any counter indemnity obligation in respect of a guarantee, indemnity, bond, standby or documentary letter of credit or any other instrument issued by a bank or financial institution;
(i) Disqualified Equity Interests; and
(j) the amount of any liability in respect of any guarantee or indemnity for any of the items referred to in paragraphs (a) to (i) above;
“Funds at Lloyd’s” has the meaning given to it in paragraph 16 of the Membership Byelaw (No. 5 of 2005);
“GAAP” means generally accepted accounting principles in the United Kingdom and/or the United States of America, as applicable;
“Governmental Authority” means the government of the United States or any other nation, or of 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 (including any supra-national bodies such as the European Union or the European Central Bank);
“Group” means the Guarantor and its Subsidiaries for the time being excluding the Excluded Subsidiary;
“Group Own FAL” means, in relation to the Applicants, such part of its Funds at Lloyd’s as is provided or otherwise supported by the Applicants, and any other member of the Group by way of cash and/or investments and/or covenant and charge or (save for letters of credit or guarantees issued by a third party) otherwise as permitted by Lloyd’s from time to time (which shall be valued by Lloyd’s in accordance with Lloyd’s usual practice), For the avoidance of doubt, Group Own FAL shall be understood to include Own FAL;
“Group Structure Chart” means the group structure chart delivered to the Agent pursuant to paragraph 4.3 of schedule 2 (Conditions Precedent) of the 2022 Amendment and Restatement Agreement;
“Guarantor’s Shareholders Agreement” means the amended and restated shareholders agreement, dated as of November 4, 2014, by and among the Guarantor and the other parties thereto, as amended on March 23, 2018, September 21, 2018, and as may be further amended, restated amended and restated or replaced from time to time. All references in this agreement shall be deemed to refer to the Guarantor’s Shareholders Agreement as in effect on the date hereof and any amendments thereto;
“Handbook” means the PRA Rulebook of Rules and Guidance and/or the FCA Handbook of Rules and Guidance, as applicable (each as amended from time to time);
“Holding Company” means in relation to a company or corporation, any company or corporation of which the first-mentioned company or corporation is a Subsidiary;
“HMAL” means Hamilton Managing Agency Limited (formerly known as Pembroke Managing Agency Limited), a company incorporated in England and Wales with Company number 05832065;
“ICC3L LC Repayment Event” means the repayment of the Letter of Credit issued pursuant to this agreement identified as “LDDC55047289 IRONSHORE CC (THREE) LIMITED”;
“Impacted Lender” has the meaning given to that term in clause 4.6 (Funds at Lloyd’s Ineligibility)
“Impacted Lender Amount” has the meaning given to that term in clause 4.6 (Funds at Lloyd’s Ineligibility);
“Impaired Agent” means the Agent at any time when:
(a) it has failed to make (or has notified a Party that it will not make) a payment required to be made by it under the Finance Documents by the due date for payment;
(b) the Agent otherwise rescinds or repudiates a Finance Document;
(c) (if the Agent is also a Lender) it is a Defaulting Lender under paragraph (a),(b),(c) or (d) of the definition of “Defaulting Lender”; or
(d) an Insolvency Event has occurred and is continuing with respect to the Agent,
unless, in the case of paragraph (a) above:
(i) its failure to pay is caused by:
(A) administrative or technical error; or
(B) a Disruption Event; and
payment is made within 5 Business Days of its due date; or
(ii) the Agent is disputing in good faith whether it is contractually obliged to make the payment in question;
“Increase Confirmation” means a confirmation substantially in the form set out in schedule 12 (Form of Increase Confirmation);
“Increase Lender” has the meaning given to that term in clause 2.2 (Increase);
“Ineligible Amount” has the meaning given to that term in clause 4.6 (Funds at Lloyd’s Ineligibility);
“Increase Request Period” the period starting on the date of this agreement and ending 30 business days prior to the Mid-Year Cut-Off Date (as defined in the M&URs);
“Insolvency Event” in relation to an entity means that the entity:
(a) is dissolved (other than pursuant to a consolidation, amalgamation or merger);
(b) becomes insolvent or is unable to pay its debts or fails or admits in writing its inability generally to pay its debts as they become due;
(c) makes a general assignment, arrangement or composition with or for the benefit of its creditors;
(d) institutes or has instituted against it, by a regulator, supervisor or any similar official with primary insolvency, rehabilitative or regulatory jurisdiction over it in the jurisdiction of its incorporation or organisation or the jurisdiction of its head or home office, a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors’ rights, or a petition is presented for its winding-up or liquidation by it or such regulator, supervisor or similar official;
(e) has instituted against it a proceeding seeking a judgment of insolvency or bankruptcy or any other relief under any bankruptcy or insolvency law or other similar law affecting creditors’ rights, or a petition is presented for its winding-up or liquidation, and, in the case of any such proceeding or petition instituted or presented against it, such proceeding or petition is instituted or presented by a person or entity not described in paragraph (d) above and:
(i) results in a judgment of insolvency or bankruptcy or the entry of an order for relief or the making of an order for its winding-up or liquidation; or
(ii) is not dismissed, discharged, stayed or restrained in each case within 30 days of the institution or presentation thereof;
(f) has a resolution passed for its winding-up, official management or liquidation (other than pursuant to a consolidation, amalgamation or merger);
(g) seeks or becomes subject to the appointment of an administrator, provisional liquidator, conservator, receiver, trustee, custodian or other similar official for it or for all or substantially all its assets (other than, for so long as it is required by law or regulation not to be publicly disclosed, any such appointment which is to be made, or is made, by a person or entity described in paragraph (d) above);
(h) has a secured party take possession of all or substantially all its assets or has a distress, execution, attachment, sequestration or other legal process levied, enforced or sued on or against all or substantially all its assets and such secured party maintains possession, or any such process is not dismissed, discharged, stayed or restrained, in each case within 30 days thereafter;
(i) causes or is subject to any event with respect to it which, under the applicable laws of any jurisdiction, has an analogous effect to any of the events specified in paragraphs (a) to (h) above; or
(j) takes any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the foregoing acts;
“Interest Period” means, in relation to any Unpaid Sum, any of those periods mentioned in clause 6.1 (Default Interest Periods);
“Investment” means, with respect to any Person, that such Person (a) purchases, owns, invests in or otherwise acquires (in one transaction or a series of transactions), directly or indirectly, any Equity Interests, interests in any partnership or joint venture (including, without limitation, the creation or capitalisation of any Subsidiary), evidence of Financial Indebtedness or other obligation or security, substantially all or a portion of the business or assets of any other Person or any other investment or interest whatsoever in any other Person, (b) makes any acquisition or (c) makes or permits to exist, directly or indirectly, any loans, advances or extensions of credit to, or any investment in cash or by delivery of Property in, any Person;
“Joint Venture” means any joint venture entity, whether a company, unincorporated firm, undertaking, association, joint venture or partnership or any other entity;
“L/C Commission Rate” means 1.625 per cent per annum;
“Legal Reservations” means:
(a) the principle that equitable remedies may be granted or refused at the discretion of a court and the limitation of enforcement by laws relating to insolvency, bankruptcy, liquidation, administration, examinership, moratorium, reorganisation and other laws generally affecting the rights of creditors;
(b) the time barring of claims under the Limitation Acts, the possibility that an undertaking to assume liability for or indemnify a person against non-payment of UK stamp duty may be void and defences of set-off or counterclaim;
(c) similar principles, rights and defences to those principles, rights and defences referred to in paragraphs (a) and/or (b) above under the laws of any Relevant Jurisdiction; and
(d) general principles of equity and any other matters which are set out as qualifications or reservations as to matters of law of general application, or of general application to companies corporations or other persons, in any legal opinion delivered to the Agent under schedule 2 (Conditions Precedent to Initial Utilisation) or paragraph 3 of schedule 2 (Conditions Precedent) of the 2022 Amendment and Restatement Agreement;
“Lender” means:
(a) any Original Lender; and
(b) any bank or financial institution, trust, fund or other entity which has become a Party in accordance with clause 2.2 (Increase) or 20 (Changes to the Lenders),
which, in each case, has not ceased to be a Party in accordance with the terms of this Agreement;
“Letter of Comfort” means a letter of comfort from Lloyd’s to the Applicants in substantially the form set out in schedule 8 (Letter of Comfort) or in such other form as may be agreed between the Borrower and the Agent in order to facilitate the execution of that letter by Lloyd’s;
“Letter of Credit” means a letter of credit issued or to be issued pursuant to clause 2.1 (The Facility) substantially in the form set out in schedule 7 (Form of Letter of Credit) or in any other form requested by the Borrower which is approved by the Lenders;
“Limitation Acts” means the Limitation Act 1980 and the Foreign Limitation Periods Act 1984;
“Lloyd’s” means the society incorporated by Lloyd’s Act 1871 by the name of Lloyd’s;
“LMA” means the Loan Market Association;
“M&URs” means the Membership and Underwriting Conditions and Requirements set out in Market Bulletin Ref: Y5353 (as amended or supplemented from time to time, together with any successor to or replacement thereof);
“Majority Lenders” means a Lender or Lenders whose Commitments aggregate more than 66⅔ per cent of the Total Commitments (or, if the Total Commitments have been reduced to zero, aggregated more than 66⅔ per cent of the Total Commitments immediately prior to the reduction);
“Managed Syndicate” means Syndicate 4000, a syndicate at Lloyd’s under the management of HMAL (“Syndicate 4000”);
“Managing Agent” means HMAL;
“Mandate Letter” means the mandate letter dated 4 October 2022 between the Agent and the Borrower;
“Material Adverse Effect” means a material adverse effect on:
(a) the business, operations, property, condition (financial or otherwise) of the Group, taken as a whole;
(b) the ability of the Borrower or the Guarantor to meet its payment obligations under the Finance Documents;
(c) the validity, legality or enforceability of any Finance Document, or the effectiveness or ranking of any Security granted or purporting to be granted pursuant to any of, the Finance Documents or the rights or remedies of any Finance Party under any of the Finance Documents;
“Month” means a period starting on one day in a calendar month and ending on the numerically corresponding day in the next calendar month, except that:
(a) if the numerically corresponding day is not a Business Day, that period shall end on the next Business Day in that calendar month in which that period is to end if there is one, or if there is not, on the immediately preceding Business Day; and
(b) if there is no numerically corresponding day in the calendar month in which that period is to end, that period shall end on the last Business Day in that calendar month.
The above rules will only apply to the last Month of any period. “Monthly” shall be construed accordingly;
“Obligor” means the Borrower, each Applicant or the Guarantor;
“Obligors’ Agent” means the Borrower appointed to act on behalf of each Obligor in relation to the Finance Documents pursuant to clause 2.5 (Obligors’ Agent);
“Offer Terms” has the meaning given to that term in clause 4.6 (Funds at Lloyd’s Ineligibility);
“Original Financial Statements” means:
(a) in relation to the Guarantor, the audited consolidated financial statements of the Group for the financial year ended 30 November 2018;
(b) in relation to the Borrower, its audited financial statements for its financial year ended 30 November 2018; and
(c) in relation to each Applicant, its audited financial statements for its financial year ended 31 December 2018;
“Outstandings” means, at any time the aggregate of the maximum actual and contingent liabilities of the Lenders in respect of each outstanding Letter of Credit, calculated in the Base Currency;
“Own FAL” means, in relation to an Applicant such part of its Funds at Lloyds as is provided or otherwise supported by that Applicant or any other member of the Group by way of cash and/or investments and/or covenant and charge or otherwise as permitted by Lloyd’s from time to time (which shall be valued by Lloyd’s in accordance with Lloyd’s usual practice) including, but not limited to, any FIS;
“Participating Member State” means any member state of the European Union that has the euro as its lawful currency in accordance with legislation of the European Union relating to Economic and Monetary Union;
“Party” means a party to this Agreement;
“Perfection Requirements” means any and all registrations, filings, notices and other actions and steps required to be made in any jurisdiction in order to perfect security granted by the Transaction Security Documents in order to achieve the relevant priority for such Security;
”Permitted Security” means:
(a) any mortgage, charge, pledge, lien or other security interest which:
(i) is entered into in the ordinary course of business of any member of the Group and which secure the obligations of any member of the Group under:
(A) certain insurance, reinsurance or retrocession arrangements to which any member of the Group is at any time a party; or
(B) certain working capital facilities or letter of credit facilities, including where provided for the purpose of Funds at Lloyd’s or in connection with securing obligations owed by any member of the Group under, or entered into in accordance with any applicable legal or regulatory requirement that applies in respect of, a reinsurance or retrocession arrangement to which any member of the Group is at any time a party,
including any Syndicate Arrangements, provided that, (A) the aggregate amount of such Permitted Security under this paragraph (i) (measured, as to each such Permitted Security permitted under this paragraph (i), as the greater of the amount secured by such Permitted Security and the fair market value at such time of the assets subject to such Permitted Security) shall not, when added to the aggregate amount of all Permitted Security (measured as set forth in this paragraph (i) above and without double-counting) incurred pursuant to paragraphs (i)-(iii) inclusive, of this definition, exceed at any time $550,000,000 at the time of incurrence of any new Permitted Security under this definition (i) and (B) immediately after giving effect to the incurrence of any Permitted Security pursuant to this paragraph (i), no Event of Default shall have occurred and be continuing.
For the avoidance of doubt, any such Permitted Security under this paragraph (i) shall include any such Permitted Security which have been disclosed to the Security Agent prior to date of this Agreement:
(ii) is in favour of a custodian or sub-custodian and is granted in respect of the payment of its fees, costs and/or expenses, or its right to be indemnified, pursuant to the terms of a custody agreement or sub-custodian agreement under which any of the assets of the Borrower, any of its Subsidiaries or the Guarantor are held;
(iii) is entered into with the prior approval of the Agent (acting on the instructions of the Majority Lenders); or
(iv) is granted in favour of Lloyd’s and comprises Group Own FAL or is used to secure Group Own FAL;
(b) the Security or Quasi-Security entered into pursuant to any of the Transaction Security Documents,
in each case, as the same may be amended or extended from time to time, provided that such amendment or extension does not have a Material Adverse Effect, and provided further that, the Borrower or any of its Subsidiaries, shall promptly notify the Security Agent of any such proposed amendment or extension as soon as reasonably practicable prior to the entry into of such proposed amendment or extension.
For the avoidance of doubt, Group Own FAL shall not be counted towards the $550,000,000 limitation on Permitted Security identified in subsection (a)(i) above;
”Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity;
“PRA” means the Prudential Regulation Authority in the United Kingdom and any regulatory body which succeeds to one or more of the functions and/or duties performed by it as at the date of this Agreement;
“Property” means any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible, including, without limitation, Equity Interests;
“Quarterly Monitoring Return” means the quarterly monitoring return to be provided by the Borrower to Lloyd’s in relation to the Managed Syndicate;
“Qualified Equity Interests” means any Equity Interests that are not Disqualified Equity Interests;
“Quasi-Security” has the meaning given to it in clause 18.3 (Negative Pledge);
“Realistic Disaster Scenarios” means any realistic disaster scenario presented in a business plan prepared in relation to the Managed Syndicate under paragraph 35 of the Underwriting Byelaw (No. 2 of 2003) which shows the potential impact upon that Managed Syndicate of a catastrophic event;
“Receiver” means a receiver or receiver and manager or administrative receiver of the whole or any part of the Charged Property;
“Related Fund” in relation to a fund (the “first fund”), means a fund which is managed or advised by the same investment manager or investment adviser as the first fund or, if it is managed by a different investment manager or investment adviser, a fund whose investment manager or investment adviser is an Affiliate of the investment manager or investment adviser of the first fund;
“Relevant Holder” means any Person who, directly or indirectly, holds any shares or other equity interests in the Guarantor as at the date of this Agreement, or any Affiliate of any such Person;
“Relevant Jurisdiction” means in relation to a Borrower or a Subsidiary:
(a) its jurisdiction of incorporation;
(b) any jurisdiction where any material assets subject to or intended to be subject to the Transaction Security to be created by it are situated;
(c) any jurisdiction where it conducts a material part of its business; and
(d) the jurisdiction whose laws govern the perfection of any of the Transaction Security Documents entered into by it;
“Relevant Market” means, in relation to euro, the European interbank market and, in relation to any other currency, the London interbank market;
“Repeating Representations” means each of the Representations set out in clauses 15.1 (Status) to 15.6 (Governing law and enforcement), clause 15.9 (No Default), clause 15.21 (Third Party Funds at Lloyd’s) and clause 15.23 (Sanctions) (but excluding clause 16.23(a)(iv));
“Representations” means each of the representations set out in clause 15 (Representations);
”Representative” means any delegate, agent, manager, administrator, nominee, attorney, trustee or custodian;
“Responsible Officer” means with respect to the Guarantor or Borrower (as applicable), any director or officer, its chief executive officer, chief operating officer, chief financial officer, chief accounting officer or treasurer or any statutory officer of the Guarantor or Borrower (as applicable) duly appointed by the board of directors of the Guarantor or Borrower (as applicable);
“Restricted Person” means a person that is (i) listed on, or owned or controlled by a person listed on any Sanctions List; (ii) located in, incorporated under the laws of, or owned or controlled by, a person located in or organised under the laws of a country or territory that is the target of country-wide Sanctions; or (iii) otherwise a target of Sanctions;
“Retiring Security Agent” has the meaning given to that term in clause 23.22 (Resignation of the Security Agent);
“Revocation Notice” means a notice given in writing by the Agent to Lloyd’s in substantially the form set out in schedule 11 (Form of Revocation Notice) and in accordance with clause 3.10 (Revocation Notice) advising Lloyd’s of the date of expiry of the Letter of Credit referred to in such notice;
“Right of First Offer” has the meaning given to that term in clause 4.6 (Funds at Lloyd’s Ineligibility);
“Right of Second Offer” has the meaning given to that term in clause 4.6 (Funds at Lloyd’s Ineligibility);
“Sanctions” means any economic sanctions laws, regulations or embargoes enacted or enforced by:
(a) the US;
(b) the United Nations;
(c) the European Union;
(d) the United Kingdom;
(e) Canada; or
(f) the respective governmental institutions and agencies of any of the foregoing, including without limitation, the Office of Foreign Assets Control of the US Department of Treasury (“OFAC”), the US Department of State, and Her Majesty’s Treasury,
(together “Sanctions Authorities”);
“Sanctions List” means the “Specially Designated Nationals and Blocked Persons” list issued by OFAC and the Consolidated List of Financial Sanctions Targets issued by Her Majesty’s Treasury, or any similar list issued or maintained or made public by any of the Sanctions Authorities, each as amended, supplemented or substituted from time to time;
“SCR” has the meaning given to it in the Handbook;
“Secured Obligations” means all money, liabilities and obligations at any time due, owing or incurred by any Obligor to any Secured Party under the Finance Documents, whether present or future, actual or contingent (and whether incurred solely or jointly and whether as principal or surety or in some other capacity);
“Secured Party” means each Finance Party from time to time party to this Agreement and any Receiver or Delegate;
“Security” means, with respect to any asset, any mortgage, leasehold mortgage, lien, pledge, charge, hypothecation, encumbrance or other security interest securing any obligation of any person or any other agreement or arrangement having a similar effect in respect of such asset. For the purposes of this Agreement, a Person shall be deemed to own, subject to Security, any asset which it has acquired or holds subject to the interest of a vendor or lessor under any conditional sale agreement, capital lease obligation or other title retention agreement relating to such asset;
“Special Liquidity Event” has the meaning set forth in the Guarantor’s Shareholders Agreement;
“Specified Time” means a time determined in accordance with schedule 9 (Timetables);
“Subsidiary” means a subsidiary undertaking within the meaning of section 1162 of the Companies Act 2006 and any company which would be a subsidiary undertaking within the meaning of section 1162 of the Companies Act 2006 but for any Security subsisting over the shares in that company from time to time;
“Solvency Deficit” shall have the meaning given to it in the Lloyd’s Membership and Underwriting Conditions and Requirements (Funds at Lloyd’s) (M&URS);
“Syndicate Arrangement” means any arrangement (whether pursuant to guarantees, letters of credit or otherwise) entered into by a managing agent at Lloyd’s on behalf of the Applicants together with the other members of a syndicate with respect to financing or reinsurance for the purposes of or in connection with the underwriting business carried on by all such members of that syndicate;
“TARGET2” means the Trans-European Automated Real-time Gross Settlement Express Transfer payment system which utilises a single shared platform and which was launched on 19 November 2007;
“TARGET Day” means any day on which TARGET2 is open for the settlement of payments in euro;
“Tax” means any tax, levy, impost, duty or other charge or withholding of a similar nature (including any penalty or interest payable in connection with any failure to pay or any delay in paying any of the same);
“Term” means, save as otherwise provided herein, in relation to any Letter of Credit, the period from its Utilisation Date until its Expiry Date;
“Total Commitments” means, at any time, the aggregate of the Lenders’ Commitments, being $205,000,000 as at the 2022 Restatement Date;
“Total FAL” means in relation to the Applicants, aggregate of all Funds at Lloyd’s of the Group (including, but not limited to Own FAL);
“Transaction Security” means the security created or expressed to be created in favour of the Security Agent pursuant to the Transaction Security Documents;
“Transaction Security Document” means any security document required to be executed under clause 18.18 (Cash Collateral Account) together with any other security document that may at any time be given as security for any of the Secured Obligations pursuant to or in connection with any Finance Document;
“Transfer Certificate” means a certificate substantially in the form set out in schedule 4 (Form of Transfer Certificate) or any other form agreed between the Agent and the Borrower;
“Transfer Date” means, in relation to an assignment or a transfer, the proposed Transfer Date specified in the relevant Assignment Agreement or Transfer Certificate, or in the event that no Transfer Date is specified in the relevant Assignment Agreement or Transfer Certificate, the date on which the Agent executes the relevant Assignment Agreement or Transfer Certificate;
“Transferee” means a person to which a Lender seeks to transfer by novation all or part of such Lender’s rights, benefits and obligations under the Finance Documents;
“UK CRD IV” means:
(a) Regulation (EU) No 575/2013 of the European Parliament and of the Council of 26 June 2013 on prudential requirements for credit institutions and investment firms and amending Regulation (EU) No 648/2012 as it forms part of domestic law of the United Kingdom by virtue of the European Union (Withdrawal) Act 2018 (the “Withdrawal Act”);
(b) the law of the United Kingdom or any part of it, which immediately before IP completion day (as defined in the European Union (Withdrawal Agreement) Act 2020) implemented Directive 2013/36/EU of the European Parliament and of the Council of 26 June 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC and repealing Directives 2006/48/EC and 2006/49/EC and its implementing measures; and
(c) direct EU legislation (as defined in the Withdrawal Act), which immediately before IP completion day (as defined in the European Union (Withdrawal Agreement) Act 2020) implemented EU CRD IV as it forms part of domestic law of the United Kingdom by virtue of the Withdrawal Act.
“Unpaid Sum” means any sum due and payable but unpaid by an Obligor under the Finance Documents;
“US” means the United States of America;
“US Tax Obligor” means an Obligor making payments which are from sources within the US for US federal income tax purposes;
“Utilisation” means a Utilisation of the Facility;
“Utilisation Date” means the date of a Utilisation, being the date on which the relevant Letter of Credit is to be issued (or, as applicable, amended);
“Utilisation Request” means a notice substantially in the relevant form set out in schedule 3 (Form of Utilisation Request);
“VAT” means:
(a) any value added tax imposed by the Value Added Tax Act 1994;
(b) any tax imposed in compliance with the Council Directive of 28 November 2006 on the common system of value added tax (EC Directive 2006/112); and
(c) any other tax of a similar nature, whether imposed in the United Kingdom or in a member state of the European Union in substitution for, or levied in addition to, such tax referred to in paragraphs (a) or (b) above, or imposed elsewhere;
“Wells Term Loan” means a term loan agreement dated on or about the date of this Agreement between, among others, Hamilton Insurance Group, Ltd. as borrower, the lender parties therein, and Wells Fargo as administrative agent (as amended, restated or increased from time to time).
1.2 Construction
Unless a contrary indication appears, any reference in this Agreement to:
(a) the “Agent”, the “Security Agent”, any “Finance Party”, any “Lender”, any “Obligor”, “Party” or any “Secured Party” shall be construed so as to include its successors in title, permitted assigns and permitted transferees to, or of, its rights and/or obligations under the Finance Documents and, in the case of the Security Agent, any person for the time being appointed as Security Agent or Security Agents in accordance with the Finance Documents;
(b) “assets” includes present and future properties, revenues and rights of every description;
(c) a “Finance Document” or any other agreement or instrument is a reference to that Finance Document or other agreement or instrument as amended, novated, supplemented, extended, replaced or restated;
(d) a “group of Lenders” includes all the Lenders;
(e) “indebtedness” includes any obligation (whether incurred as principal or as surety) for the payment or repayment of money, whether present or future, actual or contingent;
(f) a “person” includes any individual, firm, company, corporation, government, state or agency of a state or any association, trust, joint venture, consortium, partnership or other entity (whether or not having separate legal personality);
(g) a “regulation” includes any regulation, rule, official directive, request or guideline (whether or not having the force of law) of any governmental, intergovernmental or supranational body, agency, department or of any regulatory, self-regulatory or other authority or organisation;
(h) a provision of law is a reference to that provision as amended or re-enacted;
(i) a time of day is a reference to London time;
(j) a document in “agreed form” is a document the form and content of which have been approved, and is initialled, by or on behalf of the Borrower and the Agent;
(k) a “law” shall be construed as any law (including common or customary law), statute, constitution, decree, judgment, treaty, regulation, directive, bye-law, order or any other legislative measure of any government, supranational, local government, statutory or regulatory body or court;
(I) a “member” shall be construed (as the context may require) as a reference to an underwriting member of Lloyd’s;
(m) a Lender’s “participation”, in relation to a Letter of Credit, shall be construed as a reference to the relevant amount that is or may be payable by a Lender in relation to that Letter of Credit;
(n) a byelaw shall be construed as a reference to a byelaw made under Lloyd’s Acts 1871 to 1982 as the same may have been, or may from time to time be, amended or replaced;
(o) a “successor” shall be construed so as to include an assignee or successor in title of such party and any person who under the laws of its jurisdiction of incorporation or domicile has assumed the rights and obligations of such party under this Agreement or to which, under such laws, such rights and obligations have been transferred;
(p) section, clause and schedule headings are for ease of reference only;
(q) unless a contrary indication appears, a term used in any other Finance Document or in any notice given under or in connection with any Finance Document has the same meaning in that Finance Document or notice as in this Agreement;
(r) the Borrower or the Guarantor (as applicable) providing “Collateral” for a Letter of Credit means the Borrower and/or the Guarantor (as applicable) providing Cash Collateral and/or Securities Collateral;
(s) the Borrower or the Guarantor providing “Cash Collateral” means the Borrower or the Guarantor paying an amount in the Base Currency to an interest bearing account in the name of the Borrower or the Guarantor (as applicable) and (subject to the Borrower exercising its option under clause 18.18(b) (Cash Collateral Account)) the following conditions being met:
(i) the account is with a bank. acceptable to the Lenders acting reasonably;
(ii) until no amount is or may be outstanding under that Letter of Credit, withdrawals from the account may only be made to pay the relevant Finance Party amounts due and payable to it under this Agreement in respect of that Letter of Credit;
(iii) the Borrower or the Guarantor (as applicable) has executed a security document, in form and substance satisfactory to the Security Agent, creating a first ranking security interest over that account; and
(iv) the Agent has received (in form and substance satisfactory to the Agent) all such legal opinions as the Agent may deem necessary or desirable together with copies of all corporate Authorisations, approvals and other documentation as may be necessary for the same,
and “Cash Collateralised” shall have the meaning correlative to the foregoing and shall include the proceeds of such Cash Collateral;
(t) the Borrower or the Guarantor providing “Securities Collateral” means the Borrower or the Guarantor delivering Fixed Income Securities to the Custody Account provided that the value of any Fixed Income Securities shall be calculated as the Adjusted Fair Market Value thereof (as defined in and calculated in accordance with schedule 10 (Required Rating/Maximum Tenor Table));
(u) the term “Custodian” shall be construed as the custodian agreed between the Guarantor and the Security Agent from time to time;
(v) the term “Custody Account” means a securities account established at the Custodian in the name of the Guarantor or the Borrower in respect of which the following conditions have been met:
(i) the account is with the Custodian;
(ii) the account shall be subject to a securities account control agreement between the Guarantor or the Borrower, the Custodian and the Security Agent, in form and substance satisfactory to the Security Agent and such other documentation as is necessary to ensure that such Custody Account (and the securities held therein) is subject to a perfected first priority security interest in favour of the Security Agent (and in respect of which the Security Agent has electronic viewing access rights); and
(iii) the Agent has received (in form and substance satisfactory to the Agent) all such legal opinions as the Agent may deem necessary or desirable together with copies of all corporate Authorisations, approvals and other documentation as may be necessary for the same
(w) a Default (other than an Event of Default) is “continuing” if it has not been remedied or waived and· an Event of Default is “continuing” if it has not been remedied or waived;
(x) the Borrower “repaying” or “prepaying” a Letter of Credit means:
(i) the Borrower providing Cash Collateral for that Letter of Credit;
(ii) the maximum amount payable under the Letter of Credit being reduced or cancelled in accordance with its terms; or
(iii) the Agent being satisfied that it has no further liability under that Letter of Credit,
and the amount by which a Letter of Credit is repaid or prepaid under paragraphs (i) and (ii) above is the amount of the relevant Cash Collateral, reduction or cancellation;
(y) an amount borrowed includes any amount utilised by way of Letter of Credit;
(z) the Borrower’s obligation on Utilisations becoming “due and payable” includes a the Borrower repaying any Letter of Credit in accordance with paragraph (u) above;
(aa) “syndicate allocated capacity”, in relation to any syndicate, shall be construed as a reference to the aggregate of the members syndicate premium limits of the relevant Applicant for the time being thereof;
(bb) a “wholly-owned Subsidiary” of a company or corporation shall be construed as a reference to any company or corporation which has no other members except that other company or corporation and that other company’s or corporation’s wholly-owned Subsidiaries or persons acting on behalf of that other company or corporation or its wholly-owned Subsidiaries;
(cc) “Applicant” refers to the relevant applicable Applicant from time to time, pursuant to any changes permitted under clause 20.12(b) (The Applicant’s Business);
(dd) References to the date of “this Agreement”, unless provided otherwise here, shall mean 7 November 2019; and
(ee) Reference to any EU regulation or any provision of an EU regulation shall extend to include that regulation or provision as it forms part of English law by virtue of the European Union (Withdrawal) Act 2018 and as modified by English law from time to time.
1.3 Syndicate
For the purpose of construing references in this Agreement to a syndicate, unless the context otherwise requires, the several groups of members to which in successive years a particular syndicate number is assigned by Lloyd’s shall be treated as the same syndicate notwithstanding that they may not comprise the same members with the same premium income limits.
1.4 Currency Symbols and Definitions
“£” and “sterling” denote lawful currency of the United Kingdom for the time being, “€” and “euro” denote the single currency of the Participating Member States and “$” and “dollars” denotes, from time to time, the lawful currency of the United States of America.
1.5 Third Party Rights
(a) Unless expressly provided to the contrary in a Finance Document a person who is not a Party has no right under the Contracts (Rights of Third Parties) Act 1999 (the “Third Parties Act”) to enforce or to enjoy the benefit of any term of this Agreement.
(b) Notwithstanding any term of any Finance Document, the consent of any person who is not a Party is not required to rescind or vary this Agreement at any time.
2. THE FACILITY
2.1 The Facility
Subject to the terms of this Agreement, the Lenders make available to the Borrower, a US dollar letter of credit facility in an aggregate amount equal to the Total Commitments.
2.2 Increase
(a) Subject to the remainder of this clause 2.2, at any time during the Increase Request Period, the Borrower may request in writing to the Agent that Total Commitments be increased (an “Accordion Increase Request”).
(b) An Accordion Increase Request shall be signed by an authorised signatory of the Borrower and shall:
(i) specify the amount of the proposed additional Commitments under the Facility (the “Proposed Additional Commitments”), which shall not exceed an amount which, when aggregated with the amount(s) of each other increase effected or requested but not yet made under this clause 2.2, does not exceed $250,000,000;
(ii) specify the date on which the Proposed Additional Commitments are to be made available (such date being no earlier than 30 Business Days after the date of the Accordion Increase Request and no later than the last Business Day of the Initial Availability Period, provided always that such date shall fall no earlier than 10 Business Days after the date on which the Agent provides a duly completed Increase Confirmation); and
(iii) confirm that no Default has occurred and is continuing or would result from the Proposed Additional Commitments being made available.
(c) The Agent shall promptly send on to each Lender a copy of any Accordion Increase Request received by it.
(d) An Accordion Increase Request shall be deemed to be an invitation to each Lender to provide a pro rata proportion (based on their existing Commitments under the Facility immediately prior to the Accordion Increase Request) of the Proposed Additional Commitments so requested.
(e) No Lender is obliged to agree to any increase of its Commitments under the Facility pursuant to an Accordion Increase Request and each Lender may decide, in its absolute discretion, whether or not to increase its Commitments and without giving any reason for its decision. Each Lender which wishes to accept the invitation to increase its Commitments shall, not later than the date falling 10 Business Days after the date of its receipt of the Accordion Increase Request (the “Response Date”), notify the Agent of its acceptance and set out the terms of such acceptance (each such accepting Lender being an “Accepting Lender”). If a Lender declines the invitation or fails to provide a response to the Agent by 5.00 p.m. on the Response Date, such Lender shall be deemed to decline the invitation (each such declining Lender being a “Declining Lender”).
(f) The Agent shall offer each Declining Lender’s proportion of the Proposed Additional Commitments which it was invited to participate in to each Accepting Lender on a pro rata basis (based on their existing Commitments under the Facility immediately prior to the Accordion Increase Request) and each Accepting Lender shall inform the Agent within 10 Business Days of the date of such offer (the “Second Response Date”) if it wishes to assume all or part of the Declining Lender’s proportion.
(g) As soon as reasonably practicable following the Response Date (or if applicable, the Second Response Date) or, if earlier, such date as all Lenders have provided a response to the Accordion Increase Request, the Agent shall notify the Borrowers and the Lenders as to those Lenders which are Accepting Lenders and those Lenders which are (or are deemed to be) Declining Lenders and the amount of the Proposed Additional Commitments allocated to each Accepting Lender (such amount an “Additional Commitment”).
(h) Subject to paragraph (I) below, the Proposed Additional Commitments will be assumed by:
(i) the Accepting Lenders; and/or
(ii) if a Lender is or is deemed to be a Declining Lender in accordance with paragraph (e) above, and no other Lender or Lenders have agreed to assume all of each Declining Lender’s proportion pursuant to paragraph (f) above, another bank, financial institution, trust, fund or other entity which is regularly engaged in or established for the purpose of making, purchasing or investing in loans, securities or other financial assets (or a number of them) that is not an Affiliate or a Sponsor Affiliate in place of that Declining Lender and in respect of that Declining Lender’s proportion of the Proposed Additional Commitment which has not been assumed by another Lender pursuant to paragraph (f) which are selected by the Borrower,
(each an “Accordion Increase Lender”) and each of which confirms its willingness to assume and does assume all the obligations of a Lender corresponding to that part of the Proposed Additional Commitments which it is to assume (such
confirmation to be evidenced by its execution of an Accordion Increase Confirmation).
(i) The Borrower and each Accordion Increase Lender shall assume obligations towards one another and acquire rights against one another as the Borrower and the Accordion Increase Lender would have assumed and acquired had the Proposed Additional Commitments formed part of the original Commitments under the Facility.
(j) Each of the other Finance Parties shall assume obligations towards one another in respect of the relevant Proposed Additional Commitments and acquire rights against one another in respect of the relevant Proposed Additional Commitments as that Accordion Increase Lender and those Finance Parties would have assumed and acquired had the Proposed Additional Commitments formed part of the original Commitments under the Facility.
(k) The Commitments of each other Lender under the Facility shall continue in full force and effect.
(I) Any increase in the Commitment under the Facility under this clause 2.2 (Increase), shall take effect on the date specified by the Agent as such in the Accordion Increase Confirmation (such date being the “Accordion Increase Date”) provided that on such date:
(i) the Agent has executed the relevant Accordion Increase Confirmation which shall have been signed by the Borrower and each of the relevant Accordion Increase Lenders; and
(ii) in relation to an Accordion Increase Lender which is not a Lender immediately prior to the relevant increase, the Agent being satisfied that it has complied with all necessary “know your customer” or other similar checks under all applicable laws and regulations in relation to the assumption of the increased Commitments by that Accordion Increase Lender. The Agent shall promptly notify the Borrower upon being so satisfied.
(m) The Borrower shall on each Accordion Increase Date, pay to the Agent (for the account of each Accordion Increase Lender) a fee (an “Accordion Increase Fee”) in an amount and at the times agreed in a Fee Letter.
(n) Each Obligor confirms:
(i) the authority of the Borrower to agree and implement the establishment of Additional Commitments in accordance with the procedures and up to the amounts permitted by this agreement; and
(ii) that all its guarantee and indemnity obligations recorded in clause 14 (Guarantee and Indemnity) or any other Finance Document will extend to include any Utilisation of the Additional Commitments and other obligations arising in connection with such Additional Commitments subject to any limits as specifically recorded in clause 14 (Guarantee and Indemnity) or elsewhere in the Finance Documents.]
2.3 Finance Parties’ Rights and Obligations
(a) The obligations of each Finance Party under the Finance Documents are several. Failure by a Finance Party to perform its obligations under the Finance Documents does not affect the obligations of any other Party under the Finance Documents. No Finance Party is responsible for the obligations of any other Finance Party under the Finance Documents.
(b) The rights of each Finance Party under or in connection with the Finance Documents are separate and independent rights and any debt arising under the Finance Documents to a Finance Party from an Obligor is a separate and independent debt in respect of which a Finance Party shall be entitled to enforce its rights in accordance with paragraph (c) below. The rights of each Finance Party include any debt owing to that Finance Party under the Finance Documents and, for the avoidance of doubt, any part of an Unpaid Sum or any other amount owed by an Obligor which relates to a Finance Party’s participation in the Facility or its role under a Finance Document (including any such amount payable to the Agent on its behalf) is a debt owing to that Finance Party by that Obligor.
(c) A Finance Party may, except as specifically provided in the Finance Documents, separately enforce its rights under or in connection with the Finance Documents.
2.4 Purpose and Application
(a) The Borrower shall apply each Letter of Credit issued under the Facility towards the Funds at Lloyd’s for:
(i) in relation to ICC3L for Syndicate 4000, the 2019 underwriting year of account only; and
(ii) in relation to HCML for Syndicate 4000, the 2023 underwriting year of account and each prior open year of account (as applicable)
and accordingly, the Borrower shall apply all Letters of Credit issued under the Facility in or towards satisfaction of such purpose.
(b) No Finance Party is bound to monitor or verify:
(i) the application of any Letter of Credit issued pursuant to this Agreement; or
(ii) whether all or any part of any other Lender’s participation in a Letter of Credit or proposed Letter of Credit is or will be eligible as Funds at Lloyd’s for the Borrower.
2.5 Obligors’ Agent
(a) Each Obligor (other than the Borrower) by its execution of this Agreement irrevocably appoints the Borrower (acting through one or more authorised signatories) to act on its behalf as its agent in relation to the Finance Documents and irrevocably authorises:
(i) the Borrower on its behalf to supply all information concerning itself contemplated by this Agreement to the Finance Parties and to give all notices and instructions (including, in the case of the Borrower, Utilisation Requests), to make such agreements and to effect the relevant amendments, supplements and variations capable of being given, made or effected by any Obligor notwithstanding that they may affect the Obligor, without further reference to or the consent of that Obligor; and
(ii) each Finance Party to give any notice, demand or other communication to that Obligor pursuant to the Finance Documents to the Borrower,
and in each case the Obligor shall be bound as though the Obligor itself had given the notices and instructions (including, without limitation, any Utilisation Requests) or executed or made the agreements or effected the amendments, supplements or variations, or received the relevant notice, demand or other communication.
(b) Every act, omission, agreement, undertaking, settlement, waiver, amendment, supplement, variation, notice or other communication given or made by the Obligors’ Agent or given to the Obligors’ Agent under any Finance Document on behalf of another Obligor or in connection with any Finance Document (whether or not known to any other Obligor and whether occurring before or after such other Obligor became an Obligor under any Finance Document) shall be binding for all purposes on that Obligor as if that Obligor had expressly made, given or concurred with it. In the event of any conflict between any notices or other communications of the Obligors’ Agent and any other Obligor, those of the Obligors’ Agent shall prevail.
2.6 Order of Application of Funds at Lloyd’s
It is acknowledged by the parties hereto that, subject to the duties of Lloyd’s as trustee of all such Funds at Lloyd’s, the Facility will provide Funds at Lloyd’s for each Applicant which, to the extent that the Obligors are able to procure the same upon and subject to the terms of this Agreement (having used its best endeavours), shall only be applied after all other Funds at Lloyd’s of each Applicant (including Own FAL) have been exhausted, in accordance with the Letter of Comfort obtained or to be obtained with respect thereto.
2.7 Letter of Comfort
The Borrower shall use all reasonable endeavours, as soon as possible and in any event by no later than 15 December 2022, to:
(a) obtain from Lloyd’s (after consultation with the Agent), the Letter of Comfort; and
(b) provide a certified copy of the Letter of Comfort to the Agent.
2.8 Initial Conditions Precedent
(a) The Borrower may not deliver a Utilisation Request unless the Agent has received all of the documents and other evidence listed in schedule 2 (Conditions Precedent) in form and substance satisfactory to the Agent. The Agent shall notify the Borrower and the Lenders promptly upon being so satisfied.
(b) Other than to the extent that the Majority Lenders notify the Agent in writing to the contrary before the Agent gives the notification described in paragraph (a) above, the Lenders authorise (but do not require) the Agent to give that notification. The Agent shall not be liable for any damages, costs or losses whatsoever as a result of giving any such notification.
2.9 Further Conditions Precedent
The Lenders will only be obliged to comply with clause 3.5 (Lenders’ participation) if on the date of the Utilisation Request and on the proposed Utilisation Date:
(a) no Default is continuing or would result from the proposed Letter of Credit; and
(b) the Repeating Representations to be made by each Obligor are true in all material respects by reference to the facts and circumstances then existing.
2.10 Maximum Number of Utilisations
The Borrower may not deliver a Utilisation Request if, as a result of the proposed Utilisation, more than 3 Letters of Credit would be outstanding.
3. UTILISATION
3.1 Delivery of a Utilisation Request
The Borrower may during the Availability Period utilise the Facility by delivery to the Agent of a duly completed Utilisation Request not later than the Specified Time.
3.2 Completion of a Utilisation Request
Each Utilisation Request is irrevocable and will not be regarded as having been duly completed unless:
(a) during the Initial Availability Period:
(i) the currency specified in a Utilisation Request must be the Base Currency;
(ii) the proposed Utilisation Date is a Business Day falling on or before the 2023 Tier 2 Asset Submission Deadline;
(iii) the proposed Term of that Letter of Credit is not less than four years and the Expiry Date of the Letter of Credit shall be no later than 31 December 2026;
(iv) it specifies the relevant Applicant, Managed Syndicate and underwriting year of account;
(v) the Letter of Credit is substantially in the form set out in schedule 7 (Form of Letter of Credit); and
(vi) the beneficiary of the requested Letter of Credit is Lloyd’s; and
(b) during the Extended Availability Period:
(i) the proposed Utilisation Date is a Business Day falling during the Extended Availability Period; and
(ii) the request is to increase the quantum of the Letter of Credit issued pursuant to this agreement identified as “LDGI 55047291 HAMILTON CORPORATE MEMBER LIMITED”; and
(iii) to the extent the Initial Availability period has expired, the amount requested is no greater than the amount repaid pursuant to an ICC3L LC Repayment Event.
3.3 Completion of Letters of Credit
The Agent is authorised to arrange for the issue or amendment of any Letter of Credit pursuant to clause 3.1 (Delivery of a Utilisation Request) by:
(a) completing the Commencement Date and the proposed Expiry Date of such Letter of Credit;
(b) (in the case of an amendment increasing the amount or amending the tenor thereof) amending such Letter of Credit in such manner as Lloyd’s may agree (including, where relevant, revoking any Termination Notice and issuing a new Revocation Notice pursuant to clause 3.10 (Revocation Notice));
(c) completing schedule 1 to such Letter of Credit with the percentage participation of each Lender as allocated pursuant to the terms hereof;
(d) executing such Letter of Credit and following such execution delivering such Letter of Credit to Lloyd’s on the Utilisation Date; and
(e) issuing such formal notification as Lloyd’s may require confirming that the Letter of Credit has been issued or amended.
3.4 Notification
Not less than one Business Day before the first day of a Term, the Agent shall notify each Lender of:
(a) the proposed length of the relevant Term;
(b) the proposed currency; and
(c) the aggregate principal amount,
of the Letter of Credit allocated to such Lender pursuant to this Agreement.
3.5 Lenders’ Participation
Save as otherwise provided herein, each Lender will participate in each Letter of Credit issued pursuant to clause 3.3 (Completion of Letters of Credit) in the proportion borne by its Available Commitment to the Available Facility immediately prior to the issue of such Letter of Credit.
3.6 Demands under Letters of Credit
If a demand is made under a Letter of Credit the Agent shall promptly make demand upon the Borrower in accordance with this Agreement and notify the Lenders.
3.7 Expiry of Letters of Credit
Upon the expiry of a Letter of Credit on its Expiry Date, the maximum actual and contingent liabilities of each Lender under such Letter of Credit will be reduced to zero.
3.8 Applied Letters of Credit
If, notwithstanding the provisions of clause 2.6 (Order of Application of Funds at Lloyd’s), any sum is paid under a Letter of Credit (an “Applied Letter of Credit”) which is greater than any sum which would have been paid had Own FAL been applied to meet any demand prior to the Funds at Lloyd’s provided pursuant to the Facility in accordance with clause 2.6 (Order of Application of Funds at Lloyd’s) (the difference between the sum paid under the Applied Letter of Credit and the sum which should have been paid being the “Overpayment”), the Borrower shall indemnify the Lenders pursuant to clause 8 (Borrower’s Indemnity to the Lenders) including, where necessary, by procuring the release by Lloyd’s of Own FAL and, upon the Lenders being indemnified in full thereunder (but subject to the Agent receiving confirmation in writing from the Borrower that no Default is continuing):
(a) a supplementary Letter of Credit will be issued in an amount equal to the Overpayment having an Expiry Date which is the same as that of the Applied Letter of Credit; or
(b) the Applied Letter of Credit will be amended by increasing the amount thereof by an amount equal to the Overpayment.
3.9 Acknowledgement of Automatic Extension
Each Lender acknowledges that each Letter of Credit will continue in effect until such time as the Agent gives a Revocation Notice in accordance with the terms of clause 3.10 (Revocation Notice) below and that accordingly such Letter of Credit will terminate on the earlier of the date specified therein and 31 December 2026.
3.10 Revocation Notice
(a) The Parties agree that:
(i) in respect of every Letter of Credit then in issue (subject to clause 19.20 (Acceleration and Cancellation)) (to the extent that the same have not been previously drawn down) the Agent shall procure that Barclays Bank PLC’s trade operations shall, in respect of each Letter of Credit, no earlier than the 2023 Tier 2 Asset Submission Deadline and no later than 31 December 2022, give a Revocation Notice to Lloyd’s so that each such Letter of Credit expires on the earlier of the date specified therein and 31 December 2026; and
(ii) upon such expiry, the maximum actual and contingent liabilities of each Lender under the Letter of Credit referred to in such Revocation Notice will be reduced to zero.
(b) In the event that any Letter of Credit is issued after the Revocation Notice has been given under paragraph (a) above the Agent shall, and is so instructed by the Lenders to, procure that Barclays Bank PLC’s trade operations give a Revocation Notice in respect of such Letter of Credit at the time such Letter of Credit is issued.
4. PREPAYMENT, CANCELLATION AND COLLATERALISATION
4.1 Illegality
If, in any applicable jurisdiction, it becomes unlawful for any Lender to perform any of its obligations as contemplated by this Agreement or to fund, issue or maintain its participation in any Letter of Credit or it becomes unlawful for any Affiliate of a Lender for that Lender to do so:
(a) that Lender shall promptly notify the Agent upon becoming aware of that event;
(b) upon the Agent notifying the Borrower, the Available Commitment of that Lender will be immediately cancelled; and
(c) to the extent that the Lender’s participation has not been transferred pursuant to paragraph (d) of clause 4.7 (Right of repayment and cancellation in relation to a single Lender), the Borrower shall repay that Lender’s participation in the Utilisations made to the Borrower on the last day of the Interest Period for each Utilisation occurring after the Agent has notified the Borrower or, if earlier, the date specified by the Lender in the notice delivered to the Agent (being no earlier than the last day of any applicable grace period permitted by law) and that Lender’s corresponding Commitment(s) shall be cancelled in the amount of the participations repaid.
4.2 Change of control
(a) If any person or group of persons acting in concert (other than any Relevant Holder) gains control of the Guarantor:
(i) the Guarantor shall promptly notify the Agent upon becoming aware of that event;
(ii) If a Lender so requires and notifies the Agent within 30 days of the Guarantor notifying the Agent of the event:
(A) the Lenders shall not thereafter be obliged to participate in or issue any Letter of Credit;
(B) the Agent shall, by not less than 20 Business Days’ notice to the Guarantor, cancel the Commitment of that Lender and declare all amounts (together with any interest, commission and fees) accrued to that Lender under the Finance Documents immediately due and payable; and
(C) the Guarantor shall procure that on such date as the Agent shall have specified, the liabilities of that Lender under or in respect of each Letter of Credit is reduced to zero or otherwise secured by providing Cash Collateral in an amount equal to such Lender’s participation in such Letter of Credit or such Lender’s maximum actual or contingent liabilities under such Letter of Credit.
(b) For the purpose of paragraph (a) above, “control” means:
(i) the power (whether by way of ownership of shares, proxy, contract, agency or otherwise) to:
(A) cast, or control the casting of, more than one-half of the maximum number of votes that might be cast at a general meeting of the Guarantor; or
(B) appoint or remove all, or the majority, of the directors or other equivalent officers of the Guarantor; or
(C) give directions with respect to the management, operating and financial policies of the Guarantor which the directors or other equivalent officers of the Borrower are obliged to comply with; or
(ii) the holding of more than one-half of the issued share capital of the Guarantor (excluding any part of that issued share capital that carries no right to participate beyond a specified amount in a distribution of either profits or capital).
(c) For the purpose of paragraph (a) above “acting in concert” means, a group of persons who, pursuant to an agreement or understanding (whether formal or informal), actively co-operate, through the acquisition by any of them, either directly or indirectly, of shares in the Guarantor, to obtain or consolidate control of the Guarantor.
4.3 Mandatory Collateralisation
If, by the 2024 Tier 2 Asset Submission Deadline, the Lenders and the Borrower have not:
(a) agreed to extend the Facility to provide Funds at Lloyd’s for the Applicants for the 2024 underwriting year of account and each prior open year of account (where applicable); and
(b) effected such amendments, restructuring or refinancing (as applicable) to the Finance Documents as the Lenders consider necessary to effect such extension or otherwise require in connection with such extension,
the Borrower shall procure that, no later than the date falling 10 Business Days after 31 December 2023, the aggregate liability of the Lenders under each Letter of Credit then in issue is reduced to zero or otherwise secured by providing Collateral, in an amount equal to the aggregate Outstandings.
4.4 Cancellation of the Facility
The Borrower may, if it gives the Agent not less than five Business Days’ (or such shorter period as the Majority Lenders may agree) prior notice, cancel the whole or any part (being a minimum amount of $50,000) of the Available Facility. Any cancellation under this clause 4.4 shall reduce the Commitments of the Lenders rateably under the Facility.
4.5 Prepayment of Letters of Credit
The Borrower to which a Letter of Credit has been issued may, if it gives the Agent not less than five Business Days’ (or such shorter period as the Majority Lenders may agree) prior notice, prepay the whole or any part of a Letter of Credit (but if in part, being an amount that reduces the amount of the Letter of Credit by a minimum amount of $50,000).
4.6 Funds at Lloyd’s Ineligibility
(a) In this clause:
(i) “Accepting Lender” means each existing Lender or new Lender which accepts an Ineligible Amount and/or Corresponding Commitment pursuant to clause 4.6 (Funds at Lloyd’s Ineligibility);
(ii) “Commitment Ratio” means the ratio of each Lender’s Available Commitment to Total Commitments on a given date;
(iii) “Corresponding Commitment” means such amount of an Affected Lender’s Available Commitment as is required in order to ensure that each Accepting Lender’s Commitment Ratio remains unchanged immediately following the transfer of any Ineligible Amount;
(iv) “Counterparty Exposure Benchmark” means the benchmark exposure level of a member to any one counterparty as determined by the Council of Lloyd’s from time to time for purposes of monitoring a member’s counterparty exposure, and the Lloyd’s Aggregate Restriction on quantum of guarantees and letters of credit that any one financial institution may issue within the Lloyd’s market; and
(v) “Eligible Institution” means an Approved Credit Institution with respect to which the counterparty exposure of the relevant Applicant is not in excess of the Counterparty Exposure Benchmark.
(b) If all or any part of a Lender’s participation (and/or its Confirming Bank’s participation by way of a confirming arrangement with a Lender) in a Letter of Credit has ceased or will cease to be eligible as Funds at Lloyd’s for the Borrower in respect of any year of account which it is intended to support pursuant to clause 2.4 (Purpose and Application):
(i) due to such Lender (and/or its Confirming Bank) ceasing to be an Approved Credit Institution in respect of such participation (such Lender being, the “Affected Ineligible Lender” and the amount of its participation which has ceased or will cease to be eligible being, the “Affected Ineligible Lender Amount”); or
(ii) due to such participation (in all or in part) (and/or its Confirming Banks’s participation by way of a confirming arrangement with a Lender) being in excess of the Counterparty Exposure Benchmark (such Lender being, the “Impacted Lender” (and either an Impacted Lender or an Affected Ineligible Lender being an “Affected Lender”)) and the amount of its participation which has ceased or will cease to be eligible being, the “Impacted Lender Amount” and either the Impacted Lender Amount or the Affected Ineligible Lender Amount being, the “Ineligible Amount”),
then:
(iii) the Borrower or the Affected Lender shall, promptly upon becoming aware of such event, notify the Agent who shall, in turn, promptly notify the Borrower or the Affected Lender, as applicable; and
(iv) either the Borrower or the Affected Lender may then, on the earlier of (i) 10 Business Days from the date of the notification given to the other parties pursuant to paragraph 4.6(b)(iii) or (ii) the date on which all or any part of an Affected Lender’s participation (and/or its Confirming Bank’s participation by way of a confirming arrangement with the Lender) becomes an Ineligible Amount as Funds at Lloyd’s for the Borrower in respect of any year of account which it is intended to support pursuant to clause 2.3 (Purpose and Application), request (through the Agent) by notice to the other that:
(A) a transfer of:
(aa) the Ineligible Amount; and/or
(bb) any Corresponding Commitment;
take place pursuant to paragraphs (c) to (e) below; or
(B) following the process set out at paragraphs (c) to (d) below, the Ineligible Amount be reduced to zero pursuant to paragraph (e) below.
(c) If any such notification is made pursuant to paragraph (b)(iii) above, the Agent shall promptly offer the Ineligible Amount and/or Corresponding Commitment (the “Right of First Offer”):
(i) Subject to the terms of this Agreement (then existing), with no re-negotiation or amendments to the terms of this Agreement or requests to obtain the benefit of additional provision (including but not limited to additional covenants, representations or alternative fee structures) (together the “Offer Terms”); and
(ii) to the other Lenders in the same proportion that each Lender’s Commitment bears to the Total Commitments (excluding, in each case, the Affected Lender and its Commitments) whereupon,
(A) if, within 5 Business Days of such Right of First Offer, any one or more Lenders accepts such offer, the Borrower, the Affected Lender and those Lenders shall, as soon as reasonably practicable thereafter, effect the necessary transfers of the Ineligible Amount and Corresponding Commitment pursuant to clause 20 (Changes to the Lenders) as soon as reasonably practicable, but in any event within 30 days from the date in which it became an Affected Lender (or such other time period as may be agreed in writing between the parties from time to time; and
(B) if, any existing Lender declines such Right of First Offer or does not respond within 5 Business Days of such offer, the Agent shall promptly offer (subject to the Offer Terms) the declining Lender’s proportion of the Ineligible Amount and Corresponding Commitment to the remaining Lenders (excluding, for the avoidance of doubt, the Affected Lender) in such proportions as the Borrower may elect (the “Right of Second Offer”). If, within 5 Business Days of such offer, one or more Lenders accept such offer, the Borrower, the Affected Lender and those Lenders shall, as soon as reasonably practicable thereafter, effect the necessary transfers of the Ineligible Amount and Corresponding Commitment to those Lenders pursuant to clause 20 (Changes to the Lenders) as soon as reasonably practicable, but in any event within 30 days from the date in which it became an Affected ender (or such other time period as may be agreed in writing between the parties from time to time).
(d) If any part of the Ineligible Amount or Corresponding Commitment is not accepted by the other Lenders pursuant to the Right of First Offer and/or the Right of Second Offer above, the Borrower, the Agent and the Affected Lender agree to co-operate in good faith on a best efforts basis to find a replacement lender. The Borrower and the Affected Lender (with the consent of the Borrower) may offer (subject to the Offer Terms) such remaining part to one or more New Lenders. If any such New Lender accepts such offer within 5 Business Days of the offer being made, the Borrower, the Affected Lender and those Lenders shall, as soon as reasonably practicable thereafter, effect the necessary transfers of the Ineligible Amount and Corresponding Amount to those New Lenders pursuant to clause 20 (Changes to the Lenders) as soon as reasonably practicable, but in any event within 30 days from the date in which it became an Affected Lender (or such other time period as may be agreed in writing between the parties from time to time.
(e) If any part of the Ineligible Amount has not been transferred to the Lenders or to Eligible Institutions pursuant to paragraphs (c) or (d) above, the Borrower, the Affected Lender and the Agent shall co-operate in good faith to procure that Lloyd’s amends or reduces the Letters of Credit as necessary to reduce the Ineligible Amount to zero.
4.7 Right of repayment and cancellation in relation to a single Lender
(a) If:
(i) any sum payable to any Lender by an Obligor is required to be increased pursuant to clause 9 (Tax Gross-up and Indemnities); or
(ii) any Lender claims indemnification from the Borrower under clause 9.3 (Tax Indemnity) or clause 10.1 (Increased Costs),
the Borrower may, whilst (in the case of clauses 4.7(a)(i) and 4.7(a)(ii) above) the circumstance giving rise to the requirement or indemnification continues, give the Agent notice (a) of its intention to procure that the liabilities of that Lender under each Letter of Credit are reduced to zero and/or provide Cash Collateral in an amount equal to such Lender’s participation in each Letter of Credit.
(b) On receipt of a notice of cancellation referred to in paragraph (a) above in relation to a Lender, the Commitment(s) of that Lender shall immediately be reduced to zero.
(c) On the last day of each Term which ends after the Borrower has given notice of cancellation under paragraph (a) above in relation to a Lender (or, if earlier, the date specified by the Borrower in that notice), the Borrower shall procure either that that
Lender’s participation in each Letter of Credit be reduced to zero (by a reduction of the amount of that Letter of Credit in an amount equal to that Lender’s participation in that Letter of Credit) or that it is otherwise secured by providing Cash Collateral to the Agent in an amount equal to that Lender’s Outstandings.
(d) If any Lender becomes a Defaulting Lender, the Borrower may, at any time whilst the Lender continues to be a Defaulting Lender, give the Agent 10 Business Days’ notice of cancellation of each Available Commitment of that Lender.
(e) On the notice referred to in paragraph (d) above becoming effective, each Available Commitment of the Defaulting Lender shall immediately be reduced to zero.
(f) The Agent shall as soon as practicable after receipt of a notice referred to in paragraph (d) above, notify all the Lenders.
4.8 Restrictions
(a) A Lender whose total aggregate liabilities under each Letter of Credit have been reduced to zero or Cash Collateralised pursuant to clause 4.7 (Right of repayment and cancellation in relation to a single Lender) or have been Cash Collateralised pursuant to clause 4.5 (Prepayment of Letters of Credit) shall not be obliged to participate in any Letter of Credit issued on or after the date upon which the Agent receives the Borrower’s notice of its intention to procure the repayment of or provide Cash Collateral in respect of such Lender’s share of the Outstandings, and such Lender’s Available Commitment shall be reduced to zero.
(b) The Available Facility may be cancelled, and the liabilities of each Lender under any Letter of Credit may be reduced to zero, only at the times and in the manner expressly provided for herein.
(c) Unless a contrary indication appears in this agreement, any part of the Facility which is prepaid or repaid may be reborrowed as contemplated by and in accordance with the terms of this agreement.
5. INTEREST AND LETTER OF CREDIT COMMISSION
The Borrower shall, in respect of each Letter of Credit requested by it, pay to the Agent for the account of each Lender (for distribution in proportion to each Lender’s participation in such Letter of Credit) a letter of credit commission in the Base Currency at the L/C Commission Rate on the Outstandings under the relevant Letter of Credit. Such letter of credit commission shall be paid quarterly in arrear in respect of each successive period of three Months (or such shorter period as shall end on the relevant Expiry Date) which ends during the Term of the relevant Letter of Credit, the first such payment to be made on the date falling three Months after the Utilisation Date for such Letter of Credit and thereafter on the last date of each successive three Month period.
6. DEFAULT INTEREST AND BREAKAGE COSTS
6.1 Default Interest Periods
If any sum due and payable by an Obligor under a Finance Document is not paid on its due date or if any sum due and payable by the Obligor under any judgement of any court in connection with any Finance Document is not paid on the date of such judgement, the period beginning on such due date or, as the case may be, the date of such judgement and ending on the date upon which the obligation of such Obligor to pay such sum is discharged shall be divided into successive periods, each of which (other than the first) shall start on the last day of the preceding such period and the duration of each of which shall (except as otherwise provided in this clause 6) be selected by the Agent.
6.2 Default Interest
An Unpaid Sum shall bear interest during each Interest Period in respect thereof at the rate per annum which is the sum from time to time of 2.0 per cent. per annum above the Base Rate plus the L/C Commission Rate.
6.3 Payment of Default Interest
Any interest which has accrued under clause 6.1 (Default Interest Periods) in respect of an Unpaid Sum shall be due and payable and shall be paid by the Obligor owing such Unpaid Sum on the last day of each Interest Period in respect thereof or on such other dates as the Agent may specify by notice to such Obligor or the Borrower (as the case may be).
6.4 Break Costs
(a) The Borrower shall, within three Business Days of demand by a Finance Party, pay to that Finance Party its Break Costs attributable to all or any part of an Unpaid Sum being paid by the Borrower on a day other than the last day of an Interest Period for that Unpaid Sum.
(b) Each Lender shall, as soon as reasonably practicable after a demand by the Agent, provide a certificate confirming the amount of its Break Costs for any Interest Period in which they accrue.
7. FEES
7.1 Upfront Fee
The Borrower shall pay to the Agent (for the account of each Lender) an upfront fee in the amount and at the times agreed in the Mandate Letter.
7.2 Agency Fee
The Borrower shall pay to the Agent (for its own account) an agency fee in the amount and at the times agreed in the Mandate Letter.
7.3 Security Agency Fee
The Borrower shall pay to the Security Agent (for its own account) a security agency fee in the amount and at the times agreed in a Fee Letter (if applicable).
7.4 Commitment Fee
(a) The Borrower shall pay to the Agent (for the account of each Lender) a commitment fee in the Base Currency computed at the rate per annum equal to 0.35 per cent on that Lender’s Available Commitment for the Availability Period.
(b) The accrued commitment fee is payable quarterly in arrear on the last day of each successive period of three Months which ends during the Availability Period, on the last date of the Availability Period and on any cancelled amount of the relevant Lender’s Commitment at the time the cancellation is effective.
(c) No commitment fee is payable to the Agent (for the account of a Lender) on any Available Commitment of that Lender for any day on which that Lender if a Defaulting Lender.
8. BORROWER’S INDEMNITY TO THE LENDERS
8.1 Borrower’s Indemnity to Lenders
The Borrower shall irrevocably and unconditionally as a primary obligation indemnify (within three Business Days of demand by the Agent) each Finance Party against:
(a) any sum paid or due and payable by such Finance Party in accordance with the terms of any Letter of Credit; and
(b) all liabilities, costs (including, without limitation, any costs incurred in funding any amount which falls due from such Finance Party in connection with such Letter of Credit), claims, losses and reasonable expenses which such Finance Party may at any time incur or sustain in connection with any Letter of Credit ( other than as a result of the gross negligence or wilful misconduct of such Finance Party).
The Borrower waives any right it may have of first requiring any Finance Party (or any trustee or agent on its behalf) to enforce any Transaction Security (if applicable) before claiming from the Borrower under this clause 8. This waiver applies irrespective of any law or any provision of a Finance Document to the contrary.
For the avoidance of doubt, the provisions of this clause 9.1 will not apply to any obligations of an Obligor to indemnify a Finance Party in respect of (i) Taxes, which obligations shall be governed solely by clause 10 (Tax Gross Up and Indemnities) or (ii) Increased Costs, which obligations shall be governed solely by clause 11 (Increased Costs).
8.2 Preservation of Rights
Neither the obligations of the Borrower set out in this clause 8 nor the rights, powers and remedies conferred on any Lender by this Agreement or by law shall be discharged, impaired or otherwise affected by:
(a) the winding-up, dissolution, administration or re-organisation of any Lender or any other person or any change in its status, function, control or ownership;
(b) any of the obligations of any Lender or any other person hereunder or under any Letter of Credit or under any other security taken in respect of the Borrower’s obligations hereunder or otherwise in connection with a Letter of Credit being or becoming illegal, invalid, unenforceable or ineffective in any respect;
(c) time or other indulgence being granted or agreed to be granted to any Lender or any other person in respect of its obligations hereunder or under or in connection with a Letter of Credit or under any such other security;
(d) any amendment to, or any variation, waiver or release of, any obligation of any Lender or any other person under a Letter of Credit or this Agreement; or
(e) any other act, event or omission which, but for this clause 8, might operate to discharge, impair or otherwise affect any of the obligations of the Borrower set out in this clause 8 or any of the rights, powers or remedies conferred upon any Lender by this Agreement or by law.
The obligations of the Borrower set out in this clause 8 shall be in addition to and independent of every other security which any Lender may at any time hold in respect of the Borrower’s obligations hereunder.
8.3 Settlement Conditional
Any settlement or discharge between the Borrower and the Agent or any Lender shall be conditional upon no security or payment to the Agent or such Lender by the Borrower, or any other person on behalf of the Borrower, being avoided or reduced by virtue of any laws relating to bankruptcy, insolvency, liquidation or similar laws of general application and, if any such security or payment is so avoided or reduced, the Agent or such Lender shall be entitled to recover the value or amount of such security or payment from the Borrower subsequently as if such settlement or discharge had not occurred.
8.4 Right to make Payments under Letters of Credit
The Agent shall be entitled to make any payment in accordance with the terms of the relevant Letter of Credit without any reference to or further authority from the Borrower or any other investigation or enquiry. The Borrower irrevocably authorises the Agent to comply with any demand under a Letter of Credit which is valid on its face.
9. TAX GROSS UP AND INDEMNITIES
9.1 Definitions
(a) In this Agreement:
“Protected Party” means a Finance Party which is or will be subject to any liability, or required to make any payment, for or on account of Tax in relation to a sum received or receivable (or any sum deemed for the purposes of Tax to be received or receivable) under a Finance Document;
“Tax Credit” means a credit against, relief or remission for, or repayment of any Tax;
“Tax Deduction” means a deduction or withholding for or on account of Tax from a payment under a Finance Document, other than a FATCA Deduction; and
“Tax Payment” means either the increase in a payment made by an Obligor to a Finance Party under clause 9.2 (Tax gross-up) or a payment under clause 9.3 (Tax indemnity).
(b) Unless a contrary indication appears, in this clause 9 a reference to “determines” or “determined” means a determination made in the absolute discretion of the person making the determination.
9.2 Tax gross-up
(a) Each Obligor shall make all payments to be made by it under a Finance Document without any Tax Deduction, unless a Tax Deduction is required by law.
(b) The Borrower shall promptly upon becoming aware that an Obligor must make a Tax Deduction (or that there is any change in the rate or the basis of a Tax Deduction) notify the Agent accordingly. Similarly, a Lender shall promptly notify the Agent on becoming so aware in respect of a payment payable to that Lender. If the Agent receives such notification from a Lender it shall promptly notify the Borrower.
(c) If a Tax Deduction is required by law to be made by an Obligor, the amount of the payment due from that Obligor shall be increased to an amount which (after making any Tax Deduction) leaves an amount equal to the payment which would have been due if no Tax Deduction had been required.
(d) A payment shall not be increased under paragraph (c) above by reason of a Tax Deduction on account of Tax, if and to the extent that on the date on which the payment falls due an Obligor is able to demonstrate that the payment could have been made to the Finance Party without the Tax Deduction or with a reduced Tax Deduction had that Finance Party complied with its obligations under paragraph (g) below or clause 12 (Mitigation by the Lenders) (in each case, provided the Borrower has previously made a written request to that Finance Party for compliance with such provision).
(e) If an Obligor is required to make a Tax Deduction, that Obligor shall make that Tax Deduction and any payment required in connection with that Tax Deduction within the time allowed (including extensions) and in the amount required by law.
(f) Within 30 days of making either a Tax Deduction or any payment required in connection with that Tax Deduction, the Obligor making that Tax Deduction shall deliver to the Agent for the Finance Party entitled to the payment evidence reasonably satisfactory to that Finance Party that the Tax Deduction has been made or (as applicable) any appropriate payment paid to the relevant taxing authority.
(g) Each Finance Party and the Obligors shall, so far as it is legally entitled to do so, co operate in completing any procedural formalities which the Borrower reasonably requires to enable it to make a payment to which that Finance Party is entitled without a Tax Deduction (or with a reduced Tax Deduction).
9.3 Tax indemnity
(a) The Borrower shall (within three Business Days of demand by the Agent) pay to a Protected Party an amount equal to the loss, liability or cost which that Protected Party determines will be or has been (directly or indirectly) suffered for or on account of Tax by that Protected Party in respect of a Finance Document.
(b) Paragraph (a) above shall not apply:
(i) with respect to any Tax assessed on a Finance Party:
(A) under the law of the jurisdiction in which that Finance Party is incorporated or, if different, the jurisdiction (or jurisdictions) in which that Finance Party is treated as resident for tax purposes; or
(B) under the law of the jurisdiction in which that Finance Party’s Facility Office is located (or through which the Finance Party negotiated or manages a Letter of Credit) in respect of amounts received or receivable in that jurisdiction,
if that Tax is imposed on or calculated by reference to the net income received or receivable (but not any sum deemed to be received or receivable) by that Finance Party; or
(ii) to the extent a loss, liability or cost:
(A) is compensated for by an increased payment under clause 9.2 (Tax gross-up);
(B) would have been compensated for by an increased payment under clause 9.2 (Tax gross-up) but was no so compensated solely because one of the exclusions in paragraph (d) of clause 9.2 (Tax gross-up) applied; or
(C) relates to a FATCA Deduction required to be made by a Party.
(c) A Protected Party making, or intending to make a claim under paragraph (a) above shall promptly notify the Agent of the event which will give, or has given, rise to the claim, following which the Agent shall notify the Borrower.
(d) A Protected Party shall, on receiving a payment from an Obligor under this clause 9.3, notify the Agent.
9.4 Tax Credit
If an Obligor makes a Tax Payment and the relevant Finance Party determines that:
(a) a Tax Credit is attributable to an increased payment of which that Tax Payment forms part, to that Tax Payment or to a Tax Deduction in consequence of which that Tax Payment was required; and
(b) that Finance Party has obtained and utilised that Tax Credit,
the Finance Party shall pay an amount to the Obligor which that Finance Party determines will leave it (after that payment) in the same after-Tax position as it would have been in had the Tax Payment not been required to be made by the Obligor.
9.5 Stamp taxes
The Borrower shall pay and, within three Business Days of demand, indemnify each Finance Party against any cost, loss or liability that Finance Party incurs in relation to all stamp duty, registration and other similar Taxes payable in respect of any Finance Document other than a Finance Document pursuant to which any rights under this Agreement are assigned or transferred by a Lender (save for where such assignment or transfer arises as a result of an Event of Default which is continuing).
9.6 VAT
(a) All amounts expressed to be payable under a Finance Document by any Party to a Finance Party which (in whole or in part) constitute the consideration for any supply for VAT purposes are deemed to be exclusive of any amount in respect of VAT which is chargeable on that supply, and accordingly, subject to paragraph (b) below, if VAT is or becomes chargeable on any supply made by any Finance Party to any Party under a Finance Document and such Finance Party is required to account to the relevant tax authority for the VAT, that Party must pay to such Finance Party (in addition to and at the same time as paying any other consideration for such supply) an amount equal to the amount of the VAT (and such Finance Party must promptly provide an appropriate VAT invoice to that Party).
(b) If VAT is or becomes chargeable on any supply made by any Finance Party (the “Supplier”) to any other Finance Party (the “Recipient”) under a Finance Document, and any Party other than the Recipient (the “Relevant Party”) is required by the terms of any Finance Document to pay an amount equal to the consideration for that supply to the Supplier (rather than being required to reimburse or indemnify the Recipient in respect of that consideration):
(i) (where the Supplier is the person required to account to the relevant tax authority for the VAT) the Relevant Party must also pay to the Supplier (at the same time as paying that amount) an additional amount equal to the amount of the VAT. The Recipient must (where this paragraph (i) applies) promptly pay to the Relevant Party an amount equal to any credit or repayment the Recipient receives from the relevant tax authority which the Recipient reasonably determines relates to the VAT chargeable on that supply; and
(ii) (where the Recipient is the person required to account to the relevant tax authority for the VAT) the Relevant Party must promptly, following demand from the Recipient, pay to the Recipient an amount equal to the VAT chargeable on that supply but only to the extent that the Recipient reasonably determines that it is not entitled to credit or repayment from the relevant tax authority in respect of that VAT.
(c) Where a Finance Document requires any Party to reimburse or indemnify a Finance Party for any cost or expense, that Party shall reimburse or indemnify (as the case may be) such Finance Party for the full amount of such cost or expense, including such part thereof as represents VAT, save to the extent that such Finance Party reasonably determines that it is entitled to credit or repayment in respect of such VAT from the relevant tax authority.
(d) Any reference in this clause 9.6 to any Party shall, at any time when such Party is treated as a member of a group or fiscal unity for VAT purposes, include (where appropriate and unless the context otherwise requires) a reference to the person who is treated at that time as making the supply, or (as appropriate) receiving the supply, under the grouping or fiscal unity rules (provided for in Article 11 of Council Directive 2006/112/EC (or as implemented by the relevant member state of the European Union) or any other similar provision in any jurisdiction which is not a member state of the European Union) so that a reference to a party shall be construed as a reference to that party or the relevant group or fiscal unity of which that party is a member for VAT purposes at the relevant time or the relevant representative member (or head) of that group or fiscal unity at the relevant time (as the case may be).
(e) In relation to any supply made by a Finance Party to any Party under a Finance Document, if reasonably requested by such Finance Party, that Party must promptly provide such Finance Party with details of that Party’s VAT registration and such other information as is reasonably requested in connection with such Finance Party’s VAT reporting requirements in relation to such supply
9.7 FATCA Information
(a) Subject to paragraph (c) below, each Party shall, within ten Business Days of a reasonable request by another Party:
(i) confirm to that other Party whether it is:
(A) a FATCA Exempt Party; or
(B) not a FATCA Exempt Party;
(ii) supply to that other Party such forms, documentation and other information relating to its status under FATCA as that other Party reasonably requests for the purposes of that other Party’s compliance with FATCA; and
(iii) supply to that other Party such forms, documentation and other information relating to its tax status as that other Party reasonably requests for the purposes of that other Party’s compliance with any other similar law, regulation, or exchange of information regime.
(b) If a Party confirms to another Party pursuant to paragraph (a)(i)(A) above that it is a FATCA Exempt Party and it subsequently becomes aware that it is not, or has ceased to be a FATCA Exempt Party, that Party shall notify that other Party reasonably promptly.
(c) Paragraph (a) above shall not oblige any Party to do anything, which would or might in its reasonable opinion constitute a breach of:
(i) any law or regulation;
(ii) any fiduciary duty; or
(iii) any duty of confidentiality.
(d) If a Party fails to confirm whether or not it is a FATCA Exempt Party or to supply forms, documentation or other information requested in accordance with paragraph (a) above (including, for the avoidance of doubt, where paragraph (c) above applies), then such Party shall be treated for the purposes of the Finance Documents (and payments under them) as if it is not a FATCA Exempt Party until such time as the Party in question provides the requested confirmation, forms, documentation or other information.
(e) If the Borrower is a US Tax Obligor, or an Obligor or the Agent reasonably believes that its obligations under FATCA or any other applicable law or regulation require it, each Lender shall, within ten Business Days of:
(i) where the Borrower is a US Tax Obligor and the relevant Lender is an Original Lender, the date of this Agreement;
(ii) where the Borrower is a US Tax Obligor on a Transfer Date and the relevant Lender is a New Lender, the relevant Transfer Date; or
(iii) where the Borrower is not a US Tax Obligor, the date of a request from the Agent, supply to the Agent:
(A) a withholding certificate on Form W-8, Form W-9 or any other relevant form; or
(B) any withholding statement or other document, authorisation or waiver as the Agent may require to certify or establish the status of such Lender under FATCA or that other law or regulation.
(f) The Agent shall provide any withholding certificate, withholding statement, document, authorisation or waiver it receives from a Lender pursuant to paragraph (e) above to the Borrower.
(g) If any withholding certificate, withholding statement, document, authorisation or waiver provided to the Agent by a Lender pursuant to paragraph (e) above is or becomes materially inaccurate or incomplete, that Lender shall promptly update it and provide such updated withholding certificate, withholding statement, document, authorisation or waiver to the Agent unless it is unlawful for the Lender to do so (in which case the Lender shall promptly notify the Agent). The Agent shall provide any such updated withholding certificate, withholding statement, document, authorisation or waiver to the Borrower.
(h) The Agent may rely on any withholding certificate, withholding statement, document, authorisation or waiver it receives from a Lender pursuant to paragraphs (e) or (g) above without further verification. The Agent shall not be liable for any action taken by it under or in connection with paragraphs (e), (f) or (g) (inclusive) above.
9.8 FATCA Deduction
(a) Each Party may make any FATCA Deduction it is required to make by FATCA, and any payment required in connection with that FATCA Deduction, and no Party shall be required to increase any payment in respect of which it makes such a FATCA Deduction or otherwise compensate the recipient of the payment for that FATCA Deduction.
(b) Each Party shall promptly, upon becoming aware that it must make a FATCA Deduction (or that there is any change in the rate or the basis of such FATCA Deduction) notify the Party to whom it is making the payment and, in addition, shall notify the Borrower and the Agent and the Agent shall notify the other Finance Parties.
10. INCREASED COSTS
10.1 Increased costs
(a) Subject to clause 10.3 (Exceptions) the Borrower shall, within three Business Days of a demand by the Agent, pay for the account of a Finance Party the amount of any Increased Costs incurred by that Finance Party or any of its Affiliates as a result of:
(i) the introduction of or any change in (or in the interpretation, administration or application of) any law or regulation;
(ii) compliance with any law or regulation made after the date of this Agreement; or
(iii) the implementation or application of or compliance with Basel III, CRD IV or any law or regulation that implements or applies Basel III or CRD IV (whether before or after the date of this Agreement and whether such implementation, application or compliance is by a government, regulator, Finance Party or any of its Affiliates).
(b) In this Agreement “Increased Costs” means:
(i) a reduction in the rate of return from the Facility or on a Finance Party’s ( or its Affiliate’s) overall capital;
(ii) an additional or increased cost; or
(iii) a reduction of any amount due and payable under any Finance Document,
which is incurred or suffered by a Finance Party or any of its Affiliates to the extent that it is attributable to that Finance Party having entered into its Commitment or funding or performing its obligations under any Finance Document or Letter of Credit.
10.2 Increased cost claims
(a) A Finance Party intending to make a claim pursuant to clause 10.1 (Increased costs) shall notify the Agent of the event giving rise to the claim, following which the Agent shall promptly notify the Borrower.
(b) Each Finance Party shall, as soon as practicable after a demand by the Agent, provide a certificate confirming the amount of its Increased Costs.
10.3 Exceptions
(a) Clause 10.1 (Increased costs) does not apply to the extent any Increased Cost is:
(i) attributable to a Tax Deduction required by law to be made by an Obligor;
(ii) attributable to a FATCA Deduction required to be made by a Party;
(iii) compensated for by clause 9.3 (Tax indemnity) (or would have been compensated for under clause 9.3 (Tax indemnity) but was not so compensated solely because any of the exclusions in clause 9.3(b) of clause 9.3 (Tax indemnity) applied);
(iv) attributable to a Bank Levy;
(v) attributable to the wilful breach by the relevant Finance Party or its Affiliates of any law or regulation; or
(vi) attributable to the implementation or application of or compliance with the “International Convergence of Capital Measurement and Capital Standards, a Revised Framework” published by the Basel Committee on Banking Supervision in June 2004 in the form existing on the date of this Agreement (but excluding any amendment arising out of Basel III) (“Basel II”) or any other law or regulation which implements Basel II (whether such implementation, application or compliance is by a government, regulator, Finance Party or any of its Affiliates).
(b) In this clause 10.3, a reference to a “Tax Deduction” has the same meaning given to the term in clause 9.1 (Definitions).
11. OTHER INDEMNITIES
11.1 Currency Indemnity
(a) If any sum due from an Obligor under the Finance Documents (a “Sum”) or any order, judgment or award given or made in relation to a Sum has to be converted from the currency (the “First Currency”) in which that Sum is payable into another currency (the “Second Currency”) for the purpose of:
(i) making or filing a claim or proof against that Obligor;
(ii) obtaining or enforcing an order, judgment or award in relation to any litigation or arbitration proceedings,
that Obligor shall as an independent obligation, within three Business Days of demand, indemnify each Secured Party to whom that Sum is due against any cost, loss or liability arising out of or as a result of the conversion including any discrepancy between (a) the rate of exchange used to convert that Sum from the First Currency into the Second Currency and (b) the rate or rates of exchange available to that person at the time of its receipt of that Sum.
(b) The Borrower waives any right it may have in any jurisdiction to pay any amount under the Finance Documents in a currency or currency unit other than that in which it is expressed to be payable.
11.2 Other indemnities
The Borrower shall (and will procure that each Obligor will), within three Business Days of demand, indemnify each Finance Party against any cost, loss or liability incurred by that Finance Party as a result of:
(a) the occurrence of any Event of Default;
(b) a failure by an Obligor to pay any amount due under a Finance Document on its due date, including without limitation, any cost, loss or liability arising as a result of clause 25 (Sharing among the Finance Parties);
(c) funding or making arrangements to fund, its participation in a Utilisation requested by the Borrower in a Utilisation Request but not made by reason of the operation of any one or more of the provisions of this Agreement (other than by reason of default or negligence by that Finance Party alone);
(d) issuing or making arrangements to issue a Letter of Credit requested by the Borrower in a Utilisation Request but not issued by reason of the operation of any one or more of the provisions of this Agreement (other than by reason of default or negligence by that Finance Party alone); or
(e) a Utilisation (or part of a Utilisation) not being prepaid in accordance with a notice of prepayment given by the Borrower.
For the avoidance of doubt the provisions of this clause 12.2 will not apply to any obligations of an Obligor to indemnify a Finance Party in respect of (i) Taxes, which obligations shall be governed solely by clause 10 (Tax Gross Up and Indemnities) or (ii) Increased Costs, which obligations shall be governed solely by clause 11 (Increased Costs).
11.3 Indemnity to the Agent
The Borrower shall promptly indemnify the Agent against any cost, loss or liability incurred by the Agent (acting reasonably) as a result of:
(a) investigating any event which it reasonably believes is a Default;
(b) acting or relying on any notice, request or instruction which it reasonably believes to be genuine, correct and appropriately authorised; or
(c) instructing lawyers, accountants, tax advisers, surveyors or other professional advisers or experts as permitted under this Agreement.
11.4 Indemnity to the Security Agent
The Borrower shall promptly indemnify the Security Agent and every Receiver and Delegate against cost, loss or liability incurred by any of them of a result of:
(a) any failure by the Borrower or the Guarantor to comply with its obligations under clause 13 (Costs and expenses);
(b) acting or relying on any notice, request or instruction which it reasonably believes to be genuine, correct and appropriately authorised;
(c) the taking, holding, protection or enforcement of the Transaction Security;
(d) the exercise of any of the right, powers, discretions, authorities and remedies vested in the Security Agent and each Receiver and Delegate by the Finance Document or by law;
(e) any default by any Obligor in the performance of any of the obligations expressed to be assumed by it in the Finance Documents; or
(f) acting as Security Agent, Receiver or Delegate under the Finance Documents or which otherwise relates to any of the Charged Property (otherwise, in each case, than by reason of the relevant Security Agent’s, Receiver’s or delegate’s gross negligence or wilful misconduct).
12. MITIGATION BY THE LENDERS
12.1 Mitigation
(a) Each Finance Party shall, in consultation with the Borrower, take all reasonable steps to mitigate any circumstances which arise and which would result in any Facility ceasing to be available or any amount becoming payable under or pursuant to, or cancelled pursuant to, any of clause 4.1 (Illegality), clause 9 (Tax gross-up and indemnities) or clause 10 (Increased costs) including (but not limited to) transferring its rights and obligations under the Finance Documents to another Affiliate or Facility Office.
(b) Paragraph (a) above does not in any way limit the obligations of any Obligor under the Finance Documents.
12.2 Limitation of liability
(a) The Borrower shall promptly indemnify each Finance Party for all costs and expenses reasonably incurred by that Finance Party as a result of steps taken by it under clause 12.1 (Mitigation).
(b) A Finance Party is not obliged to take any steps under clause 12.1 (Mitigation) if, in the opinion of that Finance Party (acting reasonably), to do so might be prejudicial to it.
13. COSTS AND EXPENSES
13.1 Transaction expenses
The Borrower (or the Guarantor) shall within five Business Days of demand pay the Agent and the Security Agent the amount of all costs and expenses (including legal fees) reasonably incurred by any of them (and, in the case of the Security Agent, by any Receiver or Delegate) in connection with the negotiation, preparation, printing, execution syndication and perfection of:
(a) this Agreement and any other documents referred to in this Agreement and the Transaction Security Documents; and
(b) any other Finance Documents executed after the date of this Agreement.
13.2 Amendment costs
If:
(a) an Obligor requests an amendment, waiver or consent; or
(b) an amendment is required pursuant to clause 26.10 (Change of currency),
the Borrower (or the Guarantor) shall, within three Business Days of demand, reimburse each of the Agent and Security Agent for the amount of all costs and expenses (including legal fees) reasonably incurred by the Agent and the Security Agent (and, in the case of the
Security Agent, by any Receiver or Delegate) in responding to, evaluating, negotiating or complying with that request or requirement.
13.3 Security Agent’s Ongoing Costs
(a) In the event of:
(i) a Default; or
(ii) the Security Agent being requested by an Obligor or the Majority Lenders to undertake duties which the Security Agent and the Borrower agree to be of an exceptional nature and/or outside the scope of the normal duties of the Security Agent under the Finance Documents,
the Borrower (or the Guarantor) shall pay to the Security Agent any additional remuneration that may be agreed between them.
(b) If the Security Agent and the Borrower (or the Guarantor, as applicable) fail to agree upon the nature of the duties or upon any additional remuneration, that dispute shall be determined by an investment bank (acting as an expert and not as an arbitrator) selected by the Security Agent and approved by the Borrower (or the Guarantor, as applicable) or, failing approval, nominated (on the application of the Security Agent) by the President for the time being of the Law Society of England and Wales (the costs of the nomination and of the investment bank being payable by the Borrower (or the Guarantor, as applicable)) and the determination of any investment bank shall be final and binding upon the parties to this Agreement.
13.4 Enforcement costs
The Borrower (or the Guarantor) shalI, within three Business Days of demand, pay to each Secured Party the amount of all costs and expenses (including legal fees) incurred by that Finance Party in connection with the enforcement of, or the preservation of any rights under, any Finance Document and the Transaction Security and any proceedings constituted by or against any Lender as a consequence of taking or holding the Transaction Security or enforcing these rights, or the investigation of any possible Default.
14. GUARANTEE AND INDEMNITY
14.1 Guarantee and indemnity
The Guarantor irrevocably and unconditionally:
(a) guarantees to each Finance Party punctual performance by the Borrower of all the Borrower’s obligations under the Finance Documents;
(b) undertakes with each Finance Party that whenever the Borrower does not pay any amount when due under or in connection with any Finance Document, the Guarantor shall immediately on demand pay that amount as if it was the principal obligor; and
(c) agrees with each Finance Party that if any obligation guaranteed by it is or becomes unenforceable, invalid or illegal it will, as an independent and primary obligation, indemnify that Finance Party immediately on demand against any cost, loss or liability it incurs as a result of the Borrower not paying any amount which would, but for such unenforceability, invalidity or illegality, have been payable by it under any Finance Document on the date when it would have been due. The amount payable by the Guarantor under this indemnity will not exceed the amount it would have had to pay under this clause 14 if the amount claimed had been recoverable on the basis of a guarantee.
14.2 Continuing guarantee
This guarantee is a continuing guarantee and will extend to the ultimate balance of sums payable by the Borrower under the Finance Documents, regardless of any intermediate payment or discharge in whole or in part.
14.3 Reinstatement
If any discharge, release or arrangement (whether in respect of the obligations of any Obligor or any security for those obligations or otherwise) is made by a Finance Party in whole or in part on the basis of any payment, security or other disposition which is avoided or must be restored in insolvency, liquidation, administration or otherwise, without limitation, then the liability of the Guarantor under this clause 14 will continue or be reinstated as if the discharge, release or arrangement had not occurred.
14.4 Waiver of defences
The obligations of the Guarantor under this clause 14 will not be affected by any act, omission, matter or thing which, but for this clause, would reduce, release or prejudice any of its obligations under this clause 14 (without limitation and whether or not known to it or any Finance Party) including:
(a) any time, waiver or consent granted to, or composition with, any Obligor or other person;
(b) the release of any other Obligor or any other person under the terms of any composition or arrangement with any creditor of any member of the Group;
(c) the taking, variation, compromise, exchange, renewal or release of, or refusal or neglect to perfect, take up or enforce, any rights against, or security over assets of, any Obligor or other person or any non-presentation or non-observance of any formality or other requirement in respect of any instrument or any failure to realise the full value of any security;
(d) any incapacity or lack of power, authority or legal personality of or dissolution or change in the members or status of an Obligor or any other person;
(e) any amendment, novation, supplement, extension, restatement (however fundamental and whether or not more onerous) or replacement of any Finance Document or any other document or security including without limitation any change in the purpose of, any extension of or any increase in any facility or the addition of any new facility under any Finance Document or other document or security;
(f) any unenforceability, illegality or invalidity of any obligation of any person under any Finance Document or any other document or security; or
(g) any insolvency or similar proceedings.
14.5 Guarantor Intent
Without prejudice to the generality of clause 14.4 (Waiver of Defences), the Guarantor expressly confirms that it intends that this guarantee shall extend from time to time to any (however fundamental and of whatsoever nature and whether or not more onerous) variation, increase, extension or addition of or to any of the Finance Documents and/or any facility or amount made available under any of the Finance Documents for the purposes of or in connection with any of the following: acquisitions of any nature; increasing working capital; enabling investor distributions to be made; carrying out restructurings; refinancing existing facilities; refinancing any other indebtedness; making facilities available to new borrowers; any other variation or extension of the purposes for which any such facility or
amount might be made available from time to time; and any fees, costs and/or expenses associated with any of the foregoing.
14.6 Immediate recourse
The Guarantor waives any right it may have of first requiring any Finance Party (or any trustee or agent on its behalf) to proceed against or enforce any other rights or security or claim payment from any person before claiming from the Guarantor under this clause 14. This waiver applies irrespective of any law or any provision of a Finance Document to the contrary.
14.7 Appropriations
Until all amounts which may be or become payable by the Obligors under or in connection with the Finance Documents have been irrevocably paid in full, each Finance Party (or any trustee or agent on its behalf) may:
(a) refrain from applying or enforcing any other moneys, security or rights held or received by that Finance Party (or any trustee or agent on its behalf) in respect of those amounts, or apply and enforce the same in such manner and order as it sees fit (whether against those amounts or otherwise) and the Guarantor shall not be entitled to the benefit of the same; and
(b) hold in an interest-bearing suspense account any moneys received from the Guarantor or on account of the Guarantor’s liability under this clause 14
14.8 Deferral of Guarantor’s rights
Until all amounts which may be or become payable by the Obligors under or in connection with the Finance Documents have been irrevocably paid in full and unless the Agent (or, as the case may be, the Security Agent) otherwise directs, the Guarantor will not exercise any rights which it may have by reason of performance by it of its obligations under the Finance Documents or by reason of any amount being payable, or liability arising, under this clause 14:
(a) to be indemnified by an Obligor;
(b) to claim any contribution from any other guarantor of any Obligor’s obligations under the Finance Documents;
(c) to take the benefit (in whole or in part and whether by way of subrogation or otherwise) of any rights of the Finance Parties under the Finance Documents or of any other guarantee or security taken pursuant to, or in connection with, the Finance Documents by any Finance Party;
(d) to bring legal or other proceedings for an order requiring any Obligor to make any payment, or perform any obligation, in respect of which the Guarantor has given a guarantee, undertaking or indemnity under clause 14.1 (Guarantee and Indemnity);
(e) to exercise any right of set-off against any Obligor; and/or
(f) to claim or prove as a creditor of any Obligor in competition with any Finance Party.
If the Guarantor receives any benefit, payment or distribution in relation to such rights it shall hold that benefit, payment or distribution to the extent necessary to enable all amounts which may be or become payable to the Finance Parties by the Obligors under or in connection with the Finance Documents to be repaid in full on trust for the Finance Parties and shall promptly pay or transfer the same to the Agent or as the Agent may direct for application in accordance with clause 26 (Payment mechanics).
14.9 Additional security
This guarantee is in addition to and is not in any way prejudiced by any other guarantee or security now or subsequently held by any Finance Party.
15. REPRESENTATIONS
Each Obligor makes the representations and warranties set out in this clause 15 to each Finance Party on the date of this Agreement.
15.1 Status
(a) It is a corporation, duly incorporated and validly existing under the law of its jurisdiction of incorporation.
(b) It and each of its Subsidiaries has the power to own its assets and carry on its business as it is being conducted.
15.2 Binding Obligations
The obligations expressed to be assumed by it in the Finance Documents are, subject to any general principles of law limiting its obligations which are specifically referred to in any legal opinion delivered pursuant to paragraph 3 of schedule 2 (Conditions Precedent to Initial Utilisation) or paragraph 3 of schedule 2 (Conditions Precedent) of the 2022 Amendment and Restatement Agreement, legal, valid, binding and enforceable obligations and, subject to the Legal Reservations and Perfection Requirements each Transaction Security Document (if any) to which it is a party creates the security interests which that Transaction Security Document purports to create and those security interests are valid and effective.
15.3 Non-conflict with other obligations
The entry into and performance by it of, and the transactions contemplated by, the Finance Documents and the granting of the Transaction Security (if any) do not and will not conflict with:
(a) any law or regulation applicable to it;
(b) its or any of its Subsidiaries’ constitutional documents; or
(c) any agreement or instrument binding upon it or any of its Subsidiaries or any of its or any of its Subsidiaries’ assets in any material respect.
15.4 Power and authority
It has the power to enter into, perform and deliver, and has taken all necessary action to authorise its entry into, performance and delivery of, the Finance Documents to which it is a party and the transactions contemplated by those Finance Documents.
15.5 Validity and admissibility in evidence
(a) All Authorisations required:
(i) to enable it lawfully to enter into, exercise its rights and comply with its obligations in the Finance Documents to which it is a party;
(ii) subject to the Legal Reservations, to make the Finance Documents to which it is a party admissible in evidence in its jurisdiction of incorporation; and
(iii) subject to the Legal Reservations, to enable it to create the Security to be created by it pursuant to any Transaction Security Document and to ensure that such Security has the priority and ranking it is expressed to have, have been obtained or effected and are in full force and effect save, in relation to the Transaction Security Documents, for the Perfection Requirements.
(b) All Authorisations necessary for the conduct of the business, trade and ordinary activities of members of the Group have been obtained or effected and are in full force and effect.
15.6 Governing law and enforcement
(a) Subject to the Legal Reservations, the choice of English law as the governing law of the Finance Documents will be recognised and enforced in its jurisdiction of incorporation.
(b) Subject to the Legal Reservations, any judgment obtained in England in relation to a Finance Document will be recognised and enforced in its jurisdiction of incorporation.
15.7 Deduction of Tax
It is not required to make any Tax Deduction from any payment it may make under any Finance Document.
15.8 No Filing or stamp taxes
Subject to the Perfection Requirements, under the law of its jurisdiction of incorporation it is not necessary that the Finance Documents be filed, recorded or enrolled with any court or other authority in that jurisdiction or that any stamp, registration or similar tax be paid on or in relation to the Finance Documents or the transactions contemplated by the Finance Documents, excluding any assignment or transfer of rights under the Finance Documents by a Finance Party or any document effecting any such assignment or transfer excluding any assignment or transfer of rights under the Finance Documents by a Finance Party and any Finance Document pursuant to which an assignment is made.
15.9 No default
(a) No Event of Default is continuing or might reasonably be expected to result from the making of any Utilisation.
(b) No other event or circumstance is outstanding which constitutes a default under any other agreement or instrument which is binding on it or any of its Subsidiaries or to its (or any of its Subsidiaries’) assets are subject which might have a Material Adverse Effect.
15.10 No Misleading Information
(a) Any written information provided by any member of the Group to a Finance Party which is factual was true and accurate in all material respects as at the date it was provided or as at the date (if any) at which it is stated.
(b) All financial projections so supplied have been prepared on the basis of recent historical information and on the basis of assumptions believed by the Borrower to be reasonable.
(c) No information has been given or withheld that results in the information supplied to any Finance Party by any Obligor being untrue or misleading in any material respect.
15.11 Financial statements
(a) Its Original Financial Statements were prepared in accordance with GAAP consistently applied.
(b) Its Original Financial Statements fairly present its financial condition and operations (consolidated in the case of the Borrower) and the financial condition and operations of the Managed Syndicate during the relevant financial year unless expressly disclosed to the Agent in writing to the contrary prior to the date of this Agreement.
(c) There has been no material adverse change in its business or financial condition (or the business or consolidated financial condition of the Group, in the case of the Borrower) or the financial condition and operations of any Managed Syndicate since the date at which its most recent audited financial statements were stated to be prepared.
15.12 Pari passu ranking
(a) Subject to the Perfection Requirements and Legal Reservations, each Transaction Security Document (if any) creates (or, once entered into, will create) in favour of the Security Agent for the benefit of the Finance Parties the Security which it is expressed to create with the ranking and priority it is expressed to have.
(b) Without limiting the generality of paragraph (a) above, its payment obligations under the Finance Documents rank at least pari passu with the claims of all its other unsecured and unsubordinated creditors, except for obligations mandatorily preferred by law applying to companies generally.
15.13 No proceedings pending or threatened
No litigation, arbitration or administrative proceedings of or before any court, arbitral body or agency which, if adversely determined, might reasonably be expected to have a Material Adverse Effect has or have (to the best of its knowledge and belief) been started or threatened against it or any of its Subsidiaries.
15.14 Insolvency
No Obligor has taken any corporate action nor have any other steps been taken or legal proceedings been started or (to the best of its knowledge and belief) threatened against any Obligor for its winding-up, dissolution, administration or re-organisation (whether by voluntary arrangement, scheme of arrangement or otherwise) or for the appointment of a receiver, administrator, administrative receiver, conservator, custodian or similar officer of it or of all or any of its assets or revenues.
15.15 Ownership of the Obligors and Applicants
Each Obligor (other than the Guarantor) and each Applicant is a direct or indirect wholly-owned Subsidiary of the Guarantor and its entire issued share capital is legally and beneficially wholly owned and controlled, directly or indirectly, by the Guarantor.
15.16 Group Structure Chart
The Group Structure Chart is true, complete and accurate and shows all members of the Group, including current name and company registration number, its jurisdiction of incorporation and/or establishment and (other than in the case of the Guarantor) a list of shareholders.
15.17 Compliance with laws
(a) It has not breached any law or regulation which breach has or is reasonably likely to have a Material Adverse Effect.
(b) No labour disputes are current or, to the best of its knowledge and belief (having made due and careful enquiry), threatened against any member of the Group which have or are reasonably likely to have a Material Adverse Effect.
15.18 Security Ranking
(a) No Security or Quasi-Security exists over all or any of the present or future assets of any member of the Group other than as permitted by any Finance Document.
(b) Subject to the Legal Reservations and the Perfection Requirements, the Transaction Security (if any) has or will have the ranking and priority which it is expressed to have in the Transaction Security Documents and it is not subject to any prior ranking or pari passu ranking Security.
15.19 Good title to assets
It and each of its Subsidiaries has good, valid and marketable title to, or valid leases or licences of, and all appropriate Authorisations to use, the assets necessary to carry on its business as presently conducted.
15.20 Legal and beneficial ownership
It and each of its Subsidiaries is the sole legal and beneficial owner of the respective assets over which it purports to grant Security.
15.21 Third Party Funds at Lloyd’s
Each Applicant is not a member of any syndicate at Lloyd’s other than the relevant Managed Syndicates.
15.22 Anti-corruption law
It, and each of its Subsidiaries, has conducted its business in compliance with applicable anti-corruption, anti-bribery and anti-money laundering laws and regulations in all material respects and maintains policies and procedures designed to promote and achieve compliance with such laws and regulations.
15.23 Sanctions
(a) Neither it nor any of its Subsidiaries, nor any of its or its Subsidiaries’ directors:
(i) is in violation of any Sanctions;
(ii) is a Restricted Person;
(iii) is engaging in any transaction or conduct that would be reasonably likely to result in it becoming a Restricted Person;
(iv) is subject to any on-going claim, proceeding or formal investigation in each case as notified to it with respect to Sanctions;
(v) is engaging in any transaction that evades or avoids, or has the purpose of evading or avoiding, or breaches or attempts to breach, directly or indirectly, any Sanctions applicable to it; or
(vi) is, so far as it is aware, engaging, directly or indirectly, in any trade, business or other activities with or for the benefit of any Restricted Person.
(b) No Utilisation, nor the proceeds from any Utilisation, has been used, directly or indirectly, to lend, contribute, provide or has otherwise been made to fund or finance any business activities or transactions:
(i) of or with a Restricted Person; or
(ii) in any other manner which would result in the Obligors or any member of the Group or any Finance Party being in breach of any Sanctions or becoming a Restricted Person.
15.24 Repetition of Representations
The Repeating Representations shall be deemed to be repeated by the relevant Obligor by reference to the facts and circumstances then existing on the date of each Utilisation Request, the Commencement Date of each Letter of Credit and every six Months after that date until the Expiry Date of that Letter of Credit.
16. INFORMATION UNDERTAKINGS
The undertakings in this clause 16 remain in force from the date of this Agreement for so long as any amount is outstanding under the Finance Documents, any Commitment is in force or unless the Total Commitments have been Cash Collateralised.
16.1 Financial Statements
The Borrower (or in the case of the Guarantor’s financial statements, the Guarantor) shall supply to the Agent in sufficient copies for all the Lenders:
(a) as soon as the same become available, but in any event within 90 days after the end of each of its financial years:
(i) its audited financial statements for that financial year; and
(ii) the audited consolidated financial statements of the Guarantor for that financial year;
(b) as soon as the same becomes available, but in any event within 45 days after the end of each of the first, second and third quarters of its financial year, the unaudited consolidated quarterly financial statements of the Guarantor for each relevant financial period; and
(c) as soon as the same become available, but in any event:
(i) within 90 days after the end of the fourth quarter of each year of account of the Managed Syndicate, and
(ii) within 60 days after the end of each of the first, second and third quarters of each year of account of the Managed Syndicate, deliver to the Agent, the Quarterly Monitoring Return for the Managed Syndicate for that quarter.
16.2 Business Plan and Realistic Disaster Scenarios for the Managed Syndicate
The Borrower (or the Guarantor) shall as soon as the same becomes available, but in any event by no later than 1 December in each year with respect to the preparation and
despatch thereof, deliver to the Agent each (and amendments to each) Business Plan (if applicable) and (if separate) the Realistic Disaster Scenarios relating thereto.
16.3 Compliance Certificates
(a) The Borrower (or the Guarantor) shall supply to the Agent, with each set of financial statements delivered pursuant to clause 16.1(a) and 16.1(b) (Financial Statements), a Compliance Certificate setting out (in reasonable detail) computations as to compliance with clause 17 (Financial Condition) as at the date as at which those financial statements were drawn up.
(b) Each Compliance Certificate shall be signed by two directors or officers of the Guarantor (one of whom shall be a Responsible Officer).
16.4 Requirements as to financial statements
(a) Each set of financial statements delivered by the Borrower or the Guarantor (as applicable) pursuant to clause 16.1 (Financial Statements) shall be certified by the chief financial officer of the relevant company as fairly presenting its financial condition as at the date as at which those financial statements were drawn up.
(b) The Borrower or the Guarantor (as applicable) shall procure that each set of financial statements delivered pursuant to clause 16.1 (Financial Statements) is prepared using GAAP.
(c) The Borrower shall procure that each set of financial statements of an Obligor delivered pursuant to clause 16.1 (Financial Statements) is prepared using GAAP, accounting practices and financial reference periods consistent with those applied in the preparation of the Original Financial Statements for that Obligor unless, in relation to any set of financial statements, it notifies the Agent that there has been a change in GAAP, the accounting practices or reference periods and its auditors (or, if appropriate, the auditors of the Obligor) deliver to the Agent:
(i) a description of any change necessary for those financial statements to reflect the GAAP, accounting practices and reference periods upon which that Obligor’s Original Financial Statements were prepared; and
(ii) sufficient information, in form and substance as may be reasonably required by the Agent, to enable the Lenders to determine whether clause 17 (Financial Condition) has been complied with and make an accurate comparison between the financial position indicated in those financial statements and that Obligor’s Original Financial Statements.
Any reference in this Agreement to those financial statements shall be construed as a reference to those financial statements as adjusted to reflect the basis upon which the Original Financial Statements were prepared.
16.5 Information: miscellaneous
The Borrower (or the Guarantor) shall supply to the Agent (in sufficient copies for all the Lenders, if the Agent so requests):
(a) all financial information and all other material information dispatched by the Guarantor to its shareholders (or any class of them) or its creditors generally at the same time as they are dispatched;
(b) promptly upon becoming aware of them, the details of any litigation, arbitration or administrative proceedings which are current, threatened or pending against any
member of the Group, and which might, if adversely determined, have a Material Adverse Effect;
(c) promptly upon it becoming aware of them, the details of any threatened regulatory intervention by Lloyd’s and/or the FCA and/or the PRA in respect of the Group and/or a Managed Syndicate which are likely to be adversely determined and/or made and which, if adversely determined and/or made, would have a Material Adverse Effect on the business or financial condition of the Group and/or a Managed Syndicate;
(d) promptly, such information as the Security Agent may reasonably require about the Charged Property (if any) and compliance of the Obligors with the terms of any Transaction Security Documents;
(e) promptly, such further information regarding the financial condition, business and operations of any member of the Group as any Finance Party (through the Agent) may reasonably request; and
(f) promptly, and in any event within 10 Business Days of receipt, copies of all Annual CIL Statements and quarterly statements (relating to the Quarterly Corridor Tests) received from Lloyd’s from time to time in relation to the Account Party (each as defined or referenced in the M&URs).
16.6 Notification of default
(a) Each Obligor shall notify the Agent of any Default (and the steps, if any, being taken to remedy it) promptly upon becoming aware of its occurrence (unless that Obligor is aware that a notification has already been provided by another Obligor).
(b) Promptly upon a request by the Agent, the Borrower or the Guarantor (as applicable) shall supply to the Agent a certificate signed by two of its directors or senior officers on its behalf certifying that no Default is continuing (or if a Default is continuing, specifying the Default and the steps, if any, being taken to remedy it).
16.7 Use of websites
(a) The Borrower may satisfy its obligation under this Agreement to deliver any information in relation to those Lenders (the “Website Lenders”) who accept this method of communication by posting this information onto an electronic website designated by the Borrower and the Agent (the “Designated Website”) if:
(i) the Agent expressly agrees (after consultation with each of the Lenders) that it will accept communication of the information by this method;
(ii) both the Borrower and the Agent are aware of the address of and any relevant password specifications for the Designated Website; and
(iii) the information is in a format previously agreed between the Borrower and the Agent.
(b) If any Lender (a “Paper Form Lender”) does not agree to the delivery of information electronically then the Agent shall notify the Borrower accordingly and the Borrower shall supply the information to the Agent (in sufficient copies for each Paper Form Lender) in paper form. In any event the Borrower shall supply the Agent with at least one copy in paper form of any information required to be provided by it.
(c) The Agent shall supply each Website Lender with the address of and any relevant password specifications for the Designated Website following designation of that website by the Borrower and the Agent.
(d) The Borrower shall promptly upon becoming aware of its occurrence notify the Agent if:
(i) the Designated Website cannot be accessed due to technical failure;
(ii) the password specifications for the Designated Website change;
(iii) any new information which is required to be provided under this Agreement is posted onto the Designated Website;
(iv) any existing information which has been provided under this Agreement and posted onto the Designated Website is amended; or
(v) the Borrower becomes aware that the Designated Website or any information posted onto the Designated Website is or has been infected by any electronic virus or similar software.
If the Borrower notifies the Agent under paragraph (d)(i) or paragraph (d)(v) above, all information to be provided by the Borrower under this Agreement after the date of that notice shall be supplied in paper form unless and until the Agent and each Website Lender is satisfied that the circumstances giving rise to the notification are no longer continuing.
(e) Any Website Lender may request, through the Agent, one paper copy of any information required to be provided under this Agreement which is posted onto the Designated Website. The Borrower shall comply with any such request within ten Business Days.
16.8 Lloyd’s Syndicate Accounting Rules
The Borrower shall use all reasonable endeavours to procure that each Quarterly Monitoring Return in respect of the Managed Syndicate delivered pursuant to clause 16.1(c) (Financial Statements) is prepared in accordance with Lloyd’s syndicate accounting rules applicable at the relevant time and prepared in accordance with GAAP consistently applied.
16.9 “Know your customer” checks
(a) If:
(i) the introduction of or any change in (or in the interpretation, administration or application of) any law or regulation made after the date of this Agreement;
(ii) any change in the status of an Obligor or the composition of the shareholders of an Obligor after the date of this Agreement; or
(iii) a proposed assignment or transfer by a Lender of any of its rights and obligations under this Agreement to a party that is not a Lender prior to such assignment or transfer,
obliges the Agent or any Lender (or, in the case of paragraph (iii) above, any prospective new Lender) to comply with “know your customer” or similar identification procedures in circumstances where the necessary information is not already available to it, each Obligor shall promptly upon the request of the Agent or any Lender supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Agent (for itself or on behalf of any Lender) or any Lender (for itself or, in the case of the event described in paragraph (iii) above, on behalf of any prospective new Lender) in order for the Agent, such Lender or, in the case of the event described in paragraph (iii) above, any prospective new Lender to carry out and be satisfied it has complied with all necessary “know your customer”
or other similar checks under all applicable laws and regulations pursuant to the transactions contemplated in the Finance Documents.
(b) Each Lender shall promptly upon the request of the Agent supply, or procure the supply of, such documentation and other evidence as is reasonably requested by the Agent (for itself) in order for the Agent to carry out and be satisfied it has complied with all necessary “know your customer” or other similar checks under all applicable laws and regulations pursuant to the transactions contemplated in the Finance Documents.
17. FINANCIAL CONDITION
17.1 Financial Condition
(a) For so long as any amount is outstanding under the Finance Documents or any Commitment is in force or unless the Total Commitments have been Cash Collateralised:
(i) the Guarantor shall have and maintain (in each case on a consolidated basis for itself and its Subsidiaries) Consolidated Tangible Net Worth as of any fiscal quarter not less than an amount equal to the Consolidated Tangible Net Worth Floor for such quarter;
(ii) the Guarantor shall ensure that, at all times from the 2022 Restatement Date, the ratio (expressed as a percentage) of Debt to Consolidated Total Capitalisation of the Guarantor and its Subsidiaries shall be no greater than 30%. For the purposes of calculating this ratio:
(A) Debt will be calculated on a consolidated basis (and therefore intra-group balances shall not be treated as Debt); and
(B) Letters of Credit outstanding under the Facility in relation to which no unreimbursed demand is outstanding will not be treated as Debt;
(iii) the Guarantor shall ensure that, at all times, the applicable financial strength rating of the Borrower and any other present or future material rated insurance Subsidiary of the Guarantor, as published by A.M. Best shall not fall below B++;
(iv) the Guarantor shall ensure that, at all times, it maintains (in each case on a consolidated basis for itself and its Subsidiaries) a minimum of $1,000,000,000 of Cash and Invested Assets; and
(b) on and from the date a Letter of Credit has been issued under this Agreement and for so long as any amount is outstanding under the Finance Documents or any Commitment is in force or unless the Total Commitments have been Cash Collateralised the Guarantor shall ensure that the financial condition of the Applicants is such that consolidated Own FAL is no less than 50 per cent of Total FAL, it being understood that, for the purposes of this section 17.1(b) only, Total FAL and Own FAL shall be deemed to exclude Solvency Deficits.
17.2 Covenant Breach Cure
If the Guarantor is in breach of any obligation under clause 17.1 (Financial Condition) (above) and such breach is not cured within 10 Business Days after the earlier of the Agent giving notice thereof or the Guarantor becoming aware of such failure to perform or comply (the “Covenant Breach”), then the Guarantor shall, within 15 Business Days of such notice or awareness, provide and maintain Collateral as is necessary to cure the Covenant Breach immediately following such delivery.
17.3 Financial Definitions
In this Agreement the following words and expressions and abbreviations have the following meanings, unless the context otherwise requires:
“Adjusted Fair Market Value” means, with respect to any Fixed Income Securities, an amount equal to the product of (a) the Fair Market Value of such Fixed Income Securities and (b) the amount expressed as a percentage under the column titled “advance rate” in the table titled “Required Rating / Maximum Tenor” set out at schedule 10 (Required Rating/Maximum Tenor Table);
“Cash and Cash Equivalents” means any currency, including time deposits, certificates of deposit and money market deposits held with the Security Agent and/or held at the Custodian;
“Cash and Invested Assets” means the aggregate of the amount of (i) Cash and Cash Equivalents, (ii) Fixed Income Securities and (iii) the net asset value of either (a) the Two Sigma Hamilton Fund, LLC or (b) the Two Sigma Spectrum Portfolio LLO and Two Sigma Futures Portfolio funds, as reported in the Guarantor’s unaudited consolidated quarterly financial statements and its annual audited consolidated financial statements;
“Consolidated Net Income” means, for any period, an amount equal to the consolidated net income of the Group (determined on a consolidated basis in accordance with GAAP) for such period;
“Consolidated Tangible Net Worth” means, as of any date of determination, the consolidated Total Shareholders’ Equity of the Guarantor and its Subsidiaries (determined on a consolidated basis in accordance with GAAP) for such date, after appropriate deduction for:
(a) any minority interest in Subsidiaries including for the avoidance of doubt the aggregate principal amount of all outstanding preferred (including without limitation trust preferred) or preference securities of the Group;
(b) (to the extent included) any amount shown in respect of goodwill (arising only on consolidation) or other intangible assets of the Group (including for this purpose syndicate participations) and interests of non-members of the Group in the Guarantor’s Subsidiaries; and
(c) any Disqualified Equity Interests;
“Consolidated Tangible Net Worth Floor” means, as of the last day of any financial quarter, an amount equal to:
(a) $1,218,932,000; plus
(b) for each financial quarter ending on or after September 30, 2022 for which there is positive Consolidated Net Income during such financial quarter, 35% of such positive Consolidated Net Income; plus
(c) 35% of net cash proceeds of the aggregate increases in common Equity Interests (by virtue of net equity issuance, debt conversion or contribution) by the Group at any time after September 30, 2022, excluding the impact of Equity Interests issued to employees or directors of the Group under its long term incentive plan or share purchase programs;
“Consolidated Total Capitalisation” means the aggregate of:
(a) Consolidated Tangible Net Worth; and
(b) Debt;
“Corporate Securities” means US corporate bonds listed on a generally recognized stock exchange which are rated by at least two of Fitch Ratings Ltd, Moody’s Investors Service Limited and Standard and Poor’s Rating Service; provided that:
(a) such bonds are not convertible into shares of the issuer and are deposited with or held by the Custodian in the Custody Account;
(b) not more than ten (10) per cent of any Fixed Income Securities delivered to, or held in, the Custody Account (by reference to the Adjusted Fair Market Value of such Fixed Income Securities) shall comprise Corporate Securities issued by any single issuer; and
(c) corporate bonds and securities issued by an insurance company, a reinsurance company or a supra-national shall not constitute “Corporate Securities” for the purposes hereof;
“Debt” means, with respect to any person, at any date, at any date, without duplication,
(a) all obligations of such person for borrowed money;
(b) all obligations of such person under conditional sale or other title retention agreements relating to property acquired by such person;
(c) all obligations of such person in respect of the deferred purchase price of property or services (excluding current ordinary course trade accounts payable, deferred compensation and any purchase price adjustment, earn-out, contingent payment or deferred payment of a similar nature incurred in connection with an acquisition);
(d) all Debt of others secured by (or for which the holder of such Debt has an existing right, contingent or otherwise, to be secured by) any lien on property owned or acquired by such person whether or not the Debt secured thereby has been assumed, provided that the amount of Debt of such person shall be the lesser of (i) the fair market value of such property at such date of determination (determined in good faith by the Guarantor) and (ii) the amount of such indebtedness of such other person;
(e) all guarantees by such person of Debt of others;
(f) all capital lease obligations of such person;
(g) all obligations of such person under transactions in capital market products;
(h) all reimbursement obligations of such person in respect of letters of credit, letters of guaranty, bankers’ acceptances and similar credit transactions, including for the avoidance of doubt the Letter of Credit issued under the Facility;
(i) any Debt of a partnership or in which such person is a general partner unless such debt is nonrecourse to such person;
(j) all obligations of such Person with respect to its Disqualified Equity Interests;
(k) all contingent liabilities of such person in connection with the foregoing; and
provided that, Debt shall not include:
(i) any Debt which is subject to a Permitted Security; and
(ii) the undrawn amount of letters of credit issued under credit facilities entered into by the Borrower, Guarantor and/or any of their Subsidiaries in support of the regulatory obligations under its reinsurance or retrocession arrangements;
“Fair Market Value” means (a) with respect to any Government Debt, Federal Agency Debt, Debt issued by FHMLC or FNMA or other publicly-traded security the closing price for such security on Bloomberg, Inc. or, if Bloomberg, Inc. is not available, another quotation service reasonably acceptable to the Security Agent and (b) with respect to any other Fixed Income Securities, the price for such Fixed Income Securities on the date of calculation obtained from a generally recognized source approved by the Security Agent or the most recent bid quotation from such approved source (or, if no generally recognized source exists as to such Fixed Income Securities, any other source specified by the Guarantor or the Borrower to which the Security Agent does not reasonably object);
“Federal Agency” means any of the following agencies of the federal government of the United States: (a) any Federal Farm Credit Bank of the Farm Credit System, (b) the Federal Home Loan Bank, (c) GNMA and (d) such other federal agencies as are reasonably acceptable to the Security Agent;
“Federal Agency Debt” means evidence of Freely Transferable Debt issued by a Federal Agency;
“FHMLC” means the Federal Home Mortgage Loan Corporation;
“Fixed Income Securities” means (a) Corporate Securities, (b) Federal Agency Debt, (c) Government Debt, (d) Freely Transferable Debt of FHMA and FNMA which, in each case, (i) are denominated in US dollars, (ii) for the purposes of calculating the Adjusted Fair Market Value thereof, have the required rating and/or maximum tenor (as applicable) as set forth in the table titled “Required Rating / Maximum Tenor” set out at schedule 10 (Required Rating/Maximum Tenor Table), (iii) are capable of being marked to market on a daily basis and (iv) are delivered to, and held in, the Custody Account and (e) such other form of assets as mutually agreed in writing between the Obligors’ Agent and the Agent from time to time;
“FNMA” means the Federal National Mortgage Association;
“Freely Transferable” means securities which are freely transferable and traded in established and recognised markets and as to which there are readily available price quotations; and
“Government Debt” means Freely Transferable Debt issued by the US Treasury Department or backed by full faith and credit of the US.
17.4 Financial Testing
The financial covenants set out in this clause 17 shall be tested by reference to each of the annual audited financial statements or the quarterly management accounts and/or each Compliance Certificate delivered pursuant to clause 16 (Information Undertakings).
17.5 Accounting Terms
All accounting expressions which are not otherwise defined herein shall be construed in accordance with GAAP.
18. GENERAL UNDERTAKINGS
The undertakings in this clause 18 remain in force from the date of the 2022 Restatement Date for so long as any amount is outstanding under the Finance Documents, any Commitment is in force or unless the Total Commitments have been Cash Collateralised.
18.1 Authorisations
(a) Each Obligor shall promptly:
(i) obtain, comply with and do all that is necessary to maintain in full force and effect; and
(ii) upon request supply certified copies to the Agent of,
any Authorisation required under any law or regulation of its jurisdiction of incorporation to enable it to perform its obligations under the Finance Documents and subject to the Legal Reservations, to ensure the legality, validity, enforceability or admissibility in evidence in its jurisdiction of incorporation of any Finance Document.
(b) The relevant Obligor shall promptly make the registrations and comply with the other requirements specified in the Perfection Requirements.
18.2 Compliance with laws
Each Obligor shall (and the Borrower will procure that each member of the Group will) observe and comply in all respects with all applicable acts, byelaws and regulations (including, without limitation, under the Financial Services and Markets Act 2000 (and related subordinate legislation), Lloyd’s Acts 1871 to 1982 and the Handbook (as amended from time to time)) and any conditions or requirements prescribed under any applicable acts, byelaws and regulations, the failure to observe or comply with which the Majority Lenders believe has, or is reasonably expected to have, a Material Adverse Effect.
18.3 Negative Pledge
In this clause 18.3, “Quasi-Security” means an arrangement or transaction described in paragraph (b) below.
(a) No Obligor shall (and the Borrower will procure that no other member of the Group will) create or permit to subsist any Security over any of its assets.
(b) No Obligor shall (and the Borrower will procure that no other member of the Group will):
(i) sell, transfer or otherwise dispose of any of its assets on terms whereby they are or may be leased to or re-acquired by an Obligor or any other member of the Group;
(ii) sell, transfer or otherwise dispose of any of its receivables on recourse terms;
(iii) enter into any arrangement under which money or the benefit of a bank or other account may be applied, set-off or made subject to a combination of accounts; or
(iv) enter into any other preferential arrangement having a similar effect,
in circumstances where the arrangement or transaction is entered into primarily as a method of raising Financial Indebtedness or of financing the acquisition of an asset.
(c) Paragraphs (a) and (b) above do not apply to:
(i) any Permitted Security;
(ii) (i) contractual or statutory Liens of landlords to the extent relating to the property and assets relating to any lease agreements with such landlord, and (ii) contractual Liens of suppliers (including sellers of goods) or customers granted in the ordinary course of business to the extent limited to the property or assets relating to such contract; and
(iii) Security not otherwise permitted hereunder securing Financial Indebtedness or other obligations in an aggregate principal amount not to exceed $25,000,000 at any time outstanding.
18.4 Disposals
(a) No Obligor shall (and the Borrower will procure that no other member of the Group will) enter into a single transaction or a series of transactions (whether related or not) and whether voluntary or involuntary to sell, lease, transfer or otherwise dispose of any asset.
(b) Paragraph (a) above does not apply to any sale, lease, transfer or other disposal of an asset other than an asset forming part of the Charged Property:
(i) made in the ordinary course of day to day business (including any intra-group capital contributions) of the disposing entity;
(ii) made by a member of the Group (the “Disposing Company”) to another member of the Group (the “Acquiring Company”) provided that such sale, lease, transfer or other disposal of an asset by the Disposing Company to the Acquiring Company does not adversely affect the financial condition of the Group;
(iii) of assets in exchange for other assets comparable or superior as to type, value and quality; or
(iv) where the higher of the market value or consideration receivable (when aggregated with the higher of the market value or consideration receivable for any other sale, lease, transfer or other disposal, other than any permitted under paragraphs (i) or (ii) above) does not exceed $10,000,000 (or its equivalent in another currency or currencies) in any financial year,
provided that, in each case, any such sale, lease, transfer or other disposal would not result in the Guarantor being in breach of any of its obligations under clause 17.1 (Financial Condition).
(c) Paragraph (a) also does not apply to:
(i) any sale, lease, transfer or other disposal in the ordinary course of trading of the disposing entity of any of the Charged Property subject only to a floating charge before the floating charge crystallises or the security created pursuant to the Transaction Security Documents has become enforceable;
(ii) any solvent liquidation or winding up of any member of the Group (other than the Borrower and the Applicants); and
(iii) any disposition of operating leases.
18.5 Merger
(a) No Obligor shall enter into any amalgamation, demerger, merger or corporate reconstruction.
(b) Paragraph (a) above does not apply:
(iii) where the applicable Obligor is the continuing or surviving entity following such amalgamation, demerger, merger or corporate reconstruction; or
(iv) to any sale, lease, transfer or other disposal permitted pursuant to clause 18.4 (Disposals).
18.6 Acquisitions
(a) Except as permitted under paragraph (b) below, no Obligor shall (and the Borrower will procure that no other member of the Group will), after the date of this Agreement (except with the prior written consent of the Majority Lenders), acquire or agree to acquire any business or parts of any business or any company or shares in any company, in each case outside the Group.
(b) Paragraph (a) above does not apply to any acquisition which would not result in:
(i) the occurrence of an Event of Default; and
(ii) the financial strength rating of the Borrower and any other present or future material rated insurance Subsidiary of the Guarantor, as published by A.M. Best, falling below B++.
18.7 Joint ventures
(a) Except as permitted under paragraph (b) below, no Obligor shall (and the Borrower will procure that no other member of the Group will):
(i) enter into, invest in or acquire (or agree to acquire) any shares, stocks, securities or other interest in any Joint Venture; or
(ii) transfer any assets or lend to or guarantee or give an indemnity for or give Security for the obligations of a Joint Venture or maintain the solvency of or provide working capital to any Joint Venture (or agree to do any of the foregoing).
(b) Paragraph (a) above does not apply where the circumstances described therein would not reasonably be expected to result in:
(i) the occurrence of an Event of Default; and
(ii) the financial strength rating of the Borrower and any other present or future material rated insurance Subsidiary of the Guarantor, as published by A.M. Best, falling below B++.
18.8 Change of business
(a) Subject to paragraph (b) below, each Obligor shall procure that:
(i) no Applicant shall undertake any business or activity other than insurance business at Lloyd’s; and
(ii) no substantial change is made to the general nature of the business of any other Obligor from that carried on at the date of this Agreement,
without the prior consent of the Majority Lenders, such consent not to be unreasonably withheld or delayed.
(b) For the avoidance of doubt:
(i) ICC3L ceasing to underwrite new insurance business after the 2019 underwriting year of account; and
(ii) any increased underwriting from HCML supporting Syndicate 4000,
shall not cause a breach of paragraph (a) above.
18.9 Insurance
Each Obligor shall maintain insurances on and in relation to its business and assets with reputable underwriters or insurance companies against such risks and to such extent as is usual for companies carrying on a business such as that carried on by such Obligor.
18.10 Claims Pari Passu
Each Obligor shall ensure that at all times the claims of the Finance Parties against it under the Finance Documents rank at least pari passu with the claims of all its other unsecured and unsubordinated creditors save those whose claims are preferred by any bankruptcy, insolvency, liquidation or other similar laws of general application.
18.11 Substitution of Letters of Credit
Upon any Lender assigning or transferring the whole or any part of its Commitment in accordance with clause 20.1 (Assignments and Transfers by the Lenders) the Borrower shall, upon five Business Days’ prior notice of such assignment or transfer, use all reasonable endeavours to procure that:
(a) Lloyd’s accepts a new Letter of Credit issued by the new Lenders party to that Letter of Credit in replacement of the original Letter of Credit and such original Letter of Credit is returned to the Agent; or
(b) Lloyd’s agrees such amendments to the original Letter of Credit as may be necessary to reflect such assignment or transfer.
18.12 Application of Funds at Lloyd’s and Cash Calls
(a) The Borrower shall use its best endeavours (including, without limitation, by taking all such procedural and administrative action required by Lloyd’s and procuring that all such procedural and administrative action required by Lloyd’s is taken by the Managing Agent) to ensure that the Funds at Lloyd’s of the Applicant is applied in the manner described in clause 2.6 (Order of Application of Funds at Lloyd’s).
(b) The Borrower shall procure that the Managing Agent shall make a request for funds of its respective Applicant in its capacity as a member of the Managed Syndicate before applying the Funds at Lloyd’s of that Applicant in the payment of any claims, expenses or outgoings made or incurred in connection with its underwriting business.
(c) The Borrower shall upon service on it, or on any member of the Group, by Lloyd’s ( or other trustee for the time being of such Funds at Lloyd’s) of a written demand for the payment of a sum on account of its, or any member of the Group’s, Funds at Lloyd’s promptly inform the Agent of such demand.
18.13 Funds at Lloyd’s compliance
Each Obligor shall:
(a) procure that the Own FAL of each Applicant shall comply with the applicable requirements of Lloyd’s from time to time;
(b) use all reasonable endeavours to procure that Own FAL shall be revalued by Lloyd’s and in accordance with Lloyd’s usual practice on a semi-annual basis;
(c) use its best endeavours to procure that the Funds at Lloyd’s of each Applicant is applied in the manner described in clause 2.6 (Order of Application of Funds at Lloyd’s); and
(d) procure that if there is at any time a shortfall in the Funds at Lloyd’s of any member of the Group, promptly remedy such shortfall in accordance with the applicable Membership Byelaws and rules and regulations as may be issued by Lloyd’s from time to time.
18.14 Preservation of assets
Each Obligor shall (and the Borrower will procure that no other member of the Group will) maintain in good working order and condition (ordinary wear and tear excepted) all of its assets necessary in the conduct of its business.
18.15 Further Assurance
(a) Each Obligor (and the Borrower will procure that no other member of the Group will) shall at its own expense promptly do all such acts or execute all such documents (including assignments, transfers, mortgages, charges, notices and instructions) as the Security Agent may reasonably specify (and in such form as the Security Agent may reasonably require in favour of the Security Agent or its nominee(s)):
(i) to perfect the Security created or intended to be created under or evidenced by the Transaction Security Documents (if any) (which may include the execution of a mortgage, charge, assignment or other Security over all or any of the assets which are, or are intended to be, the subject of the Transaction Security) or for the exercise of any rights, powers and remedies of the Security Agent or the Finance Parties provided by or pursuant to the Finance Documents or by law;
(ii) to confer on the Security Agent or confer on the Finance Parties Security over any property and assets of that Obligor located in any jurisdiction equivalent or similar to the Security intended to be conferred by or pursuant to the Transaction Security Documents; and/or
(iii) once the Transaction Security has become enforceable to facilitate the realisation of the assets which are, or are intended to be, the subject of the Transaction Security.
(b) Each Obligor shall (and the Borrower will procure that no other member of the Group will) take all such action as is available to it (including making all filings and registrations) as may be necessary for the purpose of the creation, perfection, protection or maintenance of any Security conferred or intended to be conferred on the Security Agent or the Finance Parties by or pursuant to the Finance Documents.
18.16 Access
Each Obligor shall (and the Borrower will procure that no other member of the Group will), (not more than once in every financial year unless the Agent reasonably suspects an Event of Default is continuing or may occur) permit the Agent and/or the Security Agent and/or accountants or other professional advisers and contractors of the Agent or Security Agent free access at all reasonable times and on reasonable notice at the risk and cost of the Borrower to (a) the premises, assets, books, accounts and records of each Obligor and (b) meet and discuss matters with senior management.
18.17 Reinsurance Agreements
No Obligor shall (and the Borrower will procure that no other member of the Group will) enter into any reinsurance agreement pursuant to which Funds at Lloyd’s for the Borrower are to be provided without the prior consent of the Lenders (acting reasonably).
18.18 Cash Collateral Account
(a) If at any time an Event of Default has occurred and is continuing, the Borrower shall, within five Business Days of the earlier of (i) demand from the Agent or (ii) the Borrower becoming aware of its occurrence, provide Cash Collateral in an amount equal to or greater than the Outstandings.
(b) Where at any time the Borrower has provided Cash Collateral under this Agreement on and from the 2022 Restatement Date, it shall be entitled to direct that any amount owed by it under any Finance Document shall be settled by deduction from such Cash Collateral, but only to the extent that the Cash Collateral that would remain after such deduction would not fall below the amount of the remaining Outstandings.
18.19 Sanctions
(a) Each Obligor undertakes that it, and will procure that each of its Subsidiaries and its directors, is not a Restricted Person and does not act directly or indirectly on behalf of a Restricted Person.
(b) Each Obligor shall, and shall procure that each of its Subsidiaries shall, not use any revenue or economic benefit derived from any activity or dealing with a Restricted Person in discharging any obligation due or owing to the Lenders.
(c) Each Obligor shall, and shall procure that each of its Subsidiaries shall, to the extent permitted by law, promptly upon becoming aware of them supply to the Agent details of any claim, action, suit, proceedings or investigation against it with respect to Sanctions by any Sanctions Authority.
(d) Each Obligor shall not and shall procure that each of its Subsidiaries shall not, directly or indirectly, use all or any part of the proceeds of the Facility to fund any trade, business or other activities:
(i) involving, or for the benefit of, any Restricted Person; or
(ii) that would reasonably be expected to result in an Obligor or Finance Party being in breach of any Sanctions or becoming a Restricted Person.
(e) Each Obligor shall, and shall procure that each of its Subsidiaries shall, comply with all Sanctions to the extent applicable to it.
(f) Each member of the Group must ensure that appropriate controls and safeguards are in place designed to prevent any action being taken that would be contrary to this clause 18.19.
18.20 Anti-corruption law
(a) No Obligor shall (and the Borrower shall ensure that no other member of the Group will) directly or indirectly use the proceeds of the Facility for any purpose which would breach the Bribery Act 2010, the United States Foreign Corrupt Practices Act of 1977 or other similar legislation in other jurisdictions.
(b) Each Obligor shall (and the Borrower shall ensure that each other member of the Group will):
(i) conduct its business in compliance with applicable anti-corruption laws; and
(ii) maintain policies and procedures designed to promote and achieve compliance with such laws.
18.21 Subsidiary Guarantees
(a) To the extent any Subsidiary grants a guarantee, surety or indemnity (or other arrangement having a similar commercial effect) of the obligations of the Guarantor under the Wells Term Loan (or any facility that refinances the Wells Term Loan) (a “Subsidiary Guarantee”), the Subsidiary will grant an equivalent pari passu ranking subsidiary guarantee in favour of the Finance Parties on no less favourable terms in form and substance satisfactory to the Finance Parties (acting reasonably).
(b) To the extent that any such Subsidiary Guarantee is released or discharged, the Borrower shall promptly notify the Agent and upon such notification the Finance Parties agree to provide (in a form and substance satisfactory to the Obligors’ Agent ( acting reasonably)) a release or discharge of the guarantee granted pursuant to paragraph (a) above as soon as reasonably practicable.
19. EVENTS OF DEFAULT
Each of the events or circumstances set out in this clause 19 is an Event of Default (save as for clause 19.20 (Acceleration and Cancellation)).
19.1 Failure to Pay
An Obligor does not pay on the due date any amount payable pursuant to a Finance Document to which it is a party, at the place at and in the currency in which it is expressed to be payable unless:
(a) its failure to pay is caused by:
(i) administrative or technical error; or
(ii) a Disruption Event; and
(b) payment is made within:
(i) in the case of paragraph (a)(i) above, five Business Days of its due date; or
(ii) in the case of paragraph (a)(ii) above, ten Business Days of its due date.
19.2 Financial Covenants and Other Obligations
(a) Any requirement of clause 17 (Financial Condition), clause 16.1 (Financial Statements) or clause 18.3 (Negative Pledge) is not satisfied,
(b) An Obligor does not comply with any provision of any Transaction Security Document that would adversely affect the validity, enforceability, priority or ranking of any Security granted pursuant to any Transaction Security Document (a “Material Security Breach”, with any other breach of a Transaction Security Documents that does not constitute a Material Security Breach, being a “Minor Security Breach”).
(c) No Event of Default shall occur under paragraph (a) above in the case of clause 17.1, until the expiry of the cure period specified in clause 17.2 (Covenant Breach Cure) and then only if the relevant breach has not been cured in accordance with clause 17.2 (Covenant Breach Cure).
19.3 Other Obligations
(a) An Obligor does not comply with any provision of the Finance Documents (other than those referred to in clause 19.1 (Failure to Pay) and clause 19.2 (Financial Covenants and other Obligations)).
(b) No Event of Default under paragraph (a) above will occur if the failure to comply is capable of remedy and is remedied within 15 Business Days of the earlier of:
(i) the Agent giving notice to the Borrower; and
(ii) the Borrower becoming aware of the failure to comply.
(c) No breach of any Transaction Security Document shall constitute an Event of Default under paragraph (a) above if:
(i) such breach is a Minor Security Breach; and
(ii) such Minor Security Breach is remedied within 10 Business Days of the earlier of:
(A) the Agent giving notice to the Borrower; and
(B) the Borrower becoming aware of the failure to comply.
19.4 Misrepresentation
Any representation or statement made or deemed to be made by an Obligor in the Finance Documents or any other document delivered by or on behalf of any Obligor under or in connection with any Finance Document is or proves to have been incorrect or misleading in any material respect when made or deemed to be made, unless such representation or statement is remedied within 10 Business Days of the Agent giving notice to the Borrower.
19.5 Cross Default
(a) Any:
(i) Financial Indebtedness of any member of the Group is not paid when due nor within any originally applicable grace period;
(ii) Financial Indebtedness of any member of the Group is declared to be or otherwise becomes due and payable prior to its specified maturity as a result of an event of default (however described);
(iii) commitment for any Financial Indebtedness of any member of the Group is cancelled or suspended by a creditor of any member of the Group as a result of an event of default (however described); or
(iv) creditor of any member of the Group becomes entitled to declare any Financial Indebtedness of any member of the Group due and payable prior to its specified maturity as a result of an event of default (however described).
(b) No Event of Default will occur under paragraph (a) above if the aggregate amount of Financial Indebtedness or commitment for Financial Indebtedness falling within paragraphs (i) to (iv) above is less than $60,000,000 (or its equivalent in any other currency or currencies).
(c) No Event of Default will occur under paragraphs (a)(i) and (a)(iv) above if the event or circumstances described therein are capable of remedy and are remedied within:
(i) 5 Business Days (where the relevant event or circumstance arises as a result of a payment default); or
(ii) 10 Business Days (where the relevant event or circumstance arises as a result of a non-payment default),
provided, in each case, that such remedy may not be effected by the posting of additional collateral or the granting of additional security in favour of any person.
19.6 Insolvency
(a) A member of the Group:
(i) is unable or admits its inability to pay its debts as they fall due;
(ii) suspends making payments on any of its debts by reason of actual or anticipated financial difficulties; or
(iii) by reason of actual or anticipated financial difficulties, commences negotiations with one or more of its creditors (excluding any Finance Party in its capacity as such) with a view to rescheduling any of its indebtedness.
(b) The value of the assets of any member of the Group is less than its liabilities (taking into account contingent and prospective liabilities).
(c) A moratorium is declared in respect of any indebtedness of any member of the Group.
19.7 Insolvency proceedings
(a) Any corporate action, legal proceedings or other procedure or step is taken in relation to:
(i) the suspension of payments, a moratorium of any indebtedness, winding-up, dissolution, administration, reorganisation (by way of voluntary arrangement, scheme of arrangement or otherwise) of any member of the Group other than a solvent liquidation or reorganisation of any member of the Group which is not an Obligor;
(ii) a composition, compromise, assignment or arrangement with any creditor of any member of the Group;
(iii) the appointment of a liquidator (other than in respect of a solvent liquidation of a member of the Group which is not an Obligor), receiver, administrative receiver, administrator, compulsory manager or other similar officer in respect of any member of the Group or any of its assets; or
(iv) enforcement of any Security over any assets of any member of the Group,
or any analogous procedure or step is taken in any jurisdiction.
(b) Paragraph (a) above shall not apply to any action, legal proceedings or other procedure or step which is frivolous or vexatious and is discharged, stayed or dismissed within 20 Business Days of commencement.
19.8 Creditors’ process
Any expropriation, attachment, sequestration, distress or execution affects any asset or assets of any member of the Group having an aggregate value of $10,000,000 or more and is not discharged within 10 Business Days.
19.9 Ownership of the Obligors
An Obligor (other than the Guarantor) is not or ceases to be a Subsidiary of the Guarantor.
19.10 Unlawfulness
It is or becomes unlawful for an Obligor to perform any of its obligations under the Finance Documents or any Transaction Security created or expressed to be created or evidenced by the Transaction Security Documents ceases to be effective.
19.11 Repudiation
An Obligor repudiates a Finance Document or any Transaction Security or evidences an intention to repudiate a Finance Document or any Transaction Security.
19.12 The Applicant’s Business
(a) Subject to paragraph (b), an Applicant taken as a whole, ceases to carry on the business of underwriting insurance at Lloyd’s, other than, in consultation with the Agent, by reason of a decision not to underwrite insurance at Lloyd’s for a particular year of account.
(b) No Event of Default will occur under paragraph (a) above as a result of;
(i) ICC3L ceasing to underwrite new insurance business after the 2019 underwriting year of account; or
(ii) Syndicate 2014, a syndicate at Lloyd’s under the management of HMAL (“Syndicate 2014” having been placed into run-off).
19.13 Material Adverse Change
Any event or circumstance occurs which the Majority Lenders reasonably believe has or is likely to have a Material Adverse Effect.
19.14 Solvency Test
An Applicant fails to satisfy the notional SCR calculated in respect of it by Lloyd’s under rule 8.4 of the Solvency Capital Requirement - General Provisions part of the Handbook, and such failure continues for 30 Business Days following notification to that Applicant by Lloyd’s.
19.15 Managing Agent
Where HMAL ceases to act as managing agent for any Managed Syndicate or has any of its approvals, licences or permissions (including its permission from the PRA to manage the
underwriting capacity of a Lloyd’s syndicate as a managing agent at Lloyd’s) to act as managing agent is withdrawn, removed, revoked or cancelled.
19.16 Litigation
Any litigation, arbitration, administrative or governmental, regulatory or other investigations, proceedings or disputes (including with respect to Sanctions) are commenced or threatened in relation to the Borrower under the Finance Documents or the transactions contemplated by the Finance Documents or against any Obligor or its assets which have or are reasonably likely to have a Material Adverse Effect (excluding any action or administrative proceeding involving a Managed Syndicate in the ordinary course of its insurance business and except to the extent such arbitration, administrative or governmental, regulatory or other investigations, proceeding or dispute is being contested in good faith and is discharged, struck out or dismissed within 20 Business Days of commencement).
19.17 Insurers (Reorganisation and Winding Up) (Lloyd’s) Regulations 2005
A “Lloyd’s Market Reorganisation Order’’ is made by the English courts in relation to the “association of underwriters known as Lloyd’s” as each of those terms is defined in the Insurers (Reorganisation and Winding Up) (Lloyd’s) Regulations 2005.
19.18 Financial Services and Markets Act 2000 and the Handbook
(a) Lloyd’s (or, where appropriate, the members of Lloyd’s taken together) fails to satisfy the solvency requirements to which it is or they are subject by virtue of the Handbook and a failure to comply with any binding requirement to rectify the position within the time period permitted for such rectification.
(b) The authorisation or permission granted to Lloyd’s to carry on a regulated activity pursuant to the Financial Markets and Services Act 2000 is withdrawn, removed, revoked or cancelled by the PRA.
19.19 Modification of Lloyd’s Acts, Byelaws or Trusts
Any modification, repeal, amendment, replacement or revocation of Lloyd’s Acts 1871 to 1982 (as in force from time to time), any byelaw or any deed or agreement required by Lloyd’s to be executed or entered into by any person in connection with insurance business at Lloyd’s (whether carried on by such person or otherwise) or any trust created thereby is made or proposed which in the reasonable opinion of the Majority Lenders is reasonably likely materially and adversely to affect the ability of the Borrower to perform or comply with its material obligations under the Finance Documents.
19.20 Acceleration and Cancellation
On and at any time after the occurrence of an Event of Default the Agent may, and shall if so instructed by the Majority Lenders, by notice to the Borrower:
(a) require the Borrower to procure that the liabilities of the Lenders under each Letter of Credit are promptly reduced to zero or to provide Cash Collateral for each Lender’s participation in each Letter of Credit (whereupon the Borrower shall do so);
(b) require the Borrower to procure that:
(i) all Letters of Credit are cancelled and returned by Lloyd’s to the Agent; and
(ii) in relation to any Letters of Credit which are cancelled, Lloyd’s deliver written confirmation to the Agent (on behalf of the Lenders) that:
(A) Lloyd’s has not retained any copies of any Letter of Credit; and
(B) Lloyd’s no longer places any reliance on any Letter of Credit, in form and substance reasonably satisfactory to the Agent;
(c) declare that Cash Collateral in respect of each Letter of Credit is payable on demand at which time it shall immediately become due and payable on demand by the Agent on the instructions of the Majority Lenders;
(d) exercise or direct the Security Agent to exercise any or all of its rights, remedies, powers or discretions under the Finance Documents; and/or
(e) give a Revocation Notice to Lloyd’s in respect of any Letter of Credit.
20. CHANGES TO THE LENDERS
20.1 Assignments and transfers by the Lenders
Subject to this clause 20, a Lender (the “Existing Lender”) may:
(a) assign any of its rights; or
(b) transfer by novation any of its rights and obligations,
to another bank or financial institution or to a trust, fund or other entity which is regularly engaged in or established for the purpose of making, purchasing or investing in loans, securities or other financial assets (the “New Lender”) provided that such bank, financial intuition, trust, fund or other entity is an Approved Credit Institution.
20.2 Conditions of assignment or transfer
(a) The consent of the Borrower is required for an assignment or transfer by an Existing Lender, unless the assignment or transfer is:
(i) to another Lender or an Affiliate of a Lender; or
(ii) made at a time when an Event of Default is continuing.
(b) The consent of the Borrower to an assignment or transfer must not be unreasonably withheld or delayed. The Borrower will be deemed to have given its consent five Business Days after the Existing Lender has requested it unless consent is expressly refused by the Borrower within that time.
(c) An assignment will only be effective on:
(i) receipt by the Agent (whether in the Assignment Agreement or otherwise) of written confirmation from the New Lender (in form and substance satisfactory to the Agent) that the New Lender will assume the same obligations to the other Finance Parties as it would have been under if it was an Original Lender; and
(ii) performance by the Agent of all necessary “know your customer” or other similar checks under all applicable laws and regulations in relation to such assignment to a New Lender, the completion of which the Agent shall promptly notify to the Existing Lender and the New Lender.
(d) Any assignment or transfer by an Existing Lender to a New Lender will only be effective if it transfers or assigns the Existing Lender’s share of the relevant Facility pro rata against the Existing Lender’s Available Commitment and its participations in Utilisations under that Facility.
(e) A transfer will only be effective if the procedure set out in clause 20.5 (Procedure for transfer) is complied with.
(f) If:
(i) a Lender assigns or transfers any of its rights or obligations under the Finance Documents or changes its Facility Office; and
(ii) as a result of circumstances existing at the date the assignment, transfer or change occurs, an Obligor would be obliged to make a payment to the New Lender or Lender acting through its new Facility Office under clause 9 (Tax gross-up and indemnities) or clause 10.1 (Increased costs),
then the New Lender or Lender acting through its new Facility Office is only entitled to receive payment under those clauses to the same extent as the Existing Lender or Lender acting through its previous Facility Office would have been if the assignment, transfer or change had not occurred.
(g) Each New Lender, by executing the relevant Transfer Certificate or Assignment Agreement, confirms, for the avoidance of doubt, that the Agent has authority to execute on its behalf any amendment or waiver that has been approved by or on behalf of the requisite Lender or Lenders in accordance with this Agreement on or prior to the date on which the transfer or assignment becomes effective in accordance with this Agreement and that it is bound by that decision to the same extent as the Existing Lender would have been had it remained a Lender.
(h) Notwithstanding any other provision in the Finance Document, no Obligor shall bear any costs, fees, Taxes or other amounts payable in connection with any re-taking, re-notarisation, perfection, presentation, novation or re-registration of any Security in connection with an assignment or transfer other than:
(i) where such transfer or assignment is at an Obligor’s request; or
(ii) an Event of Default has occurred and is continuing.
20.3 Assignment or Transfer Fee
The New Lender shall, on the date upon which an assignment or transfer takes effect, pay to the Agent (for its own account) a fee of $2,000.
20.4 Limitation of responsibility of Existing Lenders
(a) Unless expressly agreed to the contrary, an Existing Lender makes no representation or warranty and assumes no responsibility to a New Lender for:
(i) the legality, validity, effectiveness, adequacy or enforceability of the Finance Documents, the Transaction Security or any other documents;
(ii) the financial condition of any Obligor;
(iii) the performance and observance by any Obligor of its obligations under the Finance Documents or any other documents; or
(iv) the accuracy of any statements (whether written or oral) made in or in connection with any Finance Document or any other document,
and any representations or warranties implied by law are excluded.
(b) Each New Lender confirms to the Existing Lender and the other Finance Parties that it:
(i) has made (and shall continue to make) its own independent investigation and assessment of the financial condition and affairs of each Obligor and its related entities in connection with its participation in this Agreement and has not relied exclusively on any information provided to it by the Existing Lender in connection with any Finance Document or the Transaction Security; and
(ii) will continue to make its own independent appraisal of the creditworthiness of each Obligor and its related entities whilst any amount is or may be outstanding under the Finance Documents or any Commitment is in force.
(c) Nothing in any Finance Document obliges an Existing Lender to:
(i) accept a re-transfer or re-assignment from a New Lender of any of the rights and obligations assigned or transferred under this clause 20; or
(ii) support any losses directly or indirectly incurred by the New Lender by reason of the non-performance by any Obligor of its obligations under the Finance Documents or otherwise.
20.5 Procedure for transfer
(a) Subject to the conditions set out in clause 20.2 (Conditions of assignment or transfer) a transfer is effected in accordance with clause 20.5(c) below when the Agent executes an otherwise duly completed Transfer Certificate delivered to it by the Existing Lender and the New Lender. The Agent shall, subject to clause 20.5(b) below, as soon as reasonably practicable after receipt by it of a duly completed Transfer Certificate appearing on its face to comply with the terms of this Agreement and delivered in accordance with the terms of this Agreement, execute that Transfer Certificate.
(b) The Agent shall only be obliged to execute a Transfer Certificate delivered to it by the Existing Lender and the New Lender once it is satisfied it has complied with all necessary “know your customer” or other similar checks under all applicable laws and regulations in relation to the transfer to such New Lender. Upon execution of the Transfer Certificate, the Agent may specify the Transfer Date to the Existing Lender and the New Lender provided that if it fails to do so, the Transfer Date shall be the date proposed in the Transfer Certificate, such date to be no later than the date falling five Business Days after the date on which such Transfer Certificate is delivered to the Agent. The Agent will, upon receipt of a duly executed Transfer Certificate:
(i) advise Lloyd’s that a transfer will be made in respect of such Letter of Credit on the proposed Transfer Date; and
(ii) request that Lloyd’s return the relevant Letter of Credit (the “Original Letter of Credit”) to the Agent on or prior to such proposed Transfer Date.
(c) Subject to clause 20.10 {Pro rata interest settlement), on the Transfer Date:
(i) the Agent shall execute the Transfer Certificate provided that, the Agent shall first have received the Original Letter of Credit from Lloyd’s in accordance
with paragraph (b) above or have made arrangements with Lloyd’s for the exchange of the Original Letter of Credit for a new Letter of Credit (the “Replacement Letter of Credit”) immediately after the transfer has become effective. The Replacement Letter of Credit shall name the New Bank as an “Issuing Bank” thereunder and shall otherwise be for the same amount and on the same terms as the Original Letter of Credit for the remainder of the Term of such Original Letter of Credit;
(ii) to the extent that in the Transfer Certificate the Existing Lender seeks to transfer by novation its rights and obligations under the Finance Documents and in respect of the Transaction Security each of the Obligors and the Existing Lender shall be released from further obligations towards one another under the Finance Documents and in respect of the Transaction Security and their respective rights against one another under the Finance Documents shall be cancelled (being the “Discharged Rights and Obligations”);
(iii) each of the Obligors and the New Lender shall assume obligations towards one another and/or acquire rights against one another which differ from the Discharged Rights and Obligations only insofar as that Obligor and the New Lender have assumed and/or acquired the same in place of that Obligor and the Existing Lender;
(iv) the Agent, the Security Agent, the New Lender and the other Lenders shall acquire the same rights and assume the same obligations between themselves and in respect of the Transaction Security as they would have acquired and assumed had the New Lender been an Original Lender with the rights and/or obligations acquired or assumed by it as a result of the transfer and to that extent the Agent, the Security Agent and the Existing Lender shall each be released from further obligations to each other under the Finance Documents; and
(v) the New Lender shall become a Party as a “Lender”.
20.6 Procedure for Assignment
(a) Subject to the conditions set out in clause 20.2 (Conditions of assignment or transfer) an assignment may be effected in accordance with paragraph (c) below when the Agent executes an otherwise duly completed Assignment Agreement delivered to it by the Existing Lender and the New Lender. The Agent shall, subject to paragraph (b) below, as soon as reasonably practicable after receipt by it of a duly completed Assignment Agreement appearing on its face to comply with the terms of this Agreement and delivered in accordance with the terms of this Agreement, execute that Assignment Agreement.
(b) The Agent shall only be obliged to execute an Assignment Agreement delivered to it by the Existing Lender and the New Lender once it is satisfied it has complied with all necessary “know your customer” or other similar checks under all applicable laws and regulations in relation to the assignment to such New Lender.
(c) Subject to clause 20.10 (Pro rata interest settlement), on the Transfer Date:
(i) the Existing Lender will assign absolutely to the New Lender the rights under the Finance Documents and in respect of the Transaction Security expressed to be the subject of the assignment in the Assignment Agreement;
(ii) the Existing Lender will be released by each Obligor and the other Finance Parties from the obligations owed by it (the “Relevant Obligations”) and expressed to be the subject of the release in the Assignment Agreement (and
any corresponding obligations by which it is bound in respect of the Transaction Security); and
(iii) the New Lender shall become a Party as a “Lender” and will be bound by obligations equivalent to the Relevant Obligations.
(d) Lenders may utilise procedures other than those set out in this clause 20.6 to assign their rights under the Finance Documents (but not, without the consent of the relevant Obligor or unless in accordance with clause 20.5 (Procedure for transfer), to obtain a release by that Obligor from the obligations owed to that Obligor by the Lenders nor the assumption of equivalent obligations by a New Lender) provided that they comply with the conditions set out in clause 20.2 (Conditions of assignment or transfer).
20.7 Copy of Transfer Certificate or Assignment Agreement
The Agent shall, as soon as reasonably practicable after it has executed a Transfer Certificate or an Assignment Agreement, send a copy to the Borrower of that Transfer Certificate or Assignment Agreement.
20.8 Continuation of Security
(a) Each Obligor consents to the assignments and transfers of rights and obligations permitted under and made in accordance with this clause 20. Each Obligor agrees and confirms that its guarantee and indemnity obligations under the Finance Documents and any Transaction Security granted by it in support of its own borrowing obligations or its guarantee or indemnity obligations under the Finance Documents will continue notwithstanding any assignment or transfer under this clause 20 and will extend to cover and support obligations owed to New Lenders and to continuing Finance Parties.
(b) The Borrower (for itself and as agent for the Obligors) will (at its own cost) promptly execute such documents and take such other actions as are necessary to effect or perfect an assignment or a transfer of rights and/or obligations to a New Lender under the Finance Documents. Such action will include:
(i) promptly countersigning Assignment Agreements (although any delay or failure by the Borrower to so countersign an Assignment Agreement will not invalidate its operation); and
(ii) taking such steps as the Agent or the Security Agent may request (including re-execution of Transaction Security Documents) for the purpose of ensuring that the New Lender has (and the other Finance Parties continue to have) the benefit of the same security interests under the Transaction Security Documents as existed immediately before the relevant transfer.
20.9 Security over Lender’s Rights
In addition to the other rights provided to Lenders under this clause 20, each Lender may without consulting with or obtaining consent from any Obligor, at any time charge, assign or otherwise create Security in or over (whether by way of collateral or otherwise) all or any of its rights under any Finance Document to secure obligations of that Lender including, without limitation:
(a) any charge, assignment or other Security to secure obligations to a federal reserve or central bank; and
(b) in the case of any Lender which is a fund, any charge, assignment or other Security granted to any holders (or trustee or representatives of holders) of obligations owed, or securities issued, by that Lender as security for those obligations or securities,
except that no such charge, assignment or Security shall:
(i) release a Lender from any of its obligations under the Finance Documents or substitute the beneficiary of the relevant charge, assignment or Security for the Lender as a party to any of the Finance Documents; or
(ii) require any payments to be made by an Obligor other than or in excess of, or grant to any person any more extensive rights than, those required to be made or granted to the relevant Lender under the Finance Documents.
20.10 Pro rata interest settlement
(a) If the Agent has notified the Lenders that it is able to distribute interest payments on a “pro rata basis” to Existing Lenders and New Lenders then (in respect of any transfer pursuant to clause 20.5 (Procedure for transfer) or any assignment pursuant to clause 20.6 (Procedure for assignment) the Transfer Date of which, in each case, is after the date of such notification and is not on the last day of an Interest Period):
(i) any interest or fees in respect of the relevant participation which are expressed to accrue by reference to the lapse of time shall continue to accrue in favour of the Existing Lender up to but excluding the Transfer Date (“Accrued Amounts”) and shall become due and payable to the Existing Lender (without further interest accruing on them) on the last day of the current Interest Period (or, if the Interest Period is longer than six Months, on the next of the dates which falls at six Monthly intervals after the first day of that Interest Period); and
(ii) the rights assigned or transferred by the Existing Lender will not include the right to the Accrued Amounts, so that, for the avoidance of doubt:
(A) when the Accrued Amounts become payable, those Accrued Amounts will be payable to the Existing Lender; and
(B) the amount payable to the New Lender on that date will be the amount which would, but for the application of this clause 20.10, have been payable to it on that date, but after deduction of the Accrued Amounts.
(b) In this clause 20.10 references to “Interest Period” shall be construed to include a reference to any other period for accrual of fees.
21. CHANGES TO THE OBLIGORS
No Obligor may assign any of its rights or transfer any of its rights or obligations under the Finance Documents.
22. ROLE OF THE AGENT
22.1 Appointment of the Agent
(a) Each of the Lenders (other than the Security Agent) appoints the Agent to act as its agent under and in connection with the Finance Documents.
(b) Each of the Lenders authorises the Agent to perform the duties, obligations and responsibilities and to exercise the rights, powers, authorities and discretions
specifically given to the Agent under or in connection with the Finance Documents together with any other incidental rights, powers, authorities and discretions.
22.2 Instructions
(a) The Agent shall:
(i) unless a contrary indication appears in a Finance Document, exercise or refrain from exercising any right, power, authority or discretion vested in it as Agent in accordance with any instructions given to it by:
(A) all Lenders if the relevant Finance Document stipulates the matter is an all Lender decision; and
(B) in all other cases, the Majority Lenders; and
(ii) not be liable for any act (or omission) if it acts (or refrains from acting) in accordance with paragraph (i) above.
(b) The Agent shall be entitled to request instructions, or clarification of any instruction, from the Majority Lenders (or, if the relevant Finance Document stipulates the matter is a decision for any other Lender or group of Lenders, from that Lender or group of Lenders) as to whether, and in what manner, it should exercise or refrain from exercising any right, power, authority or discretion. The Agent may refrain from acting unless and until it receives any such instructions or clarification that it has requested.
(c) Save in the case of decisions stipulated to be a matter for any other Lender or group of Lenders under the relevant Finance Document and unless a contrary indication appears in a Finance Document, any instructions given to the Agent by the Majority Lenders shall override any conflicting instructions given by any other Parties and will be binding on all Finance Parties.
(d) The Agent may refrain from acting in accordance with any instructions of any Lender or group of Lenders until it has received any indemnification and/or security that it may in its discretion require (which may be greater in extent than that contained in the Finance Documents and which may include payment in advance) for any cost, loss or liability which it may incur in complying with those instructions.
(e) In the absence of instructions, the Agent may act (or refrain from acting) as it considers to be in the best interest of the Lenders.
(f) The Agent is not authorised to act on behalf of a Lender (without first obtaining that Lender’s consent) in any legal or arbitration proceedings relating to any Finance Document.
22.3 Duties of the Agent
(a) The Agent’s duties under the Finance Documents are solely mechanical and administrative in nature.
(b) Subject to paragraph (c) below, the Agent shall promptly forward to a Party the original or a copy of any document which is delivered to the Agent for that Party by any other Party.
(c) Without prejudice to clause 20.7 (Copy of Transfer Certificate or Assignment Agreement), paragraph (b) above shall not apply to any Transfer Certificate or Assignment Agreement.
(d) Except where a Finance Document specifically provides otherwise, the Agent is not obliged to review or check the adequacy, accuracy or completeness of any document it forwards to another Party.
(e) If the Agent receives notice from a Party referring to this Agreement, describing a Default and stating that the circumstance described is a Default, it shall promptly notify the other Finance Parties.
(f) If the Agent is aware of the non-payment of any principal, interest, commitment fee or other fee payable to a Finance Party (other than the Agent or the Security Agent) under this Agreement it shall promptly notify the other Finance Parties.
(g) The Agent shall have only those duties, obligations and responsibilities expressly specified in the Finance Documents to which it is expressed to be a party (and no others shall be implied).
22.4 No fiduciary duties
(a) Nothing in any Finance Document constitutes the Agent as a trustee or fiduciary of any other person.
(b) Neither the Agent nor the Security Agent shall be bound to account to any Lender for any sum or the profit element of any sum received by it for its own account.
22.5 Business with the Group
The Agent may accept deposits from, lend money to and generally engage in any kind of banking or other business with any member of the Group.
22.6 Rights and discretions of the Agent
(a) The Agent may:
(i) rely on any representation, communication, notice or document believed by it to be genuine, correct and appropriately authorised; and
(ii) assume that:
(A) any instructions received by it from the Majority Lenders, any Lenders or any group of Lenders are duly given in accordance with the terms of the Finance Documents; and
(B) unless it has received notice of revocation, that those instructions have not been revoked; and
(iii) rely on a certificate from any person:
(A) as to any matter of fact or circumstance which might reasonably be expected to be within the knowledge of that person; or
(B) to the effect that such person approves of any particular dealing, transaction, step, action or thing,
as sufficient evidence that that is the case and, in the case of paragraph (A) above, may assume the truth and accuracy of that certificate.
(b) The Agent may assume (unless it has received notice to the contrary in its capacity as agent for the Lenders) that:
(i) no Default has occurred (unless it has actual knowledge of a Default arising under clause 19.1 (Failure to pay)); and
(ii) any right, power, authority or discretion vested in any Party or any group of Lenders has not been exercised.
(c) The Agent may engage and pay for the advice or services of any lawyers, accountants, tax advisers, surveyors or other professional advisers or experts.
(d) Without prejudice to the generality of paragraph (c)above or paragraph (e) below, the Agent may at any time engage and pay for the services of any lawyers to act as independent counsel to the Agent (and so separate from any lawyers instructed by the Lenders) if the Agent in its reasonable opinion deems this to be necessary.
(e) The Agent may rely on the advice or services of any lawyers, accountants, tax advisers, surveyors or other professional advisers or experts (whether obtained by the Agent or by any other Party) and shall not be liable for any damages, costs or losses to any person, any diminution in value or any liability whatsoever arising as a result of its so relying.
(f) The Agent may act in relation to the Finance Documents through its officers, employees and agents.
(g) Unless a Finance Document expressly provides otherwise, the Agent may disclose to any other Party any information it reasonably believes it has received as Agent under this Agreement.
(h) Without prejudice to the generality of paragraph (g) above, the Agent:
(i) may disclose; and
(ii) on the written request of the Obligors or the Majority Lenders shall, as soon as reasonably practicable, disclose, the identity of a Defaulting Lender to the Company and to the other Finance Parties.
(i) Notwithstanding any other provision of any Finance Document to the contrary, the Agent is not obliged to do or omit to do anything if it would or might in its reasonable opinion constitute a breach of any law or regulation or a breach of a fiduciary duty or duty of confidentiality.
(j) Notwithstanding any provision of any Finance Document to the contrary, the Agent is not obliged to expend or risk its own funds or otherwise incur any financial liability in the performance of its duties, obligations or responsibilities or the exercise of any right, power, authority or discretion if it has grounds for believing the repayment of such funds or adequate indemnity against, or security for, such risk or liability is not reasonably assured to it.
22.7 Responsibility for documentation
The Agent is not responsible or liable for:
(a) the adequacy, accuracy and/or completeness of any information (whether oral or written) supplied by the Agent, an Obligor or any other person given in or in connection with any Finance Document or the transactions contemplated by the Finance Documents or the transactions contemplated in the Finance Documents or ;
any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document;
(b) the legality, validity, effectiveness, adequacy or enforceability of any Finance Document or the Transaction Security or any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document or the Transaction Security; or
(c) any determination as to whether any information provided or to be provided to any Finance Party is non-public information the use of which may be regulated or prohibited by applicable law or regulation relating to insider dealing or otherwise.
22.8 No duty to monitor
The Agent shall not be bound to enquire:
(a) whether or not any Default has occurred;
(b) as to the performance, default or any breach by any Party of its obligations under any Finance Document; or
(c) whether any other event specified in any Finance Document has occurred.
22.9 Exclusion of liability
(a) Without limiting paragraph (b) below (and without prejudice to any other provision of any Finance Document excluding or limiting the liability of the Agent), the Agent will not be liable for:
(i) any damages, costs or losses to any person, any diminution in value, or any liability whatsoever arising as a result of taking or not taking any action under or in connection with any Finance Document or the Transaction Security, unless directly caused by its gross negligence or wilful misconduct;
(ii) exercising, or not exercising, any right, power, authority or discretion given to it by, or in connection with, any Finance Document or any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with, any Finance Document, other than by reason of its gross negligence or wilful misconduct; or
(iii) without prejudice to the generality of paragraphs (i) and (ii) above, any damages, costs or losses to any person, any diminution in value or any liability whatsoever (including, without limitation, for negligence or any other category of liability whatsoever but not including any claim based on the fraud of the Agent) arising as a result of:
(A) any act, event or circumstance not reasonably within its control; or
(B) the general risks of investment in, or the holding of assets in, any jurisdiction,
including (in each case and without limitation) such damages, costs, losses, diminution in value or liability arising as a result of: nationalisation, expropriation or other governmental actions; any regulation, currency restriction, devaluation or fluctuation; market conditions affecting the execution or settlement of transactions or the value of assets (including any Disruption Event); breakdown, failure or malfunction of any third party transport, telecommunications, computer services or systems natural ;
disasters or acts of God; war, terrorism, insurrection or revolution; or strikes or industrial action.
(b) No Party (other than the Agent) may take any proceedings against any officer, employee or agent of the Agent in respect of any claim it might have against the Agent or in respect of any act or omission of any kind by that officer, employee or agent in relation to any Finance Document and any officer, employee or agent of the Agent may rely on this clause subject to clause 1.5 (Third party rights) and the provisions of the Third Parties Act.
(c) The Agent will not be liable for any delay (or any related consequences) in crediting an account with an amount required under the Finance Documents to be paid by the Agent if the Agent has taken all necessary steps as soon as reasonably practicable to comply with the regulations or operating procedures of any recognised clearing or settlement system used by the Agent for that purpose.
(d) Nothing in this Agreement shall oblige the Agent to carry out:
(i) any “know your customer” or other checks in relation to any person; or
(ii) any check on the extent to which any transaction contemplated by this Agreement might be unlawful for any Lender, on behalf of any Lender and each Lender confirms to the Agent that it is solely responsible for any such checks it is required to carry out and that it may not rely on any statement in relation to such checks made by the Agent.
(e) Without prejudice to any provision of any Finance Document excluding or limiting the Agent’s liability, any liability of the Agent arising under or in connection with any Finance Document shall be limited to the amount of actual loss which has been suffered (as determined by reference to the date of default of the Agent or, if later, the date on which the loss arises as a result of such default) but without reference to any special conditions or circumstances known to the Agent at any time which increase the amount of that loss. In no event shall the Agent be liable for any loss of profits, goodwill, reputation, business opportunity or anticipated saving, or for special, punitive, indirect or consequential damages, whether or not the Agent has been advised of the possibility of such loss or damages.
22.10 Lenders’ indemnity to the Agent
Each Lender shall (in proportion to its share of the Total Commitments or, if the Total Commitments are then zero, to its share of the Total Commitments immediately prior to their reduction to zero) indemnify the Agent, within three Business Days of demand, against any cost, loss or liability (including, without limitation, for negligence or any other category of liability whatsoever) incurred by the Agent (otherwise than by reason of the Agent’s gross negligence or wilful misconduct) (or, in the case of any cost, loss or liability pursuant to clause 26.11 (Disruption to Payment Systems etc.), notwithstanding the Agent’s negligence, gross negligence or any other category of liability whatsoever but not including any claim based on the fraud of the Agent) in acting as Agent under the Finance Documents (unless the Agent has been reimbursed by an Obligor pursuant to a Finance Document).
22.11 Resignation of the Agent
(a) The Agent may resign and appoint one of its Affiliates acting through an office in the United Kingdom, any member state of the European Economic Area or any Participating Member State as successor by giving notice to the Lenders and the Borrower.
(b) Alternatively the Agent may resign by giving 30 days’ notice to the Lenders and the Borrower, in which case the Majority Lenders (after consultation with the Borrower) may appoint a successor Agent.
(c) If the Majority Lenders have not appointed a successor Agent in accordance with paragraph (b) above within 30 days after notice of resignation was given, the Agent (after consultation with the Borrower) may appoint a successor Agent (acting through an office in the United Kingdom, any member state of the European Economic Area or any Participating Member State).
(d) If the Agent wishes to resign because (acting reasonably) it has concluded that it is no longer appropriate for it to remain as agent and the Agent is entitled to appoint a successor Agent under paragraph (c) above, the Agent may (if it concludes (acting reasonably) that it is necessary to do so in order to persuade the proposed successor Agent to become a party to this Agreement as Agent) agree with the proposed successor Agent amendments to this clause 23 and any other term of this Agreement dealing with the rights or obligations of the Agent consistent with then current market practice for the appointment and protection of corporate trustees together with any reasonable amendments to the agency fee payable under this Agreement which are consistent with the successor Agent’s normal fee rates and those amendments will bind the Parties.
(e) The retiring Agent shall make available to the successor Agent such documents and records and provide such assistance as the successor Agent may reasonably request for the purposes of performing its functions as Agent under the Finance Documents. The Borrower shall, within three Business Days of demand, reimburse the retiring Agent for the amount of all costs and expenses (including legal fees) properly incurred by it in making available such documents and records and providing such assistance.
(f) Each of the Obligor, Lenders and Agent shall cooperate to make such amendments to the Letter of Credit as may be necessary to reflect the replacement of the retiring Agent with a successor Agent.
(g) The Agent’s resignation notice shall only take effect upon the appointment of a successor.
(h) Upon the appointment of a successor, the retiring Agent shall be discharged from any further obligation in respect of the Finance Documents (other than its obligations under paragraph (e) above) but shall remain entitled to the benefit of clause 23.10 (Lenders’ Indemnity to the Agent) and this clause 23 (and any agency fees for the account of the retiring Agent shall cease to accrue from (and shall be payable on) that date). Any successor and each of the other Parties shall have the same rights and obligations amongst themselves as they would have had if such successor had been an original Party.
(i) The Agent shall resign in accordance with paragraph (b) above (and, to the extent applicable, shall use reasonable endeavours to appoint a successor Agent pursuant to paragraph (c) above) if on or after the date which is three months before the earliest FATCA Application Date relating to any payment to the Agent under the Finance Documents, either:
(i) the Agent fails to respond to a request under clause 9.7 (FATCA Information) and the Borrower or a Lender reasonably believes that the Agent will not be (or will have ceased to be) a FATCA Exempt Party on or after that FATCA Application Date;
(ii) the information supplied by the Agent pursuant to clause 9.7 (FATCA Information) indicates that the Agent will not be (or will have ceased to be) a FATCA Exempt Party on or after that FATCA Application Date; or
(iii) the Agent notifies the Borrower and the Lenders that the Agent will not be (or will have ceased to be) a FATCA Exempt Party on or after that FATCA Application Date,
(iv) and (in each case) the Borrower or a Lender reasonably believes that a Party will be required to make a FATCA Deduction that would not have been required if the Agent were a FATCA Exempt Party, and the Borrower or that Lender, by notice to the Agent, requires it to resign.
22.12 Replacement of the Agent
(a) After consultation with the Obligors, the Majority Lenders may, by giving 30 days’ notice to the Agent (or, at any time the Agent is an Impaired Agent, by giving any shorter notice determined by the Majority Lenders) replace the Agent by appointing a successor Agent (acting through an office in the United Kingdom).
(b) The retiring Agent shall (at its own cost if it is an Impaired Agent and otherwise at the expense of the Lenders) make available to the successor Agent such documents and records and provide such assistance as the successor Agent may reasonably request for the purposes of performing its functions as Agent under the Finance Documents.
(c) Each of the Borrower, Lenders and Agent shall cooperate to make such amendments to the Letter of Credit as may be necessary to reflect the replacement of the retiring Agent with a successor Agent.
(d) The appointment of the successor Agent shall take effect on the date specified in the notice from the Majority Lenders to the retiring Agent. As from this date, the retiring Agent shall be discharged from any further obligation in respect of the Finance Documents (other than its obligations under paragraph (b) above) but shall remain entitled to the benefit of clause 12.3 (Indemnity to the Agent) and this clause 22 (and any agency fees for the account of the retiring Agent shall cease to accrue from (and shall be payable on) that date).
(e) Any successor Agent and each of the other Parties shall have the same rights and obligations amongst themselves as they would have had if such successor had been an original Party.
22.13 Confidentiality
(a) In acting as agent for the Finance Parties, the Agent shall be regarded as acting through its agency division which shall be treated as a separate entity from any other of its divisions or departments.
(b) If information is received by another division or department of the Agent, it may be treated as confidential to that division or department and the Agent shall not be deemed to have notice of it.
22.14 Relationship with the Lenders
(a) Subject to clause 20.10 (Pro rata interest settlement), the Agent may treat the person shown in its records as Lender at the opening of business (in the place of the
Agent’s principal office as notified to the Finance Parties from time to time) as the Lender acting through its Facility Office:
(i) entitled to or liable for any payment due under any Finance Document on that day; and
(ii) entitled to receive and act upon any notice, request, document or communication or make any decision or determination under any Finance Document made or delivered on that day,
unless it has received not less than five Business Days’ prior notice from that Lender to the contrary in accordance with the terms of this Agreement.
(b) Any Lender may by notice to the Agent appoint a person to receive on its behalf all notices, communications, information and documents to be made or despatched to that Lender under the Finance Documents. Such notice shall contain the address, fax number and (where communication by electronic mail or other electronic means is permitted under clause 29.6 (Electronic communication)) electronic mail address and/or any other information required to enable the transmission of information by that means (and, in each case, the department or officer, if any, for whose attention communication is to be made) and be treated as a notification of a substitute address, fax number, electronic mail address (or such other information), department and officer by that Lender for the purposes of clause 29.2 (Addresses) and paragraph (a)(ii) of clause 29.6 (Electronic communication) and the Agent shall be entitled to treat such person as the person entitled to receive all such notices, communications, information and documents as though that person were that Lender.
(c) Each Lender shall supply the Agent with any information that the Security Agent may reasonably specify (through the Agent) as being necessary or desirable to enable the Security Agent to perform its functions as Security Agent. Each Lender shall deal with the Security Agent exclusively through the Agent and shall not deal directly with the Security Agent.
22.15 Credit appraisal by the Lenders
Without affecting the responsibility of any Obligor for information supplied by it or on its behalf in connection with any Finance Document, each Lender confirms to the Agent that it has been, and will continue to be, solely responsible for making its own independent appraisal and investigation of all risks arising under or in connection with any Finance Document including but not limited to:
(a) the financial condition, status and nature of each member of the Group;
(b) the legality, validity, effectiveness, adequacy or enforceability of any Finance Document and the Transaction Security and any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document;
(c) whether that Lender has recourse, and the nature and extent of that recourse, against any Party or any of its respective assets under or in connection with any Finance Document, the transactions contemplated by the Finance Documents or the Transaction Security or any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document; and
(d) the adequacy, accuracy and/or completeness of any other information provided by the Agent, the Security Agent, any Party or by any other person under or in connection with any Finance Document, the transactions contemplated by the
Finance Documents or any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document.
(e) the right or title of any person in or to, or the value or sufficiency of any part of the Charged Property, the priority of any of the Transaction Security or the existence of any Security affecting the Charged Property.
22.16 Agent’s Management Time
Any amount payable to the Agent under clause 11.3 (Indemnity to the Agent), clause 13 (Costs and expenses) and clause 22.10 (Lenders’ indemnity to the Agent) shall include the cost of utilising the Agent’s management time or other resources and will be calculated on the basis of such reasonable daily or hourly rates as the Agent may notify to the Borrower and the Lenders and is in addition to any fee paid or payable to the Agent under clause 7 (Fees).
22.17 Deduction from amounts payable by the Agent
If any Party owes an amount to the Agent under the Finance Documents the Agent may, after giving notice to that Party, deduct an amount not exceeding that amount from any payment to that Party which the Agent would otherwise be obliged to make under the Finance Documents and apply the amount deducted in or towards satisfaction of the amount owed. For the purposes of the Finance Documents that Party shall be regarded as having received any amount so deducted.
23. THE SECURITY AGENT
23.1 Trust
(a) The Security Agent declares that it shall hold the Transaction Security on trust for the Secured Parties on the terms contained in this Agreement.
(b) Each of the parties to this Agreement agrees that the Security Agent shall have only those duties, obligations and responsibilities expressly specified in this Agreement or in the Transaction Security Documents to which the Security Agent is expressed to be a party (and no others shall be implied).
23.2 No Independent Power
The Secured Parties shall not have any independent power to enforce, or have recourse to, any of the Transaction Security or to exercise any rights or powers arising under the Transaction Security Documents except through the Security Agent.
23.3 Instructions to Security Agent and Exercise of Discretion
(a) Subject to paragraphs (d) and (e) below, the Security Agent shall act in accordance with any instructions given to it by the Majority Lenders or, if so instructed by the Majority Lenders, refrain from exercising any right, power, authority or discretion vested in it as Security Agent and shall be entitled to assume that (i) any instructions received by it from the Agent are duly given in accordance with the terms of this Agreement and (ii) unless it has received actual notice of revocation, that those instructions or directions have not been revoked.
(b) The Security Agent shall be entitled to request instructions, or clarification of any direction, from the Majority Lenders as to whether, and in what manner, it should exercise or refrain from exercising any rights, powers, authorities and discretions and the Security Agent may refrain from acting unless and until those instructions or clarification are received by it.
(c) Any instructions given to the Security Agent by the Majority Lenders shall override any conflicting instructions given by any other Parties.
(d) Paragraph (a) above shall not apply:
(i) where a contrary indication appears in this Agreement;
(ii) where this Agreement requires the Security Agent to act in a specified manner or to take a specified action; or
(iii) in respect of any provision which protects the Security Agent’s own position in its personal capacity as opposed to its role of Security Agent for the Secured Parties including, without limitation, the provisions set out in clauses 23.5 (Security Agent’s Discretions) to clause 23.21 (Disapplication) (inclusive).
(e) If giving effect to instructions given by the Majority Lenders would (in the Security Agent’s opinion) have an effect equivalent to a decision that would otherwise require all Lender consent pursuant to clause 33 (Amendments and Waivers), the Security Agent shall not act in accordance with those instructions unless consent to it so acting is obtained from each Party (other than the Security Agent) whose consent would have been required in respect of that decision.
(f) In exercising any discretion to exercise a right, power or authority under this Agreement where it has not received any instructions from the Majority Lenders as to the exercise of that discretion the Security Agent shall do so having regard to the interests of all the Secured Parties.
23.4 Security Agent’s Actions
Without prejudice to the provisions of this clause 23, the Security Agent may (but shall not be obliged to), in the absence of any instructions to the contrary, take such action in the exercise of any of its powers and duties under the Finance Documents as it considers in its discretion to be appropriate.
23.5 Security Agent’s Discretions
The Security Agent may:
(a) assume (unless it has received actual notice to the contrary from the Agent) that (i) no Default has occurred and no Obligor is in breach of or default under its obligations under any of the Finance Documents and (ii) any right, power, authority or discretion vested by any Finance Document in any person has not been exercised;
(b) if it receives any instructions or directions to take any action in relation to the Transaction Security, assume that all applicable conditions under the Finance Documents for taking that action have been satisfied;
(c) engage, pay for and rely on the advice or services of any legal advisers, accountants, tax advisers, surveyors or other experts (whether obtained by the Security Agent or by any other Secured Party) whose advice or services may at any time seem necessary, expedient or desirable;
(d) rely upon any communication or document believed by it to be genuine and, as to any matters of fact which might reasonably be expected to be within the knowledge of a Secured Party or an Obligor, upon a certificate signed by or on behalf of that person; and
(e) refrain from acting in accordance with the instructions of any Party (including bringing any legal action or proceeding arising out of or in connection with the
Finance Documents) until it has received any indemnification and/or security that it may in its discretion require (whether by way of payment in advance or otherwise) for all costs, losses and liabilities which it may incur in so acting.
23.6 Security Agent’s Obligations
The Security Agent shall promptly:
(a) copy to the Agent the contents of any notice or document received by it from any Obligor under any Finance Document;
(b) forward to a Party the original or a copy of any document which is delivered to the Security Agent for that Party by any other Party provided that, except where a Finance Document expressly provides otherwise, the Security Agent is not obliged to review or check the adequacy, accuracy or completeness of any document it forwards to another Party; and
(c) inform the Agent of the occurrence of any Default or any default by an Obligor in the due performance of or compliance with its obligations under any Finance Document of which the Security Agent has received notice from any other party to this Agreement.
23.7 Excluded Obligations
Notwithstanding anything to the contrary expressed or implied in the Finance Documents, the Security Agent shall not:
(a) be bound to enquire as to (i) whether or not any Default has occurred or (ii) the performance, default or any breach by an Obligor of its obligations under any of the Finance Documents;
(b) be bound to account to any other Party for any sum or the profit element of any sum received by it for its own account;
(c) be bound to disclose to any other person (including but not limited to any Secured Party) (i) any Confidential Information or (ii) any other information if disclosure would, or might in its reasonable opinion, constitute a breach of any law or be a breach of fiduciary duty; or
(d) have or be deemed to have any relationship of trust or agency with, any Obligor.
23.8 Exclusion of Liability
None of the Security Agent, any Receiver nor any Delegate shall accept responsibility or be liable for:
(a) the adequacy, accuracy or completeness of any information (whether oral or written) supplied by the Security Agent or any other person in or in connection with any Finance Document or the transactions contemplated in the Finance Documents, or any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document;
(b) the legality, validity, effectiveness, adequacy or enforceability of any Finance Document, the Transaction Security or any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document or the Transaction Security;
(c) any losses to any person or any liability arising as a result of taking or refraining from taking any action in relation to any of the Finance Documents, the Transaction
Security or otherwise, whether in accordance with an instruction from the Agent or otherwise unless directly caused by its gross negligence or wilful misconduct;
(d) the exercise of, or the failure to exercise, any judgment, discretion or power given to it by or in connection with any of the Finance Documents, the Transaction Security or any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with, the Finance Documents or the Transaction Security; or
(e) any shortfall which arises on the enforcement or realisation of the Transaction Security.
23.9 No Proceedings
No Party (other than the Security Agent, that Receiver or that Delegate) may take any proceedings against any officer, employee or agent of the Security Agent, a Receiver or a Delegate in respect of any claim it might have against the Security Agent, a Receiver or a Delegate or in respect of any act or omission of any kind by that officer, employee or agent in relation to any Finance Document or any Charged Property and any officer, employee or agent of the Security Agent, a Receiver or a Delegate may rely on this clause subject to clause 1.5 (Third Party Rights) and the provisions of the Third Parties Rights Act.
23.10 Own Responsibility
Without affecting the responsibility of any Obligor for information supplied by it or on its behalf in connection with any Finance Document, each Secured Party confirms to the Security Agent that it has been, and will continue to be, solely responsible for making its own independent appraisal and investigation of all risks arising under or in connection with any Finance Document including but not limited to:
(a) the financial condition, status and nature of each member of the Group;
(b) the legality, validity, effectiveness, adequacy and enforceability of any Finance Document, the Transaction Security and any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document or the Transaction Security;
(c) whether that Secured Party has recourse, and the nature and extent of that recourse, against any Party or any of its respective assets under or in connection with any Finance Document, the Transaction Security, the transactions contemplated by the Finance Documents or any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document or the Transaction Security;
(d) the adequacy, accuracy and/or completeness of any information provided by the Security Agent or by any other person under or in connection with any Finance Document, the transactions contemplated by any Finance Document or any other agreement, arrangement or document entered into, made or executed in anticipation of, under or in connection with any Finance Document; and
(e) the right or title of any person in or to, or the value or sufficiency of any part of the Charged Property, the priority of any of the Transaction Security or the existence of any Security affecting the Charged Property,
and each Secured Party warrants to the Security Agent that it has not relied on and will not at any time rely on the Security Agent in respect of any of these matters.
23.11 No Responsibility to Perfect Transaction Security
The Security Agent shall not be liable for any failure to:
(a) require the deposit with it of any deed or document certifying, representing or constituting the title of any Obligor to any of the Charged Property;
(b) obtain any licence, consent or other authority for the execution, delivery, legality, validity, enforceability or admissibility in evidence of any of the Finance Documents or the Transaction Security;
(c) register, file or record or otherwise protect any of the Transaction Security (or the priority of any of the Transaction Security) under any applicable laws in any jurisdiction or to give notice to any person of the execution of any of the Finance Documents or of the Transaction Security;
(d) take, or to require any of the Obligors to take, any steps to perfect its title to any of the Charged Property or to render the Transaction Security effective or to secure the creation of any ancillary Security under the laws of any jurisdiction; or
(e) require any further assurances in relation to any of the Transaction Security Documents.
23.12 Insurance by Security Agent
(a) The Security Agent shall not be under any obligation to insure any of the Charged Property, to require any other person to maintain any insurance or to verify any obligation to arrange or maintain insurance contained in the Finance Documents. The Security Agent shall not be responsible for any loss which may be suffered by any person as a result of the lack of or inadequacy of any such insurance.
(b) Where the Security Agent is named on any insurance policy as an insured party, it shall not be responsible for any loss which may be suffered by reason of, directly or indirectly, its failure to notify the insurers of any material fact relating to the risk assumed by such insurers or any other information of any kind, unless the Agent shall have requested it to do so in writing and the Security Agent shall have failed to do so within fourteen days after receipt of that request.
23.13 Custodians and Nominees
The Security Agent may appoint and pay any person to act as a custodian or nominee on any terms in relation to any assets of the trust as the Security Agent may determine, including for the purpose of depositing with a custodian this Agreement or any document relating to the trust created under this Agreement and the Security Agent shall not be responsible for any loss, liability, expense, demand, cost, claim or proceedings incurred by reason of the misconduct, omission or default on the part of any person appointed by it under this Agreement or be bound to supervise the proceedings or acts of any person.
23.14 Acceptance of Title
The Security Agent shall be entitled to accept without enquiry, and shall not be obliged to investigate, any right and title that any of the Obligors may have to any of the Charged Property and shall not be liable for or bound to require any Obligor to remedy any defect in its right or title.
23.15 Refrain from Illegality
Notwithstanding anything to the contrary expressed or implied in the Finance Documents, the Security Agent may refrain from doing anything which in its opinion will or may be
contrary to any relevant law, directive or regulation of any jurisdiction and the Security Agent may do anything which is, in its opinion, necessary to comply with any such law, directive or regulation.
23.16 Business with the Obligors
The Security Agent may accept deposits from, lend money to, and generally engage in any kind of banking or other business with any of the Obligors.
23.17 Winding up of Trust
If the Security Agent, with the approval of the Agent, determines that (a) all of the Secured Obligations and all other obligations secured by the Transaction Security Documents have been fully and finally discharged and (b) none of the Secured Parties is under any commitment, obligation or liability (actual or contingent) to make advances or provide other financial accommodation to any Obligor pursuant to the Finance Documents:
(a) the trusts set out in this Agreement shall be wound up and the Security Agent shall release, without recourse or warranty, all of the Transaction Security and the rights of the Security Agent under each of the Transaction Security Documents; and
(b) any Retiring Security Agent shall release, without recourse or warranty, all of its rights under each of the Transaction Security Documents.
23.18 Release of Security
Upon a disposal of any of the Charged Property either pursuant to a disposal permitted under clause 18.4 (Disposals) (including with the approval of the Majority Lenders) or pursuant to the enforcement of any Transaction Security by the Security Agent, a Delegate or a Receiver, the Security Agent may, at the request and cost of the Borrower, release those assets from the Transaction Security and issue any certificate of non-crystallisation of any floating charge that may, in the absolute discretion of the Security Agent, be considered necessary or desirable.
23.19 Powers Supplemental
The rights, powers and discretions conferred upon the Security Agent by this Agreement shall be supplemental to the Trustee Act 1925 and the Trustee Act 2000 and in addition to any which may be vested in the Security Agent by general law or otherwise.
23.20 Trustee Division Separate
(a) In acting as trustee for the Secured Parties, the Security Agent shall be regarded as acting through its trustee division which shall be treated as a separate entity from any of its other divisions or departments.
(b) If information is received by another division or department of the Security Agent, it may be treated as confidential to that division or department and the Security Agent shall not be deemed to have notice of it.
23.21 Disapplication
Section 1 of the Trustee Act 2000 shall not apply to the duties of the Security Agent in relation to the trusts constituted by this Agreement. Where there are any inconsistencies between the Trustee Act 1925 or the Trustee Act 2000 and the provisions of this Agreement, the provisions of this Agreement shall, to the extent allowed by law, prevail and, in the case of any inconsistency with the Trustee Act 2000, the provisions of this Agreement shall constitute a restriction or exclusion for the purposes of that Act.
23.22 Resignation of the Security Agent
(a) The Security Agent may resign and appoint one of its Affiliates as successor by giving notice to the Borrower and the other Finance Parties.
(b) Alternatively the Security Agent may resign by giving notice to the other Parties in which case the Majority Lenders may appoint a successor Security Agent.
(c) After consultation with the Borrower, the Majority Lenders may, by notice to the Security Agent, terminate the appointment of the Security Agent and appoint a successor Security Agent. That termination and new appointment may be made in respect of all or any part of the Security Agent’s duties, obligations and responsibilities.
(d) If the Majority Lenders have not appointed a successor Security Agent in accordance with paragraph (b) or (c) above within 30 days after the notice of resignation or termination was given, the Security Agent (after consultation with the Agent) may appoint a successor Security Agent.
(e) The resigning or terminated Security Agent (the “Retiring Security Agent”) shall, at its own cost (in the case of resignation) and at the Borrower’s cost (in the case of termination), make available to the successor Security Agent such documents and records and provide such assistance as the successor Security Agent may reasonably request for the purposes of performing its functions as Security Agent under the Finance Documents.
(f) The Security Agent’s resignation or termination shall only take effect upon the transfer of all of the Transaction Security to a duly appointed successor (unless the Security Agent, the intended successor and the Majority Lenders agree otherwise).
(g) Upon the appointment of a successor, the Retiring Security Agent shall be discharged from any further obligation in respect of the Finance Documents (other than its obligations under clause 23.17 (Winding up of Trust) and under paragraph (e) above) but shall, in respect of any act or omission by it whilst it was the Security Agent, remain entitled to the benefit of this clause. The successor Security Agent must, in its instrument of appointment, accede to this Agreement as a Security Agent and it and each of the other Parties shall have the same rights and obligations amongst themselves as they would have had if that successor had been an original Party.
23.23 Delegation
(a) Each of the Security Agent, any Receiver and any Delegate may, at any time, delegate by power of attorney or otherwise to any person for any period, all or any of the rights, powers and discretions vested in it by any of the Finance Documents.
(b) That delegation may be made upon any terms and conditions (including the power to sub-delegate) and subject to any restrictions that the Security Agent, that Receiver or that Delegate (as the case may be) may, in its discretion, think fit in the interests of the Secured Parties and it shall not be bound to supervise, or be in any way responsible for any loss incurred by reason of any misconduct or default on the part of any such delegate or sub-delegate.
23.24 Additional Security Agents
(a) The Security Agent may at any time appoint (and subsequently remove) any person to act as a separate trustee or as a co-trustee jointly with it (i) if it considers that appointment to be in the interests of the Secured Parties or (ii) for the purposes of conforming to any legal requirements, restrictions or conditions which the Security
Agent deems to be relevant or (iii) for obtaining or enforcing any judgment in any jurisdiction, and the Security Agent shall give prior notice to the Borrower and the Agent of that appointment.
(b) Any person so appointed shall have the rights, powers and discretions (not exceeding those conferred on the Security Agent by this Agreement) and the duties and obligations that are conferred or imposed by the instrument of appointment.
(c) The remuneration that the Security Agent may pay to that person, and any costs and expenses (together with any applicable VAT) incurred by that person in performing its functions pursuant to that appointment shall, for the purposes of this Agreement, be treated as costs and expenses incurred by the Security Agent.
23.25 Obligors’ Indemnity
Each Obligor shall promptly indemnify the Security Agent and every Receiver and Delegate against any cost, loss or liability (together with any applicable VAT) incurred by any of them:
(a) in relation to or as a result of:
(i) any failure by the Borrower to comply with obligations under clause 13 (Costs and Expenses);
(ii) the taking, holding, protection or enforcement of the Transaction Security;
(iii) the exercise of any of the rights, powers, discretions and remedies vested in the Security Agent, each Receiver and each Delegate by the Finance Documents or by law; or
(iv) any default by any Obligor in the performance of any of the obligations expressed to be assumed by it in the Finance Documents; or
(b) which otherwise relates to any of the Charged Property or the performance of the terms of this Agreement (otherwise than as a result of its gross negligence or wilful misconduct).
23.26 Priority of Indemnity
The Security Agent and every Receiver and Delegate may, in priority to any payment to the Secured Parties, indemnify itself out of the Charged Property in respect of, and pay and retain, all sums necessary to give effect to the indemnity in clause 23.25 (Obligors’ Indemnity) and shall have a lien on the Transaction Security and the proceeds of the enforcement of the Transaction Security for all moneys payable to it.
23.27 Lenders’ Indemnity
Each Lender shall (in proportion to its share of the Total Commitments or, if the Total Commitments are then zero, to its share of the Total Commitments immediately prior to their reduction to zero), indemnify the Security Agent and every Receiver and every Delegate, within three Business Days of demand, against any cost, loss or liability incurred by any of them (otherwise than by reason of the Security Agent’s, Receiver’s or Delegate’s gross negligence or wilful misconduct) in acting as Security Agent, Receiver or Delegate under the Finance Documents (unless the Security Agent, Receiver or Delegate has been reimbursed by an Obligor pursuant to a Finance Document) and the Obligors shall jointly and severally indemnify each Lender against any payment made by it under this clause.
24. CONDUCT OF BUSINESS BY THE FINANCE PARTIES
No provision of this Agreement will, save to the extent expressly provided for in clause 10 {Tax Gross Up and Indemnities) and clause 13 (Mitigation by the Lenders):
(a) interfere with the right of any Finance Party to arrange its affairs (tax or otherwise) in whatever manner it thinks fit;
(b) oblige any Finance Party to investigate or claim any credit, relief, remission or repayment available to it or the extent, order and manner of any claim; or
(c) oblige any Finance Party to disclose any information relating to its affairs (tax or otherwise) or any computations in respect of Tax.
25. SHARING AMONG THE FINANCE PARTIES
25.1 Payments to Finance Parties
If a Finance Party (a “Recovering Finance Party”) receives or recovers any amount from an Obligor other than in accordance with clause 26 (Payment mechanics) (a “Recovered Amount”) and applies that amount to a payment due under the Finance Documents then:
(a) the Recovering Finance Party shall, within three Business Days, notify details of the receipt or recovery, to the Agent;
(b) the Agent shall determine whether the receipt or recovery is in excess of the amount the Recovering Finance Party would have been paid had the receipt or recovery been received or made by the Agent and distributed in accordance with clause 26 (Payment mechanics), without taking account of any Tax which would be imposed on the Agent in relation to the receipt, recovery or distribution; and
(c) the Recovering Finance Party shall, within three Business Days of demand by the Agent, pay to the Agent an amount (the “Sharing Payment”) equal to such receipt or recovery less any amount which the Agent determines may be retained by the Recovering Finance Party as its share of any payment to be made, in accordance with clause 26.6 (Partial payments).
25.2 Redistribution of payments
The Agent shall treat the Sharing Payment as if it had been paid by the relevant Obligor and distribute it between the Finance Parties (other than the Recovering Finance Party) (the “Sharing Finance Parties”) in accordance with clause 26.6 (Partial payments) towards the obligations of that Obligor to the Sharing Finance Parties.
25.3 Recovering Finance Party’s rights
On a distribution by the Agent under clause 25.2 (Redistribution of payments) of a payment received by a Recovering Finance Party from an Obligor as between the relevant Obligor and the Recovering Finance Party, an amount of the Recovered Amount equal to the Sharing Payment will be treated as not having been paid by that Obligor.
25.4 Reversal of redistribution
If any part of the Sharing Payment received or recovered by a Recovering Finance Party becomes repayable and is repaid by that Recovering Finance Party, then:
(a) each Sharing Finance Party shall, upon request of the Agent, pay to the Agent for the account of that Recovering Finance Party an amount equal to the appropriate part of its share of the Sharing Payment (together with an amount as is necessary
to reimburse that Recovering Finance Party for its proportion of any interest on the Sharing Payment which that Recovering Finance Party is required to pay) (the “Redistributed Amount”); and
(b) as between the relevant Obligor and each relevant Sharing Finance Party, an amount equal to the relevant Redistributed Amount will be treated as not having been paid by that Obligor.
25.5 Exceptions
(a) This clause 25 shall not apply to the extent that the Recovering Finance Party would not, after making any payment pursuant to this clause, have a valid and enforceable claim against the relevant Obligor.
(b) A Recovering Finance Party is not obliged to share with any other Finance Party any amount which the Recovering Finance Party has received or recovered as a result of taking legal or arbitration proceedings, if:
(i) it notified that other Finance Party of the legal or arbitration proceedings; and
(ii) that other Finance Party had an opportunity to participate in those legal or arbitration proceedings but did not do so as soon as reasonably practicable having received notice and did not take separate legal or arbitration proceedings.
26. PAYMENT MECHANICS
26.1 Payments to the Agent
(a) On each date on which an Obligor or a Lender is required to make a payment under a Finance Document, that Obligor or Lender shall make the same available to the Agent (unless a contrary indication appears in a Finance Document) for value on the due date at the time and in such funds specified by the Agent as being customary at the time for settlement of transactions in the relevant currency in the place of payment.
(b) Payment shall be made to such account in the principal financial centre of the country of that currency (or, in relation to euro, in a principal financial centre in such Participating Member State or London, as specified by the Agent) and with such bank as the Agent specifies.
26.2 Distributions by the Agent
Each payment received by the Agent under the Finance Documents for another Party shall, subject to clause 26.3 (Distributions to an Obligor), clause 26.4 (Clawback and pre-funding) and clause 22.17 (Deduction from amounts payable by the Agent) be made available by the Agent as soon as practicable after receipt to the Party entitled to receive payment in accordance with this Agreement (in the case of a Lender, for the account of its Facility Office), to such account as that Party may notify to the Agent by not less than five Business Days’ notice with a bank specified by that Party in the principal financial centre of the country of that currency (or, in relation to euro, in the principal financial centre of a Participating Member State or London, as specified by that Party).
26.3 Distributions to an Obligor
The Agent and the Security Agent may (with the consent of the Obligor or in accordance with clause 27 (Set-off)) apply any amount received by it for that Obligor in or towards payment (on the date and in the currency and funds of receipt) of any amount due from
that Obligor under the Finance Documents or in or towards purchase of any amount of any currency to be so applied.
26.4 Clawback and pre-funding
(a) Where a sum is to be paid to the Agent or the Security Agent under the Finance Documents for another Party, the Agent or, as the case may be, the Security Agent is not obliged to pay that sum to that other Party (or to enter into or perform any related exchange contract) until it has been able to establish to its satisfaction that it has actually received that sum.
(b) Subject to clause 26.4(c) below, if the Agent or the Security Agent pays an amount to another Party and it proves to be the case that it had not actually received that amount, then the Party to whom that amount (or the proceeds of any related exchange contract) was paid by the Agent or, as the case may be, the Security Agent, shall on demand refund the same to the Agent or, as the case may be, the Security Agent, together with interest on that amount from the date of payment to the date of receipt by the Agent or, as the case may be, the Security Agent, calculated by the Agent to reflect its cost of funds.
(c) If the Agent has notified the Lenders that it is willing to make available amounts for the account of the Borrower before receiving funds from the Lenders then if and to the extent that the Agent does so but it proves to be the case that it does not then receive funds from a Lender in respect of a sum which it paid to the Borrower:
(i) the agent shall notify the Borrower of that Lender’s identity and the Borrower to whom that sum was made available shall on demand refund it to the Agent; and
(ii) the Lender by whom those funds should have been made available or, if that Lender fails to do so, the Borrower to whom that sum was made available, shall on demand pay to the Agent the amount (as certified by the Agent) which will indemnify the Agent against any funding cost incurred by it as a result of paying out that sum before receiving those funds from that Lender.
26.5 Impaired Agent
(a) If, at any time, the Agent becomes an Impaired Agent, an Obligor or a Lender which is required to make a payment under the Finance Documents to the Agent in accordance with clause 26.l(Payments to the Agent) may instead either:
(i) pay that amount direct to the required recipient(s); or
(ii) if in its absolute discretion it considers that it is not reasonably practicable to pay that amount direct to the required recipient(s), pay that amount or the relevant part of that amount to an interest-bearing account held with an Acceptable Bank within the meaning of paragraph (a) of the definition of “Acceptable Bank” and in relation to which no Insolvency Event has occurred and is continuing, in the name of the Obligor or the Lender making the payment (the “Paying Party”) and designated as a trust account for the benefit of the Party or Parties beneficially entitled to that payment under the Finance Documents (the “Recipient Party” or “Recipient Parties”).
In each case such payments must be made on the due date for payment under the Finance Documents.
(b) All interest accrued on the amount standing to the credit of the trust account shall be for the benefit of the Recipient Party or the Recipient Parties pro rata to their respective entitlements.
(c) A Party which has made a payment in accordance with this clause 26.5 shall be discharged of the relevant payment obligation under the Finance Documents and shall not take any credit risk with respect to the amounts standing to the credit of the trust account.
(d) Promptly upon the appointment of a successor Agent in accordance with clause 22.12 (Replacement of the Agent), each Paying Party shall (other than to the extent that that Party has given an instruction pursuant to paragraph (e) below) give all requisite instructions to the bank with whom the trust account is held to transfer the amount (together with any accrued interest) to the successor Agent for distribution to the relevant Recipient Party or Recipient Parties in accordance with clause 26.2 (Distributions by the Agent).
(e) A Paying Party shall, promptly upon request by a Recipient Party and to the extent:
(i) that it has not given an instruction pursuant to paragraph (d) above; and
(ii) that it has been provided with the necessary information by that Recipient Party, give all requisite instructions to the bank with whom the trust account is held to transfer the relevant amount (together with any accrued interest) to that Recipient Party.
26.6 Partial payments
(a) If the Agent receives a payment that is insufficient to discharge all the amounts then due and payable by an Obligor under the Finance Documents, the Agent shall apply that payment towards the obligations of that Obligor under the Finance Documents in the following order:
(i) first, in or towards payment pro rata of any unpaid amount owing to the Agent and the Security Agent under the Finance Documents;
(ii) secondly, in or towards payment pro rata of any accrued interest, fee or commission due but unpaid under this Agreement;
(iii) thirdly, in or towards payment pro rata of any principal due but unpaid under this Agreement; and
(iv) fourthly, in or towards payment pro rata of any other sum due but unpaid under the Finance Documents.
(b) The Agent shall, if so directed by the Majority Lenders, vary the order set out in paragraphs (i) to (iv) above.
(c) Paragraphs (a) and (b) above will override any appropriation made by an Obligor.
26.7 No set-off by Obligors
All payments to be made by an Obligor under the Finance Documents shall be calculated and be made without (and free and clear of any deduction for) set-off or counterclaim.
26.8 Business Days
(a) Any payment under the Finance Documents which is due to be made on a day that is not a Business Day shall be made on the next Business Day in the same calendar month (if there is one) or the preceding Business Day (if there is not).
(b) During any extension of the due date for payment of any principal or Unpaid Sum under this Agreement interest is payable on the principal or Unpaid Sum at the rate payable on the original due date.
26.9 Currency of account
(a) Subject to clauses 26.9(b) to 26.9(e) below, the Base Currency is the currency of account and payment for any sum due from an Obligor under any Finance Document.
(b) A repayment of a Utilisation or Unpaid Sum or a part of a Utilisation or Unpaid Sum shall be made in the currency in which that Utilisation or Unpaid Sum is denominated pursuant to this Agreement, on its due date.
(c) Each payment of interest shall be made in the currency in which the sum in respect of which the interest is payable was denominated pursuant to this Agreement, when that interest accrued.
(d) Each payment in respect of costs, expenses or Taxes shall be made in the currency in which the costs, expenses or Taxes are incurred.
(e) Any amount expressed to be payable in a currency other than the Base Currency shall be paid in that other currency.
26.10 Change of currency
(a) Unless otherwise prohibited by law, if more than one currency or currency unit are at the same time recognised by the central bank of any country as the lawful currency of that country, then:
(i) any reference in the Finance Documents to, and any obligations arising under the Finance Documents in, the currency of that country shall be translated into, or paid in, the currency or currency unit of that country designated by the Agent (after consultation with the Borrower); and
(ii) any translation from one currency or currency unit to another shall be at the official rate of exchange recognised by the central bank for the conversion of that currency or currency unit into the other, rounded up or down by the Agent (acting reasonably).
(b) If a change in any currency of a country occurs, this Agreement will, to the extent the Agent (acting reasonably and after consultation with the Borrower) specifies to be necessary, be amended to comply with any generally accepted conventions and market practice in the Relevant Market and otherwise to reflect the change in currency.
26.11 Disruption to Payment Systems, etc.
If either the Agent determines (in its discretion) that a Disruption Event has occurred or the Agent is notified by the Borrower that a Disruption Event has occurred:
(a) the Agent may, and shall if requested to do so by the Borrower, consult with the Borrower with a view to agreeing with the Borrower such changes to the operation or administration of the Facility as the Agent may deem necessary in the circumstances;
(b) the Agent shall not be obliged to consult with the Borrower in relation to any changes mentioned in clause 26.ll(a) if, in its opinion, it is not practicable to do so in the circumstances and, in any event, shall have no obligation to agree to such changes;
(c) the Agent may consult with the Finance Parties in relation to any changes mentioned in clause 26.ll(a) but shall not be obliged to do so if, in its opinion, it is not practicable to do so in the circumstances;
(d) any such changes agreed upon by the Agent and the Borrower shall (whether or not it is finally determined that a Disruption Event has occurred) be binding upon the Parties as an amendment to ( or, as the case may be, waiver of) the terms of the Finance Documents notwithstanding the provisions of clause 33 (Amendments and Waivers);
(e) the Agent shall not be liable for any damages, costs or losses to any person, any diminution in value or any liability whatsoever (including, without limitation for negligence, gross negligence or any other category of liability whatsoever but not including any claim based on the fraud of the Agent) arising as a result of its taking, or failing to take, any actions pursuant to or in connection with this clause 26.11; and
(f) the Agent shall notify the Finance Parties of all changes agreed pursuant to paragraph (d) above.
26.12 Payments to the Security Agent
Notwithstanding any other provision of any Finance Document, at any time after any Transaction Security created by or pursuant to any Transaction Security Document becomes enforceable, the Security Agent may require:
(a) any Obligor to pay all sums due under any Finance Document; or
(b) the Agent to pay all sums received or recovered from an Obligor under any Finance Document, in each case as the Security Agent may direct for application in accordance with the terms of this Agreement.
26.13 Amounts paid in error
(a) If the Agent pays an amount to another Party and the Agent notifies that Party that such payment was an Erroneous Payment then the Party to whom that amount was paid by the Facility Agent shall on demand refund the same to the Facility Agent.
(b) Neither:
(i) the obligations of any Party to the Agent; nor
(ii) the remedies of the Agent, (whether arising under this clause 26 or otherwise) which relate to an Erroneous Payment will be affected by any act, omission, matter or thing which, but for this paragraph (b), would reduce, release or prejudice any such obligation or remedy (whether or not known by the Agent or any other Party).
(c) All payments to be made by a Party to the Agent (whether made pursuant to this clause 26 or otherwise) which relate to an Erroneous Payment shall be calculated and be made without (and free and clear of any deduction for) set-off or counterclaim.
27. SET-OFF
A Finance Party may set off any matured obligation due from an Obligor under the Finance Documents (to the extent beneficially owned by that Finance Party) against any matured
obligation owed by that Finance Party to that Obligor, regardless of the place of payment, booking branch or currency of either obligation. If the obligations are in different currencies, the Finance Party may convert either obligation at a market rate of exchange in its usual course of business for the purpose of the set-off.
28. APPLICATION OF PROCEEDS
28.1 Order of Application
Subject to clause 28.2 (Prospective Liabilities), all amounts (whether in cash or in kind) from time to time received or recovered by the Security Agent pursuant to the terms of any Finance Document or in connection with the realisation or enforcement of all or any part of the Transaction Security (for the purposes of this clause 28, the “Recoveries”) shall be held by the Security Agent on trust to apply them at any time as the Security Agent (in its discretion) sees fit, to the extent permitted by applicable law (and subject to the provisions of this clause 28), in the following order of priority:
(a) in discharging any sums owing to the Security Agent, any Receiver or any Delegate;
(b) in payment of all costs and expenses incurred by the Agent or Lenders in connection with any realisation or enforcement of the Transaction Security taken in accordance with the terms of this Agreement;
(c) in payment to the Agent on its own behalf and on behalf of the Lenders for application towards the discharge of all sums due and payable by any Obligor under any Finance Document in accordance with this Agreement:
(d) if none of the Obligors is under any further actual or contingent liability under any Finance Document, in payment to any person to whom the Security Agent is obliged to pay in priority to any Obligor; and
(e) the balance, if any, in payment to the relevant Obligor.
28.2 Prospective Liabilities
The Security Agent may, in its discretion, hold any amount of the Recoveries in an interest bearing suspense account(s) in the name of the Security Agent with such financial institution (including itself) and for so long as the Security Agent shall think fit (the interest being credited to the relevant account) for later application under clause 28.1 (Order of Application) in respect of any amount that the Security Agent reasonably considers might become due or owing to a Secured Party at any time in the future.
28.3 Investment of Proceeds
Prior to the application of the proceeds of the Charged Property in accordance with clause 28.1 (Order of Application), the Security Agent may, in its discretion, hold all or part of those proceeds in an interest-bearing suspense account(s) in the name of the Security Agent with such financial institution (including itself) and for so long as the Security Agent shall think fit (the interest being credited to the relevant account) pending the application from time to time of those monies in the Security Agent’s discretion in accordance with the provisions of this clause 28.
28.4 Currency Conversion
(a) For the purpose of, or pending the discharge of, any of the Secured Obligations, the Security Agent may convert any moneys received or recovered by the Security Agent from one currency to another, at the Security Agent’s Spot Rate of Exchange.
(b) The obligations of any Obligor to pay in the due currency shall only be satisfied to the extent of the amount of the due currency purchased after deducting the costs of conversion.
28.5 Permitted Deductions
The Security Agent shall be entitled, in its discretion, (a) to set aside by way of reserve amounts required to meet and (b) to make and pay, any deductions and withholdings (on account of taxes or otherwise) which it is or may be required by any applicable law to make from any distribution or payment made by it under this Agreement, and to pay all Taxes which may be assessed against it in respect of any of the Charged Property, or as a consequence of performing its duties, or by virtue of its capacity as Security Agent under any of the Finance Documents or otherwise (other than in connection with its remuneration for performing its duties under this Agreement).
28.6 Good Discharge
(a) Any payment to be made in respect of the Secured Obligations by the Security Agent may be made to the Agent on behalf of the Lenders and any payment made in that way shall be a good discharge, to the extent of that payment, by the Security Agent.
(b) The Security Agent is under no obligation to make the payments to the Agent under paragraph (a) above in the same currency as that in which any amount owing to the relevant Party is denominated.
28.7 Calculation of Amounts
For the purpose of calculating any person’s share of any sum payable to or by it, the Security Agent shall be entitled to:
(a) notionally convert the amounts owed to any person into a common base currency (decided in its discretion by the Security Agent), that notional conversion to be made at the spot rate at which the Security Agent is able to purchase the notional base currency with the actual currency of the amounts owed to that person at the time at which that calculation is to be made; and
(b) assume that all moneys received or recovered as a result of the enforcement or realisation of the Charged Property are applied in discharge of the amounts owed to that person in accordance with the terms of the relevant Finance Documents under which such outstanding amounts have arisen.
29. NOTICES
29.1 Communications in writing
Any communication to be made under or in connection with the Finance Documents shall be made in writing and, unless otherwise stated, may be made by fax, letter or email.
29.2 Addresses
The address, fax number and email (and the department or officer, if any, for whose attention the communication is to be made) of each Party for any communication or document to be made or delivered under or in connection with the Finance Documents is:
(a) in the case of any Obligor:
| | | | | |
| Address: | Wellesley House North, 1st Floor, 90 Pitts Bay Road, |
| Pembroke HM08, Bermuda |
| Fax: | +1 (441) 295 5900 |
| | | | | |
| Email: | legalnotices@hamiltongroup.com |
| Attention: | Legal Department |
(b) in the case of each Lender, that notified in writing to the Agent on or prior to the date on which it becomes a Party; and
(c) in the case of the Agent:
| | | | | |
| Address: | Barclays Bank PLC |
| 1 Churchill Place |
| Canary Wharf |
| London |
| E14 5HP |
| Fax: | +44 (0) 20 7773 4893 |
| Email: | shaun.clarke@barclays.com |
| loans.agency@barclays.com |
| Attention: | Head of EME Loans Agency |
(d) in the case of the Security Agent:
| | | | | |
| Address: | Barclays Bank PLC |
| 1 Churchill Place |
| Canary Wharf |
| London |
| E14 5HP |
| Fax: | +44 (0) 20 7773 4893 |
| Email: | shaun.clarke@barclays.com |
| loans.agency@barclays.com |
| Attention: | Head of EME Loans Agency |
or any substitute address, fax number, email or department or officer as the Party may notify to the Agent (or the Agent may notify to the other Parties, if a change is made by the Agent) by not less than five Business Days’ notice.
29.3 Delivery
(a) Any communication or document made or delivered by one person to another under or in connection with the Finance Documents will only be effective:
(i) if by way of fax, when received in legible form;
(ii) if by way of letter, when it has been left at the relevant address or five Business Days after being deposited in the post postage prepaid in an envelope addressed to it at that address, or
(iii) if by way of email, when received in legible form
and, if a particular department or officer is specified as part of its address details provided under clause 29.2 (Addresses), if addressed to that department or officer.
(b) Any communication or document to be made or delivered to the Agent or the Security Agent will be effective only when actually received by the Agent or the Security Agent and then only if it is expressly marked for the attention of the department or officer identified in clause 29.2 above (or any substitute department or officer as the Agent or Security Agent shall specify for this purpose).
(c) All notices from or to an Obligor shall be sent through the Agent.
(d) Any communication or document made or delivered to the Borrower in accordance with this clause will be deemed to have been made or delivered to each Obligor.
(e) Any communication or document which becomes effective, in accordance with paragraphs (a) to (d) above, after 5.00 p.m. in the place of receipt shall be deemed only to become effective on the following day.
29.4 Notification of address, fax number or email
Promptly upon changing its address, fax number or email, the Agent shall notify the other Parties.
29.5 Communication when Agent is Impaired Agent
If the Agent is an Impaired Agent the Parties may, instead of communicating with each other through the Agent, communicate with each other directly and (while the Agent is an Impaired Agent) all the provisions of the Finance Documents which require communications to be made or notices to be given to or by the Agent shall be varied so that communications may be made and notices given to or by the relevant Parties directly. This provision shall not operate after a replacement Agent has been appointed.
29.6 Electronic communication
(a) Any communication to be made between any two Parties under or in connection with the Finance Documents may be made by electronic mail or other electronic means (including, without limitation, by way of posting to a secure website) if those two Parties:
(i) notify each other in writing of their electronic mail address and/or any other information required to enable the transmission of information by that means; and
(ii) notify each other of any change to their address or any other such information supplied by them by not less than five Business Days’ notice.
(b) Any such electronic communication as specified in paragraph (a) above to be made between an Obligor and a Finance Party may only be made in that way to the extent that those two Parties agree that, unless and until notified to the contrary, this is to be an accepted form of communication.
(c) Any such electronic communication as specified in paragraph (a) above made between any two Parties will be effective only when actually received (or made available) in readable form and in the case of any electronic communication made by a Party to the Agent only if it is addressed in such a manner as the Agent shall specify for this purpose.
(d) Any electronic communication which becomes effective, in accordance with paragraph (c) above, after 5:00 p.m. in the place in which the Party to whom the relevant communication is sent or made available has its address for the purpose of this Agreement shall be deemed only to become effective on the following Business Day.
(e) Any reference in a Finance Document to a communication being sent or received shall be construed to include that communication being made available in accordance with this clause 29.6.
29.7 English language
(a) Any notice given under or in connection with any Finance Document must be in English.
(b) All other documents provided under or in connection with any Finance Document must be:
(i) in English; or
(ii) if not in English, and if so required by the Agent, accompanied by a certified English translation and, in this case, the English translation will prevail unless the document is a constitutional, statutory or other official document.
30. CALCULATIONS AND CERTIFICATES
30.1 Accounts
In any litigation or arbitration proceedings arising out of or in connection with a Finance Document, the entries made in the accounts maintained by a Finance Party are prima facie evidence of the matters to which they relate.
30.2 Certificates and Determinations
Any certification or determination by a Finance Party of a rate or amount under any Finance Document is, in the absence of manifest error, conclusive evidence of the matters to which it relates.
30.3 Day count convention
Any interest, commission or fee accruing under a Finance Document will accrue from day to day and is calculated on the basis of the actual number of days elapsed and a year of 360 days or, in any case where the practice in the Relevant Market differs, in accordance with that market practice.
31. PARTIAL INVALIDITY
If, at any time, any provision of a Finance Document is or becomes illegal, invalid or unenforceable in any respect under any law of any jurisdiction, neither the legality, validity or enforceability of the remaining provisions nor the legality, validity or enforceability of such provision under the law of any other jurisdiction will in any way be affected or impaired.
32. REMEDIES AND WAIVERS
No failure to exercise, nor any delay in exercising, on the part of any Finance Party or any Secured Party, any right or remedy under a Finance Document shall operate as a waiver of any such right or remedy or constitute an election to affirm any of the Finance Documents. No election to affirm any Finance Document on the part of any Finance Party or any Secured Party shall be effective unless it is in writing. No single or partial exercise of any right or remedy shall prevent any further or other exercise or the exercise of any other right or remedy. The rights and remedies provided in each Finance Document are cumulative and not exclusive of any rights or remedies provided by law.
33. AMENDMENTS AND WAIVERS
33.1 Required consents
(a) Subject to clause 33.2 (All Lender Matters), any term of the Finance Documents may be amended or waived only with the consent of the Majority Lenders and the Obligors and any such amendment or waiver will be binding on all Parties.
(b) The Agent may effect, on behalf of any Finance Party, any amendment or waiver permitted by this clause.
33.2 All Lender Matters
(a) An amendment or waiver of any term of any Finance Document that has the effect of changing or which relates to:
(i) the definition of “Majority Lenders” in clause 1.1 (Definitions);
(ii) an extension to the date of payment of any amount under the Finance Documents;
(iii) a reduction in the L/C Commission Rate or a reduction in the amount of any payment of principal, interest, fees or commission payable;
(iv) an increase in or an extension of any Commitment or an extension of any Availability Period or any requirement that a cancellation of Commitments reduces the Commitments of the Lenders rateably under the relevant Facility;
(v) a change to the Borrower, an Applicant or the Guarantor other than in accordance with clause 21 (Changes to the Obligors);
(vi) any provision which expressly requires the consent of all the Lenders;
(vii) clause 2.2 (Finance Parties’ rights and obligations), clause 4.2 (Change of control), clause 20 (Changes to the Lenders), this clause 33, clause 37 (Governing law) or 38.1 (Jurisdiction);
(viii) the nature and scope of the guarantee and indemnity granted under clause 14 (Guarantee and indemnity);
(ix) the definitions of “Restricted Person”, “Sanctions”, “Sanctions Authorities” “Sanctions List” and clause 15.23 (Sanctions) and 18.19 (Sanctions); or
(x) (other than as expressly permitted by the provision of any Finance Document), the nature or scope of:
(A) the Charged Property; or
(B) the manner in which the proceeds of enforcement of the Transaction Security are distributed, shall not be made without the prior consent of all the Lenders.
(b) An amendment or waiver which relates to the rights or obligations of the Agent or the Security Agent (each in their capacity as such) may not be effected without the consent of the Agent or the Security Agent as the case may be.
33.3 Disenfranchisement of Defaulting Lenders
(a) For so long as a Defaulting Lender has any Available Commitment, in ascertaining:
(i) the Majority Lenders; or
(ii) whether:
(A) any given percentage (including, for the avoidance of doubt, unanimity) of the Total Commitments under the Facility; or
(B) the agreement of any specified group of Lenders, has been obtained to approve any request for a consent, waiver, amendment or other vote under the Finance Documents, that Defaulting Lender’s Commitments under the Facility will be reduced by the amount of its Available Commitments under the Facility and, to the extent that that reduction results in that Defaulting Lender’s Total Commitments being zero, that Defaulting Lender shall be deemed not to be a Lender for the purposes of paragraphs (i) and (ii) above.
(b) For the purposes of this clause 33.3, the Agent may assume that the following Lenders are Defaulting Lenders:
(i) any Lender which has notified the Agent that it has become a Defaulting Lender;
(ii) any Lender in relation to which it is aware that any of the events or circumstances referred to in paragraphs (a), (b), (c) or (d) of the definition of “Defaulting Lender” has occurred, unless it has received notice to the contrary from the Lender concerned (together with any supporting evidence reasonably requested by the Agent) or the Agent is otherwise aware that the Lender has ceased to be a Defaulting Lender.
33.4 Excluded Commitments
If any Defaulting Lender fails to respond to a request for a consent, waiver, amendment of or in relation to any term of any Finance Document or any other vote of Lenders under the terms of this Agreement within 10 Business Days (unless the Borrower and the Agent agree to a longer time period in relation to any request) of that request being made:
(a) its Commitment(s) shall not be included for the purpose of calculating the Total Commitments under the Facility when ascertaining whether any relevant percentage (including, for the avoidance of doubt, unanimity) of Total Commitments has been obtained to approve that request; and
(b) its status as a Lender shall be disregarded for the purpose of ascertaining whether the agreement of any specified group of Lenders has been obtained to approve that request.
33.5 Replacement of a Defaulting Lender
(a) The Borrower may, at any time a Lender has become and continues to be a Defaulting Lender, by giving 10 Business Days’ prior written notice to the Agent and such Lender:
(i) replace such Lender by requiring such Lender to (and, to the extent permitted by law, such Lender shall) transfer pursuant to clause 20 (Changes to the Lenders) all (and not part only) of its rights and obligations under this Agreement;
(ii) require such Lender to (and, to the extent permitted by law, such Lender shall) transfer pursuant to clause 20 (Changes to the Lenders) all (and not part only) of the undrawn Commitment of the Lender; or
(iii) require such Lender to (and, to the extent permitted by law, such Lender shall) transfer pursuant to clause 20 (Changes to the Lenders) all (and not part only) of its rights and obligations in respect of the Facility, to an Eligible Institution (a “Replacement Lender”) selected by the Borrower and the Lenders (excluding the relevant Defaulting Lender and acting reasonably), and which confirms its willingness to assume and does assume all the obligations, or all the relevant obligations, of the transferring Lender in accordance with clause 20 (Changes to the Lenders) for a purchase price in cash payable at the time of transfer which is either:
(A) in an amount equal to the outstanding principal amount of such Lender’s participation in the outstanding Utilisations and all accrued interest and/or Letter of Credit fees, Break Costs and other amounts payable in relation thereto under the Finance Documents; or
(B) in an amount agreed between that Defaulting Lender, the Replacement Lender and the Company and which does not exceed the amount described in paragraph (A) above.
(b) Any transfer of rights and obligations of a Defaulting Lender pursuant to this clause 33.5 shall be subject to the following conditions:
(i) the Borrower shall have no right to replace the Agent;
(ii) neither the Agent nor the Defaulting Lender shall have any obligation to the Borrower to find a Replacement Lender;
(iii) the transfer must take place no later than 20 days after the notice referred to in paragraph (a) above;
(iv) in no event shall the Defaulting Lender be required to pay or surrender to the Replacement Lender any of the fees received by the Defaulting Lender pursuant to the Finance Documents; and
(v) the Defaulting Lender shall only be obliged to transfer its rights and obligations pursuant to paragraph (a) above once it is satisfied that it has complied with all necessary “know your customer” or other similar checks under all applicable laws and regulations in relation to that transfer to the Replacement Lender.
(c) The Defaulting Lender shall perform the checks described in paragraph (b)(v) above as soon as reasonably practicable following delivery of a notice referred to in
paragraph (a) above and shall notify the Agent and the Borrower when it is satisfied that it has complied with those checks.
34. LENDER UNDERTAKINGS
34.1 Each Lender (by countersigning the 2022 Amendment and Restatement Agreement) confirms that it is an Approved Credit Institution and an Eligible Institution on (i) the date of the 2020 Amendment and Restatement Agreement; (ii) the 2021 Restatement Date and (iii) the 2022 Restatement Date.
34.2 Each Lender proposing to use a Confirming Bank undertakes that the proposed Confirming Bank has been approved by Lloyds (and that Confirming Bank’s participation in a Letter of Credit is (or will be) eligible as Funds at Lloyd’s for the Borrower).
34.3 Each Lender agrees to notify the Borrower promptly upon becoming aware that (a) it or its Confirming Bank is no longer an Approved Credit Institution or Eligible Institution; or(b) it is reasonably likely that it or its Confirming Bank will no longer be an Approved Credit Institution or an Eligible Institution.
35. CONFIDENTIALITY
35.1 Confidential Information
Each Finance Party agrees to keep all Confidential Information confidential and not to disclose it to anyone, save to the extent permitted by clause 35.2 (Disclosure of Confidential Information), and to ensure that all Confidential Information is protected with security measures and a degree of care that would apply to its own confidential information.
35.2 Disclosure of Confidential Information
Any Finance Party may disclose:
(a) to any of its Affiliates and Related Funds and any of its or their officers, directors, employees, professional advisers, auditors, partners and Representatives such Confidential Information as that Finance Party shall consider appropriate if any person to whom the Confidential Information is to be given pursuant to this paragraph 35.2(a) is informed in writing of its confidential nature and that some or all of such Confidential Information may be price-sensitive information except that there shall be no such requirement to so inform if the recipient is subject to professional obligations to maintain the confidentiality of the information or is otherwise bound by requirements of confidentiality in relation to the Confidential Information;
(b) to any person:
(i) to (or through) whom it assigns or transfers (or may potentially assign or transfer) all or any of its rights and/or obligations under one or more Finance Documents or which succeeds ( or which may potentially succeed) it as Agent and, in each case, to any of that person’s Affiliates, Related Funds, Representatives and professional advisers;
(ii) with (or through) whom it enters into (or may potentially enter into), whether directly or indirectly, any sub-participation in relation to, or any other transaction under which payments are to be made or may be made by reference to, one or more Finance Documents and/or one or more Obligors and to any of that person’s Affiliates, Related Funds, Representatives and professional advisers;
(iii) appointed by any Finance Party or by a person to whom paragraphs (i) or (ii) above applies to receive communications, notices, information or documents delivered pursuant to the Finance Documents on its behalf;
(iv) who invests in or otherwise finances (or may potentially invest in or otherwise finance), directly or indirectly, any transaction referred to in paragraph (i) or (ii) above;
(v) to whom information is required or requested to be disclosed by any court of competent jurisdiction or any governmental, banking, taxation or other regulatory authority or similar body, the rules of any relevant stock exchange or pursuant to any applicable law or regulation;
(vi) to whom information is required to be disclosed in connection with, and for the purposes of, any litigation, arbitration, administrative or other investigations, proceedings or disputes;
(vii) to whom or for whose benefit that Finance Party charges, assigns or otherwise creates Security (or may do so) pursuant to clause 20.9 (Security over Lenders’ Rights);
(viii) who is a Party; or
(ix) with the consent of the Borrower;
in each case, such Confidential Information as that Finance Party shall consider appropriate if:
(A) in relation to paragraphs (i), (ii) and (iii) above, the person to whom the Confidential Information is to be given has entered into a Confidentiality Undertaking except that there shall be no requirement for a Confidentiality Undertaking if the recipient is a professional adviser and is subject to professional obligations to maintain the confidentiality of the Confidential Information;
(B) in relation to paragraph (iv) above, the person to whom the Confidential Information is to be given has entered into a Confidentiality Undertaking or is otherwise bound by requirements of confidentiality in relation to the Confidential Information they receive and is informed that some or all of such Confidential Information may be price-sensitive information;
(C) in relation to paragraphs (v), (vi) and (vii) above, the person to whom the Confidential Information is to be given is informed of its confidential nature and that some or all of such Confidential Information may be price-sensitive information except that there shall be no requirement to so inform if, in the opinion of that Finance Party, it is not practicable so to do in the circumstances;
(c) to any person appointed by that Finance Party or by a person to whom paragraph (i) or (ii) above applies to provide administration or settlement services in respect of one or more of the Finance Documents including without limitation, in relation to the trading of participations in respect of the Finance Documents, such Confidential Information as may be required to be disclosed to enable such service provider to provide any of the services referred to in this clause 35.2(c) if the service provider to whom the Confidential Information is to be given has entered into a confidentiality agreement substantially in the form of the LMA Master Confidentiality Undertaking for Use With Administration/Settlement Service Providers or such other form of
confidentiality undertaking agreed between the Borrower and the relevant Finance Party; and
(d) to any rating agency (including its professional advisers) such Confidential Information as may be required to be disclosed to enable such rating agency to carry out its normal rating activities in relation to the Finance Documents and/or the Obligors if the rating agency to whom the Confidential Information is to be given is informed of its confidential nature and that some or all of such Confidential Information may be price-sensitive information.
35.3 Disclosure to numbering service providers
(a) Any Finance Party may disclose to any national or international numbering service provider appointed by that Finance Party to provide identification numbering services in respect of this Agreement, the Facility and/or one or more Obligors the following information:
(i) names of Obligors;
(ii) country of domicile of Obligors;
(iii) place of incorporation of Obligors;
(iv) date of this Agreement;
(v) clause 37 (Governing law)
(vi) the name of the Agent;
(vii) date of each amendment and restatement of this Agreement;
(viii) amounts of, and names of, the Facility (and any tranches);
(ix) amount of Total Commitments;
(x) currencies of the Facility;
(xi) type of Facility;
(xii) ranking of Facility;
(xiii) the termination date for the Facility;
(xiv) changes to any of the information previously supplied pursuant to paragraphs (i) to (xiii) above; and
(xv) such other information agreed between such Finance Party and the Borrower,
(xvi) to enable such numbering service provider to provide its usual syndicated loan numbering identification services.
(b) The Parties acknowledge and agree that each identification number assigned to this Agreement, the Facility and/or one or more Obligors by a numbering service provider and the information associated with each such number may be disclosed to users of its services in accordance with the standard terms and conditions of that numbering service provider.
(c) The Borrower represents that none of the information set out in paragraphs (i) to (xv) of paragraph (a) above is, nor will at any time be, unpublished price-sensitive information.
(d) The Agent shall notify the Borrower and the other Finance Parties of:
(i) the name of any numbering service provider appointed by the Agent in respect of this Agreement, the Facility and/or one or more Obligors; and
(ii) the number or, as the case may be, numbers assigned to this Agreement, the Facility and/or one or more Obligors by such numbering service provider.
35.4 Entire agreement
This clause 35 constitutes the entire agreement between the Parties in relation to the obligations of the Finance Parties under the Finance Documents regarding Confidential Information and supersedes any previous agreement, whether express or implied, regarding Confidential Information.
35.5 Inside information
Each of the Finance Parties acknowledges that some or all of the Confidential Information is or may be price-sensitive information and that the use of such information may be regulated or prohibited by applicable legislation including securities law relating to insider dealing and market abuse and each of the Finance Parties undertakes not to use any Confidential Information for any unlawful purpose.
35.6 Notification of disclosure
Each of the Finance Parties agrees (to the extent permitted by law and regulation) to inform the Borrower:
(a) of the circumstances of any disclosure of Confidential Information made pursuant to paragraph (v) of clause 35.2(b) (Disclosure of Confidential Information) except where such disclosure is made to any of the persons referred to in that paragraph during the ordinary course of its supervisory or regulatory function; and
(b) upon becoming aware that Confidential Information has been disclosed in breach of this clause 35.
35.7 Continuing obligations
The obligations in this clause 35 are continuing and, in particular, shall survive and remain binding on each Finance Party for a period of 12 months from the earlier of:
(a) the date on which all amounts payable by the Obligors under or in connection with this Agreement have been paid in full and all Commitments have been cancelled or otherwise cease to be available; and
(b) the date on which such Finance Party otherwise ceases to be a Finance Party.
36. COUNTERPARTS
Each Finance Document may be executed in any number of counterparts, and this has the same effect as if the signatures on the counterparts were on a single copy of the Finance Document.
37. GOVERNING LAW
This Agreement and all non-contractual obligations arising from or in connection with it are governed by English law.
38. ENFORCEMENT
38.1 Jurisdiction
(a) The courts of England have exclusive jurisdiction to settle any dispute arising out of or in connection with this Agreement (including a dispute relating to the existence, validity or termination of this Agreement or, any non-contractual obligation arising out of or in connection with this Agreement) (a “Dispute”).
(b) The Parties agree that the courts of England are the most appropriate and convenient courts to settle Disputes and accordingly no Party will argue to the contrary.
38.2 Service of Process
Without prejudice to any other mode of service allowed under any relevant law, each Obligor (other than an Obligor incorporated in England and Wales):
(a) irrevocably appoints Hamilton UK Services Limited (a company incorporated in England and Wales with company registration number 11381012) as its agent for service of process in relation to any proceedings before the English courts in connection with any Finance Document; and
(b) agrees that failure by a process agent to notify the relevant Obligor of the process will not invalidate the proceedings concerned.
39. CONTRACTUAL RECOGNITION OF BAIL-IN
39.1 Notwithstanding any other term of any Finance Document or any other agreement, arrangement or understanding between the Parties, each Party acknowledges and accepts that any liability of any Party to any other Party under or in connection with the Finance Documents may be subject to Bail-In Action by the relevant Resolution Authority and acknowledges and accepts to be bound by the effect of:
(a) any Bail-In Action in relation to any such liability, including (without limitation):
(i) a reduction, in full or in part, in the principal amount, or outstanding amount due (including any accrued but unpaid interest) in respect of any such liability;
(ii) a conversion of all, or part of, any such liability into shares or other instruments of ownership that may be issued to, or conferred on, it; and
(iii) a cancellation of any such liability; and
(b) a variation of any term of any Finance Document to the extent necessary to give effect to any Bail-In Action in relation to any such liability.
39.2 In this clause 40:
“Article 55 BRRD” means Article 55 of Directive 2014/59/EU establishing a framework for the recovery and resolution of credit institutions and investment firms.
“Bail-In Action” means the exercise of any Write-down and Conversion Powers.
“Bail-In Legislation” means:
(i) in relation to an EEA Member Country which has implemented, or which at any time implements, Article 55 BRRD, the relevant implementing law or regulation as described in the EU Bail-In Legislation Schedule from time to time ;
(ii) in relation to the United Kingdom, the UK Bail-In Legislation; and
(iii) in relation to any state other than such an EEA Member Country and the United Kingdom, any analogous law or regulation from time to time which requires contractual recognition of any Write-down and Conversion Powers contained in that law or regulation.
“EEA Member Country” means any member state of the European Union, Iceland, Liechtenstein and Norway.
“EU Bail-In Legislation Schedule” means the document described as such and published by the Loan Market Association (or any successor person) from time to time.
“Resolution Authority” means any body which has authority to exercise any Write down and Conversion Powers.
“UK Bail-In Legislation” means Part I of the United Kingdom Banking Act 2009 and any other law or regulation applicable in the United Kingdom relating to the resolution of unsound or failing banks, investment firms or other financial institutions or their affiliates (otherwise than through liquidation, administration or other insolvency proceedings).
“Write-down and Conversion Powers” means:
(i) in relation to any Bail-In Legislation described in the EU Bail-In Legislation Schedule from time to time, the powers described as such in relation to that Bail-In Legislation in the EU Bail-In Legislation Schedule;
(ii) in relation to any other applicable Bail-In Legislation:
(A) any powers under that Bail-In Legislation to cancel, transfer or dilute shares issued by a person that is a bank or investment firm or other financial institution or affiliate of a bank, investment firm or other financial institution, to cancel, reduce, modify or change the form of a liability of such a person or any contract or instrument under which that liability arises, to convert all or part of that liability into shares, securities or obligations of that person or any other person, to provide that any such contract or instrument is to have effect as if a right had been exercised under it or to suspend any obligation in respect of that liability or any of the powers under that Bail-In Legislation that are related to or ancillary to any of those powers; and
(B) any similar or analogous powers under that Bail-In Legislation; and
(iii) in relation to any UK Bail-In Legislation:
(A) any powers under that UK Bail-In Legislation to cancel, transfer or dilute shares issued by a person that is a bank or investment firm or other financial institution or affiliate of a bank, investment firm or other financial institution, to cancel, reduce, modify or change the form of a liability of such a person or any contract or instrument under which
that liability arises, to convert all or part of that liability into shares, securities or obligations of that person or any other person, to provide that any such contract or instrument is to have effect as if a right had been exercised under it or to suspend any obligation in respect of that liability or any of the powers under that UK Bail-In Legislation that are related to or ancillary to any of those powers; and
(B) any similar or analogous powers under that UK Bail-In Legislation.
This Agreement has been entered into on the date stated at the beginning of this Agreement.
schedule 2
Conditions Precedent to Initial Utilisation
[SATISFIED]
1. CORPORATE DOCUMENTS
1.1 A copy of the constitutional documents of each Obligor.
1.2 A copy of a resolution of the board of directors of each Obligor:
(a) approving the terms of, and the transactions contemplated by, the Finance Documents to which it is a party and resolving that it execute the Finance Documents to which it is a party;
(b) authorising a specified person or persons to execute the Finance Documents to which it is a party on its behalf; and
(c) authorising a specified person or persons, on its behalf, to sign and/or despatch all documents and notices (including, if relevant, any Utilisation Request) to be signed and/or despatched by it under or in connection with the Finance Documents to which it is a party.
1.3 A specimen of the signature of each person authorised by the resolution referred to in paragraph 1.2 above.
1.4 A certificate of the Borrower (signed by a director or authorised signatory) confirming that borrowing or guaranteeing or securing, as appropriate, the Total Commitments would not cause any borrowing, guarantee or similar limit binding on any Obligor to be exceeded.
1.5 A certificate of an authorised signatory of each Obligor certifying that each copy document relating to it specified in this schedule 2 is correct, complete and in full force and effect as at a date no earlier than the date of this Agreement.
2. FINANCE DOCUMENTS
This Agreement duly executed by the parties thereto.
3. LEGAL OPINIONS
3.1 A legal opinion of Ashurst LLP, legal advisers to the Agent and Security Agent in England, substantially in the form distributed to the Original Lenders prior to signing this Agreement.
3.2 A legal opinion of Carey Olsen Bermuda, legal advisers to the Borrower in Bermuda, substantially in the form distributed to the Original Lenders prior to signing this Agreement.
4. OTHER DOCUMENTS AND EVIDENCE
4.1 Evidence that any process agent referred to in clause 38.2 (Service of process), if not an Obligor, has accepted its appointment.
4.2 The Original Financial Statements of each Obligor.
4.3 Evidence in the form and substance satisfactory to the Agent that all indebtedness owed by the Obligors under the Existing Facilities has been or will be discharged on or prior to first Utilisation.
4.4 A copy of a substitution letter duly executed by Lloyd's regulating the replacement of some of each Applicant's Funds at Lloyd's with a Letter of Credit.
4.5 Evidence that the fees, costs and expenses then due from the Borrower pursuant to clause 8.1 (Upfront Fee) and 8.2 (Agency Fee) have been paid or will be paid by the first Utilisation Date.
4.6 A copy of any other Authorisation or other document, opinion or assurance which the Agent considers to be necessary or desirable (if it has notified the Borrower accordingly) in connection with the entry into and performance of the transactions contemplated by any Finance Document or for the validity and enforceability of any Finance Document.
4.7 Evidence that:
(a) as at 6 November 2019, the aggregate Own FAL of HCML is £72,042,947.80 (made up of £50,872,922 of FIS and $27,237,566.90 (converted by Lloyd's to £21,170,025.80) of Own FAL excluding FIS); and
(b) as at 17 October 2019, the aggregate Own FAL of ICC3L is $185,300,000.
4.8 A Group Structure Chart showing the name, company registration number, jurisdiction of incorporation and/or establishment of each member of the Group.
4.9 Satisfaction of all "know your customer" or other similar checks under all applicable laws and regulations in relation to the Obligors.
4.10 A certified copy of the Business Plan (including the Realistic Disaster Scenarios relating thereto).
4.11 A certificate of compliance issued by the Bermuda Registrar of Companies in respect of each Obligor incorporated in Bermuda as at a date no earlier than 7 calendar days prior to the date of this Agreement.
4.12 A certificate of compliance issued by the Bermuda Monetary Authority in respect of the Borrower as at a date no earlier than 7 calendar days prior to the date of this Agreement.
4.13 A certificate of the Borrower and the Guarantor (signed by a director or authorised signatory thereof) certifying that it has not been served with, nor has it received any notice of, nor has it itself filed any winding up or other insolvency petition as at the date of this Agreement.
schedule 3
Form of Utilisation Request
From: Hamilton Re, Ltd. (the “Borrower”)
To: Barclays Bank PLC as Agent
Dated: []
Dear Sirs,
1. We refer to an agreement originally dated 7 November 2019 (as, from time to time, amended, restated, varied, novated or supplemented) and made between Hamilton Re, Ltd. as borrower and others, Barclays Bank PLC as agent and security agent and the financial institutions defined therein as Lenders (the “Credit Agreement”).
2. Terms defined in the Credit Agreement shall have the same meaning in this notice.
3. This notice is irrevocable.
4. We hereby give you notice that, pursuant to the Credit Agreement [we request a Letter of Credit on the following terms] / [we request an amendment to Irrevocable Standby Letter of Credit No. [] as follows]1:
| | | | | | | | | | | |
| | Face amount: | [] |
| | | |
| | Currency: | [] |
| | | |
| | Utilisation Date: | [] |
| | | |
| | Commencement Date of Letter of Credit: | [] |
| | | |
| | Applicant: | [] |
| | | |
| | Managed Syndicate: | [] |
| | | |
| | Year of account: | [] |
| | | |
| | Term: | [] |
| | | |
| | Expiry Date: | [] |
| | | |
5. We confirm that, at the date hereof, the Repeating Representations are true in all material respects and no Default is continuing.
6. The Letter of Credit should be issued in favour of Lloyd’s in the form attached and delivered to The Society and the Council of Lloyd’s, c/o The Manager, Market Services, Fidentia House, Walter Burke Way, Chatham Maritime, Chatham, Kent ME4 4RN.
1 Delete as applicable.
| | | | | | | | |
Yours faithfully | |
| | |
| Signed by | ) |
| | ) |
| for and on behalf of HAMILTON RE, | ) |
| LTD. | ) |
schedule 4
Form of Transfer Certificate
To: Barclays Bank PLC as Agent
From: [The Existing Lender] (the “Existing Lender”) and [The New Lender] (the “New Lender”)
Dated:
Hamilton Re, Ltd. –Letter of Credit Facility Agreement originally dated 7 November 2019 (as, from time to time, amended, restated, varied, novated or supplemented) (the “Agreement”)
1. We refer to the Agreement. This is a Transfer Certificate. Terms defined in the Agreement have the same meaning in this Transfer Certificate unless given a different meaning in this Transfer Certificate.
2. We refer to clause 20.5 (Procedure for transfer):
(a) The Existing Lender and the New Lender agree to the Existing Lender transferring to the New Lender by novation, and in accordance with clause 20.5 (Procedure for transfer), all of the Existing Lender’s rights and obligations under the Agreement and the other Finance Documents which relate to that portion of the Existing Lender’s Commitment(s) and participations in Utilisations under the Agreement as specified in the Schedule.
(b) The proposed Transfer Date is [l].
(c) The Facility Office and address, fax number and attention details for notices of the New Lender for the purposes of clause 29.2 (Addresses) are set out in the Schedule.
3. The New Lender expressly acknowledges the limitations on the Existing Lender’s obligations set out in paragraph (c) of clause 20.4 (Limitation of responsibility of Existing Lenders).
4. This Transfer Certificate may be executed in any number of counterparts and this has the same effect as if the signatures on the counterparts were on a single copy of this Transfer Certificate.
5. This Transfer Certificate and any non-contractual obligations arising out of or in connection with it are governed by English law.
6. This Transfer Certificate has been entered into on the date stated at the beginning of this Transfer Certificate.
THE SCHEDULE
Commitment/rights and obligations to be transferred
[insert relevant details]
[Facility Office address, fax number and attention details for notices and account details for payments,]
| | | | | | | | |
| [Existing Lender] | [New Lender] |
| | |
| By: | By: |
| | |
| Branch: [] | Branch: [] |
| | |
| Branch MEI: [] | Branch MEI: [] |
This Transfer Certificate is accepted by the Agent and the Transfer Date is confirmed as [].
[Agent]
By:
schedule 5
Form of Assignment Agreement
To: Barclays Bank PLC as Agent and Hamilton Re, Ltd. as Borrower, for and on behalf of each Obligor
From: [the Existing Lender] (the “Existing Lender”) and [the New Lender] (the “New Lender”)
Dated:
Hamilton Re, Ltd. –Letter of Credit Facility Agreement originally dated 7 November 2019 (as, from time to time, amended, restated, varied, novated or supplemented) (the “Agreement”)
1. We refer to the Agreement. This is an Assignment Agreement. Terms defined in the Agreement have the same meaning in this Assignment Agreement unless given a different meaning in this Assignment Agreement.
2. We refer to clause 20.6 (Procedure for assignment):
(a) The Existing Lender assigns absolutely to the New Lender all the rights of the Existing Lender under the Agreement and the other Finance Documents and in respect of the Transaction Security which relate to that portion of the Existing Lender’s Commitment(s) and participations in Utilisations under the Agreement as specified in the Schedule.
(b) The Existing Lender is released from all the obligations of the Existing Lender which correspond to that portion of the Existing Lender’s Commitment(s) and participations in Utilisations under the Agreement specified in the Schedule.
(c) The New Lender becomes a Party as a Lender and is bound by obligations equivalent to those from which the Existing Lender is released under paragraph (b) above.
3. The proposed Transfer Date is [].
4. On the Transfer Date the New Lender becomes Party to the Finance Documents as a Lender.
5. The Facility Office and address, fax number and attention details for notices of the New Lender for the purposes of clause 29.2 (Addresses) are set out in the Schedule.
6. The New Lender expressly acknowledges the limitations on the Existing Lender’s obligations set out in paragraph (c) of clause 20.4 (Limitation of responsibility of Existing Lenders).
7. This Assignment Agreement acts as notice to the Agent (on behalf of each Finance Party) and, upon delivery in accordance with clause 20.7 (Copy of Transfer Certificate or Assignment Agreement), to the Borrower (on behalf of each Obligor) of the assignment referred to in this Assignment Agreement.
8. This Assignment Agreement may be executed in any number of counterparts and this has the same effect as if the signatures on the counterparts were on a single copy of this Assignment Agreement.
9. This Assignment Agreement and any non-contractual obligations arising out of or in connection with it are governed by English law.
10. This Assignment Agreement has been entered into on the date stated at the beginning of this Assignment Agreement.
THE SCHEDULE
Rights to be assigned and obligations to be released and undertaken
[insert relevant details]
[Facility office address, fax number and attention details for notices and account details for payments]
| | | | | |
[Existing Lender] | [New Lender] |
| |
By: | By: |
| |
Branch: [] | Branch: [] |
| |
Branch MEI: [] | Branch MEI: [] |
This Assignment Agreement is accepted by the Agent and the Transfer Date is confirmed as [].
Signature of this Assignment Agreement by the Agent constitutes confirmation by the Agent of receipt of notice of the assignment referred to herein, which notice the Agent receives on behalf of each Finance Party.
[Agent]
By:
schedule 6
Form of Compliance Certificate
To: Barclays Bank PLC
Date: []
Dear Sirs,
We refer to an agreement originally dated 7 November 2019 (as, from time to time, amended, restated, varied, novated or supplemented) and made between Hamilton Re, Ltd. as borrower, Barclays Bank PLC as agent and security agent the financial institutions defined therein as Lenders and others (the “Credit Agreement”).
Terms defined in the Credit Agreement shall bear the same meaning herein.
1. We confirm that as at [insert date], Consolidated Tangible Net Worth was $[].
Therefore as at [insert date], Consolidated Tangible Net Worth was not less than the Consolidated Tangible Net Worth Floor for such fiscal quarter.
| | | | | | | | | | | | | | | | | |
| | Consolidated Tangible Net Worth Floor calculated as of the Restatement Date is: | | | $1,218,932,000 |
| | | | | |
| | Plus 35% of positive Consolidated Net Income for fiscal quarter ended [insert quarter end date] | | | [l] |
| | | | | |
| | Plus 35% of net cash proceeds of the aggregate increases in common Equity Interests (by virtue of net equity issuance, debt conversion or contribution) by the Group, excluding the impact of Equity Interests issued to employees or directors of the Group under its long term incentive plan or share purchase programs | | | [l] |
| | | | | |
| | CONSOLIDATED TANGIBLE NET WORTH FLOOR | | | $[l] |
| | | | | |
2. We confirm that, as at [insert date], the ratio of Debt2 to Consolidated Total Capitalisation is []%.
3. We confirm that, as at [insert date], Cash and Invested Assets was above $1,000,000,000.
4. We confirm that as at [insert date], the A.M. Best Company’s financial strength rating for Hamilton Re, Ltd. was [].
5. We confirm that, as at [insert date], the A.M. Best Company’s financial strength rating for [], being a material insurance subsidiary of Hamilton Insurance Group, Ltd was [].
6. We confirm that, as at [insert date], consolidated Own FAL of the Applicants was [] and (ii) Total FAL was [], and therefore that the requirements of clause 17.1(b) (Financial Condition) were met.
7. We confirm that, as at the date of this certificate, no Default is continuing.
2 For the avoidance of doubt, Debt includes any Disqualified Equity Interest as of the date of determination.
| | | | | |
Executed as a deed by [BORROWER] / | ) |
[GUARANTOR] | ) |
acting by: | ) |
| ) |
| |
| Authorised Signatory / Responsible Officer | |
NOTES:
*If this statement cannot be made, the certificate should identify any Default that is continuing and the steps, if any, being taken to remedy it.
schedule 7
Form of Letter of Credit
| | | | | |
| To: | The Society and the Council of Lloyd’s |
| c/o The Manager, Market Services |
| Fidentia House, Walter Burke Way |
| Chatham Maritime, Chatham |
| Kent ME4 4RN |
Dated: []3
Dear Sirs
Irrevocable Standby Letter of Credit No. []
Re: [Hamilton Corporate Member Limited]/[Ironshore CC(Three) Ltd.] (the “Applicant”)
This Clean Irrevocable Standby Letter of Credit (the “Credit”) is issued by the banks whose names are set out in schedule 1 hereto (the “Issuing Banks”, and each an “Issuing Bank”) in favour of the Society of Lloyd’s (“Lloyd’s”) on the following terms:
1. Subject to the terms hereof, the Issuing Banks shall make payments within two business days of demand on Barclays Bank PLC (the “Agent”) in accordance with paragraph 4 below.
2. Upon a demand being made by Lloyd’s pursuant to paragraph 4 below each Issuing Bank shall pay that proportion of the amount demanded which is equal to the proportion which its Commitment set out in schedule 1 hereto bears to the aggregate Commitments of all the Issuing Banks set out on schedule 1 hereto provided that the obligations of the Issuing Banks under this Credit shall be several and no Issuing Bank shall be required to pay an amount exceeding its Commitments set out in schedule 1 (Issuing Banks’ Commitments) hereto and the Issuing Banks shall not be obliged to make payments hereunder in aggregate exceeding a maximum amount of [amount in dollars/sterling]. Any payment by an Issuing Bank hereunder shall be made in [dollars/sterling] to the Lloyd’s account specified in the demand made by Lloyd’s pursuant to paragraph 4 below.
3. This Credit is effective from [] (the “Commencement Date”) and will expire on the Final Expiration Date. This Credit shall remain in force until we give you not less than four years notice in writing terminating the same on the fourth anniversary of the Commencement Date or on any date subsequent thereto as specified in such notice (the “Final Expiration Date”), our notice to be sent by registered mail for the attention of the Manager, Market Services, at the above address.
4. Subject to paragraph 3 above, the Issuing Banks shall pay to Lloyd’s under this Credit upon presentation of a demand by Lloyd’s on the Agent at [], substantially in the form set out in schedule 2 hereto the amount specified therein (which amount shall not, when aggregated with all other amounts paid by the Issuing Banks to Lloyd’s under this Credit, exceed the maximum amount referred to in paragraph 2 above).
5. The Agent has signed this Credit as agent for disclosed principals and accordingly shall be under no obligation to Lloyd’s hereunder other than in its capacity as an Issuing Bank.
6. All charges are for the Applicant’s account.
3 Date of Letter of Credit.
7. Subject to any contrary indication herein, this Credit is subject to the International Standby Practices - ISP98 (1998 publication - International Chamber of Commerce Publication No. 590).
8. This Credit shall be governed by and interpreted in accordance with English law and the Issuing Banks hereby irrevocably submit to the jurisdiction of the High Court of Justice in England.
9. Each of the Issuing Banks engages with Lloyd’s that demands made under and in compliance with the terms of this Credit will be duly honoured on presentation.
Yours faithfully,
| | | | | |
Signed by BARCLAYS BANK PLC for and | ) |
on behalf of [Name of all Issuing | ) |
Banks including the Agent]: | ) |
| ) |
| By: | |
| |
| Name: | |
| |
| Title | |
Schedule 1
Issuing Banks’ Commitments
| | | | | |
| Name and Address of Issuing Bank | Commitment |
| |
| |
| |
| |
| |
| |
| Total Value | [] |
Schedule 2
Form of Demand
[on Lloyd’s letterhead]
Dear Sir/Madam
THE SOCIETY OF LLOYD’S
TRUSTEE OF
LETTER OF CREDIT NO.
With reference to the above, we enclose for your attention a Bill of Exchange, together with the respective Letter of Credit. Payment should be made by way of CHAPS. The account details are as follows:
| | | | | |
| National Westminster Bank Plc | Sort Code 60-00-01 |
| City of London Office | [Account 13637444/ |
| PO Box 12258 | SWIFT Code: NWBKGB2L |
| 1 Princes Street | IBAN No. GB87NWBK60730140120066] |
| London EC2R 8AP | |
| | | | | |
| Please quote Member Code: |
| |
[] | |
| |
| Yours faithfully | |
| |
| |
|
| for Manager | |
| |
| Market Services | |
| |
| By: | |
| |
| Name: | |
| |
| Title: | |
| |
| |
| Your ref: | |
| |
| Our ref: | MEM/ / / /C911f |
| |
| Extn: | |
BILL OF EXCHANGE
The Society of Lloyd’s
Trustee of
Letter of Credit No.
Please pay in accordance with the terms of the Letter of Credit to our order the amount of $[].
For and on behalf of
Authorised Signatory
Market Services
| | | | | |
| To: | Barclays Bank PLC |
| as the Agent |
schedule 8
Letter of Comfort
[on Lloyd’s letterhead]
Private and confidential
For the attention of:
(1) Hamilton Corporate Member Limited
(2) Ironshore CC (Three) Limited
(3) Barclays Bank PLC as Agent
[Date]
Our reference []
Dear Sirs
Hamilton Corporate Member Limited (“HCML”) and Ironshore CC (Three) Limited (“ICC3”)
- FUNDS AT LLOYD’S
1. We acknowledge that:
(a) HCML, or certain of its affiliates, has or will provide Funds at Lloyd’s (“HCML FAL”) as follows:-
(i) cash and/or investments in an amount of around $31,000,000 held in syndicate funds as the Q2 balance under the terms of HCML’s Premiums Trust Deed (“HCML FIS”);
(ii) an irrevocable letter of credit issued in favour of Lloyd’s by Barclays Bank PLC for the account of HCML, in the maximum amount of $105 million (“HCML LOC FAL”),
to be used to support and stand security for the general business at Lloyd’s of HCML as a continuing member of Lloyd’s;
(b) ICC3, or certain of its affiliates, has or will provide Funds at Lloyd’s (“ICC3 FAL”, together with the HCML FAL, the “FAL”) as follows:
(i) cash and/or investments in an amount of around $339,000,000 (“ICC3 Own FAL”); and
(ii) an irrevocable letter of credit issued in favour of Lloyd’s by Barclays Bank PLC for the account of ICC3, in the maximum amount of $100 million (“ICC3 LOC FAL”),
to be used to support and stand security for the general business at Lloyd’s of ICC3 as a continuing member of Lloyd’s; and
(c) the ICC3 Own FAL has also been made interavailable to provide Funds at Lloyd’s for HCML.
2. You have asked whether, in the event of FAL having to be drawn down or applied in respect of the open underwriting years of account, Lloyd’s would make the drawdown from or application of:
(a) the HCML FAL in the event that the HCML FAL is called upon to meet any Lloyd’s obligations in relation to the 2020, 2021 or 2022 underwriting years of account of Syndicate 4000 in the following order:
(i) first, from ICC3 Own FAL, to the extent made interavailable to HCML, until such funds are exhausted; and
(ii) finally, only once ICC3 Own FAL has been exhausted, from the HCML LOC FAL until such funds are exhausted;
(b) the ICC3 FAL, in the event that the ICC3 FAL is called upon to meet any Lloyd’s obligations in relation to the 2019 underwriting year of account of Syndicate 4000 in the following order:
(i) firstly, from ICC3 Own FAL until such funds are exhausted; and
(ii) finally, only once the ICC3 Own FAL has been exhausted, from the ICC3 LOC FAL until such funds are exhausted.
3. As you are aware, all the FAL are held by Lloyd’s in its capacity as trustee under the relevant trust instrument. Any decision to drawdown or apply any such FAL involves an exercise of discretion in the light of the circumstances prevailing at the time of such decision and thus no binding undertaking can be given now by Lloyd’s as to the order of drawdown or application. However, we confirm that at the time of considering the drawdown or application of the FAL, Lloyd’s will take into account your request that such FAL be drawn down or applied in the order referred to above.
4. Please note that our acknowledgement as to the above order of drawdown is subject to the preparation and execution of the appropriate documentation and submission of the appropriate assets.
5. For the avoidance of doubt, Lloyd’s shall not be responsible to you or any other person for any losses incurred by you or such other person as a consequence of acting in reliance upon this letter.
6. This letter supersedes any prior letter issued by us in relation to Hamilton Corporate Member Limited and Ironshore CC (Three) Limited with respect to the subject matter hereof.
Yours faithfully
Authorised Signatory
The Society & Council of Lloyd’s
Telephone: 01634 392940
Fax: 01634 392366
Email: fal@lloyds.com; michael.goss@lloyds.com
schedule 9
Timetables
Letters of Credit
Delivery of a duly completed Utilisation U-5 (or such shorter time as may be agreed in writing,
Request (clause 3.1 (Delivery of a including by email, by the Agent)
Utilisation Request))
| | | | | | | | |
| | Noon |
| "U" | = | date of utilisation |
| | |
| "U - X" | = | X Business Days prior to date of utilisation |
schedule 10
[***]
CERTAIN CONFIDENTIAL PORTIONS OF THIS SCHEDULE HAVE BEEN OMITTED AND REPLACED WITH “[***]”. SUCH IDENTIFIED INFORMATION HAS BEEN EXCLUDED FROM THIS SCHEDULE BECAUSE IT IS (I) NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO THE COMPANY IF DISCLOSED.
schedule 11
Form of Revocation Notice
IRREVOCABLE STANDBY LETTER OF CREDIT NO xxxxx
THE SOCIETY AND COUNCIL OF LLOYDS
C/O THE MANAGER, MARKET SERVICES,
FIDENTIA HOUSE, WALTER BURKE WAY,
CHATHAM MARITIME, CHATHAM,
KENT, ME4 4RN
GENTLEMEN,
APPLICANT: xxxxxxxxxxx CORPORATE MEMBER NUMBER#
BENEFICIARY: THE SOCIETY & COUNCIL OF LLOYDS
LETTER OF CREDIT AMOUNT: CCY XX,XXXX,XXX.XX
(TWORDS AND FIGURES 00/100 ONLY)
WE ADVISE THAT THE ABOVE LETTER OF CREDIT WILL NOT BE EXTENDED BEYOND 31ST DECEMBER 20XX. PLEASE ACCEPT THIS LETTER AS OUR NOTICE OF NON-RENEWAL.
PLEASE CONFIRM RECEIPT OF THIS NOTICE BY RETURN
TRUST AL L IN ORDER
YOURS FAITHFULLY
| | | | | |
| FOR AND ON BEHALF OF | FOR AND ON BEHALF OF |
| BARCLAYS BANK PLC | BARCLAYS BANK PLC |
| AUTHORISED SIGNATORY | AUTHORISED SIGNATORY |
schedule 12
Form of Increase Confirmation
| | | | | |
| To: | [l] as Agent, [l] as Security Agent, and [l] as Obligors’ Agent |
| |
| From: | [the Increase Lenders] (the “Increase Lenders”) |
| |
| Dated: | |
Hamilton Re, Ltd. –Letter of Credit Facility Agreement originally dated 7 November 2019 (as, from time to time, amended, restated, varied, novated or supplemented) (the “Agreement”)
1. We refer to the Agreement. This agreement shall take effect as an Increase Confirmation for the purpose of the Agreement. Terms defined in the Agreement have the same meaning in this Agreement unless given a different meaning in this agreement.
2. We refer to clause 2.2 (Increase) of the Agreement.
3. The Increase Lenders agree to assume and will assume all of the obligations corresponding to the Commitment(s) specified in the schedule (the “Relevant Commitments”) as if each had been an Original Lender under the Agreement in respect of the Relevant Commitments.
4. The proposed date on which the increase in relation to the Increase Lender and the Relevant Commitment is to take effect (the “Increase Date”) is [l].
5. [On the Increase Date, each Increase Lender which is not already party to the Finance Documents as a Lender (each “New Increase Lender”) shall become party to the relevant Finance Documents as a Lender.]
6. [The Facility Office and address, fax number and attention details for notices to each New Increase Lender for the purposes of clause 29.2 (Addresses) of the Agreement are set out in the schedule.]
7. Each Increase Lender expressly acknowledges the limitations on the Lenders’ obligations referred to in clause 2.2 (Increase) of the Agreement.
8. This agreement may be executed in any number of counterparts and this has the same effect as if the signatures on the counterparts were on a single copy of this agreement.
9. This agreement and any non-contractual obligations arising out of or in connection with it are governed by English law.
10. This agreement has been entered into on the date stated at the beginning of this agreement.
THE SCHEDULE
Relevant Commitment(s)/rights and obligations to be assumed by the Increase Lender
[insert relevant details]
[Facility Office address, fax number and attention details for notices and account details for payments]
[Increase Lender]
By:
This agreement is accepted as an Increase Confirmation for the purposes of the Agreement by the Agent, and the Increase Date is confirmed as [].
| | |
| Agent |
|
| By: |
|
| Security Agent |
|
| By: |
SIGNATURES
[NOT RESTATED]
Facility Agreement - Signature Pages
Signatories to the Amendment and Restatement Agreement
| | | | | |
| THE BORROWER |
| |
| Signed by |
| |
for and on behalf of HAMILTON RE, LTD. |
| |
| By: | /s/ Chad Cundliffe |
| |
| Name: | Chad Cundliffe, Director, CFO & Principal Representative |
| |
| Address: | Wellesley House North |
| 1st Floor |
| 90 Pitts Bay Road |
| Pembroke HM08 |
| Bermuda |
| |
| Fax: | 441-295-5900 |
| |
| Attention: Gemma Carreiro, |
| General Counsel |
[Amendment and Restatement
Agreement Signature Pages]
| | | | | | | | | | | | | | | | | |
| THE GUARANTOR | |
| | | | | |
| Signed by | ) |
| | | | | ) |
for and on behalf of HAMILTON | ) |
| INSURANCE GROUP, LTD. | ) |
| | | | | |
| By: | /s/ Gemma Carreiro | |
| | Name: | | Gemma Carreiro | |
| | Title: | General Counsel | |
| | | | | |
| Address: | Wellesley House North | |
| | 1st Floor | |
| | 90 Pitts Bay Road | |
| | Pembroke HM08 | |
| | Bermuda | |
| | | | | |
| Fax: | 441-295-5900 | |
| | | | | |
| Attention: | Gemma Carreiro, | |
| General Counsel | |
[Amendment and Restatement
Agreement Signature Pages]
| | | | | | | | |
| THE APPLICANTS | |
| | |
| Signed by | Robert Vetch | ) |
| ) |
for and on behalf of HAMILTON | ) |
| CORPORATE MEMBER LIMITED | ) |
| | |
| By: | /s/ Robert Vetch | |
| | |
| Name: | Robert Vetch | |
| | |
| Title: | Chief Financial Officer | |
| | |
| Address: | 8 Frenchurch Place | |
| London | |
| ECM 4AJ | |
| United Kingdom | |
| | |
| Attention: | Nicola Johnson | |
| Legal Department | |
| | |
| Signed by | Robert Vetch | ) |
| | ) |
for an on behalf of IRONSHORE CC | ) |
| (THREE) LIMITED | ) |
| | |
| By: | /s/ Robert Vetch | |
| | |
| Name: | Robert Vetch | |
| | |
| Title: | Chief Financial Officer | |
| | |
| Address: | Level 3, 8 Frenchurch Place | |
| London | |
| ECM 4AJ | |
| United Kingdom | |
| | |
| Attention: | Nicola Johnson | |
| Legal Department | |
[Amendment and Restatement
Agreement Signature Pages]
| | | | | | | | |
| THE LENDERS | |
| | |
Signed for and on behalf of BARCLAYS | ) |
| BANK PLC | ) |
| | ) |
| Signature: | /s/ Alexander Bansak | ) |
| | |
| Name: | Alexander Bansak | |
| | |
| Title: | Director | |
| | |
| Signed by | ) |
| | ) |
for and on behalf of BANK OF | ) |
| MONTREAL, LONDON BRANCH | ) |
| | |
| Signed by | ) |
| | ) |
for and on behalf of BANK OF | ) |
| MONTREAL, LONDON BRANCH | ) |
| | |
| Signed by | ) |
| | ) |
for and on behalf of ING BANK N.V., | ) |
| LONDON BRANCH | ) |
[Amendment and Restatement
Agreement Signature Pages]
| | | | | | | | | | | |
| THE LENDERS | | |
| | |
Signed for and on behalf of BARCLAYS | ) | |
| BANK PLC | ) | |
| ) | |
| Signature: | | ) | |
| | |
| Name: | | | |
| | |
| Title: | | | |
| | |
| Signed by | ) | Richard Pittam, MD |
| ) | /s/ Richard Pittam |
for and on behalf of BANK OF | ) | |
| MONTREAL, LONDON BRANCH | ) | |
| | |
| Signed by | ) | Scott Matthews, CFO |
| ) | /s/ Scott Matthews |
for and on behalf of BANK OF | ) | |
| MONTREAL, LONDON BRANCH | ) | |
| | |
| Signed by | ) | |
| ) | |
for and on behalf of ING BANK N.V., | ) | |
| LONDON BRANCH | ) | |
[Amendment and Restatement
Agreement Signature Pages]
| | | | | | | | | | | | | | |
| THE LENDERS | | | |
| | | | |
Signed for and on behalf of BARCLAYS | ) | | |
| BANK PLC | ) | | |
| ) | | |
| Signature: | | ) | | |
| | | |
| Name: | | | | |
| | | |
| Title: | | | | |
| | | |
| Signed by | ) | | |
| ) | | |
for and on behalf of BANK OF | ) | | |
| MONTREAL, LONDON BRANCH | ) | | |
| | | |
| Signed by | ) | | |
| ) | | |
for and on behalf of BANK OF | ) | | |
| MONTREAL, LONDON BRANCH | ) | | |
| | | |
| Signed by | ) | /s/ M. Sharman | /s/ O. Yu |
| ) | M. Sharman | O. Yu |
for and on behalf of ING BANK N.V., | ) | Managing Director | Director |
| LONDON BRANCH | ) | | |
[Amendment and Restatement
Agreement Signature Pages]
| | | | | | | | |
| THE AGENT | |
| |
Signed for and on behalf of BARCLAYS BANK PLC | ) |
| ) |
| Signature: | /s/ Alexander Bansak | ) |
| |
| Name: | Alexander Bansak | |
| |
| Title: | Director | |
| |
| THE SECURITY AGENT | |
| |
Signed for and on behalf of BARCLAYS | ) |
| BANK PLC | ) |
| | ) |
| Signature: | /s/ Alexander Bansak | ) |
| | |
| Name: | Alexander Bansak | |
| | |
| Title: | Director | |
[Amendment and Restatement
Agreement Signature Pages]
Exhibit 10.16
Execution Version
Letter of Credit Agreement
dated as of August 13, 2021
among
Hamilton Re, Ltd.,
Hamilton Insurance Designated Activity Company,
and
Hamilton Insurance Group, Ltd.,
as Guarantor,
the Lenders from time to time parties hereto,
Bank of Montreal, as L/C Issuer
and
Bank of Montreal,
as Administrative Agent
BMO Capital Markets, as Sole Lead Arranger and Sole Book Runner
| | | | | | | | | | | | | | | | | |
| | | | | Page |
| | | | | |
| ARTICLE I | DEFINITIONS; INTERPRETATION | 1 |
| | | | | |
| Section 1.1 | Definitions | 1 |
| | | | | |
| Section 1.2 | Interpretation | 21 |
| | | | | |
| Section 1.3 | Change in Accounting Principles | 22 |
| | | | | |
| Section 1.4 | Divisions | 22 |
| | | | | |
| Section 1.5 | Exchange Rates; Currency Equivalents | 22 |
| | | | | |
| Section 1.6 | Letter of Credit Amounts | 23 |
| | | | | |
| ARTICLE II | THE LETTER OF CREDIT FACILITY | 23 |
| | | | | |
| Section 2.1 | Letters of Credit | 23 |
| | | | | |
| Section 2.2 | Default Rate | 28 |
| | | | | |
| Section 2.3 | Evidence of Indebtedness | 28 |
| | | | | |
| Section 2.4 | Fees | 28 |
| | | | | |
| Section 2.5 | Place and Application of Payments | 29 |
| | | | | |
| Section 2.6 | Account Debit | 30 |
| | | | | |
| Section 2.7 | Commitment Terminations | 30 |
| | | | | |
| Section 2.8 | Defaulting Lenders | 31 |
| | | | | |
| Section 2.9 | Cash Collateral | 33 |
| | | | | |
| Section 2.10 | Increase Request | 34 |
| | | | | |
| ARTICLE III | TAXES; CHANGE IN CIRCUMSTANCES | 35 |
| | | | | |
| Section 3.1 | Withholding Taxes | 35 |
| | | | | |
| Section 3.2 | Documentary Taxes | 36 |
| | | | | |
| Section 3.3 | Increased Cost and Reduced Return | 36 |
| | | | | |
| Section 3.4 | Lending Offices | 37 |
| | | | | |
| Section 3.5 | Discretion of Lender as to Manner of Funding | 37 |
| | | | | |
| ARTICLE IV | CONDITIONS PRECEDENT | 37 |
| | | | | |
| Section 4.1 | Initial Credit Event | 38 |
| | | | | |
| Section 4.2 | All Credit Events | 39 |
| | | | | |
| ARTICLE V | REPRESENTATIONS AND WARRANTIES | 40 |
| | | | | |
| Section 5.1 | Organization and Qualification | 40 |
| | | | | |
| Section 5.2 | Intentionally Omitted | 40 |
| | | | | |
| Section 5.3 | Authority and Validity of Obligations | 40 |
TABLE OF CONTENTS
(continued)
| | | | | | | | | | | | | | | | | |
| | | | | Page |
| | | | | |
| Section 5.4 | Use of Proceeds; Margin Stock | 41 |
| | | | | |
| Section 5.5 | Financial Reports | 41 |
| | | | | |
| Section 5.6 | No Material Adverse Change | 41 |
| | | | | |
| Section 5.7 | Full Disclosure | 42 |
| | | | | |
| Section 5.8 | Intellectual Property, Franchises, and Licenses | 42 |
| | | | | |
| Section 5.9 | Governmental Authority and Licensing | 42 |
| | | | | |
| Section 5.10 | Good Title | 42 |
| | | | | |
| Section 5.11 | Litigation and Other Controversies | 42 |
| | | | | |
| Section 5.12 | Taxes | 43 |
| | | | | |
| Section 5.13 | Approvals | 43 |
| | | | | |
| Section 5.14 | Affiliate Transactions | 43 |
| | | | | |
| Section 5.15 | Investment Company | 43 |
| | | | | |
| Section 5.16 | ERISA; Plan Assets; Prohibited Transactions | 43 |
| | | | | |
| Section 5.17 | Compliance with Laws | 43 |
| | | | | |
| Section 5.18 | Sanctions; Anti-Money Laundering Laws and Anti-Corruption Laws | 44 |
| | | | | |
| Section 5.19 | Other Agreements | 44 |
| | | | | |
| Section 5.20 | Solvency | 44 |
| | | | | |
| Section 5.21 | First Priority Interest | 44 |
| | | | | |
| ARTICLE VI | AFFIRMATIVE COVENANTS | 44 |
| | | | | |
| Section 6.1 | Maintenance of Business | 44 |
| | | | | |
| Section 6.2 | [Intentionally Omitted] | 45 |
| | | | | |
| Section 6.3 | Taxes and Assessments | 45 |
| | | | | |
| Section 6.4 | Insurance | 45 |
| | | | | |
| Section 6.5 | Financial Reports | 45 |
| | | | | |
| Section 6.6 | Inspection | 47 |
| | | | | |
| Section 6.7 | ERISA | 47 |
| | | | | |
| Section 6.8 | Compliance with Laws | 48 |
| | | | | |
| Section 6.9 | Compliance with Anti-Corruption Laws, Anti-Money Laundering Laws and Sanctions | 48 |
| | | | | |
| Section 6.10 | Use of Proceeds | 48 |
TABLE OF CONTENTS
(continued)
| | | | | | | | | | | | | | | | | |
| | | | | Page |
| | | | | |
| Section 6.11 | Collateral Requirements | 48 |
| | | | | |
| Section 6.12 | Further Assurances | 48 |
| | | | | |
| ARTICLE VII | NEGATIVE COVENANTS | 49 |
| | | | | |
| Section 7.1 | Indebtedness | 49 |
| | | | | |
| Section 7.2 | Liens | 51 |
| | | | | |
| Section 7.3 | Investments | 53 |
| | | | | |
| Section 7.4 | Fundamental Changes | 53 |
| | | | | |
| Section 7.5 | Asset Dispositions | 54 |
| | | | | |
| Section 7.6 | Restricted Payments | 55 |
| | | | | |
| Section 7.7 | Transactions with Affiliates | 55 |
| | | | | |
| Section 7.8 | Accounting Changes; Organizational Documents | 55 |
| | | | | |
| Section 7.9 | No Further Negative Pledges; Restrictive Agreements | 56 |
| | | | | |
| Section 7.10 | Nature of Business | 57 |
| | | | | |
| Section 7.11 | Sale Leasebacks | 57 |
| | | | | |
| Section 7.12 | Use of Proceeds | 57 |
| | | | | |
| Section 7.13 | [Intentionally Omitted] | 58 |
| | | | | |
| Section 7.14 | Financial Covenants | 58 |
| | | | | |
| ARTICLE VIII | EVENTS OF DEFAULT AND REMEDIES | 58 |
| | | | | |
| Section 8.1 | Events of Default | 58 |
| | | | | |
| Section 8.2 | Non Bankruptcy Defaults | 60 |
| | | | | |
| Section 8.3 | Bankruptcy Defaults | 61 |
| | | | | |
| Section 8.4 | Cash Collateral Account | 61 |
| | | | | |
| Section 8.5 | Notice of Default | 62 |
| | | | | |
| ARTICLE IX | ADMINISTRATIVE AGENT | 62 |
| | | | | |
| Section 9.1 | Appointment and Authorization of Administrative Agent | 62 |
| | | | | |
| Section 9.2 | Rights as a Lender | 62 |
| | | | | |
| Section 9.3 | Action by Administrative Agent | 62 |
| | | | | |
| Section 9.4 | Consultation with Experts | 63 |
| | | | | |
| Section 9.5 | Liability of Administrative Agent; Credit Decision | 63 |
| | | | | |
| Section 9.6 | Indemnity | 64 |
TABLE OF CONTENTS
(continued)
| | | | | | | | | | | | | | | | | |
| | | | | Page |
| | | | | |
| Section 9.7 | Resignation of Administrative Agent and Successor Administrative Agent | 64 |
| | | | | |
| Section 9.8 | Designation of Additional Agents | 65 |
| | | | | |
| Section 9.9 | Delegation of Duties | 65 |
| | | | | |
| Section 9.10 | Administrative Agent may File Proofs of Claim | 65 |
| | | | | |
| Section 9.11 | Certain ERISA Matters | 66 |
| | | | | |
| Section 9.12 | Recovery of Erroneous Payments | 67 |
| | | | | |
| Section 9.13 | Authorizations | 68 |
| | | | | |
| ARTICLE X | THE GUARANTEES | 68 |
| | | | | |
| Section 10.1 | The Guarantees | 68 |
| | | | | |
| Section 10.2 | Guarantee Unconditional | 69 |
| | | | | |
| Section 10.3 | Discharge Only upon Payment in Full; Reinstatement in Certain Circumstances | 70 |
| | | | | |
| Section 10.4 | Subrogation | 70 |
| | | | | |
| Section 10.5 | Waivers | 70 |
| | | | | |
| Section 10.6 | Limit on Recovery | 70 |
| | | | | |
| Section 10.7 | Stay of Acceleration | 70 |
| | | | | |
| Section 10.8 | Benefit to Guarantors | 71 |
| | | | | |
ARTICLE XI | MISCELLANEOUS | 71 |
| | | | | |
| Section 11.1 | No Waiver, Cumulative Remedies | 71 |
| | | | | |
| Section 11.2 | Non-Business Days | 71 |
| | | | | |
| Section 11.3 | Survival of Representations | 71 |
| | | | | |
| Section 11.4 | Survival of Indemnity and Certain Other Provisions | 71 |
| | | | | |
| Section 11.5 | Sharing of Set Off | 71 |
| | | | | |
| Section 11.6 | Notices | 72 |
| | | | | |
| Section 11.7 | Counterparts | 73 |
| | | | | |
| Section 11.8 | Successors and Assigns | 73 |
| | | | | |
| Section 11.9 | Participants | 74 |
| | | | | |
| Section 11.10 | Assignments | 74 |
| | | | | |
| Section 11.11 | Amendments | 77 |
| | | | | |
| Section 11.12 | Headings | 78 |
TABLE OF CONTENTS
(continued)
| | | | | | | | | | | | | | | | | |
| | | | | Page |
| | | | | |
| Section 11.13 | Costs and Expenses; Indemnification | 78 |
| | | | | |
| Section 11.14 | Set off | 80 |
| | | | | |
| Section 11.15 | Entire Agreement | 80 |
| | | | | |
| Section 11.16 | Governing Law | 80 |
| | | | | |
| Section 11.17 | Severability of Provisions | 80 |
| | | | | |
| Section 11.18 | Excess Interest | 81 |
| | | | | |
| Section 11.19 | Construction | 81 |
| | | | | |
| Section 11.20 | Lender’s and L/C Issuer’s Obligations Several | 81 |
| | | | | |
| Section 11.21 | Submission to Jurisdiction; Waiver of Venue; Service of Process | 81 |
| | | | | |
| Section 11.22 | Waiver of Jury Trial | 82 |
| | | | | |
| Section 11.23 | USA Patriot Act | 82 |
| | | | | |
| Section 11.24 | Confidentiality | 83 |
| | | | | |
| Section 11.25 | Customary Advertising Material | 83 |
| | | | | |
| Section 11.26 | Judgment Currency | 83 |
| | | | | |
| Section 11.27 | Acknowledgement and Consent to Bail-In of Affected Financial Institutions | 84 |
LETTER OF CREDIT AGREEMENT
This Letter of Credit Agreement is entered into as of August 13, 2021, by and among Hamilton Re, Ltd., an exempted company organized under the laws of Bermuda (the “Company”), Hamilton Insurance Designated Activity Company (“Hamilton Insurance” and together with Hamilton Re, each a “Borrower” and together, the “Borrowers”), Hamilton Insurance Group, Ltd., an exempted company organized under the laws of Bermuda (the “Guarantor”), the several financial institutions from time to time party to this Agreement, as Lenders, Bank of Montreal as L/C Issuer, and Bank of Montreal, as Administrative Agent, as provided herein. All capitalized terms used herein without definition shall have the same meanings ascribed thereto in Section 1.1.
PRELIMINARY STATEMENT
Borrowers have requested, and the Lenders have agreed to extend, certain letters of credit on the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS; INTERPRETATION.
Section 1.1 Definitions. The following terms when used herein shall have the following meanings:
“2021 Stub Period” means December 1, 2021 through December 31, 2021.
“Account Bank” means any “bank” within the meaning of Section 9-102(a)(8) of the NY UCC at which any deposit account constituting a Collateral Account is held, which shall be (a) located in the United States and (b) reasonably acceptable to the Administrative Agent.
“Acquisition” means any transaction or series of related transactions for the purpose of or resulting, directly or indirectly, in (a) the acquisition of all or substantially all of the assets of a Person, or of any business or division of a Person, (b) the acquisition of in excess of 50% of the Equity Interests of any Person (other than a Person that is a Subsidiary), or otherwise causing any Person to become a Subsidiary, or (c) a merger or consolidation or any other combination with another Person (other than a Person that is a Subsidiary) provided that Borrower or the Subsidiary is the surviving entity.
“Adjusted Fair Market Value” means with respect to any Eligible Collateral, an amount equal to the product of the Fair Market Value of such Eligible Collateral and the applicable Advance Rate percentage with respect to such Eligible Collateral as set forth on Schedule 1.1.
“Administrative Agent” means Bank of Montreal, in its capacity as Administrative Agent hereunder, and any successor in such capacity pursuant to Section 9.7.
“Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by Administrative Agent.
“Affected Financial Institution” means (a) any EEA Financial Institution or (b) any UK Financial Institution.
“Affiliate” means any Person directly or indirectly controlling or controlled by, or under direct or indirect common control with, another Person. A Person shall be deemed to control another Person for purposes of this definition if such Person possesses, directly or indirectly, the power to direct, or cause the direction of, the management and policies of the other Person, whether through the ownership of voting securities, common directors, trustees or officers, by contract or otherwise.
“Agreement” means this Letter of Credit Agreement, as the same may be amended, restated, supplemented, or otherwise modified from time to time pursuant to the terms hereof.
“Alternative Currency” means Canadian Dollars, Euro, Sterling and any other currency that is requested by the Borrower and approved by the Administrative Agent and the Lenders at the time of such request.
“Anti-Corruption Laws” means all Laws of any jurisdiction applicable to a Loan Party or any of its Subsidiaries from time to time concerning or relating to bribery or corruption.
“Anti-Money Laundering Laws” means any and all Laws applicable to any Loan Party or its Subsidiaries related to terrorism financing or money laundering, including any applicable provision of the Patriot Act.
“Application” is defined in Section 2.1(b).
“Approved Fund” means any Fund 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.
“Asset Disposition” means the sale, transfer, license, lease or other disposition of any Property (including any disposition of Equity Interests or any disposition by way of a division or plan of division or otherwise) by any Loan Party, and any issuance of Equity Interests by any Subsidiary of the Guarantor to any Person that is not a Loan Party or any Subsidiary thereof.
“Assignment and Acceptance” means an assignment and acceptance entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 11.10), and accepted by Administrative Agent, in substantially the form of Exhibit C or any other form approved by Administrative Agent.
“Attune Disposition” means the sale, transfer, license, lease or other disposition of the Guarantor’s interest in a joint venture known as Attune Holdings LLC.
“Authorized Representative” means those persons shown on the list of officers provided by the Loan Parties pursuant to Section 4.1 or on any update of any such list provided by the
applicable Loan Party to Administrative Agent, or any further or different officers of such Loan Party so named by any Authorized Representative of such Loan Party in a written notice to Administrative Agent.
“Bail-In Action” means the exercise of any Write-Down and Conversion Powers by the applicable Resolution Authority in respect of any liability of an Affected Financial Institution.
“Bail-In Legislation” means (a) with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law, regulation, rule or requirement for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule and (b) with respect to the United Kingdom, Part I of the United Kingdom Banking Act 2009 (as amended from time to time) and any other law, regulation or rule applicable in the United Kingdom relating to the resolution of unsound or failing banks, investment firms or other financial institutions or their affiliates (other than through liquidation, administration or other insolvency proceedings).
“Barclays Agreement” means that certain Letter of Credit Facility Agreement originally dated as of November 7, 2019, as amended and restated on July 2, 2020 and November 4, 2020, between the Guarantor, the Company, as borrower, HCML and ICC3L, as applicants, Barclays Bank PLC, as agent, arranger and issuing bank, and certain other financial institutions, as amended, renewed, extended, refinanced or replaced from time to time.
“Base Rate” means, for any day, the rate per annum equal to the greatest of: (a) the rate of interest announced or otherwise established by Administrative Agent from time to time as its prime commercial rate, or its equivalent, for U.S. Dollar loans to borrowers located in the United States, as in effect on such day, with any change in the Base Rate resulting from a change in said prime commercial rate to be effective as of the date of the relevant change in said prime commercial rate (it being acknowledged and agreed that such rate may not be Administrative Agent’s best or lowest rate) and (b) the sum of (i) the Federal Funds Rate, plus (ii) 1/2 of 1%.
“Beneficial Ownership Certification” means a certification regarding beneficial ownership of the Borrowers as required by 31 C.F.R. § 1010.230 (as amended, modified or supplemented from time to time), in form and substance satisfactory to the applicable Lender.
“Benefit Plan” means any of (a) an “employee benefit plan” (as defined in ERISA) that is subject to Title I of ERISA, (b) a “plan” as defined in and subject to Section 4975 of the Code or (c) any Person whose assets include (for purposes of ERISA Section 3(42) or otherwise for purposes of Title I of ERISA or Section 4975 of the Code) the assets of any such “employee benefit plan” or “plan”.
“Borrowers” is defined in the introductory paragraph of this Agreement.
“Borrowing Base” means with respect to any Borrower on any date of determination, an amount equal to the sum of the Adjusted Fair Market Value of all Eligible Collateral of such Borrower.
“Borrowing Base Certificate” means a certificate substantially in the form of Exhibit D with such changes therein as the Administrative Agent may reasonably request from time to time or another form which is acceptable to the Administrative Agent in its reasonable discretion.
“Business Day” means any day (other than a Saturday or Sunday) on which banks are not authorized or required to close in Chicago, Illinois.
“Canadian Dollar” and “C$” means the lawful currency of Canada.
“Capital Lease” means any lease of Property which in accordance with GAAP is required to be capitalized on the balance sheet of the lessee.
“Cash Collateral Account” is defined in Section 8.4(b).
“Cash Collateralize” means to pledge and deposit with or deliver to Administrative Agent, as collateral for L/C Obligations, cash to be held in a Collateral Account, or, if Administrative Agent and the Lenders shall agree, other credit support, in each case pursuant to documentation in form and substance reasonably satisfactory to Administrative Agent and the Required Lenders. “Cash Collateral” shall have a meaning analogous to the foregoing and shall include the proceeds of such cash collateral and other credit support.
“Cash Equivalents” means, collectively, (a) marketable direct obligations issued or unconditionally guaranteed by the United States or any agency thereof maturing within one hundred twenty (120) days from the date of acquisition thereof, (b) commercial paper maturing no more than one hundred twenty (120) days from the date of creation thereof and currently having the highest rating obtainable from either S&P or Moody’s, (c) certificates of deposit maturing no more than one hundred twenty (120) days from the date of creation thereof issued by commercial banks incorporated under the laws of the United States, each having combined capital, surplus and undivided profits of not less than $500,000,000 and having a rating of “A” or better by a nationally recognized rating agency; provided that the aggregate amount invested in such certificates of deposit shall not at any time exceed $5,000,000 for any one such certificate of deposit and $10,000,000 for any one such bank, or (d) time deposits maturing no more than thirty (30) days from the date of creation thereof with commercial banks or savings banks or savings and loan associations each having membership either in the FDIC or the deposits of which are insured by the FDIC and in amounts not exceeding the maximum amounts of insurance thereunder.
“Change in Law” means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any Law, (b) any change in any Law or in the administration, interpretation or application thereof by any Governmental Authority or (c) the making or issuance of any request, rule, guideline, interpretation or directive (whether or not having the force of law) by any Governmental Authority; provided that notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines or directives thereunder or issued in connection therewith and (y) all requests, rules, guidelines or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities, in each case pursuant to Basel III, shall in each case be deemed to be a “Change in Law”, regardless of the date enacted, adopted or issued.
“Change of Control” means an event or series of events by which:
(a) at any time, the Guarantor shall fail to own, directly or indirectly, 100% of the Equity Interests of the Borrowers; or
(b) any Person or group of Persons (other than any Relevant Holder) acting in concert gains control of the Guarantor.
For purposes of paragraph (b) above, “control” means (i) the power (whether by way of ownership of shares, proxy, contract, agency or otherwise) to: (A) cast, or control the casting of, more than 50% of the votes that might be cast at a general meeting of the Guarantor; or (B) appoint or remove all, or the majority, of the directors or other equivalent officers of the Guarantor; or (C) give directions with respect to the management, operating and financial policies of the Guarantor which the directors or other equivalent officers of the Borrower are obliged to comply with; or (ii) the holding of more than 50% of the Equity Interests of the Guarantor (excluding any part of the Equity Interests that carries no right to participate beyond a specified amount in a distribution of either profits or capital).
For purposes of paragraph (b) above “acting in concert” means, a group of Persons who, pursuant to an agreement or understanding (whether formal or informal), actively co-operate, through the acquisition by any of them, either directly or indirectly, of shares in the Guarantor, to obtain or consolidate control of the Guarantor.
“Closing Date” means the date of this Agreement or such later Business Day upon which each condition described in Section 4.1 shall be satisfied or waived in a manner acceptable to Administrative Agent in its discretion.
“Code” means the Internal Revenue Code of 1986, as amended, and any successor statute thereto.
“Collateral” means, with respect to any Borrower, all property and assets with respect to which a security interest is purported to be granted in favor of the Administrative Agent pursuant to a Security Agreement executed by such Borrower.
“Collateral Account” means, with respect to any Borrower, any account at a Financial Institution as to which such Financial Institution, such Borrower and the Administrative Agent have entered into a Control Agreement.
“Collateral Documents” means the Security Agreements, the Control Agreements, and all other security agreements, pledge agreements, assignments, financing statements and other documents as shall from time to time secure or relate to the Obligations.
“Commitment Fee” is defined in Section 2.4(a).
“Commitments” means, as to any Lender, the obligation of such Lender to issue Letters of Credit issued for the account of a Borrower hereunder in an aggregate Stated Amount at any one time outstanding not to exceed the amount set forth opposite such Lender’s name on Schedule 1 attached hereto and made a part hereof, as the same may be reduced or modified at any time or
from time to time pursuant to the terms hereof. Borrowers and the Lenders acknowledge and agree that the Commitments of the Lenders aggregate $50,000,000 on the date hereof.
“Company” has the meaning given such term in the preamble.
“Consolidated Net Income” means, for any period, an amount equal to the consolidated net income of Guarantor and its Subsidiaries (determined on a consolidated basis in accordance with GAAP) for such period.
“Consolidated Tangible Net Worth” means, as of any date of determination, the total shareholders’ equity of the Guarantor and its Subsidiaries (determined on a consolidated basis in accordance with GAAP), less (a) any minority interest in Subsidiaries, including for the avoidance of doubt, the aggregate principal amount of all outstanding preferred Equity Interests (including without limitation trust preferred securities) of the Group, (b) (to the extent included) any amount shown in respect of goodwill arising only on consolidation or other intangible assets of the Group (including for this purpose syndicate participations) and interests of non-members of the Group in the Guarantor’s Subsidiaries, and (c) any Disqualified Equity Interests.
“Consolidated Indebtedness” means, as of any date of determination with respect to the Guarantor and its Subsidiaries on a consolidated basis without duplication, the sum of all Indebtedness of the Guarantor and its Subsidiaries; provided, however, that (a) Indebtedness which is subject to a Permitted Security, (b) undrawn letters of credit issued (1) under this Agreement to support any Loan Party’s and its Subsidiaries’ insurance obligations, obligations under reinsurance agreements and retrocession agreements and similar risk obligations, (2) under any other letter of credit facility permitted under Section 7.1(c)(i) or (3) for the purpose of providing Funds at Lloyd’s and (c) Indebtedness of any Excluded Subsidiary, in each case, shall be excluded from Consolidated Indebtedness to the extent such Indebtedness is also excluded from “Debt” under the corresponding “Debt to Capitalisation” ratio in the Barclays Agreement (and in the event the Barclays Agreement (or any replacement thereof) is no longer in effect, all such Indebtedness shall be excluded from Consolidated Indebtedness).
“Control Agreement” means, with respect to any Borrower, an agreement between such Borrower, the applicable Financial Institution and the Administrative Agent with respect to any deposit or securities account of such Borrower in which a security interest is purported to be granted to the Administrative Agent pursuant to a Security Agreement in form and substance reasonably acceptable to the Administrative Agent.
“Controlled Group” means all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Loan Parties, are treated as a single employer under Section 414 of the Code.
“Credit Event” means the issuance of, or extension of the expiration date or increase in the Stated Amount of, any Letter of Credit.
“Debtor Relief Laws” means the Bankruptcy Code of the United States of America, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect.
“Default” means any event or condition that constitutes an Event of Default or the occurrence of which would, with the passage of time or the giving of notice, or both, constitute an Event of Default.
“Default Rate” means:
(a) for any Reimbursement Obligation, the sum of 2.0% plus the amounts due under Section 2.1 with respect to such Reimbursement Obligation;
(b) for any Letter of Credit, the sum of 2.0% plus the L/C Fee due under Section 2.4 with respect to such Letter of Credit; and
(c) with respect to any other overdue amount (including overdue interest), the Prime Rate plus 2.00% per annum.
“Defaulting Lender” means, subject to Section 2.8(e), any Lender that (a) has failed to (i) fund all or any portion of an L/C Disbursement within two Business Days of the date such L/C Disbursement was required to be funded hereunder or (ii) pay to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within two Business Days of the date when due, (b) has notified the Company or the Administrative Agent in writing that it does not intend to comply with its funding obligations hereunder, or has made a public statement to that effect, (c) has failed, within three Business Days after written request by the Administrative Agent or the Company, to confirm in writing to the Administrative Agent and the Company that it will comply with its prospective funding obligations hereunder (provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon receipt of such written confirmation by the Administrative Agent and the Company), or (d) has, or has a direct or indirect parent company that has, (i) become the subject of a proceeding under any Debtor Relief Law, (ii) had appointed for it a receiver, custodian, conservator, trustee, administrator, assignee for the benefit of creditors or similar Person charged with reorganization or liquidation of its business or assets, including the Federal Deposit Insurance Corporation or any other state or federal regulatory authority acting in such a capacity or (iii) become the subject of a Bail-in Action; provided that a Lender shall not be a Defaulting Lender solely by virtue of the ownership or acquisition of any equity interest in that Lender or any direct or indirect parent company thereof by a Governmental Authority so long as such ownership interest does not result in or provide such Lender with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Lender (or such Governmental Authority) to reject, repudiate, disavow or disaffirm any contracts or agreements made with such Lender. Any determination by the Administrative Agent that a Lender is a Defaulting Lender under any one or more of clauses (a) through (d) above shall be conclusive and binding absent manifest error, and such Lender shall be deemed to be a Defaulting Lender (subject to Section 2.8(e)) upon delivery of written notice of such determination to the Company and each Lender.
“Designated Jurisdiction” means, at any time, any country, region or territory which is itself the subject or target of any Sanctions.
“Disqualified Equity Interests” means, with respect to any Person, any Equity Interests of such Person that, by their terms (or by the terms of any security or other Equity Interest into
which they are convertible or for which they are exchangeable) or upon the happening of any event or condition:
(a) mature or are mandatorily redeemable (other than solely for Qualified Equity Interests), pursuant to a sinking fund obligation or otherwise (except as a result of a change of control or asset sale so long as any rights of the holders thereof upon the occurrence of a change of control or asset sale event shall be subject to the prior repayment in full in cash of the Loans and all other Obligations (other than contingent indemnification obligations not then due) and the termination of the Commitments),
(b) are redeemable at the option of the holder thereof or may become redeemable following the holder’s exercise of any liquidity or similar rights such as those in Sections 5.3 and 5.4 of the Guarantor’s Shareholders Agreement (other than any redemption solely for Qualified Equity Interests) (except as a result of a change of control or asset sale so long as any rights of the holders thereof upon the occurrence of a change of control or asset sale event shall be subject to the prior Payment in Full in cash of the Obligations ((other than contingent indemnification obligations not then due) and the termination of the Commitments), in whole or in part,
(c) provide for the scheduled payment of dividends in cash, or
(d) are or become convertible into, or exchangeable for, Indebtedness or any other Equity Interests that would constitute Disqualified Equity Interests,
in each case of clauses (a) through (d), prior to the date that is 91 days after the latest scheduled maturity date of the Commitments; provided that if any such Equity Interests are issued pursuant to a plan for the benefit of the Borrower or its Subsidiaries or by any such plan to such officers or employees, such Equity Interests shall not constitute Disqualified Equity Interests solely because they may be required to be repurchased by the Guarantor or its Subsidiaries in order to satisfy applicable statutory or regulatory obligations or as a result of such employee’s termination, death or disability.
Notwithstanding the foregoing provisions of this definition, the Equity Interests of the Guarantor shall not constitute Disqualified Equity Interests solely as a result of Sections 5.3 and 5.4 of the Guarantor’s Shareholders Agreement; provided, however, that in the event the board of directors of the Guarantor elects to have the Guarantor redeem any of its Equity Interests pursuant to Section 5.3(a) of the Guarantor’s Shareholders Agreement (or the Guarantor otherwise enters into arrangements to redeem such Equity Interests in connection with a Special Liquidity Event), then such Equity Interests (and any other Equity Interests of the Guarantor held by any shareholder who elects to participate in any redemption of the Guarantor’s Equity Interests in connection with such Special Liquidity Event) shall immediately constitute Disqualified Equity Interests.
“Dollar Equivalent” means, at any time, (a) with respect to any amount denominated in U.S. Dollars, such amount, and (b) with respect to any amount denominated in an Alternative Currency, the equivalent amount thereof in U.S. Dollars as determined by the Administrative Agent at such time on the basis of the Spot Rate (determined in respect of the most recent Revaluation Date) for the purchase of U.S. Dollars with such Alternative Currency.
“EEA Financial Institution” means (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.
“EEA Member Country” means any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
“EEA Resolution Authority” means any public administrative authority or any person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any credit institution or investment firm established in any EEA Member Country.
“Eligible Assignee” means (a) a Lender, (b) an Affiliate of a Lender, (c) an Approved Fund, and (d) any other Person (other than a natural person) approved by (i) Administrative Agent, and (ii) unless an Event of Default has occurred and is continuing, Company (each such approval not to be unreasonably withheld or delayed); provided that notwithstanding the foregoing, “Eligible Assignee” shall not include a Loan Party or any Loan Party’s Affiliates or Subsidiaries.
“Eligible Collateral” means Collateral of the types set forth on Schedule 1.1 which (a) have the required rating as set forth on Schedule 1.1, (b) are capable of being marked to market on a daily basis and (c) are held in a Collateral Account.
“Environmental Claim” means any investigation, notice, violation, demand, allegation, action, suit, injunction, judgment, order, consent decree, penalty, fine, lien, proceeding or claim (whether administrative, judicial or private in nature) arising (a) pursuant to, or in connection with an actual or alleged violation of, any Environmental Law, (b) in connection with any Hazardous Material, (c) from any abatement, removal, remedial, corrective or response action in connection with a Hazardous Material, Environmental Law or order of a Governmental Authority or (d) from any actual or alleged damage, injury, threat or harm to health, safety, natural resources or the environment.
“Environmental Law” means any current or future Legal Requirement pertaining to (a) the protection of health, safety and the indoor or outdoor environment, (b) the conservation, management or use of natural resources and wildlife, (c) the protection or use of surface water or groundwater, (d) the management, manufacture, possession, presence, use, generation, transportation, treatment, storage, disposal, Release, threatened Release, abatement, removal, remediation or handling of, or exposure to, any Hazardous Material or (e) pollution (including any Release to air, land, surface water or groundwater), and any amendment, rule, regulation, order or directive issued thereunder.
“Equity Interests” means (a) in the case of a corporation, capital stock, (b) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of capital stock, (c) in the case of a partnership, partnership interests (whether general or limited), (d) in the case of a limited liability company, membership
interests, (e) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person and (f) any and all warrants, rights or options to purchase any of the foregoing.
“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute thereto.
“EU Bail-In Legislation Schedule” means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor person), as in effect from time to time.
“Euro” means the lawful currency of the Participating Member States.
“Event of Default” means any event or condition identified as such in Section 8.1.
“Excluded Subsidiaries” means, collectively, (a) Turing Re, Ltd. and (b) any similar Subsidiary whether or not existing on the Closing Date which is a special purpose, bankruptcy remote, Subsidiary of the Guarantor which is formed for the sole purpose of operating as a reinsurance sidecar, provided that (i) such Subsidiary is not included in the consolidated financial statements of the Guarantor, (ii) any Indebtedness of such Subsidiary is nonrecourse to the Guarantor and its other Subsidiaries and (iii) such Subsidiary does not own any Insurance Subsidiary, and “Excluded Subsidiary” means any of them individually.
“Fair Market Value” means (a) with respect to any publicly traded security (other than those set forth in clause (b)) the closing price for such security on the largest exchange on which such security is traded (or if not traded on an exchange, then the average of the closing bid and ask prices quoted over-the-counter) on the date of the determination (as such prices are reported in The Wall Street Journal or if not so reported, in any nationally recognized financial journal or newspaper), (b) with respect to cash, Cash Equivalents and commercial paper, the amounts thereof, and (c) with respect to any Investment (other than those set forth in clauses (a), and (b)), the price for such Investment on the date of calculation obtained from a generally recognized source approved by the Administrative Agent or the most recent bid quotation from such approved source.
“Federal Funds Rate” means, for any day, the rate per annum equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that if such rate is not so published for any day which is a Business Day, the Federal Funds Rate for such day shall be the average of the quotation for such day on such transactions received by the Administrative Agent from three federal funds brokers of recognized standing selected by the Administrative Agent. Notwithstanding the foregoing, if the Federal Funds Rate shall be less than zero, such rate shall be deemed to be zero for purposes of this Agreement.
“Financial Institution” means the Securities Intermediary or Account Bank, as applicable, with respect to any Collateral Account.
“Financial Strength Rating” means, as to any Person, the rating that has been most recently announced by A.M. Best as the “financial strength rating” of such Person.
“Fiscal Year” means the fiscal year of the Guarantor and its Subsidiaries.
“FRB” means the Board of Governors of the Federal Reserve System of the United States.
“Fronting Exposure” means, at any time there is a Defaulting Lender, such Defaulting Lender’s Percentage of the outstanding Letter of Credit Obligations.
“Fund” means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its business.
“GAAP” means generally accepted accounting principles set forth from time to time in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board (or agencies with similar functions of comparable stature and authority within the U.S. accounting profession), which are applicable to the circumstances as of the date of determination.
“Governmental Authority” means the government of the United States or any other nation, or of 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 (including any supra-national bodies such as the European Union or the European Central Bank).
“Group” means the Guarantor and its Subsidiaries from time to time, excluding the Excluded Subsidiaries.
“Guarantor’s Shareholders Agreement” means that certain Amended and Restated Shareholders Agreement, dated as of November 4, 2014, by and among the Guarantor and the other parties thereto, as amended by that certain First Amendment to the Amended and Restated Shareholders Agreement, dated as of March 23, 2018, as further amended by that Second Amendment to the Amended and Restated Shareholders Agreement, dated as of September 21, 2018, and as may be further amended, restated, amended and restated or replaced from time to time. All references in this Agreement to any definition, section or any other provision of the Guarantor’s Shareholders Agreement shall be deemed to refer to the Guarantor’s Shareholders Agreement as in effect on the date hereof and any amendments thereto made in accordance with Section 7.8(b) hereof.
“Hazardous Material” means any substance, chemical, compound, product, solid, gas, liquid, waste, byproduct, pollutant, contaminant or material which is hazardous or toxic, and includes (a) asbestos, polychlorinated biphenyls and petroleum (including crude oil or any fraction thereof) and (b) any material classified or regulated as “hazardous” or “toxic” or words of like import pursuant to an Environmental Law.
“Hazardous Material Activity” means any activity, event or occurrence involving a Hazardous Material, including the manufacture, possession, presence, use, generation,
transportation, treatment, storage, disposal, Release, threatened Release, abatement, removal, remediation, handling of or corrective or response action to any Hazardous Material.
“HCML” means Hamilton Corporate Member Limited, a company organized under the laws of England & Wales.
“Hedge Agreement” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement.
“Hedge Termination Value” means, in respect of any one or more Hedge Agreements, after taking into account the effect of any legally enforceable netting agreement relating to such Hedge Agreements, (a) for any date on or after the date such Hedge Agreements have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Hedge Agreements, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Hedge Agreements (which may include a Lender or any Affiliate of a Lender).
“ICC3L” means Ironshore CC (Three) Limited, a company organized under the laws of England & Wales.
“Indebtedness” means, with respect to any Person at any date and without duplication, the sum of the following:
(a) all obligations of such Person for borrowed money;
(b) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person;
(c) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current ordinary course trade accounts payable, deferred compensation and any purchase price adjustment, earn-out, contingent payment or deferred payment of a similar nature incurred in connection with an acquisition);
(d) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any lien on property owned or acquired by such Person whether or not the Indebtedness secured thereby has been assumed, provided that the amount of Indebtedness of such Person shall be the lesser of (i) the fair market
value of such property at such date of determination (determined in good faith by the Borrower) and (ii) the amount of such Indebtedness of such other Person;
(e) all guarantees by such Person of Indebtedness of others;
(f) all Capital Lease obligations of such Person;
(g) all obligations of such Person under transactions in capital market products;
(h) all reimbursement obligations of such Person in respect of drawn letters of credit, letters of guaranty, bankers’ acceptances and similar credit transactions;
(i) the face amount of all undrawn letters of credit issued under the Barclays Agreement;
(j) any Indebtedness of a partnership in which such Person is a general partner unless such Indebtedness is nonrecourse to such Person;
(k) all contingent liabilities of such Person in connection with the foregoing, except for the undrawn amount of letters of credit issued under credit facilities entered into by the Guarantor or any of its Subsidiaries in support of the regulatory obligations of such Subsidiaries under its reinsurance or retrocession arrangements; and
(l) all obligations of such Person in respect of Disqualified Equity Interests.
“Insurance Regulatory Authority” means, with respect to any Subsidiary of the Guarantor, the insurance department or similar Governmental Authority charged with regulating insurance companies or insurance holding companies, in its jurisdiction of domicile and, to the extent that it has regulatory authority over such Insurance Subsidiary, in each other jurisdiction in which such Insurance Subsidiary conducts business or is licensed to conduct business.
“Insurance Subsidiary” means any Subsidiary of the Guarantor the ability of which to pay dividends is regulated by an Insurance Regulatory Authority or that is otherwise required to be regulated thereby in accordance with the applicable law of its jurisdiction of domicile.
“Investment” means, with respect to any Person, that such Person (a) purchases, owns, invests in or otherwise acquires (in one transaction or a series of transactions), directly or indirectly, any Equity Interests, interests in any partnership or joint venture (including, without limitation, the creation or capitalization of any Subsidiary), evidence of Indebtedness or other obligation or security, substantially all or a portion of the business or assets of any other Person or any other investment or interest whatsoever in any other Person, (b) makes any Acquisition or (c) makes or permits to exist, directly or indirectly, any loans, advances or extensions of credit to, or any investment in cash or by delivery of Property in, any Person.
“Laws” means, collectively, all international, foreign, Federal, state and local statutes, treaties, rules, regulations, ordinances, codes, obligatory government orders, decrees and administrative or judicial precedents or authorities, including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or
administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.
“L/C Disbursement” means a payment made by a Lender pursuant to a Letter of Credit.
“L/C Fee” is defined in Section 2.4.
“L/C Issuer” means Bank of Montreal.
“L/C Obligations” means the aggregate undrawn Stated Amount of all outstanding Letters of Credit and all outstanding Reimbursement Obligations.
“Legal Requirement” means any treaty, convention, statute, law, regulation, ordinance, license, permit, governmental approval, injunction, judgment, order, consent decree or other requirement of any Governmental Authority, whether federal, state, or local.
“Lenders” means and includes Bank of Montreal and the other financial institutions from time to time party to this Agreement, including each assignee Lender pursuant to Section 11.10.
“Lending Office” is defined in Section 3.4.
“Letter of Credit” is defined in Section 2.1(a).
“Lien” means any mortgage, lien, security interest, pledge, charge or encumbrance of any kind in respect of any Property, including the interests of a vendor or lessor under any conditional sale, Capital Lease or other title retention arrangement.
“Loan Documents” means this Agreement, the Security Agreements, the Control Agreements, the Applications, any fee letter entered into in connection with this Agreement, and each other instrument or document to be delivered hereunder or thereunder or otherwise in connection therewith.
“Loan Party” means a Borrower or the Guarantor.
“Material Adverse Effect” means (a) a material adverse change in, or material adverse effect upon, the operations, business, Property, or financial condition of a Loan Party or of the Loan Parties and their Subsidiaries taken as a whole, (b) a material impairment of the ability of any Loan Party to perform its payment and collateral obligations under any Loan Document to which it is a party or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against a Loan Party of any Loan Document to which it is a party or the rights and remedies of Administrative Agent and the Lenders thereunder.
“Material Subsidiaries” means, collectively, each Subsidiary of the Guarantor that is a Loan Party and each other Subsidiary of the Guarantor that is a “significant subsidiary” as such term is defined in Regulation S-X.
“Moody’s” means Moody’s Investors Service, Inc.
“Multiemployer Plan” means a “multiemployer plan” as defined in Section 4001(a)(3) of ERISA that is subject to Title IV of ERISA and to which any Loan Party, Subsidiary or any member of the Controlled Group is making, or is accruing an obligation to make, or has accrued an obligation to make contributions within the preceding seven (7) years.
“Non-Defaulting Lender” means, at any time, each Lender that is not a Defaulting Lender at such time.
“Obligations” means all obligations of Borrowers to pay all Reimbursement Obligations owing under the Applications and Letters of Credit, all interest, fees and charges payable hereunder, and all other payment obligations of each Borrower or any of its Subsidiaries arising under or in relation to any Loan Document, in each case whether now existing or hereafter arising, due or to become due, direct or indirect, absolute or contingent, and howsoever evidenced, held or acquired.
“OFAC” means the United States Department of Treasury Office of Foreign Assets Control.
“OFAC SDN List” means the list of the Specially Designated Nationals and Blocked Persons maintained by OFAC.
“Organizational Documents” means, (a) with respect to any corporation (or comparable foreign entity), the certificate or articles of incorporation, the bylaws and any shareholders’ agreement (or equivalent or comparable constitutive documents); (b) with respect to any company limited by shares (or comparable foreign entity), the certificate of incorporation, the memorandum of association, the bye-laws and any shareholders' agreement (or equivalent or comparable constitutive documents); (c) with respect to any limited liability company (or comparable foreign entity), the certificate or articles of formation or organization and operating agreement or limited liability company agreement (or equivalent or comparable documents); and (d) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity.
“Participating Member State” means any member state of the European Union that has the euro as its lawful currency in accordance with legislation of the European Union relating to Economic and Monetary Union.
“Patriot Act” means the USA Patriot Act (Title III of Pub. L. 107 56 (signed into law October 26, 2001)).
“Payment in Full” means as of any date of determination, (i) the payment in full in cash of all Reimbursement Obligations, together with accrued and unpaid interest thereon; (ii) the Commitments to issue Letters of Credit under this Agreement are terminated, (iii) the termination, expiration or cancellation and return of all outstanding Letters of Credit (other than Letters of Credit that have been Cash Collateralized); and (iv) the payment in full in cash of all fees, reimbursable expenses and other Obligations (other than contingent indemnification obligations
and Reimbursement Obligations in respect of which no claim for payment has yet been asserted by the Person entitled thereto).
“Percentage” means for each Lender, the percentage of the Commitments represented by such Lender’s Commitment or, if the Commitments have been terminated, the percentage held by such Lender of the aggregate principal amount of L/C Obligations then outstanding.
“Permitted Liens” means the Liens permitted pursuant to Section 7.2.
“Permitted Security” means:
(a) any mortgage, charge, pledge, lien or other security interest which:
(i) is entered into in the ordinary course of business of the Guarantor or any of its Subsidiaries and which secure the obligations of the Guarantor (or any of its Subsidiaries) under:
(A) certain insurance, reinsurance or retrocession arrangements to which the Guarantor (or any of its Subsidiaries) is at any time a party; or
(B) certain working capital facilities or letter of credit facilities, including where provided for the purpose of Funds at Lloyd’s or in connection with securing obligations owed by the Guarantor (or any of its Subsidiaries) under, or entered into in accordance with any applicable legal or regulatory requirement that applies in respect of, a reinsurance or retrocession arrangement to which the Guarantor (or any of its Subsidiaries) is at any time a party,
including any Syndicate Arrangements, provided that, (A) the aggregate amount of such Permitted Security under this clause (i) (measured, as to each such Permitted Security permitted under this clause (i), as the greater of the amount secured by such Permitted Security and the fair market value at such time of the assets subject to such Permitted Security) shall not, when added to the aggregate amount of all Permitted Security (measured as set forth in this clause (i) above and without double-counting) incurred pursuant to clauses (i)-(iii) inclusive, of this definition, exceed at any time the lesser of (1) $750,000,000 and (2) the lowest amount permitted under the corresponding “Permitted Security” provisions in the Borrower’s or its Subsidiaries’ Funds at Lloyd’s letter of credit facilities (including, without limitation, the Barclays Agreement) (the “Permitted Security Cap”) at the time of incurrence of any new Permitted Security under this clause (i) and (B) immediately after giving effect to the incurrence of any Permitted Security pursuant to this clause (i), no Event of Default shall have occurred and be continuing;
(ii) is in favor of a custodian or sub-custodian and is granted in respect of the payment of its fees, costs and/or expenses, or its right to be indemnified, pursuant to the terms of a custody agreement or sub-custodian agreement under which any of the assets of the Borrower or any of its Subsidiaries are held;
(iii) is entered into with the prior approval of the Administrative Agent and the Required Lenders; or
(iv) is granted in favor of Lloyd’s and comprises Group Own FAL or is used to secure Group Own FAL.
For the avoidance of doubt, Group Own FAL shall not be counted towards the Permitted Security Cap identified in subsection (a)(i) above.
“Person” means an individual, partnership, corporation, limited liability company, association, trust, unincorporated organization or any other entity or organization, including a government or agency or political subdivision thereof.
“Plan” means any employee pension benefit plan covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Code.
“Platform” means Debt Domain, Intralinks, Syndtrak, DebtX or a substantially similar electronic transmission system.
“Prime Rate” means the rate of interest announced or otherwise established by Administrative Agent from time to time as its prime commercial rate, or its equivalent, for U.S. Dollar loans to borrowers located in the United States, as in effect on any day (it being acknowledged and agreed that such rate may not be Administrative Agent’s best or lowest rate).
“Property” means, as to any Person, all types of real, personal, tangible, intangible or mixed property owned by such Person whether or not included in the most recent balance sheet of such Person and its subsidiaries under GAAP.
“PTE” means a prohibited transaction class exemption issued by the U.S. Department of Labor, as any such exemption may be amended from time to time.
“Qualified Equity Interests” means any Equity Interests that are not Disqualified Equity Interests.
“Reimbursement Obligation” is defined in Section 2.1(c).
“Related Parties” means, with respect to any Person, such Person’s Affiliates and the partners, directors, officers, employees, agents, trustees, administrators, managers, advisors and representatives of such Person and of such Person’s Affiliates.
“Release” means any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, migration, dumping, or disposing into the indoor or outdoor environment, including the abandonment or discarding of barrels, drums, containers, tanks or other receptacles containing or previously containing any Hazardous Material.
“Relevant Holder” means, as of any date of determination, (a) David Siegel and John Overdeck, any of their respective family members and any trusts, family limited partnerships, limited liability companies, or other similar entities created for the benefit of the Persons described in this clause (a) (including Sango Hoken Holdings, LLC and Hopkins Holdings, LLC) or any Affiliates of any of the foregoing and (b) BSOF Master Fund L.P. and any of its Affiliates and
funds or partnerships managed or advised by Blackstone Alternative Solutions L.L.C. or any of its Affiliates but not including, however, any portfolio company of any of the foregoing.
“Required Lenders” means, as of the date of determination thereof, Lenders whose outstanding interests in Letter of Credit Obligations and unused Commitments constitute more than 50% of the sum of the total interests in Letter of Credit Obligations and unused Commitments of the Lenders.
“Rescindable Amount” is defined in Section 2.5(b).
“Responsible Officer” means, as to any Person, the chief executive officer, president, chief financial officer, controller, general counsel, assistant secretary, treasurer or assistant treasurer of such Person or any other officer of such Person designated in writing by the Credit Parties and reasonably acceptable to the Administrative Agent; provided that, to the extent requested thereby, the Administrative Agent shall have received a certificate of such Person certifying as to the incumbency and genuineness of the signature of each such officer. Any document delivered hereunder or under any other Loan Document that is signed by a Responsible Officer of a Person shall be conclusively presumed to have been authorized by all necessary corporate, limited liability company, partnership and/or other action on the part of such Person and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Person.
“Resolution Authority” means an EEA Resolution Authority or, with respect to any UK Financial Institution, a UK Resolution Authority.
“Restricted Payment” means any dividend on, or the making of any payment or other distribution on account of, or the purchase, redemption, retirement or other acquisition (directly or indirectly) of, or the setting apart assets for a sinking or other analogous fund for the purchase, redemption, retirement or other acquisition of, any class of Equity Interests of any Loan Party or any Subsidiary thereof, or the making of any distribution of cash, property or assets to the holders of any Equity Interests of any Loan Party or any Subsidiary thereof on account of such Equity Interests.
“Revaluation Date” means (a) each date of issuance of a Letter of Credit denominated in an Alternative Currency, (b) each date of an amendment of any such Letter of Credit having the effect of increasing the amount thereof (solely with respect to the increased amount) or extending the expiration date of such Letter of Credit, (c) each date of any payment by the L/C Issuer under any Letter of Credit denominated in an Alternative Currency, and (d) such additional dates as the Administrative Agent or the L/C Issuer shall reasonably require.
“Revolving Credit Agreement” is defined in Section 7.1(r).
“S&P” means Standard & Poor’s Financial Services LLC, a part of McGraw Hill Financial and any successor thereto.
“Sanctioned Person” means, at any time, (a) any Person listed in any Sanctions-related list of designated Persons maintained by OFAC (including the OFAC SDN List), the United States Department of State, the United Nations Security Council, the European Union, any European Union member state, Her Majesty’s Treasury of the United Kingdom, or any other relevant
sanctions authority, (b) any Person located, organized or resident in a Designated Jurisdiction or (c) any Person owned or controlled by any such Person or Persons described in clauses (a) or (b) above.
“Sanctions” means all economic or financial sanctions, sectoral sanctions, secondary sanctions or trade embargoes imposed, administered or enforced from time to time by (a) the United States government (including those administered by OFAC or the United States Department of State), or (b) the United Nations Security Council, the European Union, any European Union member state, Her Majesty’s Treasury of the United Kingdom, or any other relevant sanctions authority with jurisdiction over any Loan Party or any of their respective Subsidiaries or Affiliates.
“Securities Intermediary” means any “securities intermediary” within the meaning of Section 8.102(a)(14) of the UCC at which any securities account constituting a Collateral Account is held, which shall be (a) located in the United States and (b) reasonably acceptable to the Administrative Agent.
“Security Agreement” means a Security Agreement substantially in the form of Exhibit E with such changes therein as may be agreed to by the Administrative Agent and any Borrower which may be entered into from time to time between the Administrative Agent and such Borrower.
“Sole Lead Arranger” means BMO Capital Markets Corp.
“Solvent” and “Solvency” mean, with respect to any Person on any date of determination, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including contingent liabilities, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay such debts and liabilities as they mature, (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s property would constitute an unreasonably small capital, and (e) such Person is able to pay its debts and liabilities, contingent obligations and other commitments as they mature in the ordinary course of business. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.
“Special Liquidity Event” has the meaning set forth in the Guarantor’s Shareholders Agreement.
“Spot Rate” for a currency means the rate determined by the Administrative Agent to be the rate quoted by the Administrative Agent as the spot rate for the purchase by the Administrative Agent of such currency with another currency through its principal foreign exchange trading office at approximately 11:00 a.m. on the date two Business Days prior to the date as of which the foreign exchange computation is made; provided that the Administrative Agent may obtain such spot rate from another financial institution designated by the Administrative Agent if the Administrative
Agent does not have as of the date of determination a spot buying rate for any such currency; and provided further the Administrative Agent may use such spot rate quoted on the date as of which the foreign exchange computation is made in the case of any Letter of Credit.
“Stated Amount” means at, any time, (i) if the Letter of Credit is denominated in U.S. Dollars, the maximum amount available to be drawn thereunder (regardless of whether any conditions for drawing could then be met) and (ii) if the Letter of Credit is denominated in an Alternative Currency, the Dollar Equivalent of the maximum amount available to be drawn under the Letter of Credit (regardless of whether any conditions for drawing could then be met).
“Sterling” and “£” mean the lawful currency of the United Kingdom.
“Syndicate Arrangement” means any arrangement (whether pursuant to guarantees, letters of credit or otherwise) entered into by a managing agent at Lloyd’s on behalf of HCML or ICC3L, together with the other members of a syndicate with respect to financing or reinsurance for the purposes of or in connection with the underwriting business carried on by all such members of that syndicate.
“Subordinated Indebtedness” means the collective reference to any Indebtedness incurred by the Guarantor or any of its Subsidiaries that is subordinated in right and time of payment to the Obligations on terms and conditions satisfactory to the Administrative Agent.
“Subsidiary” means, as to any particular parent corporation or organization, any other corporation or organization more than 50% of the outstanding Voting Stock of which is at the time directly or indirectly owned by such parent corporation or organization or by any one or more other entities which are themselves subsidiaries of such parent corporation or organization. Unless otherwise expressly noted herein, the term “Subsidiary” means a Subsidiary of the Guarantor of any of its direct or indirect Subsidiaries.
“Termination Date” means August 13, 2023.
“Term Loan Agreement” means the Term Loan Credit Agreement, dated as of July 26, 2019, by and among the Guarantor, the lenders party thereto, and Wells Fargo Bank, National Association, as administrative agent, as amended, renewed or extended from time to time.
“Threshold Amount” means as of any date of determination, the lesser of (a) five percent (5%) of Consolidated Tangible Net Worth determined as of the last day of the most recently ended fiscal quarter (or the 2021 Stub Period, if applicable), and (b) any similar cross-default threshold as set forth in the Barclays Agreement, which, by way of illustration, is $60,000,000 as of the Closing Date.
“Total Capitalization” means, as of any date of determination, the sum of (i) Consolidated Tangible Net Worth and (ii) Consolidated Indebtedness as of such date.
“UCC” means the Uniform Commercial Code as in effect from time to time in the State of New York.
“UK Financial Institution” means any BRRD Undertaking (as such term is defined under the PRA Rulebook (as amended from time to time) promulgated by the United Kingdom Prudential Regulation Authority) or any person falling within IFPRU 11.6 of the FCA Handbook (as amended from time to time) promulgated by the United Kingdom Financial Conduct Authority, which includes certain credit institutions and investment firms, and certain affiliates of such credit institutions or investment firms.
“UK Resolution Authority” means the Bank of England or any other public administrative authority having responsibility for the resolution of any UK Financial Institution.
“U.S. Dollars” and “$” each means the lawful currency of the United States of America.
“Voting Stock” of any Person means capital stock or other equity interests of any class or classes (however designated) having ordinary power for the election of directors or other similar governing body of such Person, other than stock or other equity interests having such power only by reason of the happening of a contingency.
“Welfare Plan” means a “welfare plan” as defined in Section 3(1) of ERISA.
“Wholly Owned Subsidiary” means a Subsidiary of which all of the issued and outstanding shares of capital stock (other than directors’ qualifying shares as required by law) or other equity interests are owned by a Loan Party and/or one or more Wholly-Owned Subsidiaries within the meaning of this definition.
“Write-Down and Conversion Powers” means, (a) with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule, and (b) with respect to the United Kingdom, any powers of the applicable Resolution Authority under the Bail-In Legislation to cancel, reduce, modify or change the form of a liability of any UK Financial Institution or any contract or instrument under which that liability arises, to convert all or part of that liability into shares, securities or obligations of that person or any other person, to provide that any such contract or instrument is to have effect as if a right had been exercised under it or to suspend any obligation in respect of that liability or any of the powers under that Bail-In Legislation that are related to or ancillary to any of those powers.
Section 1.2 Interpretation. The foregoing definitions are equally applicable to both the singular and plural forms of the terms defined. The words “hereof”, “herein”, and “hereunder” and words of like import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” All references to time of day herein are references to New York, New York, time unless otherwise specifically provided. Where the character or amount of any asset or liability or item of income or expense is required to be determined or any consolidation or other accounting computation is required to be made for the purposes of this Agreement, it shall be done in accordance with GAAP except where such principles are inconsistent with the specific provisions of this Agreement. The term “shall” shall have the same meaning as the term “will”. All incorporation by reference of covenants, terms,
definitions or other provisions from other agreements are incorporated into this Agreement as if such provisions were fully set forth herein, and such incorporation shall include all necessary definitions and related provisions from such other agreements but including only amendments thereto agreed to by the Lenders, and shall survive any termination of such other agreements until Payment in Full. Any reference to any Law shall include all statutory and regulatory provisions consolidating, amending, replacing or interpreting such Law and any reference to any Law or regulation shall, unless otherwise specified, refer to such Law or regulation as amended, modified or supplemented from time to time and any successor law or regulation. References to any document, instrument or agreement (a) shall include all exhibits, schedules and other attachments thereto, (b) shall include all documents, instruments or agreements issued or executed in replacement thereof, to the extent permitted hereby and (c) shall mean such document, instrument or agreement, or replacement or predecessor thereto, as amended, supplemented, restated or otherwise modified from time to time to the extent not otherwise stated herein or prohibited hereby and in effect at any given time.
Section 1.3 Change in Accounting Principles. If, after the date of this Agreement, there shall occur any change in GAAP from those used in the preparation of the financial statements referred to in Section 5.5 and such change shall result in a change in the method of calculation of any financial covenant, standard or term found in this Agreement, either the Company or the Required Lenders may by notice to the Lenders and the Company, respectively, require that the Lenders and the Company negotiate in good faith to amend such covenants, standards, and terms so as equitably to reflect such change in accounting principles, with the desired result being that the criteria for evaluating the financial condition of Loan Parties and their Subsidiaries shall be the same as if such change had not been made. No delay by the Company or the Required Lenders in requiring such negotiation shall limit their right to so require such a negotiation at any time after such a change in accounting principles. Until any such covenant, standard, or term is amended in accordance with this Section 1.3, financial covenants shall be computed and determined in accordance with GAAP in effect prior to such change in accounting principles. Without limiting the generality of the foregoing, the Company shall neither be deemed to be in compliance with any financial covenant hereunder nor out of compliance with any financial covenant hereunder if such state of compliance or noncompliance, as the case may be, would not exist but for the occurrence of a change in accounting principles after the date hereof.
Section 1.4 Divisions. For all purposes under the Loan Documents, in connection with any division or plan of division under Delaware law (or any comparable event under a different jurisdiction’s laws): (a) if any asset, right, obligation or liability of any Person becomes the asset, right, obligation or liability of a different Person, then it shall be deemed to have been transferred from the original Person to the subsequent Person, and (b) if any new Person comes into existence, such new Person shall be deemed to have been organized on the first date of its existence by the holders of its equity interests at such time.
Section 1.5 Exchange Rates; Currency Equivalents.
(a) The Administrative Agent shall determine the Spot Rates as of each Revaluation Date to be used for calculating Dollar Equivalent amounts of Credit Events and L/C Obligations denominated in an Alternative Currency. Such Spot Rates shall become effective as of such Revaluation Date and shall be the Spot Rates employed in converting any amounts between the
applicable currencies until the next Revaluation Date to occur. Except for purposes of financial statements delivered by the Company hereunder or calculating financial covenants hereunder or except as otherwise provided herein, the applicable amount of any currency (other than U.S. Dollars) for purposes of the Loan Documents shall be such Dollar Equivalent amount as so determined by the Administrative Agent.
(b) Wherever in this Agreement in connection with the issuance, amendment or extension of a Letter of Credit, an amount, such as a required minimum or multiple amount, is expressed in U.S. Dollars, but such Letter of Credit is denominated in an Alternative Currency, such amount shall be the relevant Dollar Equivalent of such Alternative Currency amount (rounded to the nearest U.S. Dollar, with 0.5 of a unit being rounded upward), as determined by the Administrative Agent.
Section 1.6 Letter of Credit Amounts. Unless otherwise specified herein, the amount of a Letter of Credit at any time shall be deemed to be the Dollar Equivalent of the Stated Amount of such Letter of Credit in effect at such time.
ARTICLE II
THE LETTER OF CREDIT FACILITY
Section 2.1 Letters of Credit. General Terms. (i) Subject to the terms and conditions hereof the L/C Issuer shall issue standby letters of credit (each a “Letter of Credit”) for the account of a Borrower in U.S. Dollars or in an Alternative Currency in an aggregate undrawn Stated Amount up to $50,000,000; provided that such Borrower’s L/C Obligations shall not exceed such Borrower’s Borrowing Base. Each Letter of Credit shall be issued by the L/C Issuer, and each Lender shall be obligated to reimburse the L/C Issuer for such Lender’s Percentage of the amount of each drawing thereunder and, accordingly, each Letter of Credit shall constitute usage of the Commitment of each Lender pro rata in an amount equal to its Percentage of the L/C Obligations then outstanding.
(ii) The L/C Issuer shall be under no obligation to issue any Letter of Credit if:
(A) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the L/C Issuer from issuing such Letter of Credit, or any Law applicable to the L/C Issuer or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the L/C Issuer shall prohibit or request that the L/C Issuer refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon the L/C Issuer with respect to such Letter of Credit any restriction, reserve or capital requirement (for which the L/C Issuer is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon the L/C Issuer any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which the L/C Issuer in good faith deems material to it;
(B) the issuance of such Letter of Credit would violate one or more policies of the L/C Issuer;
(C) a default of any Lender’s obligations to fund under Section 2.1(c) exists, unless the L/C Issuer has entered into satisfactory arrangements with the Borrowers or such Lender to eliminate the L/C Issuer’s risk with respect to such Lender;
(D) except as otherwise agreed by the Administrative Agent and the L/C Issuer, such Letter of Credit is to be denominated in a currency other than U.S. Dollars or an Alternative Currency; or
(E) any Lender is at that time a Defaulting Lender, unless the L/C Issuer has entered into arrangements, including the delivery of Cash Collateral, satisfactory to the L/C Issuer (in its sole discretion) with the Company or such Lender to eliminate the L/C Issuer’s actual or potential Fronting Exposure (after giving effect to Section 2.8(e)) with respect to the Defaulting Lender arising from either the Letter of Credit then proposed to be issued or that Letter of Credit and all other L/C Obligations as to which the L/C Issuer has actual or potential Fronting Exposure, as it may elect in its sole discretion.
(b) Applications. At any time before the Termination Date, the L/C Issuer shall, upon the receipt of an application duly executed by a Borrower in the form of Exhibit F attached hereto or such other form as specified by the L/C Issuer (each, and “Application”), issue one or more Letters of Credit in U.S. Dollars or an Alternative Currency, in a form satisfactory to the L/C Issuer, with expiration dates no later than 12 months from the date of issuance (or which are cancelable not later than 12 months from the date of issuance and each renewal), in an aggregate Stated Amount as set forth above. Notwithstanding anything contained in any Application to the contrary: (i) Borrower shall pay fees in connection with each Letter of Credit as set forth in Section 2.4, and (ii) if the L/C Issuer is not timely reimbursed for the amount of any drawing under a Letter of Credit on the date such drawing is paid, such Borrower’s obligation to reimburse the L/C Issuer for the amount of such drawing shall bear interest (which such Borrower hereby promises to pay) from and after the date such drawing is paid at a rate per annum equal to the Base Rate plus 2.0% per annum (computed on the basis of a year of 360 days, and the actual number of days elapsed). If a Borrower so requests in any Application, the L/C Issuer may, in its sole discretion, agree to issue a Letter of Credit that has automatic extension provisions (each, an “Auto-Extension Letter of Credit”); provided that any such Auto-Extension Letter of Credit must permit the L/C Issuer to prevent any such extension at least once in each twelve-month period (commencing with the date of issuance of such Letter of Credit) by giving prior notice to the beneficiary thereof not later than a day (the “Non-Extension Notice Date”) in each such twelve-month period to be agreed upon at the time such Letter of Credit is issued. Unless otherwise directed by the L/C Issuer, the Borrower shall not be required to make a specific request to the L/C Issuer for any such extension. Once an Auto-Extension Letter of Credit has been issued, the Lenders shall be deemed to have authorized (but may not require) the L/C Issuer to permit the extension of such Letter of Credit at any time to an expiry date which shall comply with this paragraph; provided, however, that the L/C Issuer shall not permit any such extension if (A) the L/C Issuer has determined that it would not be
permitted, or would have no obligation, at such time to issue such Letter of Credit in its revised form (as extended) under the terms hereof (by reason of the provisions of the last sentence of this clause (b) or otherwise), or (B) it has received notice in writing on or before the day that is 30 days before the Non-Extension Notice Date (1) from the Administrative Agent that the Required Lenders have elected not to permit such extension or (2) from the Administrative Agent, any Lender or a Loan Party that one or more of the applicable conditions specified in Section 4.2 is not then satisfied, and in each such case directing the L/C Issuer not to permit such extension. The L/C Issuer agrees to issue amendments to the Letter(s) of Credit increasing the amount, or extending the expiration date, thereof at the request of a Borrower subject to the conditions of Section 4 and the other terms of this Section 2.1. If any Letter of Credit remains outstanding five Business Days prior to the Termination Date, the applicable Borrower shall provide Cash Collateral to the Administrative Agent in an amount equal to 103% of all outstanding Letter of Credit Obligations no later than the fifth Business Day prior to the Termination Date.
(c) The Reimbursement Obligations. Subject to Section 2.1(b), the obligation of each Borrower to reimburse the L/C Issuer for all drawings under a Letter of Credit (a “Reimbursement Obligation”) shall be governed by the Application related to such Letter of Credit, except that reimbursement shall be made by no later than 12:00 Noon on the date when each drawing is to be paid if Borrower has been informed of such drawing by the L/C Issuer on or before 11:00 a.m. on the date when such drawing is to be paid or, if notice of such drawing is given to such Borrower after 11:00 a.m. on the date when such drawing is to be paid, by no later than 12:00 Noon on the following Business Day, in immediately available funds at Administrative Agent’s principal office in Chicago, Illinois, or such other office as Administrative Agent may designate in writing to Company (who shall thereafter cause to be distributed to the L/C Issuer such amount(s) in like funds). If a Borrower does not make any such reimbursement payment on the date due and the Participating Lenders fund their participations therein in the manner set forth in Section 2.1(e) below, then all payments thereafter received by Administrative Agent in discharge of any of the relevant Reimbursement Obligations shall be distributed in accordance with Section 2.1(e) below. All payments hereunder shall be made in the same currency as the Letter of Credit to which such payment relates or as otherwise specified herein.
(d) Obligations Absolute. Each Borrower’s obligation to reimburse L/C Obligations as provided in subsection (c) of this Section shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement and the relevant Application under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit or this Agreement, or any term or provision therein, (ii) any draft or other document presented under a 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 L/C Issuer under a Letter of Credit against presentation of a draft or other document that does not strictly comply with the terms of such Letter of Credit, (iv) any adverse change in the relevant exchange rates or in the relevant currency markets generally, or (v) 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, or provide a right of setoff against, such Borrower’s obligations hereunder. The responsibility of the L/C Issuer to the Borrowers and each Lender shall be only to determine that the documents (including each demand for payment) delivered under each Letter of Credit in connection with such presentment shall be in conformity in all material respects with such Letter of Credit. None of Administrative Agent,
the Lenders, or the L/C Issuer shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the first sentence of this clause (d)), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any 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 L/C Issuer; provided that the foregoing shall not be construed to excuse the L/C Issuer from liability to a Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by each Borrower to the extent permitted by applicable Law) suffered by such Borrower that are caused by the L/C Issuer’s failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in the absence of gross negligence or willful misconduct on the part of the L/C Issuer (as finally determined by a court of competent jurisdiction), the L/C Issuer shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented which appear on their face to be in substantial compliance with the terms of a Letter of Credit, the L/C Issuer may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit.
(e) The Participating Interests. Each Lender (other than the Lender acting as L/C Issuer in issuing the relevant Letter of Credit), by its acceptance hereof, shall be deemed, without further action by any party hereto, to have unconditionally and irrevocably purchased from the L/C Issuer, and the L/C Issuer shall be deemed, without further action by any party hereto, to have unconditionally and irrevocably sold to each such Lender (a “Participating Lender”), an undivided percentage participating interest (a “Participating Interest”), to the extent of its Percentage, in each Letter of Credit issued by, and each Reimbursement Obligation owed to, the L/C Issuer. Upon any failure by a Borrower to pay any Reimbursement Obligation at the time required on the date the related drawing is to be paid, as set forth in Section 2.1(c) above, or if the L/C Issuer is required at any time to return to a Borrower or to a trustee, receiver, liquidator, custodian or other Person any portion of any payment of any Reimbursement Obligation, each Participating Lender shall, not later than the Business Day it receives a certificate in the form of Exhibit A hereto from the L/C Issuer (with a copy to Administrative Agent) to such effect, if such certificate is received before 1:00 p.m., or not later than 1:00 p.m. the following Business Day, if such certificate is received after such time, pay to Administrative Agent for the account of the L/C Issuer an amount equal to such Participating Lender’s Percentage of such unpaid or recaptured Reimbursement Obligation together with interest on such amount accrued from the date the related payment was made by the L/C Issuer to the date of such payment by such Participating Lender at a rate per annum equal to: (i) from the date the related payment was made by the L/C Issuer to the date two (2) Business Days after payment by such Participating Lender is due hereunder, the Federal Funds Rate for each such day and (ii) from the date two (2) Business Days after the date such payment is due from such Participating Lender to the date such payment is made by such Participating Lender, the Prime Rate in effect for each such day. Each such Participating Lender shall thereafter be entitled to receive its Percentage of each payment received in respect of the relevant Reimbursement Obligation and of interest paid thereon, with the L/C Issuer retaining its
Percentage thereof as a Lender hereunder. The several obligations of the Participating Lenders to the L/C Issuer under this Section 2.1 shall be absolute, irrevocable, and unconditional under any and all circumstances whatsoever and shall not be subject to any set off, counterclaim or defense to payment which any Participating Lender may have or have had against any Loan Party, the L/C Issuer, Administrative Agent, any Lender or any other Person whatsoever. Without limiting the generality of the foregoing, such obligations shall not be affected by any Default or Event of Default or by any reduction or termination of any Commitment of any Lender, and each payment by a Participating Lender under this Section 2.1 shall be made without any offset, abatement, withholding or reduction whatsoever.
(f) Indemnification. The Participating Lenders shall, to the extent of their respective Percentages, indemnify the L/C Issuer (to the extent not reimbursed by the Borrowers) against any cost, expense (including reasonable counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from such L/C Issuer’s gross negligence or willful misconduct) that the L/C Issuer may suffer or incur in connection with any Letter of Credit issued by it. The obligations of the Participating Lenders under this Section 2.1(f) and all other parts of this Section 2.1 shall be unconditional, irrevocable and survive termination of this Agreement and of all Applications, Letters of Credit, and all drafts and other documents presented in connection with drawings thereunder.
(g) Manner of Requesting a Letter of Credit. A Borrower shall provide at least five (5) Business Days’ advance written notice to Administrative Agent of each request for the issuance of a Letter of Credit, such notice in each case to be accompanied by an Application for such Letter of Credit properly completed and executed by such Borrower and, in the case of an extension or amendment or an increase in the amount of a Letter of Credit, a written request therefor, in a form acceptable to Administrative Agent and the L/C Issuer, in each case, together with the fees called for by this Agreement. Administrative Agent shall promptly notify the L/C Issuer of Administrative Agent’s receipt of each such notice (and the L/C Issuer shall be entitled to assume that the conditions precedent to any such issuance, extension, amendment or increase have been satisfied unless notified to the contrary by Administrative Agent or the Required Lenders) and the L/C Issuer shall promptly notify Administrative Agent and the Lenders of the issuance of the Letter of Credit so requested.
(h) Replacement of the L/C Issuer. The L/C Issuer may be replaced at any time by written agreement among Borrowers, Administrative Agent, the replaced L/C Issuer and the successor L/C Issuer. Administrative Agent shall notify the Lenders of any such replacement of the L/C Issuer. At the time any such replacement shall become effective, Borrowers shall pay all unpaid fees accrued for the account of the replaced L/C Issuer. From and after the effective date of any such replacement (i) the successor L/C Issuer shall have all the rights and obligations of the L/C Issuer under this Agreement with respect to Letters of Credit to be issued thereafter and (ii) references herein to the term “L/C Issuer ” shall be deemed to refer to such successor or to any previous L/C Issuer, or to such successor and all previous L/C Issuers, as the context shall require. After the replacement of an L/C Issuer hereunder, the replaced L/C Issuer shall remain a party hereto and shall continue to have all the rights and obligations of an L/C Issuer under this Agreement with respect to Letters of Credit issued by it prior to such replacement, but shall not be required to issue additional Letters of Credit.
Section 2.2 Default Rate. Notwithstanding anything to the contrary contained herein, during the occurrence and continuance of an Event of Default, the Administrative Agent or the Required Lenders may, at their option, by notice to the Borrowers (which notice may be revoked at the option of the Required Lenders notwithstanding any provision of Section 11.11 requiring the consent of “each Lender affected thereby” for reductions in interest rates), declare that (a) all Reimbursement Obligations accrue interest at a rate per annum equal to the applicable Default Rate and (b) to the fullest extent permitted by Law, the outstanding amount of all interest, fees and other Obligations accrue interest at a rate per annum equal to the applicable Default Rate.
Section 2.3 Evidence of Indebtedness. Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of Borrowers to such Lender resulting from each disbursement made by such Lender from time to time, including the amounts of principal and interest payable and paid to such Lender from time to time hereunder.
(b) Administrative Agent shall also maintain accounts in which it will record (i) the amount of each disbursement made with respect to a Letter of Credit and (ii) the amount of any sum received by Administrative Agent hereunder from each Borrower and each Lender’s share thereof.
(c) The entries maintained in the accounts maintained pursuant to paragraphs (a) and (b) above shall be prima facie evidence of the existence and amounts of the Obligations therein recorded; provided, that the failure of Administrative Agent or any Lender to maintain such accounts or any error therein shall not in any manner affect the obligation of any Borrower to repay the Obligations in accordance with their terms. In the event of any conflict between the records maintained by any Lender and the records maintained by the Administrative Agent in such matters, the records of the Administrative Agent shall control in the absence of manifest error.
Section 2.4 Fees. Commitment Fee. The Borrowers agree to pay to the Administrative Agent for the account of each Lender a commitment fee equal to 0.15% on the average daily aggregate amount of the unused Commitments of such Lender during the period from and including the Closing Date to but excluding the date that the Commitments of such Lender terminate. Accrued commitment fees shall be payable on the last day of each March, June, September and December, commencing on the first such date after the Closing Date; provided that all such fees shall be payable on the date on which the Commitments terminate.
(b) Letter of Credit Fees. Each Borrower agrees to pay to the Administrative Agent for the account of each Lender a letter of credit fee with respect to each Letter of Credit, which shall accrue in arrears at 0.40% per annum on the average daily aggregate undrawn amount of all outstanding Letters of Credit (the “L/C Fee”) during the period from and including the Closing Date to but excluding the later of the date on which such Lender’s Commitments terminate and the date on which such Lender ceases to have any L/C Obligations. L/C Fees accrued through and including the last day of each March, June, September and December, commencing on the first such date to occur after the Closing Date; provided that all such fees shall be payable on the date on which the Commitments terminate and any such fees accruing after such date shall be payable on demand.
(c) Administrative Agent Fees. Borrowers shall pay to Administrative Agent, for its own use and benefit, the fees agreed to between Administrative Agent and Borrower in a writing between them.
Section 2.5 Place and Application of Payments. All payments of principal of and interest on the Reimbursement Obligations, and of all other Obligations payable by Borrowers under this Agreement and the other Loan Documents, shall be made by the applicable Borrower to Administrative Agent by no later than 12:00 Noon on the due date thereof at the office of Administrative Agent in Chicago, Illinois (or such other location as Administrative Agent may designate to Borrowers), for the benefit of the Lender(s) entitled thereto. Any payments received after such time shall be deemed to have been received by Administrative Agent on the next Business Day. All such payments shall be made in U.S. Dollars, in immediately available funds at the place of payment, in each case without set off or counterclaim. Administrative Agent will promptly thereafter cause to be distributed like funds relating to the payment of principal or interest on Reimbursement Obligations ratably to the Lenders, and like funds relating to the payment of any other amount payable to any Lender to such Lender, in each case to be applied in accordance with the terms of this Agreement.
(b) Unless Administrative Agent shall have received notice from a Borrower prior to the date on which any payment is due to Administrative Agent for the account of the Lenders hereunder that such Borrower will not make such payment, Administrative Agent may assume that such Borrower has made such payment on such date in accordance herewith and may (but shall not be required to) in reliance upon such assumption, distribute to the applicable Lenders the amount due. With respect to any payment that Administrative Agent makes to any Lender as to which Administrative Agent determines (in its sole and absolute discretion) that any of the following applies (such payment referred to as the “Rescindable Amount”): (1) a Borrower has not in fact made the corresponding payment to Administrative Agent; (2) Administrative Agent has made a payment in excess of the amount(s) received by it from a Borrower either individually or in the aggregate (whether or not then owed); or (3) Administrative Agent has for any reason otherwise erroneously made such payment; then each of the Lenders severally agrees to repay to Administrative Agent forthwith on demand the Rescindable Amount so distributed to such Lender, in immediately available funds 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 Administrative Agent, at the greater of the Federal Funds Rate and a rate determined by Administrative Agent in accordance with banking industry rules on interbank compensation.
(c) Anything contained herein to the contrary notwithstanding, all payments and collections received in respect of the Obligations and all proceeds of the Cash Collateral received, in each instance, by Administrative Agent or any of the Lenders after acceleration or the final maturity of the Obligations or termination of the Commitments as a result of an Event of Default shall be remitted to Administrative Agent and distributed as follows:
(i) first, to payment of that portion of the Obligations constituting fees, indemnities, expenses and other amounts (including fees and disbursements and other charges of counsel payable under Section 11.13 and amounts described in Section 2.4(c)) payable to the Administrative Agent in its capacity as such;
(ii) second, to payment of that portion of the Obligations constituting fees, indemnities and other amounts (other than principal, unpaid Reimbursement Obligations, interest and L/C Fees) payable to the Lenders (including fees and disbursements and other charges of counsel payable under Section 11.13) arising under the Loan Documents, ratably among them in proportion to the respective amounts described in this clause (ii) payable to them;
(iii) third, to payment of that portion of the Obligations constituting accrued and unpaid L/C Fees and charges and interest on the unpaid Reimbursement Obligations, ratably among the Lenders in proportion to the respective amounts described in this clause (iii) payable to them;
(iv) fourth, (A) to payment of that portion of the Obligations constituting unpaid Reimbursement Obligations and (B) to Cash Collateralize that portion of L/C Obligations comprising the undrawn amount of Letters of Credit to the extent not otherwise Cash Collateralized by the Borrowers, ratably among the Lenders in proportion to the respective amounts described in this clause (iv) payable to them; provided that (x) any such amounts applied pursuant to subclause (B) above shall be paid to the Administrative Agent for the account of the Lenders to Cash Collateralize such L/C Obligations, (y) amounts used to Cash Collateralize the aggregate amount of Letters of Credit pursuant to this clause (iv) shall be used to satisfy drawings under such Letters of Credit as they occur and (z) upon the expiration of any Letter of Credit (without any pending drawings), the pro rata share of Cash Collateral shall be distributed in accordance with this clause (iv);
(v) fifth, to the payment in full of all other Obligations, in each case ratably among the Administrative Agent and the Lenders based upon the respective aggregate amounts of all such Obligations owing to them in accordance with the respective amounts thereof then due and payable; and
(vi) finally, the balance, if any, after all Obligations have been indefeasibly paid in full, to the Borrowers or as otherwise required by Law.
(vii) If any amount remains on deposit as Cash Collateral after all Letters of Credit have either been fully drawn or expired (without any pending drawings), such remaining amount shall be applied to the other Obligations, if any, in the order set forth above.
Section 2.6 Account Debit. Each Borrower hereby irrevocably authorizes Administrative Agent to charge any of such Borrower’s deposit accounts maintained with Administrative Agent for the amounts from time to time necessary to pay any then due Obligations; provided that each Borrower acknowledges and agrees that Administrative Agent shall not be under an obligation to do so and Administrative Agent shall not incur any liability to a Borrower or any other Person for Administrative Agent’s failure to do so.
Section 2.7 Commitment Terminations. The Company shall have the right at any time and from time to time, upon five (5) Business Days prior written notice to Administrative Agent
(or such shorter period of time agreed to by Administrative Agent), to terminate the Commitments without premium or penalty and in whole or in part, any partial termination to be (i) in an amount not less than $1,000,000 and (ii) allocated ratably among the Lenders in proportion to their respective Percentages, provided that the Commitments may not be reduced to an amount less than the sum of the aggregate principal amount of L/C Obligations then outstanding. Administrative Agent shall give prompt notice to each Lender of any such termination of the Commitments.
(b) Any termination of the Commitments pursuant to this Section 2.7 may not be reinstated.
Section 2.8 Defaulting Lenders.
(a) Defaulting Lender Adjustments. Notwithstanding anything to the contrary contained in this Agreement, if any Lender becomes a Defaulting Lender, then, until such time as such Lender is no longer a Defaulting Lender, to the extent permitted by applicable Law:
(b) Waivers and Amendments. Such Defaulting Lender’s right to approve or disapprove any amendment, waiver or consent with respect to this Agreement shall be restricted as set forth in the definition of Required Lenders and Section 11.11.
(c) Defaulting Lender Waterfall. Any payment of principal, interest, fees or other amounts received by the Administrative Agent for the account of such Defaulting Lender (whether voluntary or mandatory, at maturity, pursuant to Section 8 or otherwise) or received by the Administrative Agent from a Defaulting Lender pursuant to Section 11.14 shall be applied at such time or times as may be determined by the Administrative Agent as follows: first, to the payment of any amounts owing by such Defaulting Lender to the Administrative Agent hereunder; second, to the payment on a pro rata basis of any amounts owing by such Defaulting Lender to the L/C Issuer hereunder; third, to Cash Collateralize the L/C Issuer’s Fronting Exposure with respect to such Defaulting Lender in accordance with Section 2.9; fourth, if so determined by the Administrative Agent and the Company, to be held in a deposit account and released pro rata in order to Cash Collateralize the L/C Issuer’s future Fronting Exposure with respect to such Defaulting Lender with respect to future Letters of Credit issued under this Agreement, in accordance with Section 2.9; fifth, to the payment of any amounts owing to the Lenders or the L/C Issuer as a result of any judgment of a court of competent jurisdiction obtained by any Lender or the L/C Issuer against such Defaulting Lender as a result of such Defaulting Lender’s breach of its obligations under this Agreement; sixth, so long as no Default or Event of Default exists, to the payment of any amounts owing to the Borrowers as a result of any judgment of a court of competent jurisdiction obtained by the Borrowers against such Defaulting Lender as a result of such Defaulting Lender's breach of its obligations under this Agreement; and seventh, to such Defaulting Lender or as otherwise directed by a court of competent jurisdiction; provided that if (x) such payment is a payment of the principal amount of any Reimbursement Obligations in respect of which such Defaulting Lender has not fully funded its appropriate share, and (y) such Letters of Credit were issued at a time when the conditions set forth in Section 4.2 were satisfied or waived, such payment shall be applied solely to pay the L/C Disbursements owed to, all Non-Defaulting Lenders on a pro rata basis prior to being applied to the payment of any L/C Disbursements owed to, such Defaulting Lender until such time as all funded and unfunded participations in L/C Obligations are held by the Lenders pro rata in accordance with the
Commitments without giving effect to clause (d) below. Any payments, prepayments or other amounts paid or payable to a Defaulting Lender that are applied (or held) to pay amounts owed by a Defaulting Lender or to post Cash Collateral pursuant to this Section shall be deemed paid to and redirected by such Defaulting Lender, and each Lender irrevocably consents hereto.
(d) Commitment and L/C Fees. (i) No Defaulting Lender shall be entitled to receive any Commitment Fee for any period during which that Lender is a Defaulting Lender (and the Borrowers shall not be required to pay any such fee that otherwise would have been required to have been paid to that Defaulting Lender).
(ii) Each Defaulting Lender shall be entitled to receive L/C Fees for any period during which that Lender is a Defaulting Lender only to the extent allocable to its Percentage of the Stated Amount of Letters of Credit for which it has provided Cash Collateral pursuant to Section 2.9.
(iii) With respect to any L/C Fee not required to be paid to any Defaulting Lender pursuant to clause (B) above, the Borrowers shall (x) pay to each Non-Defaulting Lender that portion of any such fee otherwise payable to such Defaulting Lender with respect to such Defaulting Lender’s participation in L/C Obligations that has been reallocated to such Non-Defaulting Lender pursuant to clause (e) below, (y) pay to the L/C Issuer the amount of any such fee otherwise payable to such Defaulting Lender to the extent allocable to the L/C Issuer’s Fronting Exposure to such Defaulting Lender, and (z) not be required to pay the remaining amount of any such fee.
(e) Reallocation of Participations to Reduce Fronting Exposure. All or any part of such Defaulting Lender’s participation in L/C Obligations shall be reallocated among the Non-Defaulting Lenders in accordance with their respective Percentages (calculated without regard to such Defaulting Lender’s Commitment) but only to the extent that such reallocation does not cause the aggregate principal amount of participations in Reimbursement Obligations of any Non-Defaulting Lender to exceed such Non-Defaulting Lender’s Commitment. Subject to Section 11.27, no reallocation hereunder shall constitute a waiver or release of any claim of any party hereunder against a Defaulting Lender arising from that Lender having become a Defaulting Lender, including any claim of a Non-Defaulting Lender as a result of such Non-Defaulting Lender’s increased exposure following such reallocation.
(f) Cash Collateral. If the reallocation described in clause (e) above cannot, or can only partially, be effected, the Borrowers shall, without prejudice to any right or remedy available to it hereunder or under law, Cash Collateralize the L/C Issuer’s Fronting Exposure in accordance with the procedures set forth in Section 2.9.
(g) Defaulting Lender Cure. If the Company, the Administrative Agent and the L/C Issuer agree in writing that a Lender is no longer a Defaulting Lender, the Administrative Agent will so notify the parties hereto, whereupon as of the effective date specified in such notice and subject to any conditions set forth therein (which may include arrangements with respect to any Cash Collateral), that Lender will, to the extent applicable, take such actions as the Administrative Agent may determine to be necessary to cause the funded and unfunded participations in Letters
of Credit to be held pro rata by the Lenders in accordance with the Commitments (without giving effect to paragraph (e) above), whereupon, such Lender will cease to be a Defaulting Lender; provided that no adjustments will be made retroactively with respect to fees accrued or payments made by or on behalf of the Borrowers while that Lender was a Defaulting Lender; and provided, further, that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender’s having been a Defaulting Lender.
(h) New Letters of Credit. So long as any Lender is a Defaulting Lender, the L/C Issuer shall not be required to issue, extend, increase, reinstate or renew any Letter of Credit unless it is satisfied that it will have no Fronting Exposure after giving effect thereto such that the Commitments of the Non-Defaulting Lenders and/or Cash Collateral provided by the applicable Borrower or the Defaulting Lender are at least equal to the Stated Amount of such Letter of Credit, and participating interests in any such newly issued Letter of Credit shall be allocated among non-Defaulting Lenders (and Defaulting Lenders shall not participate therein).
Section 2.9 Cash Collateral. In the event the Borrowers shall have provided Cash Collateral for outstanding Letters of Credit pursuant to Section 2.1(b), 2.8(f), 8.2 or 8.3, the Administrative Agent will establish a separate cash collateral account, which may be a “securities account” (as defined in Section 8-501 of the Uniform Commercial Code as in effect in New York (the “NY UCC”)), in the name and under the sole dominion and control of the Administrative Agent (and, in the case of a securities account, in respect of which the Administrative Agent is the “entitlement holder” (as defined in Section 8-102(a)(7) of the NY UCC)) into which there shall be deposited from time to time such amounts paid to the Administrative Agent as Cash Collateral for the applicable L/C Obligations. As collateral security for the prompt payment in full when due of all reimbursement obligations in respect of L/C Disbursements, all interest thereon, and all other obligations of such Borrower under the Loan Documents whether or not then outstanding or due and payable (such obligations being herein collectively called the “Secured Obligations”), each Borrower hereby pledges and grants to the Administrative Agent, for the benefit of the Lenders and the Administrative Agent as provided herein, a security interest in all of its right, title and interest in and to the Collateral Account and the balances from time to time in the Cash Collateral Account (including the investments and reinvestments therein provided for below). The balances from time to time in the Cash Collateral Account shall not constitute payment of any Secured Obligations until applied by the Administrative Agent as provided herein. Anything in this Agreement to the contrary notwithstanding, funds held in the Cash Collateral Account shall be subject to withdrawal only as provided in this Section 2.9. Amounts on deposit in the Cash Collateral Account shall be invested and reinvested by the Administrative Agent in such short-term investments as the Administrative Agent shall determine in its sole discretion. All such investments and reinvestments shall be held in the name and be under the sole dominion and control of the Administrative Agent and shall be credited to the Cash Collateral Account. At any time, and from time to time, while an Event of Default has occurred and is continuing, the Administrative Agent shall, if instructed by the Required Lenders in their sole discretion, liquidate any such investments and reinvestments and credit the proceeds thereof to the Cash Collateral Account and apply or cause to be applied such proceeds and any other balances in the Cash Collateral Account to the payment of any of the Secured Obligations due and payable. If at any time (i) no Default has occurred and is continuing and (ii) all of the Secured Obligations then due have been paid in full but Letters of Credit remain outstanding, the Administrative Agent shall,
from time to time, at the request of the Company, deliver to the applicable Borrower, against receipt but without any recourse, warranty or representation whatsoever, such of the balances in the Cash Collateral Account as exceed 103% of the aggregate undrawn Stated Amount of all outstanding Letters of Credit. When all of the Secured Obligations shall have been paid in full, all Letters of Credit have expired or been terminated and the Commitments have terminated, the Administrative Agent shall promptly deliver to the applicable Borrower, against receipt but without any recourse, warranty or representation whatsoever, the balances remaining in the Collateral Account.
Section 2.10 Increase Request.
(a) The Company shall have the right at any time prior to the date that is 30 days prior to the Termination Date to increase the aggregate Commitments hereunder by an amount (for all such requests) not exceeding $100,000,000 by adding to this Agreement one or more other Eligible Assignees (which may include any existing Lender, with the consent of such Lender in its sole discretion) (each such bank, a “Supplemental Lender”) with the approval of (x) the Administrative Agent (which approval shall not be unreasonably withheld or delayed); provided that no consent of the Administrative Agent will be required in the case of any such Eligible Assignee that is a Lender or an Affiliate of a Lender and (y) the L/C Issuer (which approval shall not be unreasonably withheld or delayed), provided that each Supplemental Lender shall have entered into an agreement pursuant to which such Supplemental Lender shall undertake a Commitment (or, if such Supplemental Lender is an existing Lender, pursuant to which its Commitment shall be increased).
(b) Required Supplemental Lender Documentation. Each such Supplemental Lender shall enter into an agreement in form and substance satisfactory to the Company and the Administrative Agent pursuant to which such Supplemental Lender shall, as of the effective date of such increase in the Commitments (which shall be a Business Day and, unless the Administrative Agent otherwise agrees, on which no issuance, amendment, renewal or extension of any Letter of Credit is scheduled to occur, each a “Supplemental Commitment Date”), undertake a Commitment (or, if any such Supplemental Lender is an existing Lender, its Commitment shall be in addition to such Lender’s Commitment hereunder on such date) and such Supplemental Lender shall thereupon become (or continue to be) a “Lender” for all purposes hereof.
(c) Conditions to Effectiveness of Increase. Notwithstanding the foregoing, no increase in the aggregate Commitments hereunder pursuant to this Section shall be effective unless:
(i) the Company shall have given the Administrative Agent written notice of any such increase at least three Business Days prior to the applicable Supplemental Commitment Date;
(ii) no Default shall have occurred and be continuing on the applicable Supplemental Commitment Date; and
(iii) each Borrower shall deliver to the Administrative Agent a certificate of such Borrower dated as of the Supplemental Commitment Date signed by a Responsible Officer of such Borrower (x) certifying and attaching the resolutions
adopted by such Borrower approving or consenting to such increase, and (y) certifying that, before and after giving effect to such increase, (A) the representations and warranties contained in this Agreement and the other Loan Documents shall be true and correct in all material respects on and as of the applicable Supplemental Commitment Date with the same force and effect as if made on and as of such date (or, if any such representation or warranty is expressly stated to have been made as of a specific date, as of such specific date); and (B) no Default exists.
(d) Revised Percentages. The Administrative Agent shall promptly notify the Lenders of the new Percentages after giving effect to the Supplemental Commitment.
ARTICLE III
TAXES; CHANGE IN CIRCUMSTANCES.
Section 3.1 Withholding Taxes. Payments Free of Withholding. Except as otherwise required by Law and subject to Section 3.1(b), each payment by a Borrower under this Agreement or the other Loan Documents shall be made without withholding for or on account of any present or future taxes (other than overall net income taxes on the recipient) imposed by or within the jurisdiction in which such Borrower is domiciled, any jurisdiction from which a Borrower makes any payment, or (in each case) any political subdivision or taxing authority thereof or therein. If any such withholding is so required, Borrowers shall make the withholding, pay the amount withheld to the appropriate Governmental Authority before penalties attach thereto or interest accrues thereon, and forthwith pay such additional amount as may be necessary to ensure that the net amount actually received by each Lender and the Administrative Agent free and clear of such taxes (including such taxes on such additional amount) is equal to the amount which that Lender or the Administrative Agent (as the case may be) would have received had such withholding not been made. If Administrative Agent or any Lender pays any amount in respect of any such taxes, penalties or interest, Borrowers shall reimburse Administrative Agent or such Lender for that payment on demand in the currency in which such payment was made. If a Borrower pays any such taxes, penalties or interest, it shall deliver official tax receipts evidencing that payment or certified copies thereof to the Lender or Administrative Agent on whose account such withholding was made (with a copy to Administrative Agent if not the recipient of the original) on or before the thirtieth day after payment.
(b) U.S. Withholding Tax Exemptions. Each Lender that is not a United States person (as such term is defined in Section 7701(a)(30) of the Code) shall submit to the Company and Administrative Agent on or before the date of the initial issuance of a Letter of Credit hereunder or, if later, the date such financial institution becomes a Lender hereunder, two duly completed and signed copies of (i) either Form W 8 BEN (relating to such Lender and entitling it to a complete exemption from withholding under the Code on all amounts to be received by such Lender, including fees, pursuant to the Loan Documents and the Obligations) or Form W-8-ECI (relating to all amounts to be received by such Lender, including fees, pursuant to the Loan Documents and the Obligations) of the United States Internal Revenue Service or (ii) solely if such Lender is claiming exemption from United States withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of “portfolio interest”, a Form W-8-BEN, or any successor form prescribed by the Internal Revenue Service, and a certificate representing that such Lender is not
a bank for purposes of Section 881(c) of the Code, is not a 10 percent shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of a Borrower and is not a controlled foreign corporation related to a Borrower (within the meaning of Section 864(d)(4) of the Code). Thereafter and from time to time, each Lender shall submit to Borrowers and Administrative Agent such additional duly completed and signed copies of one or the other of such forms (or such successor forms as shall be adopted from time to time by the relevant United States taxing authorities) and such other certificates as may be (i) requested by Borrowers in a written notice, directly or through Administrative Agent, to such Lender and (ii) required under then current United States law or regulations to avoid or reduce United States withholding taxes on payments in respect of all amounts to be received by such Lender, including fees, pursuant to the Loan Documents or the Obligations. Upon the request of a Borrower or Administrative Agent, each Lender that is a United States person (as such term is defined in Section 7701(a)(30) of the Code) shall submit to Borrowers and Administrative Agent a certificate to the effect that it is such a United States person.
(c) Inability of Lender to Submit Forms. If any Lender determines, as a result of any change in applicable Law, regulation or treaty, or in any official application or interpretation thereof, that it is unable to submit to Borrowers or Administrative Agent any form or certificate that such Lender is obligated to submit pursuant to subsection (b) of this Section 3.1 or that such Lender is required to withdraw or cancel any such form or certificate previously submitted or any such form or certificate otherwise becomes ineffective or inaccurate, such Lender shall promptly notify Borrowers and Administrative Agent of such fact and the Lender shall to that extent not be obligated to provide any such form or certificate and will be entitled to withdraw or cancel any affected form or certificate, as applicable.
Section 3.2 Documentary Taxes. Borrowers agree to pay on demand any documentary, stamp or similar taxes payable in respect of this Agreement or any other Loan Document, including interest and penalties, in the event any such taxes are assessed, irrespective of when such assessment is made and whether or not any credit is then in use or available hereunder.
Section 3.3 Increased Cost and Reduced Return. If any Change in Law:
(i) shall subject the L/C Issuer or any Lender (or its Lending Office) to any tax, duty or other charge with respect to Letter(s) of Credit, any Reimbursement Obligations owed to it, issuance of a Letter of Credit, or shall change the basis of taxation of payments to the L/C Issuer or any Lender (or its Lending Office) of the principal of or interest on a Letter(s) of Credit, or participations therein or any other amounts due under this Agreement or any other Loan Document in respect of its Letter(s) of Credit, any participation therein, any Reimbursement Obligations owed to it, or its obligation to issue a Letter of Credit, or acquire participations therein (except for changes in the rate of tax on the overall net income of such L/C Issuer, Lender or its Lending Office or imposed by the jurisdiction in which such L/C Issuer’s or Lender’s principal executive office or Lending Office is located); or
(ii) shall impose, modify or deem applicable any reserve, special deposit or similar requirement (including any such requirement imposed by the FRB) against assets of, deposits with or for the account of, or credit extended by, the L/C
Issuer or any Lender (or its Lending Office) or shall impose on the L/C Issuer or any Lender (or its Lending Office) or on the interbank market any other condition affecting the Letter(s) of Credit, or its participation in any thereof, any Reimbursement Obligation owed to it, or its obligation to issue a Letter of Credit;
and the result of any of the foregoing is to increase the cost to the L/C Issuer or such Lender (or its Lending Office) of issuing or maintaining a Letter of Credit or to reduce the amount of any sum received or receivable by the L/C Issuer or such Lender (or its Lending Office) under this Agreement or under any other Loan Document with respect thereto, by an amount deemed by the L/C Issuer or such Lender to be material, then, within 15 days after demand by the L/C Issuer or such Lender (with a copy to Administrative Agent), Borrower shall be obligated to pay to the L/C Issuer or such Lender such additional amount or amounts as will compensate the L/C Issuer or such Lender for such increased cost or reduction.
(b) If the L/C Issuer or any Lender determines that any Change in Law affecting the L/C Issuer or such Lender or any lending office of the L/C Issuer or such Lender or the L/C Issuer’s or such Lender’s holding company, if any, regarding capital or liquidity requirements, has or would have the effect of reducing the rate of return on the L/C Issuer or such Lender’s capital or on the capital of the L/C Issuer’s or such Lender’s holding company, if any, as a consequence of this Agreement, the Commitments of such Lender or the Letters of Credit, to a level below that which the L/C Issuer or such Lender or the L/C Issuer’s or such Lender’s holding company could have achieved but for such Change in Law (taking into consideration the L/C Issuer’s or such Lender’s policies and the policies of the L/C Issuer’s or such Lender’s holding company with respect to capital adequacy), then from time to time the Borrowers will pay to the L/C Issuer or such Lender such additional amount or amounts as will compensate the L/C Issuer or such Lender or the L/C Issuer’s or such Lender’s holding company for any such reduction suffered.
(c) A certificate of the L/C Issuer or a Lender setting forth the amount or amounts necessary to compensate the L/C Issuer or such Lender or its holding company, as the case may be, as specified in paragraph (a) or (b) of this Section and delivered to the Borrowers, shall be conclusive absent manifest error. The Borrowers shall pay the L/C Issuer or such Lender the amount shown as due on any such certificate within 10 days after receipt thereof.
Section 3.4 Lending Offices. Each Lender may, at its option, elect to fund its obligations hereunder, and the L/C Issuer may elect to issue Letters of Credit, at the branch, office or affiliate specified on the appropriate signature page hereof (each a “Lending Office”) or at such other of its branches, offices or affiliates as it may from time to time elect and designate in a written notice to Borrowers and Administrative Agent.
Section 3.5 Discretion of Lender as to Manner of Funding. Notwithstanding any other provision of this Agreement, each Lender shall be entitled to fund and maintain its funding of all or any part of its obligations hereunder in any manner it sees fit.
ARTICLE IV
CONDITIONS PRECEDENT.
Section 4.1 Initial Credit Event. The obligation of the L/C Issuer and each Lender for the initial Credit Event hereunder is subject to satisfaction or waiver by the applicable party of the following conditions precedent:
(a) Administrative Agent shall have received each of the following, in each case duly executed by all applicable parties and in form and substance reasonably satisfactory to Administrative Agent:
(i) this Agreement;
(ii) copies of each Loan Party’s articles of incorporation and bylaws (or comparable organizational documents) and any amendments thereto, certified in each instance by its Secretary or Assistant Secretary;
(iii) copies of resolutions of each Loan Party’s Board of Directors (or similar governing body) authorizing the execution, delivery and performance of this Agreement and the other Loan Documents to which it is a party and the consummation of the transactions contemplated hereby and thereby, together with specimen signatures of the persons authorized to execute such documents on such Loan Party’s behalf, all certified in each instance by its Secretary or Assistant Secretary;
(iv) copies of the certificates of good standing (or comparable certificate of compliance) for each Loan Party (dated no earlier than 30 days prior to the date hereof) from the applicable Governmental Authority of its jurisdiction incorporation or organization;
(v) a list of each Loan Party’s Authorized Representatives;
(vi) the initial fees called for by Section 2.4;
(vii) the favorable written opinion of New York and Bermuda counsel to each Loan Party; provided that no opinion shall be required from Irish counsel to any Loan Party;
(viii) a fully executed Internal Revenue Service Form W-8 for each Loan Party;
(ix) a fully executed Beneficial Ownership Certification;
(x) a Security Agreement and Control Agreement for each Borrower executed by the parties thereto with such number of counterparts as may be requested by the Administrative Agent, together with all other documents as may be necessary or desirable to perfect the Administrative Agent’s security interest in the Collateral;
(xi) a Borrowing Base Certificate for each Borrower executed by an Authorized Representative of such Borrower calculated as of the most recent
Business Day in accordance with the requirements hereof and demonstrating compliance with Section 6.11 with respect to such Borrower;
(xii) a pro forma compliance certificate demonstrating that the Loan Parties are in pro forma compliance with the financial covenants set forth in Section 7.14;
(xiii) satisfactory evidence that there are no Liens on the Collateral Accounts and no financing statements or other similar filings with respect thereto other than Liens permitted under Sections 7.2(a) and (m)
(xiv) a letter from a process agent in form and substance reasonably satisfactory to the Administrative Agent; and
(xv) such other agreements, instruments, documents, certificates, and opinions as Administrative Agent may reasonably request.
(b) Administrative Agent shall have received the initial fees called for by the Loan Documents, together with all other fees, costs and expenses required to be paid by Borrowers at or before closing.
(c) Administrative Agent and its counsel shall have completed all legal, tax and regulatory due diligence, including without limitation all documentation required by bank regulatory authorities under applicable Anti-Corruption Laws and Anti-Money Laundering Laws, the results of which shall be satisfactory to Administrative Agent in its sole discretion.
Section 4.2 All Credit Events. The obligation of the L/C Issuer for any Credit Event (including any initial issuance of a Letter of Credit) hereunder is subject to the following conditions precedent:
(a) each of the representations and warranties set forth herein and in the other Loan Documents shall be and remain true and correct in all material respects as of said time, except to the extent the same expressly relate to an earlier date, in which case such representations and warranties shall be and remain true and correct in all material respects as of such earlier date; provided that any representation and warranty that is already qualified by “material” or “Material Adverse Effect” shall be true and correct in all respects;
(b) no Default or Event of Default shall have occurred and be continuing or would occur as a result of such Credit Event;
(c) the Administrative Agent shall have received a Borrowing Base Certificate calculated as of the most recent Business Day in accordance with the requirements hereof and demonstrating compliance with Section 6.11 with respect to the applicable Borrower;
(d) the Administrative Agent shall have received a duly completed Application for such Letter of Credit together with any fees called for by Section 2.4, and, in the case of an extension or increase in the amount of a Letter of Credit, a written request therefor in a form acceptable to the Administrative Agent together with fees called for by Section 2.4; and
(e) in the case of a Letter of Credit to be denominated in an Alternative Currency, there shall not have occurred any change in national or international financial, political or economic conditions or currency exchange rates or exchange controls which in the reasonable opinion of the Administrative Agent would make it impracticable for such Letter of Credit to be denominated in the relevant Alternative Currency.
Each request for the issuance of, increase in the amount of, or extension of the expiration date of, a Letter of Credit shall be deemed to be a representation and warranty by each Loan Party on the date of such request and issuance, increase or extension as to the facts specified in subsections (a) through (c), both inclusive, of this Section; provided, that the L/C Issuer may continue to issue Letters of Credit, in the sole discretion of the L/C Issuer, notwithstanding the failure of the Loan Parties to satisfy one or more of the conditions set forth above and any such advances so made shall not be deemed a waiver of any Default or Event of Default or other condition set forth above that may then exist.
ARTICLE V
REPRESENTATIONS AND WARRANTIES.
Each Loan Party represents and warrants to Administrative Agent and the Lenders as follows:
Section 5.1 Organization and Qualification. Such Loan Party (a) is duly organized, validly existing, and in good standing under the laws of the jurisdiction in which it is organized, (b) has full and adequate power to own its property and conduct its business as now conducted, and (c) is duly licensed or qualified and in good standing in each jurisdiction in which the nature of the business conducted by it or the nature of the property owned or leased by it requires such licensing or qualifying, except, with respect to this clause (c), where the failure to do so would not have a Material Adverse Effect. No Loan Party is an Affected Financial Institution.
Section 5.2 Intentionally Omitted.
Section 5.3 Authority and Validity of Obligations. Each Loan Party has full right and authority to enter into this Agreement and the other Loan Documents executed by it, and to perform all of its obligations hereunder and under the other Loan Documents executed by it, and with respect to each Borrower, to request Letters of Credit. The Loan Documents have been duly authorized, executed, and delivered by each Loan Party party thereto and constitute valid and binding obligations of such Loan Party enforceable against them in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance or similar laws affecting creditors’ rights generally and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law); and this Agreement and the other Loan Documents do not, nor does the performance or observance by a Loan Party of any of the matters and things herein or therein provided for, (a) contravene or constitute a default under any provision of law or any judgment, injunction, order or decree binding upon such Loan Party or any provision of the organizational documents (e.g., charter, certificate or articles of incorporation and bylaws, certificate or articles of association and operating agreement, partnership agreement, or other similar organizational documents) of such Loan Party, (b) conflict with, contravene or constitute a default under any material indenture or agreement of
or affecting a Loan Party or any of its Property, or (c) result in the creation or imposition of any Lien on any Property of a Loan Party.
Section 5.4 Use of Proceeds; Margin Stock. Each Borrower shall use the Letters of Credit to support its reinsurance obligations. Neither any Borrower nor any Subsidiary is engaged, principally or as one of its important activities, in the business of purchasing or carrying margin stock or in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U of the FRB), and no part of the proceeds of extension of credit made hereunder will be used to purchase or carry any such margin stock or to extend credit to others for the purpose of purchasing or carrying any such margin stock. Margin stock (as hereinabove defined) constitutes less than 25% of the assets of the Borrowers and their Subsidiaries which are subject to any limitation on sale, pledge or other restriction hereunder.
Section 5.5 Financial Reports. The Guarantor has heretofore furnished to the Administrative Agent and Lenders copies of (i) the audited consolidated balance sheets of the Guarantor and its Subsidiaries for the fiscal years ending November 30, 2019 and November 30, 2020 and the related statements of income, shareholders’ equity and cash flows for the fiscal years then ended, together with the opinion of Ernst & Young Ltd. thereon, prepared in accordance with GAAP, (ii) the unaudited consolidated balance sheet of the Guarantor and its Subsidiaries as of the last day of the fiscal quarter ending May 31, 2021, and the related statements of income, shareholders’ equity and cash flows for the partial period then ended, prepared in accordance with GAAP, subject to the absence of notes required by GAAP and normal year-end adjustments, (iii) the audited consolidated balance sheets of the Company and its Subsidiaries for the fiscal years ending November 30, 2019 and November 30, 2020 and the related statements of income, shareholders’ equity and cash flows for the fiscal years then ended, together with the opinion of Ernst & Young Ltd. thereon, prepared in accordance with GAAP, and (iv) the unaudited consolidated balance sheet of the Company and its Subsidiaries as of the last day of the fiscal quarter ending May 31, 2021, and the related statement of income for the partial period then ended, prepared in accordance with GAAP, subject to the absence of notes required by GAAP and normal year-end adjustments. Such financial statements present fairly in all material respects the financial condition of the Guarantor, the Company, their respective Subsidiaries, and the results of their operations and their cash flows, as of the dates and for the periods indicated, unless expressly disclosed to the Administrative Agent and the Lenders in writing to the contrary prior to the Closing Date.
Neither (i) the board of directors of the Guarantor or a committee thereof or an authorized officer of the Guarantor or the Company has concluded that any financial statement previously furnished to the Administrative Agent should no longer be relied upon because of an error, nor (ii) has the Guarantor or the Company been advised by its auditors that a previously issued audit report or interim review cannot be relied on.
Section 5.6 No Material Adverse Change. Since November 30, 2020, there has been no change in the properties, business, operations or condition (financial or otherwise) of the Loan Parties and their Subsidiaries (taken as a whole) except those occurring in the ordinary course of business, none of which individually or in the aggregate could reasonably be expected to have a Material Adverse Effect.
Section 5.7 Full Disclosure. The statements and information furnished to Administrative Agent and the Lenders in connection with the negotiation of this Agreement and the other Loan Documents and the commitments by the Lenders to provide all or part of the financing contemplated hereby (including the pro forma financial statements delivered to the Administrative Agent and the Lenders) do not contain any untrue statements of a material fact or omit a material fact necessary to make the material statements contained herein or therein not misleading, Administrative Agent and the Lenders acknowledging that as to any projections furnished to Administrative Agent and the Lenders, the Loan Parties only represent that the same were prepared on the basis of information and estimates such Loan Party believed to be reasonable at the time furnished. The information included in the Beneficial Ownership Certification, as updated in accordance with Section 6.9(b), is true and correct in all respects.
Section 5.8 Intellectual Property, Franchises, and Licenses. Each Loan Party owns, possesses, or has the right to use all necessary patents, licenses, franchises, trademarks, trade names, trade styles, copyrights, trade secrets, know how, and confidential commercial and proprietary information to conduct their businesses as now conducted, without known conflict with any patent, license, franchise, trademark, trade name, trade style, copyright or other proprietary right of any other Person, except where the failure to own or possess such legal rights would not reasonably be expected to have a Material Adverse Effect.
Section 5.9 Governmental Authority and Licensing. Each Loan Party has received all licenses, permits, and approvals of all Governmental Authorities, if any, necessary to conduct its business, in each case, except where the failure to obtain or maintain the same could not reasonably be expected to have a Material Adverse Effect. No investigation or proceeding is pending or, to the knowledge of a Loan Party, threatened in writing, before or by any Governmental Authority that could reasonably be expected to have a Material Adverse Effect. Each Insurance Subsidiary holds licenses (including licenses or certificates of authority from relevant Insurance Regulatory Authorities), permits or authorizations in all jurisdictions necessary to transact its insurance and reinsurance business (collectively, the “Licenses”), except where the failure to hold such License would not reasonably be expected to have a Material Adverse Effect. (i) No such License is the subject of a proceeding for suspension, revocation or limitation or any similar proceedings, and (ii) no such suspension, revocation or limitation is threatened in writing by any relevant Insurance Regulatory Authority, that, in each instance under (i) and (ii) above, would individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.
Section 5.10 Good Title. The Loan Parties have good and defensible title (or valid leasehold interests) to their assets as reflected on the most recent consolidated balance sheet of the Loan Parties furnished to Administrative Agent and the Lenders (except for sales of assets in the ordinary course of business), subject to no Liens other than such thereof as are permitted by Section 7.2.
Section 5.11 Litigation and Other Controversies. There is no litigation or governmental or arbitration proceeding or labor controversy pending, nor to the knowledge of any Loan Party threatened in writing, against a Loan Party or any Subsidiary or any of their Property which if adversely determined, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.
Section 5.12 Taxes. All material tax returns required to be filed by a Loan Party in any jurisdiction have, in fact, been filed, and all material taxes, assessments, fees, and other governmental charges upon a Loan Party or upon any of its Property, income or franchises, which are shown to be due and payable in such returns, have been paid, except such taxes, assessments, fees and governmental charges, if any, as are being contested in good faith and by appropriate proceedings which prevent enforcement of the matter under contest and as to which adequate reserves established in accordance with GAAP have been provided. The Loan Parties do not know of any proposed additional tax assessment against it for which adequate provisions in accordance with GAAP have not been made on their accounts. Adequate provisions in accordance with GAAP for taxes on the books of each Loan Party have been made for all open years, and for its current fiscal period.
Section 5.13 Approvals. No authorization, consent, license or exemption from, or filing or registration with, any Governmental Authority, nor any approval or consent of any other Person, is or will be necessary to the valid execution, delivery or performance by a Loan Party of any Loan Document, except for such approvals which have been obtained prior to the date of this Agreement and remain in full force and effect.
Section 5.14 Affiliate Transactions. No Loan Party is a party to any contracts or agreements with any of its Affiliates (other than any such contracts or agreements with Wholly- Owned Subsidiaries) on terms and conditions which are less favorable to such Loan Party than would be usual and customary in similar contracts or agreements between Persons not affiliated with each other or otherwise permitted under Section 7.7.
Section 5.15 Investment Company. Neither any Loan Party nor any Material Subsidiary is an “investment company” or a company “controlled” by an “investment company” within the meaning of the Investment Company Act of 1940, as amended.
Section 5.16 ERISA; Plan Assets; Prohibited Transactions. No Loan Party, Subsidiary, or any member of the Controlled Group sponsors, maintains, contributes to, or has any liability (contingent or otherwise) with respect to any Plan or Multiemployer Plan. Neither any Loan Party nor any Subsidiary has any contingent liabilities with respect to any post-retirement benefits under a Welfare Plan, other than liability for continuation coverage described in article 6 of Title I of ERISA.
(b) No Loan Party is an entity deemed to hold “plan assets” within the meaning of 29 C.F.R. § 2510.3-101, as modified by Section 3(42) of ERISA, of an employee benefit plan (as defined in Section 3(3) of ERISA) which is subject to Title I of ERISA or any plan (within the meaning of Section 4975 of the Code) which is subject to Section 4975 of the Code, and neither the execution of this Agreement nor any Credit Event hereunder gives rise to a prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Code. The Loan Parties are not subject to any law, rule or regulation which is substantially similar to the prohibited transaction provisions of Section 406 of ERISA or Section 4975 of the Code.
Section 5.17 Compliance with Laws. Each Loan Party is in compliance with the requirements of all federal, state and local laws, rules and regulations applicable to or pertaining to their Property or business operations (including the Occupational Safety and Health Act of 1970,
the Americans with Disabilities Act of 1990, and laws and regulations establishing quality criteria and standards for air, water, land and toxic or hazardous wastes and substances), where any such noncompliance, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. No Loan Party has received notice to the effect that its operations are not in compliance with any of the requirements of applicable federal, state or local environmental, health, and safety statutes and regulations or is the subject of any governmental investigation evaluating whether any remedial action is needed to respond to a release of any toxic or hazardous waste or substance into the environment, where any such noncompliance or remedial action, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.
Section 5.18 Sanctions; Anti-Money Laundering Laws and Anti-Corruption Laws. No Loan Party or any of its Subsidiaries, any director, officer or employee of the any Loan Party or any if its Subsidiaries, nor, to the knowledge of any Loan Party, any agent or representative of any Loan Party or any of its Subsidiaries, is a Sanctioned Person or currently the subject or target of any Sanctions.
(b) Each Loan Party and each of its Subsidiaries, each of the Loan Parties and their respective directors, officers and employees, and, to the knowledge of the Loan Parties, each of such Loan Party’s and its Subsidiaries’ respective agents and representatives, is in compliance with all applicable Anti-Corruption Laws, Anti-Money Laundering Laws and Sanctions.
(c) Each Loan Party and its Subsidiaries have instituted and maintain in effect policies and procedures reasonably designed to ensure compliance by such Loan Party, its Subsidiaries, and the such Loan Party’s and its Subsidiaries’ respective directors, officers, employees and agents with all applicable Anti-Corruption Laws, Anti-Money Laundering Laws and Sanctions.
Section 5.19 Other Agreements. No Loan Party is in default under the terms of any covenant, indenture or agreement of or affecting such Person or any of its Property, which default if uncured or not waived could reasonably be expected to have a Material Adverse Effect.
Section 5.20 Solvency. The Loan Parties taken in the aggregate are Solvent.
Section 5.21 First Priority Interest. The Administrative Agent, for the benefit of itself, the L/C Issuer and the Lenders, has a first priority (subject only to Liens of the type described in Section 7.2(a) and (m) to the extent set forth in the applicable Control Agreement) perfected security interest in the Collateral pledged by each Borrower pursuant to its respective Security Agreement.
ARTICLE VI
AFFIRMATIVE COVENANTS.
Until such time as Payment in Full has occurred, the Loan Parties covenant and agree that:
Section 6.1 Maintenance of Business. Each Loan Party shall preserve and maintain its existence, except as otherwise provided in Section 7.4. Each Loan Party shall preserve and keep in force and effect all licenses, permits, franchises, approvals, patents, trademarks, trade names, trade styles, copyrights, and other proprietary rights necessary to the proper conduct of its business where the failure to do so could reasonably be expected to have a Material Adverse Effect. Each
Loan Party shall maintain, in full force and effect in all material respects, each and every material license, permit, certification, qualification, approval or franchise issued by any Governmental Authority required for each of them to conduct their respective businesses as presently conducted, except where the failure to do so would not reasonably be expected to have a Material Adverse Effect.
Section 6.2 [Intentionally Omitted].
Section 6.3 Taxes and Assessments. Each Loan Party shall duly pay and discharge all material taxes, rates, assessments, fees, and governmental charges upon or against it or its Property, in each case before the same become delinquent and before penalties accrue thereon, unless and to the extent that the same are being contested in good faith and by appropriate proceedings which prevent enforcement of the matter under contest and adequate reserves are provided therefor.
Section 6.4 Insurance. Each Loan Party shall insure and keep insured with good and responsible insurance companies, all insurable Property owned by it which is of a character usually insured by Persons similarly situated and operating like Properties against loss or damage from such hazards and risks, and in such amounts, as are insured by Persons similarly situated and operating like Properties; and each Loan Party shall insure such other hazards and risks (including business interruption, employers’ and public liability risks) with good and responsible insurance companies as and to the extent usually insured by Persons similarly situated and conducting similar businesses. Each Loan Party shall, upon the request of Administrative Agent, furnish to Administrative Agent and the Lenders a certificate setting forth in summary form the nature and extent of the insurance maintained pursuant to this Section.
Section 6.5 Financial Reports. Each Loan Party shall maintain a standard system of accounting in accordance with GAAP and shall furnish to Administrative Agent, each Lender, and each of their duly authorized representatives such information respecting the business and financial condition of each Loan Party as Administrative Agent or such Lender may reasonably request; and without any request, shall furnish to Administrative Agent and the Lenders, in form and detail reasonably satisfactory to the Administrative Agent (which shall promptly make such information available to the Lenders in accordance with its customary practice):
(a) Annual Financial Statements. As soon as practicable and in any event within 90 days (or, if earlier, on the date of any required public filing thereof) after the end of each Fiscal Year (commencing with the Fiscal Year ended November 30, 2021), (i) an audited consolidated balance sheet of the Guarantor and its Subsidiaries as of the close of such Fiscal Year and audited consolidated statements of income, retained earnings and cash flows including the notes thereto and (ii) an audited consolidated balance sheet of the Company and its Subsidiaries as of the close of such Fiscal Year and audited consolidated statements of income, retained earnings and cash flows including the notes thereto, all in reasonable detail setting forth in comparative form the corresponding figures as of the end of and for the preceding Fiscal Year and prepared in accordance with GAAP and, if applicable, containing disclosure of the effect on the financial position or results of operations of any change in the application of accounting principles and practices during the year. Such annual financial statements shall be audited by Ernst & Young LLP or an independent certified public accounting firm of recognized national standing acceptable to the Administrative Agent, and accompanied by a report thereon by such certified public accountants prepared in
accordance with generally accepted auditing standards that is not subject to any “going concern” or similar qualification or exception or any qualification as to the scope of such audit or with respect to accounting principles followed by the Guarantor, the Company or any of their respective Subsidiaries not in accordance with GAAP.
(b) Quarterly Financial Statements. As soon as practicable and in any event within 60 days (or, if earlier, on the date of any required public filing thereof) after the end of the first three fiscal quarters of each Fiscal Year (commencing with the fiscal quarter ended May 31, 2021), (i) an unaudited consolidated balance sheet of the Guarantor and its Subsidiaries as of the close of such fiscal quarter and unaudited consolidated statements of income, retained earnings and cash flows, including the notes thereto, all in reasonable detail setting forth in comparative form the corresponding figures as of the end of and for the corresponding period in the preceding Fiscal Year and prepared in accordance with GAAP and (ii) an unaudited consolidated balance sheet of the Company and its Subsidiaries as of the close of such fiscal quarter and an unaudited consolidated statement of income, all in reasonable detail setting forth in comparative form the corresponding figures as of the end of and for the corresponding period in the preceding Fiscal Year and prepared in accordance with GAAP, and, in each case of clauses (i) and (ii), such financial statements present fairly in all material respects the financial condition of the Guarantor and its Subsidiaries, as applicable, on a consolidated basis as of their respective dates and the results of operations of the Guarantor and its Subsidiaries, as applicable, for the respective periods then ended, subject to normal year-end adjustments and the absence of footnotes.
(c) 2021 Stub Period Financial Statements. As soon as practicable and in any event within 150 days (or, if earlier, on the date of any required public filing thereof) after the end of the 2021 Stub Period (to align, for the avoidance of doubt and in connection with the 2021 Stub Period only, with the date for the delivery of the quarterly financial statements in respect of the fiscal quarter ended March 31, 2022, as contemplated by Section 6.5(b)), (i) audited consolidated statements of income, retained earnings and cash flows, including any notes thereto, of the Guarantor and its Subsidiaries, prepared in accordance with GAAP and (ii) audited consolidated statements of income, retained earnings and cash flows, including any notes thereto, of the Company and its Subsidiaries, prepared in accordance with GAAP, and, in each case of clauses (i) and (ii), such financial statements present fairly in all material respects the financial condition of the Guarantor and its Subsidiaries, as applicable, on a consolidated basis as of their respective dates and the results of operations of the Guarantor and its Subsidiaries, as applicable, for the 2021 Stub Period.
(d) promptly after receipt thereof, any additional written reports, management letters or other detailed information contained in writing concerning significant aspects of any Loan Party’s operations and financial affairs given to it by its independent public accountants;
(e) promptly after knowledge thereof shall have come to the attention of any responsible officer of a Loan Party, written notice of (i) any threatened in writing or pending litigation or governmental or arbitration proceeding or labor controversy against a Loan Party or any of its Property which, if adversely determined, could reasonably be expected to have a Material Adverse Effect or (ii) the occurrence of any Default or Event of Default hereunder; and
(f) within five Business Days after receipt, notice from any applicable insurance regulatory authority of any threatened in writing or actual proceeding for suspension or revocation of any License or any similar proceeding with respect to any such License;
(g) with each of the financial statements delivered pursuant to subsections (a) and (b) above, a written certificate in the form attached hereto as Exhibit B signed by the chief financial officer of each Loan Party or another officer of such Loan Party acceptable to Administrative Agent to the effect that to the best of such officer’s knowledge and belief no Default or Event of Default has occurred during the period covered by such statements or, if any such Default or Event of Default has occurred during such period, setting forth a description of such Default or Event of Default and specifying the action, if any, taken by such Loan Party to remedy the same. Such certificate shall also set forth the calculations supporting the financial covenants set forth in Section 7.14;
(h) any announcement by A.M. Best of any change in the Financial Strength Rating of the Company;
(i) as soon as available, but in any event within 30 days after the end of each calendar month, (i) a report listing each Borrower’s Eligible Collateral and (ii) a Borrowing Base Certificate executed by a Responsible Officer of each Borrower. For purposes of such report and of completing the Borrowing Base Certificate required under this Section 6.5(i), Eligible Collateral shall be valued based on its Fair Market Value as at the last Business Day of the calendar month for which such report or Borrowing Base Certificate is being delivered;
(j) promptly, at the request of the Administrative Agent, a Borrowing Base Certificate for any given Business Day executed by a Responsible Officer of each Borrower; and
(k) such other documents or information regarding the operations, business affairs and financial condition of any Loan Party as the Administrative Agent or any Lender may reasonably request.
Section 6.6 Inspection. Each Loan Party shall permit Administrative Agent, each Lender, and each of their duly authorized representatives and agents to visit and inspect any of its Property, corporate books, and financial records, to examine and make copies of its books of accounts and other financial records, and to discuss its affairs, finances, and accounts with, and to be advised as to the same by, its officers, employees and independent public accountants (and by this provision each Loan Party hereby authorizes such accountants to discuss with Administrative Agent and such Lenders, the finances and affairs of such Loan Party) at such reasonable times and intervals as Administrative Agent or any such Lender may designate and, so long as no Default or Event of Default exists, with reasonable prior notice to such Loan Party; provided that except during the continuance of an Event of Default the Administrative Agent shall not exercise such rights described in this Section 6.6 more than once per calendar year
Section 6.7 ERISA. No Loan Party, Subsidiary, or member of the Controlled Group shall, establish, sponsor, maintain, contribute to, or have any liability (contingent or otherwise) with respect to any Plan, Multiemployer Plan. No Loan Party or any Subsidiary shall have any
liability (contingent or otherwise) with respect to any post-retirement Welfare Plan benefit, other than liability for continuation coverage described in article 6 of Title I of ERISA.
Section 6.8 Compliance with Laws. Each Loan Party shall comply in all respects with the requirements of all federal, state, and local laws, rules, regulations, ordinances and orders applicable to or pertaining to its Property or business operations, where any such non-compliance, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect or result in a Lien upon any of its Property.
Section 6.9 Compliance with Anti-Corruption Laws, Anti-Money Laundering Laws and Sanctions.
(a) Each Loan Party and its Subsidiaries shall at all times comply with the requirements of all Anti-Corruption Laws, Anti-Money Laundering Laws and Sanctions applicable to such Loan Party and each of its and their respective Subsidiaries to comply with the requirements of all Anti-Corruption Laws, Anti-Money Laundering Laws and Sanctions applicable to such Persons.
(b) Each Loan Party shall provide Administrative Agent and the Lenders (i) upon request of the Administrative Agent or a Lender, any information regarding such Loan Party and each of its respective owners, Affiliates, and Subsidiaries necessary for Administrative Agent and the Lenders to comply with all applicable Anti-Corruption Laws, Anti-Money Laundering Laws and Sanctions; subject however, in the case of Affiliates, to such Loan Party’s ability to provide information applicable to them and (ii) without limiting the foregoing, notification of any change in the information provided in the Beneficial Ownership Certification that would result in a change to the list of beneficial owners identified therein.
(c) Each Loan Party will maintain in effect and enforce policies and procedures reasonably designed to ensure compliance by such Loan Party’s and its Subsidiaries’ respective directors, officers, employees and agents with applicable Anti-Corruption Laws, Anti Money-Laundering Laws and Sanctions.
Section 6.10 Use of Proceeds. Borrowers shall use the credit extended under this Agreement solely for the purposes set forth in, or otherwise permitted by, Section 5.4.
Section 6.11 Collateral Requirements. (a) Each Borrower shall cause such Borrower’s Borrowing Base at all times to be equal to or greater than such Borrower’s Letter of Credit Obligations. If at any time a Borrower’s Borrowing Base is less than such Borrower’s Letter of Credit Obligations, such Borrower will immediately (and in any event within two Business Days) deposit into its Collateral Account Eligible Collateral or reduce its Letter of Credit Obligations, or a combination of the foregoing, in an amount sufficient to eliminate such excess. At any time an Event of Default has occurred and is continuing, at the request of the Administrative Agent, such Borrower will take such actions as may be necessary to ensure that its Collateral consists solely of cash and Cash Equivalents.
Section 6.12 Further Assurances. Promptly upon the request of the Administrative Agent, each Borrower shall execute, acknowledge, deliver and record and do any and all such further acts and deeds as the Administrative Agent may reasonably request from time to time (i) to effectuate the transactions contemplated by the Loan Documents and (ii) in order to ensure that
the Obligations of such Borrower are secured by a first priority (subject only to Liens described in Sections 7.02(a) and (m)) perfected interest in the assets of such Borrower stated to be pledged pursuant to its Security Agreement and to perfect and maintain the validity, effectiveness and priority of its Security Agreement and the Liens intended to be created thereby. Notwithstanding any provision of a Control Agreement to the contrary, without the prior written consent of the Administrative Agent, no Borrower shall give directions or entitlement orders, as applicable, to the Financial Institution party to any applicable Control Agreement to make a delivery to such Borrower or any other Person of assets or properties (other than dividends and interest on the Eligible Collateral) from such Borrower’s Collateral Account except in connection with the sale, investment or reinvestment of Eligible Collateral the proceeds of which will be deposited into such Borrower’s Collateral Account or the substitution of Eligible Collateral with Collateral otherwise constituting Eligible Collateral. The Administrative Agent, on behalf of the L/C Issuer and the Lenders, agrees that provided (i) no Default or Event of Default exists and is continuing and (ii) after giving effect to the proposed delivery, the Borrowing Base of such Borrower is equal to or in excess of such Borrower’s Outstanding Amount, the Administrative Agent shall consent to any such delivery within one Business Day after such request.
ARTICLE VII
NEGATIVE COVENANTS.
Until such time as Payment in Full has occurred, each Loan Party covenants and agrees that it will not:
Section 7.1 Indebtedness. Create, incur, assume or suffer to exist any Indebtedness except:
(a) the Obligations;
(b) the guaranty provided by the Guarantor pursuant to Article X;
(c) Indebtedness in the form of letters of credit issued under (i) letter of credit facilities of any Insurance Subsidiary to support its and its Subsidiaries’ insurance obligations, obligations under reinsurance agreements and retrocession agreements to which it or any of its Subsidiaries is a party and similar risk obligations, and (ii) the Barclays Agreement, provided, that face amounts of letters of credit and related reimbursement obligations outstanding under the Barclays Agreement at any time shall not exceed $400,000,000;
(d) Indebtedness under any Syndicate Arrangement;
(e) unsecured intercompany Indebtedness:
(i) owed by any Loan Party to another Loan Party;
(ii) owed by any Loan Party to any Subsidiary that is not a Loan Party (provided that such Indebtedness shall be subordinated to the Obligations in a manner reasonably satisfactory to the Administrative Agent); and
(iii) owed by any Subsidiary that is not a Loan Party to a Loan Party or to another Subsidiary that is not a Loan Party;
(f) Indebtedness arising from the honoring by a bank or other financial institution of a check, draft or other similar instrument drawn against insufficient funds in the ordinary course of business;
(g) Indebtedness under performance bonds, surety bonds, release, appeal and similar bonds, statutory obligations or with respect to workers’ compensation claims, in each case incurred in the ordinary course of business, and reimbursement obligations in respect of any of the foregoing;
(h) Indebtedness existing on the Closing Date and listed on Schedule 7.1, and the renewal, refinancing, extension and replacement (but not the increase in the aggregate principal amount) thereof;
(i) unsecured Indebtedness of any Loan Party, provided, that such Indebtedness does not contain representations and warranties, covenants and events of default that are materially more restrictive than those in this Agreement;
(j) Subordinated Indebtedness of any Loan Party;
(k) Indebtedness owing under Hedge Agreements entered into (i) in order to manage existing or anticipated interest rate, exchange rate or commodity price risks or (ii) in connection with insurance, reinsurance or other parametric, derivative or similar risk transfer arrangements, either assumed or ceded, in the ordinary course, in each case not for speculative purposes;
(l) capital lease obligations and Indebtedness incurred in connection with purchase money Indebtedness in an aggregate amount not to exceed $50,000,000 at any time outstanding;
(m) Indebtedness of a Person existing at the time such Person became a Subsidiary or assets were acquired from such Person in connection with an Investment permitted pursuant to Section 7.3, to the extent that (i) such Indebtedness was not incurred in connection with, or in contemplation of, such Person becoming a Subsidiary or the acquisition of such assets, and (ii) no Loan Party or any Subsidiary thereof (other than such Person or any other Person that such Person merges with or that acquires the assets of such Person) shall have any liability or other obligation with respect to such Indebtedness;
(n) guarantees (A) by any Loan Party of Indebtedness otherwise permitted under this Section 7.1 and (B) by any Subsidiary that is not a Loan Party of Indebtedness permitted under Section 7.1(k), (l) and (o);
(o) Indebtedness under the Term Loan Agreement;
(p) Indebtedness not otherwise permitted pursuant to this Section in an aggregate principal amount not to exceed $25,000,000 at any time outstanding;
(q) Disqualified Equity Interests pursuant to Section 5.3 of the Guarantor’s Shareholders Agreement; and
(r) Indebtedness incurred under the Fourth Amended and Restated Credit Agreement dated as of May 25, 2021 (the “Revolving Credit Agreement”) among the Guarantor, the Company, the lenders party thereto, and Wells Fargo Bank, National Association, as administrative agent.
Section 7.2 Liens. Create, incur, assume or suffer to exist, any Lien on or with respect to any of its Property (other than “margin stock” which if covered hereby would cause the Lenders to be in violation of Regulation U), whether now owned or hereafter acquired, except:
(a) Liens on Cash Collateral granted pursuant to the Loan Documents;
(b) Liens constituting a Permitted Security;
(c) Liens granted to the financial institutions under the Barclays Agreement, in each case as in effect on the date hereof (and including the same Liens under any renewals, refinancings or replacements of such agreement after the date hereof);
(d) Liens for taxes, assessments and other governmental charges or levies (excluding any Lien imposed pursuant to any of the provisions of ERISA or Environmental Laws) (i) not yet due or as to which the period of grace, if any, related thereto has not expired or (ii) which are being contested in good faith and by appropriate proceedings if adequate reserves are maintained to the extent required by GAAP;
(e) Liens in existence on the Closing Date and described on Schedule 7.2, and the replacement, renewal or extension thereof (including Liens incurred, assumed or suffered to exist in connection with any refinancing, refunding, renewal or extension of Indebtedness permitted pursuant to Section 7.1(h) (solely to the extent that such Liens were in existence on the Closing Date and described on Schedule 7.1)); provided that the scope of any such Lien shall not be increased, or otherwise expanded, to cover any additional property or type of asset, as applicable, other than any future additional property or type of asset required to be included as in existence on the Closing Date, including products and proceeds of the foregoing;
(f) the claims of materialmen, mechanics, carriers, warehousemen, processors or landlords for labor, materials, supplies or rentals incurred in the ordinary course of business, which (i) Liens are being contested in good faith and by appropriate proceedings if adequate reserves are maintained to the extent required by GAAP or (ii) do not, individually or in the aggregate, materially impair the use thereof in the operation of the business of the Guarantor or any of its Subsidiaries;
(g) deposits or pledges made in the ordinary course of business in connection with, or to secure payment of, obligations under workers’ compensation, unemployment insurance and other types of social security or similar legislation, or to secure the performance of bids, trade contracts and leases (other than Indebtedness), statutory obligations, surety bonds (other than bonds related to judgments or litigation), performance bonds and other obligations of a like nature incurred in the ordinary course of business;
(h) encumbrances in the nature of zoning restrictions, easements and rights or restrictions of record on the use of real property, which in the aggregate are not substantial in amount and which do not, in any case, materially impair the use thereof in the ordinary conduct of business;
(i) Liens arising from the filing of precautionary UCC financing statements relating solely to personal property leased pursuant to operating leases entered into in the ordinary course of business of the Guarantor and its Subsidiaries;
(j) Liens securing Indebtedness permitted under Section 7.1(l); provided that (i) such Liens shall be created within one hundred twenty (120) days of the acquisition, repair, construction, improvement or lease, as applicable, of the related Property, (ii) such Liens do not at any time encumber any property other than the Property financed or improved by such Indebtedness, (iii) the amount of Indebtedness secured thereby is not increased and (iv) the principal amount of Indebtedness secured by any such Lien shall at no time exceed one hundred percent (100%) of the original price for the purchase, repair, construction, improvement or lease amount (as applicable) of such Property at the time of purchase, repair, construction, improvement or lease (as applicable);
(k) Liens securing judgments for the payment of money not constituting an Event of Default under Section 8.1(g) or securing appeal or other surety bonds relating to such judgments;
(l) (i) Liens on Property (i) of any Subsidiary which are in existence at the time that such Subsidiary is acquired and (ii) of the Guarantor or any of its Subsidiaries existing at the time such tangible property or tangible assets are purchased or otherwise acquired by the Guarantor or such Subsidiary thereof pursuant to a transaction permitted pursuant to this Agreement; provided that, with respect to each of the foregoing clauses (i) and (ii), (A) such Liens are not incurred in connection with, or in anticipation of, such purchase or other acquisition, (B) such Liens are applicable only to specific Property, (C) such Liens are not “blanket” or all asset Liens, (D) such Liens do not attach to any other Property of the Borrower or any of its Subsidiaries and (E) the Indebtedness secured by such Liens is permitted under Section 7.1(m) of this Agreement);
(m) (i) Liens of a collecting bank arising in the ordinary course of business under Section 4-210 of the Uniform Commercial Code in effect in the relevant jurisdiction and (ii) Liens of any depositary bank in connection with statutory, common law and contractual rights of setoff and recoupment with respect to any deposit account of the Guarantor or any Subsidiary thereof;
(n) (i) contractual or statutory Liens of landlords to the extent relating to the property and assets relating to any lease agreements with such landlord, and (ii) contractual Liens of suppliers (including sellers of goods) or customers granted in the ordinary course of business to the extent limited to the property or assets relating to such contract;
(o) any interest or title of a licensor, sublicensor, lessor or sublessor with respect to any assets under any license or lease agreement entered into in the ordinary course of business which do not (i) interfere in any material respect with the business of the Guarantor or its Subsidiaries or (ii) secure any Indebtedness; and
(p) Liens not otherwise permitted hereunder securing Indebtedness or other obligations in the aggregate principal amount not to exceed $25,000,000 at any time outstanding.
Section 7.3 Investments. Make any Investment, except:
(a) Investments (other than Acquisitions) made in accordance with the investment policy approved by the board of directors of the Guarantor from time to time;
(b) Investments in existence on the Closing Date set forth on Schedule 7.3;
(c) Investments (including intercompany loans made by a Loan Party pursuant to Section 7.1(e)) by the Guarantor in any Subsidiary or any Subsidiary in another Subsidiary;
(d) Investments in cash and Cash Equivalents;
(e) Investments by the Guarantor or any of its Subsidiaries consisting of capital expenditures;
(f) deposits made in the ordinary course of business to secure the performance of leases or other obligations as permitted by Section 7.2;
(g) Hedge Agreements permitted pursuant to Section 7.1;
(h) purchases of assets in the ordinary course of business;
(i) Investments consisting of Acquisitions consistent with Section 7.10; provided, that immediately prior and after giving effect to each such Acquisition, (i) no Event of Default shall have occurred and be continuing; (ii) such Acquisition has been duly authorized by (A) the board of directors of the Guarantor (to the extent such approval is required by the Guarantor’s constituent documents) and (B) such Person to be acquired prior to the commencement of any tender offer, proxy contest or the like in respect thereof, if applicable, and (iii) such Acquisition would not reasonably be expected to result in the Financial Strength Rating of the Company to fall below A; and
(j) Investments in the form of Restricted Payments permitted pursuant to Section 7.6.
Section 7.4 Fundamental Changes. Except as permitted under Section 7.5, merge, amalgamate consolidate or enter into any similar combination (whether in a single transaction or a series of transactions) with, any other Person or liquidate, wind-up or dissolve itself (or suffer any liquidation or dissolution), except that (i) any Loan Party or any Subsidiary may merge into or consolidate with any other Person so long as (a) the surviving corporation is a Loan Party or a Wholly-Owned Subsidiary of a Loan Party (and in any event, if a Loan Party is a party to such merger, amalgamation or consolidation, the surviving corporation shall be such Loan Party, it being understood and agreed that in the case of a merger, amalgamation or consolidation between the Guarantor and any other Loan Party, the survivor corporation of such merger, amalgamation or consolidation shall be the Guarantor), and (b) immediately before and after giving effect thereto, no Default or Event of Default would occur or exist and (ii) any Subsidiary may liquidate, wind up or dissolve if (x) such Subsidiary owns no more than a nominal amount of assets, has no more
than a nominal amount of liabilities and does not actively conduct, transact or otherwise engage in any business or operations and (y) such liquidation, winding up or dissolution is not materially disadvantageous to the Lenders.
Section 7.5 Asset Dispositions. Make any Asset Disposition except:
(a) any Asset Disposition in the ordinary course of business, including any intra-Group capital contributions;
(b) the transfer of assets to any Loan Party pursuant to any transaction permitted pursuant to Section 7.4;
(c) the write-off, discount, sale or other disposition of defaulted or past-due receivables and similar obligations in the ordinary course of business and not undertaken as part of an accounts receivable financing transaction;
(d) dispositions of Investments in cash and Cash Equivalents, including any disposition as to which the proceeds are applied to the Obligations of any Loan Party under this Agreement, the Revolving Credit Agreement or the Term Loan Agreement substantially concurrent with such disposition;
(e) the transfer by any Loan Party of its assets to any other member of the Group;
(f) the transfer by any Subsidiary of the Guarantor of its assets to any Loan Party (provided that in connection with any new transfer, such Loan Party shall not pay more than an amount equal to the fair market value of such assets as determined in good faith at the time of such transfer);
(g) the transfer by any Wholly-Owned Subsidiary of the Guarantor (other than the Company) of its assets to another Wholly-Owned Subsidiary of the Guarantor (other than the Company);
(h) the sale of obsolete, worn-out or surplus assets no longer used or usable in the business of the Guarantor or any of its Subsidiaries;
(i) any Asset Disposition described on Schedule 7.5;
(j) any Restricted Payments permitted pursuant to Section 7.6;
(k) any Asset Disposition as to which the proceeds are applied to the Obligations of any Loan Party under the Revolving Credit Agreement (with a corresponding reduction of the Commitments hereunder) or the Term Loan Agreement substantially concurrent with such Asset Disposition;
(l) the Attune Disposition; and
(m) Asset Dispositions not otherwise permitted pursuant to this Section; provided that (i) at the time of such Asset Disposition, no Event of Default shall exist or would result from such
Asset Disposition, (ii) such Asset Disposition is made for fair market value, and (iii) the aggregate fair market value of all property disposed of in reliance on this clause (m) shall not exceed $10,000,000 in any Fiscal Year or $5,000,000 in the 2021 Stub Period.
Section 7.6 Restricted Payments. Declare or pay any Restricted Payments; provided that:
(a) so long as no Default or Event of Default has occurred and is continuing or would result therefrom, the Guarantor may declare and pay cash dividends to the holders of its Equity Interests;
(b) so long as no Default or Event of Default has occurred and is continuing or would result therefrom, the Guarantor may redeem, retire or otherwise acquire shares of its Equity Interests or options or other equity or phantom equity in respect of its Equity Interests; and
(c) any Subsidiary of the Guarantor may (i) declare and pay dividends to any Loan Party or to a Wholly-Owned Subsidiary and (ii) declare and pay pro rata dividends to such Subsidiary’s equity holders.
Section 7.7 Transactions with Affiliates. Directly or indirectly enter into any transaction, including, without limitation, any purchase, sale, lease or exchange of Property, the rendering of any service or the payment of any management, advisory or similar fees, with (a) any executive officer, director or direct or indirect holder of 10% or more Equity Interests in, or other Affiliate of, the Guarantor or any of its Subsidiaries, (b) any Affiliate of any such executive officer, director or holder, other than:
(a) transactions permitted by Sections 7.1, 7.3, 7.4, 7.5 and 7.6;
(b) transactions among Loan Parties not prohibited hereunder;
(c) other transactions on terms as favorable as would be obtained by it on a comparable arm’s-length transaction with an independent, unrelated third party as determined in good faith by the board of directors (or equivalent governing body) of the Guarantor;
(d) employment and severance arrangements (including equity incentive plans and employee benefit plans and arrangements) with their respective officers and employees in the ordinary course of business; and
(e) payment of customary fees and reasonable out of pocket costs to, and indemnities for the benefit of, directors, officers and employees of the Guarantor and its Subsidiaries in the ordinary course of business to the extent attributable to the ownership or operation of the Guarantor and its Subsidiaries.
Section 7.8 Accounting Changes; Organizational Documents.
(a) Change its Fiscal Year end (except that, following the Fiscal Year ending November 30, 2021, the Loan Parties and their Subsidiaries shall change their Fiscal Year end from November 30 to December 31 for the Fiscal Year ending December 31, 2022 and each Fiscal
Year thereafter and shall use the 2021 Stub Period for the month of December 2021), or make (without the consent of the Administrative Agent) any material change in its accounting treatment and reporting practices except as required by GAAP.
(b) Amend, modify or change its Organizational Documents (including, without limitation, the Guarantor’s Shareholders Agreement) in any manner materially adverse to the rights or interests of the Lenders under the Loan Documents, as determined in good faith by the Administrative Agent (it being understood that the Guarantor is not required to submit for approval any amendment, modification or change that is not materially adverse to the rights or interests of the Lenders under the Loan Documents). The Administrative Agent’s determination in good faith as to whether any such amendment, modification or change is materially adverse to the rights or interests of the Lenders under the Loan Documents shall be conclusive and binding on all parties hereto, and the Administrative Agent agrees to respond within 10 Business Days to any request by a Loan Party to make such a determination in connection with an amendment, modification or change to an Organizational Document.
Section 7.9 No Further Negative Pledges; Restrictive Agreements.
(a) Enter into, assume or be subject to any agreement prohibiting or otherwise restricting the creation or assumption of any Lien upon its properties or assets, whether now owned or hereafter acquired, or requiring the grant of any security for such obligation if security is given for some other obligation, except (i) pursuant to this Agreement and the other Loan Documents, (ii) pursuant to the Barclays Agreement or the Revolving Credit Agreement, in each case, as in effect on the date hereof (and any renewals, refinancings or replacements of such agreement after the date hereof that contain substantially similar restrictions as in effect on the date hereof), (iii) customary restrictions contained in the Organizational Documents of any Subsidiary of the Guarantor as of the Closing Date, (iv) customary restrictions in connection with any Permitted Lien or any document or instrument governing any Permitted Lien (provided that any such restriction contained therein relates only to the asset or assets subject to such Permitted Lien), (v) pursuant to any letter of credit facility permitted under Section 7.1(c)(i) containing restrictions that are not materially more restrictive than those in this Agreement, (vi) pursuant to any unsecured Indebtedness incurred pursuant to Section 7.1(i) and (vii) pursuant to the Term Loan Agreement.
(b) Create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Loan Party to (i) pay dividends or make any other distributions to any Loan Party or any Subsidiary on its Equity Interests or with respect to any other interest or participation in, or measured by, its profits, (ii) pay any Indebtedness or other obligation owed to any Loan Party or (iii) make loans or advances to any Loan Party, except in each case for such encumbrances or restrictions existing under or by reason of (A) this Agreement and the other Loan Documents, (B) applicable Law, (C) the Barclays Agreement as in effect on the date hereof (and any renewals, refinancings or replacements of such agreement after the date hereof that contain substantially similar restrictions as in effect on the date hereof), (D) pursuant to any letter of credit facility permitted under Section 7.1(c)(i) containing restrictions that are not materially more restrictive than those in this Agreement, (E) pursuant to any unsecured Indebtedness incurred pursuant to Section 7.1(i), (F) pursuant to the Revolving Credit Agreement, and (G) pursuant to the Term Loan Agreement.
(c) Create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Loan Party to (i) sell, lease or transfer any of its properties or assets to any Loan Party or (ii) act as a Loan Party pursuant to the Loan Documents or any renewals, refinancings, exchanges, refundings or extension thereof, except in each case for such encumbrances or restrictions existing under or by reason of (A) this Agreement and the other Loan Documents, (B) Applicable Law, (C) the Barclays Agreement or the Revolving Credit Agreement, in each case, as in effect on the date hereof (and any renewals, refinancings or replacements of such agreement after the date hereof that contain substantially similar restrictions as in effect on the date hereof), (D) any Permitted Lien or any document or instrument governing any Permitted Lien (provided that any such restriction contained therein relates only to the asset or assets subject to such Permitted Lien), (E) obligations that are binding on a Subsidiary at the time such Subsidiary first becomes a Subsidiary of the Borrower, so long as such obligations are not entered into in contemplation of such Person becoming a Subsidiary, (F) customary restrictions contained in an agreement related to the sale of Property (to the extent such sale is permitted pursuant to Section 7.5) that limit the transfer of such Property pending the consummation of such sale, (G) customary restrictions in leases, subleases, licenses and sublicenses or asset sale agreements otherwise permitted by this Agreement so long as such restrictions relate only to the assets subject thereto, (H) customary provisions restricting assignment of any agreement entered into in the ordinary course of business, (I) pursuant to any letter of credit facility permitted under Section 7.1(c)(i) containing restrictions that are not materially more restrictive than those in this Agreement, (J) pursuant to any unsecured Indebtedness incurred pursuant to Section 7.1(i) and (K) pursuant to the Term Loan Agreement.
Section 7.10 Nature of Business. Engage in any business other than the business conducted by the Guarantor and its Material Subsidiaries as of the Closing Date and any business or business activities incidental or reasonably related or ancillary thereto or that are reasonable extensions, developments, and expansions thereof. For the avoidance of doubt: (a) ICC3L ceasing to underwrite new insurance business after the 2019 underwriting year of account and (b) any increased underwriting from HCML supporting Syndicate 4000 and Syndicate 2014 (with Syndicate 2014, being a syndicate at Lloyd’s under the management of Hamilton Managing Agency Limited, having been placed into run-off) shall not cause a breach of this Section.
Section 7.11 Sale Leasebacks. Directly or indirectly become or remain liable as lessee or as guarantor or other surety with respect to any lease, whether an operating lease or a Capital Lease, of any Property (whether real, personal or mixed), whether now owned or hereafter acquired, (a) which any Loan Party or any Subsidiary thereof has sold or transferred or is to sell or transfer to a Person which is not another Loan Party or Subsidiary of a Loan Party or (b) which any Loan Party or any Subsidiary of a Loan Party intends to use for substantially the same purpose as any other Property that has been sold or is to be sold or transferred by such Loan Party or such Subsidiary to another Person which is not another Loan Party or Subsidiary of a Loan Party in connection with such lease.
Section 7.12 Use of Proceeds. No Loan Party nor any Subsidiary will engage, principally or as one of its important activities, in the business of purchasing or carrying margin stock or in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U of the FRB), and no part of the proceeds of any Letter of Credit or any
other extension of credit made hereunder will be used to purchase or carry any such margin stock or to extend credit to others for the purpose of purchasing or carrying any such margin stock.
(b) Borrowers will not request the issuance of a Letter of Credit, and Borrowers shall not use, and shall ensure that its Subsidiaries and Affiliates, and its or their respective directors, officers, employees and agents not use, the proceeds of any Letter of Credit, directly or indirectly, (i) in furtherance of an offer, payment, promise to pay, or authorization of the payment or giving of money, or anything else of value, to any Person in violation of any Anti-Corruption Laws, (ii) to fund, finance or facilitate any activities, business or transaction of or with any Sanctioned Person or in any Designated Jurisdiction, or (iii) in any other manner that would result in the violation of any Sanctions applicable to any party hereto.
Section 7.13 [Intentionally Omitted].
Section 7.14 Financial Covenants.
(a) Consolidated Indebtedness to Total Capitalization Ratio. The Guarantor shall not permit the ratio of Consolidated Indebtedness to Total Capitalization of the Guarantor and its Subsidiaries to be greater than 30%. For the purposes of calculating this ratio:
(i) Consolidated Indebtedness will be calculated on a consolidated basis (and therefore intra-Group balances shall not be treated as Consolidated Indebtedness); and
(ii) Letters of credit outstanding under the Barclays Agreement in relation to which no unreimbursed demand is outstanding will not be treated as Consolidated Indebtedness, provided that such letters of credit are also excluded from “Debt” under the corresponding “Debt to Capitalisation” ratio in the Barclays Agreement.
(b) Consolidated Tangible Net Worth. As of the last day of any fiscal quarter, permit Consolidated Tangible Net Worth to be less than an amount equal to (i) $1,083,717,000 plus, (ii) 35% of Consolidated Net Income for the nine-month period ending November 30, 2021, if positive, plus (iii) for each Fiscal Year ending on or after December 31, 2022 for which there is positive Consolidated Net Income during such Fiscal Year, 35% of such positive Consolidated Net Income (provided that, for the Fiscal Year ending December 31, 2022, the Consolidated Net Income of the 2021 Stub Period shall be included in determining Consolidated Net Income for such Fiscal Year), plus (iv) 35% of net cash proceeds of the aggregate increases in common Equity Interests (by virtue of net equity issuance, debt conversion or contribution) by the Group at any time after February 28, 2021, excluding the impact of Equity Interests issued to employees or directors of the Group under its long term incentive plan or share purchase programs.
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES.
Section 8.1 Events of Default. Any one or more of the following shall constitute an “Event of Default” hereunder:
(a) (i) a Borrower shall fail to pay any Reimbursement Obligation 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 and (ii) a Borrower shall fail to pay any interest on any L/C Obligation, or any fee or any other amount (other than an amount referred to in clause (i) of this Section 8.1(a)) payable under this Agreement or under any other Loan Document, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of three or more Business Days;
(b) default in the observance or performance of any covenant, condition or agreement set forth in Sections 6.1, 6.5, 6.6, 6.7, 6.11 or 7;
(c) default in the observance or performance of any other provision hereof or of any other Loan Document which is not remedied within 30 days after the earlier of (i) the date on which such failure shall first become known to any officer of a Loan Party or (ii) written notice thereof is given to the Company by Administrative Agent;
(d) any representation or warranty made herein or in any other Loan Document or in any certificate furnished to Administrative Agent or the Lenders pursuant hereto or thereto or in connection with any transaction contemplated hereby or thereby proves untrue in any respect (or in any material respect if such representation, warranty, certification or statement is not by its terms already qualified as to materiality) as of the date of the issuance or making or deemed making thereof;
(e) (i) any event occurs or condition exists (other than those described in subsections (a) through (d) above) which is specified as an event of default under any of the other Loan Documents, or (ii) any of the Loan Documents shall for any reason not be or shall cease to be in full force and effect or is declared to be null and void, (iii) a Loan Party takes any action for the purpose of terminating, repudiating or rescinding any Loan Document executed by it or any of its obligations thereunder, or (iv) the Administrative Agent shall fail to have a first priority perfected Lien on any Collateral (subject only to Liens described in Sections 7.2(a) and (m).
(f) default shall occur under any Indebtedness issued, assumed or guaranteed by a Loan Party (i) in the payment of any Indebtedness (other than Obligations under this Agreement) the aggregate principal amount (including undrawn committed or available amounts) of which is in excess of the Threshold Amount, or with respect to any Hedge Agreement, the Hedge Termination Value of which is in excess of the Threshold Amount, in each case beyond the period of grace if any, provided in the instrument or agreement under which such Indebtedness was created, or (ii) default in the observance or performance of any other agreement or condition relating to any Indebtedness (other than the Obligations) the aggregate principal amount (including undrawn committed or available amounts), or with respect to any Hedge Agreement, the Hedge Termination Value, of which is in excess of the Threshold Amount or contained in any instrument or agreement evidencing, securing or relating thereto or any other event shall occur or condition exist, the effect of which default or other event or condition is to cause, or to permit the holder or holders of such Indebtedness (or a trustee or agent on behalf of such holder or holders) to cause, with the giving of notice and/or lapse of time, if required, any such Indebtedness to (A) become due, or to be repurchased, prepaid, defeased or redeemed (automatically or otherwise), or an offer to repurchase,
prepay, defease or redeem such Indebtedness to be made, prior to its stated maturity (any applicable grace period having expired) or (B) be cash collateralized;
(g) One or more judgments, orders or decrees shall be entered against any Loan Party by any court and continues without having been satisfied, discharged, vacated or stayed for a period of thirty (30) consecutive days after the entry thereof and such judgments, orders or decrees are either (i) for the payment of money, individually or in the aggregate (not paid or fully covered by insurance as to which the relevant insurance company has acknowledged coverage) equal to or in excess of the Threshold Amount or (ii) for injunctive relief and would reasonably be expected, individually or in the aggregate, to have a Material Adverse Effect;
(h) [intentionally omitted];
(i) any Change of Control shall occur;
(j) a Loan Party shall (i) have entered involuntarily against it an order for relief under any Debtor Relief Law, (ii) not pay, or admit in writing its inability to pay, its debts generally as they become due, (iii) make an assignment for the benefit of creditors, (iv) apply for, seek, consent to or acquiesce in, the appointment of a receiver, custodian, trustee, examiner, liquidator or similar official for it or any substantial part of its Property, (v) institute any proceeding seeking to have entered against it an order for relief under any Debtor Relief Law, as amended, to adjudicate it insolvent, or seeking dissolution, winding up, liquidation, reorganization, arrangement, adjustment or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors or fail to file an answer or other pleading denying the material allegations of any such proceeding filed against it, (vi) take any corporate, limited liability, or other applicable organizational action in furtherance of any matter described in parts (i) through (v) above, or (vii) fail to contest in good faith any appointment or proceeding described in Section 8.1(k);
(k) a custodian, receiver, trustee, examiner, liquidator or similar official shall be appointed for a Loan Party or any Material Subsidiary, or any substantial part of any of its Property, or a proceeding described in Section 8.1(j)(v) shall be instituted against a Loan Party or any Material Subsidiary, and such appointment continues undischarged or such proceeding continues undismissed or unstayed for a period of 60 days; or
(l) there shall occur or be issued an action or order of any applicable insurance regulatory authority prohibiting or materially restricting a Borrower from writing, underwriting, assuming, or reinsuring further business, or otherwise prohibiting or materially restricting any of the core business activities of such Borrower.
Section 8.2 Non Bankruptcy Defaults. When any Event of Default (other than those described in Section 8.1(j) or (k) with respect to a Loan Party) has occurred and is continuing, Administrative Agent may (and if so directed by the Required Lenders shall) by written notice to the Company: (a) terminate the remaining Commitments and all other obligations of the Lenders hereunder on the date stated in such notice (which may be the date thereof); (b) declare all Obligations to be forthwith due and payable and thereupon all outstanding Obligations, including both principal and interest thereon, shall be and become immediately due and payable together with all other amounts payable under the Loan Documents without further demand, presentment,
protest or notice of any kind; and (c) demand that Borrowers immediately Cash Collateralize the L/C Obligations in an amount equal to 103% of the aggregate L/C Obligations, and Borrowers agree to immediately make such payment and acknowledge and agree that the Lenders would not have an adequate remedy at law for failure by Borrowers to honor any such demand and that Administrative Agent, for the benefit of the Lenders, shall have the right to require Borrower to specifically perform such undertaking whether or not any drawings or other demands for payment have been made under any Letter of Credit. Administrative Agent, after giving notice to Company pursuant to Section 8.1(c) or this Section 8.2, shall also promptly send a copy of such notice to the other Lenders, but the failure to do so shall not impair or annul the effect of such notice.
Section 8.3 Bankruptcy Defaults. When any Event of Default described in Section 8.1(j) or (k) with respect to a Loan Party has occurred and is continuing, then all outstanding Obligations shall immediately become due and payable together with all other amounts payable under the Loan Documents without presentment, demand, protest or notice of any kind, the obligation of the Lenders to extend further credit pursuant to any of the terms hereof shall immediately terminate and Borrowers shall immediately Cash Collateralize the L/C Obligations in an amount equal to 103% of the aggregate L/C Obligations, Borrowers acknowledging and agreeing that the Lenders would not have an adequate remedy at law for failure by Borrowers to honor any such demand and that the Lenders, and Administrative Agent on their behalf, shall have the right to require Borrowers to specifically perform such undertaking whether or not any draws or other demands for payment have been made under any of the Letters of Credit.
Section 8.4 Cash Collateral Account. If the prepayment of the amount available for drawing under any or all outstanding Letters of Credit is required under Section 8.2 or Section 8.3 above, Borrowers shall forthwith pay the amount required to be so prepaid, to be held by Administrative Agent as provided in subsection (b) below.
(b) All amounts prepaid pursuant to subsection (a) above shall be held by Administrative Agent in one or more separate collateral accounts (each such account, and the credit balances, properties, and any investments from time to time held therein, and any substitutions for such account, any certificate of deposit or other instrument evidencing any of the foregoing and all proceeds of and earnings on any of the foregoing being collectively called the “Cash Collateral Account”) as security for, and for application by Administrative Agent (to the extent available) to, the reimbursement of any payment under any Letter of Credit then or thereafter made by the Lenders, and to the payment of the unpaid balance of all other Obligations. The Cash Collateral Account shall be held in the name of and subject to the exclusive dominion and control of Administrative Agent for the benefit of Administrative Agent, the L/C Issuer and the Lenders. Other than any interest earned on the investment of such deposits, which investments shall be made at the option and sole discretion of the Administrative Agent and at the Borrowers’ risk and expense, such deposits shall not bear interest. If Borrowers shall have made payment of all obligations referred to in subsection (a) above required under Section 8.2 or 8.3, so long as no Letters of Credit, Commitments or other Obligations, remain outstanding, at the request of the Company, Administrative Agent shall release to Borrowers any remaining amounts held in the Cash Collateral Account.
Section 8.5 Notice of Default. Administrative Agent shall give notice to the Company under Section 8.1(c) promptly upon being requested to do so by any Lender and shall thereupon notify all the Lenders thereof.
ARTICLE IX
ADMINISTRATIVE AGENT.
Section 9.1 Appointment and Authorization of Administrative Agent. Each Lender hereby appoints Bank of Montreal as Administrative Agent under the Loan Documents and hereby authorizes Administrative Agent to take such action as Administrative Agent on its behalf and to exercise such powers under the Loan Documents as are delegated to Administrative Agent by the terms thereof, together with such powers as are reasonably incidental thereto. It is understood and agreed that the use of the term “agent” herein or in any other Loan Documents (or any other similar term) with reference to the Administrative Agent is not intended to connote any fiduciary or other implied (or express) obligations arising under agency doctrine of any applicable Law. Instead such term is used as a matter of market custom, and is intended to create or reflect only an administrative relationship between contracting parties. Therefore, the Lenders expressly agree that Administrative Agent is not acting as a fiduciary of the Lenders in respect of the Loan Documents, Loan Parties or otherwise, and nothing herein or in any of the other Loan Documents shall result in any duties or obligations on Administrative Agent or any of the Lenders except as expressly set forth herein. Except as provided in Section 9.7, the provisions of this Article are solely for the benefit of the Administrative Agent and the Lenders, and the Loan Parties shall not have rights as a third-party beneficiary of any of such provisions.
Section 9.2 Rights as a Lender. 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 the term “Lender” or “Lenders” shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Administrative Agent hereunder in its individual capacity. Such Person and its Affiliates may accept deposits from, lend money to, own securities of, act as the financial advisor or in any other advisory capacity for, and generally engage in any kind of business with, the Loan Parties or any Subsidiary or other Affiliate thereof as if such Person were not the Administrative Agent hereunder and without any duty to account therefor to the Lenders.
Section 9.3 Action by Administrative Agent. The Administrative Agent shall not have any duties or obligations except those expressly set forth herein and in the other Loan Documents, and its duties hereunder shall be administrative in nature. Without limiting the generality of the foregoing, the Administrative Agent (a) shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing, (b) shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Administrative Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents); provided that the Administrative Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Loan Document or applicable Law, including for the avoidance of doubt any action that may be in violation of the automatic stay under any Debtor Relief Law or
that may effect a forfeiture, modification or termination of property of a Defaulting Lender in violation of any Debtor Relief Law and (c) shall not, except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Loan Parties or any of their Affiliates that is communicated to or obtained by the Person serving as the Administrative Agent or any of its Affiliates in any capacity. Administrative Agent shall in all cases be fully justified in failing or refusing to act hereunder or under any other Loan Document unless it first receives such advice or concurrence of the Required Lenders (or, if so specified by this Agreement, all or other Lenders) as it deems appropriate and any further assurances of its indemnification from the Lenders that it may require, including prepayment of any related expenses and any other protection it requires against any and all costs, expense, and liability which may be incurred by it by reason of taking or continuing to take any such action. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under this Agreement and the other Loan Documents in accordance with a request of the Required Lenders (or, if so specified by this Agreement, all or other Lenders), and such request and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Loans.
Section 9.4 Consultation with Experts. Administrative Agent may consult with legal counsel (who may be counsel to the Loan Parties), independent public accountants, and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in accordance with the advice of such counsel, accountants or experts.
Section 9.5 Liability of Administrative Agent; Credit Decision. Neither Administrative Agent nor any of its directors, officers, agents or employees shall be liable for any action taken or not taken by it in connection with the Loan Documents: (i) with the consent or at the request of the Required Lenders or (ii) in the absence of its own gross negligence or willful misconduct as determined by a court of competent jurisdiction by final and non-appealable judgment. The Administrative Agent shall be deemed not to have knowledge of any Default unless and until notice describing such Default is given to the Administrative Agent in writing by a Loan Party or a Lender. Neither Administrative Agent nor any of its directors, officers, agents or employees shall be responsible for or have any duty to ascertain, inquire into or verify: (i) any statement, warranty or representation made in connection with this Agreement, any other Loan Document or any Credit Event; (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants or agreements of a Loan Party or any Subsidiary contained herein or in any other Loan Document; (iv) the satisfaction of any condition specified in Section 4, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent; or (v) the validity, effectiveness, genuineness, enforceability, perfection, value, worth or collectability hereof or of any other Loan Document or of any other documents or writing furnished in connection with any Loan Document; and Administrative Agent makes no representation of any kind or character with respect to any such matter mentioned in this sentence.
(b) 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 (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated 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 have been made by the proper Person, and shall not incur any liability for relying thereon. In determining compliance with any condition hereunder to the issuance, extension, increase, reinstatement or renewal of a Letter of Credit, that by its terms must be fulfilled to the satisfaction of a Lender, the Administrative Agent may presume that such condition is satisfactory to such Lender unless the Administrative Agent shall have received notice to the contrary from such Lender prior to the issuance of such Letter of Credit. In particular and without limiting any of the foregoing, Administrative Agent shall have no responsibility for confirming the accuracy of any compliance certificate or other document or instrument received by it under the Loan Documents. Administrative Agent may treat the payee of any Obligation as the holder thereof until written notice of transfer shall have been filed with Administrative Agent signed by such payee in form satisfactory to Administrative Agent. Each Lender acknowledges that it has independently and without reliance on Administrative Agent or any other Lender (or any of their Related Parties), and based upon such information, investigations and inquiries as it deems appropriate, made its own credit analysis and decision to extend credit to the Borrowers in the manner set forth in the Loan Documents. It shall be the responsibility of each Lender to keep itself informed as to the creditworthiness of each Loan Party and its Subsidiaries, and Administrative Agent shall have no liability to any Lender with respect thereto.
Section 9.6 Indemnity. To the extent that the Borrowers for any reason fails to indefeasibly pay any amount required under Section 11.13 to be paid by it to the Administrative Agent (or any sub-agent thereof) or any Related Party of any of the foregoing, each Lender severally agrees to pay to the Administrative Agent (or any such sub-agent) or such Related Party, as the case may be, such Lender’s pro rata share (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought based on each Lender’s Percentage at such time) of such unpaid amount (including any such unpaid amount in respect of a claim asserted by such Lender); 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 (or any such sub-agent), or against any Related Party of any of the foregoing acting for the Administrative Agent (or any such sub-agent) in connection with such capacity. The obligations of the Lenders under this Section shall survive termination of this Agreement. Administrative Agent shall be entitled to offset amounts received for the account of a Lender under this Agreement against unpaid amounts due from such Lender to Administrative Agent hereunder, but shall not be entitled to offset against amounts owed to Administrative Agent, by any Lender arising outside of this Agreement and the other Loan Documents.
Section 9.7 Resignation of Administrative Agent and Successor Administrative Agent. Administrative Agent may resign at any time by giving written notice thereof to the Lenders and the Company. Upon any such resignation of Administrative Agent, the Required Lenders shall have the right, in consultation with the Company, to appoint a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment within 30 days after the retiring Administrative Agent’s giving of notice of resignation (or such earlier day as shall be agreed by the Required Lenders) (the “Resignation Effective Date”) then the retiring Administrative Agent may (but shall not be obligated to), on behalf of the Lenders, appoint a successor Administrative Agent, which may be any Lender hereunder or any commercial bank, or an Affiliate of a commercial bank, having an office in the United States of America and having a combined capital and surplus of at least $200,000,000; provided, that in no event shall any such successor Administrative Agent be a
Defaulting Lender. With effect from the Resignation Effective Date (a) the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents (except that in the case of any collateral security held by the Administrative Agent on behalf of the Lenders under any of the Loan Documents, the retiring or removed Administrative Agent shall continue to hold such collateral security until such time as a successor Administrative Agent is appointed) and (ii) except for any indemnity payments owed to the retiring Administrative Agent, all payments, communications and determinations provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender directly, until such time, if any, as the Required Lenders appoint a successor Administrative Agent as provided for above. Upon the acceptance of its appointment as Administrative Agent hereunder, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Administrative Agent under the Loan Documents. The fees payable by the Borrower to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrower and such successor. After any retiring Administrative Agent’s resignation hereunder as Administrative Agent, the provisions of this Section 9 and all protective provisions of the other Loan Documents shall continue in effect for the benefit of such retiring or removed Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring or removed Administrative Agent was acting as Administrative Agent.
Section 9.8 Designation of Additional Agents. Administrative Agent shall have the continuing right, for purposes hereof, at any time and from time to time to designate one or more of the Lenders (and/or its or their Affiliates) as “syndication agents,” “documentation agents,” “book runners,” “lead arrangers,” “arrangers,” or other designations for purposes hereto, but such designation shall have no substantive effect, and such Lenders and their Affiliates shall have no additional powers, duties or responsibilities as a result thereof.
Section 9.9 Delegation of Duties. The Administrative Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Document 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 of its duties and exercise its rights and powers by or through their respective Related Parties. The exculpatory provisions of this Article 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 facility as well as activities as Administrative Agent. The Administrative Agent shall not be responsible for the negligence or misconduct of any sub-agents except to the extent that a court of competent jurisdiction determines in a final and nonappealable judgment that the Administrative Agent acted with gross negligence or willful misconduct in the selection of such sub-agents.
Section 9.10 Administrative Agent may File Proofs of Claim. In case of the pendency of any proceeding under any Debtor Relief Law the Administrative Agent (irrespective of whether the principal of any L/C Obligation shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on the Borrower) shall be entitled and empowered (but not obligated) by intervention in such proceeding or otherwise:
(a) to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the L/C Obligations and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders and the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders and the Administrative Agent under Sections 2.4 and 10.13) allowed in such judicial proceeding; and
(b) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same; and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender to make such payments to the Administrative Agent and, in the event that the Administrative Agent shall consent to the making of such payments directly to the Lenders, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Sections 2.4 and 10.13.
Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender to authorize the Administrative Agent to vote in respect of the claim of any Lender in any such proceeding.
Section 9.11 Certain ERISA Matters
(a) Each Lender (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto, for the benefit of, the Administrative Agent, the Sole Lead Arranger and their respective Affiliates, and not, for the avoidance of doubt, to or for the benefit of the Borrowers or any other Loan Party, that at least one of the following is and will be true:
(i) such Lender is not using “plan assets” (within the meaning of 29 CFR § 2510.3-101, as modified by Section 3(42) of ERISA) of one or more Plans in connection with the Letters of Credit, the Commitments or this Agreement;
(ii) the transaction exemption set forth in one or more PTEs, such as PTE 84-14 (a class exemption for certain transactions determined by independent qualified professional asset managers), PTE 95-60 (a class exemption for certain transactions involving insurance company general accounts), PTE 90-1 (a class exemption for certain transactions involving insurance company pooled separate accounts), PTE 91-38 (a class exemption for certain transactions involving bank collective investment funds) or PTE 96-23 (a class exemption for certain transactions determined by in-house asset managers), is applicable with respect to such Lender’s entrance into, participation in, administration of and performance of the Letters of Credit, the Commitments and this Agreement;
(iii) (A) such Lender is an investment fund managed by a “Qualified Professional Asset Manager” (within the meaning of Part VI of PTE 84-14), (B) such Qualified Professional Asset Manager made the investment decision on behalf of such Lender to enter into, participate in, administer and perform the Letters of Credit, the Commitments and this Agreement, (C) the entrance into, participation in, administration of and performance of the Letters of Credit, the Commitments and this Agreement satisfies the requirements of sub-sections (b) through (g) of Part I of PTE 84-14 and (D) to the best knowledge of such Lender, the requirements of subsection (a) of Part I of PTE 84-14 are satisfied with respect to such Lender’s entrance into, participation in, administration of and performance of the Letters of Credit, the Commitments and this Agreement; or
(iv) such other representation, warranty and covenant as may be agreed in writing between the Administrative Agent, in its sole discretion, and such Lender.
(b) In addition, unless sub-clause (i) in the immediately preceding clause (a) is true with respect to a Lender or such Lender has not provided another representation, warranty and covenant as provided in sub-clause (iv) in the immediately preceding clause (a), such Lender further (x) represents and warrants, as of the date such Person became a Lender party hereto, to, and (y) covenants, from the date such Person became a Lender party hereto to the date such Person ceases being a Lender party hereto, for the benefit of, the Administrative Agent, the Sole Lead Arranger and their respective Affiliates, and not, for the avoidance of doubt, to or for the benefit of the Borrower, that the Administrative Agent is not a fiduciary with respect to the assets of such Lender involved in such Lender’s entrance into, participation in, administration of and performance of the Letters of Credit, the Commitments and this Agreement (including in connection with the reservation or exercise of any rights by the Administrative Agent under this Agreement, any Loan Document or any documents related hereto or thereto).
Section 9.12 Recovery of Erroneous Payments. Notwithstanding anything to the contrary in this Agreement, if at any time Administrative Agent determines (in its sole and absolute discretion) that it has made a payment hereunder in error to any Lender, whether or not in respect of an Obligation due and owing by a Borrower at such time, where such payment is a Rescindable Amount, then in any such event, each such Person receiving a Rescindable Amount severally agrees to repay to Administrative Agent forthwith on demand the Rescindable Amount received by such Person in immediately available funds in the currency so received, with interest thereon, for each day from and including the date such Rescindable Amount is received by it to but excluding the date of payment to Administrative Agent, at the greater of the Federal Funds Rate and a rate determined by Administrative Agent in accordance with banking industry rules on interbank compensation. Each Lender irrevocably waives any and all defenses, including any “discharge for value” (under which a creditor might otherwise claim a right to retain funds mistakenly paid by a third party in respect of a debt owed by another), “good consideration”, “change of position” or similar defenses (whether at law or in equity) to its obligation to return any Rescindable Amount. Administrative Agent shall inform each Lender that received a Rescindable Amount promptly upon determining that any payment made to such Person comprised, in whole or in part, a Rescindable Amount. Each Person’s obligations, agreements and waivers under this Section 9.12 shall survive the resignation or replacement of the Administrative
Agent, any transfer of rights or obligations by, or the replacement of, a Lender, the termination of the Commitments and/or the repayment, satisfaction or discharge of all Obligations (or any portion thereof) under any Loan Document.
Section 9.13 Authorizations. Administrative Agent is hereby irrevocably authorized by each of the Lenders and the L/C Issuer to (a) release any Lien covering any Collateral that is sold, transferred, or otherwise disposed of in accordance with the terms and conditions of this Agreement and the relevant Collateral Documents and (b) release Liens on the Collateral following termination or expiration of the Commitments and Payment in Full. Administrative Agent is hereby irrevocably authorized by each of the Lenders and the L/C Issuer to execute and deliver the Collateral Documents on behalf of each of the Lenders and their Affiliates and the L/C Issuer and, subject to Section 11.11, to take such action and exercise such powers under the Collateral Documents as Administrative Agent considers appropriate. Each Lender and L/C Issuer acknowledges and agrees that it will be bound by the terms and conditions of the Collateral Documents upon the execution and delivery thereof by Administrative Agent. Notwithstanding anything to the contrary contained herein or in any other Loan Document, the authority to enforce rights and remedies hereunder and under the other Loan Documents against the Loan Parties or any of them shall be vested exclusively in, and all actions and proceedings at law in connection with such enforcement shall be instituted and maintained exclusively by, the Administrative Agent in accordance with Section 8.2, 8.3, 8.4 and 8.5 for the benefit of all the Lenders and the L/C Issuer; provided that the foregoing shall not prohibit (i) the Administrative Agent from exercising on its own behalf the rights and remedies that inure to its benefit (solely in its capacity as Administrative Agent) hereunder and under the other Loan Documents, (ii) the L/C Issuer from exercising the rights and remedies that inure to its benefit (solely in its capacity as L/C Issuer) hereunder and under the other Loan Documents, (iii) any Lender from exercising setoff rights in accordance with Section 11.14 (subject to the terms of Section 11.5), or (iv) any Lender from filing proofs of claim or appearing and filing pleadings on its own behalf during the pendency of a proceeding relative to any Loan Party under any Debtor Relief Law; and provided, further, that if at any time there is no Person acting as Administrative Agent hereunder and under the other Loan Documents, then (a) the Required Lenders shall have the rights otherwise ascribed to the Administrative Agent pursuant to Sections 8.2, 8.3 and 8.4 and (b) in addition to the matters set forth in clauses (ii), (iii) and (iv) of the preceding proviso and subject to Section 11.5, any Lender may, with the consent of the Required Lenders, enforce any rights and remedies available to it and as authorized by the Required Lenders.
The Administrative Agent shall not be responsible for or have a duty to ascertain or inquire into any representation or warranty regarding the existence, value or collectability of the Collateral, the existence, priority or perfection of the Administrative Agent’s Lien thereon, or any certificate prepared by any Loan Party in connection therewith, nor shall the Administrative Agent be responsible or liable to the Lenders or the L/C Issuer for any failure to monitor or maintain any portion of the Collateral.
ARTICLE X
THE GUARANTEES.
Section 10.1 The Guarantees. To induce the Lenders and L/C Issuer to provide the credits described herein and in consideration of benefits expected to accrue to Borrowers by reason
of the Commitments and for other good and valuable consideration, receipt of which is hereby acknowledged, the Guarantor hereby unconditionally and irrevocably guarantees to Administrative Agent, the Lenders, and the L/C Issuer and their Affiliates, the due and punctual payment of all present and future Obligations, including, but not limited to, the due and punctual payment of the Reimbursement Obligations, and the due and punctual payment and performance of all other Obligations now or hereafter owed by the Borrowers under the Loan Documents, in each case as and when the same shall become due and payable, whether at stated maturity, by acceleration, or otherwise, according to the terms hereof and thereof (including all interest, costs, fees, and charges after the entry of an order for relief against any Loan Party or such other obligor in a case under the United States Bankruptcy Code or any similar proceeding, whether or not such interest, costs, fees and charges would be an allowed claim against such Loan Party or any such obligor in any such proceeding) (collectively, the “Guaranteed Obligations”). Guarantee Unconditional. The obligations of the Guarantor under this Section 10 shall be unconditional and absolute and, without limiting the generality of the foregoing, shall not be released, discharged, or otherwise affected by:
(a) any extension, renewal, settlement, compromise, waiver, or release in respect of any obligation of any Loan Party or other obligor or of any other guarantor under this Agreement or any other Loan Document or by operation of law or otherwise;
(b) any modification or amendment of or supplement to this Agreement or any other Loan Document or any agreement relating to any Guaranteed Obligations;
(c) any change in the corporate existence, structure, or ownership of, or any insolvency, bankruptcy, reorganization, or other similar proceeding affecting, any Loan Party or other obligor, any other guarantor, or any of their respective assets, or any resulting release or discharge of any obligation of any Loan Party or other obligor or of any other guarantor contained in any Loan Document;
(d) the existence of any claim, set off, or other rights which any Loan Party or other obligor or any other guarantor may have at any time against Administrative Agent, any Lender, the L/C Issuer or any other Person, whether or not arising in connection herewith;
(e) any failure to assert, or any assertion of, any claim or demand or any exercise of, or failure to exercise, any rights or remedies against any Loan Party or other obligor, any other guarantor, or any other Person or Property;
(f) any application of any sums by whomsoever paid or howsoever realized to any obligation of any Loan Party or other obligor, regardless of what obligations of Borrower or other obligor remain unpaid;
(g) any invalidity or unenforceability relating to or against any Loan Party or other obligor or any other guarantor for any reason of this Agreement or of any other Loan Document or any agreement relating to any Guaranteed Obligations or any provision of applicable Law or regulation purporting to prohibit the payment by any Loan Party or other obligor or any other guarantor of any Reimbursement Obligation or any other amount payable under the Loan Documents or any agreement relating to any Guaranteed Obligations; or
(h) any other act or omission to act or delay of any kind by Administrative Agent, any Lender, the L/C Issuer, or any other Person or any other circumstance whatsoever that might, but for the provisions of this paragraph, constitute a legal or equitable discharge of the obligations of the Guarantor under this Section 10.
Section 10.3 Discharge Only upon Payment in Full; Reinstatement in Certain Circumstances. Until such time as Payment in Full occurs, the Guarantor’s obligations under this Section 10 shall remain in full force and effect. If at any time any payment of any Guaranteed Obligations is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy, or reorganization of a Borrower or other obligor or of any guarantor, or otherwise, the Guarantor’s obligations under this Section 10 with respect to such payment shall be reinstated at such time as though such payment had become due but had not been made at such time.
Section 10.4 Subrogation. Until such time as Payment in Full occurs, the Guarantor agrees it will not exercise any rights which it may acquire by way of subrogation by any payment made hereunder, or otherwise. If any amount shall be paid to the Guarantor on account of such subrogation rights at any time prior to Payment in Full occurring, such amount shall be held in trust for the benefit of Administrative Agent, the Lenders, and the L/C Issuer and shall forthwith be paid to Administrative Agent for the benefit of the Lenders and L/C Issuer or be credited and applied to the Guaranteed Obligations, whether matured or unmatured, in accordance with the terms of this Agreement.
Section 10.5 Waivers. The Guarantor irrevocably waives acceptance hereof, presentment, demand, protest, and any notice not provided for herein, as well as any requirement that at any time any action be taken by Administrative Agent, any Lender, the L/C Issuer, or any other Person against any Loan Party or other obligor, another guarantor, or any other Person.
Section 10.6 Limit on Recovery. Notwithstanding any other provision of this Section 10, the amount guaranteed by the Guarantor hereunder shall be limited to the extent, if any, required so that its obligations hereunder shall not be subject to avoidance under Section 548 of the Bankruptcy Code or under any applicable state Uniform Fraudulent Transfer Act, Uniform Fraudulent Conveyance Act, Uniform Voidable Transactions Act or similar statute or common law. In determining the limitations, if any, on the amount of the Guarantor’s obligations hereunder pursuant to the preceding sentence, it is the intention of the parties hereto that any rights of subrogation, indemnification or contribution which the Guarantor may have under this Section 10, any other agreement or applicable law shall be taken into account.
Section 10.7 Stay of Acceleration. If acceleration of the time for payment of any amount payable by any Loan Party or other obligor under this Agreement or any other Loan Document, or under any agreement relating to the Guaranteed Obligations, is stayed upon the insolvency, bankruptcy or reorganization of such Loan Party or such obligor, all such amounts otherwise subject to acceleration under the terms of this Agreement or the other Loan Documents, or under any agreement relating to the Guaranteed Obligations, shall nonetheless be payable by the Guarantors hereunder forthwith on demand by Administrative Agent made at the request of the Required Lenders.
Section 10.8 Benefit to Guarantors. The Guarantor will derive substantial direct and indirect benefit from the extensions of credit hereunder.
ARTICLE XI
MISCELLANEOUS.
Section 11.1 No Waiver, Cumulative Remedies. No delay or failure on the part of Administrative Agent or any Lender, or on the part of the holder or holders of any of the Obligations, in the exercise of any power or right under any Loan Document shall operate as a waiver thereof or as an acquiescence in any default, nor shall any single or partial exercise of any power or right preclude any other or further exercise thereof or the exercise of any other power or right. The rights and remedies hereunder of Administrative Agent, the L/C Issuer or the Lenders, and of the holder or holders of any of the Obligations are cumulative to, and not exclusive of, any rights or remedies which any of them would otherwise have.
Section 11.2 Non-Business Days. If any payment hereunder becomes due and payable on a day which is not a Business Day, the due date of such payment shall be extended to the next succeeding Business Day on which date such payment shall be due and payable. In the case of any payment of principal falling due on a day which is not a Business Day, interest on such principal amount shall continue to accrue during such extension at the rate per annum then in effect, which accrued amount shall be due and payable on the next scheduled date for the payment of interest.
Section 11.3 Survival of Representations. All representations and warranties made herein or in any other Loan Document or in certificates given pursuant hereto or thereto shall survive the execution and delivery of this Agreement and the other Loan Documents, and shall continue in full force and effect with respect to the date as of which they were made as long as any credit is in use or available hereunder.
Section 11.4 Survival of Indemnity and Certain Other Provisions. All indemnity provisions and other provisions relative to reimbursement to the Lenders of amounts sufficient to protect the yield of the Lenders with respect to the Letters of Credit, including, but not limited to, Sections 3.3 and 11.13, shall survive Payment in Full, and shall remain in force beyond the expiration of any applicable statute of limitations and payment or satisfaction in full of any single claim thereunder. All such indemnity and other provisions shall be binding upon the successors and assigns of each Loan Party and shall inure to the benefit of each applicable Indemnitee and its successors and assigns.
Section 11.5 Sharing of Set Off. Each Lender agrees with each other Lender party hereto that if such Lender shall receive and retain any payment, whether by set off or application of deposit balances or otherwise, on any of the Obligations in excess of its ratable share of payments on all such Obligations then outstanding to the Lenders, then such Lender shall purchase for cash at face value, but without recourse, ratably from each of the other Lenders such amount of the Reimbursement Obligations, or participations therein, held by each such other Lenders (or interest therein) as shall be necessary to cause such Lender to share such excess payment ratably with all the other Lenders; provided, that if any such purchase is made by any Lender, and if such excess payment or part thereof is thereafter recovered from such purchasing Lender, the related purchases
from the other Lenders shall be rescinded ratably and the purchase price restored as to the portion of such excess payment so recovered, but without interest.
Section 11.6 Notices. Except as otherwise specified herein, all notices hereunder and under the other Loan Documents shall be in writing and shall be given to the relevant party at its address set forth below, or such other address as such party may hereafter specify by notice to Administrative Agent and Borrower given by courier, by United States certified or registered mail. Notices under the Loan Documents to any Lender shall be addressed to its address number set forth on its Administrative Questionnaire; and notices under the Loan Documents to a Loan Party or Administrative Agent shall be addressed to its respective address number set forth below:
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To a Loan Party: | To Administrative Agent: |
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c/o Hamilton Insurance Group, Ltd. Wellesley House North 90 Pitts Bay Road Pembroke HM08, Bermuda Attention: General Counsel Telephone:1 (441) 405-5200 Email: legalnotices@hamiltongroup.com | Bank of Montreal 115 South LaSalle Street Chicago, Illinois 60603 Attention: Lauren Harte Telephone: 1 (312) 461-5469 Email: Lauren1.Harte@bmo.com |
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| With a copy to: |
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| Bank of Montreal 115 South LaSalle Street Chicago, Illinois 60603 Email: CCLO.CrossBorderServicing@bmo.com |
Each such notice, request or other communication shall be effective (i) if given by mail, 5 days after such communication is deposited in the mail, certified or registered with return receipt requested, addressed as aforesaid or (ii) if given by any other means, when delivered at the addresses specified in this Section or in the relevant Administrative Questionnaire; provided that any notice given pursuant to Section 2 shall be effective only upon receipt.
(a) Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communication (including e-mail, FpML, and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent, provided that the foregoing shall not apply to notices to any Lender pursuant to Section 2 if such Lender, has notified the Administrative Agent that it is incapable of receiving notices under such Article by electronic communication. The Administrative Agent or the Loan Parties may, in their 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.
Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of
an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient, at its e-mail address as described in the foregoing clause (i), of notification that such notice or communication is available and identifying the website address therefor; provided that, for both clauses (i) and (ii) above, if such notice, email or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient.
(b) Any party hereto may change its address or facsimile number for notices and other communications hereunder by notice to the other parties hereto.
(c) The Loan Parties agree that the Administrative Agent may, but shall not be obligated to, make the Communications (as defined below) available to the Lenders by posting the Communications on the Platform.
(d) The Platform is provided “as is” and “as available.” The Agent Parties (as defined below) do not warrant the adequacy of the Platform and expressly disclaim liability for errors or omissions in the Communications. No warranty of any kind, express, implied or statutory, including any warranty of merchantability, fitness for a particular purpose, non-infringement of third-party rights or freedom from viruses or other code defects, is made by any Agent Party in connection with the Communications or the Platform. In no event shall the Administrative Agent or any of its Related Parties (collectively, the “Agent Parties”) have any liability to a Loan Party, any Lender or any other Person or entity for damages of any kind, including direct or indirect, special, incidental or consequential damages, losses or expenses (whether in tort, contract or otherwise) arising out of a Loan Party’s or the Administrative Agent’s transmission of communications through the Platform. “Communications” means, collectively, any notice, demand, communication, information, document or other material provided by or on behalf of the a Loan Party pursuant to any Loan Document or the transactions contemplated therein that is distributed to the Administrative Agent or any Lender by means of electronic communications pursuant to this Section, including through the Platform.
Section 11.7 Counterparts. This Agreement may be executed in any number of counterparts, and by the different parties hereto on separate counterpart signature pages, each of which shall constitute an original, and all such counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Agreement by telecopy, emailed .pdf or any other electronic means that reproduces an image of the actual executed signature page shall be effective as delivery of a manually executed counterpart of this Agreement and such counterpart shall be deemed to be an original hereof.
Section 11.8 Successors and Assigns. This Agreement shall be binding upon the Loan Parties and their successors and assigns, and shall inure to the benefit of Administrative Agent and each of the Lenders, and their respective successors and assigns, including any subsequent holder of any of the Obligations. A Loan Party may not assign any of their rights or obligations under any Loan Document without the written consent of all of the Lenders.
Section 11.9 Participants. Any Lender may at any time, without the consent of, or notice to, the a Loan Party or the Administrative Agent, sell participations to any Person (other than a natural Person, or a holding company, investment vehicle or trust for, or owned and operated for the primary benefit of, a natural Person, or a Loan Party or any of a Loan Party’s Affiliates or Subsidiaries) (each, a “Participant”) in all or a portion of such Lender’s rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans owing to it); provided that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, and (iii) the Loan Parties, the Administrative Agent and Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement. For the avoidance of doubt, each Lender shall be responsible for the indemnity under Section 9.6 with respect to any payments made by such Lender to its Participant(s). 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 to approve any amendment, modification or waiver of any provision of this Agreement; 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 proviso of Section 11.11 that affects such Participant. The Borrowers agree that each Participant shall be entitled to the benefits of Sections 3.1 through 3.3 (subject to the requirements and limitations therein) to the same extent as if it were a Lender and had acquired its interest by assignment pursuant Section 11.10; provided that such Participant shall not be entitled to receive any greater payment under Sections 3.1, 3.2 or 3.3, with respect to any participation, than its participating Lender would have been entitled to receive, except to the extent such entitlement to receive a greater payment results from a Change in Law that occurs after the Participant acquired the applicable participation. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 11.14 as though it were a Lender; provided that such Participant agrees to be subject to Section 11.5 as though it were a Lender. Each Lender that sells a participation shall, acting solely for this purpose as a non-fiduciary agent of the Borrower, maintain a register on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participant’s interest in the Letters of Credit or other obligations under the Loan Documents (the “Participant Register”); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participant’s interest in any commitments, loans, letters of credit or its other obligations under any Loan Document) to any Person except to the extent that such disclosure is necessary to establish that such commitment, loan, letter of credit or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.
Section 11.10 Assignments. Any Lender may at any time assign to one or more Eligible Assignees all or a portion of such Lender’s rights and obligations under this Agreement (including all or a portion of its Commitment and the L/C Obligations at the time owing to it); provided that any such assignment shall be subject to the following conditions:
(i) Minimum Amounts. (A) In the case of an assignment of the entire remaining amount of the assigning Lender’s Commitment and the L/C Obligations at the time owing to it or in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, no minimum amount need be assigned; and (B) in any case not described in subsection (a)(i)(A) of this Section, the aggregate amount of the Commitment (which for this purpose includes L/C Obligations outstanding thereunder) or, if the applicable Commitment is not then in effect, the principal outstanding balance of the L/C Obligations of the assigning Lender subject to each such assignment (determined as of the date the Assignment and Acceptance with respect to such assignment is delivered to Administrative Agent or, if “Effective Date” is specified in the Assignment and Acceptance, as of the Closing Date) shall not be less than $5,000,000, unless each of Administrative Agent and, so long as no Event of Default has occurred and is continuing, the Company otherwise consents (each such consent not to be unreasonably withheld or delayed);
(ii) Proportionate Amounts. 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 with respect to the L/C Obligations or the Commitments assigned.
(iii) Required Consents. No consent shall be required for any assignment except to the extent required by Section 11.10(a)(i)(B) and, in addition:
(A) the consent of the Company (such consent not to be unreasonably withheld or delayed) shall be required unless (x) an Event of Default has occurred and is continuing at the time of such assignment or (y) such assignment is to a Lender, an Affiliate of a Lender or an Approved Fund; provided that the Company shall be deemed to have consented to any such assignment unless it shall object thereto by written notice to Administrative Agent within five (5) Business Days after having received notice thereof;
(B) the consent of Administrative Agent (such consent not to be unreasonably withheld or delayed) shall be required for assignments if such assignment is to a Person that is not a Lender, an Affiliate of such Lender or an Approved Fund; and
(C) the consent of the L/C Issuer shall be required for all assignments.
(iv) Assignment and Acceptance. The parties to each assignment shall execute and deliver to Administrative Agent an Assignment and Acceptance, together with a processing and recordation fee of $3,500 (provided that the Administrative Agent may, in its sole discretion, elect to waive such processing and recordation fee in the case of any assignment) and the assignee, if it is not a Lender, shall deliver to Administrative Agent an Administrative Questionnaire.
(v) No Assignment to Certain Persons. No such assignment shall be made to (A) a Loan Party or any of a Loan Party’s Affiliates or Subsidiaries or (B) to any Defaulting Lender or any of its Subsidiaries, or any Person who, upon becoming a Lender hereunder, would constitute a Defaulting Lender or a Subsidiary thereof.
(vi) No Assignment to Natural Persons. No such assignment shall be made to a natural person (or a holding company, investment vehicle or trust for, or owned and operated for the primary benefit of, a natural Person).
(vii) Certain Additional Payments. In connection with any assignment of rights and obligations of any Defaulting Lender hereunder, no such assignment shall be effective unless and until, in addition to the other conditions thereto set forth herein, the parties to the assignment shall make such additional payments to the Administrative Agent in an aggregate amount sufficient, upon distribution thereof as appropriate (which may be outright payment, purchases by the assignee of participations or subparticipations, or other compensating actions, including funding, with the consent of the Company and the Administrative Agent, the applicable pro rata share of L/C Disbursements previously requested but not funded by the Defaulting Lender, to each of which the applicable assignee and assignor hereby irrevocably consent), to (x) pay and satisfy in full all payment liabilities then owed by such Defaulting Lender to the Administrative Agent and each other Lender hereunder (and interest accrued thereon), and (y) acquire (and fund as appropriate) its full pro rata share of Letters of Credit in accordance with its Percentage. Notwithstanding the foregoing, in the event that any assignment of rights and obligations of any Defaulting Lender hereunder shall become effective under applicable Law without compliance with the provisions of this paragraph, then the assignee of such interest shall be deemed to be a Defaulting Lender for all purposes of this Agreement until such compliance occurs.
Subject to acceptance and recording thereof by Administrative Agent pursuant to Section 11.10(b), from and after the effective date specified in each Assignment and Acceptance, the assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Acceptance, 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 Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance 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 11.4 and 11.13 with respect to facts and circumstances occurring prior to the effective date of such assignment. Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 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 Section 11.9.
(b) Register. Administrative Agent, acting solely for this purpose as an agent of Borrowers, shall maintain at one of its offices in Chicago, Illinois, a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the
Lenders, and the Commitments of, and amounts of the L/C Obligations owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive, and Borrowers, 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 Borrowers and any Lender, at any reasonable time and from time to time upon reasonable prior notice.
(c) Any Lender may at any time pledge or grant 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 grant to a Federal Reserve Bank, and this Section shall not apply to any such pledge or grant of a security interest; provided that no such pledge or grant of a security interest shall release a Lender from any of its obligations hereunder or substitute any such pledgee or secured party for such Lender as a party hereto; provided further, however, the right of any such pledgee or grantee (other than any Federal Reserve Bank) to further transfer all or any portion of the rights pledged or granted to it, whether by means of foreclosure or otherwise, shall be at all times subject to the terms of this Agreement.
Section 11.11 Amendments. Any provision of this Agreement or the other Loan Documents may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by (a) the Loan Parties, (b) the Required Lenders, and (c) the Administrative Agent (or by the Loan Parties and the Administrative Agent with the consent of the Required Lenders), and each such amendment or waiver shall be effective only in the specific instance and for the specific purpose for which given; provided that no such amendment or waiver shall:
(i) extend or increase any Commitment of any Lender without the written consent of such Lender (it being understood that a waiver of any condition precedent set forth in Article IV or the waiver of any Default shall not constitute an extension or increase of any Commitment of any Lender);
(ii) reduce the principal of, or rate of interest specified herein on, any L/C Disbursement, or any fees or other amounts payable hereunder or under any other Loan Document, without the written consent of each Lender directly and adversely affected thereby (provided that only the consent of the Required Lenders shall be necessary (x) to amend the definition of “Default Rate” or to waive the obligation of the Borrowers to pay interest at the Default Rate or (y) to amend any financial covenant (or any defined term directly or indirectly used therein);
(iii) postpone any date scheduled for any payment of principal of, or interest on, any Reimbursement Obligation, or any fees or other amounts payable hereunder or under any other Loan Document, or reduce the amount of, waive or excuse any such payment, without the written consent of each Lender directly and adversely affected thereby;
(iv) change Section 2.5(c) or Section 11.5 in a manner that would alter the pro rata sharing of payments required thereby without the written consent of each Lender directly and adversely affected thereby;
(v) waive any condition set forth in Section 4.1 without the written consent of each Lender;
(vi) change Section 2.1(b) in a manner that would permit the expiration date of any Letter of Credit to occur after the Termination Date without the consent of the L/C Issuer; or
(vii) change any provision of this Section or the percentage in the definition of “Required Lenders” or any other provision hereof specifying the number or percentage of Lenders required to amend, waive or otherwise modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender;
provided, further, that no such amendment or waiver shall amend, modify or otherwise affect the rights or duties hereunder or under any other Loan Document of the Administrative Agent, unless in writing executed by the Administrative Agent in addition to the Borrower and the Lenders required above.
Notwithstanding anything herein to the contrary, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder (and any amendment, waiver or consent that by its terms requires the consent of all the Lenders or each affected Lender may be effected with the consent of the applicable Lenders other than Defaulting Lenders, except that (x) the Commitment of any Defaulting Lender may not be increased or extended, or the maturity of any of its Reimbursement Obligations may not be extended, the rate of interest on any of its Loans may not be reduced and the principal amount of any of its Reimbursement Obligations may not be forgiven, in each case without the consent of such Defaulting Lender and (y) any amendment, waiver or consent requiring the consent of all the Lenders or each affected Lender that by its terms affects any Defaulting Lender more adversely than the other affected Lenders shall require the consent of such Defaulting Lender.
In addition, notwithstanding anything in this Section to the contrary, if the Administrative Agent and the Borrower shall have jointly identified an obvious error or any error or omission of a technical nature, in each case, in any provision of the Loan Documents, then the Administrative Agent and the Loan Parties shall be permitted to amend such provision, and, in each case, such amendment shall become effective without any further action or consent of any other party to any Loan Document if the same is not objected to in writing by the Required Lenders to the Administrative Agent within ten Business Days following receipt of notice thereof.
Section 11.12 Headings. Section headings used in this Agreement are for reference only and shall not affect the construction of this Agreement.
Section 11.13 Costs and Expenses; Indemnification. The Borrowers agree to pay all reasonable and documented out-of-pocket costs and expenses of Administrative Agent in connection with the preparation, negotiation, syndication, and administration of the Loan Documents, including the reasonable and documented fees and reasonable and documented out- of-pocket disbursements of counsel to Administrative Agent, in connection with the preparation and execution of the Loan Documents and in connection with the transactions contemplated hereby
or thereby, and any amendment, waiver or consent related thereto, whether or not the transactions contemplated herein are consummated. The Borrowers agree to pay to Administrative Agent, the L/C Issuer and each Lender, and any other holder of any Obligations outstanding hereunder, all costs and expenses reasonably incurred or paid by Administrative Agent, such Lender, or any such holder, including reasonable attorneys’ fees and disbursements and court costs, in connection with any Default or Event of Default hereunder or in connection with the enforcement of any of the Loan Documents (including all such costs and expenses incurred in connection with any proceeding under any Debtor Relief Law involving a Borrower as a debtor thereunder). The Borrowers further agree to indemnify Administrative Agent, the L/C Issuer, each Lender, and any security trustee therefor, and their respective directors, officers, employees, agents, financial advisors, and consultants (each such Person being called an “Indemnitee”) against all losses, claims, damages, penalties, judgments, liabilities and expenses (including all reasonable and documented fees and reasonable and documented out-of-pocket disbursements of counsel for any such Indemnitee and all reasonable and documented out-of-pocket expenses of litigation or preparation therefor, whether or not the Indemnitee is a party thereto, or any settlement arrangement arising from or relating to any such litigation) which any of them may pay or incur arising out of or relating to any Loan Document or any of the transactions contemplated thereby or the direct or indirect application or proposed application of the proceeds of any Letter of Credit, other than those which arise from the gross negligence or willful misconduct of the party claiming indemnification (as determined by a court of competent jurisdiction by final and non-appealable judgment). The Borrowers, upon demand by Administrative Agent or a Lender at any time, shall reimburse Administrative Agent, or such Lender for any reasonable and documented out-of-pocket legal or other expenses (including all reasonable and documented fees and reasonable and documented out-of-pocket disbursements of counsel for any such Indemnitee) incurred in connection with investigating or defending against any of the foregoing (including any settlement costs relating to the foregoing) except if the same is directly due to the gross negligence or willful misconduct of the party to be indemnified (as determined by a court of competent jurisdiction by final and non-appealable judgment). To the extent permitted by applicable Law, the Borrowers shall not assert, and each such Person 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 the other Loan Documents or any agreement or instrument contemplated hereby or thereby, the transactions contemplated hereby or thereby, Letter of Credit or the use of the proceeds thereof. No Indemnitee shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby.
(b) The Borrowers unconditionally agree to indemnify, defend and hold harmless, and covenant not to sue for any claim for contribution against, each Indemnitee for any damages, costs, loss or expense, including response, remedial or removal costs and all fees and disbursements of counsel for any such Indemnitee, arising out of any of the following: (i) any presence, release, threatened release or disposal of any hazardous or toxic substance or petroleum by the Borrowers or any Subsidiary or otherwise occurring on or with respect to its Property (whether owned or leased), (ii) the operation or violation of any Environmental Law, whether federal, state, or local, and any regulations promulgated thereunder, by the Borrowers or any Subsidiary or otherwise occurring on or with respect to its Property (whether owned or leased), (iii) any claim for personal
injury or property damage in connection with the Borrowers or any Subsidiary or otherwise occurring on or with respect to its Property (whether owned or leased), and (iv) the inaccuracy or breach of any environmental representation, warranty or covenant by the Borrowers or any Subsidiary made herein or in any other Loan Document evidencing or securing any Obligations or setting forth terms and conditions applicable thereto or otherwise relating thereto, except, in each case, for damages arising from the willful misconduct or gross negligence of the relevant Indemnitee (as determined by a court of competent jurisdiction by final and non-appealable judgment).
Section 11.14 Set off. In addition to any rights now or hereafter granted under the Loan Documents or applicable Law and not by way of limitation of any such rights, upon the occurrence of any Event of Default, with the prior written consent of Administrative Agent, each Lender, each subsequent holder of any Obligation, and each of their respective affiliates, is hereby authorized by each Loan Party at any time or from time to time, without notice to such Loan Party, or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and to apply any and all deposits (general or special, including, but not limited to, indebtedness evidenced by certificates of deposit, whether matured or unmatured, and in whatever currency denominated, but not including trust accounts) and any other indebtedness at any time held or owing by that Lender, subsequent holder, or affiliate, to or for the credit or the account of a Loan Party, whether or not matured, against and on account of the Obligations to that Lender or subsequent holder under the Loan Documents, including, but not limited to, all claims of any nature or description arising out of or connected with the Loan Documents, irrespective of whether or not (a) that Lender or subsequent holder shall have made any demand hereunder or (b) the principal of or the interest on the amounts due hereunder shall have become due and payable pursuant to Article VIII and although said obligations and liabilities, or any of them, may be contingent or unmatured.
Section 11.15 Entire Agreement. The Loan Documents constitute the entire understanding of the parties thereto with respect to the subject matter thereof and any prior agreements, whether written or oral, with respect thereto are superseded hereby.
Section 11.16 Governing Law. This Agreement and the other Loan Documents (except as otherwise specified therein), and any claim, controversy, dispute or cause of action (whether in contract, tort or otherwise) based upon, arising out of or relating to this Agreement or any Loan Document, and the rights and duties of the parties hereto, shall be governed by and construed and determined in accordance with the internal laws of the State of New York.
Section 11.17 Severability of Provisions. Any provision of any Loan Document which is unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such unenforceability without invalidating the remaining provisions hereof or affecting the enforceability of such provision in any other jurisdiction. All rights, remedies and powers provided in this Agreement and the other Loan Documents may be exercised only to the extent that the exercise thereof does not violate any applicable mandatory provisions of law, and all the provisions of this Agreement and other Loan Documents are intended to be subject to all applicable mandatory provisions of law which may be controlling and to be limited to the extent necessary so that they will not render this Agreement or the other Loan Documents invalid or unenforceable.
Section 11.18 Excess Interest. Notwithstanding any provision to the contrary contained herein or in any other Loan Document, no such provision shall require the payment or permit the collection of any amount of interest in excess of the maximum amount of interest permitted by applicable Law to be charged for the use or detention, or the forbearance in the collection, of all or any portion of the obligations outstanding under this Agreement or any other Loan Document (“Excess Interest”). If any Excess Interest is provided for, or is adjudicated to be provided for, herein or in any other Loan Document, then in such event (a) the provisions of this Section shall govern and control, (b) neither Borrowers nor any endorser shall be obligated to pay any Excess Interest, (c) any Excess Interest that Administrative Agent or any Lender may have received hereunder shall, at the option of Administrative Agent, be (i) applied as a credit against the then outstanding principal amount of Obligations hereunder and accrued and unpaid interest thereon (not to exceed the maximum amount permitted by applicable Law), (ii) refunded to Borrowers, or (iii) any combination of the foregoing, (d) the interest rate payable hereunder or under any other Loan Document shall be automatically subject to reduction to the maximum lawful contract rate allowed under applicable usury laws (the “Maximum Rate”), and this Agreement and the other Loan Documents shall be deemed to have been, and shall be, reformed and modified to reflect such reduction in the relevant interest rate, and (e) neither Borrowers nor any endorser shall have any action against Administrative Agent or any Lender for any damages whatsoever arising out of the payment or collection of any Excess Interest. Notwithstanding the foregoing, if for any period of time interest on any of the Obligations is calculated at the Maximum Rate rather than the applicable rate under this Agreement, and thereafter such applicable rate becomes less than the Maximum Rate, the rate of interest payable on such Obligations shall remain at the Maximum Rate until the Lenders have received the amount of interest which such Lenders would have received during such period on such Obligations had the rate of interest not been limited to the Maximum Rate during such period.
Section 11.19 Construction. The parties acknowledge and agree that the Loan Documents shall not be construed more favorably in favor of any party hereto based upon which party drafted the same, it being acknowledged that all parties hereto contributed substantially to the negotiation of the Loan Documents. The provisions of this Agreement relating to Subsidiaries shall only apply during such times as Borrower has one or more Subsidiaries.
Section 11.20 Lender’s and L/C Issuer’s Obligations Several. The obligations of the Lenders hereunder are several and not joint. Nothing contained in this Agreement and no action taken by the Lenders pursuant hereto shall be deemed to constitute the Lenders a partnership, association, joint venture or other entity.
Section 11.21 Submission to Jurisdiction; Waiver of Venue; Service of Process. EACH LOAN PARTY IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE EXCLUSIVE JURISDICTION OF THE COURTS 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 ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE
HEARD AND DETERMINED IN SUCH STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE 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 OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT ADMINISTRATIVE AGENT AND LENDERS MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST BORROWER OR ITS PROPERTY IN THE COURTS OF ANY OTHER JURISDICTION.
(b) EACH LOAN PARTY IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN PARAGRAPH (a) OF THIS SECTION. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.
(c) EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 11.6(a). NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.
Section 11.22 Waiver of Jury Trial. EACH PARTY HERETO HEREBY IRREVOCABLY 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 ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON 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 AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
Section 11.23 USA Patriot Act. Each Lender that is subject to the requirements of the USA Patriot Act (Title III of Pub. L. 107 56 (signed into law October 26, 2001)) (the “Act”) hereby notifies Borrower that pursuant to the requirements of the Act, it is required to obtain, verify, and record information that identifies Borrower, which information includes the name and address of Borrower and other information that will allow such Lender to identify Borrower in accordance with the Act.
Section 11.24 Confidentiality. Each of Administrative Agent and the Lenders severally agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates’ and its Related Parties, including accountants, legal counsel and other advisors to the extent any such Person has a need to know such Information (it being understood that the Persons to whom such disclosure is made will first be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent required or requested by any regulatory authority (including any self-regulatory authority, such as the National Association of Insurance Commissioners), (c) to the extent required by applicable Laws or regulations or by any subpoena or similar legal process, (d) to any other party hereto, (e) in connection with the exercise of any remedies hereunder or under any other Loan Document or any suit, action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, 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 Borrower or any Subsidiary and its obligations, (g) on a confidential basis to (i) any rating agency in connection with rating the Borrowers or their Subsidiaries or this facility or (ii) the CUSIP Service Bureau or any similar agency in connection with the issuance and monitoring of CUSIP numbers; (h) with the prior written consent of the Company, (i) to the extent such Information (A) becomes publicly available other than as a result of a breach of this Section or (B) becomes available to Administrative Agent or any Lender on a non-confidential basis from a source other than a Loan Party or any Subsidiary or any of their directors, officers, employees or agents, including accountants, legal counsel and other advisors, or (j) to entities which compile and publish information about the syndicated loan market, provided that only basic information about the pricing and structure of the transaction evidenced hereby may be disclosed pursuant to this subsection (j). For purposes of this Section, “Information” means all information received from a Loan Party or any of the Subsidiaries or from any other Person on behalf of a Loan Party or any Subsidiary relating to a Loan Party or any Subsidiary or any of their respective businesses, other than any such information that is available to Administrative Agent or any Lender on a non-confidential basis prior to disclosure by a Loan Party or any of its Subsidiaries or from any other Person on behalf of a Loan Party or any of its Subsidiaries; provided that, in the case of information received from a Loan Party or any Subsidiary, or on behalf of a Loan Party or any Subsidiary, 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.
Section 11.25 Customary Advertising Material. Notwithstanding anything to the contrary in Section 11.24, the Borrowers consent to the publication by the Administrative Agent or any Lender of customary advertising material (including customary “tombstone” disclosure) relating to the transactions contemplated hereby using the name, product photographs, logo or trademark of the Borrower.
Section 11.26 Judgment Currency. If, for the purposes of obtaining judgment in any court, it is necessary to convert a sum due hereunder in one currency into another currency, the rate of exchange used shall be that at which, in accordance with normal banking procedures, the
applicable Lender or the Administrative Agent could purchase the first currency with such other currency on the business day preceding that on which final judgment is given. The obligation of the Loan Parties in respect of any such sum due from it to such Lender or the Administrative Agent hereunder shall, notwithstanding any judgment in a currency (the “Judgment Currency”) other than that in which such sum is denominated in accordance with the applicable provisions of this Agreement (the “Agreement Currency”), be discharged only to the extent that on the business day following receipt by such Lender or the Administrative Agent of any sum adjudged to be so due in the Judgment Currency, such Lender or the Administrative Agent may in accordance with normal banking procedures purchase the Agreement Currency with the Judgment Currency. If the amount of the Agreement Currency so purchased is less than the sum originally due to such Lender or the Administrative Agent from the Loan Parties in the Agreement Currency, the Loan Parties agree, as a separate obligation and notwithstanding any such judgment, to indemnify such Lender or the Administrative Agent against such loss. If the amount of the Agreement Currency so purchased is greater than the sum originally due to a Lender or the Administrative Agent in such currency, such Lender or the Administrative Agent agrees to return the amount of any excess to the applicable Loan Party (or to any other party who may be entitled thereto under applicable Law).
Section 11.27 Acknowledgement and Consent to Bail-In of Affected Financial Institutions.
(a) Notwithstanding anything to the contrary in any Loan Document or in any other agreement, arrangement or understanding among any such parties, each party hereto acknowledges that any liability of any Affected Financial Institution arising under any Loan Document, to the extent such liability is unsecured, may be subject to the Write-Down and Conversion Powers of the applicable Resolution Authority and agrees and consents to, and acknowledges and agrees to be bound by:
(b) the application of any Write-Down and Conversion Powers by the applicable Resolution Authority to any such liabilities arising hereunder which may be payable to it by any party hereto that is an Affected Financial Institution; and
(c) the effects of any Bail-In Action on any such liability, including, if applicable:
(i) a reduction in full or in part or cancellation of any such liability;
(ii) a conversion of all, or a portion of, such liability into shares or other instruments of ownership in such Affected Financial Institution, its parent undertaking, or a bridge institution that may be issued to it or otherwise conferred on it, and that such shares or other instruments of ownership will be accepted by it in lieu of any rights with respect to any such liability under this Agreement or any other Loan Document; or (iii) the variation of the terms of such liability in connection with the exercise of the write-down and conversion powers of the applicable Resolution Authority.
[Signature Pages to Follow]
This Letter of Credit Agreement is entered into between us for the uses and purposes hereinabove set forth as of the date first above written.
| | | | | | | | | | | |
| HAMILTON RE, LTD. |
| | | |
| | | |
| By | /s/ Megan Thomas |
| Name | Megan Thomas |
| Title | Director |
| | | |
| HAMILTON INSURANCE DESIGNATED ACTIVITY COMPANY |
| | | |
| | | |
| By | /s/ Robert S. Vetch |
| Name | Robert S. Vetch |
| Title | Director |
| | | |
| HAMILTON INSURANCE GROUP, LTD. |
| | | |
| | | |
| By | /s/ Gemma Carreiro |
| Name | Gemma Carreiro |
| Title | General Counsel |
This Letter of Credit Agreement is entered into between us for the uses and purposes hereinabove set forth as of the date first above written.
| | | | | | | | | | | |
| HAMILTON RE, LTD. |
| | | |
| | | |
| By | /s/ Megan Thomas |
| Name | Megan Thomas |
| Title | Director |
| | | |
| HAMILTON INSURANCE DESIGNATED ACTIVITY COMPANY |
| | | |
| | | |
| By | /s/ Robert S Vetch |
| Name | ROBERT S VETCH |
| Title | DIRECTOR |
| | | |
| HAMILTON INSURANCE GROUP, LTD. |
| | | |
| | | |
| By | /s/ Gemma Carreiro |
| Name | Gemma Carreiro |
| Title | General Counsel |
| | | | | | | | | | | |
| BANK OF MONTREAL, as Administrative Agent |
| | | |
| By | /s/ Nair Raghu |
| Name: Nair Raghu |
| Title: Director |
| | | |
| | | |
| | | |
| BANK OF MONTREAL, as L/C Issuer and as a Lender |
| | | |
| | | |
| By | /s/ Nair Raghu |
| Name: Nair Raghu |
| Title: Director |
[***]
CERTAIN CONFIDENTIAL PORTIONS OF THIS SCHEDULE HAVE BEEN OMITTED AND REPLACED WITH “[***]”. SUCH IDENTIFIED INFORMATION HAS BEEN EXCLUDED FROM THIS SCHEDULE BECAUSE IT IS (I) NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO THE COMPANY IF DISCLOSED.
Exhibit A
Notice of Payment Request
[Date]
[Name of Lender]
[Address]
Attention:
Reference is made to the Letter of Credit Agreement, dated as of August 13, 2021, among Hamilton Re, Ltd. (“Hamilton Re”), Hamilton Insurance Designated Activity Company (“Hamilton DAC” and together with Hamilton Re, each a “Borrower” and together, the “Borrowers”), Hamilton Insurance Group, Ltd., as guarantor, the Lenders party thereto, and Bank of Montreal, as Administrative Agent (as extended, renewed, amended, restated or otherwise modified from time to time, the “LC Agreement”). Capitalized terms used herein and not defined herein have the meanings assigned to them in the LC Agreement. [A Borrower has failed to pay its Reimbursement Obligation in the amount of $_______________. Your Revolver Percentage of the unpaid Reimbursement Obligation is $_______________] or [____________________ has been required to return a payment by a Borrower of a Reimbursement Obligation in the amount of $_______________. Your Revolver Percentage of the returned Reimbursement Obligation is $_______________.]
Very truly yours,
Bank of Montreal, as L/C Issuer
By _______________________________________
Name _________________________________
Title ___________________________________
Exhibit B
[Hamilton Re, Ltd.,
Hamilton Insurance Designated Activity Company,
and
Hamilton Insurance Group, Ltd.]
Compliance Certificate
To: Bank of Montreal, as Administrative
Agent under, and the Lenders and
L/C Issuer parties to, the Letter of Credit
Agreement described below
This Compliance Certificate is furnished to Administrative Agent, the L/C Issuer, and the Lenders pursuant to that certain Letter of Credit Agreement, dated as of August 13, 2021, among Hamilton Re, Ltd. (“Hamilton Re”), Hamilton Insurance Designated Activity Company (“Hamilton DAC” and together with Hamilton Re, each a “Borrower” and together, the “Borrowers”), Hamilton Insurance Group, Ltd., as guarantor (the “Guarantor” and together with the Borrowers, the “Loan Parties”), the Lenders party thereto, and Bank of Montreal, as Administrative Agent (as extended, renewed, amended, restated or otherwise modified from time to time, the “LC Agreement”). Unless otherwise defined herein, the terms used in this Compliance Certificate have the meanings ascribed thereto in the LC Agreement.
The Undersigned hereby certifies that:
1. I am the duly elected Chief Financial Officer of [Hamilton Re, Ltd. / Hamilton Insurance Designated Activity Company / Hamilton Insurance Group, Ltd.];
2. I have reviewed the terms of the LC Agreement and I have made, or have caused to be made under my supervision, a detailed review of the transactions and conditions of [Hamilton Re, Ltd. / Hamilton Insurance Designated Activity Company / Hamilton Insurance Group, Ltd.] during the accounting period covered by the attached financial statements;
3. The examinations described in paragraph 2 did not disclose, and I have no knowledge of, the existence of any condition or the occurrence of any event which constitutes a Default or Event of Default during or at the end of the accounting period covered by the attached financial statements or as of the date of this Compliance Certificate, except as set forth below;
4. The financial statements required by Section 6.5 of the LC Agreement and being furnished to you concurrently with this Compliance Certificate present fairly in all material respects the financial condition of the Guarantor and its Subsidiaries, as applicable, on a consolidated basis as of the date and for the periods covered thereby; and
5. Schedule I hereto sets forth financial data and computations evidencing [Hamilton Re, Ltd. / Hamilton Insurance Designated Activity Company / Hamilton Insurance Group, Ltd.]’s compliance with certain covenants of the LC Agreement, all of which data and computations are, to the best of my knowledge, true, complete and correct and have been made in accordance with the relevant Sections of the LC Agreement.
Described below are the exceptions, if any, to paragraph 3 by listing, in detail, the nature of the condition or event, the period during which it has existed and the action which the Loan Parties have taken, are taking, or propose to take with respect to each such condition or event:
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
The foregoing certifications, together with the computations set forth in Schedule I hereto and the financial statements delivered with this Certificate in support hereof, are made and delivered this _______day of _______________20___.
[Hamilton Re, Ltd.
Hamilton Insurance Designated Activity Company
Hamilton Insurance Group, Ltd.]
By ____________________________________
Name ________________________________
Title _________________________________
Schedule I
to Compliance Certificate
[Hamilton Insurance Group, Ltd.]
Compliance Calculations
for Credit Agreement dated as of __________
Calculations as of ____________, ________
A. Consolidated Indebtedness to Total Capitalization Ratio
(Section 7.14(a))
| | | | | | | | | | | |
| 1. | Consolidated Indebtedness | $___________ |
| | | |
| 2. | Consolidated Tangible Net Worth | $_________ |
| | | |
| 3. | Total Capitalization (Line A1 plus Line A2) | ______________ |
| | | |
| 4. | Ratio of Line A1 to A3 | ____:1.0 |
| | | |
| 5. | Line A4 ratio must not exceed | 0.3:1.0 |
| | | |
| 6. | Borrower is in compliance (circle yes or no) | yes/no |
B. Consolidated Tangible Net Worth (Section 7.14(b))
| | | | | | | | | | | |
| 1. | Consolidated Tangible Net Worth | $___________ |
| | | |
| 2. | Line B1 shall not be less than | $___________1 |
| | | |
| 3. | Borrower is in compliance (circle yes or no) | yes/no |
1 An amount equal to (i) $1,083,717,000 plus, (ii) 35% of Consolidated Net Income for the nine-month period ending November 30, 2021, if positive, plus (iii) for each Fiscal Year ending on or after December 31, 2022 for which there is positive Consolidated Net Income during such Fiscal Year, 35% of such positive Consolidated Net Income (provided that, for the Fiscal Year ending December 31, 2022, the Consolidated Net Income of the 2021 Stub Period shall be included in determining Consolidated Net Income for such Fiscal Year), plus (iv) 35% of net cash proceeds of the aggregate increases in common Equity Interests (by virtue of net equity issuance, debt conversion or contribution) by the Group at any time after February 28, 2021, excluding the impact of Equity Interests issued to employees or directors of the Group under its long term incentive plan or share purchase programs
Exhibit C
Assignment and Acceptance
Dated ____________, _____
Reference is made to the Letter of Credit Agreement, dated as of August 13, 2021, among Hamilton Re, Ltd. (“Hamilton Re”), Hamilton Insurance Designated Activity Company (“Hamilton DAC” and together with Hamilton Re, each a “Borrower” and together, the “Borrowers”), Hamilton Insurance Group, Ltd., as guarantor (the “Guarantor” and together with the Borrowers, the “Loan Parties”), the Lenders party thereto, and Bank of Montreal, as Administrative Agent (the “Administrative Agent”) (as extended, renewed, amended, restated or otherwise modified from time to time, the “LC Agreement”). Terms defined in the LC Credit Agreement are used herein with the same meaning.
_____________________________________________________________ (the “Assignor”) and ________________________________(the “Assignee”) agree as follows:
1. The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, the amount and specified percentage interest shown on Annex I hereto of the Assignor’s rights and obligations under the Credit Agreement as of the Effective Date (as defined below), including the Assignor’s Commitments as in effect on the Effective Date and the Obligations, if any, owing to the Assignor on the Effective Date and the Assignor’s Percentage of any outstanding L/C Obligations.
2. The Assignor (i) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim, lien, or encumbrance of any kind; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the LC Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the LC Agreement or any other instrument or document furnished pursuant thereto; and (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Loan Party or the performance or observance by any Loan Party of any of their respective obligations under the LC Agreement or any other instrument or document furnished pursuant thereto.
3. The Assignee (i) confirms that it has received a copy of the LC Agreement, together with copies of the most recent financial statements delivered to the Lenders pursuant to Section 6.5(a), (b), and (c) thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon Administrative Agent, the Assignor or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the LC Agreement; (iii) appoints and authorizes Administrative Agent to take such action as Administrative Agent on its
behalf and to exercise such powers under the LC Agreement and the other Loan Documents as are delegated to Administrative Agent by the terms thereof, together with such powers as are reasonably incidental thereto; (iv) agrees that it will perform in accordance with their terms all of the obligations which by the terms of the LC Agreement are required to be performed by it as a Lender; (v) confirms that it is an Eligible Assignee and (vi) specifies as its lending office (and address for notices) the offices set forth on its Administrative Questionnaire.
4. As consideration for the assignment and sale contemplated in Annex I hereof, the Assignee shall pay to the Assignor on the Effective Date in Federal funds the amount agreed upon between them. It is understood that commitment and/or letter of credit fees accrued to the Effective Date with respect to the interest assigned hereby are for the account of the Assignor and such fees accruing from and including the Effective Date are for the account of the Assignee. Each of the Assignor and the Assignee hereby agrees that if it receives any amount under the LC Agreement which is for the account of the other party hereto, it shall receive the same for the account of such other party to the extent of such other party’s interest therein and shall promptly pay the same to such other party.
5. The effective date for this Assignment and Acceptance shall be _____________ (the “Effective Date”). Following the execution of this Assignment and Acceptance, it will be delivered to Administrative Agent for acceptance and recording by Administrative Agent and, if required, the Borrowers.
6. Upon such acceptance and recording, as of the Effective Date, (i) the Assignee shall be a party to the LC Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the LC Agreement.
7. Upon such acceptance and recording, from and after the Effective Date, Administrative Agent shall make all payments under the LC Agreement in respect of the interest assigned hereby (including all payments of reimbursement obligations, interest and commitment fees with respect thereto) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments under the LC Agreement for periods prior to the Effective Date directly between themselves.
8 This Assignment and Acceptance shall be governed by, and construed in accordance with, the laws of the State of New York.
[Assignor Lender]
By __________________________________________
Name ______________________________________
Title _______________________________________
[Assignee Lender]
By __________________________________________
Name ______________________________________
Title _______________________________________
Accepted and consented this
_____day of ______________
Hamilton Re, Ltd.
By _________________________________
Name ____________________________
Title _____________________________
Hamilton Insurance Designated Activity Company
By _________________________________
Name ____________________________
Title _____________________________
Accepted and consented to by the Administrative
Agent and L/C Issuer this ___ day of ________
Bank of Montreal,
as Administrative Agent and L/C Issuer
By _________________________________
Name ____________________________
Title _____________________________
Annex I
to Assignment and Acceptance
The assignee hereby purchases and assumes from the assignor the following interest in and to all of the Assignor’s rights and obligations under the LC Agreement as of the Effective Date.
| | | | | | | | | | | |
Aggregate Commitment For All Lenders | Amount of Commitment Assigned | Percentage Assigned of Commitment | |
| | | |
| $____________ | $______________ | _____% | |
Exhibit D
[Hamilton Re, Ltd.]
[Hamilton Insurance Designated Activity Company]
Borrowing Base Certificate
To: Bank of Montreal, as Administrative
Agent under, and the Lenders and
L/C Issuer parties to, the Credit
Agreement described below
Pursuant to the terms of the Letter of Credit Agreement, dated as of August 13, 2021, among Hamilton Re, Ltd. (“Hamilton Re”), Hamilton Insurance Designated Activity Company (“Hamilton DAC” and together with Hamilton Re, each a “Borrower” and together, the “Borrowers”), Hamilton Insurance Group, Ltd., as guarantor (the “Guarantor” and together with the Borrowers, the “Loan Parties”), the Lenders party thereto, and Bank of Montreal, as Administrative Agent (as extended, renewed, amended, restated or otherwise modified from time to time, the “LC Agreement”), we submit this Borrowing Base Certificate to you and certify that the information set forth below and on any attachments to this Certificate is true, correct and complete as of the date of this Certificate.
This Certificate is being furnished to the Administrative Agent pursuant to Section [4.1(xi)] [6.5(i)][6.5(j)]of the LC Agreement. The undersigned officer of the Company hereby certifies to the Administrative Agent, the Issuing Bank and the Lenders that the information furnished in the calculations attached hereto as Schedule I was true and correct as of [_________________, 20__]2.
Dated as of this __________ day of _________________________.
[Hamilton Re, Ltd.]
[Hamilton Insurance Designated Activity Company]
By _____________________________________
Name _________________________________
Title __________________________________
2 The last business day of the most recently ended calendar month with respect to Section 6.5(i) or such other date as requested pursuant to Section 6.5(j).
Schedule I to Borrowing Base Certificate
Dated as of: __________________
Hamilton Re, Ltd.
| | | | | | | | | | | | | | |
Remaining Years
to Maturity | Eligible Collateral | Advance
Rate | Fair Market
Value | Adjusted Fair
Market Value
(Advance Rate
multiplied by Fair
Market Value) |
| | | | |
| | | | |
Total Adjusted Fair Market Value of Eligible Collateral for Hamilton Re, Ltd.: $____________
Total Letter of Credit Obligations of Hamilton Re, Ltd.: $__________________
Hamilton Insurance Designated Activity Company
| | | | | | | | | | | | | | |
Remaining Years
to Maturity | Eligible Collateral | Advance
Rate | Fair Market
Value | Adjusted Fair
Market Value
(Advance Rate
multiplied by Fair
Market Value) |
| | | | |
| | | | |
Total Adjusted Fair Market Value of Eligible Collateral for Hamilton Insurance Designated
Activity Company: $_______________
Total Letter of Credit Obligations of Hamilton Insurance Designated Activity Company:
$__________________
Schedule II to Borrowing Base Certificate
Dated as of: ___________________
[Attach list of Eligible Collateral by Category
(including Rating) and Concentration Limit]
Exhibit E
Security Agreement
Exhibit F
Letter of Credit Application
SCHEDULE 7.1
Existing Indebtedness
None.
FIRST AMENDMENT
THIS FIRST AMENDMENT (this “Amendment”), dated as of August 11, 2023 amends the Letter of Credit Agreement, dated as of August 13, 2021 (as amended, restated, supplemented or otherwise modified from time to time, the “Agreement”), by and among Hamilton Re, Ltd., an exempted company organized under the laws of Bermuda (the “Company”), Hamilton Insurance Designated Activity Company (“Hamilton Insurance” and together with the Company, each, a “Borrower” and together, the “Borrowers”), Hamilton Insurance Group, Ltd., an exempted company organized under the laws of Bermuda (the “Guarantor”), Bank of Montreal as L/C Issuer, and Bank of Montreal, as Administrative Agent, as provided herein, and the Lenders from time to time party thereto. Terms defined in the Agreement are, unless otherwise defined herein or the context otherwise requires, used herein as defined therein.
WHEREAS, the Borrowers desire that the Agreement be amended on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and for other good and valuable consideration (the receipt and sufficiency of which are hereby acknowledged), the parties hereto agree as follows:
1. AMENDMENT. Effective as of the First Amendment Effective Date (as defined below) the Section 1.1 of Agreement is amended to amend the definition of “Termination Date” in its entirety to read as follows:
“Termination Date” means August 13, 2024.
2. CONDITIONS PRECEDENT. This Amendment shall become effective on the date that each of the conditions precedent set forth in this Section 2 shall have been satisfied (the “First Amendment Effective Date”), and notice thereof shall have been given by the Administrative Agent to the Loan Parties and the Lenders.
2.1 Receipt of Documents. Administrative Agent shall have received this Amendment duly executed by each Loan Party, the Administrative Agent, and the Lenders.
2.2 Certificate. Administrative Agent shall have received a certificate of the corporate secretary or an assistant corporate secretary (or other senior officer) of each Loan Party, certifying (i) that the resolutions adopted by the board of directors of such Loan Party authorizing the execution, delivery and performance of the Agreement and the other Loan Documents to which it is a party, inclusive of this Amendment, have not been rescinded, amended or otherwise modified since the date of their adoption and remain in full force and effect and (ii) that none of such Loan Parties’ articles of incorporation and bylaws (or comparable organizational documents) have been amended, supplemented or otherwise modified since August 13, 2021 or, if so, attaching true, complete and correct copies of any such amendment, supplement or modification.
2.3 Opinion Letter. Administrative Agent shall have received the favorable written opinion of New York and Bermuda counsel to each Loan Party.
2.4 Costs and Expenses. Payment by Borrowers of all reasonable and documented out-of-pocket costs and expenses of Administrative Agent (including, without limitation, legal fees and expenses) owing in accordance with, and to the same extent and manner set forth in, Section 11.13 of the Credit Agreement.
2.5 Compliance with Warranties, No Default, etc. After giving effect to this Amendment, the following statements by the Loan Parties shall be true and correct (and the Loan Parties, by their execution of this Amendment, hereby represents and warrants to Administrative Agent and each Lender that such statements are true and correct as at such times):
(a) each of the representations and warranties set forth in the Agreement and in the other Loan Documents shall be and remain true and correct in all material respects as of said time, except to the extent the same expressly relate to an earlier date, in which case such representations and warranties shall be and remain true and correct in all material respects as of such earlier date; provided that any representation and warranty that is already qualified by “material” or “Material Adverse Effect” shall be true and correct in all respects;
(b) no Default or Event of Default has occurred and is continuing; and
(c) this Amendment has been duly authorized, executed, and delivered by such Loan Party and constitutes the valid and binding obligation of such Loan Party enforceable against it in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance or similar laws affecting creditors’ rights generally and general principles of equity (regardless of whether the application of such principles is considered in a proceeding in equity or at law); and the execution, delivery and performance of this Amendment by such Loan Party does not (a) contravene any provision of applicable Law or any judgment, injunction, order or decree binding upon such Loan Party or any provision of the organizational documents (e.g., charter, certificate or articles of incorporation and bylaws, certificate or articles of association and operating agreement, partnership agreement, or other similar organizational documents) of such Loan Party, (b) conflict with, contravene or constitute a default under any material indenture or agreement of or affecting such Loan Party or any of their Property, or (c) result in the creation or imposition of any Lien on any Property of such Loan Party.
3. MISCELLANEOUS.
3.1 Continuing Effectiveness, etc. This Amendment shall be deemed to be an amendment to the Agreement, and the Agreement as amended hereby, shall remain in full force and effect and is hereby ratified, approved and confirmed in each and every respect. After the effectiveness of this Amendment in accordance with its terms, all references to the Agreement in the Loan Documents or in any other document, instrument, agreement or writing shall be deemed to refer to the Agreement as amended hereby. Each other Loan Document is hereby ratified, approved and confirmed in each and every respect. Except as expressly modified in this Amendment, all of the terms, provisions and conditions of the Agreement, as heretofore amended, shall remain unchanged and in full force and effect.
3.2 Headings. Section headings used in this Amendment are for reference only and shall not affect the construction of this Amendment.
3.3 Execution in Counterparts. This Amendment may be executed in any number of counterparts, and by the different parties hereto on separate counterpart signature pages, each of which shall constitute an original, and all such counterparts taken together shall be deemed to constitute one and the same instrument. Delivery of an executed counterpart of a signature page to this Amendment by telecopy, emailed .pdf or any other electronic means that reproduces an image of the actual executed signature page shall be effective as delivery of a manually executed counterpart of this Amendment and such counterpart shall be deemed to be an original hereof. The words “execution,” “signed,” “signature,” and words of like import in this Amendment shall be deemed to include electronic signatures or electronic records, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any Applicable Law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.
3.4 Incorporation of Agreement Provisions. The provisions of Sections 1.2, 11.8, 11.13, 11.16, 11.17, 11.21 and 11.22 of the Agreement are incorporated herein by reference as if fully set forth herein, mutatis mutandis.
[Signature Pages Follow]
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written.
| | | | | | | | | | | | | | |
| HAMILTON RE, LTD. | |
| | | | |
| | | | |
| | | | |
| By | /s/ Chad Cundliffe | |
| Name | Chad Cundliffe | |
| Title | CFO | |
| | | | |
| | | | |
| HAMILTON INSURANCE DESIGNATED ACTIVITY COMPANY | |
| | | | |
| | | | |
| | | | |
| By | /s/ R. S. Vetch | |
| Name | Robert S. Vetch | |
| Title | Director | |
| | | | |
| | | | |
| HAMILTON INSURANCE GROUP, LTD. | |
| | | | |
| | | | |
| | | | |
| By | /s/ Gemma Carreiro | |
| Name Gemma Carreiro | |
| Title General Counsel | |
| | | | |
| | | | |
| | | | |
| BANK OF MONTREAL, as Administrative Agent | |
| | | | |
| By | | |
| Name | | |
| Title | | |
| | | | |
| | | | |
| | | | |
| | | | |
| BANK OF MONTREAL, as L/C Issuer and as a Lender | |
| | | | |
| | | | |
| By | | |
| Name | | |
| Title | | |
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written.
| | | | | | | | | | | | | | |
| HAMILTON RE, LTD. | |
| | | | |
| | | | |
| | | | |
| By | | |
| Name | | |
| Title | | |
| | | | |
| | | | |
| HAMILTON INSURANCE DESIGNATED
ACTIVITY COMPANY | |
| | | | |
| | | | |
| | | | |
| By | | |
| Name | | |
| Title | | |
| | | | |
| | | | |
| HAMILTON INSURANCE GROUP, LTD. | |
| | | | |
| | | | |
| | | | |
| By | | |
| Name | | |
| Title | | |
| | | | |
| | | | |
| | | | |
| BANK OF MONTREAL, as Administrative Agent | |
| | | | |
| By | | |
| | | |
| | | | |
| Name | Benjamin Mlot | |
| Title | Director | |
| | | | |
| | | | |
| | | | |
| BANK OF MONTREAL, as L/C Issuer and as a Lender | |
| | | | |
| | | | |
| By | | |
| | | |
| | | | |
| Name | Benjamin Mlot | |
| Title | Director | |
Exhibit 10.17
Execution Version
THIRD AMENDED AND RESTATED REIMBURSEMENT AGREEMENT
dated as of August 30, 2017 among
HAMILTON RE, LTD.,
as Borrower, and
UBS AG, STAMFORD BRANCH,
as Issuing Lender
TABLE OF CONTENTS
Page
| | | | | | | | | | | |
| ARTICLE I DEFINITIONS |
| | | |
| Section 1.01 | Defined Terms | 1 |
| Section 1.02 | Terms Generally | 18 |
| Section 1.03 | Accounting Terms | 19 |
| | | |
| ARTICLE II LETTERS OF CREDIT FACILITY |
| | | |
| Section 2.01 | Letters of Credit Facility | 19 |
| Section 2.02 | Termination of the Letters of Credit; Reduction of the LOC
Commitment | 24 |
| Section 2.03 | LOC Fees | 25 |
| Section 2.04 | Yield Protection | 26 |
| Section 2.05 | Taxes | 28 |
| Section 2.06 | Payments | 30 |
| Section 2.07 | Evidence of Indebtedness | 30 |
| Section 2.08 | Extension | 30 |
| Section 2.09 | Availability Period Suspension | 31 |
| Section 2.10 | Optional Cash Collateralization | 32 |
| Section 2.11 | Optional Collateral Fund Interest Re-Collateralization | 32 |
| Section 2.12 | No Prejudice to Issuing Lender Remedies | 32 |
| | | |
| ARTICLE III REPRESENTATIONS AND WARRANTIES |
| | | |
| Section 3.01 | Borrower Representations and Warranties | 32 |
| | | |
| ARTICLE IV CONDITIONS |
| | | |
| Section 4.01 | Closing Conditions | 37 |
| Section 4.02 | Conditions to Issuance and Modification | 38 |
| Section 4.03 | Conditions to Effectiveness of this Agreement | 39 |
| | | |
| ARTICLE V COVENANTS |
| | | |
| Section 5.01 | Affirmative Covenants | 39 |
| Section 5.02 | Negative Covenants | 44 |
| | | |
| ARTICLE VI COLLATERAL AND SECURITY |
| | | |
| Section 6.01 | Secured Obligations; Collateral | 46 |
| | | |
| ARTICLE VII EVENTS OF DEFAULT |
| | | |
| Section 7.01 | Events of Default | 47 |
| Section 7.02 | Reinstatement of Availability Period | 51 |
| | | |
| | | | | | | | | | | |
| ARTICLE VIII MISCELLANEOUS | |
| | | |
| Section 8.01 | Notices | 52 |
| Section 8.02 | Calculation Agent | 53 |
| Section 8.03 | Waivers; Amendments | 53 |
| Section 8.04 | Survival of Representations and Warranties | 53 |
| Section 8.05 | Indemnity | 54 |
| Section 8.06 | Counterparts; Integration; Effectiveness | 54 |
| Section 8.07 | Governing Law; Jurisdiction | 54 |
| Section 8.08 | Right of Setoff | 55 |
| Section 8.09 | Collateral Assignment of Rights | 55 |
| Section 8.10 | Expenses | 56 |
| Section 8.11 | Further Assurances | 56 |
| Section 8.12 | Headings | 56 |
| Section 8.13 | Confidentiality | 56 |
| Section 8.14 | Severability | 57 |
| Section 8.15 | WAIVER OF JURY TRIAL | 57 |
| Section 8.16 | USA Patriot Act | 57 |
| Section 8.17 | Usury Savings Clause | 57 |
| Section 8.18 | Limitation of Liability | 58 |
| | | | | |
| EXHIBITS: | |
| |
| EXHIBIT A | Form of Letter of Credit |
| EXHIBIT B | Form of Request for Issuance |
| EXHIBIT C | Form of Request for Modification |
| EXHIBIT D-1 | Form of Closing Certificate |
| EXHIBIT D-2 | Form of Additional Issuance and Modification Certificate |
| |
| ANNEXES: | |
| |
| ANNEX A | Investment Guidelines |
This THIRD AMENDED AND RESTATED REIMBURSEMENT AGREEMENT (this “Agreement”), is dated as of August 30, 2017 and, amends and restates in its entirety the Second Amended and Restated Reimbursement Agreement dated as of December 2, 2016, among Hamilton Re, Ltd., (the “Borrower”) and UBS AG, Stamford Branch, as the issuing lender (such issuing lender or its successors or permitted assigns, the “Issuing Lender”), as amended on January 18, 2017 (the “Second Amended and Restated Reimbursement Agreement”).
WHEREAS, in consideration for the execution, delivery, and performance by the Borrower of its pledge of the Collateral Account and the assets held therein or credited thereto and its obligations under the Collateral Account Control Agreement and the Security Agreement, the Issuing Lender has agreed to issue the Letters of Credit for the account of the Borrower and for the benefit of the Account Beneficiaries from time to time designated by the Borrower;
WHEREAS, in consideration for the execution, delivery, and performance by the Issuing Lender of its obligations under this Agreement, the Borrower has agreed to reimburse promptly the Issuing Lender for any draws on the Letters of Credit in accordance with the terms of this Agreement; and
WHEREAS, the parties desire to amend and restate the Second Amended and Restated Reimbursement Agreement and the Issuing Lender is willing to amend and restate the Second Amended and Restated Reimbursement Agreement and to continue to issue Letters of Credit for the account of the Borrower and for the benefit of the Account Beneficiaries from time to time designated by the Borrower on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, the Borrower and the Issuing Lender agree that on and as of the date of this Agreement, the Second Amended and Restated Reimbursement Agreement is hereby amended and restated in its entirety, and shall remain in full force and effect as expressly set forth herein.
ARTICLE I
DEFINITIONS
Section 1.01 Defined Terms. As used in this Agreement, the following terms have the meanings specified below:
“Account Beneficiaries” means, collectively, the ceding companies identified by the Borrower that are approved by the Issuing Lender from time to time; provided, that, in each case, (x) account beneficiaries must be insurance companies and (y) Borrower shall have provided such additional information in respect of the proposed account beneficiary as Issuing Lender may require (each, an “Account Beneficiary”).
“Adjusted Market Value” means, with respect to the Collateral Fund Interest, the Net Asset Value of the Collateral Fund Interest as adjusted according to the haircuts described in the Investment Guidelines.
“Administrator” means, with respect to the Collateral Fund, Citco Fund Administration (Cayman Islands) Limited or an Affiliate thereof.
“Affiliate” means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.
“Affiliated 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.
“Agreement” has the meaning assigned to it in the preamble.
“Anticipated Fees on the Unused LOC Commitment” means, prior to the Availability Period End Date, an amount equal to the product of (i) and (ii), divided by (iii),
where (i) is an amount equal to the sum of (x) and (y),
with (x) equal to the product of (a) and (b), with
(a) equal to the Tranche A LOC Commitment minus the outstanding Tranche A LOC Amount, and
(b) equal to the actual number of days during the period from and including the date of determination to and excluding the scheduled Tranche A Availability Period End Date,
and (y) equal to the product of (c) and (d), with
(c) equal to the Tranche B LOC Commitment minus the outstanding Tranche B LOC Amount,
and (d) equal to the actual number of days during the period from and including the date of determination to and excluding the scheduled Tranche B Availability Period End Date,
(ii) is 246 basis points per annum,
and (iii) is three hundred sixty (360) calendar days, each as determined by the Calculation Agent.
“Anti-Terrorism Laws” shall mean any applicable law, rule, regulation, executive order, decree, ordinance, rule or regulation related to terrorism financing or money laundering including, to the extent applicable, the USA Patriot Act, The Currency and Foreign Transactions Reporting Act (also known as the “Bank Secrecy Act”, 31 U.S.C. §§ 5311-5330 and 12 U.S.C. §§ 1818(s), 1820(b) and 1951-1959), the Trading With the Enemy Act (50 U.S.C. § 1 et seq., as amended) and Executive Order 13224 (effective September 24, 2001).
“Applicable Governmental Authority” has the meaning assigned to it in Section 2.04(a).
“Availability Period” means the period from and including the Closing Date to and excluding the Availability Period End Date; provided that the Availability Period may be suspended as provided in Section 2.09 or Article VII or extended as provided in Section 2.08.
“Availability Period End Date” means the latest of the Tranche A Availability Period End Date and the Tranche B Availability Period End Date. For the avoidance of doubt, any acceleration of the Availability Period End Date hereunder shall be an acceleration of both the Tranche A Availability Period End Date and the Tranche B Availability Period End Date.
“Availability Period Suspension” has the meaning assigned to it in Section 2.09.
“Availability Period Suspension Date” has the meaning assigned to it in Section 2.09.
“Board” means the Board of Governors of the Federal Reserve System of the United States of America.
“Borrower” has the meaning assigned to it in the preamble.
“Business Day” means any day that is not a Saturday, Sunday or other day on which commercial banks in New York City, London, or Bermuda are authorized or required by law to remain closed.
“Calculation Agent” has the meaning assigned to it in Section 8.02. “Capital Adequacy” has the meaning assigned to it in Section 2.04(b).
“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.
“Cash” means immediately available funds denominated in Dollars.
“Cash Collateralization EOD” means an Event of Default resulting solely from (i) a default described in Section 7.01(o) by the Collateral Fund or a Strategy Fund (other than a default arising from or related to a failed payment or delivery, a bankruptcy or insolvency event, a violation of law or a breach of regulation or fiduciary duty or an event that could result in material reputational risk to the Issuing Lender or its Affiliate), (ii) a default, event of default, termination event, early prepayment event or other similar condition or event (however described) described in Section 7.01(p) in respect of the Collateral Fund or a Strategy Fund (other than a default, event of default, termination event, early prepayment event or other similar condition arising from or related to a failed payment or delivery, a bankruptcy or insolvency
event, a violation of law or a breach of regulation or fiduciary duty or an event that could result in material reputational risk to the Issuing Lender or its Affiliate), (iii) a Collateral Level Breach or (iv) an event described in paragraph (iii) of the definition of Material Adverse Fund Event in respect of the Collateral Fund or a Strategy Fund, each as determined by the Calculation Agent. For the avoidance of doubt, upon the occurrence of an event that is both an Event of Default (other than a Cash Collateralization EOD) and a Cash Collateralization EOD, the Issuing Lender shall determine the categorization and treatment of such event hereunder in its sole discretion.
“Cash Equivalents” means U.S. treasuries or money market instruments that are acceptable to the Calculation Agent and held by a depository institution acceptable to the Calculation Agent.
“Closing Conditions” has the meaning assigned to it in Section 4.01.
“Closing Date” means January 2, 2014.
“Code” means the Internal Revenue Code of 1986, as amended from time to time.
“Collateral” has the meaning assigned to it in the Security Agreement.
“Collateral Account” means the securities account and the deposit account maintained for the Borrower by the Custodian pursuant to the Custody Agreement and subject to the Security Agreement and the Collateral Account Control Agreement, any other accounts established in respect of the Collateral, and any accounts in substitution therefor or in addition thereto.
“Collateral Account Control Agreement” means the Collateral Account Control Agreement dated as of December 31, 2013, among the Borrower, the Issuing Lender and the Custodian, relating to the control by the Issuing Lender of the Collateral Account, as amended from time to time.
“Collateral Fund” means Two Sigma Hamilton Fund, LLC.
“Collateral Fund Interest” means the entire interest of the Borrower in the Collateral Fund that is registered in the name of the Custodian for the benefit of the Borrower and credited to the Collateral Account.
“Collateral Level Breach” has the meaning assigned to it in Section 7.01(q).
“Compass Fund Family Feeder Funds” means Two Sigma Compass U.S. Fund, LP; Two Sigma Compass Cayman Fund, Ltd; Two Sigma Compass Enhanced U.S. Fund LP; Two Sigma Compass Enhanced Cayman Fund Ltd.; and any other fund that delivers its investment strategy through membership interests in the Two Sigma Compass Master Fund, Ltd.
“Consent and Agreement” means the Amended and Restated Consent and Agreement dated as of December 29, 2014, by and among the Collateral Fund, Two Sigma Principals, LLC, its managing member, the Issuing Lender, the Borrower and the Custodian, as amended from time to time.
“Contingent Obligations” means, as to any Person, any obligation of such Person guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends or other obligation (a “primary obligation”) of any other Person in any manner, whether directly or indirectly, including without limitation, any obligation of such Person, whether or not contingent, (i) to purchase any such primary obligation or any property constituting direct or indirect security therefor, (ii) to advance or supply funds to the primary obligor or any other person at the request or on behalf of the primary obligor (a) for the purchase or payment of any such primary obligation, or (b) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency of the primary obligor, (iii) to purchase property, securities and services primarily for the purposes of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, or (iv) otherwise to assure or hold harmless the owner of any such primary obligation against loss in respect thereof; provided that the term “Contingent Obligation” shall not include endorsements of checks for collection in deposit in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is incurred or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the contingent obligor in good faith.
“Constituent Documents” means the constituent documents of an entity.
“Control,” “Controlled,” or “Controlling” mean, as the context requires, 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.
“Custodian” means The Bank of New York Mellon.
“Custodian’s Priority Indemnity Amount” means $1,000,000.
“Custody Agreement” means the custody agreement between the Borrower and the Custodian relating to the establishment and maintenance of the Collateral Account and the Collateral.
“Default” means any occurrence of any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time or both, would, unless cured or waived, be an Event of Default.
“Derivatives Transactions” means (i) a rate swap transaction, swap option, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, currency swap transaction, cross-currency rate swap transaction, currency option, credit protection transaction, credit swap, credit default swap, credit default option, total return swap, credit spread transaction, repurchase transaction, reverse repurchase transaction, buy/sell-back transaction, securities lending transaction, or forward purchase or sale of a security, commodity or other financial instrument or
interest (including any option with respect to any of these transactions), (ii) a type of transaction that is similar to any transaction referred to in clause (i) that is currently, or in the future becomes, recurrently entered into in the financial markets and that is a forward, swap, future, option or other derivative on one or more rates, currencies, commodities, equity securities or other equity instruments, debt securities or other debt instruments, or economic indices or measures of economic risk or value, or (iii) any combination of such transactions.
“Dollars” or “$” refers to lawful money of the United States of America.
“Drawn Rate” means, with respect to each LOC Reimbursement Obligation, (i) for the period from and including the date of the applicable LOC Disbursement to but excluding the relevant LOC Reimbursement Date, LIBOR plus 350 basis points per annum, and (ii) for the period from and including the relevant LOC Reimbursement Date to but excluding the date on which such LOC Reimbursement Obligation is paid in full, LIBOR plus 800 basis points per annum.
“Early Prepayment Event” means the occurrence of any of the following, as determined by the Calculation Agent:
(i) the total Level 3 Assets of the Collateral Fund (determined on a look- through basis to the Strategy Funds) exceeds 5% of the total assets of the Collateral Fund;
(ii) as of the end of any Business Day, either:
(A) the ratio of STV GMV to the STV Strategy Allocation is greater than 13.00:1.00, or
(B) the FTV Margin-to-Equity Ratio is greater than 55%;
(iii) the Collateral Fund’s (A) STV Strategy Allocation is less than 52% or greater than 62% and/or (B) FTV Strategy Allocation is less than 38% or greater than 48% as of any date of measurement by the Administrator and is not cured by the scheduled date of delivery of the Administrator’s report under Section 5.01(a)(v);
(iv) (A) a 20% or greater decline in the Collateral Fund’s “per share” Net Asset Value as of any day since the last day of the preceding calendar month compared to the Collateral Fund’s “per share” Net Asset Value as of any day since (and including) the last day of the preceding calendar month, (B) a 25% or greater decline in the Collateral Fund’s “per share” Net Asset Value as of any day since the last day of the third preceding calendar month compared to the Collateral Fund’s “per share” Net Asset Value as of any day since (and including) the last day of the third preceding calendar month; or (C) a 40% or greater decline in the Collateral Fund’s Net Asset Value as of any day since the last day of the twelfth preceding calendar month compared to the Collateral Fund’s Net Asset Value as of any day since (and including) the last day of the twelfth preceding calendar month; or
(v) as of any Business Day, (x) the Collateral Fund fails to maintain a Net Asset Value in an amount equal to or greater than $400.0 million; (y) the Spectrum Fund Family Feeder Funds in the aggregate fail to maintain a Net Asset Value in an amount equal to or greater
than $2.0 billion; or (z) the Compass Fund Family Feeder Funds in the aggregate fail to maintain a Net Asset Value in an amount equal to or greater than $1.5 billion.
For the avoidance of doubt, upon the occurrence of an event that is both an Early Prepayment Event and an Event of Default, the Issuing Lender shall determine the categorization and treatment of such event hereunder in its sole discretion.
“Eligible Bank” means a lender which is on the most current list of banks approved by the NAIC Securities Valuation Office and acting through the branch so listed.
“Employee Plan” means, at any time, an “employee pension benefit plan” as defined in Section 3(2) of ERISA (other than a Multiemployer Plan) and subject to Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA (other than a Multiemployer Plan).
“ERISA” means the U.S. Employee Retirement Income Security Act of 1974, as amended, (or any successor legislation thereto) and the regulations promulgated and rulings issued thereunder.
“ERISA Affiliate” means each person (as defined in Section 3(9) of ERISA) that is a member of a controlled group of, or under common control with, the Borrower or a Permitted Subsidiary, within the meaning of Section 414(b), (c), (m) or (o) of the Internal Revenue Code.
“Events of Default” has the meaning assigned to it in Section 7.01.
“Excluded Taxes” means, any of the following Taxes imposed on or with respect to the Issuing Lender or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, (a) Taxes imposed on net income (however denominated), franchise or branch profits Taxes, in each case, imposed by the jurisdiction (or any political subdivision thereof) under the laws of which such recipient is organized or in which its principal office is located or, in the case of the Issuing Lender, in which its applicable lending office is located or (b) U.S. federal withholding Tax that is attributable to the Issuing Lender’s failure to comply with Section 2.05(c) and (c) any U.S. federal withholding Taxes imposed by Sections 1471 through 1474 of the Code, as of the Closing Date (or any amended or successor version that is substantively comparable and not materially more onerous to comply with) and any current or future regulations or official interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of the Code.
“Facility Termination Date” means the first Business Day falling on or after the Availability Period End Date on which no further Letters of Credit remain outstanding and all amounts owed by the Borrower under the Transaction Documents have been paid in full.
“Fedwire Funds Service” means the funds transfer service operated by the Federal Reserve Banks of the United States.
“Final LOC Expiration Date” means the first Business Day falling on or after the Availability Period End Date on which no further Letters of Credit remain outstanding.
“FTV Margin-to-Equity Ratio” has the meaning assigned to it in the Investment Guidelines.
“FTV Strategy Allocation” means that share of the Collateral Fund’s capital invested directly or indirectly in FTV plus that portion of cash and Cash Equivalents held at the Collateral Fund allocated to FTV.
“Funding Costs” means all losses, reasonable out-of-pocket costs and reasonable out-of-pocket expenses (without duplication of any interest separately payable hereunder) incurred by the Issuing Lender as a result of the Borrower’s failure to pay any LOC Reimbursement Obligation on a LOC Reimbursement Date, but only to the extent such losses, costs or expenses relate to the funding of the related LOC Disbursement.
“GAAP” means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession in the United States, that are applicable to the circumstances as of the date of determination consistently applied.
“GMV” means, with respect to the relevant positions, the sum of (i) Long Market Value of such positions plus (ii) the absolute value of Short Market Value of such positions.
“Governmental Authority” means any supranational authority, any nation or government, any state or other political subdivision thereof, any agency, authority, instrumentality, regulatory body, court, administrative tribunal, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government.
“Hamilton Insurance Services” means Hamilton Insurance Services (Bermuda), Ltd., a services company and coverholder at Lloyd’s, established solely for the purposes of enabling Borrower’s underwriters to underwrite insurance business on behalf of Syndicate 3334 managed by the Borrower’s affiliate Hamilton Underwriting Limited.
“Indebtedness” of any Person means, without duplication, (i) all obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (ii) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (iii) all obligations of such Person upon which interest charges are customarily paid, (iv) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (v) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business), (vi) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (vii) all Contingent Obligations, (viii) all Capital Lease Obligations of such Person, (ix) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty, (x) all obligations, contingent or otherwise, of such
Person in respect of bankers’ acceptances, (xi) obligations in respect of capital commitments and (xii) actual or contingent obligations of such Person in respect of Derivative Transactions. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person’s ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor.
“Indemnified Taxes” means (a) Taxes, other than Excluded Taxes, imposed on or with respect to, any payment made by or on account of any obligation of the Borrower under any Transaction Document and (b) to the extent not otherwise described in (a), Other Taxes.
“Indemnitee” has the meaning assigned to it in Section 8.05.
“Instrument” means an “Instrument” as defined in Section 9-102(a)(47) of the NY-UCC.
“Intended Tax Treatment” has the meaning assigned to it in Section 2.01(f).
“Investment Guidelines” means the investment guidelines set forth in Annex A hereto.
“Issuance Date” means, with respect to any Letter of Credit and subject to the terms, conditions and limitations set forth in this Agreement, any Business Day occurring during the Availability Period on which a Letter of Credit is issued or modified.
“Issuing Lender” has the meaning assigned to it in the preamble.
“Issuing Lender’s Maximum Potential Exposure” means, in respect of an Availability Period Suspension Date, the outstanding LOC Exposure plus the amount of any accrued interest, fees or other amounts owed or expected to be owed by the Borrower under the Transaction Documents. For the avoidance of doubt, expected interest and fees shall be equal to any interest and any LOC Fees that are expected to accrue during the period from and including the Availability Period Suspension Date to but excluding the date upon which the proceeds from such redemption request shall be delivered in full to the Collateral Account or such other account as designated by the Issuing Lender, all as determined by the Calculation Agent.
“Lender Counterparty” has the meaning assigned to it in Section 8.13.
“Letter of Credit” has the meaning assigned to it in Section 2.01(a).
“Level 3 Assets” has the meaning prescribed by the FASB Fair Value Measurement (topic 820), as may be supplemented or amended from time to time.
“LIBOR” means, for any date, a rate determined in accordance with the following provisions:
(a) LIBOR for such date shall equal the offered rate for deposits in U.S. dollars having a three-month maturity, as determined by the Issuing Lender, which appears on
the LIBOR Reference Page as of approximately 11:00 a.m. (London time) on the applicable LIBOR Determination Date.
(b) If, on any LIBOR Determination Date, such rate does not appear on the LIBOR Reference Page, then LIBOR shall be determined by the Issuing Lender on the basis of the offered quotations of the Reference Bank to prime banks in the London interbank market for Eurodollar deposits having a three-month maturity, by reference to quotations as of approximately 11:00 a.m. (London time) on such LIBOR Determination Date.
Notwithstanding the foregoing, LIBOR shall not be less than zero (0).
For purposes of clause (a) above, all percentages resulting from such calculations shall be rounded, if necessary, to the nearest one hundred thousandth of a percentage point and for the purposes of clause (b) above, all percentages resulting from such calculations shall be rounded, if necessary, to the nearest one thirty-second (1/32) of a percentage point. As used in this definition of LIBOR:
“LIBOR Determination Date” means, for any date, the second London Banking Day prior to such date.
“LIBOR Reference Page” means Reuters Page LIBOR01 (or such other page as may replace such Reuters Page LIBOR01 for purposes of displaying comparable rates).
“London Banking Day” means a day on which commercial banks are open for business (including dealings in foreign exchange and foreign currency deposits) in London.
“Reference Bank” means the London branch of UBS AG.
“Lien” means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement, and any financing lease having substantially the same economic effect as any of the foregoing).
“LOC Amount” means (i) Tranche A LOC Amount plus (ii) Tranche B LOC Amount.
“LOC Commitment” means (i) Tranche A LOC Commitment plus (ii) Tranche B LOC Commitment.
“LOC Commitment Reduction Date” has the meaning assigned to it in Section 2.02(b).
“LOC Disbursement” means a payment made by the Issuing Lender pursuant to any Letter of Credit.
“LOC Exposure” means, with respect to any date of determination, the LOC Amount plus the aggregate outstanding amount of all LOC Reimbursement Obligations, as determined by the Calculation Agent.
“LOC Fees” means, on any date of determination, an amount equal to the product of (i), (ii) and (iii), divided by (iv), where
(i) is the sum of (x) plus (y) where
(x) is
(a) prior to the Tranche A Availability Period End Date, the Tranche A LOC Commitment,
(b) on and after the Tranche A Availability Period End Date, the daily average of the Tranche A LOC Amount during the period for which the LOC Fees are being calculated,
(y) is
(a) prior to the Tranche B Availability Period End Date, the Tranche B LOC Commitment and
(b) on or after the Tranche B Availability Period End Date, the daily average Tranche B LOC Amount during the period for which the LOC Fees are being calculated,
(ii) is 246 basis points per annum or, solely with respect to each day occurring during a Reduced Fee Cash Collateralization Period, 75 basis points per annum,
(iii) is the actual number of days during the period for which the LOC Fees are being calculated, and
(iv) is three hundred sixty (360) calendar days, each as determined by the Calculation Agent.
“LOC Reimbursement Date” means, with respect to any draw request delivered by any Account Beneficiary by the close of business for the Fedwire Funds Service, the later of (i) the first Business Day that is not less than thirty (30) calendar days after the date such draw request is delivered or (ii) the third (3rd) Business Day following the end of the calendar month in which the draw request is delivered.
“LOC Reimbursement Obligation” has the meaning assigned to it in Section 2.01(b).
“Long Market Value” means, with respect to a Person, the aggregate market value of long positions traded by the Strategy Funds in which such Person directly or indirectly invests, which shall be computed using the then-current market value of such positions as determined by the Calculation Agent in good faith and commercially reasonable manner; provided that,
positions traded by FTV will be excluded from the computation of Long Market Value. In addition, positions in the following asset classes will be excluded from the definition of Long Market Value: (i) unencumbered cash held for cash management purposes, fully-paid-for US and non-US government bills, notes and bonds or other similar instruments used for cash management purposes; (ii) listed options, warrants and similar rights resulting from corporate actions in long positions in cash equities (“Excluded Positions”).
“Material Adverse Effect” means a material adverse effect on (i) the business, operations, assets, property or financial condition of (A) the Borrower and its Subsidiaries (including, for the avoidance of doubt, the Permitted Subsidiaries) taken as a whole or (B) the Collateral Fund and its Subsidiaries taken as a whole, (ii) the ability of the Issuing Lender to enforce its rights and remedies under this Agreement and the other Transaction Documents, (iii) the ability of the Borrower or the Collateral Fund to perform any of its obligations under this Agreement or any other Transaction Document to which it is a party or (iv) the binding nature, validity or enforceability of this Agreement or any other Transaction Document with respect to the Borrower or the Collateral Fund.
“Material Adverse Fund Event” means the occurrence of any of the following, as determined by the Calculation Agent:
(i) (A) the investment manager, the custodian, the administrator, the auditor or prime broker of the Borrower, the Collateral Fund or any Strategy Fund shall resign or shall cease to act in such respective capacity, and solely with respect to a prime broker of a Strategy Fund such resignation or cessation could reasonably be expected to have a material adverse effect on the business, operations, assets, property or financial condition of such Strategy Fund and (B) the Collateral Fund or any Strategy Fund shall fail to immediately appoint a replacement reasonably acceptable to the Issuing Lender;
(ii) one or more judgments for the payment of money in an aggregate amount in excess of $2,000,000 (or an equivalent amount in another currency) shall be rendered against the Borrower, the Collateral Fund or any Strategy Fund or its Related Party, and the same shall remain undischarged for a period of thirty (30) consecutive days during which execution shall not be effectively stayed, or any action shall be taken by a judgment creditor to attach the Borrower’s assets to enforce any such judgment; or
(iii) with respect to the Collateral Fund or any Strategy Fund, the occurrence of any of the following: (A) any material restriction or limitation on, or suspension or deferral of, withdrawals of partnership, membership, shareholder or similar interests (including but not limited to by the introduction or use of gates or side pockets or any restructure, reorganization or action that has a similar impact to a gate or side pocket), (B) any mandatory withdrawal of partnership, membership, shareholder or similar interests, (C) a distribution of assets other than cash, (D) a failure to determine the amount of proceeds payable to interest holders in connection with withdrawals of capital in accordance with their respective offering or other constitutional documents, or the application of a discount or haircut in respect of the payment of withdrawal proceeds, (E) an interruption, breakdown, suspension or deferral of the calculation of the value of partnership, membership, shareholder or similar interests, or (F) the imposition in whole or in
part any charge or fee in respect of a redemption or subscription of partnership, membership, shareholder or similar interests.
“Maximum Lawful Amount” has the meaning assigned to it in Section 8.17.
“Minimum Collateral Value” means an amount equal to (i) 285.7% multiplied by (ii) (a) the sum of the LOC Exposure and the Custodian’s Priority Indemnity Amount, minus (b) the sum of the amount of Cash held in the Collateral Account and the Market Value of Cash Equivalents held in the Collateral Account. In no event shall the Minimum Collateral Value be less than zero.
“Multiemployer Plan” means, at any time, a multiemployer plan (as defined in Section 4001(a)(3) of ERISA) and subject to Title IV of ERISA or Section 412 of the Code.
“NAIC” means the National Association of Insurance Commissioners and any successor thereto.
“Net Asset Value” means as of any date of determination with respect to the Borrower, the Collateral Fund or a Strategy Fund, the result in Dollars of subtracting the total value of all liabilities of such party (including but not limited to the aggregate mark-to-market value of all trading positions constituting liabilities) from the total value of all assets of such party (including but not limited to cash, deposit accounts and instruments, securities, and the aggregate mark-to-market value of all trading positions constituting assets). For purposes of this computation, amounts denominated in a currency other than U.S. dollars shall be converted to U.S. dollars at the spot rate for such currency prevailing on the date of determination of the Net Asset Value. As of any day of determination of Net Asset Value, the Calculation Agent will utilize the most recent estimated or final value and/or performance information in respect of such day provided by or on behalf of the Borrower pursuant to the Reporting Requirements set forth in Section 5.01(a) herein; provided that if such information (i) is not timely provided or delivered to the Calculation Agent or (ii) in the Calculation Agent’s determination, does not appropriately reflect the net asset value of such party, the Calculation Agent shall determine the Net Asset Value of such party and such determination shall be the Net Asset Value for such date.
“NY-UCC” means the Uniform Commercial Code as in effect in the State of New York.
“OFAC” means the U.S. Treasury Department’s Office of Foreign Assets Control.
“Optional Cash Collateralization Commencement Date” has the meaning assigned to it in Section 2.10.
“Optional Cash Collateralization Notice” has the meaning assigned to it in Section 2.10.
“Optional Cash Collateralization Period” has the meaning assigned to it in Section 2.10.
“Optional Collateral Fund Interest Re-Collateralization Resumption Date” has the meaning assigned to it in Section 2.11.
“Other Taxes” means all present or future stamp, court or documentary, intangible, excise, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Transaction Document.
“Out of Universe Positions” has the meaning assigned to it in the Investment Guidelines.
“Parent” means Hamilton Insurance Group, Ltd.
“PDF” means, when used in reference to notices via electronic mail attachment, portable document format or a similar electronic file format.
“Permitted Indebtedness” means Indebtedness of the Borrower not to exceed $525.0 million at any time.
“Permitted Liens” means: (i) Liens arising by operation of law, (ii) Liens imposed by law for Taxes or other governmental charges that are not yet due, (iii) Liens in favor of the Custodian in respect of custodial fees, each incurred or undertaken in the ordinary course of business and (iv) Liens in favor of the Issuing Lender created pursuant to the Security Documents.
“Permitted Subsidiaries” means each of Hamilton Insurance Services, Turing Re and any other entity as agreed in writing from time to time by the Issuing Lender and the Borrower.
“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.
“Reduced Fee Cash Collateralization Period” means (a) the period from and including an Optional Cash Collateralization Commencement Date to but excluding the earlier of
(i) an Optional Collateral Fund Interest Re-Collateralization Resumption Date, (ii) the last Business Day that is not more than 60 days after such Optional Cash Collateralization Commencement Date or (iii) the day on which the Tranche A LOC Commitment and Tranche B LOC Commitment are reduced in whole and (b) the period from and including the day on which the Transactions are collateralized entirely by Cash following an Early Prepayment Event to but excluding the last Business Day that is not more than 60 days after such day.
“Reinsurance Agreement” means any agreement or arrangement whereby the Borrower, as reinsurer, agrees to indemnify any other insurance or reinsurance company against
all or a portion of the insurance or reinsurance risks underwritten by such insurance or reinsurance company including any credit support agreement or arrangement in respect thereof.
“Related Parties” means, with respect to each Relevant Entity, its general partner, managing member, manager, investment adviser, trading advisor and/or any similar entity.
“Relevant Entities” means the Borrower, the Collateral Fund, each Permitted Subsidiary and each of the Strategy Funds.
“Request for Issuance” has the meaning assigned to it in Section 2.01(a)(ii)(A).
“Request for Modification” has the meaning assigned to it in Section 2.01(a)(iv)(A).
“Responsible Officer” of a Person means the chief executive officer, president, chief financial officer, principal accounting officer, treasurer, assistant treasurer or controller of such Person or any other person authorized to act on behalf of such Person from time to time. Any document delivered hereunder that is signed by a Responsible Officer of the applicable Person shall be conclusively presumed to have been authorized by all necessary corporate, partnership and other action on the part of the applicable Person, and such Responsible Officer shall be conclusively presumed to have acted on behalf of the applicable Person.
“Restricted Payment” means, with respect to any Person, any dividend, redemption or other distribution (whether in cash, securities or other property) to an equity owner of such Person, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any equity interest of such person or of any option, warrant or other right to acquire any such equity interest.
“Secured Obligations” has the meaning assigned to it in the Security Agreement.
“Security Agreement” means the Amended and Restated Security Agreement dated as of December 29, 2014, between the Borrower and the Issuing Lender, as amended from time to time. The parties agree that all references to the Security Agreement in any Transaction Document (including, without limitation, the Collateral Account Control Agreement), shall be references to the amended and restated security agreement dated as of December 29, 2014, between the Borrower and the Issuing Lender, as amended from time to time.
“Security Documents” means the Security Agreement and the Collateral Account Control Agreement.
“Short Market Value” means, with respect to a Person, the aggregate market value of certain short positions traded by the Strategy Funds in which such Person directly or indirectly invests, which shall be computed using the then-current market value of such positions as determined by the Calculation Agent in good faith and commercially reasonable manner; provided that, positions traded by FTV will be excluded from the computation of Short Market Value. In addition, Excluded Positions (as defined in the definition of Long Market Value) will be excluded from the definition of Short Market Value.
“Solvent” means, with respect to any Person on a particular date, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay such debts and liabilities as they mature and (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s property would constitute an unreasonably small capital. The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.
“Specified Indebtedness” means any Indebtedness and any other obligation in respect of borrowed money.
“Specified Transactions” means any transaction (including an agreement with respect to any such transaction) now existing or hereafter entered into between (i) the Borrower or the Collateral Fund or any Strategy Fund and (ii) the Issuing Lender or any of its Affiliates, in each case relating to any loan, extension of credit, prime brokerage transaction, repurchase or reverse repurchase transaction, securities lending transaction, Derivatives Transaction or any similar transaction.
“Spectrum Fund Family Feeder Funds” means Two Sigma Spectrum U.S. Fund, LP; Two Sigma Spectrum Cayman Fund, Ltd, and any other fund that delivers its investment strategy through membership interests in the Two Sigma Spectrum Fund, Ltd.
“Strategy Fund” means each of Two Sigma Spectrum Portfolio, LLC (“STV”) and Two Sigma Futures Portfolio, LLC (“FTV”).
“STV GMV” means the sum of (i) STV Long Market Value plus (ii) the absolute value of STV Short Market Value.
“STV Long Market Value” means, with respect to STV, the aggregate market value of long positions (exclusive of Excluded Positions) traded by STV corresponding to the Collateral Fund’s direct and indirect investments in STV, which shall be computed using the then-current market value of such positions as determined by the Calculation Agent in good faith and in a commercially reasonable manner.
“STV Short Market Value” means, with respect to STV, the aggregate market value of short positions (exclusive of Excluded Positions) traded by STV corresponding to the Collateral Fund’s direct and indirect investments in STV, which shall be computed using the then-current market value of such positions as determined by the Calculation Agent in good faith and in a commercially reasonable manner.
“STV Strategy Allocation” means that share of the Collateral Fund’s capital invested directly or indirectly in STV plus that portion of cash and Cash Equivalents held at the Collateral Fund allocated to STV.
“Subsidiary” of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the voting or economic interests are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person.
“Taxes” means any and all present or future taxes, levies, imposts, duties, deductions, assessments, fees, other charges or withholdings (including backup withholding) imposed by any Governmental Authority including penalties, interest and additions to tax imposed with respect thereto.
“Threshold Amount” means the lesser of $10.0 million or 2% of the Net Asset Value of the Borrower.
“Total Shareholder’s Equity” means, with respect to the Borrower, the sum of (i) Borrower’s capital stock (including preferred stock) outstanding taken at par value, (ii) the amount of its share premium account, and (iii) its retained earnings, minus (iv) treasury stock, each to be determined in accordance with GAAP.
“Tranche A Availability Period End Date” means 31 October 2017, or if such date is not a Business Day, the next succeeding Business Day.
“Tranche A Letters of Credit” means Letters of Credit that (i) were issued prior to the Tranche A Availability Period End Date, (ii) have an aggregate LOC Amount at the time of issuance of less than or equal to the Tranche A LOC Commitment and (iii) have not been extended on or after the Tranche A Availability Period End Date.
“Tranche A LOC Amount” means the aggregate issued and outstanding face amounts of all Tranche A Letters of Credit remaining undrawn at any time and from time to time, as determined by the Calculation Agent.
“Tranche A LOC Commitment” is equal to $75,000,000.
“Tranche A LOC Exposure” means, with respect to any date of determination, the Tranche A LOC Amount plus the aggregate outstanding amount of all LOC Reimbursement Obligations related to the Tranche A Letters of Credit, as determined by the Calculation Agent.
“Tranche B Availability Period End Date” means 31 October 2018, or if such date is not a Business Day, the next succeeding Business Day.
“Tranche B Letter of Credit” means each Letter of Credit that either (i) was issued prior to the Tranche A Availability Period End Date and, together with all previously issued and outstanding Letters of Credit, have an aggregate LOC Amount at the time of issuance greater than the Tranche A LOC Commitment (or, at the Borrower’s election, $65,000,000) and is not a Tranche A Letter of Credit, or (ii) was issued or extended on or after the Tranche A Availability
Period End Date but prior to the Tranche B Availability Period End Date, or (iii) is a Tranche A Letter of Credit that has been amended to increase the LOC Amount, resulting in all issued and outstanding Tranche A Letters of Credit having an aggregate LOC Amount that is greater than the Tranche A LOC Commitment, in which case such Tranche A Letter of Credit shall be re- designated as a Tranche B Letter of Credit.
“Tranche B LOC Amount” means the aggregate issued and outstanding face amounts of all Tranche B Letters of Credit remaining undrawn at any time and from time to time, as determined by the Calculation Agent.
“Tranche B LOC Commitment” is equal to $50,000,000.
“Tranche B LOC Exposure” means, with respect to any date of determination, the Tranche B LOC Amount plus the aggregate outstanding amount of all LOC Reimbursement Obligations related to the Tranche B Letters of Credit, as determined by the Calculation Agent.
“Transaction Documents” means collectively, this Agreement, the Letters of Credit, the Collateral Account Control Agreement, the Consent and Agreement and the Security Agreement, as the same may be amended, modified or supplemented from time to time.
“Transactions” means the execution, delivery and performance by the parties to this Agreement and the other Transaction Documents and all certificates and other documents contemplated in connection therewith.
“Turing Re” means Turing Re, Ltd., a Subsidiary of the Borrower, and an entity established solely for the purposes of entering into agreements with the Borrower in which Turing Re indemnifies the Borrower against all or a portion of the insurance or reinsurance risks underwritten by the Borrower solely out of assets contributed by third party capital providers and held in a trust account.
“USA Patriot Act” means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (Title III of Pub. L. 107-56).
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 (i) any reference herein to any Person shall be construed to include such Person’s successors and permitted assigns, (ii) 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, (iii) the word “from” in connection with a time period means “from and including” and the word “until” means “to but not including”, (iv) 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 (v) all references to agreements, documents, guidelines or instruments, laws, rules, regulations or
orders shall be to the same as amended, modified or supplemented from time to time, and at any time, except as otherwise provided herein.
Section 1.03 Accounting Terms. Except as otherwise expressly provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP.
ARTICLE II
LETTERS OF CREDIT FACILITY
Section 2.01 Letters of Credit Facility.
(a) Issuance; Form of Letters of Credit; Modifications; Limitations.
(i) Letters of Credit. Subject to the terms and conditions hereinafter set forth and to the prior satisfaction (or waiver by the Issuing Lender in its sole discretion) of the Closing Conditions, the Issuing Lender agrees (A) during the Availability Period and upon the written request of the Borrower in the form of a Request for Issuance appropriately completed in accordance with the terms thereof and Section 2.01(a)(ii), to issue one or more letters of credit hereunder, substantially in the form attached hereto as Exhibit A on the relevant Issuance Dates to the Account Beneficiary or Account Beneficiaries designated by the Borrower (each such letter of credit issued by the Issuing Lender, a “Letter of Credit”, and collectively, the “Letters of Credit”), in each case with an initial expiry date of no later than one (1) calendar year and five (5) Business Days from the Issuance Date (subject to automatic renewal in accordance with the terms thereof) and (B) to honor drawings by the relevant Account Beneficiary under each outstanding Letter of Credit; provided that, notwithstanding the foregoing, a Tranche A Letter of Credit expiry date shall be no later than one year after the Tranche A Availability Period End Date and a Tranche B Letter of Credit expiry date shall be no later than one year after the Tranche B Availability Period End Date. For record-keeping purposes, all Letters of Credit issued by the Issuing Lender shall be designated as Tranche A Letters of Credit or Tranche B Letters of Credit. In the event that the issuance of a single Letter of Credit would result in the aggregate LOC Amount of all Letters of Credit at the time of such issuance exceeding the Tranche A LOC Commitment, the Issuing Lender may choose to (a) issue two separate Letters of Credit, comprised of a Tranche A Letter of Credit (with a face amount that, when added to the face amount of all other Tranche A Letters of Credit, results in a LOC Amount equal to the Tranche A LOC Commitment attributable to all Tranche A Letters of Credit) and a Tranche B Letter of Credit (with a face amount equal to the LOC Amount attributable to all Letters of Credit in excess of the Tranche A LOC Commitment) or (b) issue a single Tranche B Letter of Credit. Except as set forth in the preceding sentence, no Tranche B Letters of Credit will be issued prior to the Tranche A Availability Period End Date unless and until the LOC Amount attributable to issued and outstanding Tranche A Letters of Credit is equal to the Tranche A LOC Commitment or, at the Borrower’s election in order to maintain the ability to amend the terms of Tranche A Letters of Credit already issued, $65,000,000. Subject to Section 2.08, no Tranche A Letter of Credit will be issued after the Tranche A Availability Period End Date and no Tranche B Letter of Credit will be issued after the Tranche B Availability Period End Date. Notwithstanding the foregoing, in the event that any Tranche A Letters of Credit are expiring on a date after the Tranche A Availability Period End Date, such Tranche A Letter of Credit, subject
to the terms and conditions set forth in this Agreement, shall be automatically renewed as a Tranche B Letter of Credit so long the Tranche B LOC Exposure will not exceed the Tranche B LOC Commitment as a result of such renewal. Any Tranche A Letters of Credit outstanding on the effective date of this Agreement shall continue to be Tranche A Letters of Credit and any Tranche B Letters of Credit outstanding on the effective date of this Agreement shall continue to be Tranche B Letters of Credit.
(ii) Issuance Procedures.
(A) The Borrower shall notify the Issuing Lender of any Letters of Credit to be issued by the delivery to the Issuing Lender of a written request for issuance in the form attached as Exhibit B (each, a “Request for Issuance”), appropriately completed and signed by a Responsible Officer of the Borrower. Such Request for Issuance (1) may not be delivered prior to the Closing Date, (2) must be received by the Issuing Lender not later than 5:00 p.m. Eastern Time on the tenth (10th) Business Day prior to the applicable Issuance Date (or such shorter time as the Issuing Lender may agree in a particular instance in its sole discretion) and (3) shall specify, in form and detail reasonably satisfactory to the Issuing Lender: (I) the proposed Issuance Date of the requested Letter of Credit; (II) the face amount thereof; (III) the name and address of the Account Beneficiary to whom such Letter of Credit is to be issued; (IV) the documents, if any, to be presented by the Account Beneficiary in case of any drawing thereunder; and (V) such other matters as the Issuing Lender may reasonably require. Additionally, the Borrower shall furnish to the Issuing Lender such other documents and information pertaining to such requested Letter of Credit issuance as the Issuing Lender may reasonably require.
(B) Unless the Issuing Lender has determined that one or more applicable conditions contained in Section 4.02 have not then been satisfied, then, subject to the terms and conditions hereof and of the other Transaction Documents, the Issuing Lender shall, on the requested Issuance Date, issue the applicable Letter of Credit to the applicable Account Beneficiary and for the account of the Borrower, in each case, as designated by the Borrower in accordance with the terms of this Agreement.
(iii) Form of Letters of Credit. Each Letter of Credit shall (A) be denominated in Dollars, (B) be issued on a Business Day, (C) have an initial expiry date that is no later than one (1) calendar year and five (5) Business Days from the Issuance Date and (D) shall be deemed automatically extended without amendment for one (1) calendar year from each expiry date, unless, at least thirty (30) days (or, in the case of a Letter of Credit issued to an Account Beneficiary domiciled in the state of Texas, Illinois or New York, sixty (60) days) prior to any expiration date, the Issuing Lender shall notify the Borrower and the Account Beneficiary in writing that it elects not to extend a Letter of Credit for any such additional period. The parties may agree in writing to alter the required notice period for an election not to extend Letters of Credit in a manner appropriate to reflect laws or regulations applicable to particular Account Beneficiaries or categories of Account Beneficiaries. Each Letter of Credit shall be issued directly to an Account Beneficiary for the account of the Borrower and the Borrower agrees that each such Letter of Credit shall be utilized in accordance with the terms and conditions applicable to it herein. For the avoidance of doubt, in the event that the Issuing Lender elects not to extend the expiry date of any Letter of Credit in accordance with the terms thereof, such
election shall not be considered to be a failure by the Issuing Lender to comply with its commitment set forth in Section 2.01(a). For the avoidance of doubt, Letters of Credit issued during the Availability Period may have an effective date no earlier than the last day of the immediately preceding calendar quarter.
(iv) Modification Procedures.
(A) Upon receipt of a request in accordance with this Section 2.01(a)(iv), the Issuing Lender may, in its sole discretion, agree to modify the Letter of Credit. The Borrower shall notify the Issuing Lender of any requests to modify any Letters of Credit by the delivery to the Issuing Lender of a written request for amendment in the form attached as Exhibit C (each, a “Request for Modification”), appropriately completed and signed by a Responsible Officer of the Borrower. Such Request for Modification must be received by the Issuing Lender not later than 5:00 p.m. Eastern Time on the tenth (10th) Business Day prior to the applicable date of modification (or such shorter time as the Issuing Lender may agree in a particular instance in its sole discretion). Such Request for Modification shall specify, in form and detail reasonably satisfactory to the Issuing Lender: (I) the Letter of Credit to be modified; (II) the proposed modification to the face amount thereof; (III) the proposed effective date of modification thereof, which shall be a Business Day; and (IV) such other matters as the Issuing Lender may reasonably require. Additionally, the Borrower shall furnish to the Issuing Lender such other documents and information pertaining to such modification as the Issuing Lender may reasonably require.
(B) As soon as practicable after receipt of any Request for Modification, then, subject to the terms and conditions hereof and of the other Transaction Documents, the Issuing Lender shall, on the requested date, make such modification to the Letter of Credit in respect of the applicable Account Beneficiary and for the account of the Borrower, in each case, as designated by the Borrower in accordance with the terms of this Agreement.
(v) Limitations on Issuance and Modification.
(A) Notwithstanding anything to the contrary contained in this Agreement, the Issuing Lender shall not be required to issue or modify any Letter of Credit if, after giving effect thereto, (1) (a) if the Letter of Credit is a Tranche A Letter of Credit the Tranche A LOC Exposure exceeds the Tranche A LOC Commitment, or (b) if the Letter of Credit is a Tranche B Letter of Credit the Tranche B LOC Exposure exceeds the Tranche B LOC Commitment, (2) more than eighty (80) Letters of Credit are outstanding, (3) any Early Prepayment Event, Default or Event of Default has occurred and is continuing, (4) the Issuing Lender has not been fully reimbursed in accordance with Section 2.01(b) below (unless such condition is waived by the Issuing Lender in its sole discretion); or (5) in respect of an individual Letter of Credit, one (1) amendment has already been made in accordance with Section 2.01(a)(iv) to that individual Letter of Credit during the then-current calendar quarter. Each request by the Borrower for the issuance or modification of any Letter of Credit shall be deemed to be a representation by the Borrower that such issuance or modification complies with the conditions set forth in the immediately preceding sentence.
(B) Notwithstanding anything to the contrary contained in this Agreement, the Issuing Lender shall not be under any obligation to permit any issuance or modification if (1) any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the Issuing Lender from permitting such issuance or modification; (2) any law, rule or regulation (including anti-money laundering rules and regulations, whether pursuant to the USA Patriot Act or otherwise) applicable to the Issuing Lender, or any requirement or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the Issuing Lender shall prohibit, or require that the Issuing Lender refrain from, the issuance or modification of letters of credit generally or such Letter of Credit, as applicable, in particular or shall impose upon the Issuing Lender with respect to such Letter of Credit any restriction, reserve or capital requirement (for which the Issuing Lender, as applicable, is not otherwise compensated hereunder) not in effect on the Closing Date; or (3) the Borrower has failed to pay the Issuing Lender, as applicable, the amounts due to such party pursuant to Section 2.04(a).
(b) Reimbursement of LOC Disbursements; Funding Costs; Approvals. If the Issuing Lender shall receive a sight draft in respect of any Letter of Credit from any Account Beneficiary, the Borrower unconditionally agrees to reimburse the Issuing Lender for the full amount of the requested disbursement (each, an “LOC Reimbursement Obligation”), on or prior to the applicable LOC Reimbursement Date (subject to Section 7.01(a)). The Borrower agrees to pay to the Issuing Lender all Funding Costs and all interest on the unpaid amount of any LOC Reimbursement Obligation as provided in Section 2.01(e) on the date the LOC Reimbursement Obligation is paid or within three (3) Business Days after demand from time to time by the Issuing Lender.
(c) Obligations Absolute. Notwithstanding anything herein to the contrary, the obligation of the Issuing Lender to make payment of any draw on any Letter of Credit, as applicable, in strict compliance with its terms will not be subject to any conditions or qualifications not expressly included and set forth in such Letter of Credit, as applicable, including any action or failure to act or to make any payment by any Lender Counterparty. The LOC Reimbursement Obligation of the Borrower 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 Letter of Credit, or this Agreement, or any term or provision therein;
(ii) any amendment, modification or waiver of or any consent to departure from all or any of the provisions of any Letter of Credit or this Agreement;
(iii) the existence of any claim, setoff, defense or other right that the Borrower or any other Person may at any time have against the Issuing Lender or any other Person, whether in connection with this Agreement or any other related or unrelated agreement or transaction;
(iv) any draft or other document presented under any Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect;
(v) payment by the Issuing Lender under any Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit; and
(vi) any other act or omission to act or delay of any kind of the Issuing Lender or any other Person to perform any obligation under any Letter of Credit or any release of any such obligation, or any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section 2.01, constitute a legal or equitable discharge of the obligations of the Borrower hereunder.
Without limiting the rights of the Account Beneficiaries to draw on any Letter of Credit, none of the Issuing Lender nor any of their respective Affiliated Parties, shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder because of any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any sight draft or any other 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 or any of their respective Affiliated Parties from liability to the Borrower to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrower to the extent permitted by applicable law) suffered by the Borrower that are caused by the Issuing Lender’s failure to exercise the agreed standard of care (as set forth below) in determining whether drafts and other documents presented under any Letter of Credit comply with the terms hereof. The parties hereto expressly agree that the Issuing Lender shall have exercised the agreed standard of care in the absence of any bad faith, gross negligence or willful misconduct on the part of the Issuing Lender.
(d) Draw and LOC Disbursement Procedures.
(i) Letter of Credit Draws. The Issuing Lender (A) shall, promptly upon its receipt of a sight draft, examine the sight draft purporting to represent a demand for payment under any Letter of Credit and (B) shall promptly notify the Borrower by electronic mail whether the Issuing Lender will make an LOC Disbursement in respect of the related Letter of Credit (without, for the avoidance of doubt, relieving the Issuing Lender of any obligation to make an LOC Disbursement) and the Issuing Lender in turn will make an LOC Disbursement in respect of the Letter of Credit; provided, that any failure to give or delay in giving such notice shall not relieve the Borrower of its LOC Reimbursement Obligations, if applicable.
(ii) LOC Disbursement Procedures. Without limiting any other provisions of this Agreement, the parties agree that, with respect to any sight draft presented in respect of any Letter of Credit, the Issuing Lender may, in its sole discretion, either (A) make payment upon such sight draft without responsibility for further investigation, regardless of any notice or
information to the contrary, or (B) refuse to make payment upon such sight draft if such document is not in strict compliance with the terms of any Letter of Credit. For the avoidance of doubt, delivery of a sight draft strictly adhering to the requirements of any Letter of Credit shall be the sole conditions to a draw under such Letter of Credit and, the Issuing Lender shall, promptly (but in no event later than three (3) Business Days) following its receipt of such sight draft, honor the related draw under such Letter of Credit.
(e) Interest. The Borrower unconditionally agrees to pay to the Issuing Lender interest on the unpaid amount of each LOC Reimbursement Obligation, for the period from and including the date of the applicable LOC Disbursement to but excluding the date on which such LOC Reimbursement Obligation is paid in full, at the Drawn Rate. Interest accrued in respect of any LOC Reimbursement Obligation shall be payable on the date the LOC Reimbursement Obligation is paid or within three (3) Business Days after demand from time to time by the Issuing Lender.
(f) Intended Tax Treatment. All parties to this Agreement covenant and agree to treat any drawing on any Letter of Credit under this Agreement as debt of the Borrower to the Issuing Lender for all federal income Tax purposes (the “Intended Tax Treatment”). All parties to this Agreement agree not to take any position on any Tax return inconsistent with the Intended Tax Treatment.
Section 2.02 Termination of the Letters of Credit; Reduction of the LOC Commitment.
(a) Termination of the Letters of Credit.
(i) Each Letter of Credit shall terminate on the earliest to occur of (A) the return by the Account Beneficiary of such Letter of Credit, (B) the termination of such Letter of Credit in accordance with Section 2.02(b), (C) the drawing of one hundred percent (100%) of such Letter of Credit and (D) its expiry date.
(ii) The Borrower may, subject to the surrender to the Issuing Lender of the related Letter of Credit by the applicable Account Beneficiary, at any time, by giving at least three (3) Business Days’ prior written notice to the Issuing Lender, terminate such Letter of Credit.
(b) Early Reduction of the LOC Commitment. The Borrower may, at its election, reduce the Tranche A LOC Commitment or the Tranche B LOC Commitment in whole or in part prior to the Tranche A Availability Period End Date or Tranche B Availability Period End Date, as applicable, upon delivery by the Borrower of at least three (3) Business Days’ prior written notice to the Issuing Lender; provided, that outstanding Tranche A Letters of Credit or Tranche B Letters of Credit, as applicable, have been terminated on or prior to that date that is one Business Day prior to the proposed early reduction date (the “LOC Commitment Reduction Date”) to the extent necessary so that the Tranche A LOC Exposure or Tranche B LOC Exposure is less than or equal to the reduced Tranche A LOC Commitment or the reduced Tranche B LOC Commitment, as applicable. On any such LOC Commitment Reduction Date pursuant to this Section 2.02(b), all amounts due to the Issuing Lender in respect of the reduced LOC Commitment (included any accrued and unpaid interest) shall be paid in full. For the avoidance
of doubt, unpaid interest shall include LOC Fees that would have been owed in respect of the amount by which the LOC Commitment was reduced from the LOC Commitment Reduction Date to the scheduled Tranche A Availability Period End Date or Tranche B Availability Period End Date, as applicable (such anticipated LOC Fees, the “LOC Fees Make-Whole Amount”). Notwithstanding the foregoing, (i) in the event of an election by the Borrower to reduce in whole the Tranche A LOC Commitment and Tranche B LOC Commitment occurring on or after the last day of a Reduced Fee Cash Collateralization Period and where (x) the Transactions are collateralized entirely by Cash and (y) no Early Prepayment Event, Default or Event of Default has occurred and is continuing, the LOC Fees Make-Whole Amount will be determined by reference to a period not to exceed ninety (90) days and (ii) in the event of an election by the Borrower to reduce in whole the Tranche A LOC Commitment and Tranche B LOC Commitment occurring after a rejection by the Issuing Lender of a request to re-collateralize the Transactions with Collateral Fund Interests pursuant to Section 2.11, the LOC Fees Make-Whole Amount will be zero.
(c) Notices. Each notice delivered by the Borrower in accordance with this Section 2.02 shall be irrevocable. Any termination of any Letter of Credit in accordance with this Section 2.02 shall result in a corresponding termination of the related Letter of Credit and shall, in each case, be permanent.
Section 2.03 LOC Fees.
(a) The Borrower agrees to pay to the Issuing Lender, from the Closing Date until the Final LOC Expiration Date, the applicable LOC Fees. For the avoidance of doubt, the LOC Fees shall continue to be payable in the event of a suspension of the Availability Period as described herein.
(b) The Borrower agrees to pay all amounts owed in connection with the issuance and maintenance of the Letters of Credit required to be made hereunder to the Issuing Lender. This shall include a $350 issuance fee for each and every Letter of Credit issued, a $350 amendment fee for each and every amendment for a specific Letter of Credit.
(c) The LOC Fees shall be paid quarterly in arrears within ten (10) calendar days following the end of each calendar quarter, in immediately available funds, to the Issuing Lender; provided, that the last LOC Fees payment date shall be the Final LOC Expiration Date. The Issuing Lender shall send an invoice to the Borrower in respect of each such payment.
(d) In the event that the Availability Period terminates in whole or in part prior to the Availability Period End Date for any reason, an early termination fee shall be immediately payable on the date of such termination in an amount equal to the LOC Fees that would have been due from the Borrower with respect to the LOC Commitment from the date the Availability Period is terminated to the previously scheduled Availability Period End Date.
(e) If (i) any Tranche A Letter of Credit outstanding as of the Tranche A Availability Period End Date terminates for any reason (other than due to the termination of any Reinsurance Agreements) after the Tranche A Availability Period End Date (but prior to its expiry date) or (ii) any Tranche B Letter of Credit outstanding as of the Tranche B Availability Period End Date
terminates for any reason (other than due to the termination of any Reinsurance Agreements) after the Tranche B Availability Period End Date (but prior to its expiry date), an early termination fee shall be immediately payable at such time in an amount equal to the LOC Fees that would have been due from the Borrower with respect to the terminated Letter of Credit from the date of its termination to its expiry date.
Section 2.04 Yield Protection.
(a) Increased Costs. In the event that by reason of any change after the Closing Date in applicable law, rule or regulation of any Swiss Governmental Authority with authority over Swiss banks or any U.S. Governmental Authority with authority over non-U.S. banks with U.S. banking business (each, an “Applicable Governmental Authority”) or in the interpretation thereof by any Applicable Governmental Authority charged with the administration, application, interpretation or implementation thereof, or by reason of the adoption or enactment, as of and following the Closing Date, of any requirement or directive (whether or not having the force of law) of any such Applicable Governmental Authority with respect to this Agreement (including, without limitation, (i) in connection with the Dodd-Frank Wall Street Reform and consumer Protection Act or (ii) promulgated by the Bank for International Settlements, the Basel Committee on Banking Regulations and Supervisory Practices (or any successor or similar authority)) that shall subject UBS AG, Stamford Branch, in its capacity as Issuing Lender, or their respective Controlling Persons to any Taxes, levy, impost, charge, fee, duty, deduction or withholding of any kind whatsoever with respect to the Letters of Credit or this Agreement or any other Transaction Document, or change the basis of taxation of UBS AG, Stamford Branch, in its capacity as Issuing Lender, with respect to any amounts payable under this Agreement or any other Transaction Document (in either case, except for Indemnified Taxes or Other Taxes indemnifiable under Section 2.05 and the imposition of, or any change in the rate of, Taxes described in clauses (c) and (d) of the definition of Excluded Tax payable by the Issuing Lender); and if any of the above-mentioned measures, events or circumstances shall result in an increase in the cost to UBS AG, Stamford Branch, in its capacity as Issuing Lender, of making, issuing, maintaining, amending or funding the Letters of Credit, or taking any other action with respect to the Letters of Credit, in each case, as contemplated under this Agreement, or a reduction in the amount of principal or interest or LOC Fees received or receivable by UBS AG, Stamford Branch, in its capacity as Issuing Lender, in respect thereof, the Borrower agrees to pay to UBS AG, Stamford Branch, in its capacity as Issuing Lender, as applicable, an amount equal to such additional cost, reduction, other loss or damage or foregone interest or other amount; provided, however, that UBS AG, Stamford Branch, in its capacity as Issuing Lender, as applicable, shall only exercise its rights under this Section 2.04(a) if it exercises such rights under all other similar transactions to which it is a party.
(b) Capital Requirements. In the event that UBS AG, Stamford Branch, in its capacity as Issuing Lender, shall have determined, after the Closing Date, a change in, or any introduction, implementation or adoption of, any applicable law, rule or regulation of an Applicable Governmental Authority regarding capital adequacy, liquidity requirements, capital maintenance, solvency, reserves, weighting, foreign claims of deposits or other similar matters (hereafter “Capital Adequacy”) or any change in the interpretation, implementation or administration thereof by any Applicable Governmental Authority, charged with the interpretation or administration thereof, or any requirement or directive regarding Capital
Adequacy (whether or not having the force of law) of any Applicable Governmental Authority (including, without limitation, (i) in connection with the Dodd-Frank Wall Street Reform and consumer Protection Act or (ii) promulgated by the Bank for International Settlements, the Basel Committee on Banking Regulations and Supervisory Practices (or any successor or similar authority)), has or would have the effect of reducing the rate of return on capital of UBS AG, Stamford Branch, in its capacity as Issuing Lender or their respective Controlling Persons as a consequence of the obligations of UBS AG, Stamford Branch, in its capacity as Issuing Lender, under or with respect to this Agreement, the Letters of Credit, as applicable, to a level below that which UBS AG, Stamford Branch, in its capacity as Issuing Lender or their respective Controlling Persons could have achieved but for such introduction, adoption, change, request or directive (taking into consideration the policies of UBS AG, Stamford Branch, in its capacity as Issuing Lender or their respective Controlling Persons with respect to Capital Adequacy) (in any case other than with respect to such a change or proposed change regarding Taxes, the consequences of which are addressed in Section 2.04(a)), the Borrower agrees to pay to UBS AG, Stamford Branch, in its capacity as Issuing Lender, as applicable, such additional amount or amounts as will compensate UBS AG, Stamford Branch, in its capacity as Issuing Lender or their respective Controlling Persons for such reduction; provided, however, that UBS AG, Stamford Branch, in its capacity as Issuing Lender, as applicable, shall only exercise its rights under Section 2.04(b) if it exercises such rights under all other similar transactions to which it is a party. The Issuing Lender shall describe its allocation of these additional amounts to this Agreement in reasonable detail.
(c) Requests for Compensation. UBS AG, Stamford Branch, in its capacity as Issuing Lender, will promptly notify the Borrower of any event of which it has actual knowledge entitling UBS AG, Stamford Branch, in its capacity as Issuing Lender, to compensation and the amount of such compensation as set forth in this Section 2.04 and the Borrower shall compensate UBS AG, Stamford Branch, in its capacity as Issuing Lender, as applicable, within thirty (30) calendar days of such demand being made by UBS AG, Stamford Branch, in its capacity as Issuing Lender, as applicable; provided, that the Borrower shall be responsible for compliance herewith and the payment of increased costs or other amounts under this Section 2.04 only to the extent that any change in law, rule, regulation, interpretation or administration giving rise thereto occurs after the Closing Date. UBS AG, Stamford Branch, in its capacity as Issuing Lender, shall furnish to the Borrower a certificate setting forth the basis, amount and calculation of each request by such party for compensation under this Section 2.04. Failure or delay on the part of UBS AG, Stamford Branch, in its capacity as Issuing Lender, to demand compensation pursuant to this Section 2.04 shall not constitute a waiver of the right of UBS AG, Stamford Branch, in its capacity as Issuing Lender, to demand such compensation; provided, that the Borrower shall not be required to compensate UBS AG, Stamford Branch, in its capacity as Issuing Lender, pursuant to this Section 2.04 for any increased costs incurred or reductions suffered or other loss, damage, foregone interest or amount suffered more than ninety (90) calendar days prior to the date that UBS AG, Stamford Branch, in its capacity as Issuing Lender, notifies the Borrower of the change in law, rule, regulation, interpretation or administration giving rise to such increased costs or reductions or other loss, damage, foregone interest or amount suffered and of the intention of UBS AG, Stamford Branch, in its capacity as Issuing Lender, to claim compensation thereof (except that, if the change in law, rule, regulation, interpretation or administration giving rise to such increased costs or reductions is retroactive, then the ninety (90) calendar day period
referred to above shall be extended to include the period of retroactive effect thereof). For the avoidance of doubt, the Borrower shall have no liability under this Section 2.04 for any change in reserve, Tax, capital adequacy and other requirements of law or related to the imposition of or change in withholding or other Taxes until such change has become effective and the Issuing Lender, as applicable, is liable for and otherwise subject to increased costs, reductions or other amounts.
(d) UBS AG, Stamford Branch, in its capacity as Issuing Lender, shall use reasonable efforts (consistent with its internal policy applied on a non-discriminatory basis and legal and regulatory restrictions) to designate a different existing office that is an Eligible Bank for purposes of this Agreement or to take other appropriate actions if such designations or actions, as the case may be, will avoid the need for or relieve, the amount of, any increased costs of, any amounts payable or otherwise payable under this Section 2.04 and will not, in the reasonable opinion of UBS AG, Stamford Branch, in its capacity as Issuing Lender, as applicable, be otherwise disadvantageous to UBS AG, Stamford Branch, in its capacity as Issuing Lender. Reasonable out-of-pocket costs and expenses of such mitigation shall be at the expense of Borrower; provided, that UBS AG, Stamford Branch, in its capacity as Issuing Lender, shall not incur any such costs and expenses without the prior written approval of the Borrower; provided, further, that, in the absence of such approval, the UBS AG, Stamford Branch, in its capacity as Issuing Lender, will have no obligations under this Section 2.04(d).
Section 2.05 Taxes.
(a) Any and all payments by or on account of any obligation of the Borrower under any Transaction Document shall be made free and clear of and without deduction or withholding for any Taxes, except as required by applicable law. If any applicable law (as determined in the good faith discretion of the Borrower) requires the deduction or withholding of any Tax from any such payment by or for the account of the Borrower, then the Borrower shall be entitled to make such deduction or withholding and shall timely pay the full amount deducted or withheld to the relevant Governmental Authority in accordance with applicable law; provided, that if the Borrower, shall be required by law to deduct or withhold any Indemnified Taxes from such payments, then (i) the sum payable by the Borrower, shall be increased as necessary so that after making all required deductions or withholding (including deductions and withholding amounts applicable to additional sums payable under this Section 2.05) the Issuing Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions and (iii) the Borrower shall timely pay the full amount deducted or withheld to the relevant Governmental Authority in accordance with applicable law.
(b) In addition, the Borrower shall pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.
(c) The Borrower shall indemnify the Issuing Lender, within twenty (20) calendar days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes payable or paid by the Issuing Lender or imposed on or with respect to, any payment by or on account of any obligation of the Borrower hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section 2.05) and any penalties, interest, additions to Tax and reasonable expenses arising therefrom or with respect
thereto (except to the extent arising from the gross negligence or willful misconduct of the Issuing Lender) whether or not correctly or legally imposed.
(d) As soon as reasonably practicable after any payment of Indemnified Taxes by the Borrower to a Governmental Authority, and in any event within thirty (30) calendar days of such payment being made, the Borrower shall deliver to the Issuing Lender, 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 Issuing Lender, as applicable.
(e) On or prior to the Closing Date, the Issuing Lender shall provide the Borrower with two (2) accurate, complete and signed originals of U.S. Internal Revenue Service Form W- 8ECI, W-8BEN, W8-IMY or any applicable successor forms, along with necessary supporting documentation, certifications and attachments, if any, indicating that the Issuing Lender, is, on the date of delivery thereof, entitled to receive payments of interest hereunder free from withholding of United States Federal Tax. To the extent it is legally entitled to do so by applicable law, from time to time thereafter, the Issuing Lender, shall deliver renewals or additional copies of such forms (or successor forms) on or before the date that such forms expire or become obsolete upon the written request of the Borrower; additionally, to the extent it is legally entitled to do so under applicable law, the Issuing Lender agrees to deliver to the Borrower upon Borrower’s written request such forms (or successor forms) after the occurrence of any event (including a change in its applicable lending office) requiring a change in its most recent forms delivered to the Borrower establishing an exemption from, or reduction of, United States withholding tax on payment of interest hereunder.
(f) If the Issuing Lender determines in its sole discretion that it has actually received any refund of Tax of Indemnified Taxes or Other Taxes with respect to which the Borrower has paid any additional amount pursuant to this Section 2.05, the Issuing Lender, shall reimburse the Borrower within thirty (30) calendar days in an amount equal to the net benefit, after Tax, and net of all reasonable out-of-pocket expenses incurred by the Issuing Lender, in connection with such refund and without interest (other than interest paid by the relevant Governmental Authority with respect to such refund). In the event that the reimbursement described in the preceding sentence is determined to have been paid to the Borrower in error, the Borrower shall return such amount to the Issuing Lender (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) within twenty (20) calendar days of the Borrower’s receipt of such notice of error. Nothing in this Section 2.05(f) shall require the Issuing Lender, to disclose or make available its Tax returns or any other information it deems to be confidential.
(g) The agreements of the Borrower in this Section 2.05 shall survive the payment of all amounts payable hereunder and the termination of this Agreement in accordance with its terms.
Section 2.06 Payments.
(a) Payments Generally.
(i) Unless otherwise specified herein, the Borrower shall be obligated to make each payment required to be made by it hereunder prior to the close of business for the Fedwire Funds Service on the date when due and in immediately available funds, without set off or counterclaim. Any amounts received after such time on any date may, in the discretion of the Issuing Lender, be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon and for determining whether an Early Prepayment Event, a Default or an Event of Default has occurred. All such payments shall be made by wire transfer to the Issuing Lender to the accounts specified by the Issuing Lender in a written notice to the Borrower at least five (5) Business Days prior to payment. If any payment hereunder shall be due on a calendar 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.
(ii) Except as otherwise provided herein, all interest payable hereunder shall be computed on the basis of a year of three hundred sixty (360) calendar days and the actual number of calendar days elapsed.
(b) Late Payments. All amounts due and payable to the Issuing Lender in connection with this Agreement but not paid as of the due date therefor (without regard to grace periods) (other than LOC Reimbursement Obligations not paid when due, which shall accrue interest at the Drawn Rate) shall accrue interest at a rate equal to LIBOR plus two hundred (200) basis points per annum, computed from and including the date payment was due to (but not including) the date of payment in full.
Section 2.07 Evidence of Indebtedness. The Issuing Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrower to the Issuing Lender resulting from the Issuing Lender’s interest in the Letters of Credit, including the amounts of principal and interest payable and paid to the Issuing Lender from time to time hereunder in respect of unreimbursed LOC Reimbursement Obligations. The Issuing Lender shall maintain an account in which it shall record (a) the amount of each LOC Disbursement made hereunder, (b) the amount of any LOC Reimbursement Obligations and interest payable from the Borrower to the Issuing Lender hereunder and (c) the amount of any sum received by the Issuing Lender. The entries made in the accounts maintained pursuant to this Section 2.07 shall be prima facie evidence of the existence and amounts of the obligations recorded therein absent manifest error; provided, that the failure of the Issuing Lender to maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrower to pay such amounts in accordance with the terms of this Agreement.
Section 2.08 Extension. If (i) the Borrower delivers a written notice to the Issuing Lender not less than 80 days before the scheduled Tranche A Availability Period End Date requesting a one (1) calendar year extension of the Tranche A Availability Period End Date thereof and (ii) the Issuing Lender agrees in writing to such request not less than 60 days before the scheduled Tranche A Availability Period End Date (or as otherwise may be agreed between
the Borrower and the Issuing Lender from time to time), then, the Availability Period shall be extended by one (1) calendar year and the Tranche A Availability Period End Date shall be delayed by one (1) calendar year; provided, that a failure by the Issuing Lender to deliver written notification to the Borrower of its decision within the required timing, shall be deemed a refusal by the Issuing Lender to extend the Availability Period.
If (i) the Borrower delivers written notice to the Issuing Lender not less than one year and 80 days before the scheduled Tranche B Availability Period End Date requesting a one (1) calendar year extension of the Tranche B Availability Period End Date thereof and (ii) the Issuing Lender agrees in writing to such request not less than one year and 60 days before the scheduled Tranche B Availability Period End Date (or as otherwise may be agreed between the Borrower and the Issuing Lender from time to time), then, the Tranche B Availability Period shall be extended by one (1) calendar year and the Tranche B Availability Period End Date shall be delayed by one year; provided, that a failure by the Issuing Lender to deliver written notification to the Borrower of its decision within the required timing, shall be deemed a refusal by the Issuing Lender to extend the Availability Period.
Section 2.09 Availability Period Suspension. Immediately upon the occurrence of any Early Prepayment Event, the Availability Period shall be automatically suspended (an “Availability Period Suspension”). The effective date of such suspension shall be the “Availability Period Suspension Date”. On the Availability Period Suspension Date, the Availability Period shall be suspended indefinitely (subject to reinstatement as described in Section 7.02) and no further Letters of Credit may be issued. The Borrower shall be obligated: (a) no later than the calendar day immediately following the Availability Period Suspension Date, to cause the Custodian to duly submit an effective and irrevocable redemption notice in respect of the Collateral Fund Interest for an amount not less than the Issuing Lender’s Maximum Potential Exposure, (b) to deposit in the Collateral Account or such other account as instructed by the Issuing Lender (which, for the avoidance of doubt, may be an account of the Issuing Lender) until the Facility Termination Date an amount in Cash not less than the Issuing Lender’s Maximum Potential Exposure, such deposit to be made (i) no later than the third Business Day following the end of the calendar month in which the Availability Period Suspension occurs, or (ii) if such Availability Period Suspension Date occurs less than fifteen (15) days prior to the end of a calendar month (not including the Availability Period Suspension Date and the last day of the month) no later than the third Business Day following the end of the immediately succeeding calendar month and (c) to deliver evidence reasonably satisfactory to the Issuing Lender of the deposit of Cash pursuant to Section 2.09(b) above. For the avoidance of doubt, if the Borrower fully and timely complies with its obligations under this Section 2.09, no Event of Default shall be deemed to occur as a result of the Early Prepayment Event giving rise to such obligations. The Issuing Lender shall be entitled to immediately apply such deposited Cash to repay all drawn amounts under a Letter of Credit and any interest, fees or other amounts owing to the Issuing Lender under any Transaction Document from time to time. Promptly following the Facility Termination Date, any Cash held by the Issuing Lender that is not needed to repay amounts drawn by the Account Beneficiaries (together with any accrued interest or fees) or to satisfy any other obligations of the Borrower under the Transaction Documents shall be returned or released to the Borrower.
Section 2.10 Optional Cash Collateralization. Not more than one (1) time during the term of this Agreement, provided that no Early Prepayment Event, Default or Event of Default has occurred and is continuing, the Borrower may cause the Transactions to be collateralized entirely by Cash (the period of effectiveness of such cash collateralization, an “Optional Cash Collateralization Period”), beginning on any Business Day (such Business Day, an “Optional Cash Collateralization Commencement Date”) by (a) not less than five (5) Business Days’ prior to such Optional Cash Collateralization Commencement Date, delivering to the Issuing Lender written notice of its intent to provide Cash collateral (such notice, an “Optional Cash Collateralization Notice”) as of the relevant Optional Cash Collateralization Commencement Date and (b) delivering to the Collateral Account on or prior to the Optional Cash Collateralization Commencement Date an amount of Cash not less than the sum of (i) the LOC Exposure plus (ii) the amount of any accrued interest, fees or other amounts owed by the Borrower under the Transaction Documents. Compliance with this Section 2.10 shall be determined by the Issuing Lender on the Optional Cash Collateralization Commencement Date and at the end of each Business Day during the Optional Cash Collateralization Period. During an Optional Cash Collateralization Period, no further Letters of Credit may be issued unless the Issuing Lender first determines that each new Letter of Credit has, prior to issuance, been fully collateralized with Cash as described in this Section 2.10.
Section 2.11 Optional Collateral Fund Interest Re-Collateralization. Provided that no Early Prepayment Event, Default or Event of Default has occurred during the Optional Cash Collateralization Period, the Borrower may request in writing that as of any Business Day (such Business Day, an “Optional Collateral Fund Interest Re-Collateralization Resumption Date”) the Transactions to be collateralized again by Collateral Fund Interests, subject to the agreement of the Issuing Lender in its sole discretion.
Section 2.12 No Prejudice to Issuing Lender Remedies. For the avoidance of doubt, Section 2.10 and Section 2.11 shall in no way restrict or limit the rights or remedies available to the Issuing Lender arising under the Transaction Documents as a result of the occurrence of any Early Prepayment Event, Default or Event of Default.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.01 Borrower Representations and Warranties. The Borrower represents and warrants to the Issuing Lender, as of the date hereof, and as of each Issuance Date, as follows:
(a) Organization; Powers. Each of the Borrower, the Collateral Fund and each Permitted Subsidiary (i) is duly formed in accordance with its Constituent Documents, validly existing and in good standing under the laws of its jurisdiction of formation or incorporation, (ii) has obtained all material governmental and other consents, licenses or approvals that are required to have been obtained by it in order to carry on its business as now being conducted and as proposed to be conducted (including, as to the Borrower, with respect to the execution, delivery and performance of the Transaction Documents), and such consents are in full force and effect and all conditions of any such consents have been complied with, and (iii) is duly qualified and in good standing in all jurisdictions other than its jurisdiction of formation or incorporation
where such qualification is required, if the failure to be so qualified or in good standing would materially and adversely impact (a) the financial condition, operations or business of the Borrower or the Collateral Fund or (b) the ability of the Borrower or the Collateral Fund to perform its obligations under the Transaction Documents.
(b) Authorization; Enforceability. The execution of the Transaction Documents to which the Borrower or the Collateral Fund is a party are within the company powers of such entity and such Transaction Documents have been duly authorized by all necessary company and, if required, member action on the part of such entity. Each of the Transaction Documents to which the Borrower or the Collateral Fund is a party has been duly executed and delivered by such entity and, assuming the due execution and delivery of such Transaction Documents by the other parties thereto, constitutes, or will constitute, legal, valid and binding obligations of such entity, enforceable against such entity in accordance with its terms, subject, as to enforcement, to applicable bankruptcy, insolvency, reorganization, moratorium and other similar laws affecting creditors’ rights generally, the rights of creditors of insurance companies and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law.
(c) Approvals; No Conflicts. The Transaction Documents to which the Borrower or the Collateral Fund is a party (i) do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority or any third party with respect to such entity, except such as have been obtained or made, (ii) do not violate any applicable law or regulation or the Constituent Documents of the Borrower or the Collateral Fund, or any order of any Governmental Authority applicable to such entity, (iii) do not violate or result in a default or other conflict under any material agreement or other instrument binding upon the Borrower or the Collateral Fund or any of its assets, or give rise to a right thereunder to require any payment to be made by such entity and (iv) will not result in the creation or imposition of any Lien on the Collateral except as expressly permitted under the terms of such Transaction Documents.
(d) Compliance with Laws and Agreements. Each of the Borrower, the Collateral Fund and each Permitted Subsidiary is in compliance in all material respects with all laws, rules, regulations and orders of any Governmental Authority applicable to it or its properties, all agreements to which it is a party and other instruments binding upon it or its property.
(e) Taxes; Tax Matters. (i) Each of the Borrower, the Collateral Fund and each Permitted Subsidiary (except, with respect to such Permitted Subsidiary, where such failure could not reasonably be expected to have a Material Adverse Effect) has timely filed or caused to be filed all Tax returns and reports required to have been filed by it and has paid or caused to be paid all Taxes required to have been paid by it; and (ii) the Borrower is not required to make any deduction for or on account of Indemnified Taxes from any payment it may make in respect of the Transaction Documents. The Borrower has been fully and properly advised by its own tax advisors, who are fully expertized, regarding the U.S. tax implications of relevant judicial and Internal Revenue Service authority applicable to the Transactions, to the Borrower and to the Borrower’s U.S. shareholders, including the application of Sections 1291-1298 and Sections 951-964 of the Code and regulations (final or proposed) promulgated thereunder.
(f) Full Disclosure. The Borrower, the Collateral Fund and the Permitted Subsidiaries have disclosed to the Issuing Lender all agreements, instruments and corporate or
other restrictions to which they are subject, and all other matters known to them, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. None of (a) the Constituent Documents or (b) any other report, financial statement, exhibit, schedule or other information furnished by or on behalf of the Borrower to the Issuing Lender in connection with the negotiation of any Transaction Document or included therein or delivered pursuant thereto contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading.
(g) Misconduct. None of the Borrower, the Collateral Fund or any Permitted Subsidiary nor any of their respective Related Entities (i) is subject to any action, investigation, suit or other proceeding by any Governmental Authority for reasons of any alleged breach of any material law, rule or any regulation or other similar reason or (ii) is accused, by any Governmental Authority of (a) wrongdoing or fraud or (b) breach of any material law, rule or any regulation or other similar conduct.
(h) Representations and Warranties in Other Transaction Documents. Each of the representations and warranties made by the Borrower and the Collateral Fund in the Transaction Documents to which it is a party, are true, complete and correct in all material respects as of the date given, subject to any qualifications and limitations contained therein; provided, that, in each case, such materiality qualifier shall not be applicable to any representations or warranties that are already qualified or modified by materiality in the text thereof.
(i) Good Title to Collateral; Absence of Liens. The Borrower has good title to all of its property and assets and owns the Collateral free and clear of all Liens (other than Permitted Liens and the Liens in favor of the Issuing Lender). The Borrower has acquired or shall acquire its ownership in the Collateral in good faith without notice of any adverse claim (within the meaning given to such term by Section 8-102(a)(1) of the NY-UCC). The Borrower does not own any real property. Other than pursuant to the Security Documents, the Borrower has not made or authorized any registrations, filings or recordations in any jurisdictions involving a security interest in any Collateral.
(j) Security Interest. The Security Documents, together with the filing of a UCC-1 financing statement by the Issuing Lender with the District of Columbia Recorder of Deeds and the registration of the Security Agreement as a charge in accordance with the Bermuda Companies Act 1981, will be effective to create in favor of the Issuing Lender a legal, valid and continuing Lien in the Collateral and such Lien will constitute a perfected Lien on the Collateral, securing the payment of the Secured Obligations and enforceable against the Borrower and all third parties, subject only to Permitted Liens; and, upon the filing of such UCC-1 financing statement by the Issuing Lender, all filings and other actions necessary to perfect the Issuing Lender’s security interest in the Collateral will have been duly made or taken and are in full force and effect. Other than in respect of Permitted Liens, the Borrower does not have any registrations, filings, recordations, or agreements granting “control” (as provided in Section 9- 106 of the NY-UCC), in any of the Collateral, including, without limitation, the filings of UCC-1 financing statements or any other encumbrances.
(k) Indebtedness. The Borrower has no Indebtedness other than (A) Permitted Indebtedness and (B) Indebtedness incurred under the Transaction Documents. Hamilton Insurance Services has no Indebtedness. Turing Re has no Indebtedness that is recourse to the assets of the Borrower or the Collateral Fund. The Borrower has not guaranteed any Indebtedness of a Permitted Subsidiary.
(l) Litigation Matters. There are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of the Borrower, threatened in writing against any Relevant Entity or any Related Party (i) that seek to challenge the validity or enforceability of the Transaction Documents or the transactions contemplated thereunder or (ii) that would reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect.
(m) No Material Adverse Effect. There has been no Material Adverse Effect since the last calendar day of the fiscal year most recently ended.
(n) Financial Condition. (i) The Borrower has delivered to the Issuing Lender copies of its consolidated balance sheet together with the related statements of income, shareholders’ equity and cash flows (A) as of and for the fiscal year ended December 31, 2012, all reported on by its auditor (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 and cash flows of the Borrower in accordance with GAAP consistently applied and (B) as of and for the nine-month period ended September 30, 2013 all reported on by its auditor (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 and cash flows of the Borrower in accordance with GAAP consistently applied (collectively, the “Financial Statements”); (ii) the Financial Statements (A) were prepared in accordance with the Borrower’s books of account and records, (B) present fairly in all material respects the financial condition and results of operations and cash flows of the Borrower as at the dates and for the periods covered in them as stated, and the results of its operations and its sources and applications of funds for the fiscal period then ended and (C) have been prepared in accordance with GAAP applied consistently throughout the periods involved (other than the fact that interim financial statements do not contain footnotes and are subject to year-end adjustments); and (iii) the Borrower and the Collateral Fund are, individually and collectively, Solvent and the Borrower and the Permitted Subsidiaries are collectively Solvent.
(o) Investment Company. The Borrower is not required to register as an “investment company” as defined in the Investment Company Act of 1940, as amended.
(p) ERISA. The following representations shall be repeated on each day during the term of this Agreement:
(i) None of the Borrower, a Permitted Subsidiary nor any ERISA Affiliate has during the past six years maintained, contributed to or had an obligation to contribute to any Employee Plans or Multiemployer Plans, or has any present intention to do so or otherwise has
liability with respect to such plans, except, with respect to a Permitted Subsidiary, where such contribution, obligation, intention or liability could not reasonably be expected to have a Material Adverse Effect.
(ii) Each of the Borrower and each Permitted Subsidiary is not and will not be (i) an “employee benefit plan” as defined in and subject to Title I ERISA, (ii) a “plan” as defined in and subject to Section 4975 of the Code, (iii) a plan or arrangement subject to any law, rule or regulation substantially similar to Section 406 of ERISA and/or Section 4975 of the Code (“Similar Law”) or (iv) a person or entity considered to hold “plan assets” of any of the foregoing as determined under Section 3(42) of ERISA, any applicable regulations of the U.S. Department of Labor, or for purposes of any Similar Law.
(q) Subsidiaries. The Borrower does not have any Subsidiaries other than the Collateral Fund and the Permitted Subsidiaries.
(r) Independent Decisions. The Borrower has or shall have consulted with its advisors with respect to the financial reporting, tax, ERISA and accounting treatment of the Transaction Documents and the Transactions, including with respect to use by the Borrower and each Account Beneficiary of the Letters of Credit, prior to entering into the Agreement, and has made its own independent decision with respect to such financial reporting, tax, ERISA and accounting treatment and has not relied upon the Issuing Lender in making such decision.
(s) Anti-Terrorism Laws.
(i) Each of the Borrower and, to the Borrower’s knowledge, each of the Borrower’s Affiliates (including, for the avoidance of doubt, each Permitted Subsidiary) and each of their respective officers or directors, is in compliance in all material respects with any Anti-Terrorism Law.
(ii) None of the Borrower, the Collateral Fund or any Permitted Subsidiary or, to the best knowledge of the Borrower, any director or officer of the Borrower, the Collateral Fund or any Permitted Subsidiary (i) is currently subject to any economic sanctions or trade embargoes administered or imposed by the Office of Foreign Assets Control of the U.S. Department of the Treasury, the U.S. Department of State, the United Nations Security Council, the European Union, Her Majesty’s Treasury or any other relevant authority (collectively, "Sanctions") or (ii) resides, is organized or chartered, or has a place of business in a country or territory that is currently the subject of Sanctions; and the Borrower will not directly or indirectly use or make available the proceeds of any Letter of Credit to or for the benefit of any person or entity, for the purpose of financing or supporting, directly or indirectly, the activities of any person or entity that is currently the subject of Sanctions.
(t) Insurance Company Exception. The Borrower has documented its position with respect to United States Passive Foreign Investment Company (PFIC) rules, and based on such documentation, as well as advice from an external tax advisor, the Borrower has concluded that it qualifies for the insurance company exception.
ARTICLE IV
CONDITIONS
Section 4.01 Closing Conditions. The obligation of the Issuing Lender to issue Letters of Credit is subject to the satisfaction or waiver in accordance with Section 8.03 of the following conditions precedent (the “Closing Conditions”):
(a) Approvals. All material governmental and regulatory approvals necessary in connection with the consummation of the Transactions shall have been obtained and be in full force and effect.
(b) Transaction Documents. The Borrower shall have delivered to the Issuing Lender copies of each of the Transaction Documents duly signed on behalf of each party thereto, and all conditions to the effectiveness of such Transaction Documents (other than this Agreement) shall have been satisfied in accordance with the terms thereof.
(c) Organization, Existence and Good Standing. The Issuing Lender has received certified copies of such documents and certificates relating to the organization, valid existence and good standing of the Borrower and the Collateral Fund, the authorization of the Transaction Documents (which may be in the form of a general authorization) by the Borrower and the Collateral Fund and any other legal matters relating to the Borrower, the Collateral Fund or their Related Parties as the Issuing Lender may reasonably request, all in form and substance satisfactory to the Issuing Lender.
(d) Representations, Warranties and Covenants. The representations, warranties and covenants of the Borrower set forth herein are true, correct and complete.
(e) Payment of fees. The Borrower shall have paid any fees due and owing to the Issuing Lender as of the Closing Date.
(f) Certificates. The Issuing Lender shall have received a certificate signed by a Responsible Officer of the Borrower in the form attached hereto as Exhibit D-1 certifying that the Closing Conditions have been fully satisfied as of the date of such certificate.
(g) Legal Opinions and Memorandum. The Issuing Lender or its counsel shall have received the following favorable written opinions (addressed to the Issuing Lender and dated as of the Closing Date):
(i) Opinion of outside counsel of the Borrower with respect to general corporate matters, the enforceability of the Transaction Documents and security interests in the Collateral and such other matters as the Issuing Lender shall request, in each case under Bermuda law;
(ii) Opinion of outside counsel for the Borrower with respect to the enforceability of the applicable Transaction Documents under U.S. federal and New York laws; the creation and perfection of the security interests in the Collateral granted under the Security Documents and such other matters as the Issuing Lender shall request.
(h) Security Interest. All filings, documents and other actions reasonably deemed necessary or advisable by the Issuing Lender to perfect the security interest created under the Security Documents have been filed, executed or made, as applicable, and all other actions to perfect or maintain the priority of the security interest have been taken.
(i) Total Shareholder’s Equity. The Total Shareholder’s Equity of the Borrower, as determined by Issuing Lender, is not less than $600.0 million.
(j) No Default, Event of Default or Early Prepayment Event. No event that constitutes an Early Prepayment Event, a Default or an Event of Default hereunder shall have occurred and still be continuing as of the Closing Date.
(k) Collateral Statement. A statement from the Custodian setting forth the Net Asset Value of the Collateral Fund Interest held in the Collateral Account.
Section 4.02 Conditions to Issuance and Modification . The Letters of Credit shall be (1) issued pursuant to Section 2.01(a)(i) and (ii), and (2) modified pursuant to Section 2.01(a)(iv), in either case, if the applicable conditions set forth in Section 2.01(a)(v) and each of the following conditions (or waiver by the Issuing Lender thereof) are satisfied as of the Issuance Date:
(a) Request for Issuance or Modification. The Issuing Lender shall have timely received a correct and complete Request for Issuance or Request for Modification, as applicable.
(b) No Default, Event of Default or Early Prepayment Event. No event that constitutes an Early Prepayment Event, a Default or an Event of Default hereunder shall have occurred and be continuing or shall result from such issuance or modification.
(c) Accuracy of Representations and Warranties. All of the representations and warranties of the Borrower made pursuant to Article III shall, in each case, be true and correct in all material respects both before and after giving effect to any issuance or modification unless any such representations or warranties are specifically made as of any earlier date, in which case they shall only be made as of such earlier date; provided, that, in each case, such materiality qualifier shall not be applicable to any representations or warranties that are already qualified or modified by materiality in the text thereof.
(d) Legality and Liability. The Transactions (i) are permitted by the laws and regulations of each jurisdiction to which the Borrower and the Issuing Lender are subject, (ii) do not violate any applicable law or regulation or any judgment, decree, injunction or other order of any court or governmental or regulatory authority and (iii) will not subject the Issuing Lender to any unreimbursed tax, penalty or liability under or pursuant to any applicable law or regulation
(e) Certificate. The Issuing Lender shall have received a certificate signed by a Responsible Officer of the Borrower in the form attached hereto as Exhibit D-2, (i) certifying that the conditions to issuance and modification in this Section 4.02 (other than those that may have been waived in writing by the Issuing Lender) have been fully satisfied as of the date of such certificate and (ii) attaching and certifying a statement from the Custodian setting forth the
Net Asset Value of the Collateral Fund Interest held in the Collateral Account as of the immediately preceding Business Day.
(f) Additional Limitations. The additional restrictions on the issuance of Letters of Credit specified in Section 2.01(a)(v) have not been and will not be breached.
(g) Online Account Information. The Issuing Lender shall have verified the Net Asset Value of the Collateral Fund Interest as of the immediately preceding Business Day through its online access to daily reporting provided by the Administrator.
(h) Payment of Fees. The Issuing Lender has received all fees and other amounts due and payable by the Borrower, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrower hereunder.
(i) Material Adverse Effect. Since the Closing Date, there shall have been no event or circumstance, either individually or in the aggregate, that has had or would reasonably be expected to have a Material Adverse Effect.
Section 4.03 Conditions to Effectiveness of this Agreement. The effectiveness of this Agreement is conditioned upon satisfaction of the following requirements:
(a) Executed Document. The Borrower shall have delivered to the Issuing Lender a copy of this Agreement, duly signed on behalf of each party hereto.
ARTICLE V
COVENANTS
Section 5.01 Affirmative Covenants. The Borrower hereby agrees until the Facility Termination Date, as follows:
(a) Reporting Requirements. The Borrower will deliver or cause to be delivered to the Calculation Agent (collectively, the “Reporting Requirements”):
(i) as soon as available, and in any event within 90 days after the end of its fiscal year, the Borrower’s most recent audited annual consolidated balance sheet together with the related statements of income, shareholders’ equity and cash flows, as of the end of and for such year, all reported on by its auditor (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 and cash flows of the Borrower in accordance with U.S. GAAP consistently applied;
(ii) as soon as available, and in any event within 60 days after the end of each of the first three fiscal quarters of each fiscal year, the Borrower’s most recent consolidated balance sheet together with the related statements of income for such fiscal quarter and for the then elapsed portion of the fiscal year;
(iii) within eleven (11) Business Days of the end of each calendar month, a report from the Administrator setting forth the Net Asset Value of the Collateral Fund as of the end of such calendar month;
(iv) within two (2) Business Days of the end of each calendar week, an estimate from the Administrator of the month-to-date performance;
(v) within thirteen (13) Business Days of the end of each calendar month, a report from the Administrator confirming the allocation of the Collateral Fund’s investment in each of the Strategy Funds;
(vi) within 30 calendar days of the end of each calendar month, in a form agreed by the parties hereto, a transparency report from the Borrower with respect to the Collateral Fund;
(vii) as soon as reasonably possible, and in any event within eleven (11) Business Days after the end of each calendar month, an estimate of its Total Shareholder’s Equity;
(viii) promptly after written request from the Calculation Agent, and in no event later than two (2) Business Days after such request, a good faith written (which may be by e-mail) estimate of the Net Asset Value and the performance of the Collateral Fund;
(ix) simultaneously with the delivery thereof to any other creditor secured by interests in the Collateral Fund, and in any event, within eleven (11) Business Days from the end of each calendar month, and promptly upon request from the Calculation Agent, a report setting forth portfolio level details relating to positions of the Collateral Fund and the Strategy Funds and such other information as the Calculation Agent shall request in order to apply the haircuts set forth in the Investment Guidelines to determine the Adjusted Market Value of the Collateral Fund Interest, and whether a Collateral Level Breach, Early Prepayment Event or any Event of Default shall have occurred; and
(x) promptly following any request therefor, such other information regarding the Borrower, the Collateral Fund or any Strategy Fund as the Calculation Agent may reasonably request in order to make any calculation or determination under the Transaction Documents.
(b) Bermuda Filings. Promptly following the Closing Date, and in no event later than three (3) Business Days thereafter, the Borrower shall file the Security Agreement with the Bermuda Register of Companies.
(c) Existence. The Borrower, with respect to itself and the Collateral Fund, and, with respect to the Permitted Subsidiaries except to the extent failure to do so could not reasonably be expected to have a Material Adverse Effect, will do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and good standing and the rights, qualifications, licenses, permits, privileges, franchises, governmental authorizations, and licenses material to the conduct of its business and the performance of the Borrower’s and the Collateral Fund’s obligations under the Transaction Documents.
(d) Compliance with Laws. The Borrower will comply, and will cause the Collateral Fund and, except to the extent failure to do so could not reasonably be expected to have a Material Adverse Effect, each Permitted Subsidiary to comply, with all applicable laws, rules, regulations, and orders of any Governmental Authority applicable to it, its business or its property.
(e) Notices of Material Events. The Borrower shall furnish to the Issuing Lender prompt written notice of the following events:
(i) the occurrence of any Early Prepayment Event, Default or Event of Default;
(ii) any material correspondence from, including all orders of, or to any Governmental Authority relating to this Agreement or the Transactions, except to the extent prohibited by the terms of such correspondence or order;
(iii) the filing or commencement of any material action, suit or proceeding by or before any arbitrator or Governmental Authority against the Borrower, the Collateral Fund or any Permitted Subsidiary;
(iv) any development that has resulted in, or could reasonably be expected to result in, a Material Adverse Effect;
(v) any of the representations made in Section 3.01(p) is or will become untrue in any material respect;
(vi) any Lien or adverse claim made or asserted against the Collateral (other than Permitted Liens) or any material adverse claim made or asserted against the Borrower or any Permitted Subsidiary or any of the Collateral;
(vii) any proposed (in respect of the Borrower and the Collateral Fund only) or effected material amendments or modifications made to any Constituent Documents of the Borrower, the Collateral Fund or a Strategy Fund, or to any Constituent Documents of a Permitted Subsidiary solely to the extent such amendment or modification could reasonably be expected to have a Material Adverse Effect; together with clean and marked copies of each relevant document highlighting the proposed or effected amendments or modifications as made; and
(viii) Borrower’s credit rating is downgraded below “A-” by A.M. Best Company.
Each notice delivered under this Section 5.01(e) shall be accompanied by a statement of a Responsible Officer of the Borrower setting forth, in reasonable detail, the event or development requiring such notice and any action taken or proposed to be taken with respect thereto.
(f) Compliance with and Enforcement of Transaction Documents. The Borrower shall comply in all material respects with the terms and conditions of, and perform its obligations
and exercise and fully enforce in all material respects its rights and remedies available in respect of the Collateral; provided, that if the Borrower fails to use commercially reasonable efforts to so enforce its rights in all material respects within one (1) Business Day of notice from the Issuing Lender or upon the occurrence and continuation of an Early Prepayment Event or Event of Default, the Issuing Lender, may enforce, in the name of the Borrower, the rights of the Borrower in respect of the Collateral pursuant to and to the extent permitted by the collateral assignment of rights set forth in Section 8.09.
(g) Taxes. The Borrower shall file (and shall cause the Collateral Fund and each Permitted Subsidiary to file) any Tax return that is required to be filed by it in any jurisdiction or pay (and cause the Collateral Fund and each Permitted Subsidiary to pay) any Tax, assessment, charge or fee due and payable with respect to its properties and assets, other than those with respect to which (i) the validity or amount thereof is being contested in good faith by appropriate proceedings, (ii) it has set aside on its books adequate reserves with respect thereto in accordance with GAAP and (iii) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect.
(h) Expenses. Unless otherwise agreed, the Borrower shall reimburse the Issuing Lender for all reasonable out-of-pocket expenses and costs (including legal fees) incurred in connection with the negotiation and preparation of this Agreement and any amendment to this Agreement. The Borrower shall reimburse the Issuing Lender for all reasonable out-of-pocket expenses and costs (including any legal fees) incurred in connection with the preservation, protection or enforcement of its rights under any Transaction Document.
(i) Security Interest. The Borrower will take such action within its control as is necessary or as may be reasonably requested by the Issuing Lender in order to perfect and to maintain the perfection and priority of the security interest of the Issuing Lender in the Collateral.
(j) Further Assurances.
(i) upon request by the Issuing Lender, the Borrower will work in good faith with the Issuing Lender to correct any material defect or error that may be discovered in any Transaction Document or in the execution, acknowledgment, filing or recordation thereof.
(ii) promptly upon request by the Issuing Lender, the Borrower will do, execute, acknowledge, deliver, record, re-record, file, re-file, register and re-register any and all such further acts, deeds, conveyances, pledge agreements, mortgages, deeds of trust, trust deeds, assignments, financing statements and continuations thereof, termination statements, notices of assignment, transfers, certificates, assurances and other instruments as the Issuing Lender may reasonably require from time to time in order to carry out more effectively the purposes of the Transaction Documents and assure, convey, grant, assign, transfer, preserve, protect and confirm more effectively unto the Issuing Lender the rights granted or now or hereafter intended to be granted to the Issuing Lender under any Transaction Document or under any other instrument executed in connection with any Transaction Document to which the Borrower is or is to be a party.
(k) Credits to Collateral Account. The Borrower shall ensure that all proceeds of any redemption, sale, lease, transfer, or other disposal or liquidation of all or part of the Collateral Fund Interest shall be paid or credited directly into the Collateral Account and shall be withdrawn or released from the Collateral Account only (i) if no Early Prepayment Event, Default or Event of Default has occurred and is continuing or would occur as a result of such withdrawal or release and (ii) with the Issuing Lender’s prior written consent, such consent not to be unreasonably withheld or delayed. The Issuing Lender agrees that it will not withhold or delay its consent to (or fail to give reasonably prompt instructions to the Custodian as a result of) a written request from the Borrower for a withdrawal of assets from the Collateral Account provided that (i) no Early Prepayment Event, Default or Event of Default has occurred and is continuing or would occur as a result of such withdrawal and (ii) (A) during an Optional Cash Collateralization Period, the amount of Cash remaining in the Collateral Account after such withdrawal will not be less than the amount of Cash required to be held in the Collateral Account pursuant to Section 2.10 and (B) at all other times, the Adjusted Market Value of the Collateral Fund Interests remaining in the Collateral Account after such withdrawal will not be less than 102% of the Minimum Collateral Value. The Borrower shall cause the Custodian to instruct the Collateral Fund to make payments in respect of the Collateral Fund Interest only to the Collateral Account. To the extent consideration received by the Borrower as a distribution or in respect of any redemption of all or part of the Collateral Fund Interest is non-cash consideration and such non-cash consideration cannot be credited directly into the Collateral Account, the Borrower shall take such action as is necessary or requested by the Issuing Lender to ensure that the Issuing Lender at all times maintains a valid and perfected first priority security interest in such non-cash consideration.
(l) Books and Records; Inspection Rights. The Borrower will, and will cause the Collateral Fund to, keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business, assets and activities and will permit any representatives designated by the Calculation Agent, upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested (or, following the occurrence and during the continuance of an Early Prepayment Event, Default or Event of Default, at such times as and as often as requested).
(m) Termination of any Letter of Credit. The Borrower shall, upon a termination of any Letter of Credit pursuant to Section 2.02, cause the applicable Account Beneficiaries to return the applicable Letter of Credit, on or prior to the effective date of such termination.
(n) Custodian Material Adverse Event. If at any time the Custodian shall cease to be acceptable to Issuing Lender (determined consistently for similar transactions), the Borrower shall within thirty (30) calendar days transfer the Collateral to a custody account at a replacement custodian that is reasonably acceptable to Issuing Lender; provided that such custody account shall be subject to a security agreement and control agreement in form and substance reasonably satisfactory to Issuing Lender.
(o) Use of Proceeds. The Borrower will use the proceeds of the Letters of Credit solely as credit support for Reinsurance Agreements. No proceeds of any Letter of Credit will be used in violation of Regulation T, U or X of the Board, as in effect from time to time.
(p) Compliance with Constituent Documents. The Borrower will, and will cause the Collateral Fund and each Permitted Subsidiary, solely with respect to a Permitted Subsidiary to the extent that failure to comply by a Permitted Subsidiary could reasonably be expected to result in a Material Adverse Effect, to, comply in all material respects with all of the terms and conditions of its Constituent Documents.
(q) Notice of Expiration of Letter of Credit. The Borrower shall, not more than 60 days and not less than 45 days prior to the expiration date of any letter of credit, provide written notice to the Issuing Lender specifying the Letter of Credit and the relevant expiration date, and shall indicate whether the Borrower intends for the expiration date to be extended in accordance with the terms of such Letter of Credit.
Section 5.02 Negative Covenants. The Borrower hereby agrees until the Facility Termination Date:
(a) Liens. The Borrower shall not grant a security interest or Lien (other than Permitted Liens) in respect of any of the Collateral or any interest therein or the proceeds thereof. The Borrower shall ensure that the Collateral Fund does not grant a security interest or Lien in respect of any of its property or assets or any interest therein or proceeds thereof.
(b) Security Interest. The Borrower shall not (i) take any action, or fail to take any action, with respect to the Collateral, that would permit the security interest created pursuant to the Security Documents not to constitute a valid and perfected first priority security interest in the Collateral or if such action or failure to take action would reasonably be expected to interfere with the enforcement of any rights of the Issuing Lender under any Transaction Document, (ii) permit the validity, effectiveness or priority of the security interest created pursuant to the Security Documents to be impaired, (iii) permit any Lien, charge, adverse claim, security interest, mortgage or other encumbrance (other than Permitted Liens and the security interest created pursuant to the Security Documents) to be created on or extend to or otherwise arise upon or burden the Collateral or any part thereof, any interest therein or the proceeds thereof; or (iv) enter into any contractual obligations (other than this Agreement and other Transaction Documents) that limits the ability of the Borrower to create, incur, assume or suffer to exist Liens on the Collateral.
(c) Indebtedness. The Borrower will not and will ensure that the Collateral Fund does not create, incur, assume or have outstanding any Indebtedness, except for (a) Permitted Indebtedness and (b) Indebtedness under this Agreement. The Borrower will ensure that Hamilton Insurance Services does not create, incur, assume or have any Indebtedness. The Borrower will ensure that Turing Re does not create, incur, assume or have any Indebtedness that is recourse to the assets of the Borrower or the Collateral Fund. The Borrower will not guarantee any Indebtedness of a Permitted Subsidiary.
(d) Derivative Transactions. The Borrower will not and will ensure that the Collateral Fund does not enter into any Derivatives Transaction.
(e) Fundamental Changes.
(i) The Borrower will not, and will ensure that each of the Collateral Fund and, to the extent it could reasonably be expected to cause a Material Adverse Effect, each Permitted Subsidiary does not, merge or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or a substantial part of its assets (whether now owned or hereafter acquired) other than redemptions or liquidation of its underlying investments made in the ordinary course of business, or to liquidate or dissolve in whole or in part.
(ii) The Borrower will not, and shall procure that each of the Collateral Fund and, to the extent it could reasonably be expected to cause a Material Adverse Effect, each Permitted Subsidiary will not, sell, lease, transfer or otherwise dispose of any asset unless such sale, lease, transfer or other disposal is made in the ordinary course of business of such entity, on an arm’s-length basis and where the consideration receivable is fair market value.
(iii) The Borrower will not and will ensure that the Collateral Fund does not engage in any business other than as contemplated by the Constituent Documents. The Borrower will ensure that no Permitted Subsidiary engages in any business other than as contemplated by its definition in this Agreement, or, for any additional Permitted Subsidiaries agreed by the Borrower and the Issuing Lender in writing from time to time, as contemplated by the parties at the time of such agreement.
(iv) The Borrower will not and will ensure that each of the Collateral Fund and (solely to the extent that such event with respect to a Permitted Subsidiary could reasonably be expected to result in a Material Adverse Effect) each Permitted Subsidiary does not, without the Issuing Lender’s prior written consent, terminate, amend, modify or otherwise alter in any material respect any of its Constituent Documents or investment policies. The Borrower will not, without the Issuing Lender’s prior written consent, terminate, amend, modify or otherwise alter in any material respect the Custody Agreement.
(v) The Borrower will not organize, create or acquire any Subsidiary (other than the Collateral Fund and the Permitted Subsidiaries) for any purpose.
(vi) The Borrower will not and will ensure that the Collateral Fund does not change its fiscal year or permit or make any change in its accounting policies or reporting practices other than such changes required by GAAP or Statutory Accounting Principles applicable to the Borrower; provided that the Borrower shall provide prompt written notice of any such change to the Issuing Lender.
(f) Service Providers. The Borrower will not change, and will cause the Collateral Fund not to change, the identity of its investment manager, the Custodian, the Administrator or its auditor without the prior written approval of the Issuing Lender.
(g) Transactions with Affiliates. Except for distributions to its equity owners in accordance with the terms of this Agreement and the applicable Constituent Documents, the Borrower will not and will ensure that each of the Collateral Fund and each Permitted Subsidiary does not sell, lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of its Affiliates, except in the ordinary course of business at prices and on terms and conditions not less favorable than could be obtained on an arm’s length basis from unrelated third parties.
(h) Restricted Payments. The Borrower will not declare or make, directly or indirectly, any Restricted Payment, or incur any obligation (contingent or otherwise) to do so, except the Borrower may make redemption payments or other distributions to holders of its equity interests as permitted by its Constituent Documents if no Early Prepayment Event, Default or Event of Default exists or would result therefrom.
(i) ERISA. None of the Borrower, any Permitted Subsidiary nor any ERISA Affiliate will establish, or agree to contribute to, any Employee Plan or Multiemployer Plan, except, with respect to a Permitted Subsidiary, where such establishment or agreement could not reasonably be expected to have a Material Adverse Effect.
(j) Change of Residence. The Borrower will not change and will cause the Collateral Fund not to change (i) its name, identity, or corporate form, or (ii) its jurisdiction of organization or the location of its registered office or principal office, in each case unless the Borrower shall have given the Issuing Lender not less than 30 days’ prior notice thereof.
(k) Investment Company. The Borrower will not become an “investment company” required to be registered under the Investment Company Act.
(l) Disclosure. The Borrower will not make reference to the Transaction Documents, the Letters of Credit, the Issuing Lender or any of the Issuing Lender’s Affiliates in any offering circular or prospectus (or any supplement or addendum thereto), any sales or marketing materials (including, without limitation, pitch books, key features, flyers, brochures, application forms, terms and conditions and other sales, marketing or similar materials), or any presentations in connection with the issue of securities or securities already issued or relating to any other financial transaction involving the Borrower without the prior written consent of the Issuing Lender or its Affiliate, as applicable.
(m) Bankruptcy Code Debtor. The Borrower shall at no time become a Person that is prohibited from filing a case under Title 11 of the United States Code, as amended.
ARTICLE VI
COLLATERAL AND SECURITY
Section 6.01 Secured Obligations; Collateral. As collateral security for the prompt and complete payment and performance of the Secured Obligations when due, the Borrower has, pursuant to the Security Agreement and the Collateral Account Control Agreement, granted to
the Issuing Lender a first-priority (other than Permitted Liens) Lien on and security interest in, to and under the Collateral.
ARTICLE VII
EVENTS OF DEFAULT
Section 7.01 Events of Default. If any of the following events (“Events of Default”) shall occur, as determined by the Calculation Agent:
(a) the Borrower shall fail to make any payment when due under the terms of this Agreement or any other Transaction Document to which it is a party; provided that, other than with respect to a LOC Reimbursement Obligation (for which no cure period shall apply), failure to make a payment when due shall not be an Event of Default if cured within two (2) Business Days;
(b) any representation or warranty made or deemed to be made by the Borrower in any Transaction Document to which it is a party shall prove to have been incorrect or untrue in any material respect when made or deemed to be made, as the case may be; provided, that, in each case, such materiality qualifier shall not be applicable to any representations or warranties that are already qualified or modified by materiality in the text thereof;
(c) the Borrower shall (i) fail to observe or perform its obligations pursuant to Article V (excluding Section 5.01(a), (b), (l), (m) or (q)) or (ii) shall fail to observe or perform its obligations pursuant to Section 5.01 (b), (l), (m) or (q) or under any of the other Transaction Documents and such failure shall not be remedied within five (5) Business Days;
(d) the Borrower shall fail to comply with any of the Reporting Requirements set forth in Section 5.01(a) hereof and such failure is not remedied within two (2) Business Days following receipt by the Borrower of notice thereof;
(e) any information in any report or financial statement provided by or on behalf of the Borrower pursuant to 5.01(a) shall prove to have been incorrect or misleading in any material respect;
(f) the filing or commencement of any action, investigation, suit or other proceeding by any Governmental Authority against or involving a Relevant Entity, or a Related Party or officer of any such entity (i) for reasons of any alleged wrongdoing, breach of any material law, rule or any regulation or other similar reason or (ii) that the Calculation Agent determines is likely to result in a Material Adverse Effect;
(g) with respect to the Borrower, the Collateral Fund or any Strategy Fund or Related Party, the suspension, termination, cancellation or expiration of any right, qualification, license, permit, privilege, franchise, governmental authorization, or license material to the conduct of its business or the performance of the Borrower’s or the Collateral Fund’s obligations under the Transaction Documents;
(h) the Borrower, the Collateral Fund or any Strategy Fund or Related Party shall in any way be prevented by order of any court, arbitrator, self-regulatory organization or other Governmental Authority from conducting any material part of its business and such order shall continue in effect for more than three (3) Business Days;
(i) the Borrower shall fail to observe or perform its obligations contained in or incorporated by reference into any Transaction Document (other than those specified in this Section 7.01), and such failure shall continue unremedied for a period of thirty (30) calendar days following the earlier of (i) the date on which the Borrower learned, or with reasonable diligence should have learned, of such failure and (ii) receipt of written notice thereof by the Borrower from the Issuing Lender;
(j) any transaction occurs, whether a merger, sale, asset sale or otherwise, as a result of which the Borrower fails to be a wholly-owned Subsidiary of the Parent;
(k) the Borrower, the Collateral Fund or any Strategy Fund, a Related Party or its prime broker (solely (i) with respect to the Borrower and the Collateral Fund, in the event that the Borrower’s or the Collateral Fund’s assets have not been transferred to an alternate prime broker and (ii) with respect to any Strategy Fund, to the extent such event could reasonably be expected to have a material adverse effect on the business, operations, assets, property or financial condition of such Strategy Fund and such Strategy Fund’s assets have not been transferred to an alternate prime broker), the Custodian, the Parent or (solely to the extent such event with respect a Permitted Subsidiary could reasonably be expected to result in a Material Adverse Effect) a Permitted Subsidiary shall (i) admit in writing that it is generally unable to pay debts as they mature or become due, (ii) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (iii) consent to the institution of any proceeding or petition, (iv) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower, the Collateral Fund or any Strategy Fund, a Related Party or its prime broker, the Custodian, the Parent or a Permitted Subsidiary or for a substantial part of any of their respective assets, (v) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (vi) make a general assignment for the benefit of creditors or (vii) take any action for the purpose of authorizing or effecting any of the foregoing;
(l) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of the Borrower, the Collateral Fund or any Strategy Fund, a Related Party or (solely to the extent such event with respect to a Permitted Subsidiary could reasonably be expected to result in a Material Adverse Effect) a Permitted Subsidiary or its prime broker (solely (i) with respect to the Borrower and the Collateral Fund, in the event that the Borrower’s or the Collateral Fund’s assets have not been transferred to an alternate prime broker and (ii) with respect to any Strategy Fund, to the extent such event could reasonably be expected to have a material adverse effect on the business, operations, assets, property or financial condition of such Strategy Fund and such Strategy Fund’s assets have not been transferred to an alternate prime broker), the Custodian or the Parent, or their respective debts, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver,
trustee, custodian, sequestrator, conservator or similar official for the Borrower, the Collateral Fund or any Strategy Fund, a Related Party, a Permitted Subsidiary or its prime broker (solely in the event that the Borrower’s or Collateral Fund’s or any Strategy Fund’s assets have not been transferred to an alternate prime broker), the Custodian or the Parent, and, in any such case, such proceeding or petition shall continue undismissed for fifteen (15) calendar days;
(m) the taking of any action by a court, self-regulatory organization or other Governmental Authority to obtain control of the Borrower, the Collateral Fund, any Strategy Fund, any Related Party or (solely to the extent such event with respect to a Permitted Subsidiary could reasonably be excepted to result in a Material Adverse Effect) a Permitted Subsidiary, or a substantial part of any such party’s assets;
(n) (A) the Borrower or any other party other than the Issuing Lender shall deny or repudiate its obligations under this Agreement or any other Transaction Document, (B) the commencement by the Borrower or any of its investors or Subsidiaries of any action or legal proceeding to cancel, revoke or rescind any Transaction Document, (C) any law or order of any Governmental Authority shall purport to render invalid, or preclude enforcement of, any provision of this Agreement or any other Transaction Document or impair performance of Borrower’s obligations hereunder or under any other Transaction Document, (D) if for any reason, this Agreement or any Transaction Document ceases to be in full force and effect (other than as a result of satisfaction in full of all the obligations hereunder) or (E) any Governmental Authority shall, by moratorium, law or otherwise, cancel, suspend or defer the obligation of the Borrower to pay any amount required to be paid hereunder or under any other Transaction Document;
(o) The Borrower, the Collateral Fund or any Strategy Fund (A) defaults (other than by failing to make a delivery) under a Specified Transaction and, after giving effect to any applicable notice requirement or grace period, there occurs a liquidation of, an acceleration of obligations under, or an early termination of, that Specified Transaction, (B) defaults, after giving effect to any applicable notice requirement or grace period, in making any payment due on the last payment, delivery or exchange date of, or any payment on early termination of, a Specified Transaction (or if there is no applicable notice requirement or grace period, such default continues for at least one Business Day), (C) defaults in making any delivery due under a Specified Transaction and, after giving effect to any applicable notice requirement or grace period, there occurs a liquidation of, an acceleration of obligations under, or an early termination of, all transactions outstanding under the documentation applicable to that Specified Transaction or (D) disaffirms, disclaims, repudiates or rejects, in whole or in part, a Specified Transaction that is confirmed or evidenced by a document or other confirming evidence executed and delivered by the Borrower, the Collateral Fund or any Strategy Fund;
(p) the occurrence of any of the following with respect to the Borrower, the Collateral Fund or any Strategy Fund: (i) a default, event of default, termination event, early prepayment event or other similar condition or event (however described) in respect of such party under one or more agreements or instruments relating to Specified Indebtedness (individually or collectively) in an aggregate amount of not less than the applicable Threshold Amount which has resulted in such Specified Indebtedness becoming due and payable under such agreements or instruments, before it would otherwise have been due and payable or (ii) a default by such party
(individually or collectively) in making one or more payments on the due date thereof in an aggregate amount of not less than the applicable Threshold Amount under such agreements or instruments (after giving effect to any applicable notice requirement or grace period);
(q) as of any Business Day, the Calculation Agent determines that the Adjusted Market Value of the Collateral Fund Interest is less than the Minimum Collateral Value (a “Collateral Level Breach”) and the Borrower does not, within two (2) Business Days of delivery of written notice of such Collateral Level Breach by the Calculation Agent, cure such Collateral Level Breach by transferring (or arranging for such transfer, to the satisfaction of the Issuing Lender in its sole and absolute discretion) additional Cash or limited liability company interests in the Collateral Fund to the Collateral Account so as to cause the Adjusted Market Value of the Collateral Fund Interest to be greater than or equal to the Minimum Collateral Value, as determined by the Calculation Agent;
(r) the Total Shareholder’s Equity of the Borrower is less than $400.0 million at any time;
(s) a Material Adverse Fund Event shall occur;
(t) the Custodian fails to observe any material term, covenant or agreement contained in the Custody Agreement or the Collateral Account Control Agreement;
(u) the making of any material qualification, material negative observation, material reservation, material warning and/or material negative provision in any audit or review opinion by any auditor of the Borrower, the Collateral Fund or any Strategy Fund;
(v) the Issuing Lender’s lien on any material portion of the Collateral shall cease to be, subject to any Lien expressly permitted under this Agreement or the other Transaction Documents, a valid first priority perfected security interest for any reason, or any Relevant Entity shall so assert; or
(w) the Borrower shall fail to satisfy any of its obligations set forth in Sections 2.09, 2.10 or 2.11 within the timing specified therein for such obligation;
then, upon the occurrence and during the continuance of any Event of Default, (A) (i) in the case of a Cash Collateralization EOD, the Availability Period shall be automatically suspended or (ii) in the case of all other Events of Default, the Issuing Lender may accelerate the Availability Period End Date and (B) in each case, the Issuing Lender may take any or all of the following actions: (i) the Issuing Lender may instruct the Custodian to redeem or dispose of all or any of the Collateral in accordance with the Transaction Documents or exercise any other rights and remedies it may have under the Transaction Documents or otherwise as a secured party under applicable law, including all remedies provided under the NY-UCC (provided that every aspect of the disposition of Collateral under this Section 7.01, including the method, manner, time, place and other terms shall be commercially reasonable as required by the NY- UCC), and an amount of Cash equal to the LOC Exposure plus the amount of any accrued and any anticipated interest, fees (excluding, only in the case of a Cash Collateralization EOD, the Anticipated Fees on the Unused LOC Commitment and including, in the case of an Event of
Default that is not a Cash Collateralization EOD, any early termination fee, which shall be immediately due and payable) or other amounts owed or expected to be owed by the Borrower under the Transaction Documents shall be held in the Collateral Account or such other account designated by the Issuing Lender (which, for the avoidance of doubt, may be an account of the Issuing Lender) until the Facility Termination Date; (ii) the Issuing Lender shall be entitled to immediately apply such deposited Cash to repay all such drawn amounts under a Letter of Credit and any interest, fees or other amounts owed to the Issuing Lender under any Transaction Document; and/or (iii) the Issuing Lender may enforce in the name of the Borrower any rights of the Borrower in respect of the Collateral to the extent permitted under the collateral assignment of such rights set forth in Section 8.09. Notwithstanding the foregoing, the occurrence and continuation of an Event of Default shall not impair or otherwise affect any Account Beneficiary’s right to draw on any Letter of Credit in accordance with its terms. Promptly following the Facility Termination Date, any Cash held by the Issuing Lender that is not needed to repay amounts drawn by the Account Beneficiaries (together with any accrued interest or fees) or to satisfy any other obligations of the Borrower under the Transaction Documents shall be returned or released to the Borrower.
Notwithstanding anything to the contrary herein, if the Issuing Lender does not commence the exercise of one or more of its enforcement rights or to take any remedial actions as a result thereof within sixty (60) days following the Borrower’s notice in writing to the Issuing Lender of the occurrence of an Event of Default (which notice shall make explicit reference to this provision), the Issuing Lender shall be deemed to have waived its right to exercise such rights on the basis of such Event of Default; provided that each Event of Default shall be treated separately for purposes of this clause and any such waiver shall not be deemed to be a waiver of rights with respect to the occurrence of an Event of Default as of any subsequent date.
Section 7.02 Reinstatement of Availability Period. If, within five (5) Business Days following the suspension of the Availability Period due to the occurrence of an Early Prepayment Event or a Cash Collateralization EOD, the Borrower (a) delivers written notice to the Issuing Lender requesting that the Availability Period be reinstated, (b) delivers to the Collateral Account or such other account designated by the Issuing Lender an amount of Cash equal to (i) the LOC Exposure plus (ii) the amount of any accrued and any anticipated interest, fees (which, for the avoidance of doubt, shall exclude the Anticipated Fees on the Unused LOC Commitment) or other amounts owed or expected to be owed by the Borrower under the Transaction Documents plus (iii) other amounts owed or expected to be owed by the Borrower under the Transaction Documents plus (iv) the unused amount of the LOC Commitment, or the portion thereof that the Borrower desires to utilize for the issuance of additional Letters of Credit (provided that, for the avoidance of doubt, additional Cash may subsequently be delivered to increase the amount of the unused portion of the Commitment that the Borrower may utilize pursuant to this Section 7.02), all as determined by the Calculation Agent and (c) delivers evidence reasonably satisfactory to the Issuing Lender of the deposit of Cash pursuant to Section 7.02(b) above, then the Availability Period shall be reinstated and shall no longer be suspended. Upon the reinstatement of the Availability Period as described in this Section 7.02, no further Letters of Credit may be issued unless the Issuing Lender first determines that each new Letter of Credit has, prior to issuance, been fully collateralized with Cash as described in this Section 7.02. The Issuing Lender shall be entitled to immediately apply such Cash to repay all drawn
amounts under a Letter of Credit and any interest, fees or other amounts owing to the Issuing Lender under any Transaction Document from time to time. Promptly following the Facility Termination Date, any Cash held by the Issuing Lender that is not needed to repay amounts drawn by the Account Beneficiaries (together with any accrued interest or fees) or to satisfy any other obligations of the Borrower under the Transaction Documents shall be returned or released to the Borrower. For the avoidance of doubt, except for a limitation on the Issuing Lender’s ability to accelerate the Availability Period End Date following an Early Prepayment Event or a Cash Collateralization EOD, this Section 7.02 shall in no way limit the exercise by the Issuing Lender of any rights or remedies it may have under the Transaction Documents or otherwise as a secured party under applicable law. For the further avoidance of doubt, this Section 7.02 shall in no way limit the right of the Issuing Lender to accelerate the Availability Period End Date in respect of any Event of Default hereunder that is not a Cash Collateralization EOD. If the Borrower does not fully and timely satisfy the requirements in this Section 7.02 within five (5) Business Days following the suspension of the Availability Period, the Issuing Lender may accelerate the Availability Period End Date.
ARTICLE VIII
MISCELLANEOUS
Section 8.01 Notices. All notices and other communications provided for herein shall be in writing (including by electronic transmission) and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by electronic mail with PDF attachment (with an original copy couriered as soon as practicable), as follows:
Borrower: Hamilton Re, Ltd.
Wellesley House Nort , 1st Floor
90 Pitts Bay Road
Pembroke, HM08 Bermuda
Attention: General Counsel
Telephone: (441) 405-5200
Fax: (441) 405-5219
Email: legalnotices@hamiltonre.com
With a copy to:
Matthew B. Siano, Esq., General Counsel
c/o Two Sigma Investmets, LLC
100 Avenue of the Americas, 16th Floor
New York, NY 10013
Telephone: (212) 625-5712
Email: Matt.Siano@twosigma.com
With a further copy to:
Mark Bailey
c/o Two Sigma Investments, LLC
100 Avenue of the Americas, 16th Floor
New York, NY 10013
Telephone: (212) 775-6684
Email: Mark.Bailey@twosigma.com
Issuing Lender: UBS AG, Stamford Branch
600 Washington Boulevard
Stamford, CT 06901
Attention: Banking Product Services
Email: agency-ubsamericas@ubs.com
With a copy to:
UBS AG, Stamford Branch
600 Washington Boulevard
Stamford, CT 06901
Attention: Fixed Income Legal
Fax: (203) 719-0680
With further copies to:
OL-Insurance_Solutions_Reporting@ubs.com;
OL-2Sigma-VFN@ubs.com
Any party hereto may change its address (street or email) for notices and other communications hereunder by notice to the other parties hereto. 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.
Section 8.02 Calculation Agent. UBS AG, Stamford Branch shall serve as the Calculation Agent unless and until it designates an Affiliate to act in such capacity. All determinations, calculations or valuations made by the Calculation Agent, shall be made in good faith and in a commercially reasonable manner and, in the absence of manifest error, shall be conclusive for all purposes and binding on the Borrower and Issuing Lender.
Section 8.03 Waivers; Amendments. Except as otherwise provided herein, 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 each of the Borrower, the Issuing Lender and the Calculation Agent.
Section 8.04 Survival of Representations and Warranties. All representations and warranties contained herein shall survive the execution and delivery of this Agreement and issuance of each Letter of Credit. Such representations and warranties have been or may be relied upon by the Issuing Lender regardless of any investigation made at any time by or on behalf of the Issuing Lender.
Section 8.05 Indemnity. Irrespective of whether the LOC Commitment or any Letter of Credit is terminated, the Borrower agrees to indemnify the Issuing Lender and its Affiliates, and their respective directors, officers, employees, agents and advisers (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related reasonable out-of-pocket expenses, including the reasonable and documented fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee by any third party arising out of, or as a result of any actual claim, litigation, investigation or proceeding relating to (a) the execution or delivery of this Agreement or the performance by the parties hereto of their respective obligations hereunder or (b) each Letter of Credit or any LOC Disbursement regardless of whether any Indemnitee is a party thereto but excluding in each case any actual or threatened claim, litigation, investigation or proceeding solely among Indemnitees and/or Lender Counterparties; provided, that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses have resulted from the gross negligence, bad faith or willful misconduct of any Indemnitee. It is understood and agreed that, to the extent not precluded by a conflict of interest, each Indemnitee shall endeavor to work cooperatively with the Borrower with a view toward minimizing the legal and other expenses associated with any defense and any potential settlement or judgment. To the extent it is reasonably practicable, not disadvantageous to any Indemnitee and not precluded by a conflict of interest, a single counsel selected by the Borrower, and approved by the Indemnitee, will be used. Settlement of any claim or litigation involving any material indemnified amount will require the approvals of the Borrower (not to be unreasonably withheld) and the relevant Indemnitee (not to be unreasonably withheld or delayed).
Section 8.06 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 together with the other Transaction Documents constitutes the entire contract among the parties relating to the subject matter hereof and supersedes any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Subject to Section 4.03, this Agreement shall become effective when it shall have been executed by the parties hereto and when the parties 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; provided, that, Borrower may not assign this Agreement without Issuing Lender’s prior written consent. Delivery of an executed counterpart of a signature page of this Agreement by telecopy or electronic mail with PDF attachment shall be effective as delivery of a manually executed counterpart of this Agreement.
Section 8.07 Governing Law; Jurisdiction.
(a) THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF (OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK).
(b) EACH PARTY HERETO 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 (IN EACH CASE, IN THE BOROUGH OF MANHATTAN), 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 PARTY 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 ANY PARTY MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT AGAINST ANY OTHER PARTY OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.
Section 8.08 Right of Setoff. At any time when an Event of Default is in existence, if any amount shall have become due and payable by the Borrower hereunder, whether due to maturity, acceleration or otherwise, the Issuing 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 under this Agreement and other indebtedness at any time owing by the Issuing Lender to or for the credit or the account of the Borrower under this Agreement (other than any amount payable under any Letter of Credit or any Letter of Credit) against any of and all the obligations of the Borrower now or hereafter existing under this Agreement held by the Issuing Lender, irrespective of whether or not the Issuing Lender shall have made any demand under this Agreement. Without limiting or otherwise affecting the provisions of any Letter of Credit, the Issuing Lender shall have no right under any circumstances to set off or apply any amount payable under any Letter of Credit against any obligation of or amount payable by the Borrower, whether or not under this Agreement. The rights of the Issuing Lender under this Section 8.08 are in addition to any other rights and remedies which the Issuing Lender may have.
Section 8.09 Collateral Assignment of Rights. The Borrower hereby irrevocably collaterally assigns to the Issuing Lender upon (a) the occurrence and during the continuance of an Event of Default, the exclusive right to enforce in the name of the Borrower any right of the Borrower in respect of the Collateral Fund Interest and (b) the failure of the Borrower to use its reasonable best efforts to enforce its rights to compel performance of required contractual obligations or to pursue remedies available to it in respect of the Collateral Fund Interest, in each case, within one (1) Business Day following receipt of written notice from the Issuing Lender requesting such enforcement by the Borrower and identifying the specific breach by the Collateral Fund, the exclusive right to enforce in the name of the Borrower and the right to compel performance of required contractual obligations or remedies available to the Borrower in
respect of the Collateral Fund Interest with respect to the identified breach, in connection with which the Issuing Lender may pursue in the name of the Borrower (or direct the Borrower to pursue) any such remedy.
Section 8.10 Expenses. Each party shall pay its own expenses incurred in connection with the preparation and administration of this Agreement.
Section 8.11 Further Assurances. The Borrower agree at their own cost and expense, to do such further acts and things, and to execute and deliver such additional instruments (including, without limitation, notices and agreements), as the Issuing Lender may at any time reasonably request or as may be reasonably necessary at any time in order better to preserve, insure and confirm the rights, powers and remedies of the Issuing Lender hereunder.
Section 8.12 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 8.13 Confidentiality. Each party to this Agreement agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to such party’s Affiliates, and its or their directors, officers, employees and agents, including accountants, legal counsel and its or their other advisors (each, a “Representative”); provided that the party disclosing Information to its Representative pursuant to this Agreement shall (i) inform such Representative of the confidential nature of such Information and (ii) assume full responsibility for any breach of confidentiality caused by such Representatives, (b) to any other party to this Agreement or the Transaction Documents, (c) in connection with the exercise of any remedies hereunder or thereunder or any suit, action or proceeding relating to this Agreement or the Transaction Documents or the enforcement of rights hereunder or thereunder, (d) by the Issuing Lender to any permitted assignee or to any counterparty to a hedge transaction reasonably related to the transactions contemplated hereby (a “Lender Counterparty”), or to any prospective Lender Counterparty, subject to an agreement containing confidentiality provisions that are either no less restrictive than those found in this Section 8.13 or that are satisfactory to the Borrower as determined in consultation with the investment manager of the Collateral Fund, in each case expressly inuring to the benefit of the Borrower and a copy of which shall be promptly provided thereto; provided that in no event will the Issuing Lender provide such party with portfolio level Information regarding the Strategy Fund(s) without the Borrower’s prior written consent as determined in consultation with the investment manager of the Collateral Fund, (e) with the consent of the other parties to this Agreement, (f) to the extent the Information relates to the Tax treatment and any facts that may be relevant to the Tax structure of the Transactions. For the purposes of this Section 8.13, “Information” means the Transaction Documents and all information received in connection with this Agreement or the Transactions relating to this Agreement or the Transaction Documents or any other information provided pursuant in connection with this Agreement or the Transaction Documents that is designated as confidential or that the receiving party should reasonably understand to be confidential, including, all data, research, strategies, performance, asset information, documents, financial statements, forecasts and forecast assumptions of the Borrower, the Collateral Fund or a Strategy Fund. Information shall not include information that: (a) is or becomes publicly available; (b) becomes known by such recipient from a third party and is not subject to any obligation of
confidentiality; or (c) is independently developed by such recipient without use of or reference to the Information.
If a party hereto (or its Representative) is required to disclose any Information pursuant to a subpoena, court order, statute, law, rule, regulation or other similar requirement (a “Legal Requirement”), to the extent permitted, such party shall provide prompt written notice of such Legal Requirement to the other party so that such other party may seek a protective order or other appropriate remedy.
Section 8.14 Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
Section 8.15 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).
Section 8.16 USA Patriot Act. The Issuing Lender hereby notifies the Borrower that pursuant to the requirements of the USA Patriot Act, it is required to obtain, verify and record information that (i) identifies the Borrower, (ii) includes the name and address of the Borrower and (iii) will allow the Issuing Lender to identify the Borrower in accordance with the USA Patriot Act.
Section 8.17 Usury Savings Clause. It is the intention of the parties that all charges under or in connection with this Agreement and the LOC Reimbursement Obligations, however denominated, and including (without limitation) all interest, commitment fees, late charges and loan charges, shall be limited to the maximum lawful interest rate, if any, that at any time and from time to time may be contracted for, charged, or received under the laws applicable to the Issuing Lender, which are presently in effect or, to the extent allowed by law, under such applicable laws which hereafter be in effect and which allow a higher maximum non-usurious interest rate than applicable laws now allow (the “Maximum Lawful Amount”). Such charges hereunder shall be characterized and all provisions of this Agreement shall be construed as to uphold the validity of charges provided for therein to the fullest possible extent. Additionally, all charges hereunder shall be spread over the full permitted term of the LOC Reimbursement Obligations for the purpose of determining the effective rate thereof to the fullest possible extent, without regard to prepayment of or the right to prepay the LOC Reimbursement Obligations. If for any reason whatsoever, however, any charges paid or contracted to be paid in respect of the LOC Reimbursement Obligations shall exceed the Maximum Lawful Amount, then, without any specific action by the Issuing Lender or the Borrower, the obligation to pay such interest and/or other charges shall be reduced to the Maximum Lawful Amount in effect from time to time and any amounts collected by the Issuing Lender or the Borrower that exceed the Maximum Lawful Amount shall be applied to the reduction of the principal balance of the LOC Reimbursement
Obligations and/or refunded to the Borrower so that at no time shall the interest or loan charges paid or payable in respect of the LOC Reimbursement Obligations exceed the Maximum Lawful Amount. This provision shall control every other provision herein and in any and all other agreements and instruments now existing or hereafter arising between the Borrower and the Issuing Lender with respect to the LOC Reimbursement Obligations.
Section 8.18 Limitation of Liability. Any amounts owed or liabilities incurred by the Borrower under this Agreement may be satisfied solely from the Borrower's assets. Without limiting the generality of the foregoing, in no event shall the Issuing Lender have recourse, whether by setoff or otherwise, with respect to any amount owed or liabilities incurred by the Borrower under this Agreement, to or against any assets of any person or entity other than the Borrower.
Remainder of page intentionally left blank. Signature pages follow.
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.
| | | | | | | | |
HAMILTON RE, LTD., |
as Borrower |
| | |
| | |
| | |
By: | /s/ Vanessa Hardy Pickering |
| Name: | Vanessa Hardy Pickering |
| Title: | Chief Financial Officer |
[Signature Page to Hamilton Re Third Amended and Restated Reimbursement Agreement]
| | | | | | | | |
UBS AG, STAMFORD BRANCH, as Issuing Lender |
| | |
| | |
| | |
By: | /s/ Craig Pearson |
| Name: Craig Pearson |
| Title: Associate Director |
| | |
By: | /s/ Darlene Arias |
| Name: | Darlene Arias |
| Title: | Director |
[Signature Page to Hamilton Re Third Amended and Restated Reimbursement Agreement]
EXHIBIT A
Courier Service
[Beneficiary name and address]
[attention party]
[Issue date]
Issue of a Standby Letter of Credit
Our credit no :
Issued on : --
Standby LC Number :
Amount : USD ____________
Date and Place of Expiry : One year from issuance, our New York office
Applicant : ______________
Beneficiary:
[Name and address]
We hereby establish this Clean, Irrevocable and Unconditional Standby Letter of Credit No.___________ ("Letter of Credit") in your favor as Beneficiary for the account of [Applicant's name and address] for drawing(s) up to the aggregate amount of USD ___________ (United States Dollars [amount in words] and 00/100), effective [as of ] [immediately] and remaining in full force and effect until expiring at our office at 1285 Ave. of the Americas, 8th Floor, New York, NY 10019 with our close of business on___________.
We hereby undertake to promptly honor your sight draft(s) drawn on us in your favor, for all or any part of this Letter of Credit, if presented at our office indicated in paragraph one, on or before the expiry date or any automatically extended expiry date.
The term "Beneficiary" includes any successor by operation of law of the named Beneficiary, including without limitation, any liquidator, rehabilitator, receiver, or conservator. Drawings by any liquidator, rehabilitator, receiver or conservator shall be for the benefit of all the Beneficiary's policyholders.
Except as stated herein, this undertaking is not subject to any condition or qualification. The obligation of UBS AG, Stamford Branch, under this Letter of Credit is the individual obligation of UBS AG, Stamford Branch, and is in no way contingent upon reimbursement with respect thereto.
It is a condition of this Letter of Credit that it shall be deemed automatically extended without amendment for one (1) year from the expiration date hereof, or any future expiration date, unless
at least thirty (30) days (or in the case of a Beneficiary domiciled in the state of Texas, Illinois or New York, sixty (60) days) prior to any expiration date we shall notify you in writing by Registered or Overnight Mail to your address set forth above that we elect not to consider this Letter of Credit extended for any such additional period.1
All drafts must be marked: "Drawn under UBS AG, Stamford Branch Letter of Credit No. ___________ dated________________."
Drafts must be presented to us not later than___________, or any extended expiration date as herein above provided.
This Letter of Credit is subject to and governed by the Laws of the State of New York and the 2007 revision of the Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce, Publication No. 600 (the "UCP") and, in the event of any conflict, the Laws of the State of New York will control. Notwithstanding Article 36 of the UCP, if this Letter of Credit expires during an interruption of our business as described in said Article 36, the Bank hereby specifically agrees to effect payment if this Letter of Credit is drawn against within thirty (30) days after the resumption of our business.
All correspondence including drawings are to be sent to our New York office at 1285 Ave. of the Americas, 8th Floor, New York, NY 10019 the attention of Letter of Credit Services.
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Yours faithfully, |
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UBS AG Stamford Branch |
1 The parties may agree in writing to alter the required notice period for an election not to extend Letters of Credit in a manner appropriate to reflect laws or regulations applicable to particular Account Beneficiaries or categories of Account Beneficiaries.
EXHIBIT B
FORM OF REQUEST FOR ISSUANCE
ISSUING LENDER:
UBS AG, STAMFORD BRANCH
1285 Ave. of the Americas, 8th Floor
New York, NY 10019
Attention: Letter of Credit Services
REQUEST FOR ISSUANCE
THE UNDERSIGNED, RESPONSIBLE OFFICERS OF •, (THE “BORROWER”), HEREBY REQUEST THAT UBS AG, STAMFORD BRANCH (THE “ISSUING LENDER”), IN ACCORDANCE WITH SECTION 2.01(a)(II)(A) OF THE THIRD AMENDED AND RESTATED REIMBURSEMENT AGREEMENT, DATED AS OF AUGUST 30, 2017, AS AMENDED, RESTATED, MODIFIED OR SUPPLEMENTED FROM TIME TO TIME (THE “REIMBURSEMENT AGREEMENT”), AMONG THE BORROWER AND UBS AG, STAMFORD BRANCH, ISSUE AN LETTER OF CREDIT IN THE FORM ATTACHED TO THE REIMBURSEMENT AGREEMENT AS EXHIBIT A FOR THE BENEFIT OF THE ACCOUNT BENEFICIARY SET FORTH BELOW, SUBJECT TO THE FOLLOWING:
1. THE PROPOSED ISSUANCE DATE OF THE REQUESTED LETTER OF CREDIT SHALL BE ___________.
2. THE FACE AMOUNT OF THE REQUESTED LETTER OF CREDIT SHALL BE____
___________.
3. THE NAME AND ADDRESS OF THE ACCOUNT BENEFICIARY TO WHOM THE REQUESTED LETTER OF CREDIT IS TO BE ISSUED IS ______________________ ______________________.
4. THE BORROWER SHALL ALSO SUBMIT A COMPLETED ADDENDUM B-1 AND ADDENDUM B-2 TO THIS EXHIBIT B ATTACHED HERETO.
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VERY TRULY YOURS, |
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ADDENDUM B-1
[See Attached]
Addendum B-2 to Exhibit B - 3
UBS AG APPLICATION FOR IRREVOCABLE STANDBY LETTER OF
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| ☐ | Stamford Branch | ☐ New York Branch | | | |
| | 677 Washington Blvd, Stamford, CT 06912 | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | Date: | | | |
| | | | | | | | | | | | | | | Letter of Credit No: | | | |
| Please issue an irrevocable Letter of Credit substantially as set fourth below and forward same by: | | | |
| ☐full Swift/Telex, for delivery to the beneficiary by the advising bank | ☐Airmail | ☐Other | | | | | |
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| Advising Bank (You may Advise through your Correspondent) | Applicant (applicant name and address): | | |
| (if required) | | | | | | | | | |
| in favor of (Beneficiary, complete name and address) | Currency description and amount: | | |
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| | | | | | | | | | Expiration Date: | | |
| | | | | | | | | | in country of the beneficiary unless otherwise indicated | | |
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| Purpose of Letter of Credit: | | | | | | | | | | | | | | |
| By signing below the Applicant affirms that the Letter of Credit is consistent with the Applicant’s business. |
| Available when accompanied by the following document(s), as checked: |
| | ☐ | Signed draft drawn on you or your correspondent | ☐ | All charges other than the issuing bank’s are for beneficiary’s account |
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| Choose one of the following four: | | | | | | | | | | | | | |
| ☐ | Beneficiary’s signed statement, reading as follows: (quote) | | | | | | | | | | |
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| | | | | | | | | | | | | | | | | (unquote). |
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| (Describe the wording that must appear in the beneficiary’s signed statement in the event of a drawing or select one of the below statements.) |
| ☐ | The amount drawn represents funds due and owing pursuant to the agreement between | | | | | | |
| | | | | | | | | | | | | insert name |
| and | | | | | | | | | | | | | | | | | |
| | insert name |
| ☐ | | | | | | | | | has failed to comply with the terms and conditions of the contract/agreement |
| | insert name | | | | | | | | | |
| (described as) | | | | | | | | | | | | | | | |
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| ☐ | Please refer to the attached suggested formats for the letter of credit. |
| | ☐ | Copy (ies) of beneficiary’s commercial invoice (s) marked “unpaid” | | | | | | | | | |
| | ☐ | Other documents | | | | | | | | | | | | | | |
| | ☐ | Other instructions/information: | | | | | | | | | | | | |
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The credit will be subject to the Uniform Customs and Practice for Documentary Credit, 2007 Revision, ICC Publication No. 600 (the “UCP”) or ISP98 (the 'ISP98), according to the final letter of credit draft to be signed by the applicant.
The undersigned agrees that you may exclude UCP Article 14(d) from the terms of the letter of credit and agrees to indemnify and hold harmless you and each of your correspondents from and against all claims, actions, suits and other proceedings, and all losses, damages and costs (including fees and expenses of counsel) that you or any of your correspondents may suffer or incur by reason of your or such correspondent's accepting documents that substantially comply with the requirements contained in the letter of credit.
When transport documents referred to in UCP Article 14(c) are required, the requirement of the UCP Article 14(c) that such documents be presented no later than 21 days after the date of shipment is not applicable unless otherwise specified by the applicant.
If the letter of credit stipulates drawings in installments within given periods or according to an availability schedule, UCP Article 32 is not applicable unless otherwise specified by the applicant.
IN CONSIDERATION OF YOUR ISSUING A LETTER OF CREDIT AS REQUESTED ABOVE, THE UNDERSIGNED AGREES TO PAY TO YOU THE AMOUNT OF EACH DRAWING UNDER THE LETTER OF CREDIT AND AGREES THAT THE LETTER OF CREDIT IS ISSUED UNDER; AND, IN CONNECTION THEREWITH AGREES TO BE SUBJECT TO ALL THE PROVISIONS OF THE ____________ AGREEMENT DATED ____________, SIGNED BY THE APPLICANT.
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(Name of Applicant, Please Print) | | (Authorized Signature) | | (Authorized Signature) |
ADDENDUM B-2
LC DRAFT FOR INFORMATION PURPOSES ONLY
Courier Service
[Beneficiary name and address]
[attention party]
[Issue date]
Issue of a Standby Letter of Credit Our credit no :
Issued on : --
Standby LC Number :
Amount : USD ___________
Date and Place of Expiry : One year from issuance, our New York office
Applicant : ___________
Beneficiary:
[Name and address]
We hereby establish this Clean, Irrevocable and Unconditional Standby Letter of Credit No.___________ ("Letter of Credit") in your favor as Beneficiary for the account of [Applicant's name and address] for drawing(s) up to the aggregate amount of USD ___________ (United States Dollars [amount in words] and 00/100), effective [as of ___ ] [immediately] and remaining in full force and effect until expiring at our office at 1285 Ave. of the Americas, 8th Floor, New York, NY 10019 with our close of business on ___________.
We hereby undertake to promptly honor your sight draft(s) drawn on us in your favor, for all or any part of this Letter of Credit, if presented at our office indicated in paragraph one, on or before the expiry date or any automatically extended expiry date.
The term "Beneficiary" includes any successor by operation of law of the named Beneficiary, including without limitation, any liquidator, rehabilitator, receiver, or conservator. Drawings by any liquidator, rehabilitator, receiver or conservator shall be for the benefit of all the Beneficiary's policyholders.
Except as stated herein, this undertaking is not subject to any condition or qualification. The obligation of UBS AG, Stamford Branch, under this Letter of Credit is the individual obligation of UBS AG, Stamford Branch, and is in no way contingent upon reimbursement with respect thereto.
Addendum B-2 to Exhibit B - 1
It is a condition of this Letter of Credit that it shall be deemed automatically extended without amendment for one (1) year from the expiration date hereof, or any future expiration date, unless at least thirty (30) days (or in the case of a Beneficiary domiciled in the state of Texas, Illinois or New York, sixty (60) days) prior to any expiration date we shall notify you in writing by Registered or Overnight Mail to your address set forth above that we elect not to consider this Letter of Credit extended for any such additional period.2
All drafts must be marked: "Drawn under UBS AG, Stamford Branch Letter of Credit No. ___________ dated ___________."
Drafts must be presented to us not later than___________, or any extended expiration date as herein above provided.
This Letter of Credit is subject to and governed by the Laws of the State of New York and the 2007 revision of the Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce, Publication No. 600 (the "UCP") and, in the event of any conflict, the Laws of the State of New York will control. Notwithstanding Article 36 of the UCP, if this Letter of Credit expires during an interruption of our business as described in said Article 36, the Bank hereby specifically agrees to effect payment if this Letter of Credit is drawn against within thirty (30) days after the resumption of our business.
All correspondence including drawings are to be sent to our New York office at 1285 Ave. of the Americas, 8th Floor, New York, NY 10019 the attention of Letter of Credit Services.
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Yours faithfully, |
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UBS AG Stamford Branch |
FOR CLIENT'S USE ONLY
CLIENT’S SIGNATURE ACKNOWLEDGING TEXT OF LC DRAFT
The undersigned requests that UBS AG (“UBS”) issue its letter of credit substantially in the form set forth above and the undersigned agrees to be bound in respect of such letter of credit pursuant to the Application for Irrevocable Letter of Credit dated ___________ submitted by the undersigned (and, if applicable, one or more other parties) to UBS.
Dated: ___________
2 The parties may agree in writing to alter the required notice period for an election not to extend Letters of Credit in a manner appropriate to reflect laws or regulations applicable to particular Account Beneficiaries or categories of Account Beneficiaries.
(Sign and Print Name and, if applicable, Print Title)
EXHIBIT C
FORM OF REQUEST FOR MODIFICATION
ISSUING LENDER:
UBS AG, STAMFORD BRANCH
1285 Ave. of the Americas, 8th Floor New York, NY 10019
Attention: Letter of Credit Services
REQUEST FOR MODIFICATION
THE UNDERSIGNED, RESPONSIBLE OFFICERS OF •, (THE “BORROWER”), HEREBY REQUEST THAT UBS AG, STAMFORD BRANCH (THE “ISSUING LENDER”), IN ACCORDANCE WITH SECTION 2.01(a)(IV)(A) OF THE THIRD AMENDED AND RESTATED REIMBURSEMENT AGREEMENT, DATED AS OF AUGUST 30, 2017, AS AMENDED, RESTATED, MODIFIED OR SUPPLEMENTED FROM TIME TO TIME (THE “REIMBURSEMENT AGREEMENT”), AMONG THE BORROWER AND UBS AG, STAMFORD BRANCH, MODIFY THE FACE AMOUNT OF THE LETTER OF CREDIT NO [___________] (THE “LETTER OF CREDIT”) AS FOLLOWS:
1. THE MODIFIED FACE AMOUNT OF THE LETTER OF CREDIT SHALL BE
$______________________AND SHALL BECOME EFFECTIVE ON________
___________.3
3 Such date shall be an Issuance Date.
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VERY TRULY YOURS, |
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| TITLE: |
EXHIBIT D-1
FORM OF CLOSING CERTIFICATE
January_________, 2014
This certificate is provided to UBS AG, Stamford Branch (“UBS”) pursuant to the Reimbursement Agreement dated as of December 31, 2013, between Hamilton Re, Ltd., (the “Borrower”) and UBS (the "Reimbursement Agreement"). Capitalized terms used, but not defined herein, shall have the meanings given to them in the Reimbursement Agreement.
The undersigned, [l], being the [l] of the Borrower, hereby certifies as of the date hereof as set forth below:
1. The representations, warranties and covenants of the Borrower are true, correct and complete;
2. No event that constitutes an Early Prepayment Event, Default or an Event of Default shall have occurred and be continuing; and
3. The other Closing Conditions set forth in Section4.01 of the Reimbursement Agreement have been satisfied as of the date hereof.
IN WITNESS WHEREOF, the undersigned has executed this certificate as of the date first written above.
EXHIBIT D-2
FORM OF ADDITIONAL ISSUANCE AND MODIFICATION CERTIFICATE
This certificate is provided to UBS AG, Stamford Branch (“UBS”) pursuant to the Third Amended and Restated Reimbursement Agreement dated as of August 30, 2017, between Hamilton Re, Ltd., (the “Borrower”) and UBS (as amended, the "Reimbursement Agreement"). Capitalized terms used, but not defined herein, shall have the meanings given to them in the Reimbursement Agreement.
The undersigned, [ l ], being the [ l ] of the Borrower, hereby certifies as of [ l ] (the “Request Date”) as set forth below:
1.The representations, warranties and covenants of the Borrower made pursuant to Article III of the Reimbursement Agreement are, in each case, true and correct in all material respects both before and after giving effect to any issuance or modification unless any such representations or warranties are specifically made as of any earlier date, in which case they shall only be made as of such earlier date; provided, that, in each case, such materiality qualifier shall not be applicable to any representations or warranties that are already qualified or modified by materiality in the text thereof;
2.No event that constitutes an Early Prepayment Event, a Default or an Event of Default shall have occurred and be continuing or shall result from such issuance or modification (other than Early Prepayment Events, Defaults or Events of Default that have been waived in writing by UBS);
3.The other condition to issuance and modification set forth in Section 4.02 of the Reimbursement Agreement have been satisfied as of the Request Date;
4.At the request of UBS attached hereto is a (i) statement from the Custodian, dated as of [insert Business Day that falls one day prior to the date of request] which statement is true and correct, setting forth the Net Asset Value of the Collateral Fund Interest held in the Collateral Account as of the most recent valuation date and (ii) a statement from the Borrower, dated as of [insert Business Day that falls one day prior to the date of request] which statement is true and correct, setting forth the estimated Net Asset Value of the Collateral Fund Interest held in the Collateral Account as of the [specify date falling on the Business Day falling immediately prior to the date of request].
IN WITNESS WHEREOF, the undersigned has executed this certificate as of the Request Date above.
ANNEX A
INVESTMENT GUIDELINES
[***]
CERTAIN CONFIDENTIAL PORTIONS OF THIS ANNEX HAVE BEEN OMITTED AND REPLACED WITH “[***]”. SUCH IDENTIFIED INFORMATION HAS BEEN EXCLUDED FROM THIS ANNEX BECAUSE IT IS (I) NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO THE COMPANY IF DISCLOSED.
EIGHTH AMENDMENT AGREEMENT
This EIGHTH AMENDMENT TO THIRD AMENDED AND RESTATED REIMBURSEMENT AGREEMENT dated as of October 27, 2022 (this “Amendment”) by and between HAMILTON RE, LTD., a Bermuda insurance and reinsurance company (the “Borrower”) and UBS AG, STAMFORD BRANCH (the “Issuing Lender”) amends the THIRD AMENDED AND RESTATED REIMBURSEMENT AGREEMENT dated as of August 30, 2017 as amended on October 27, 2017, October 30, 2018, May 7, 2019, October 16, 2019, October 30, 2019, October 29, 2020 and October 28, 2021 (the “Reimbursement Agreement”), as in effect on the date hereof.
WITNESSETH:
WHEREAS, pursuant to the Reimbursement Agreement, the Issuing Lender agreed to issue Letters of Credit for the account of the Borrower and for the benefit of the Account Beneficiaries from time to time designated by the Borrower on the terms and conditions set forth therein;
WHEREAS, pursuant to the Reimbursement Agreement, the Borrower agreed to reimburse the Issuing Lender for any advances in respect of such Letters of Credit; and
WHEREAS, the Borrower and Issuing Lender wish to amend certain provisions of the Reimbursement Agreement;
NOW, THEREFORE, in consideration off the foregoing and the mutual covenants contained herein, the parties hereto agree as follows:
§ 1 Definitions. Capitalized terms which are used herein without definition and which are defined in the Reimbursement Agreement shall have the same meanings herein as in the Reimbursement Agreement.
§ 2 Amendments.
(a) The definition of “Availability Period End Date” in Section 1.01 (Defined Terms) is hereby amended by deleting such definition in its entirety and inserting in its place the following:
“Availability Period End Date” means October 27, 2023 or if such date is not a Business Day, the next succeeding Business Day.
(b) Paragraph (iii) of the definition of “Early Prepayment Event” in Section 1.01 (Defined Terms) is hereby deleted in its entirety and replaced with the following:
(iii) the Collateral Fund’s (A) sum of (x) STV Strategy Allocation plus (y) ESTV Strategy Allocation is less than 52% or greater than 62% and/or (B) FTV Strategy Allocation is less than 38% or greater than 48% as of any date of measurement by the Administrator and is not cured by the scheduled date of delivery of the Administrator’s report under Section 5.01(a)(v);
(c) Paragraph (v) of the definition of “Early Prepayment Event” in Section 1.01 (Defined Terms) is hereby deleted in its entirety and replaced with the following:
(v) as of any Business Day, (x) the Spectrum Fund Family Feeder Funds in the aggregate fail to maintain a Net Asset Value in an amount equal to or greater than $2.0 billion; or (y) FTV fails to maintain a Net Asset Value in an amount equal to or greater than $3.0 billion.
(d) A new Section 2.01(g)(vi) shall be added as follows:
“(vi) Early Opt-in Election. The Calculation Agent and the Borrower hereby make an Early Opt-in Election, in connection with which:
(1) any obligation of the Calculation Agent to notify the Borrower and the Issuing Lender of such Early Opt-in Election, its related Benchmark Replacement Date and the implementation of the Benchmark Replacement shall be deemed satisfied;
(2) the Issuing Lender confirms that it does not object to such Early Opt-in Election;
(3) notwithstanding anything to the contrary in this Section 2.01(g), the Benchmark Replacement Date will be the Effective Date (as defined in the Eighth Amendment to Third Amended and Restated Reimbursement Agreement dated October 27, 2022);
(4) the Benchmark Replacement will be as per clause (1) of the definition thereof; and
(5) the Calculation Agent will separately notify the Borrower and the Issuing Lender of any Benchmark Conforming Changes (which shall be determined by the Calculation Agent in good faith and a commercially reasonable manner) on or promptly following the date of any LOC Disbursement.
§ 3 Conditions to Effectiveness of this Amendment. The effectiveness of this Amendment is conditioned upon satisfaction of the following requirements:
(a) Executed Documents - The Borrower shall have delivered to the Issuing Lender a copy of this Amendment duly signed on behalf of each party hereto.
(b) Officer’s Certificate - The Issuing Lender shall have received a certificate dated as of the date of this Amendment and signed by a Responsible Officer of the Borrower, (i) (a) attaching true, correct and complete copies of thee resolutions of the board of directors of the Borrower approving the terms of and the transactions contemplated by this Amendment and the resolutions of the board of directors of Hamilton Insurance Group, Ltd. Approving the terms of this Amendment (collectively, the “Authorizing Resolutions”), (b) confirming that such
Authorizing Resolutions have not been amended, modified, superseded, revoked or rescinded in any respect and are in full force and effect as of the date hereof and (c) confirming that the execution, delivery and performance of this Amendment are fully authorized and approved pursuant to the terms of the Authorizing Resolutions; (ii) attaching certified copies of such documents and certificates relating to the good standing of the Borrower as the Issuing Lender may reasonably request; (iii) attaching an incumbency certificate with the true titles, names and genuine signatures of each of the persons authorized by the Authorizing Resolutions to execute this Amendment on behalf of the Borrower; and (iv) confirming that (a) at the time of and immediately after giving effect to this Amendment the representations and warranties of the Issuer made pursuant to Article III (Representations and Warranties) of the Reimbursement Agreement are, in each case, true and correct in all material respects unless any such representations or warranties are specifically made as of any earlier date, in which case they shall only be made as of such earlier date; provided, that, in each case such materiality qualifier shall not be applicable to any representations or warranties that are already qualified or modified by materiality in the text thereof, (b) there have been no material changes to the documents attached to the officer’s certificate of the secretary of the Borrower dated January 2, 2014 (other than the Second Amendment and Restatement to the Bye-Laws of the Borrower dated November 4, 2014), and (c) at the time of and immediately after giving effect to this Amendment, no event that constitutes an Early Prepayment Event, a Default or an Event of Default has occurred and is continuing or will result from the execution of this Amendment.
§ 4 Agreement Otherwise Unchanged. Except as herein provided, the Transaction Documents shall remain unchanged and in full force and effect, and each reference to the Reimbursement Agreement (and words of similar import) in the Transaction Documents, shall be a reference to the Reimbursement Agreement as amended hereby, and as the same may be further amended, supplemented and otherwise modified and in effect from time to time.
§ 5 Effective Date. This Amendment shall become effective as of October 27, 2022 (the “Effective Date”), subject to satisfaction of the conditions set forth in §3 (Conditions to Effectiveness of this Amendment) of this Amendment.
§ 6 Representations and Warranties. At the time of and immediately after giving effect to this Amendment, all of the representations and warranties of the Borrower made pursuant to Article III (Representations and Warranties) of the Reimbursement Agreement are, in each case, true and correct in all material respects unless any such representations or warranties are specifically made as of any earlier date, in which case they shall only be made as of such earlier date; provided, that, in each case, such materiality qualifier shall not be applicable to any representations or warranties that are already qualified or modified by materiality in the text thereof.
§ 7 No Default, Event of Default or Early Prepayment Event. At the time of and immediately after giving effect to this Amendment, no event that constitutes an Early Prepayment Event, a Default or an Event of Default has occurred and is continuing or will result from the execution of this Amendment.
§ 8 Governing Law, Submission to Jurisdiction, Consent to Service of Process and Waivers. The provisions contained in the Reimbursement Agreement, insofar as they relate to governing law, the submission to the courts specified therein, the consent to service of process and waivers shall apply to this Amendment mutatis mutandis as if they were incorporated herein.
§ 9 Counterparts. This Amendment 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. Delivery of an executed counterpart of a signature page of this Amendment by telecopy or electronic mail with PDF attachment shall be effective ass delivery of a manually executed counterpart of this Amendment.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed by their respective authorized officers as of the day and year first above written.
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| HAMILTON RE, LTD., |
| as Borrower |
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| By: | /s/Chad Cundliffe |
| Name: Chad Cundliffe |
| Title: Chief Financial Officer |
[Signature Page of Eighth Amendment to Third Amended and Restated Reimbursement Agreement]
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| UBS AG, STAMFORD BRANCH, |
| as Issuing Lender |
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| By: | /s/ Dionne Robinson |
| Name: Dionne Robinson |
| Title: Associate Director |
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| By: | /s/ Danielle Calo |
| Name: Danielle Calo |
| Title: Associate Director |
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[Signature Page of Eighth Amendment to Third Amended and Restated Reimbursement Agreement]
Exhibit 10.18
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| | Two Sigma Investments, LP | T+1 212 625 5700 |
| 100 Avenue of the Americas, Floor 16 | F +1 212 625 5800 |
| New York, NY 10013 | www.twosigma.com |
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Effective as of July 1, 2023
Hamilton Insurance Group, Ltd.
Wellesley House North, 1st Floor
90 Pitts Bay Road
Pembroke HM08 Bermuda
Re: Investment in Two Sigma Hamilton Fund, LLC
To Whom It May Concern:
Hamilton Re, Ltd. (the “Investor”), a subsidiary of Hamilton Insurance Group, Ltd. (“HIG”), has subscribed for limited liability company interests (the “Interests”) in Two Sigma Hamilton Fund, LLC, a Delaware limited liability company (the “Fund”), pursuant to one or more Subscription Agreements (collectively, the “Subscription Agreement”). For purposes of this commitment agreement (this “Commitment Agreement”), capitalized terms used and not defined herein, if any, shall have the meanings assigned to them in the Fund’s Amended and Restated Limited Liability Company Agreement, as further amended and/or restated from time to time (the “Operating Agreement”) or Confidential Offering Memorandum, as amended or supplemented from time to time (the “Confidential Memorandum”). The Subscription Agreement, the Operating Agreement, the Confidential Memorandum, and this Commitment Agreement are collectively referred to herein as the “Applicable Agreements.”
For good and valuable consideration, the sufficiency of which is hereby acknowledged, the Fund, Two Sigma Principals, LLC, a Delaware limited liability company and the managing member of the Fund (the “Managing Member”), Two Sigma Investments, LP, a Delaware limited partnership and the investment manager of the Fund (the “Investment Manager” and together with the Managing Member and the Fund, the “Two Sigma Parties”), HIG and the Investor (collectively, the “Parties”) hereby agree as follows:
1. Minimum Commitment Amount; Commitment Periods.
1.1 The Investment Manager hereby agrees to make reasonable best efforts to manage, and the Investor hereby agrees to make reasonable best efforts to maintain, an investment by the Investor in the Fund in an amount up to the lesser of (a) $1.8 billion or (b) 60% of HIG’s net tangible assets (such lesser amount, the “Minimum Commitment Amount”), in each case, for an entire Commitment Period (as defined below).
1.2 The obligations of the Parties contained in paragraph 1.1 hereof shall continue and remain in full force and effect for a three-year period commencing as of the date first written above (the “Initial Term”) and for rolling three-year periods thereafter, as described below (each such three-year period, a “Commitment Period”). Unless any of the Parties provides written notice of non-renewal to the other Parties prior to the one-year anniversary of the commencement of a Commitment Period (such anniversary, a “Renewal Date”), such Commitment Period shall automatically be extended by one additional year, thereby
Effective as of July 1, 2023
Page 2
commencing a new three-year Commitment Period. For example, assuming a Commitment Period were to begin as of July 1, 2023, to the extent the Parties do not provide notice of non-renewal prior to July 1, 2024, a new Commitment Period would commence as of such Renewal Date and extend through June 30, 2026. However, if such a notice is provided prior to the July 1, 2024 Renewal Date, the Commitment Period would terminate as of June 30, 2025 without any renewal.
2. Non-Routine Withdrawals; Diversification Event; Termination.
2.1 Notwithstanding any provision to the contrary herein, if, in the good faith determination and certification of the Investor, (i) non-routine circumstances pertaining to its underwriting business are such that the Investor has fully depleted the cash and cash equivalents that the Investor retains as working capital reasonably necessary for its day-to-day operations (the “Liquidity Buffer”), (ii) it would be materially detrimental to the Investor to delay making a withdrawal until the next available withdrawal date, and (iii) where the Investor has a working capital or letter of credit facility, the Investor has exhausted or is otherwise unable to access such credit facility, then the Investor may deliver a notice of withdrawal (and related certifications) for such withdrawal amount and withdrawal date as, in the good faith determination of the Investor, is necessary to prevent or cure the foregoing. The withdrawal date for such a non-routine withdrawal will be the first business day following receipt by the Managing Member of the notice of withdrawal and related certifications hereunder, or such earlier date as the Managing Member may determine or such later date as the Investor and the Managing Member may agree. The Investor shall promptly resubscribe to the Fund so as to comply with paragraph 1.1 hereof as of the first calendar day of the month immediately following any withdrawals pursuant to this paragraph 2.1.
2.2 Notwithstanding any provision to the contrary herein, the Investor may reduce its investment in the Fund (by means of a withdrawal effected in accordance with the withdrawal provisions of the Fund, as set forth in the Applicable Agreements) below the Minimum Commitment Amount, in each case, solely to the extent necessary to prevent and/or for so long as is necessary to rectify (as applicable) (i) A.M. Best Co. (“AM Best”) from downgrading or taking negative ratings action with respect to the Investor’s financial strength rating of A- (Excellent) and issuer credit rating of “a-”, and expressing significant concern principally related to the continued management of the Investor’s investment assets in the Fund, or (ii) the Bermuda Monetary Authority (the “BMA”) from issuing an order or direction that the Investor is required to withdraw all or a portion of its investment from the Fund (each of the foregoing clauses (i) and (ii), a “Diversification Event”), in each case, and only if the board of directors of HIG has resolved (x) after the exercise of commercially reasonable efforts to avoid such withdrawal, and all commercially reasonable alternatives thereto (including good faith discussions and negotiations with AM Best or the BMA, as applicable), that such withdrawal is in fact required in order to address the Diversification Event, and (y) that it is necessary for the Investor to maintain its “A-” and “a-” ratings from AM Best or comply with such BMA order, as the case may be, in order to continue its business operations. In the event of a Diversification Event, in order for the Investor to be permitted to reduce its investment in the Fund below the Minimum Commitment Amount, the Investor must provide written notice to the Investment
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Manager, which notice shall include a summary, in reasonable detail, of the Diversification Event and the efforts taken and conclusions reached by the board of directors of HIG pursuant to this paragraph. The Investor shall promptly resubscribe to the Fund so as to comply with paragraph 1.1 hereof, as of the first calendar day of the first month following any withdrawal pursuant to the paragraph 2.2 where such subscription would not cause a new Diversification Event.
2.3 Notwithstanding any provision to the contrary herein, either Party may terminate any Commitment Period and this Commitment Agreement in the event of:
(a) a transfer of more than 25% of any voting interests in the Investment Manager to one or more persons other than those persons who are affiliates of or related to the Investment Manager (or any entities formed by such persons for estate planning purposes) (such transfer, a “Change in Control”). Notwithstanding the foregoing, a transaction that does not result in a change of actual control or management of lnvestment Manager would not constitute a Change in Control for these purposes;
(b) (i) any private disposition or primary issuance of the equity or voting interests of HIG or the Investor, or (ii) a public offering of the equity or voting interests of HIG or the Investor resulting in the direct or indirect ownership by any of the Investment Manager’s or Managing Member’s Competitors of a material (i.e., 5% or greater) or non-passive position in the public equity of HIG and/or the Investor. For purposes hereof, a “Competitor” of the Investment Manager or its affiliates (together, “Two Sigma”) is an investment adviser, investment manager, hedge fund, private or public investment fund, or firm or group within a firm or its affiliates that (a) employs or is preparing to employ strategies or techniques that make trading and/or investing decisions primarily based upon computer-driven processes, (b) acts as or attempts to act as a market maker, (c) engages in “high-frequency” trading or other related liquidity providing activities, or (d) engages in or is preparing to engage in any other business activity in which Two Sigma is engaged or was engaged or was preparing to become engaged in the twelve (12) months preceding such disposition or acquisition event;
(c) a material change in the Investor’s or HIG’s business, as compared against the business of the Investor or HIG, as applicable, as of the commencement of the Initial Term;
(d) a material change in the Investment Manager’s business, as compared against the business of the Investment Manager as of the commencement of the Initial Term, including (x) the cessation of management of a Trading Entity, or (y) the return of a majority of client capital attributable to a Trading Entity;
(e) any of David M. Siegel or John A. Overdeck (the “Key Person”) ceases to be involved in the management of Two Sigma; or
(f) a change in law that is reasonably expected to have a material adverse effect on either of the Parties.
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2.4 Notwithstanding any provision to the contrary herein, none of the Two Sigma Parties shall be responsible for any performance of their obligations under this Commitment Agreement to the extent that such obligations (x) would reasonably conflict with any such Two Sigma Party’s fiduciary duties to other clients or investors in such clients or (y) are reasonably expected to result in materially adverse legal or regulatory risk to any of the Two Sigma Parties, as determined in such Two Sigma Party’s sole discretion on the advice of its internal or external counsel.
2.5 For the avoidance of doubt, payment of withdrawal proceeds for withdrawals made pursuant to paragraph 2 hereof shall be made in accordance with Section 7.4(g) of the Operating Agreement.
3. Default Allocation: Minimum Expectations.
3.1 During the Initial Term, the Fund shall seek to maintain an allocation, directly or indirectly, of (i) approximately 62% of the Fund’s capital to equity strategies deployed by Two Sigma Spectrum Portfolio, LLC and/or Two Sigma Equity Spectrum Portfolio, LLC, and (ii) approximately 38% of the Fund’s capital to macro strategies deployed by Two Sigma Futures Portfolio, LLC (such allocation in (i) and (ii), the “Default Allocation”). The Investment Manager and the Investor may amend the Default Allocation at any time by mutual written agreement (including via email confirmation). Prior to the expiration of the Initial Term, the Parties shall endeavor in good faith to discuss and agree upon a new Default Allocation of the Fund; in the event no such agreement is reached, the Default Allocation shall remain in place for subsequent Commitment Periods until the termination of the Commitment Period in accordance with this Commitment Agreement or until the Parties otherwise mutually agree.
3.2 The Parties acknowledge that the Confidential Memorandum sets forth certain Minimum Expectations (as defined therein) for the Investment Manager in constructing a portfolio for the Fund, and the Investment Manager shall notify the Investor in the event that it lowers such Minimum Expectations.
3.3 The Parties acknowledge and agree that the Fund may allocate its capital in accordance with the Default Allocation, notwithstanding whether the Investment Manager expects the Default Allocation to achieve the Minimum Expectations. Accordingly, regardless of whether the Investment Manager has lowered the Minimum Expectations of the Fund, the Fund may continue to allocate its capital in accordance with the Default Allocation at any time during any Commitment Period.
3.4 Furthermore, notwithstanding the Default Allocation, the Fund may reallocate its capital in any manner in the Investment Manager’s discretion among any underlying trading entities, whether or not in accordance with the Default Allocation, if, at the time of such a reallocation, such reallocation is projected to meet the Minimum Expectations.
4. Mandatory Withdrawals. Notwithstanding any provision to the contrary herein or in the Applicable Agreements, the Managing Member may, in its sole discretion, upon five (5)
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calendar days’ prior written notice, compel the withdrawal of any portion of the Investor’s direct or indirect investment in the Fund in excess of the Minimum Commitment Amount.
5. Monthly Certification.
5.1 The Investor shall prepare in good faith, and provide to the Investment Manager fifteen (15) calendar days prior to the last calendar day of each month, a certification signed by HIG’s Chief Financial Officer, in form and substance reasonably satisfactory to the Investment Manager, setting forth: (i) a statement of monthly cash flow projections for the then-current calendar month, taking into account the Investor’s financial condition to date and expectations with respect to day-to-day operations, premiums to be received and claims to be paid, (ii) the projected available cash and cash equivalents, after deducting repurchase reserves and dividend reserves, if any (“Projected Cash Balance”), as of the last day of the then current month, which Projected Cash Balance may be a positive or negative number; (iii) its Liquidity Buffer as of the last day of such month, expressed as both a percentage of net tangible assets and as an estimated calculation thereof; (iv) line-of-credit balances (if any), including drawn and undrawn balances; (v) the current net tangible assets of HIG; and (vi) a summary, in reasonable detail, of the applicable assumptions and calculations used to derive the foregoing (the “Monthly Certification”).
5.2 Unless otherwise mutually agreed by the Investor and the Investment Manager, the Monthly Certification will value the Investor’s investment in the Fund at the most recent month-end Net Asset Value provided to the Investor by the Administrator or otherwise provided to the Investor on behalf of the Fund (plus the face value of any contributions to the Fund by the Investor, less any withdrawals from the Fund by the Investor, in each case, that were effected after the date as of which such Net Asset Value was calculated and prior to the date as of which such Monthly Certification is calculated).
6. Additional Members. The Managing Member shall not admit Additional Members into the Fund without the prior written consent of the Investor so long as this Commitment Agreement remains in effect. For the avoidance of doubt and notwithstanding the foregoing, the Managing Member and its affiliates may, in their sole discretion, create and/or manage any parallel fund or other vehicle or account in the future that pursues the same or a substantially similar investment strategy as the Fund in whole or in part.
7. Authorization. Each of the Fund, the Investment Manager, the Managing Member, HIG and the Investor has full authority to enter into this Commitment Agreement. This Commitment Agreement is enforceable in accordance with its terms, except as may be limited by bankruptcy, insolvency, moratorium, other similar law affecting the enforcement of creditors’ rights generally and general principles of equity, and is and shall be enforceable against any future investment in the Fund.
8. Discretion. For the avoidance of doubt, use of the terms “discretion,” “sole discretion,” or terms of similar authority or latitude contained in the Applicable Agreements are not intended to permit the Managing Member or the Investment Manager to obtain an improper economic benefit at the expense of the Investor in violation of the Advisers Act. Nothing in the
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foregoing is intended to amend, modify or limit either the Managing Member’s or the Investment Manager’s power, authority or discretion, as contemplated by the Applicable Agreements.
9. Governing Law; Consent to Jurisdiction.
9.1 This Commitment Agreement and the rights and obligations of the Parties shall be interpreted and enforced in accordance with and governed by the laws of the State of Delaware, U.S.A. applicable to agreements made and to be performed wholly within that jurisdiction. With respect to any suit, action or proceeding relating to this Commitment Agreement (“Proceedings”), each Party irrevocably submits to the non-exclusive jurisdiction of the courts of the State of New York, U.S.A., and the United States District Court located in the Borough of Manhattan in New York City, and waives any objection which it may have at any time to the laying of venue of any proceedings brought in any such court, waives any claim that such proceedings have been brought in an inconvenient forum and further waives the right to object, with respect to such proceedings, that such court does not have any jurisdiction over such Party.
9.2 Each Party hereby irrevocably 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 Commitment Agreement or the transactions contemplated hereby (whether based on contract, tort or any other theory).
10. Miscellaneous. This Commitment Agreement supplements the Subscription Agreement and the Operating Agreement and, in the event of a conflict between this Commitment Agreement and the Subscription Agreement, the Operating Agreement, or any other Applicable Agreement, the provisions of this Commitment Agreement shall control. As so supplemented or modified by this Commitment Agreement, the other Applicable Agreements remain in full force and effect. This Commitment Agreement may be executed simultaneously in one or more counterparts, each of which shall be deemed to be an original, but all of which together constitute one and the same instrument. This Commitment Agreement will govern all future investments, if any, in the Fund by the Investor. This Commitment Agreement shall remain in effect until the sooner of (a) the date terminated in accordance with paragraph 2.3 hereof, (b) the date terminated by an instrument in writing signed by the Parties, and (c) the first date on which the Investor no longer beneficially owns Interests in the Fund; provided, however, that paragraph 8 and this paragraph 9 shall survive indefinitely thereafter. As used in this Commitment Agreement, the term “includes” or “including” means without limitation except where the context clearly implies otherwise. This Commitment Agreement may be amended only by a written agreement signed by all parties hereto.
[Signature page immediately to follow.]
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| Very truly yours, |
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| TWO SIGMA HAMILTON FUND, LLC |
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By: TWO SIGMA PRINCIPALS, LLC, |
| its managing member |
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| By: | /s/ Carter Lyons |
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| Name: | Carter Lyons |
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| Title: | Authorized Signatory |
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| TWO SIGMA PRINCIPALS, LLC |
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| By: | /s/ Carter Lyons |
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| Name: | Carter Lyons |
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| Title: | Authorized Signatory |
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| TWO SIGMA INVESTMENTS, LP |
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| By: | /s/ Carter Lyons |
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| Name: | Carter Lyons |
| | | | |
| Title: | Authorized Signatory |
| | | | | | | | | | | | | | |
| Agreed to and Accepted by: |
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| HAMILTON INSURANCE GROUP, LTD. |
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| By: | /s/ Gemma Carreiro |
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| Name: | Gemma Carreiro |
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| Title: | General Counsel |
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| HAMILTON RE, LTD. |
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| By: | /s/ Chad Cundliffe |
| | | | |
| Name: | Chad Cundliffe |
| | | | |
| Title: | CFO |
AMENDED AND RESTATED
INVESTMENT MANAGEMENT AGREEMENT
This AMENDED AND RESTATED INVESTMENT MANAGEMENT AGREEMENT (this “Agreement”) is entered into as of July 1, 2023 between TWO SIGMA HAMILTON FUND, LLC, a Delaware limited liability company (“Client”), and TWO SIGMA INVESTMENTS, LP, a Delaware limited partnership (“Investment Manager”).
Client and Investment Manager hereby agree as follows:
RECITALS
A. Client desires to appoint Investment Manager as the investment manager of Client with respect to the assets described herein.
B. Investment Manager is willing to accept its appointment as the investment manager of Client in accordance with the terms of this Agreement.
C. Investment Manager wishes to manage the assets of Client described herein pursuant to the investment strategies more fully detailed in the Confidential Offering Memorandum of Client, as amended and/or supplemented from time to time (the “Offering Memorandum”).
1. DEFINITIONS
Capitalized terms used herein without definition herein have the respective meanings given to them in the Offering Memorandum and the Amended and Restated Limited Liability Company Agreement of Client, as amended and/or restated from time to time (the “Company Agreement”). For purposes of this Agreement, the term ‘Person” shall mean an individual, a partnership, a limited liability company, an association, a joint venture, a corporation, a business, a trust, an unincorporated organization, any other entity or a government or any department, agency, authority, instrumentality or political subdivision thereof.
2. INVESTED ASSETS
Investment Manager agrees to provide continuous investment management services with respect to assets placed with Investment Manager by Client. Such assets, as changed by investment, reinvestment, additions, disbursements and withdrawals, are referred to in this Agreement as the “Invested Assets.”
3. AUTHORITY OF INVESTMENT MANAGER
a. Investment Authority.
(i) Client hereby appoints Investment Manager to manage and direct the investment of the Invested Assets, and Investment Manager hereby
accepts such appointment, on the terms and conditions set forth in this Agreement. Client hereby grants Investment Manager, as its agent, full power and authority to, subject in all cases to the Offering Memorandum and the Company Agreement to:
(A) Purchase, acquire, hold, invest, reinvest, sell or otherwise dispose of any or all of its interests in the Trading Entities;
(B) Purchase, acquire, hold, invest, reinvest, sell, sell short or otherwise dispose of, write, endorse, guarantee, exchange and trade (on margin or otherwise), within and outside of the United States both on exchanges and through over-the-counter (“OTC”) and, whether or not readily marketable and without limitation, U.S. and non-U.S. equity and equity-related securities, exchange-traded products (including, without limitation, exchange-traded products on equity or sector indices), debt instruments, bonds and other fixed income securities (including, without limitation, corporate, convertible, agency, non-U.S. and U.S. municipality, treasury and insurance linked bonds and other fixed income instruments), loan participations, futures, forward contracts, warrants, options (both listed and OTC), SPACs, repurchase agreements, reverse repurchase agreements, swaps (of any and all types including, among other things, equity swaps, commodity swaps, interest rate swaps, currency swaps, futures look-alike swaps, and credit default swaps and indices thereof), spot and forward foreign exchange contracts, options on foreign exchange contracts, commodities, derivatives on virtual currencies and/or other digital assets, U.S. and non-U.S. money market funds and money market instruments (including but not limited to treasury and agency securities, municipal notes, commercial paper, time deposits, promissory notes and Eurodollar deposits), non-deliverable forward contracts on currencies and any derivatives or financial instruments which exist now or are hereafter created (collectively, “Instruments”);
(C) Trade and invest Client’s assets, directly or directly through the Trading Entities, in various types of Instruments that have significant amounts of embedded leverage;
(D) Vote or otherwise take any action, directly or indirectly, required of or allowed to Client with respect to any Instruments or other assets of Client;
(E) Open, maintain and close bank, brokerage, custodial, futures, options, mutual fund and other similar accounts and draw checks and other orders for the payment of money and issue instructions
and authorizations with respect to any Instruments or other assets of Client;
(F) Engage and terminate attorneys, accountants and such other agents and employees for itself and for Client as it may deem necessary or advisable, and authorize any such agent or employee to act for and on behalf of Client;
(G) Without limiting its ultimate responsibility for the investment management of Client, delegate any of its duties hereunder to any Person and, in furtherance of any such delegation, appoint, employ or contract with any Person it may in its sole discretion deem necessary or desirable for the transaction of the business of Client, which Person may, under the supervision of Investment Manager, administer the day-to-clay operations of Client;
(H) Commence or defend litigation or arbitration that pertains to Client or any assets of Client and retain legal counsel in connection therewith;
(I) Make and perform such other agreements, guarantees and undertakings as may be necessary or advisable for the carrying out of any of the foregoing powers, objects or purposes; and
(J) Carry on any other business in connection with or incidental to any of the objects and purposes of Client, do everything necessary, suitable or proper for the accomplishment of any purpose or the attainment of any object or the furtherance of any power herein set forth, either alone or in association with others, and take any action incidental or appurtenant to or growing out of or connected with the business, purposes, objects or powers of Client.
(ii) Client grants Investment Manager unrestricted discretion and authority without consultation with Client (A) to make all investment decisions with respect to the Invested Assets, including the discretion to acquire (by purchase, exchange, subscription or otherwise), to hold and to dispose of (by sale or exchange or otherwise) Instruments, and (B) to enter into such agreements and make such representations (including representations regarding the purchase of Instruments and other instruments for investment) as may be necessary or proper in connection with the performance by Investment Manager of its duties hereunder.
(iii) Client hereby appoints Investment Manager, and Investment Manager accepts this appointment, to make any and all determinations required pursuant to the Company Agreement. Any such determination by
Investment Manager shall be binding upon the parties to this Agreement absent manifest error.
b. Power of Attorney. To enable Investment Manager to exercise fully its discretion in managing the Invested Assets, Client hereby constitutes and appoints Investment Manager as Client’s agent and attorney-in-fact with full power and authority for Client and on Client’s behalf to buy, sell and otherwise deal in Instruments, other instruments and contracts relating to the same. Client further grants to Investment Manager as Client’s agent and attorney-in-fact power and authority to do and perform every act necessary and proper to be done in the exercise of the foregoing powers as fully as Client might or could do if personally present. Client hereby agrees not to terminate this power of attorney prior to the termination of this Agreement.
c. Correspondence and Voting. Investment Manager shall promptly forward to Client all correspondence relating to the Invested Assets. Investment Manager shall be authorized to vote on behalf of Client any proxies, consents or take any action required of or allowed to Client in respect of the Invested Assets; provided that Investment Manager shall comply with any written instructions received from Client as to the handling of such matters and upon receipt of written instructions, if any, shall only be authorized to vote, consent or take any action required of or allowed to Client in respect of its Invested Assets in compliance with such written instructions.
d. Independent Contractor. Except as expressly authorized herein, Investment Manager shall for all purposes be deemed to be an independent contractor and shall have no authority to act for or to represent Client in an: way or otherwise to be an agent of Client.
e. Cash and Cash Equivalents. Investment Manager, in its sole discretion, may keep such portion of the Invested Assets in cash, cash equivalents or other short-term assets, including, but not limited to, government treasury bills and other government debt securities, commercial paper and other money market securities, cash deposits and money market funds (in each case, directly or indirectly) as Investment Manager may from time to time deem to be in the best interests of Client.
4. RESPONSIBILITIES OF INVESTMENT MANAGER
a. Investment Manager’s rights, powers and duties under this Agreement shall be limited to those specifically set forth in this Agreement and shall extend only to the Invested Assets.
b. The activities of Investment Manager shall comply with the requirements imposed by:
(i) Any provisions of applicable law;
(ii) Provisions of the Offering Memorandum and the Company Agreement, provided that Investment Manager shall not be bound by any amendment,
supplement or revisions to the Offering Memorandum or the Company Agreement until it has been given notice thereof; and
(iii) Such policies as may be adopted from time to time by the Managing Member and communicated to Investment Manager.
5. LIMITATION ON LIABILITY
a. To the fullest extent permitted by law, none of Investment Manager, its Affiliates (as defined in the Company Agreement) and their respective shareholders, partners, members, officers, directors, employees, agents and representatives (each, an “Investment Manager Related Person”) shall be liable to Client or any member of Client (a “Member” and collectively, the “Members”) for (a) any act taken or failed to be taken by any such Investment Manager Related Person (including losses due to trade errors which will be borne by the Client and/or the Trading Entities, as applicable) except for any such act or failure to act that constitutes Disabling Conduct on the part of such Investment Manager Related Person, (b) any action or omission by any Member or (c) any mistake, negligence, misconduct or bad faith of any broker or other agent or representative of Client selected by any Investment Manager Related Person with reasonable care. For the avoidance of doubt and without limiting the foregoing, to the extent that, at law or in equity, any Investment Manager Related Person has duties (including fiduciary duties) and liabilities relating thereto to Client or any Member, no Investment Manager Related Person acting under this Agreement shall be liable to Client or to any Member for its good faith reliance on the provisions of this Agreement. To the fullest extent permitted by law, the provisions of this Agreement, including without limitation Section 8, to the extent that they modify, restrict or eliminate the duties (including fiduciary duties) and liabilities of any Investment Manager Related Person otherwise existing at law or in equity, are agreed by the parties hereto to replace such other duties and liabilities of such Person. As used herein, “Disabling Conduct” means fraud, willful misfeasance or gross negligence as finally determined by a court of competent jurisdiction. Gross negligence shall have the meaning generally applied to it by the laws of the State of Delaware.
b. To the fullest extent permitted by applicable law, no Investment Manager Related Person shall have any personal liability to Client or any Member solely by reason of any change in U.S. federal, state or local or non-US. income tax laws, or in interpretations thereof, as they apply to Client or any Member, whether the change occurs through legislative, judicial or administrative action.
c. Any Investment Manager Related Person may consult legal counsel or accountants selected by it and any act or omission in good faith by it on behalf of Client or in furtherance of the business of Client in good faith reliance on and in accordance with the advice of such counsel or accountants shall be full justification for the act or omission and, to the fullest extent pem1itted by applicable law, no Investment Manager Related Person shall be liable to Client or any Member in so acting or omitting to act if such Investment Manager Related Person selected such counsel or accountants with reasonable care.
d. Notwithstanding the foregoing, nothing contained in this Section 5 or elsewhere in this Agreement shall constitute a waiver by Client of any of its legal rights or Investment Manager’s duties or liabilities under U.S. federal securities law or any other applicable law whose applicability is not permitted to be contractually waived.
6. RECORDS AND REPORTS
a. Records. Investment Manager shall maintain proper and complete records relating to the furnishing of investment management services under this Agreement for such period of time as may be required under applicable law, including records with respect to the acquisition, holding and disposition of Instruments and other investments for Client. All records maintained pursuant to this Agreement shall be the property of Client and shall be subject to examination by Client and by Persons authorized by it during reasonable business hours upon reasonable notice. Except as expressly authorized in this Agreement or as required by applicable law, regulation or court order or as directed by Client in writing, Investment Manager shall keep confidential the records and other information pertaining to Client or the Invested Assets obtained by reason of this Agreement. Upon termination of this Agreement, Investment Manager shall promptly, upon demand, return to Client all such records, except that Investment Manager may retain copies for its records.
b. Reports on Request. Investment Manager shall provide to Client promptly upon request any information available in the records maintained by Investment Manager relating to the Invested Assets in such form as Client shall reasonably request. Typically, such statements will be provided within one hundred twenty (120) days of the end of the Fund’s fiscal year.
7. FEES AND EXPENSES
a. Management Fee. In connection with the performance of services for Client under this Agreement and the Company Agreement, Investment Manager shall be entitled to receive a management fee (the “Management Fee”) equal to an annualized rate of 2.5% of the Net Asset Value of Client allocable to the Members. For purposes of calculating the Management Fee, the portion of the Net Asset Value of Client allocable to such Members is increased by the accrued Incentive Allocation and Additional Incentive Allocation (each as defined in the Company Agreement), if any. The Management Fee shall be paid monthly in advance as of the first calendar day of each month. For purposes of ca1culating the Management Fee, the Net Asset Value of Client allocable to each such Member shall be determined by Client’s administrator in conjunction with Investment Manager, based on Client’s Net Asset Value as of the first calendar day of the month. The Management Fee for a period of less than a full calendar month shall be prorated based on the actual number of calendar days in such period. Investment Manager, in its sole discretion, may waive, reduce or modify all or part of the Management Fee for any Member, and the Managing Member, in conjunction with Investment Manager, may substitute all or a portion of the Management Fee applicable to any Member with an incentive allocation (with the consent of the affected Member).
b. Expenses.
(i) Investment Manager or its Affiliates shall bear and pay the cost of all the following management expenses (“Management Expenses”):
(A) payroll and other costs of management, administrative and clerical personnel, including salaries, wages, payroll taxes, bonuses, cost of employee benefit plans and temporary office help expense of Investment Manager and its Affiliates;
(B) bookkeeping costs other than the costs of preparation of quarterly and annual financial statements, other quarterly reports, tax returns and related statements of Client;
(C) rent, utilities, telephone, office supplies, subscriptions and other office expenses of Investment Manager and its Affiliates; and
(D) other similar routine administrative expenses of Investment Manager and its Affiliates.
(ii) All expenses of Client other than Management Expenses will be borne by Client.
8. NON-EXCLUSIVE SERVICES
(a) Investment Manager shall devote such time to the affairs of Client that in its sole discretion the conduct of Client’s business reasonably requires.
(b) Client hereby acknowledges that:
(i) an Investment Manager Related Person may act as investment adviser, sponsor, general partner or managing member for other customers, accounts and pooled investment vehicles (“Other Accounts”) and may give advice, and take action, with respect to any of such Other Accounts which may differ from the advice given, or the timing or nature of action taken, with respect to Client;
(ii) an Investment Manager Related Person may invest in, advise, sponsor and/or act as investment manager to Other Accounts that may have investment objectives similar to those of Client and may compete with Client for investment opportunities, provided that where there is a limited supply of an Instrument, the Investment Manager will use its commercially reasonable efforts to cause investment opportunities to be allocated or rotated among Client and the Other Accounts in a manner deemed equitable, but that Investment Manager cannot assure, and assumes no responsibility for, equitable allocation of investment opportunities among Client and the Other Accounts;
(iii) an Investment Manager Related Person may engage in or cause or advise other customers to engage in transactions that may differ from or be identical to the transactions engaged in by Investment Manager for Client;
(iv) no Investment Manager Related Person shall have any obligation to engage in any transaction for Client or to recommend any transaction to Client that any Investment Manager Related Person may engage in for its own account or the account of any Other Account, except as otherwise required by applicable law;
(v) to the extent permitted by applicable law, Investment Manager shall be permitted to bunch or aggregate orders for Client with orders for Other Accounts; and
(vi) Investment Manager has other conflicts of interests with respect to Client, which are discussed in the Offering Memorandum and/or in Part 2A of Investment Manager’s Form ADV.
(c) Client acknowledges that the Managing Member, Investment Manager and their Affiliates also serve as the general partner, investment manager or managing member of other commingled funds and separately managed accounts which may (i) utilize the same or similar strategies as Client and the Trading Entities and (ii) buy or sell the same or similar Instruments as Client and the Trading Entities.
(d) By reason of the investment advisory and other activities of an Investment Manager Related Person, Investment Manager may acquire confidential information or otherwise be restricted from initiating transactions in certain Instruments. Client acknowledges and agrees that, except as required by applicable law, Investment Manager and/or its affiliates may not be free to divulge, or to act upon, any such confidential information with respect to Investment Manager’s or its delegee’s performance of responsibilities under this Agreement and that, due to such a restriction, Investment Manager or its delegee may not initiate certain transactions Investment Manager or its delegee otherwise might have initiated.
(e) Neither Client nor any Member, by reason of being a member of Client, shall have any right to participate in any manner in any profits or income earned or derived by or accruing to any Investment Manager Related Person from the conduct of any business other than the business of Client or from any transaction in Instruments effected by such Investment Manager Related Person for any account other than that of Client.
(f) Client shall request that each Member promptly provide Investment Manager such information as Investment Manager may from time to time request for the purposes of determining whether the assets of Client are “plan assets” within the meaning of the Department of Labor regulations, the applicability of certain exemptions from prohibited transactions under ERISA and the U.S. Internal Revenue Code of 1986, as amended (the “Code”) and any other matters relating to ERISA or the Code (and compliance therewith) in connection with any Member’s purchase of Interests or the operation or investments of Client.
(g) Client acknowledges and agrees that any Investment Manager Related Person may pay a broker a brokerage commission in excess of that which another broker might have charged for effecting the same transactions, in recognition of the value of the research services and brokerage services provided by the broker and used by Client and any Other Accounts. Client further acknowledges and agrees that in selecting a broker or dealer, Investment Manager will take into account the execution capability, expertise, financial stability, reputation, access to the market for the securities being traded and the brokerage and research services and other services provided by such brokers to Investment Manager.
(h) With respect to transactions effected for Client and/or the Trading Entities through an Investment Manager Related Person or an associated person thereof (within the meaning of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as a broker-dealer, Client hereby consents to the retention by such Investment Manager Related Person or such associated person of a portion of the brokerage commissions or other compensation charged to Client and/or the Trading Entities pursuant to Section 11(a) of the Exchange Act, and the rules and regulations promulgated thereunder, including but not limited to Rule 11a-2-2(T).
(i) Client acknowledges and agrees that an Investment Manager Related Person may engage in “agency cross transactions” as defined in Rule 206(3)-2 (“Agency Cross Transactions”) promulgated by the U.S. Securities and Exchange Commission under the Advisers Act, in which such Investment Manager Related Person acts as a broker both for Client and/or the Trading Entities and for another person on the other side of the transaction. Client acknowledges that with respect to Agency Cross Transactions, such Investment Manager Related Person will act as broker for, will receive commissions from, and will have a potentially conflicting division of loyalties and responsibilities regarding, both parties to such Agency Cross Transactions. Consent as to Agency Cross Transactions effected on behalf of Client may be revoked at any time by written notice to Investment Manager from Client, provided that Client may not revoke consent without the unanimous approval of its Members.
(j) Notwithstanding any provision of this Agreement to the contrary, the parties hereto hereby agree that the Investment Manager elated Person shall be entitled to make any determination relating to the activities described in this Section 8 in such Investment Manager Related Person’s sole and absolute discretion.
(k) Subject to applicable law, Client hereby waives any right, and covenants not, to sue on the basis of any law or in equity by reason of or in connection with, any act or omission of an Investment Manager Related Person, if such act or omission is permitted by or is otherwise consistent with this Section 8.
9. USE OF NAME
Client acknowledges that it adopted its name through the permission of Investment Manager. Investment Manager hereby consents to the non-exclusive use by Client of the name “Two Sigma Hamilton Fund, LLC” and/or any derivation of “Two Sigma” only so long as Investment Manager or an Affiliate of Investment Manager serves as the investment manager
of Client. If neither Investment Manager nor any Affiliate thereof continues to serve as investment manager to Client (the date as of which Client ceases to receive such services being referred to as the “Effective Date”), Client at its expense:
a. as promptly as practicable, shall take all necessary action to cause the Offering Memorandum, the Company Agreement and any other applicable documents to be amended to accomplish and reflect a change of its name to eliminate any reference to Investment Manager and/or any derivation of “Two Sigma;” and
b. within sixty (60) days after the Effective Date, shall cease to use in any other manner, including, but not limited to, use in any sales literature or promotional material, the name of Investment Manager and/or any derivation of “Two Sigma.”
Client agrees to indemnify and hold harmless Investment Manager and its Affiliates from and against any and all costs, losses, claims, damages or liabilities, joint or several, including, without limitation, attorneys’ fees and disbursements, which may arise out of Client’s use or misuse of the name “Two Sigma Hamilton Fund, LLC” or any derivative of “Two Sigma” or out of any breach of or failure to comply with this Section 9.
10. AUTHORIZED PERSONS
Client and Investment Manager shall furnish each other from time to time evidence of the authority of Persons who are authorized to act hereunder on behalf of Investment Manager and Client, respectively. Investment Manager is authorized to comply with any instructions from Client or from a duly authorized representative of Client whose authority to act on Client’s behalf has been confirmed to Investment Manager in writing by Client and shall not be liable for so acting in Client’s behalf. All oral instructions shall be promptly confirmed in writing.
11. REPRESENTATIONS
Client hereby confirms to Investment Manager that it has full power and authority to enter into this Agreement and that the execution of this Agreement on behalf of Client has been fully authorized and, upon execution and delivery, this Agreement will be binding upon Client in accordance with its terms. Client represents that appointment of Investment Manager is authorized by, has been accomplished in accordance with, and does not violate, the Company Agreement. Client will furnish Investment Manager with true copies of all governing documents of Client.
12. COVENANTS
a. The Investment Manager will use its reasonable best efforts to avoid causing the Client to be treated as engaged in a United States trade or business for U.S. federal income tax purposes.
b. Except for funds which have made a section 475(f) election, the Investment Manager will use its commercially reasonable efforts to make (or cause lower-tier funds to
make) an election with respect to any “passive foreign investment company” (as defined in section 1297 of the Code) in which the Client invests directly, indirectly or constructively (i.e., within the meaning of section 1298 of the Code) to treat such passive foreign investment company as a “qualified electing fund” (within the meaning of section 1295 of the Code) or mark-to-market such stock for U.S. federal income tax purposes (within the meaning of section 1296 of the Code).
c. The Investment Manager will not, when acting on behalf of the Client, participate in any “listed transactions” or “transactions of interest” within the meaning of U.S. Treasury Regulations section 1.6011-4 (and equivalent under state, local and foreign laws).
d. The Investment Manager will use commercially reasonable efforts to avoid causing the Client or any Member of the Client to be subject to net income tax (or having to file an income or franchise tax return, other than protective income tax returns) in any jurisdiction other than Bermuda.
13. TERMINATION
a. Termination: Hypothecation.
(i) Subject at all times to the Commitment Agreement dated as of July 1, 2023, by and among Client, the Investment Manager, the Managing Member, Hamilton Insurance Group, Ltd. and Hamilton Re, Ltd., as may be amended from time to time (the “Commitment Agreement”), this Agreement may be terminated by either party upon thirty (30) days’ prior written notice; provided, however, that Client may not terminate the appointment of Investment Manager otherwise than with the unanimous approval of the Members of Client (excluding the Managing Member).
(ii) Investment Manager shall not make any assignment (within the meaning of the Advisers Act and the rules thereunder) of its obligations under this Agreement without the consent of holders of a Majority in Interest, except that Investment Manager may substitute in its stead as investment manager any entity which has, by merger, consolidation or otherwise, acquired substantially all of it assets without such consent. Investment Manager may assign, transfer or grant a security interest in its right to receive payments under this Agreement without the consent of Client or Members. Furthermore, Investment Manager shall provide written notice to Client if there is a change in the identity of Investment Manager’s general partner during the term of this Agreement.
b. Removal or Cessation of Investment Manager. This Agreement may also be terminated in the event that a court of competent jurisdiction determines after final appeal that Investment Manager has engaged in fraud or willful misfeasance as finally determined by a court of competent jurisdiction and such fraud or willful misfeasance has had a material adverse effect on the business or properties of Client.
c. Investment Manager shall cease to be the investment manager of Client if (i) Investment Manager is dissolved, (ii) an order for relief against Investment Manager is entered under Chapter 7 or 11 of the U.S. federal bankruptcy law, (iii) Investment Manager makes a general assignment for the benefit of creditors, (iv) Investment Manager files a voluntary petition under the U.S. federal bankruptcy law, (v) Investment Manager files a petition or answer seeking for its reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law, or regulation, (vi) Investment Manager files an answer or other pleading admitting or failing to contest the material allegations of a petition filed against Investment Manager in any proceeding seeking reorganization, arrangement composition, readjustment, liquidation, dissolution or similar relief under any statute, law or regulation, (vii) Investment Manager seeks, consents to, or acquiesces in the appointment of a trustee, receiver or liquidator of Investment Manager or of all or any substantial part of its properties, (viii) sixty (60) days after the commencement of any proceeding against Investment Manager seeking reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law or regulation, such proceeding has not been dismissed, (ix) within sixty (60) days after the appointment without Investment Manager’s consent or acquiescence of a trustee, receiver or liquidator of Investment Manager or of all or any substantial part of its properties, the appointment is not vacated or stayed, or within sixty (60) days after the expiration of any such stay, the appointment is not vacated.
d. Within thirty (30) days following the removal of Two Sigma Principals, LLC as managing member of Client, Investment Manager may provide notice to Client of its resignation, with an effective date no sooner than ninety (90) days following such notice.
e. Any successor investment manager appointed by Client to replace Investment Manager pursuant to this Section 13 shall, beginning on the date of such appointment, have the same rights and obligations under this Agreement as the replaced Investment Manager would have had subsequent to such date if the replaced Investment Manager had continued to act as investment manager of Client, provided that if Investment Manager ceases to serve, or is removed, as investment manager of Client, then Investment Manager shall be paid by Client the amount that would have been determined as the amount that would be due to Investment Manager pursuant to Section 7 if Client had been wound-up as of the date of Investment Manager’s cessation of service or removal and the assets of Client sold (for a value determined by a nationally recognized independent appraiser or investment bank elected by Investment Manager with the approval of the successor Investment Manager, which approval may be withheld in its reasonable discretion, at the expense of Client).
f. The replaced Investment Manager and the other Investment Manager Related Persons shall continue to be treated as Investment Manager Related Persons and to be entitled to indemnification hereunder pursuant to Section 14 with respect to losses arising out of or relating to their activities (i) during the period prior to the effective date of the removal or cessation of Investment Manager as the investment manager of Client or otherwise arising out of the replaced Investment Manager’s actions as the investment manager of Client and related activities of Client and (ii) during the period including and subsequent to the effective date of the removal or cessation of Investment Manager as an investment manager of Client and arising out of any of
such replaced Investment Manager’s actions to the extent such replaced Investment Manager is treated as a fiduciary under applicable law.
g. Liabilities and Rights of a Replaced Investment Manager. Any investment manager that is replaced as investment manager of Client shall remain liable for its portion of any obligations and liabilities incurred by it as investment manager of Client prior to the time such replacement shall have become effective, but it shall be free of any obligation or liability incurred on account of the activities of Client from and after such time. Such replacement shall not affect any rights of such Investment Manager which shall mature prior to the effective date of such replacement and the rights and liabilities of Investment Manager under Section 13(e).
14. INDEMNIFICATION
a. To the fullest extent permitted by law, Client shall indemnify and hold harmless each Investment Manager Related Person (each an “Indemnitee”) from and against any and all claims, actions, suits, proceedings, assessments, liabilities, damages, losses (including losses due to trade errors caused by such persons), costs and expenses, including amounts paid in satisfaction of judgments, in compromises and settlements, as fines and penalties or other costs and expenses (including attorneys’ fees and expenses, taxes and penalties) (the “Indemnifiable Items”), to which they may be or become subject by reason of their activities on behalf of Client and/or the Trading Entities, except to the extent that such Indemnifiable Items were incurred as a result of such Indemnitee’s Disabling Conduct. The termination of any proceeding by settlement, judgment, order, conviction or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the Indemnitee’s conduct constituted Disabling Conduct.
b. Expenses (including attorneys’ fees and expenses, taxes and penalties) incurred by an Indemnitee in defense or settlement of any claim that may be subject to a right of indemnification hereunder may be advanced by Client prior to the final disposition thereof upon receipt of an undertaking by or on behalf of the Indemnitee to repay the amount advanced to the extent that it shall be determined ultimately by a court of competent jurisdication that the Indemnitee is not entitled to be indemnified hereunder. The right of any Indemnitee to the indemnification provided herein shall be cumulative of, and in addition to, any and all rights to which the Indemnitee may otherwise be entitled by contract or as a matter of law or equity and shall be extended to the Indemnitee’s successors, a signs and legal representatives. Any judgments against Client and Indemnitee in respect of which Indemnitee is entitled to indemnification shall first be satisfied from Client assets before Indemnitee is responsible therefor.
c. Notwithstanding anything contained herein to the contrary, the provisions of Section 5, Section 8(k) and this Section 14 shall not be construed so as to provide for the exculpation and indemnification of any Investment Manager Related Person for any liability (including liability under federal securities laws which, under certain circumstances, impose liability even on persons that act in good faith), to the extent (but only to the extent) that such exculpation or indemnification would be in violation of applicable law, but shall be construed so as to effectuate the provisions of Section 5, Section 8(k) and this Section 14 to the fullest extent permitted by law.
15. WAIVERS AND AMENDMENTS
No waiver or modification of this Agreement shall be effective unless reduced to a written document signed by the party to be charged. No failure to exercise and no delay in exercising on the part of any party hereto, of any right, remedy, power or privilege hereunder, shall operate as a waiver thereof.
16. GOVERNING LAW
Except as noted above in the last sentence of Section 5(a), this Agreement shall be governed by, and the rights of the parties arising hereunder construed in accordance with, the laws of the State of New York without reference to principles of conflict of laws. Notwithstanding the foregoing, nothing herein shall be interpreted in a manner inconsistent with the Advisers Act.
17. MISCELLANEOUS
a. Severability. If any provision of this Agreement or the application thereof to any party or circumstance shall be determined by any court of competent jurisdiction to be invalid or unenforceable to any extent, the remainder of this Agreement or the application of such provision to such Person or circumstance, other than those as to which it is so determined invalid or unenforceable, shall not be affected thereby, and each provision hereof shall be valid and shall be enforced to the fullest extent permitted by law.
b. Entire Agreement. This Agreement constitutes the entire agreement among the parties hereto with respect to the subject matter hereof, and supersedes any prior agreement or understanding among them with respect to such matter.
c. Counterparts. This Agreement may be executed in one or more counterparts, all of which shall constitute one and the same instrument.
d. Survival. For avoidance of doubt, Sections 5, 7, 9, 14, 16 and 17 shall survive the termination of this Agreement.
e. Waiver of Trial by Jury. The parties unconditionally waive their respective rights to a jury trial for any claims or cause of action based upon or arising out of, directly or indirectly, this Agreement.
[Signature Page Follows]
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized officers as of the day and year first above written.
| | | | | |
| CLIENT: |
|
| TWO SIGMA HAMILTON FUND, LLC |
| |
| By: | Two Sigma Principals, LLC, |
| its Managing Member |
| |
| By: | /s/ Kenneth Geller |
| Name: Kenneth Geller |
| Title: Authorized Signatory |
| |
| INVESTMENT MANAGER: |
|
| TWO SIGMA INVESTMENTS, LP |
| |
| By: | /s/ Kenneth Geller |
| Name: Kenneth Geller |
| Title: Authorized Signatory |
TWO SIGMA HAMILTON FUND, LLC
FIFTH AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
Amended and Restated as of July 1, 2023
Table of Contents
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| ARTICLE I | | DEFINITIONS | 1 |
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| ARTICLE II | | ORGANIZATION | 6 |
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| 2.1 | Continuation | 6 |
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| 2.2 | Name | 6 |
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| 2.3 | Term | 6 |
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| 2.4 | Fiscal Year | 7 |
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| ARTICLE III | | THE COMPANY | 7 |
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| 3.1 | Purpose, Powers and Scope of Business | 7 |
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| 3.2 | Powers of the Managing Member | 7 |
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| 3.3 | Reliance by Third Parties | 9 |
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| 3.4 | Other Activities of Managing Member Related Persons | 9 |
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| 3.5 | Limitation on Liability | 11 |
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| 3.6 | Indemnification | 12 |
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| 3.7 | Liability of the Members | 13 |
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| 3.8 | No Obligation to Replenish Negative Capital Account | 13 |
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| 3.9 | Powers of Members | 13 |
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| ARTICLE IV | | INVESTMENT MANAGER AND EXPENSES | 13 |
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| 4.1 | Appointment of Investment Manager | 13 |
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| 4.2 | Management Fee | 14 |
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| 4.3 | Expenses | 15 |
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| ARTICLE V | | CAPITAL CONTRIBUTIONS; ADMISSION OF ADDITIONAL MEMBERS; ACCOUNTS; ALLOCATIONS | 17 |
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| 5.1 | Capital Contributions | 17 |
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| 5.2 | Capital and Memorandum Accounts | 18 |
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| 5.3 | Allocation of Profits and Losses | 18 |
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| 5.4 | Tax Matters | 20 |
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| 5.5 | Sharing Percentages | 21 |
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| 5.6 | Separate Computations | 21 |
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| ARTICLE VI | | NET ASSET VALUE; DISTRIBUTIONS | 22 |
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| 6.1 | Net Asset Value | 22 |
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| 6.2 | When Determined | 22 |
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| 6.3 | Distributions | 22 |
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| 6.4 | Withholding | 23 |
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| 6.5 | No Priorities of Members | 24 |
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| 6.6 | Valuation | 24 |
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| ARTICLE VII | | WITHDRAWAL, DEATH OR INCOMPETENCY OF MEMBERS | 25 |
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| 7.1 | Withdrawal, Death, etc., of Members | 25 |
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| 7.2 | Required Withdrawals of Members (other than the Managing Member) | 25 |
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| 7.3 | Limitations on Distributions or Withdrawal of Capital Account | 26 |
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| 7.4 | Withdrawal of Members (other than the Managing Member) | 26 |
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| 7.5 | Suspension of Determination of Net Asset Value; Restrictions on Withdrawal by Members | 27 |
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| ARTICLE VIII | DISSOLUTION AND TERMINATION OF THE COMPANY | 29 |
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| 8.1 | Dissolution | 29 |
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| 8.2 | Termination | 29 |
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| ARTICLE IX | | BOOKS AND RECORDS; REPORTS TO MEMBERS | 30 |
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| 9.1 | Books and Records | 30 |
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| 9.2 | U.S. Federal, State and Local Income Tax Information | 30 |
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| 9.3 | Reports to Current Members | 30 |
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| 9.4 | Compliance with Applicable Laws and Rules | 30 |
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| ARTICLE X | | TRANSFERS | 31 |
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| 10.1 | Transfer by the Members | 31 |
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| 10.2 | Certain Restrictions on Transfers | 31 |
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| ARTICLE XI | | MISCELLANEOUS | 32 |
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| 11.1 | Waiver of Partition | 32 |
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| 11.2 | Counterparts | 32 |
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| 11.3 | Amendments | 32 |
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| 11.4 | Governing Law | 33 |
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| 11.5 | Severability | 33 |
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| 11.6 | Notice | 33 |
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| 11.7 | Delaware Office | 33 |
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| 11.8 | Certificate of Formation | 33 |
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| 11.9 | Goodwill | 33 |
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| 11.10 | Headings | 34 |
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| 11.11 | Pronouns | 34 |
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| 11.12 | Determination of Certain Matters | 34 |
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| 11.13 | Successors and Assigns | 34 |
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| 11.14 | Entire Agreement | 34 |
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| 11.15 | Confidentiality | 34 |
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| 11.16 | Compliance with Anti-Money Laundering Requirements | 34 |
This FIFTH AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (this “Agreement”) of Two Sigma Hamilton Fund, LLC, a Delaware limited liability company (the “Company”), which was originally entered into as of January 1, 2014, amended and restated as of November 1, 2014 and further amended and restated as of November 30, 2017, February 23, 2018 and February 28, 2022, is hereby further amended and restated as of July 1, 2023.
The parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the following meanings (each such meaning to be equally applicable to both the singular and plural forms of the respective terms so defined):
Accounting Period: for the first Accounting Period, the period commencing on January 1, 2014 and ending on the next succeeding Adjustment Date, and for any subsequent Accounting Period, the period commencing on the day after an Adjustment Date and ending on the next succeeding Adjustment Date.
Act: the Delaware Limited Liability Company Act, 6 Del. C. §18-101 et seq., as amended, and any successor to such statute.
Additional Members: as defined in Section 5.1(b).
Additional Incentive Allocation: with respect to any Member (other than the Managing Member), as of the end of each Fiscal Year (or on any date a Member withdraws all or a portion of its Capital Account), 25% of the Excess Profits of each Capital Sub-Account; where “Excess Profits” for any given Fiscal Year (or other such Accounting Period) means the Net Profits over 10% (including realized and unrealized gains, if any) (the “Additional Incentive Allocation Hurdle”) for such Fiscal Year, computed net of the Management Fee and Company Expenses and gross of Incentive Allocations made in respect of such Capital Sub-Account during such Fiscal Year, but only after recouping such Capital Sub-Account's previously unrecouped Net Losses. The Managing Member may waive or reduce the Additional Incentive Allocation for any Member, in its sole discretion.
To the extent a Capital Sub-Account is formed other than at the beginning of a Fiscal Year or is withdrawn other than at the end of a Fiscal Year, the Additional Incentive Allocation Hurdle with respect to such Capital Sub-Account shall be prorated. For example, (i) if a Capital Sub-Account is formed on July 1, then the Additional Incentive Allocation payable with respect to such Capital Sub-Account as of the end of such Fiscal Year shall equal 25% of the Excess Profits over 5%, and (ii) if a Capital Sub-Account is withdrawn on March 31, then the Additional
Incentive Allocation payable with respect to such Capital Sub-Account as of the date of withdrawal shall equal 25% of the Excess Profits over 2.5%.
Adjustment Date: (a) the last day of each Fiscal Year, (b) the last day of each month, (c) the day before the date any Capital Contribution is made, (d) the date as of which a Member withdraws all or any portion of its Capital Account, (e) the date of any distribution, (f) the date of dissolution of the Company or (g) any other date appropriate for a closing of the Company's books.
Administrator: the person(s), firm(s) or corporation(s) appointed pursuant to Section 3.2 and for the time being acting as administrator, registrar, or transfer agent to the Company, if any. The Managing Member has the power to appoint the Administrator in its sole discretion.
Affiliate: with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common control with such Person. The Company shall not be an Affiliate of the Managing Member or the Investment Manager.
Agreement: this Fifth Amended and Restated Limited Liability Company Agreement, as further amended, modified, supplemented or restated from time to time.
Assignee: as defined in Section 10.1.
Business Day: any day on which the New York Stock Exchange and commercial banks in New York City are generally open for business.
Capital Account: an account established in accordance with Section 5.2.
Capital Account Balance: the balance outstanding in a Capital Account from time to time.
Capital Contribution: as to any Member at any time, the amount of capital (whether in cash or in property at its fair value) actually contributed by such Member to the capital of the Company.
Capital Sub-Account: as defined in Section 5.3(e).
Certificate: the Certificate of Formation of the Company, as amended from time to time.
Code: the U.S. Internal Revenue Code of 1986, as amended.
Company: as defined in the preamble.
Company Expenses: as defined in Section 4.3(b).
Company Property: any and all property, real or personal, tangible or intangible, which is owned or held by or for the account of the Company.
Contingency Reserve: as defined in Section 7.3.
Cumulative Loss Account: as defined in Section 5.2(b).
Designee: as defined in Section 7.1(a).
Disabling Conduct: fraud, willful misfeasance or gross negligence as finally determined by a court of competent jurisdiction. Gross negligence shall have the meaning generally applied to it by the laws of the State of Delaware, U.S.A.
ERISA: the U.S. Employee Retirement Income Security Act of 1974, as amended.
Fiscal Quarter: a three-month period ending on the last calendar day of March, June, September or December.
Fiscal Year: as defined in Section 2.4.
Incentive Allocation: with respect to any Member (other than the Managing Member), 30% of the balance of Net Profit remaining after allocating Net Profit in accordance with Section 5.3(c)(i) with respect to any balance in such Member's Cumulative Loss Account. The Managing Member may waive or reduce the Incentive Allocation for any Member, in its sole discretion.
Indemnifiable Items: as defined in Section 3.6(a).
Indemnitees: as defined in Section 3.6(a).
Independent Committee: as defined in Section 3.4(i)
Instruments: as defined in Section 3.1.
Interests: the limited liability company interests of the Company. References to “Interests” will include all series of interests that are or may in the future be offered to existing and prospective Members .
Investment Advisers Act: the U.S. Investment Advisers Act of 1940, as amended.
Investment Management Agreement: the Investment Management Agreement between the Company and the Investment Manager, as amended, modified, supplemented or restated from time to time.
Investment Manager: Two Sigma Investments, LP, a Delaware limited partnership, and any Person who becomes an additional or successor investment manager of the Company.
Liabilities: the liabilities of the Company, including: (a) all bills and accounts payable; (b) all administrative expenses accrued and unpaid, including the Management Fee; (c) all contractual obligations for the payment of money or property, including any amount that the
Managing Member has determined is distributable pursuant to Section 6.3, but that has not yet been distributed to the Members; (d) all reserves authorized or approved by the Managing Member for taxes or contingencies; and (e) all other liabilities of whatsoever kind and nature.
Majority in Interest: Members who, at the time in question, hold Sharing Percentages aggregating more than 50% of the Sharing Percentages of all Members.
Management Expenses: as defined in Section 4.3(a).
Management Fee: as defined in Section 4.2(a).
Managing Member: Two Sigma Principals, LLC, a Delaware limited liability company, and any Person who becomes an additional or successor managing member of the Company and/or the Investment Manager.
Managing Member Related Person: any of the Managing Member, its Affiliates (including the Investment Manager and Two Sigma Advisers, LP) and their respective affiliates, principals, shareholders, members, officers, directors, employees, agents and representatives.
Members: the Persons listed in the books and records of the Company as Members of the Company, and shall include their successors and permitted assigns and any Person hereafter admitted to the Company as a Member in accordance with the terms hereof, each in their capacity as a Member of the Company, and shall exclude any Person that ceases to be a Member in accordance with the terms hereof. For purposes of the Act, the Members shall constitute a single class or group of Members.
Modified Incentive Allocation: with respect to any Member (other than the Managing Member), the Incentive Allocation reduced by 50% which shall be allocated to the Managing Member until, in general, any previous balance of the Cumulative Loss Account of such Member has been offset by Net Profits in an amount equal to 200% of such previous balance.
NASDAQ: the National Association of Securities Dealers Automated Quotation system.
Net Asset Value: as of any date, the excess, if any, of the value of all of the assets of the Company over the Liabilities.
Net Profit (Loss): with respect to a Member for an Accounting Period, the difference between (a) the portion of the Net Asset Value of the Company allocable to such Member's interest in the Company as of the close of business on the last day of such Accounting Period and (b) the portion of the Net Asset Value of the Company allocable to such Member's interest in the Company as of the close of business on the last day of the immediately preceding Accounting Period (or, for the first Accounting Period, the initial Capital Contribution made by such Member), with (i) such difference to be Net Profit where it is a positive number and (ii) such difference to be Net Loss where it is a negative number. For any month (or for the relevant Accounting Periods in the case of withdrawal by a Member of all or a portion of its Capital Account Balance), Net Profit (Loss) means, with respect to any Member, the aggregate Net
Profit for all Accounting Periods included in such month (or such relevant Accounting Periods) less the aggregate Net Loss for all Accounting Periods included in such month (or such relevant Accounting Periods) (computed in each case as described above). In determining the amount of Net Profit (Loss) to be allocated pursuant to Section 5.3, appropriate adjustments shall be made to take account of any Capital Contribution to, withdrawal from or distribution by the Company during such Accounting Period.
New Issues: as used in the New Issues Rules.
New Issues Rules: Rule 5130 and Rule 5131 of the Financial Industry Regulatory Authority, Inc., as may be amended from time to time.
Offering Memorandum: the Confidential Offering Memorandum of the Company, as may be amended or supplemented from time to time.
Organizational Expense: as defined in Section 4.3(b)(i).
Other Accounts: as defined in Section 3.4(b)(i).
Person: an individual, a partnership, a limited liability company, an association, a joint venture, a corporation, a business, a trust, an unincorporated organization, any other entity or a government or any department, agency, authority, instrumentality or political subdivision thereof.
Secretary of State: as defined in Section 2.3.
Sharing Percentage: as defined in Section 5.5.
Similar Law: any law or regulation specifically applicable to governmental, church or non-U.S. employee benefit plans or accounts.
Sub-Administrator: the person(s), firm(s) or corporation(s) affiliated with the Administrator to which the Administrator has delegated certain of its functions.
Subscription Agreement: the Subscription Agreement entered into by a Member in connection with its purchase of Interests.
Substitute Member: as defined in Section 10.1.
Trading Entities: (i) Two Sigma Spectrum Portfolio, LLC (ii) Two Sigma Futures Portfolio, LLC (iii) Two Sigma Equity Spectrum Portfolio, LLC, (iv) any cash management entity that may be utilized by the Company in the future and (v) any other trading entity utilized by the Company for purposes of pursing the Company's investment objectives. The Trading Entities in which the Company currently intends to invest are managed by the Investment Manager.
Treasury Regulations: the Regulations of the United States Treasury Department issued pursuant to the Code.
Valuation Date: any Adjustment Date or any other date designated by the Managing Member in its sole discretion.
Withdrawal Date: (i) the last day of each month, or (ii) any other date designated by the Managing Member in its sole discretion.
Withdrawn Capital Account Balance: that portion of a Member's Capital Account that a Member is entitled to receive after the Managing Member makes computations required to be made pursuant to Articles V and VII of this Agreement.
Withdrawal Notice: as defined in Section 7.4(b).
Withdrawal Price: the balance of the withdrawing Member's Capital Account (or the portion of such Capital Account attributable to the portion of such Member's Interest being withdrawn) as of the effective date of the withdrawal, after adjustment for the Incentive Allocation, the Modified Incentive Allocation and Additional Incentive Allocation accrued through such date, if any.
ARTICLE II
ORGANIZATION
2.1 Continuation. The parties hereto hereby agree to continue the Company as a limited liability company under and pursuant to the provisions of the Act and agree that the rights, duties and liabilities of the Members shall be as provided in the Act, except as otherwise provided herein. Upon its execution of this Agreement or a counterpart thereof, the Managing Member hereby continues as the managing member of the Company. A Person shall be admitted as a Member of the Company at the time that (a) this Agreement and a Subscription Agreement or counterparts thereof are executed by or on behalf of such Person, (b) such Person is listed by the Managing Member as a Member of the Company in the books and records of the Company and (c) the Company has received by wire transfer in immediately available funds an amount equal to such Person's Capital Contribution as set forth on the page on which such Person's signature appears at the end of the Subscription Agreement.
2.2 Name. The name of the Company is “Two Sigma Hamilton Fund, LLC”. The Managing Member is authorized to make any variations in the Company's name from time to time by notice to the Members, provided that such name shall contain the words “Limited Liability Company”, the abbreviation “L.L.C.” or the designation “LLC”.
2.3 Term. The term of the Company commenced on the date of filing of the Certificate in the office of the Secretary of State of the State of Delaware (the “Secretary of State”), and shall continue indefinitely unless the Company is sooner dissolved in accordance with Article VIII.
2.4 Fiscal Year. Each fiscal year (the “Fiscal Year”) of the Company, including for income tax purposes, shall end on December 31st, and in the case of the Fiscal Year in which the Company is terminated in accordance with Article VIII, the portion of such year ending on the date on which the Company is terminated.
ARTICLE III
THE COMPANY
3.1 Purpose, Powers and Scope of Business. The business and purpose of the Company shall be to, directly or indirectly through the Trading Entities, engage in investment and trading activities and strategies of any type or kind, on a global basis, including, without limitation, directly or indirectly, to buy, sell, trade, exchange, invest, reinvest or otherwise hold, on margin or otherwise, in any form or manner, through listed or over-the-counter (“OTC”) securities and other financial instruments of United States and non-U.S. entities, including, without limitation: U.S. and non-U.S. equity and equity-related securities, exchange-traded products (including, without limitation, exchange-traded products on equity or sector indices), debt instruments, bonds and other fixed income securities (including, without limitation, corporate, convertible, agency, non-U.S. and U.S. municipality, treasury and insurance linked bonds and other fixed income instruments), loan participations, futures, forward contracts, warrants, options (both listed and OTC), SPACs, repurchase agreements, reverse repurchase agreements, swaps (of any and all types including, among other things, equity swaps, commodity swaps, interest rate swaps, currency swaps, futures look-alike swaps, and credit default swaps and indices thereof), spot and forward foreign exchange contracts, options on foreign exchange contracts, commodities, derivatives on virtual currencies and/or other digital assets, U.S. and non-U.S. money market funds and money market instruments (including but not limited to treasury and agency securities, municipal notes, commercial paper, time deposits, promissory notes and Eurodollar deposits), non-deliverable forward contracts on currencies and any derivatives or financial instruments which exist now or are hereafter created (collectively, “Instruments”). The Company may invest, directly or indirectly, through the Trading Entities, in Instruments that have significant amounts of embedded leverage. The Company shall have the power to do any and all acts necessary, appropriate, proper, advisable, incidental or convenient to or for the furtherance of the purposes and business described herein, and shall have, without limitation, any and all of the powers that may be exercised on behalf of the Company by the Managing Member pursuant to Section 3.2.
3.2 Powers of the Managing Member.
(a) Subject to the other provisions of this Agreement, the management, operation and policies of the Company shall be vested exclusively in the Managing Member, which shall have the power by itself and shall be authorized and empowered on behalf of and in the name of the Company to delegate or carry out any and all objects and purposes of the Company and to perform all acts and enter into and perform all contracts and other undertakings that it may in its discretion deem necessary or advisable in connection therewith or incidental thereto.
Without limiting the foregoing, except as expressly provided otherwise in this Agreement, the Managing Member, on behalf of and in the name of the Company, shall have the power without any further act, approval or vote of the Members or any other Person, at all times in accordance with the terms of the Offering Memorandum to:
(i) Purchase, acquire, hold, invest, reinvest, sell or otherwise dispose of the Company's interests in the Trading Entities;
(ii) Purchase, acquire, hold, invest, reinvest, sell or otherwise dispose of, write, endorse, guarantee, exchange and trade (on margin or otherwise), within and without the United States and, whether or not readily marketable, Instruments and other assets of any Person, sell any such Instruments short and cover such sales, and to hold cash uninvested;
(iii) Vote or otherwise take any action, directly or indirectly, required of or allowed to the Company with respect to any Instruments or other Company Property;
(iv) Open, maintain and close bank, brokerage, custodial, futures and options, mutual fund and other similar accounts and draw checks and other orders for the payment of money and issue instructions and authorizations with respect to any Instruments or other Company Property;
(v) Engage and terminate attorneys, accountants and such other agents and employees for itself and for the Company as it may deem necessary or advisable, and authorize any such agent or employee to act for and on behalf of the Company;
(vi) Without limiting its ultimate responsibility for the management of the Company, delegate any of its duties hereunder to any Person (including the Investment Manager) and, in furtherance of any such delegation, appoint, employ or contract with any Person it may in its sole discretion deem necessary or desirable for the transaction of the business of the Company, which Person may, under the supervision of the Managing Member, administer the day-to-day operations of the Company;
(vii) Commence or defend litigation or arbitration that pertains to the Company or any Company Property and retain legal counsel in connection therewith;
(viii) Make and perform such other agreements and undertakings as may be necessary or advisable for the carrying out of any of the foregoing powers, objects or purposes; and
(ix) Carry on any other business in connection with or incidental to any of the objects and purposes of the Company, do everything necessary, suitable or
proper for the accomplishment of any purpose or the attainment of any object or the furtherance of any power herein set forth, either alone or in association with others, and take any action incidental or appurtenant to or growing out of or connected with the business, purposes, objects or powers of the Company.
The foregoing clauses shall be construed both as objects and as powers, and the foregoing enumeration of specific powers shall not be held to limit or restrict in any manner the general powers of the Managing Member. To the fullest extent permitted by law, in construing the provisions of this Agreement, the presumption shall be in favor of a grant of power to the Managing Member. Such powers of the Managing Member may be exercised without order of or resort to any court.
Notwithstanding anything to the contrary contained herein, the Managing Member, on its own behalf or on behalf of the Company, may execute, deliver and perform the terms of this Agreement without any further act, vote or approval of any other Member.
(b) The Managing Member shall not (i) admit any Person as a Member except as permitted in this Agreement or (ii) permit the registration or listing of interests in the Company on an “established securities market,” as such term is used in section 1.7704-1 of the Treasury Regulations.
3.3 Reliance by Third Parties. In dealing with the Managing Member and its duly appointed agents, no Person shall be required to inquire as to the Managing Member or any such agent's authority to bind the Company.
3.4 Other Activities of Managing Member Related Persons.
(a) The Managing Member shall devote the amount of its time to the affairs of the Company that in its sole discretion the conduct of the Company's business reasonably requires.
(b) Each Member hereby acknowledges that:
(i) a Managing Member Related Person may act as investment adviser, sponsor, manager or general partner for other customers, accounts and pooled investment vehicles (“Other Accounts”) and may give advice, and take action, with respect to any of such Other Accounts which may differ from the advice given, or the timing or nature of action taken, with respect to the Company;
(ii) a Managing Member Related Person may invest in, advise, sponsor manage and/or act as investment manager to Other Accounts that may have investment objectives similar to those of the Company and may compete with the Company for investment opportunities, provided that where there is a limited supply of an Instrument, the Managing Member Related Person will act in good faith to use its commercially reasonable
efforts to cause investment opportunities to be allocated or to rotate investment opportunities in a manner deemed equitable, but the Managing Member Related Person cannot assure, and assumes no responsibility for, equitable allocation of investment opportunities among the Company and the Other Accounts;
(iii) a Managing Member Related Person may engage in, or cause or advise other customers to engage in, transactions that may differ from or be identical to the transactions engaged in by the Managing Member for the Company's account;
(iv) no Managing Member Related Person shall have any obligation to engage in any transaction for the Company's account or to recommend any transaction to the Company that any Managing Member Related Person may engage in for its own account or the account of any Other Account, except as otherwise required by applicable law; and
(v) to the extent permitted by applicable law, the Managing Member shall be permitted to bunch or aggregate orders for the Company's account with orders for Other Accounts.
(c) By reason of the investment advisory and other activities of a Managing Member Related Person, Managing Member Related Persons may acquire confidential information or otherwise be restricted from initiating transactions in certain Instruments. It is acknowledged and agreed that, except as required by the Act, Managing Member Related Persons may not be free to divulge, or to act upon, any such confidential information and that, due to such a restriction, Managing Member Related Persons may not initiate certain transactions the Managing Member Related Persons otherwise might have initiated. It is further acknowledged and agreed that each of the Managing Member Related Persons shall, for itself and on behalf of the Company, disclose such information to governmental and regulatory authorities as the Company may be required to by such authorities.
(d) No Member shall, by reason of being a member of the Company, have any right to participate in any manner in any profits or income earned or derived by or accruing to any Managing Member Related Person from the conduct of any business other than the business of the Company or from any transaction in Instruments effected by such Managing Member Related Person for any account other than that of the Company.
(e) Each Member shall promptly provide to the Managing Member such information as the Managing Member may from time to time request for the purposes of determining whether the assets of the Company are “plan assets” within the meaning of ERISA and the regulations thereunder, the applicability of certain exemptions from prohibited transactions under ERISA, the Code and any other laws applicable to the Member, and any other matters relating to ERISA, the Code, Similar Law or compliance with respect to any Member's investment in the Company or the operation or investments of the Company, and will promptly notify the Managing Member, in writing, of any change in the information so furnished.
(f) The Members acknowledge and agree that any Managing Member Related Person may pay a broker a brokerage commission in excess of that which another broker might have charged for effecting the same transactions, in recognition of the value of the brokerage and research services provided by the broker and used by the Company and any Other Accounts. The Members further acknowledge and agree that in selecting a broker or dealer, the Managing Member will take into account the execution capability, financial stability, reputation, access to the market for the securities being traded and the brokerage and research services and other services provided by such brokers to the Managing Member. All services other than brokerage, and research services obtained by the use of commissions arising from the Company's investment transactions will be limited to services that would otherwise be a Company Expense.
(g) Notwithstanding any provision of this Agreement to the contrary, the parties hereto hereby agree that any Managing Member Related Person shall be entitled to make any determination relating to the activities described in this Section 3.4 in such Managing Member Related Person's sole and absolute discretion.
(h) The Members hereby waive any right, and covenant not, to sue on the basis of any law or in equity by reason of, or in connection with, any act or omission of a Managing Member Related Person, if such act or omission is permitted by or is otherwise consistent with this Section 3.4 unless such act or omission is the result of Disabling Conduct.
(i) The Members acknowledge and agree that the Managing Member has appointed an independent advisory committee (the “Independent Committee”) of the Company to review and either approve or disapprove any principal transaction requiring consent under Section 206(3) of the Investment Advisers Act. Any approval of such a transaction by the Independent Committee shall be deemed an approval of such transaction by the Company and the Members to the fullest extent permitted by law. Further, upon receipt of written consent in favor of a revocation from the Members by such amount as would be required for an amendment of this Agreement by the Managing Member, the Managing Member shall revoke the appointment of the Independent Committee, and the Independent Committee shall thereafter no longer review and/or approve or disapprove any transactions.
3.5 Limitation on Liability.
(a) To the fullest extent permitted by applicable law, no Managing Member Related Person shall be liable to the Company, the Trading Entities or any Member for (i) any act taken or failed to be taken by any such Managing Member Related Person (including losses due to trade errors which will be borne by the Company) except for any such act or failure to act that constitutes Disabling Conduct on the part of such Managing Member Related Person, (ii) any action or omission by any Member or (iii) any mistake, negligence, misconduct or bad faith of any broker or other agent or representative of the Company selected by any Managing Member Related Person with reasonable care. Without limiting the foregoing, to the extent that, at law or in equity, any Managing Member Related Person has duties (including fiduciary duties) and liabilities relating thereto to the Company, the Trading Entities or to any Member, no Managing Member Related Person acting under this Agreement shall be liable to the Company or any Member for its good faith reliance on the provisions of this Agreement. To the fullest extent
permitted by law, the provisions of this Agreement, including without limitation Section 3.4, to the extent that they modify, restrict or eliminate the duties (including fiduciary duties) and liabilities of any Managing Member Related Person otherwise existing at law or in equity, are agreed by the parties hereto to replace such other duties and liabilities of such Person.
(b) To the fullest extent permitted by applicable law, no Managing Member Related Person shall have any personal liability to the Company or any Member solely by reason of any change in U.S. federal, state or local or non-U.S. income tax laws, or in interpretations thereof, as they apply to the Company or the Members, whether the change occurs through legislative, judicial or administrative action.
(c) Any Managing Member Related Person may consult legal counsel or accountants selected by it and any act or omission in good faith by it on behalf of the Company or in furtherance of the business of the Company in good faith reliance on and in accordance with the advice of such counsel or accountants shall be full justification for the act or omission, and to the fullest extent permitted by applicable law, no Managing Member Related Person shall be liable to the Company or any Member in so acting or omitting to act if such Managing Member Related Person selected such counsel or accountants with reasonable care.
(d) Notwithstanding the foregoing, nothing contained in this Section 3.5 or elsewhere in this Agreement shall constitute a waiver by a Member of any of its legal rights under U.S. federal securities law or any other law whose applicability is not permitted to be contractually waived.
3.6 Indemnification.
(a) To the fullest extent permitted by applicable law, the Company shall indemnify and hold harmless each Managing Member Related Person (the “Indemnitees”) from and against any and all claims, actions, suits, proceedings, assessments, liabilities, damages, losses (including losses due to trade errors caused by such persons), costs and expenses, including amounts paid in satisfaction of judgments, in compromises and settlements, as fines and penalties or other costs and expenses (including attorneys' fees and expenses, taxes and penalties) (the “Indemnifiable Items”), to which they may be or become subject by reason of their activities on behalf of the Company and/or the Trading Entities, except to the extent that such Indemnifiable Items were incurred as a result of such Indemnitee's Disabling Conduct. The termination of any proceeding by settlement, judgment, order, conviction or upon a plea of nolo contendere or its equivalent shall not, of itself, create a presumption that the Indemnitee's conduct constituted Disabling Conduct. The Company, as a member of a Trading Entity, will bear its pro rata share of any Indemnifiable Items of such Trading Entity.
(b) Expenses (including attorneys' fees and expenses, taxes and penalties) incurred by an Indemnitee in defense or settlement of any claim that may be subject to a right of indemnification hereunder may be advanced by the Company prior to the final disposition thereof upon receipt of an undertaking by or on behalf of the Indemnitee to repay the amount advanced to the extent that it shall be determined ultimately that the Indemnitee is not entitled to be indemnified hereunder. The right of any Indemnitee to the indemnification provided herein
shall be cumulative of, and in addition to, any and all rights to which the Indemnitee may otherwise be entitled by contract or as a matter of law or equity and shall be extended to the Indemnitee's successors, assigns and legal representatives. Any judgments against the Company and a Managing Member Related Person in respect of which the Managing Member Related Person is entitled to indemnification shall first be satisfied from Company assets before the Managing Member Related Person is responsible therefor.
(c) Notwithstanding anything contained herein to the contrary, the provisions of this Section 3.6 shall not be construed so as to provide for the indemnification of any Managing Member Related Person for any liability (including liability under federal securities laws which, under certain circumstances, impose liability even on persons that act in good faith), to the extent (but only to the extent) that such indemnification would be in violation of applicable law, but shall be construed so as to effectuate the provisions of this Section 3.6 to the fullest extent permitted by law.
3.7 Liability of the Members. Except as provided in the Act, in no event shall any Member (or former Member) be obligated to make any additional contribution to the Company, or have any liability for the repayment and discharge of the debts and obligations of the Company (apart from its interest in the Company).
3.8 No Obligation to Replenish Negative Capital Account. Except as may be otherwise required by law, no Member shall have any obligation at any time to contribute any funds to replenish any negative balance in its Capital Account.
3.9 Powers of Members. No Member (except the Managing Member, as such, shall take part in or interfere in any manner with the management, conduct or control of the business or affairs of the Company or have any right or authority to act for or bind the Company. In addition, to the extent permitted by law, no Member shall have the right or power to bring an action for petition against the Company or cause the termination and dissolution of the Company, except as set forth in this Agreement.
ARTICLE IV
INVESTMENT MANAGER AND EXPENSES
4.1 Appointment of Investment Manager. The Managing Member hereby appoints the Investment Manager to act as the investment manager of the Company in accordance with the terms of the Investment Management Agreement, subject to the following provisions:
(a) The Investment Manager shall manage and perform such investment management services and other functions of the Company as from time to time delegated by the Managing Member and take all appropriate actions in connection therewith on behalf of the Company, provided that the management and the conduct of the activities of the Company shall remain the sole responsibility of the Managing Member and the appointment of the Investment Manager
shall not relieve the Managing Member from its obligations to the Company as its managing member hereunder or under the Act.
(b) The Investment Manager shall act in conformity with this Agreement, the Investment Management Agreement and with the instructions and directions of the Managing Member.
(c) The Investment Manager shall not assign its duties hereunder to any other Person without the written consent of the Managing Member (which consent may be withheld in its sole discretion).
(d) The engagement by the Company of the Investment Manager contemplated hereby is set forth in the Investment Management Agreement, specifying in further detail the rights and duties of the Investment Manager.
4.2 Management Fee.
(a) The Company shall pay a fee (the “Management Fee”) for management services to the Investment Manager, equal to an annualized rate of 2.5% of the portion of the Net Asset Value of the Company allocable to the Members (other than the Managing Member). For purposes of calculating the Management Fee, the portion of the Net Asset Value of the Company allocable to such Members is increased by the accrued Incentive Allocation, the Modified Incentive Allocation and Additional Incentive Allocation, if any. The Management Fee shall be paid monthly in advance as of the first calendar day of each month. For purposes of calculating the Management Fee, the Net Asset Value of the Company allocable to each such Member shall be determined by the Administrator in conjunction with the Investment Manager, based on the Company's Net Asset Value as of the first calendar day of the month. The Management Fee shall be borne solely by such Members, pro rata based on the balance of their respective Capital Accounts as of the first calendar day of the applicable month. The Management Fee for a period of less than a full calendar month shall be prorated based on the actual number of calendar days in such period. The Investment Manager may waive, reduce or modify the Management Fee for any Member, in its sole discretion. For the avoidance of doubt, the Company shall not be charged any management fees by the Trading Entities.
(b) Upon the admission of any Additional Member or the making of any additional Capital Contribution by any Member, the Investment Manager shall receive such Member's share of the Management Fee calculated in accordance with Section 4.2(a).
4.3 Expenses.
(a) During the term of this Agreement, the Managing Member, the Investment Manager and/or their respective Affiliates shall bear and pay the cost of all of the following management expenses of the Company (the “Management Expenses”):
(i) payroll and other costs of management, administrative and clerical personnel, including salaries, wages, payroll taxes, bonuses, cost of employee benefit plans and temporary office help expense;
(ii) bookkeeping costs other than the costs of preparation of quarterly and annual financial statements, tax returns and related statements of the Company;
(iii) rent, utilities, telephone, office supplies, subscriptions and other office expenses; and
(iv) other similar routine administrative expenses.
(b) Except as otherwise provided herein or in the Investment Management Agreement, the Company shall bear and pay all of its expenses and its share of such expenses incurred by the Trading Entities (“Company Expense”), including, without limit, the following:
(i) fees, costs and out-of-pocket expenses incurred by the Company or the Managing Member in connection with the formation of the Company and the offering and distribution of the interests in the Company to the Members (the “Organizational Expenses”);
(ii) external legal, administration, accounting, audit and tax return preparation, fees and expenses of the Administrator and other external professional fees and expenses other than Organizational Expenses;
(iii) fees and expenses of any advisers and consultants to the Company or any Trading Entity, including the Management Fee;
(iv) brokerage commissions and dealer collateral and other fees, charges, payments and expenses, and other costs, if any, of trading, acquiring, monitoring or disposing of any investments of the Company or any Trading Entity (including, for the avoidance of doubt, expenses related to trading, acquiring, monitoring or disposing of any investments in preparation for an inflow or outflow of capital);
(v) research expenses, including fees and expenses of any third-party research, data, recommendations and/or services used by the Investment Manager in its investment decision-making process;
(vi) fees and expenses of valuation and/or pricing services and software that may be required to be used by the Managing Member from time to time to price portions of the Company's portfolio in the event the Administrator is unable or unwilling to price and/or value such investments;
(vii) interest expenses;
(viii) fees and expenses of the Company's, and the Trading Entities' prime brokers, futures commission merchants, dealers, custodians, sub-custodians, transfer agents and registrars;
(ix) fees and expenses of the board of directors of any Trading Entity and meetings thereof and costs, as applicable, of the Members’ and other meetings;
(x) expenses of registering or qualifying securities or other investments held by the Company or any Trading Entity, if any, for sale;
(xi) the Company’s pro rata share of certain insurance expenses, if any (including fees for directors’ and officers’ liability insurance);
(xii) out-of-pocket costs of reporting to regulatory authorities (if required) and to the Members, and of preparing and providing annual audited and monthly unaudited financial statements and filing annual tax returns and related statements for the Company;
(xiii) fees and expenses related to various filings (or portions thereof) made in connection with managing the Company’s portfolio (including, but not limited to, Section 13 filings, Section 16 filings and Form PF)
(xiv) any taxes, fees or other governmental charges levied against the Company or its income or assets or in connection with its business or operations; and
(xv) all other costs and expenses of the Company, the Investment Manager or the Managing Member in connection with this Agreement other than Management Expenses, such as costs of litigation or other matters that are the subject of indemnification pursuant to Section 3.7 and costs of winding-up and liquidating the Company.
(c) To the extent that the Managing Member, the Investment Manager and/or any of their respective Affiliates pays or otherwise bears the costs of any Company Expenses, the Company shall reimburse the Managing Member, the Investment Manager and/or such Affiliates, as applicable, for the same, unless the Managing Member, the Investment Manager and/or such Affiliates, as applicable, expressly waive the right to such reimbursement.
ARTICLE V
CAPITAL CONTRIBUTIONS;
ADMISSION OF ADDITIONAL MEMBERS;
ACCOUNTS; ALLOCATIONS
5.1 Capital Contributions.
(a) Each Member will make a Capital Contribution to the Company consisting of cash in the amount to be set forth in the books and records of the Company.
(b) On the first Business Day of any month or any other date chosen by the Managing Member in its sole discretion, the Managing Member may, without the approval of any Member, admit one or more additional Members (“Additional Members”) or accept additional Capital Contributions from any existing Member, who shall be considered an Additional Member to the extent of such additional Capital Contributions, subject to satisfaction of the following conditions: (i) each Additional Member shall execute and deliver a counterpart of this Agreement and the Subscription Agreement related thereto (other than in connection with an additional Capital Contribution by any existing Member, in which case such existing Member shall execute and deliver to the Managing Member a letter, reaffirming all representations and warranties made by such Member in connection with the related Subscription Agreement as of the date of such additional Capital Contribution), (ii) such admission or additional Capital Contribution, as the case may be, would not, in the judgment of the Managing Member, result in a violation of any applicable law, including the U.S. federal securities laws, or any term or condition of this Agreement, (iii) as a result of such admission, (A) the Company would not be required to register as an investment company under the Investment Company Act of 1940, as amended, (B), the Company would not be treated as an association taxable as a corporation for U.S. federal income tax purposes, (C) the Company would not cease to be eligible for an exemption under Rule 4.7 of the U.S. Commodity Futures Trading Commission under the U.S. Commodity Exchange Act, and (D) the assets of the Company would not be deemed to be “planned assets” under ERISA and the regulations thereunder, and (iv) the Managing Member in good faith believes that such additional Capital Contribution will not materially adversely affect the investment strategy of the Company. Upon the admission of any Additional Member or the making of an additional Capital Contribution by a Member, the assets of the Company shall be valued by the Managing Member in accordance with Section 6.6.
(c) The Managing Member may issue separate classes, series or sub-series of Interests with offering terms and conditions that are different from or more advantageous than those described herein.
(d) Notwithstanding anything to the contrary herein, in its sole discretion, the Managing Member may refuse any request from any Member to make additional Capital Contributions to the Company.
5.2 Capital and Memorandum Accounts.
(a) Each Member shall have a Capital Account to which shall be credited the amount of any Capital Contributions made by such Member pursuant to Section 5.1(a) or 5.1(b). A Member's Capital Account shall be increased from time to time by the amount of (i) any additional Capital Contributions to the Company made by such Member pursuant to Section 5.1(b) and (ii) any Net Profit allocated to such Member in accordance with Section 5.3. A Member's Capital Account shall be decreased by the amount of (x) any Net Loss allocated to such Member in accordance with Section 5.3 and (y) any distribution (including any distribution in respect of withdrawals made pursuant to Article VII) made to such Member.
(b) The Managing Member shall maintain a memorandum account entitled “Cumulative Loss Account” for each Member, as determined from time to time by the Managing Member in its sole discretion, which shall initially have a balance of zero. As of the last day of each Fiscal Quarter (and as of each other date that any such Member withdraws all or a portion of its Capital Account), the Cumulative Loss Account shall be increased by any Net Loss allocated to such Member for such Fiscal Quarter (or Accounting Periods included in such portion of Fiscal Quarter in the case of withdrawal) and shall be reduced, but not below zero, by any Net Profit allocated to such Member for such Fiscal Quarter, in each case pursuant to Section 5.3. The Cumulative Loss Account of such Member shall, upon withdrawal by such Member of any portion of its Capital Account, be reduced, but not below zero, by an amount (the “Withdrawn Cumulative Loss Account Amount”) equal to the sum of (i) any Net Loss allocated to such Member for such Fiscal Quarter or Accounting Periods included in such portion of Fiscal Quarter, as the case may be, in respect of such withdrawn interest and (ii) the product of (x) the balance in such Member's Cumulative Loss Account immediately prior to such withdrawal (not including any Net Loss (or, in the case of a withdrawal other than as of the last day of a Fiscal Quarter, not including any Net Profit) allocated to such Member for such Fiscal Quarter or Accounting Periods included in such portion of Fiscal Quarter, as the case may be) and (y) a fraction, the numerator of which is the amount of capital so withdrawn and the denominator of which is the Capital Account Balance of such Member immediately prior to such withdrawal. The Cumulative Loss Account of any Member shall be otherwise adjusted by the Managing Member at such other times as it shall determine appropriate to carry out the purposes of this Agreement.
5.3 Allocation of Profits and Losses.
(a) After the close of each Accounting Period, the Company shall allocate Net Profit and Net Loss for such Accounting Period to each Member in accordance with each Member's Sharing Percentage and shall make such further allocations as provided in this Section 5.3. The Company shall make the following further allocations: (i) in the event that any Member withdraws any portion of its Capital Account, the Company shall reverse all such allocations of Net Profit and Net Loss previously made in respect of the withdrawn portion of such Capital Account for all Accounting Periods included in the portion of the Fiscal Quarter ending with such withdrawal and shall thereafter determine the Net Profit or Net Loss for such portion of the Fiscal Quarter and allocate such Net Profit or Net Loss to such Member in accordance with this
Section 5.3; and (ii) as of the last day of each Fiscal Quarter, the Company shall reverse all such allocations of Net Profit and Net Loss previously made to each Member for all Accounting Periods included within such Fiscal Quarter other than those specified in clause (i) and shall thereafter determine the Net Profit or Net Loss for such Fiscal Quarter and allocate such Net Profit or Net Loss to each Member in accordance with this Section 5.3.
(b) Any Net Loss allocated to any Member with respect to any Accounting Period in accordance with Section 5.3(a) shall be allocated to such Member, provided (i) that no portion of such Net Loss shall be allocated to any Member if and to the extent that such allocation would create a negative Capital Account Balance for such Member, and (ii) that any Net Loss not allocated by reason of clause (i) shall be allocated among the other Members, to the extent permitted by clause (i), in accordance with their respective Sharing Percentages for such Accounting Period, and any balance remaining thereafter shall be allocated to the Managing Member. Notwithstanding any other provision of this Section 5.3, any Net Profit that would otherwise be allocate to any Member who was not allocated any amount of Net Loss pursuant to clause (i) of this Section 5.3(b) shall be allocated to other Members by the Managing Member in an equitable manner to reverse the effect of such clause (i) and achieve the objectives of this Section 5.3.
(c) Any Net Profit allocated to any Member for such Fiscal Quarter (or to such a withdrawing Member for such Accounting Period) shall be allocated between such Member and the Managing Member as follows:
(i) First, so long as there is any balance in the Cumulative Loss Account of such Member and thereafter until such Member has been allocated Net Profits in an amount equal to an additional 200% of the highest previous amount of such Member's Cumulative Loss Account with the appropriate adjustments to reflect withdrawals and other factors as determined by the Managing Member in its sole discretion, the Managing Member shall be allocated the Modified Incentive Allocation and such Member shall be allocated the balance of any such Net Profit (provided that in the case of a withdrawal as of a date other than the last day of any Fiscal Quarter by such Member of less than its entire Capital Account, only up to the Withdrawn Cumulative Loss Account Amount); and then
(ii) Second, the Managing Member shall be allocated the Incentive Allocation and such Member shall be allocated the balance of any such Net Profit (less the Additional Incentive Allocation, if any).
(d) In addition to the Incentive Allocation, the Managing Member shall be allocated the Additional Incentive Allocation.
(e) In order to ensure that the Incentive Allocation or Modified Incentive Allocation is properly allocated to each Capital Account, the Company shall create sub-accounts (“Capital Sub-Accounts”). For example, if a Member makes an investment on January 1 and again on February 1, the Company will issue Capital Sub-Account One on January 1 and Capital Sub-
Account Two on February 1. The reason for the different Capital Sub-Accounts is to equitably reflect the differing Incentive Allocations attributable to each such Capital Sub-Account (because of the differing contribution dates throughout a Fiscal Quarter). At the end of each Fiscal Quarter, after the Incentive Allocation, if any, has been allocated, each outstanding Capital Sub-Account other than those whose immediately subsequent gains will still be subject to the Modified Incentive Allocation shall be combined into Capital Sub-Account One (or such other Capital Sub-Account that is not subject to the Modified Incentive Allocation). At the end of each Fiscal Quarter, each Capital Sub-Account whose immediately subsequent gains will still be subject to the Modified Incentive Allocation shall not be so combined, and the Company will continue to track any such Capital Sub-Account separately until the end of a Fiscal Quarter with respect to which the Managing Member is entitled to receive an Incentive Allocation with respect to such Capital Sub-Account. Whenever a Member withdraws all or a portion of its investment, the Company shall account for such withdrawal using a “first in, first out” methodology (i.e., the Company shall deem such Member to be withdrawing from the oldest Capital Sub-Account first and then, to the extent that such Member withdraws an amount greater than the balance in the oldest Capital Sub-Account, from the next oldest Capital Sub-Account and so on).
(f) New Issues. Although the Company currently does not intend to do so, in the event the Company's assets are invested in securities that are considered to be New Issues, the Managing Member shall be permitted to take all actions as it deems necessary to ensure that profits and losses from New Issues are allocated among the Members in a manner permitted under the New Issues Rules. In this regard, the Managing Member is authorized to determine, among other things: (i) the manner in which profits and losses from New Issues are purchased, held, transferred and sold by the Company and any adjustments with respect thereto; (ii) the Members who are eligible and ineligible to participate in the profits and losses from New Issues; (iii) the method by which profits and losses from New Issues are to be allocated among Members (including whether the Company will avail itself of a “de minimis” exemption or any other exemption); and (iv) the time at which New Issues are no longer considered as such under the New Issues Rules.
5.4 Tax Matters.
(a) For U.S. federal, state and local income tax purposes, income, gains, losses and deductions (and items thereof) realized by the Company generally shall be allocated among the Members to the extent permitted under the Code and the Treasury Regulations, in accordance with the manner in which such items are allocated to the Members in accordance with Section 5.3, provided that (i) in the case of any Member withdrawing all or a portion of its interest in the Company pursuant to Section 7.4, the Managing Member shall specially allocate such items of income and gains to such Member in an amount not to exceed the amount by which the aggregate amount of the excess of Net Profit over Net Loss then or theretofore allocated to such Member with respect to such withdrawn interest exceeds the net amount of taxable income and gain then or theretofore allocated to such Member with respect to such withdrawn interest, and (ii) in the case of any Member withdrawing all of its interest in the Company pursuant to Section 7.4, the Managing Member shall specially allocate such items of losses and deductions to such
Member in an amount not to exceed the amount by which the aggregate amount of the excess of Net Loss over Net Profit then or theretofore allocated to such Member with respect to such withdrawn interest exceeds the net amount of tax losses and deductions then or theretofore allocated to such Member with respect to such withdrawn interest.
(b) The Managing Member shall equitably allocate tax credits among all Members.
(c) The Managing Member may in its sole discretion make an election under section 754 of the Code at such time as it determines that making such an election is in the best interests of one or more of the Members and shall in its sole discretion make such other tax elections as it determines are beneficial to the Company or the Members.
(d) Notwithstanding any other provision of this Section 5.4, the Managing Member shall have the power to make such allocations for U.S. federal, state and local income tax purposes as may be necessary to maintain substantial economic effect, or to insure that such allocations are in accordance with the interests of the Members in the Company, in each case within the meaning of the Code and the Treasury Regulations. All matters concerning allocations for U.S. federal, state and local income tax purposes, including accounting procedures, not expressly provided for in this Agreement shall be equitably determined in good faith by the Managing Member. The Managing Member shall designate the “tax matters partner” of the Company, as provided in the Treasury Regulations pursuant to section 6231 of the Code (and any similar provisions under any other state or local or non-U.S. tax laws) and the “partnership representative” of the Company pursuant to section 6223(a) of the Code for taxable years beginning on or after January 1, 2018. The partnership representative shall have the power to make the election described in section 6226 of the Code. Each Member hereby consents to such designation and agrees that upon the request of the Managing Member it will execute, certify, acknowledge, deliver, swear to, file and record at the appropriate public offices such documents as may be necessary or appropriate to evidence such consent. The Managing Member shall not permit the Company to elect, and the Company shall not elect, to be treated as an association taxable as a corporation for U.S. federal, state or local income tax purposes under Treasury Regulations section 301.7701-3(a) or under any corresponding provision of state or local law.
5.5 Sharing Percentages. Each Member shall have a sharing percentage (“Sharing Percentage”) for any Accounting Period equal to a fraction, the numerator of which is such Member's Capital Account Balance as of the first day of such Accounting Period and the denominator of which is the sum of the Capital Account Balances of all Members as of such date, provided that appropriate adjustments shall be made for any Capital Contributions to or withdrawals from the Company by any Member or distributions by the Company to any Member during such Accounting Period.
5.6 Separate Computations. The computations required to be made pursuant to this Article V may be made separately with respect to the investment of each Member in the Company, or with respect to separate contributions to or withdrawals from the Company of a particular Member, to reflect appropriately the different times at which different Members may have contributed capital to the Company or withdrawn capital from the Company and the Net
Asset Values at such times. Such separate computations may include, without limitation, separate determinations of Capital Accounts and all elements thereof with respect to each such Member's or separate portions of a Member's interest in the Company.
ARTICLE VI
NET ASSET VALUE; DISTRIBUTIONS
6.1 Net Asset Value. The Managing Member from time to time shall determine the Net Asset Value of the Company in accordance with Section 6.6 and may appoint one or more Persons to assist it in the determination of the value of Instruments and to make the actual calculations pursuant to its directions.
6.2 When Determined. Subject to Section 7.5, the Net Asset Value of the Company shall be determined as of the close of:
(a) The last day of a month;
(b) the day of the dissolution of the Company pursuant to Article VIII; and
(c) any such other day as the Managing Member deems necessary or appropriate.
6.3 Distributions.
(a) After the close of any Fiscal Year, the Managing Member may in its sole discretion from time to time distribute to a Member all or a portion of the Net Profit allocated to such Member during such year, without duplication of any distribution to be made under Section 7.4.
(b) In lieu of cash, the Managing Member may in its sole discretion distribute securities or other investments as distributions in kind. Such securities or other investments distributed by the Managing Member shall be deemed to have been sold at their value (as computed in accordance with Section 6.6 and the proceeds of such sale shall be deemed to have been distributed to Members for all purposes of this Agreement. The Managing Member may, in its sole discretion, distribute securities or other investments to certain Members and cash to other Members in connection with one or more withdrawals of Members' interests in the Company. If the Company determines to distribute securities or other investments in kind, such securities or other investments may, in the sole discretion of the Managing Member, be distributed directly to the Member or, alternatively, in the sole discretion of the Managing Member, distributed or allocated into a liquidating trust or liquidating account and sold by the Company for the benefit of such Member, in which case (i) payment to such Member of that portion of such Member's withdrawal attributable to such in-kind securities or other investments will be delayed until such time as such securities or other investments can be liquidated and (ii) the amount otherwise due to such Member will be increased or decreased to reflect the performance of such securities or other investments, and to reflect any applicable expenses paid or accrued, the Management Fee,
the Incentive Allocation and the Additional Incentive Allocation, all through the date on which the liquidation of such securities or other investments is effected. The Managing Member may cause certificates evidencing any Instruments to be distributed to be imprinted with legends as to such restrictions on transfer that it may deem necessary or appropriate, including legends as to applicable federal or state securities laws or other legal or contractual restrictions, and may require any Member to which Instruments are to be distributed to agree in writing (i) that such Instruments will not be transferred except in compliance with such restrictions and (ii) to such other matters as the Managing Member may deem necessary or appropriate. In all other cases, the Managing Member will cause any such restrictions on transfer to be communicated to the relevant Members. If the Managing Member determines to distribute securities or other investments in kind, it will not cause the Company to distribute to any Member more than such Member's approximate pro rata share of any such security or other investment, subject to the requirements of applicable law.
(c) Notwithstanding any provision to the contrary contained in this Agreement, the Company, and the Managing Member on behalf of the Company, shall not make a distribution to any Member on account of such Member's interest in the Company if such distribution would violate the Act or other applicable law.
(d) Notwithstanding the foregoing provisions, the Company may, in the sole discretion of the Managing Member, prior to, together with or subsequent to any distribution pursuant to this Section 6.3, make distributions to one or more Members, in amounts intended to enable such Members (or any Person whose tax liability is determined by reference to the income of any such Member) to discharge all or a portion of their U.S. federal, state and local income tax liabilities arising from the allocations made (or to be made) pursuant to Section 5.4. The amount distributable pursuant to this Section 6.3(d) shall be determined by the Managing Member in its sole discretion, taking into account the maximum combined U.S. federal, state and local tax rate applicable to individuals or corporations (whichever is higher) on ordinary income and capital gain (taking into account the applicable holding period), as the case may be, and the amounts thereof so allocated to the Members, and otherwise based on such reasonable assumptions as the Managing Member determines in good faith to be appropriate (and the assumptions described in this sentence shall be applied equally to each Member regardless of its tax status).
6.4 Withholding.
(a) Each Member shall, to the fullest extent permitted by applicable law, indemnify and hold harmless each Person who is or who is deemed to be the responsible withholding agent for U.S. federal, state or local or foreign income tax purposes against all claims, liabilities and expenses of whatever nature relating to such Person's obligation to withhold and to pay over, or otherwise pay, any withholding or other taxes payable by the Company or as a result of such Member's participation in the Company.
(b) Notwithstanding any other provision of this Agreement, each Member hereby authorizes the Company to withhold and to pay over, or otherwise pay, any withholding or other taxes payable by the Company or any of its Affiliates (pursuant to the Code or any provision of U.S. federal, state, or local or foreign tax law) with respect to such Member or as a result of such
Member's participation in the Company. The Company shall provide notice to such Member of any such payment required to be made as soon as reasonably practicable. If and to the extent that the Company shall be required to withhold or pay any such withholding or other taxes, such Member shall be deemed for all purposes of this Agreement to have received a payment from the Company as of the time such withholding or other tax is required to be paid, which payment shall be deemed to be a distribution with respect to such Member's interest in the Company. To the extent that the aggregate of such payments to a Member for any period exceeds the distributions that such Member would have received under Section 6.3 for such period but for such withholding, the Managing Member shall notify such Member as to the amount of such excess and such Member shall make a prompt payment to the Company of such amount by wire transfer.
(c) If the Company makes (or will make) a distribution in kind and such distribution is subject to withholding or other taxes payable by the Company on behalf of any Member, the Managing Member shall notify such Member as to the extent (if any) of the taxes withheld (or to be withheld) and such Member shall make a prompt payment to the Company of the amount of such taxes by wire transfer.
(d) Any withholdings referred to in this Section 6.4 shall be made at the maximum applicable statutory rate under the applicable tax law unless the Managing Member shall have received an opinion of counsel or other evidence, satisfactory to the Managing Member, to the effect that a lower rate is applicable, or that no withholding is applicable.
(e) In the event that the Company receives a distribution from or in respect of which tax has been withheld, the Company shall be treated as having received cash in an amount equal to the amount of such withheld tax, and each Member shall be treated as having received as a distribution of cash the portion of such amount that is attributable to such Member's interest in the Company as equitably determined by the Managing Member.
6.5 No Priorities of Members. Except as expressly provided in this Agreement, no Member shall have priority over any other Member as to the return of the amount of its Capital Contributions or as to income of the Company.
6.6 Valuation. The Net Asset Value shall be determined by the Administrator in conjunction with the Investment Manager under the direction of the Managing Member as of each applicable Valuation Date.
(a) Instruments and other traded instruments and contracts shall be valued in good faith at their fair market value on each Valuation Date by the Administrator in conjunction with the Investment Manager in accordance with the Offering Memorandum as may be amended or supplemented from time to time.
(b) All Members acknowledge that the process of valuing Instruments or other assets, particularly Instruments or other assets for which no published market exists, is based on inherent uncertainties and the resulting values with respect to Instruments or other assets for which no ready market exists may differ from values that would have been used had a ready
market existed for such Instruments or other assets and may differ from the prices at which such Instruments or other assets may be sold and that such differences may be material.
ARTICLE VII
WITHDRAWAL, DEATH OR INCOMPETENCY OF MEMBERS
7.1 Withdrawal, Death, etc., of Members.
(a) The Managing Member may withdraw, without the approval of the Members, all or any portion of its Capital Account as of the last day of any month or at such other times as it deems appropriate. If the Managing Member withdraws as managing member of the Company it may designate an Affiliate of the Managing Member or any successor to the business or assets of the Managing Member (the “Designee”) to be substituted as the Managing Member. The Designee shall be deemed admitted to the Company as a managing member of the Company immediately prior to the withdrawal of the Managing Member upon its execution of a counterpart signature page to this Agreement and shall become and have all of the rights, powers and duties of the Managing Member for all purposes of this Agreement, and such successor Managing Member shall continue the business of the Company without dissolution.
(b) The withdrawal, death, disability, incapacity, incompetency, termination, bankruptcy, insolvency or dissolution of a Member shall cause such Member to cease to be a member of the Company, but shall not dissolve the Company, as long as there is at least one remaining Member. If there are no Members (other than the Managing Member), the Company may be continued in accordance with the Act. The personal representatives (as defined in the Act) of a Member shall succeed as assignee to such Member's interest in the Company upon the death, disability, incapacity, incompetency, termination, bankruptcy, insolvency or dissolution of such Member, and shall not be admitted as a Substitute Member but shall have the right to transfer such Member's interest in the Company in accordance with Section 10.1 or request complete withdrawal from the Company pursuant to Section 7.4. In the event of death, disability, incapacity, incompetency, termination, bankruptcy, insolvency or dissolution of a Member or the giving of notice of withdrawal by a Member pursuant to Section 7.4, the Capital Account Balance of such Member shall continue at the risk of the Company's business and shall be considered as capital of the Company in the same manner and to the same extent as other capital contributed by a Member, until the earliest of (i) the effective date of such Member's withdrawal, (ii) the dissolution of the Company or (iii) the effective date of the transfer of such Member's interest in the Company.
7.2 Required Withdrawals of Members (other than the Managing Member). The Managing Member may cause any Member to withdraw all or any portion of such Member's interest in the Company at any time upon five (5) days' prior written notice for any reason in the Managing Member's sole discretion. A notice of withdrawal pursuant to this Section 7.2 shall have the same effect as a notice of withdrawal by the Member to the Company pursuant to Section 7.4, and the Member receiving such notice shall be treated for all purposes and in all respects as a Member who has given notice of withdrawal. For purposes of this Section 7.2, the
effective date of a Member's withdrawal shall be the date specified in the written notice referred to in the first sentence of this Section 7.2. If the entire interest of a Member is withdrawn, it will constitute a “resignation” of the Member within the meaning of the Act and such Member shall cease to be a member of the Company.
7.3 Limitations on Distributions or Withdrawal of Capital Account. The right of any Member or its personal representatives to receive distributions or withdraw all or any portion of the Capital Account of the Member under this Agreement is subject to the Act and other applicable law. The Managing Member may charge an amount equal to actual costs and expenses incurred by the Company in connection with such withdrawal. In addition to the actual costs and expenses incurred in connection with a withdrawal, the Managing Member may withhold an amount, determined in its sole discretion, for Liabilities and contingencies of the Company, or the Company's pro rata share of any liabilities or contingencies of the Trading Entities, for which such withdrawing Member may be liable under this Agreement (the “Contingency Reserve”). After the Managing Member has determined in its sole discretion that the Liabilities or the contingencies for which the Contingency Reserve was withheld have ceased to exist, any unused portion of the Contingency Reserve shall be returned to the applicable withdrawn Member as soon as it is reasonably practicable, together with interest thereon, to the extent permitted by applicable law. Such interest shall accrue from the date of such withdrawal to the date of the payment of such unused portion of the Contingency Reserve at an annual rate approximating the interest rate paid on credit balances at such time by the Company's principal brokers or principal bankers. A Member's Withdrawn Capital Account Balance shall not include any amount charged to such Member's Capital Account pursuant to this Section 7.3. The Managing Member also may distribute securities and/or other investments, in lieu of cash, to withdrawing Members (or allocate or distribute securities and/or other investments into a liquidating account or liquidating trust on behalf of such Members, as further described in Section 6.3(b)).
7.4 Withdrawal of Members (other than the Managing Member).
(a) Except as provided in Sections 7.1, 7.2 and this Section 7.4, no Member shall be entitled to withdraw any part of its Capital Account Balance.
(b) Each Member shall have the right to withdraw, in whole or in part, its Capital Account Balance from the Company as of the last day of a month by delivering to the Managing Member a written notice (a “Withdrawal Notice”) which must be received by the Company and the Sub-Administrator at least fifteen (15) full calendar days prior to the relevant Withdrawal Date not including the effective date of the withdrawal or the date upon which notice is given (e.g., a Member may withdraw its Interests as of December 31 by providing a Withdrawal Notice which must actually be received by the Company and the Sub-Administrator by 11:59 p.m. (EST) on December 15th), declaring such withdrawal and, if such withdrawal is partial, stating the proportion or amount of such Member's Capital Account Balance to be withdrawn. The Managing Member may modify any terms related to withdrawals for any Member pursuant to a written agreement with such Member.
(c) The Managing Member may defer payment of withdrawal requests if raising funds to withdraw Interests would, in the Managing Member's sole discretion, be materially harmful to the Company, any remaining Member(s), or the Trading Entities in which the Company invests.
(d) Each and every Withdrawal Notice submitted by a Member shall be irrevocable once delivered and must be unconditional; any Withdrawal Notice that purports to be revocable or conditional may be ignored or treated as irrevocable and unconditional, in the sole discretion of the Managing Member. Notwithstanding the foregoing, the Managing Member may, in its sole and absolute discretion, agree to a Member's request to revoke any withdrawal request.
(e) Subject to Section 7.3, in the event of the withdrawal by a Member pursuant to Section 7.2 or this Section 7.4 of (A) less than substantially all of such Member's Interest, the Company will make commercially reasonable efforts to distribute l00% of the Withdrawal Price with respect to the Interests being withdrawn within five (5) Business Days of the applicable Withdrawal Date or (B) of all or substantially all of a Member's Interests, the Managing Member shall distribute to the Member who shall have withdrawn in cash or in-kind, or in a combination thereof, an amount equal to approximately (i) 25% of the Interests being withdrawn within five (5) Business Days of such Withdrawal Date at the Net Asset Value of such Interests as of the Withdrawal Date, (ii) 50% of the remaining Interests being withdrawn as of the last day of the next Fiscal Quarter after such Withdrawal Date, and (iii) all of the remaining Interests being withdrawn as of the last day of the second Fiscal Quarter after such Withdrawal Date, in the case of (ii) and (iii), at the applicable Net Asset Values as of such subsequent quarter-end withdrawal dates based on unaudited data. Accordingly, adjustments and revisions may be made to such data following the annual audit of the Company. Additionally, 5% of the final withdrawal payment amount may be withheld until after completion of the Company's annual audit. Promptly after the final Net Asset Value has been determined in respect of the Interests withdrawn (which in the Company's discretion may be after the Company's independent public accountants have completed the Company's annual audit), the Company will pay to such Member the balance, if any, of the Net Asset Value of the Interests requested to be withdrawn pursuant to such notice or such Member will be obligated to repay the Company the excess, if any, of the amount previously paid to such Member over the Net Asset Value of the withdrawn Interests, in each case subject to any subsequent audit adjustments, to the extent permitted by applicable law. Upon the making of such payment to the withdrawing Member, to the extent of the proportion of its interest so withdrawn, all rights, claims and demands of every kind and character of such Person in and to the Company's property shall cease and terminate. If the entire Capital Account Balance of a Member is withdrawn, it will constitute a “resignation” of the Member within the meaning of the Act and such Member shall cease to be a Member of the Company.
7.5 Suspension of Determination of Net Asset Value; Restrictions on Withdrawal by Members. The determination of Net Asset Value and/or the right of any Member to withdraw its Capital Account Balance (whether in whole or in part) under Section 7.4 may be suspended or
restricted (whether in whole or in part) by the Managing Member in its sole discretion for any of the following reasons:
(a) when any such withdrawal would result in a violation by the Company, any Trading Entity, the Investment Manager or the Managing Member or any Managing Member Related Person of the securities laws of the United States or any other applicable jurisdiction or the rules of any national securities exchange, self-regulatory organization or regulatory agency applicable to the Company, the Investment Manager or the Managing Member or any Managing Member Related Person;
(b) any exchange or quotation system on which a significant portion of the assets of the Company or any Trading Entity is regularly traded or quoted is closed (otherwise than for weekends or holidays) or trading thereon is generally suspended or limited (by reason of movements in price exceeding limits permitted by such exchange or quotation system or otherwise);
(c) any breakdown in the means of communication normally employed in determining the price or value of any of the investments of the Company or any Trading Entity has occurred and is continuing, or the prices or values of any investments of the Company or any Trading Entity cannot reasonably be promptly and accurately ascertained for any reason;
(d) trading in any Instrument held by the Company or any Trading Entity on any exchange or quotation system is suspended or limited and the Managing Member or the Investment Manager, as applicable, determines that such suspension or limitation is material to the Company or such Trading Entity;
(e) any event has occurred and is continuing which may cause the dissolution of the Company;
(f) the Managing Member, has determined that any such withdrawal would have a material adverse effect on the Company's ability to meet any margin call or comply with any covenant in any loan or credit agreement; or
(g) the Managing Member has otherwise determined in its sole discretion with respect to the Company or the Interest of the withdrawing or remaining Members, respectively, that the withdrawal by any Member of its Interests (whether in whole or in part) would have a material adverse effect on the Company or the Interest of the withdrawing or remaining Members, including, without limitation, the risk of potential classification of the Company as a “publicly-traded partnership” for U.S. federal income tax purposes.
In the event that the Managing Member suspends or restricts any withdrawals pursuant to this Section 7.5, it will promptly notify each Member who has delivered a Withdrawal Notice pursuant to Section 7.4 and to whom payment in full of the amount being withdrawn has not yet been remitted of any suspension of or restriction on withdrawal pursuant to this Section 7.5. Notwithstanding the provisions in Section 7.4, in the event the Managing Member suspends or restricts withdrawals pursuant to this Section 7.5, the Managing Member may in its sole
discretion allow any such Member to rescind its Withdrawal Notice to the extent of any portion thereof for which withdrawal proceeds have not yet been remitted. The Managing Member may in its discretion complete any withdrawal as of a date after the cause of any such suspension or restriction has ceased to exist to be specified by the Managing Member as the effective date of withdrawal for all purposes of this Article VII.
ARTICLE VIII
DISSOLUTION AND TERMINATION OF THE COMPANY
8.1 Dissolution. The Company shall dissolve upon the earliest of (a) a determination made by the Managing Member at any time to dissolve and wind up the Company for any reason, (b) the entry of a decree of judicial dissolution under Section 18-802 of the Act,(c) at any time that there are no Members, unless the Company is continued pursuant to the Act, and (d) the occurrence of any event that results in the Managing Member ceasing to be a managing member of the Company under the Act, provided that the Company shall not be dissolved and required to be wound up in connection with any of the events specified in this clause (d) if (i) at the time of the occurrence of such event there is at least one remaining manager of the Company who is hereby authorized to and does carry on the business of the Company, or (ii) within ninety (90) days after the occurrence of such event, a Majority in Interest agree in writing or vote to continue the business of the Company and to the appointment, effective as of the date of such event, if required, of one or more additional managers of the Company.
8.2 Termination. Upon dissolution of the Company, the Company shall be wound up and liquidated in accordance with the Act. The Managing Member or any other Person who is winding-up the affairs of the Company shall make distributions out of Company assets in the following manner and order:
(a) to satisfy all creditors of the Company, other than Members, either by the payment thereof or the making of reasonable provision therefor; and
(b) to satisfy, in accordance with the terms agreed among them and otherwise on a pro rata basis, all creditors of the Company that are Members, either by the payment thereof or the making of reasonable provision therefor.
Upon receipt of such releases, indemnities and refunding agreements as it deems necessary for its protection, the Managing Member or such other Person who is winding-up the affairs of the Company shall (i) distribute the remaining proceeds, if any, plus any remaining Company Property (which may include Instruments and other Company Property for which there is no readily available market), in accordance with the positive balances of the Members' Capital Accounts, as determined after taking into account all adjustments to Capital Accounts for the Company's taxable year during which the dissolution occurs, by the end of such taxable year or, if later, within one year after the date of such dissolution and (ii) execute, acknowledge and cause to be filed a certificate of cancellation of the Certificate with the Secretary of State. For purposes of the application of this Section 8.2 and determining Capital Accounts on dissolution,
all unrealized gains, losses and accrued income and deductions of the Company shall be treated as realized and recognized immediately before the date of distribution.
ARTICLE IX
BOOKS AND RECORDS; REPORTS TO MEMBERS
9.1 Books and Records. The Managing Member shall keep or cause to be kept at the Company's principal office appropriate records and books of account in accordance with generally accepted accounting principles, consistently applied. Subject to Section 3.10, such books and records shall be available for inspection by the Members or their duly authorized representatives during normal business hours for any purpose reasonably related to their interests in the Company.
9.2 U.S. Federal, State and Local Income Tax Information. The Managing Member shall use its commercially reasonable efforts to provide to each Member prior to April 15 of each year such tax information with respect to the Company as shall be necessary for the preparation by such Member of its U.S. federal, state and local income tax returns.
9.3 Reports to Current Members. In general, within ninety (90) days after the end of each Fiscal Year, or earlier if required by law or applicable regulation, the Managing Member shall prepare and make available to each Member, together with the report thereon of the Company's independent accountants (with respect to clause (a) below), a financial report setting forth as of the end of that Fiscal Year:
(a) a statement showing the net increase or decrease, as the case may be, in Net Asset Value for that Fiscal Year;
(b) a statement of the Member's Capital Account and the manner of its calculation;
(c) a narrative description of the Company's performance for that Fiscal Year; and
(d) any information that the Managing Member is required by law to provide.
The Managing Member shall prepare and make available to each Member typically within thirty (30) days of the end of each month, or earlier if required by law, an unaudited report setting forth the information contained in clauses (a) and (b) above, as of the end of each month, and such other information which the Managing Member deems appropriate or which the Managing Member is required by law to provide.
9.4 Compliance with Applicable Laws and Rules. The Managing Member shall keep, or cause to be kept, such books and records, provide or cause to be provided such receipts and other information, and take or cause to be taken such other action in connection therewith as is required by all applicable laws and rules.
ARTICLE X
TRANSFERS
10.1 Transfer by the Members. No Member may transfer (which term, when used in this Article X, shall include any transaction by which a Member assigns all or any portion of its interest in the Company to another Person, and includes a sale, assignment, gift, pledge, encumbrance, hypothecation, mortgage or exchange) in any manner whatsoever all or any portion of its interest in the Company to another Person (an “Assignee”) unless the Managing Member, in its sole and absolute discretion, shall have consented in writing to such transfer or unless such transfer occurs by operation of law or is otherwise required by law. To the fullest extent permitted by law, no attempted or purported transfer or substitution shall be effective or recognized by the Company unless effected in accordance with and permitted by this Agreement. To the fullest extent permitted by law, an Assignee who is not admitted as a Member in accordance with the terms hereof shall have no right to any information or accounting of the affairs of the Company, shall not be entitled to inspect the books or records of the Company and shall not have any of the rights of a Manager or a Member under the Act or this Agreement. The transferring Member shall cease to be a Member upon the occurrence of both the transfer of all of its interest in the Company to an Assignee and the admission to the Company of such Assignee as a substitute Member (a “Substitute Member”). Notwithstanding any other provision in this Agreement, no Assignee, including any Affiliate of the transferring Member, shall have the right to become a Substitute Member upon the transfer of a Member's interest in the Company to such Assignee, unless all the following conditions are satisfied:
(a) the duly executed and acknowledged written instrument of assignment shall have been filed with the Company;
(b) such Member and such Assignee shall have executed and acknowledged such other instruments and taken such other action as the Managing Member shall deem necessary or desirable to effect such substitution, including, without limitation, the execution by the Assignee of this Agreement or an appropriate supplement to this Agreement and of a letter containing certain representations and warranties and the completion of an investor questionnaire;
(c) the conditions set forth in Section 10.2 shall have been satisfied, and, if requested by the Managing Member, the Member or the Assignee shall have obtained an opinion of counsel satisfactory to the Managing Member as to the legal matters set forth therein;
(d) such Member and such Assignee hall each have provided a certificate to the effect that (i) the proposed transfer will not be effected on or through(x) a U.S. national, regional or local securities exchange, (y) a foreign securities exchange or (z) an interdealer quotation system that regularly disseminate firm buy or sell quotations by identified brokers or dealers (including, without limitation, NASDAQ) and (ii) it is not, and its proposed transfer or acquisition (as the case may be) will not be made by, through or on behalf of, (x) a Person, such as a broker or a dealer, making a market in interests in the Company or (y) a Person who makes available to the public bid or offer quotes with respect to interests in the Company;
(e) such transfer will not be effected on or through an “established securities market” or a “secondary market or the substantial equivalent thereof,” as such terms are used in section 1.7704-1 of the Treasury Regulations;
(f) such Member or such Assignee shall have paid to the Company an amount sufficient to cover all expenses incurred by or on behalf of the Company in connection with such substitution; and
(g) such transfer would not cause the Company's assets to be deemed “plan assets” under ERISA.
Upon satisfaction of the above conditions, an Assignee shall be admitted to the Company as a Substitute Member.
10.2 Certain Restrictions on Transfers. Notwithstanding any other provision of this Agreement, no Member may transfer in any manner whatsoever all or any part of its interest in the Company if such assignment or transfer would, in the judgment of the Managing Member, jeopardize the status of the Company as a partnership for U.S. federal income tax purposes, cause a dissolution of the Company under the Act, violate, or cause the Company to violate, any applicable law or regulation or impose any additional materially burdensome registration or filing requirements on the Company or any Member or otherwise subject the Company or any Member to any additional materially burdensome regulation, including in each case under any applicable federal, state or foreign securities or commodity laws.
ARTICLE XI
MISCELLANEOUS
11.1 Waiver of Partition. Except as may be otherwise required by law in connection with the winding-up, liquidation and dissolution of the Company, each Member hereby irrevocably waives any and all rights that he or she may have to maintain an action for partition of any of the Company's Property.
11.2 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall constitute one and the same instrument.
11.3 Amendments. The terms and provisions of this Agreement may be modified or amended at any time and from time to time by the Managing Member in its sole discretion (a) in any manner that does not materially adversely affect any Member, including, but not limited to (i) reflect changes validly made in the membership of the Company and the Capital Contributions and withdrawals by any Member, (ii) reflect a change in the name of the Company, (iii) make a change that is necessary or desirable to correct any ambiguity, to correct or supplement any provision in this Agreement that would be inconsistent with any other provision in this Agreement (iv) comply with any anti-money laundering or anti-terrorist laws, rules, regulations, directives or special measures and to make any other provision with respect to
matters or questions arising under this Agreement that will not be inconsistent with the provisions of this Agreement in each case so long as the change does not materially adversely affect the interests of the Members; or (b) to effect any changes required by applicable laws or regulations. This Agreement may also be amended by action taken by both (i) the Managing Member and (ii) the Members owning a Majority in Interest at the time of the amendment, provided that such amendment does not discriminate among the Members.
11.4 Governing Law. Notwithstanding the place where this Agreement may be executed by any of the parties, the parties expressly agree that all the terms and provisions hereof shall be construed under the laws of the State of Delaware and, without limitation thereof, that the Act as now adopted or as may be hereafter amended shall, to the fullest extent permitted therein, govern this Agreement.
11.5 Severability. If any provision of this Agreement or the application thereof to any party or circumstance shall be determined by any court of competent jurisdiction to be invalid or unenforceable to any extent, the remainder of this Agreement or the application of such provision to such Person or circumstance, other than those as to which it is so determined invalid or unenforceable, shall not be affected thereby, and each provision hereof shall be valid and shall be enforced to the fullest extent permitted by law. Any default hereunder by a Member shall not excuse any obligation of any other Member.
11.6 Notice. Any notice or other communication to be given under this Agreement to the Company or to any Member shall be in writing and may be delivered personally, by facsimile, by electronic mail, or by mail (a) if to the Company or the Managing Member, addressed to it at its principal office, or (b) if to any Member (other than the Managing Member), at the address, facsimile number or electronic mail address of such Member as shown on the records of the Company. Such notice shall be deemed to have been given when (x) if by personal delivery or by mail, so delivered, or upon the expiration of seven (7) days after such mailing, as the case may be, (y) if by facsimile, on generation of confirmation, and (z) if by electronic mail, upon receipt (by way of clarification, whether or not opened); provided that any notice to the Company or the Managing Member shall be effective only if and when received.
11.7 Delaware Office. The Company shall maintain a registered office in Delaware and a registered agent for service of process on the Company in Delaware, such office and agent to be selected by the Managing Member in its discretion and to be set forth in the Certificate. The address of the registered office of the Company in the State of Delaware shall be c/o Corporation Service Company, 251 Little Falls Drive, Wilmington, Delaware 19808, and the name of the registered agent of the Company for service of process at that address shall be Corporation Service Company.
11.8 Certificate of Formation. The Managing Member shall provide a copy of the Certificate or any amendment or restatement relating thereto to any Member which so requests it, but shall not otherwise be required to provide such copies.
11.9 Goodwill. The parties agree that no value shall be placed on the name or goodwill of the Company, which shall belong exclusively to the Managing Member.
11.10 Headings. The titles of the Articles and the headings of the Sections of this Agreement are for convenience of reference only and are not to be considered in construing the terms and provisions of this Agreement.
11.11 Pronouns. All pronouns shall be deemed to refer to the masculine, feminine, neuter, singular or plural, as the identity of the person or persons, firm or corporation may require in the context thereof.
11.12 Determination of Certain Matters. Whenever in this Agreement the Managing Member is permitted or required to make a decision (a) in its “sole discretion” or under a grant of similar authority or latitude, the Managing Member shall be entitled to consider only such interests and factors as it desires, including its own interests, and shall, to the fullest extent permitted by applicable law, have no duty or obligation to give any consideration to any interest or factor affecting the Company or any other Person (other than a duty to act in good faith), or (b) in its “good faith” or under another express standard, the Managing Member shall act under such express standard and shall not be subject to any other or different standard imposed by this Agreement or other applicable law.
11.13 Successors and Assigns. This Agreement shall inure to the benefit of the Members and the Indemnitees, and shall be binding upon the parties, and, subject to Article X, their respective successors and permitted assigns.
11.14 Entire Agreement. This Agreement and the Subscription Agreements constitute the entire agreement among the Members with respect to the subject matter hereof, and supersede any prior agreement or understanding among them with respect to such matter. The representations and warranties of the Managing Member and the Members in, and the other provisions of, the Subscription Agreements shall survive the execution and delivery of this Agreement.
11.15 Confidentiality. Each Member agrees that it shall not disclose without the prior consent of the Managing Member (other than to such Member's employees, auditors or counsel) any information with respect to the Company, provided that a Member may disclose any such information (a) as has become generally available to the public, (b) as may be required or appropriate in any report, statement or testimony submitted to any U.S. municipal, state or national or non-U.S. regulatory body having jurisdiction over such Member, (c) as may be required or appropriate in response to any summons or subpoena or in connection with any litigation, (d) to the extent necessary in order to comply with any law, order, regulation, ruling or other governmental request applicable to such Member and (e) to its professional advisers; and provided, further, that a Member (and each employee, representative, or other agent of the Member) may disclose to any and all persons, without limitation of any kind, the tax treatment and tax structure of an investment in the Company and all materials of any kind (including opinions or other tax analyses) that are provided to the Member relating to such tax treatment and tax structure.
11.16 Compliance with Anti-Money Laundering Requirements. The Managing Member shall be authorized, without the consent of any Person, including any other Member, to take such
action as it determines to be necessary or advisable to comply, or to cause the Company to comply, with any anti-money laundering or anti-terrorist laws, rules, regulations, directives or special measures.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date first above written.
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| MANAGING MEMBER: |
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| TWO SIGMA PRINCIPALS, LLC |
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| By: | /s/ Kenneth Geller | |
| | Name: | Kenneth Geller | |
| | Title: | Authorized signatory | |
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| MEMBER: |
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| Hamilton Re, Ltd. | |
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| By: | /s/ Chad Cundliffe | |
| | Name: | Chad Cundliffe | |
| | Title: | CFO | |
INVESTMENT MANAGEMENT AGREEMENT (as amended, supplemented and/or otherwise modified from time to time, this ·'Agreement"), dated as of April 25, 2018, between DEUTSCHE INVESTMENT MANAGEMENT AMERICAS INC., a corporation organized under the laws of the State of Delaware and a U.S. registered investment adviser (the Manager''), and the client set forth on the signature page hereto (together with any other account entities listed in Schedule B attached hereto, the "Client").
W I T N E S S ET H:
WHEREAS, the Client has the authority to appoint managers to manage the funds held in one or more current or future accounts with the Manager (the "Account"); the Client has determined to appoint the Manager to manage the Account in accordance with any investment policies and guidelines attached hereto as Schedule A, as the same may be effected or amended from time to time by the Client with respect to a particular portfolio (the "Investment Guidelines"); and the Manager has agreed to accept such responsibility;
NOW, THEREFORE, the Client and the Manager agree as follows:
1. Appointment of the Manager. The Client hereby appoints the Manager as investment manager with respect to the Account, which Account shall consist of such sums of money and other property, or part interests therein, as shall be agreed upon by the Manager and the Client and such earnings, profits, increments and accruals thereon (less losses, deductions and withdrawals) as may occur from time to time. Subject to prior written consent from the Client and to Section 23 generally, such consent not to be unreasonably withheld, the Client hereby agrees that the Manager may delegate its discretionary investment, advisory and other rights, powers and functions hereunder to any of its affiliates (subject always to such affiliates having maintained all required and appropriate authorizations and registration to conduct the business contemplated hereunder), and middle and back office administrative functions to State Street Bank and Trust ("State Street'') without further written consent of the Client, provided, however, that the Manager shall (i) provide prompt written notice to the Client of such delegation, and (ii) always remain liable to the Client for its obligations hereunder. For the avoidance of doubt, no sub-delegation of any aspect of this Agreement will relieve the Manager of any of its obligations hereunder. References herein to the Manager shall include, as the context may require, any of the Manager's affiliates that are selected to manage assets under this Agreement. The Manager hereby accepts, on behalf of itself and on behalf of its affiliates, such appointment. provided that any affiliate of the Manager that is delegated authority under this Agreement shall accept such delegation in an agreement between the Manager and any such affiliate and acknowledge that it is a fiduciary with respect to the Account, although the absence of any such agreement shall not relieve the Manager of any its obligations hereunder. The Client agrees the Manager will not enter into transactions for the Account until the Client, or the Custodian (as defined below), initially funds the Account with suitable assets, cash or cash substitutes, as determined by the Manager.
2. Manager Representations. Warranties and Agreements. The Manager represents, warrants and agrees that it is registered as an investment adviser under the Investment Advisers Act of 1940, as amended (the "Advisers Act") and in each state necessary under this Agreement, where such registration or authorization is required; and, as a result of its acceptance of the appointment as Manager, it is a fiduciary with respect to the assets of the Account for which it
provides investment management services hereunder, and expressly assumes the duties, responsibilities and obligations of a fiduciary with respect to the services described hereunder. The Manager hereby represents that this Agreement has been duly authorized, executed and delivered by the Manager and constitutes its legal, binding and valid obligation enforceable against the Manager in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally or by equitable principles relating to enforceability. The Manager further represents that it will not deal with the Account and the assets invested therein for its own interest or for its own account. Both parties acknowledge and agree that nothing herein establishes, or shall be deemed to establish, a partnership, affiliation or agency relationship for United States federal or states tax purposes.
3. Client Representations, Warranties and Agreements. The Client represents, warrants and agrees that:
(a) Investment of the Account as contemplated hereunder satisfies the funding policy and the diversification and liquidity requirements of the Client, and that the Client understands the risks involved in investing in the investments set forth in the Investment Guidelines;
(b) The Client is duly organized and validly existing under the laws of its jurisdiction of incorporation, and the transactions contemplated by this Agreement and the Investment Guidelines (the "Transactions") are duly authorized by the Client and, upon execution and delivery of this Agreement, will be binding upon Client on its terms. When the Client enters into Transactions with a Broker counterparty, within the meaning of Section 6 of this Agreement, such Transactions will be the legal, valid and binding obligations of the Client and are consistent with and permissible for the Client and/or the Account;
(c) No restrictions exist on the transfer, sale or other disposition of any of the assets of the Account and no option, lien, charge, security or encumbrance exists or will, due to any act or omission of the Client, exist over any of such assets;
(d) Without limitation, the transactions and agreements which the Manager enters into on behalf of the Client with a counterparty pursuant to this Agreement will not violate the constituent documents of, any law, rule, regulation, order or judgment binding on the Client or the Account, or any contractual restriction binding on or affecting the Client or the Account or its properties and no governmental or other notice or consent is required in connection with the execution, delivery or performance of this Agreement or of any agreements governing or relating to such obligations;
(e) The Client has provided to the Manager all documentation requested by the Manager regulating the Account and shall, to the extent commercially reasonable, provide such further documentation, including financial and other documentation, which the Manager may reasonably request in furtherance of its obligations hereunder. The Client shall use commercially reasonable efforts to ensure that any such documentation, including, without limitation, the Client's financial or other information provided to the Manager, will be materially accurate. In addition, the Client will furnish the Manager with additional financial information as may be reasonably required by the Manager in connection with the performance of its obligations hereunder;
(f) The Manager may include the name of the Client on any representative client list, subject to the prior written consent of the Client;
(g) The Client is a Qualified Institutional Buyer ("QIB"), as such term is defined in Rule 144A(a)(l)(i) of the Securities Act of 1933, as amended. The Client shall promptly notify the Manager in writing if the Client ceases to be a QIB and further agrees to provide such evidence of its status as a QIB as the Manager may reasonably request from time to time;
(h) The Client shall use commercially reasonable efforts to notify the Manager before or immediately upon the occurrence, or if it knows or has reason to know of the occurrence or likelihood of the occurrence, of any event which causes a change in the representations and warranties under this Agreement or which (A) makes investments made pursuant to this Agreement unlawful or unsuitable for the Client or the Account; or (B) would operate to limit, suspend or terminate the authority of the Client;
(i) The Account is not subject to the terms of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), nor elects to be treated as subject to its terms;
(j) The Client represents and warrants that neither it, nor any other person, has registered nor will register as a commodity pool operator of the Account under the United States Commodity Exchange Act of 1936, as amended and the rules thereunder of the Commodity Futures Trading Commission;
(k) the Client is not a "restricted person" for the purposes of FINRA Rule 5130 or a "covered person" for purposes of FINRA Rule 5131 (collectively, the "New Issues Rules"), or that the Client is otherwise exempt from the prohibitions of the New Issues Rules and will notify the Manager of either becoming a --restricted person" or a "covered person" for the purposes of the New Issues Rules or ceases to be exempt from the prohibitions of the New Issues Rules; and
(l) The Client is not a registered investment company under the Investment Company Act of 1940, as amended (the "Company Act") and does not rely on an exemption from such registration under Sections 3(c)(1) or 3(c)(7) of the Company Act.
4. Investment Discretion: Authority to Contract and Use Agents. (a) The Manager shall invest and reinvest the assets of the Account, in accordance with the Investment Guidelines, without distinction between principal and income, in such investments and in such shares and proportions as it, in its absolute discretion, may deem advisable. In fulfilling these investment responsibilities pursuant to this Agreement, the Manager is authorized to bind and obligate the Account for the carrying out of contracts, arrangements, or transactions entered into by the Manager on the Account's behalf, and to employ or use broker-dealers, banks or other agents that it may select, including its affiliates, domestic or foreign.
(b) Notwithstanding anything to the contrary in the foregoing paragraph, the Manager shall discharge the foregoing powers and discretions in accordance with the Investment Guidelines. In implementing such policies and exercising its authority hereunder, the Manager shall be responsible solely for the investment and reinvestment of assets in the Account and shall have no duty to inquire into or review the management or investment of any other assets of the Client.
(c) Unless otherwise agreed upon, the Investment Guidelines shall be applied at the time of an investment's purchase. In the event that the Account, or any investment of the Account, exceeds or otherwise fails to comply with the Investment Guidelines as a result of changes in market conditions, the Manager shall take such corrective action, in its sole discretion, as it deems advisable.
(d) Except to the extent otherwise directed by the Client, the Manager shall be responsible for voting all proxies that are solicited with respect to the Account and shall keep such records as may from time to time be required. All proxies will be voted and elections made in accordance with the Manager's written policy in effect from time to time, receipt of which the Client hereby acknowledges. The Client shall instruct the Custodian to forward promptly to the Manager receipt of such communications, and shall instruct the Custodian to follow the Manager's instructions concerning the same. The Manager shall not be responsible for voting proxies or for responding to any shareholder actions not timely received by the Manager. The Manager will make available to the Client all information concerning the voting of proxies and shareholder actions.
5. Custody and Safekeeping. The Client has designated a custodian for the Account (the “Custodian”) and has informed the Manager of the appointment of the Custodian and has directed the Custodian to take instructions from the Manager. At the date of entering into this Agreement, the Custodian is The Bank of New York Mellon. In the event the Custodian designated by the Client changes, Client shall notify the Manager of such change. Except as provided in Section 7, exclusive responsibility for the custody and safekeeping of the assets constituting the Account shall remain with the Custodian. The Manager shall provide the Custodian with such documents and information, including certification of the Manager's duly authorized representatives, as the Custodian may reasonably request. All directions given by the Manager to the Custodian shall be in writing, and signed by an authorized representative of the Manager; provided, however, that the Custodian may accept oral directions from the Manager, subject to confirmation in writing. In the event the Manager effects a purchase or a sale of a security on behalf of the Account and the relevant security is not available in the Account for delivery to the purchaser of such security or sufficient cash is not available in the Account for payment to the seller of such security, as applicable, because such security or cash was transferred out of the Account pursuant to the Client's instructions and without prior reasonable notice to the Manager, the Manager shall not be liable for and shall be indemnified and held harmless by the Client against any suit, claim, loss, liability, cost or expense (including, but not limited to, reasonable counsel fees and expenses) resulting from such a transaction, save where such circumstances arise as a result of the fraud, willful or reckless misconduct or negligence on the part of the Manager. To the extent that the Custodian selected by the Client uses an affiliate of the Manager as a local subcustodian, the Client hereby consents to any transaction effected as a service with such local subcustodian necessary to invest and hold assets in such local market, on the same terms and conditions as other similarly situated clients of such Custodian.
6. Financial Futures, Options on Financial Futures. and Foreign Exchange. To the extent (i) permitted under the Investment Guidelines, and (ii) Client's trust agreement, board resolution, enabling legislation or other supporting documents evidence that such Transactions are permitted for the Client and to the extent set forth in the Investment Guidelines, the Manager may purchase and sell exchange-traded financial futures contracts, options on futures contracts, and options. The Manager may open futures and options accounts and execute futures and options
account agreements. In connection with the Client's establishment of a futures customer account and execution of a futures customer agreement, the Manager is authorized to disclose the amount of the Client's assets under management from time to time as may be required by one or more futures commission merchants or other transaction counterparties ("Brokers"), or as required by regulatory authorities. The Manager may direct the Custodian to pledge or deposit assets of the Account with one or more Brokers, and direct such Brokers in the course or in connection with investment of such assets in satisfaction of exchange related margin requirements and other related payments required by the terms of the agreements between the Client and such Brokers. The Client hereby agrees and acknowledges that to the extent permitted under applicable law, foreign exchange transactions may be executed with affiliates of the Manager.
7. Investments. Until otherwise directed by the Client, the assets in the Account shall be invested in accordance with the Investment Guidelines; provided, however, that the Manager may maintain any part of the Account uninvested in cash pending investment or distribution, or otherwise as it shall deem reasonable and prudent (acting in a good faith and commercially reasonable manner), and such cash balances may be invested, to the extent practicable, in short term investment funds maintained by the Manager or a third party for which a description shall be provided to the Client (collectively, the "Investment Funds"). The Client acknowledges receipt of the applicable prospectuses for the Investment Funds ("Descriptions") as in effect on the date of this Agreement and any other documents or information deemed relevant to the Client's decision to permit the investment of the Account in specific Investment Funds.
8. Affiliated Deposits. The Client hereby approves the use of deposits of Deutsche Bank AG or an affiliate.
9. Affiliated Mutual Funds and Other Pooled Funds. The Client hereby acknowledges and agrees that from time to time, the Manager may invest Account assets in collective investment vehicles managed by the Manager or an affiliate, including but not limited to open or closed-end mutual funds, whether or not registered under the Company Act, registered with any foreign regulatory authority, or any other pooled vehicle, including but not limited to unit trusts, business trusts, limited partnerships or limited liability companies.
9. Affiliated Brokerage. The Client hereby authorizes Manager to effect agency transactions and agency cross-transactions through affiliated broker-dealers and the Client acknowledges that the Manager, in effecting or executing agency cross transactions, will have potentially conflicting divisions of loyalties and responsibilities regarding the parties to the transactions. Furthermore, the Client acknowledges that the Account is subject to Section 11(a) of the Securities Exchange Act of 1934, as amended, and Rule 11a2-2(T) thereunder and accordingly, the Client authorizes the affiliates of the Manager that are members of a national securities exchange or have the right to trade on such an exchange, to execute transactions on such exchange for the Account and to retain compensation for such transactions.
10. Affiliated Underwritings. The Client hereby approves the purchase of securities in a public offering or a Rule 144A offering where an affiliate of the Manager is a member or a manager of the syndicate and/or the trustee of the underlying assets of the security.
11. Non-Exclusivity of Services: Aggregation of Orders. The services of the Manager are not exclusive. The Manager and its affiliates will perform investment advisory and portfolio management services for various other clients and it is agreed that the Manager may give advice and take action with respect to such other funds and other clients or for its own account or for the account of any of its affiliates or for the accounts of any of their clients (collectively, "Other Accounts") which may differ from the advice or the timing or nature of action taken with respect to the Account or the Investment Funds. Furthermore, the Manager shall have no obligation to purchase or sell, or to recommend for purchase or sale for the Account or the Investment Funds any security or instrument which the Manager or an affiliate may purchase or sell for Other Accounts. The Manager may aggregate orders for the Account and for the Investment Funds with orders for Other Accounts. Notwithstanding the foregoing, the Manager shall use its commercially reasonable efforts to cause investment opportunities to be allocated or rotated amongst its clients, including the Client, in a manner deemed equitable. To the extent a conflict of interest arises, the Manager will ensure that such transactions are effected on terms which are not materially less favourable to the Client than if the conflict or potential conflict had not existed. Any conflicts which the Manager is not able to manage effectively shall be promptly disclosed by the Manager to the Client.
12. Manager's Affiliates. Affiliates of the Manager may be dealers in equity and debt securities, and from time to time may be underwriters or dealers of securities that may be bought for, held in, or sold from the Account or the Investment Funds. With respect to each such instance, the Manager represents that all transactions that are effected for the Account or the Investment Funds will be made solely in furtherance of their respective investment goals, in accordance with the Investment Guidelines, and the fact that the Manager's affiliate is acting as an underwriter or dealer will not be a factor in the investment decision. In this regard, the Client understands that the Manager is part of a worldwide, full service investment banking, broker-dealer, asset management organization, and as such, the Manager and its affiliates (the “Firm”) and their managing directors, directors, officers and employees (“Personnel”) may have multiple advisory, transactional and financial and other interests in securities, instruments and companies that may be purchased, sold or held by the Manager for the Account. The Firm may act as adviser to clients in investment banking, financial advisory, asset management and other capacities related to instruments that may be purchased, sold or held in the Account, and the Firm may issue, or be engaged as underwriter for the issuer of, instruments that the Account may purchase, sell or hold. At times, these activities may cause departments of the Firm to give advice to clients that may cause these clients to take actions adverse to the interests of the Client. The Firm and Personnel may act in a proprietary capacity with long or short positions, in instruments of all types, including those that the Account may purchase, sell, or hold. Such activities could affect the prices and availability of the securities and instruments that the Manager seeks to buy or sell for the Account, which could adversely impact the performance of the Account. Personnel may serve as directors of companies the securities of which the Account may purchase, sell, or hold. The Firm and Personnel may give advice, and take action, with respect to any of the Firm's clients or proprietary accounts that may differ from the advice given, or may involve a different timing or nature of action taken, than with respect to any one or all of the Manager's advisory accounts, and effect transactions for such clients or proprietary accounts at prices or rates that may be more or less favorable than for the Account. The Firm and Personnel may obtain and keep any commissions and fees accruing to them in connection with their activities as agent or principal in transactions for the Account and other activities for themselves and other clients and their own accounts and the Manager's fees as set forth in this Agreement shall not be abated thereby.
13. Brokerage and Research Services. In accordance with Section 28(e) of the Securities Exchange Act of 1934, as amended, the Manager may cause the Account and the Investment Funds to pay a broker or dealer that provides brokerage and research services to the Manager an amount of commission for effecting a transaction in excess of the amount of commission that another broker or dealer would have charged for effecting that transaction, if the Manager determines in good faith that such amount of commission is reasonable in relation to the value of the brokerage and research services provided by the broker or dealer, viewed in terms of either that particular transaction or the Manager's overall responsibilities with respect to Other Accounts. These brokerage and research services may assist the Manager in rendering services to Other Accounts, and not all such services will necessarily be used in connection with the Account or a particular Investment Fund. In addition, where permitted by applicable legal and regulatory requirements, the Manager or its affiliates may execute transactions on behalf of the Account. In selecting a broker or dealer, the Manager will take into account the execution capability, financial stability, reputation, access to the market for the securities being traded and the broker’s, dealer's or other market participant's trading expertise, in addition to any other factors the Manager deems necessary.
14. Account Statements. The Manager shall promptly deliver to the Client periodic (frequency as to be agreed to between Manager and the Client) statements showing all investments of the Account and the net asset value of the units of participation of the Investment Funds held by the Account as of the close of business on the last business day of the relevant period, and such additional statements or reports, at such time or times, as the Client may reasonably request. Such reports shall be reviewed by the Client, and if no written objections are received by the Manager within 90 days of the rendering thereof, the report shall be deemed approved by the Client as to any matter shown therein, subject always to the provisions contemplated below under “Liability”.
15. Liability. The Manager shall not be liable for any loss to the Account arising out of any action taken or omitted by it in good faith in connection with the Account, except for its own fraud, willful or reckless misconduct or negligence. The Manager shall be entitled to rely on any notice, consent, or other communication, instrument or document believed by it to be genuine and correct and to have been sent by or on behalf of the Client or the Custodian. The Manager shall not be liable for and shall be indemnified and held harmless by the Client against any loss, liability or expense (including, but not limited to, reasonable counsel fees and expenses) arising out of any action taken or omitted to be taken by it, except for any loss, liability or expense primarily attributable to its own fraud, negligence or willful or reckless misconduct.
16. Fees. The Account shall be responsible for all direct, documented expenses (including, without limitation, brokerage commissions, transfer fees, registration costs, taxes and other similar transaction costs and transaction-related fees and expenses, custody or subcustody fees) incurred pursuant to this Agreement. The compensation for all investment management services hereunder shall be determined as provided in the fee schedule, attached as Schedule C hereto, (the "Fee Schedule"). For the avoidance of doubt, the compensation set forth in the Fee Schedule shall exclude the commissions, costs, taxes, fees and expenses referred to in the first sentence of this Section 17. In addition, the Client will ensure that the Custodian provides the Client a statement at least quarterly indicating all amounts disbursed from the Account, including how much has been paid directly to the Manager.
17. Confidential Information. All information and advice furnished by the Manager to the Client shall be treated as confidential by the Client and shall not be disclosed to third parties by the Client except as required by law. The Manager's name shall not be disclosed to the public or used by the Client without the prior written approval of the Manager. All client information of the Client shall be treated as confidential by the Manager and shall not be disclosed to the public by the Manager except (i) if such information is already in, or comes into, the Manager's possession as a result of activities unrelated to, or from sources other than, the Client, save in circumstances where the Manager is, or reasonably should have been, aware that such source owed a duty of confidentiality to the Client (ii) if such information is or becomes available to the public or industry sources other than as a result of disclosure by the Manager, (iii) if such disclosure is requested by or through, or related to a judicial, administrative, governmental or selfregulatory organization process, investigation, inquiry or proceeding, or otherwise required by applicable law, or (iv) in order for the Manager to carry out its responsibilities hereunder. Notwithstanding the above, and consistent with Section 6 of this Agreement, the Client authorizes disclosure by the Manager of the Client's name to (i) Brokers and dealers (including without limitation futures commission merchants if futures are permitted by the Investment Guidelines) to facilitate the Manager's trading activities on behalf of the Client, (ii) to State Street or service providers in order to perform certain middle and back office functions, and (iii) subject to prior written consent, consultants and prospective clients as part of a representative client list in connection with the completion of marketing materials. Moreover, the Client hereby authorizes the Manager to share information about the Client and the Client's account ("Client Account Data") with affiliates of the Manager (collectively with the Manager, "DeAM") from time to time for the purpose of: (i) supervising and supporting the management of DeAM's business relationship with the Client, (ii) allowing DeAM Management (or its duly authorized designees) to provide general support to all of DeAM's clients globally, (iii) allowing the Manager to share any fee related information with Manager's Affiliates as part of the referral arrangement, if any; and/or (iv) allowing DeAM Legal and Compliance to analyze regulatory and legal risk that may impact the Client, DeAM's other clients or DeAM. The Client consents to such information sharing notwithstanding the applicability of any data protection, bank secrecy or related laws or regulations which may otherwise operate to restrict the sharing of the Client Account Data. The Client is aware that as a result of such access to Client Account data, a Manager affiliate may be forced under its local law to disclose available Client information to local governmental authorities, agencies or courts. Notwithstanding the foregoing, the Manager and its Affiliates shall safeguard such information in accordance with applicable law but with no less than a reasonable standard of care.
18. Authorized Signatories. Orders, requests, certificates and instructions with respect to a particular portfolio shall be in writing and signed by an authorized person designated to sign pursuant to a Signature Authority Form in the form of Schedule D attached hereto, which shall be appended to each set of Investment Guidelines, in respect of each portfolio. The Client shall also provide a list of signatories authorized to effect this Agreement and any amendments thereto on behalf of Hamilton Insurance Group, Ltd., as well as any orders, requests, certificates and instructions with respect any portfolio established for the account of Hamilton Insurance Group, Ltd., in the form of Schedule D-1 attached hereto.
19. Termination. This Agreement shall be effective until terminated by either pai1y upon not less than 30 days' written notice to the other. If this Agreement is terminated during any period of time for which the Manager has not been compensated, the compensation due to the Manager for such period shall be prorated to the date of termination. Final transfer of the liquidated
proceeds or in-kind assets of the Account shall be made as of the date of termination to an account specified in writing by the Client, or within such period of time thereafter that may be necessitated by the withdrawal restrictions of any approved investment vehicle being used to hold assets of the Account at that date, as mutually agreed between the Parties.
20. Notices. Any notice to be given pursuant to this Agreement shall be delivered or mailed by first class mail, postage prepaid, if to the Manager:
James Richard
DWS Investment Management Americas Inc.
Global Client Group
1 International PL FL 12,
02110-2614 Boston, MA, USA
Email: james.d.richard@db.com
with a copy to Legal Department, Deutsche Asset Management 345 Park Avenue, 27th Floor, New York, NY 10154, Attention: Documentation Specialist,
and if to the Client, to the address set forth on the signature page hereto, for the attention of the General Counsel.
21. Additional Schedules. The additional schedules attached hereto shall be a part of this Agreement.
22. Assignment. Subject to Section 1 of this Agreement, no assignment of this Agreement shall be made by the Manager without the consent of the Client. For the purposes of this Agreement, the term, "assignment" shall have the meaning given it by Section 202(a)(1) of the Advisers Act.
23. Entire Agreement; Amendment. This Agreement, the Schedules and the Descriptions constitute the entire agreement between the parties with respect to the subject matter hereof. This Agreement and the Schedules attached hereto and made a part hereof may be amended at any time, but only by a written instrument executed by the parties hereto; provided, however, that (i) the Descriptions may be amended by the Manager at any time in accordance with the terms contained therein and (ii) the Investment Guidelines may be amended by the Client at any time, subject to notice of such changes being promptly provided in writing to the Manager, in accordance with the Investment Guidelines.
24. Governing Law; Jurisdiction; Venue. This Agreement shall be governed by, and the rights of the Parties arising hereunder construed in accordance with, the laws of the State of New York (without regard to conflicts of laws provisions thereof) as the same may be amended from time to time. Any legal action or proceeding with respect to this Agreement shall be brought in the courts of the State of New York located in the City of New York, Borough of Manhattan, or of the United States of America for the Southern District of New York, and, by execution and delivery of this Agreement, each party hereto hereby accepts for itself and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. The parties hereto hereby irrevocably waive any objection, including any objection to the laying of venue or based on the grounds of forum non conveniens, that any of them may now or hereafter have to the bringing of any such action or proceeding in such jurisdictions.
25. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. Delivery of an executed counterpart to this Agreement by facsimile transmission or other electronic means shall be as effective as delivery of a manually signed original.
26. Anti Money Laundering Provisions. To help the government fight the funding of terrorism and money laundering activities, US Federal law and the EU Third Money Laundering Directive require all financial institutions to obtain, verify, and record information that identifies each client that opens an account. What this means for the Client: When the Client seeks to open an account, the Manager will ask for the Client name, address, Tax ID/Employer ID number, other information that will allow the Manager to identify the Client and source of funds. The Manager will also ask for legal documents that establishes the identity of the Client. The Manager also reserves the right to ask for more information on the individuals who are signatories, legal representatives, beneficial owners or control structures reasonably required for the establishment of the Account. At a minimum the Manager will ask for the names of these individuals but may also ask for an address, date of birth, and other information that will allow the Manager to identify the signatories. The Manager may also ask to see the signatory's driver’s license or other identifying documents. Enhanced anti-money laundering requirements require that should any of the above personal or institutional information change; the Client will be immediately obligated to notify the Manager of such changes and provide the Manager with relevant documentation to verify the changes. Any personal information provided by the Client to the Manager in connection with the foregoing shall be protected by the Manager pursuant to applicable data protection laws.
27. Cross-Trading. Subject to the conflict of interest provisions contemplated herein, to the extent allowed by the law, the Manager may, from time to time, cause the Client to purchase investments from, or sell investments to, another client of the Manager.
28. Force Majeure. Neither party shall be liable to the other for any loss resulting from, or caused by, acts of governmental authorities (whether de jure or de facto), including, without limitation nationalization, expropriation and the imposition of currency restrictions; acts of war terrorism, insurrection or revolution; strikes or work stoppages the inability of a local clearing and settlement system to settle transactions for reasons beyond the control of the Custodian; hurricane, cyclone, earthquake, volcanic eruption, nuclear fusion, fission or radioactivity or other acts of God or any other circumstance not within the control of such party.
29. Warranties of Performance. Save as required by applicable laws and regulations, no warranty is given by the Manager as to the performance or profitability of the Account or any part of it. No warranty is given by the Manager as to the performance or profitability of the Account or any part of it. The Client acknowledges that any benchmarks that may be referred to in the Investment Guidelines are targets only, and the Manager shall not be liable to Client or to any third party for Manager's failure to meet or outperform any such benchmark.
30. Jury Trials. In the event of litigation in connection with this Agreement, the parties hereby waive the right to a jury trial.
31. Legal Proceedings. The Manager may, but is not required to, exercise options, conversion privileges, rights to subscribe to additional shares or other rights acquired with respect to the Account and may, but is not required to, consent to or participate in dissolutions, bankruptcies, reorganizations, consolidations, mergers, sales, leases, mortgages, transfers or other changes
affecting the Account. The Manager will not advise or act for the Client in any other legal proceedings, including class actions, involving the Account or issuers of securities held by the Client or any other matter, but shall continue to monitor, and provide advice with respect to the continued holding or selling of the assets of the Account.
32. Receipt of Form ADV. The Client hereby acknowledges that it received a copy of Part 2 of the Manager's Form ADV prior to or at the time of entering into this Agreement as required under Rule 204-3(b) of the Advisers Act.
33. Records and Reports. The Manager shall maintain such records pertaining to the furnishing of investment services to the Client under this Agreement for such period of time as may be required under the applicable law. During the term of this Agreement and for a period of three (3) years, thereafter (or such other period as may be agreed between the parties), all such records, required to be maintained, shall be subject to examination by Client and its authorized representatives during reasonable business hours upon reasonable notice. For the avoidance of doubt, and subject to Section 17, the Manager shall keep confidential the records and other information pertaining to the Client obtained or generated by reason of this Agreement.
[Signatures follow]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the 25th day of April, 2018.
| | | | | | | | |
| HAMILTON INSURANCE GROUP, LTD. |
| | |
(for itself and on behalf of its subsidiaries
and affiliates) |
| | |
| By | |
| Name: | Chad Cundliffe |
| Title: | Chief Accounting Officer |
| | |
| Address: | |
| | |
| Wellesley House North, 1st Floor |
| 90 Pitts Bay Road |
| |
| Pembroke HM08 |
| Bermuda |
| | |
| DEUTSCHE INVESTMENT |
| MANAGEMENT AMERICAS |
| INC. |
| | |
| By | |
| Name: | John F. Cassedy |
| Title: | Managing Director |
| | |
| By | |
| Name: | James D. Richard |
| Title: | Director |
Exhibit 10.22
Execution Version
PEMBROKE MANAGING AGENCY LIMITED
- and-
CONNING ASSET MANAGEMENT LIMITED
| | | | | | | | |
| | |
| AMENDED & RESTATED DISCRETIONARY INVESTMENT MANAGEMENT AGREEMENT | |
| | |
Contents
| | | | | | | | | | | |
| Clause | Page |
| | |
| 1. | DEFINITIONS AND INTERPRETATION | 5 |
| 2. | APPOINTMENT OF MANAGER | 8 |
| 3. | PORTFOLIO | 9 |
| 4. | DISCRETIONARY AUTHORITY | 9 |
| 5. | DELEGATION | 10 |
| 6. | INVESTMENT OBJECTIVES, RESTRICTIONS AND GUIDELINES | 10 |
| 7. | THE CUSTODIAN | 11 |
| 8. | VALUATIONS AND REPORTING | 12 |
| 9. | FEES, EXPENSES, RIGHT TO SET-OFF | 12 |
| 10. | TRANSACTION PROCEDURES | 12 |
| 11 | INCOME, ADDITIONS TO, AND WITHDRAWALS FROM, THE PORTFOLIO | 14 |
| 12. | LIABILITY OF THE MANAGER | 14 |
| 13. | INDEMNITY | 15 |
| 14. | FORCE MAJEURE | 16 |
| 15. | ASSIGNMENT | 16 |
| 16. | TERMINATION | 16 |
| 17. | NOTICE - COMMUNICATIONS | 17 |
| 18. | CONFIDENTIALITY | 18 |
| 19. | FREEDOM TO ACT | 19 |
| 20. | CONFLICT OF INTEREST | 19 |
| 21. | COMPLAINTS AND COMPENSATION | 21 |
| 22. | DATA PROTECTION | 21 |
| 23. | COMMUNICATIONS AND TAPING | 22 |
| 24. | MISCELLANEOUS | 22 |
| 25. | MONEY LAUNDERING | 24 |
| 26. | GOVERNING LAW AND JURISDICTION | 24 |
| | | |
| | | |
| SCHEDULE 1 Syndicates, Premiums Trust Funds and the Portfolio | 26 |
| SCHEDULE 2 Investment Objectives, Restrictions and Guidelines | 27 |
| SCHEDULE 3 Custodian | 31 |
| SCHEDULE 4 Management Fee | 32 |
| SCHEDULE 5 Authorised Signatory/ Verbal Instruction List | 34 |
| SCHEDULE 6 Deliverables: Provision of Information (Including Valuations and Reports) | 35 |
| SCHEDULE 7 General Description of Investment Risks | 37 |
| SCHEDULE 8 Associates | 39 |
THIS AGREEMENT (this “Agreement”) was originally effective on 2 November 2015 (“Effective Date”) and is hereby amended and restated as of 6 June 2018
BETWEEN:-
(1) PEMBROKE MANAGING AGENCY LIMITED whose registered office is at 8 Fenchurch Place, Level 3, London EC3M 4AJ, UK (the “Client”); and
(2) CONNING ASSET MANAGEMENT LIMITED whose registered office is at 24 Monument Street, 8th Floor, London EC3R 8AJ, UK (the “Manager”).
RECITALS
(A) The Client acts as the managing agent for various Syndicates. The Premiums Trust Funds, identified in Schedule 1, are the property of Syndicates of which the Client is managing agent and is empowered to direct the investment of the trust assets of such trust. The Client wishes to appoint the Manager as the discretionary investment manager of the cash, securities and other assets contained in the Premiums Trust Funds.
(B) The Manager is Authorised and regulated by the Financial Conduct Authority. The Manager is entered in the FCA Register with the reference number 189316. Its VAT number is 980057613.
(C) The Client wishes to be provided with investment management services and the Manager is willing to provide these on the terms and subject to the conditions of this Agreement in lieu of any other agreement which may be in force between the parties in relation to all or any of the matters referred to herein.
(D) The services to be provided by the Manager to the Client under this Agreement will be provided to the Client on the basis that the Client is a Professional Client for the purposes of the FCA Rules.
(E) This Agreement came into force on the Effective Date.
REPRESENTATIONS BY THE MANAGER
The Manager represents and warrants to, and agrees with, the Client on the Effective Date and on a continuing basis that:
(a) it is authorised and regulated by the FCA in carrying out the business of managing investments and shall remain so authorised and regulated at all times during the term of this Agreement;
(b) it is duly organised and validly existing under the laws of England and Wales; and
(c) it has the requisite power and authority to enter into this Agreement and to carry out its duties and obligations hereunder.
REPRESENTATIONS BY THE CLIENT
The Client represents and warrants to, and agrees with, the Manager on the Effective Date and on a continuing basis that:
(a) it and the Premiums Trust Funds are each duly organised and validly existing under the laws of its jurisdiction of incorporation;
(b) it has the ability to engage the Manager as a discretionary investment manager in respect of the assets of the Syndicate and to authorise the Manager to negotiate, execute, deliver and perform any agreement in connection with the provision of services under this Agreement on its behalf and to perform its obligations under any such agreements and enter into the transactions contemplated by this Agreement;
(c) it has all requisite power and authority to execute, deliver and perform its obligations under this Agreement on behalf of itself and on behalf of the Premiums Trust Funds and the transactions contemplated hereunder will be legally binding upon the Client and the Premiums Trust Funds as applicable;
(d) nothing under this Agreement shall violate or result in default under any agreement to which the Client or the Premiums Trust Funds is a party, or any statute, rule, regulation or order of a governmental authority;
(e) the assets of the Portfolio are and shall knowingly for the duration of this Agreement remain assets belonging to the Members of the Syndicate, and are free from all liens, encumbrances and charges other than those disclosed in Schedule l and no such liens, charges and encumbrances shall arise during the term of this Agreement which would prevent the Manager from exercising its powers and discretions under this Agreement; and
(f) any information or documentation provided by the Client or its agents to the Manager in relation to the Client and the Premiums Trust Funds including their respective residence, their domicile for taxation purposes is accurate, up-to-date and not misleading in any respect and the Client has notified the Manager of all such information which is reasonably relevant to the performance of the Manager’s duties under this Agreement; and the Client shall inform the Manager of any material change in this information.
THE PARTIES AGREE AS FOLLOWS:
1. DEFINITIONS AND INTERPRETATION
1.1 In this Agreement the following words and expressions shall have the following meaning unless the context otherwise requires:-
“Affiliated Company” has the meaning set out in the FCA Rules; “Associate” has the meaning set out in the Glossary of the FCA Rules;
“Base Currency” means pounds sterling;
“Best Execution Policy” means the policy of the Manager relating to the execution of orders and decisions to deal on behalf of clients as required by the FCA Rules and as amended by the Manager from time to time;
“Business Day” means a day other than a Saturday, Sunday or public holiday in England when commercial banks in London are generally open for business;
“Confidential Information” means all information or material communicated between the parties, including the terms of this Agreement, provided that Confidential Information shall exclude (a) information or material which at the time of its disclosure is, or which thereafter becomes (in each case otherwise than as a result of any act or default by the recipient), part of the public domain by publication or otherwise) (b) is disclosed by the recipient with the prior written approval of the disclosing party; (c) is independently developed by the recipient without use of confidential information; or (d) becomes available to the recipient from a source other than the disclosing party or its agents or advisors, provided that such source is not known by the recipient, after reasonable inquiry, to be bound by a confidentiality agreement with or other obligation of secrecy or confidentiality to the disclosing party;
“Conflicts of Interest Policy” means the policy of the Manager relating to the identification of conflicts of interest that arise, or may arise, when providing services and whose existence may damage the interests of clients and that specifies procedures in order to prevent or manage such conflicts as required by the FCA Rules and as amended by the Manager from time to time;
“Counterparty(ies)” means any entity which effects a transaction, executes orders or passes or places orders for execution and includes brokers, dealers, market makers, executing brokers and clearing brokers (whether acting as principal or agent);
“Custodian” means the person appointed by the Client pursuant to Clause 7 hereof;
“Data Protection Laws” means all applicable statutes and regulations in any jurisdiction pertaining to the processing of personal data, including the privacy and security of personal data;
“Delegate ‘ means any person (whether or not an Affiliated Company of the Manager) appointed by the Manager to perform any services in respect of which the Manager is appointed pursuant to Clause 5 but excluding any Counterparties or the Custodian;
“Director’’ means a member of the Board of Directors of the Manager;
“Effective Date” means the date specified at the commencement of this Agreement;
“FCA” means The Financial Conduct Authority of the United Kingdom or its successors or assigns;
“FCA Rules” means the rules and guidance contained in the handbook established by the FCA, as amended from time to time;
“Investment Objectives, Restrictions and Guidelines” means the investment objectives, restrictions and guidelines set out in Schedule 2 (as the same may be modified from time to time pursuant to Clause 6 of this Agreement) which shall include restrictions so all investments would be fully admissible for solvency as defined in the FCA handbook and the PRA handbook, each as amended from time to time. In no event may notice obligations or other requirements that are in addition to, or in conflict with, those imposed upon Manager and specified in this Agreement be imposed by the Client on Manager solely as a result of being stated in the Investment Objectives, Restrictions and Guidelines or referenced in investment policies delivered to Manager;
“Investments” includes any asset, right or interest within any paragraph in Part III of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 and any other asset, right or interest in respect of property of any kind (including cash) and, without prejudice to the foregoing, wherever situate and whether or not producing income;
“MiFID” means Directive 2014/65/EU on markets in financial instruments, Regulation (EU) No 600/2014 on markets in financial instruments, and any secondary legislation, rules, regulations and procedures made pursuant thereto;
“Multilateral Trading Facility” or “MTF” means a multilateral system set up in accordance with MiFID which brings together multiple buying and selling interests in financial instruments in accordance with non-discretionary rules in a way that results in a contract;
“Personal Data” means any information relating to an identified or identifiable natural living person;
“Portfolio” means the portfolio of assets of the Client as defined in Clause 3, including uninvested cash, as designated from time to time by the Client and subject to the management of the Manager pursuant to this Agreement;
“PRA” means the Prudential Regulation Authority or any successor regulatory body;
“Premiums Trust Funds” means the trust fund(s) established by the Syndicate(s) as identified in Schedule 1;
“Proceedings” means any suit, action or proceedings relating to any dispute arising out of or in connection with this Agreement including any dispute relating to any non-contractual obligations arising out of or in connection with this Agreement;
“Professional Client” has the meaning given to it in the FCA Rules;
“Regulated Market” means a regulated market within the meaning of the FCA Rules;
“Retail Client” has the meaning given to it in the FCA Rules; and
“Syndicate(s)” means the syndicate(s) to which the Client is managing agent.
“VAT” means value added tax as provided for in the Value Added Tax Act 1994 and any other tax of a similar nature.
In this Agreement,
1.2 references to a) any other words or phrases used which are defined in the FCA Rules shall have the same meanings in this Agreement unless the context requires otherwise; (b) regulations, statutory provisions, notices or the FCA Rules shall where the context so admits, be deemed to include those provisions, regulations, notices or rules as amended, extended, consolidated, substituted or re-enacted from time to time and (c) references to legislation, Acts of Parliament or other statutory provisions are, for the avoidance of doubt, references to United Kingdom legislation, Acts of Parliament and statutes;
1.3 references to Clauses and Schedules are, respectively, to clauses of and schedules to this Agreement; and
1.4 the headings in this Agreement are inserted only for convenience and shall not affect its construction.
2. APPOINTMENT OF MANAGER
2.1 The Client hereby appoints the Manager as investment manager, and the Manager hereby accepts the appointment, to manage the cash, securities and other assets of the Premiums Trust Funds, including income arising therefrom, as may be entrusted from time to time by the Client to the Manager in the Portfolio under the terms and conditions set forth in this Agreement with effect from the Effective Date.
2.2 The Manager may provide such other services to the Client as may be agreed between the parties. If the Manager does provide such other services, the terms of this Agreement will apply to those services to the extent possible except that fees in relation to such services will be separately agreed between the parties in advance,
2.3 For the purposes of the FCA Rules and based on information obtained in respect of the Client, the Manager has categorised the Client as a Professional Client in relation to the services provided under this Agreement. The Client hereby acknowledges that it is a Professional Client for the purposes of the FCA Rules. The Client should be aware that Professional Clients will not be entitled to certain protections afforded in the FCA Rules to Retail Clients.
2.4 The Client has the right to request that the Manager recategorise the Client as a Retail Client either generally or in specific circumstances, However, the Manager is not obligated to accede to any such requests, The Manager does not have permission to deal with Retail Clients and if the Client is recategorised as a Retail Client, this Agreement will automatically terminate on the date of such recategorisation and the provisions of Clauses 16.1 and 16.2 shall apply.
2.5 It is the Client’s responsibility to keep the Manager informed of any material changes in the Client’s circumstances that could lead to the need for recategorisation.
3. PORTFOLIO
The Portfolio shall initially be comprised of the assets identified in Schedule I, which are held by or to the order of the Custodian on behalf of the Premiums Trust Funds. Assets may be added to, or withdrawn from, the Portfolio from time to time in accordance with Clause 11 of this Agreement.
4. DISCRETIONARY AUTHORITY
4.1 Subject to the Investment Objectives, Restrictions and Guidelines and other terms and conditions hereof, the Client hereby appoints the Manager as a discretionary investment manager of the cash, securities, and other assets within the Premiums Trust Funds and such other cash, securities and other assets as may be placed under the authority of the Manager for the purposes of this Agreement from time to time and the Manager will act in good faith and with skill, care and diligence to:
(a) take any investment decisions;
(b) subscribe for, purchase, sell, exchange, convert or otherwise effect investment transactions in securities (shares, bonds, certificates, etc.) capital market instruments that are not materially issued in the form of a certificate, precious metals and foreign currencies; and
(c) procure the exercise of any corporate actions attaching to the investments in the Portfolio in accordance with the Client’s instructions, but not to vote proxies for the Client’s securities, unless otherwise agreed between the parties. In addition, the Manager does not have any obligation or responsibility with respect to any class action for which the Client may be a potential class member or claimant as a result of a security held in the Portfolio.
4.2 The Manager is authorised, subject to the Investment Objectives, Restrictions and Guidelines, to execute investment transactions with one or more securities broker/dealer firms selected in its discretion.
4.3 Except as stated in the Investment Objectives, Restrictions and Guidelines and subject to the terms of the Manager’s regulatory authorisation, there are no restrictions on the types
of Investments in which the Client wishes to invest, the markets on which the Client wishes transactions to be effected, the amount of any one investment and the proportion of the Portfolio that any one investment may constitute.
4.4 The Client acknowledges receipt of a general description of the nature and risks of the Investments in respect of which the Manager will provide services under the terms of this Agreement, as set out in Schedule 7.
5. DELEGATION
5.1 The Client hereby consents to the delegation by the Manager of discretionary authority in respect of the management of parts of the Portfolio to such Associates of the Manager that are specified in Schedule 8 (as may be amended by agreement in writing between the parties from time to time).
5.2 The Manager may appoint or retain any person (whether an Affiliated Company or non Affiliated Company) to perform any other aspect of the services under this Agreement that does not amount to investment decision-making without prior reference to the Client.
5.3 Unless otherwise agreed with the Client and subject to Clause 9, the Manager shall be responsible for the fees and charges of any person appointed or retained under this Clause 5.
6. INVESTMENT OBJECTIVES, RESTRICTIONS AND GUIDELINES
6.1 The Client may from time to time amend the Investment Objectives, Restrictions and Guidelines by written notification to the Manager. Amendments may include, but are not restricted to;
(a) inclusion or exclusion of specified classes of assets;
(b) limitation of the amounts to be invested in specified classes of Investments;
(c) limitation as to certain counterparties;
(d) other restrictions of any reasonable nature.
6.2 Upon receipt of such written notification, the Manager shall, within a reasonable period of time, as agreed between the Client and the Manager, invest, realise or reinvest the relevant parts of the Portfolio in order to comply with the Client’s instructions, it being understood that existing trading commitments have to be fulfilled by the Manager on behalf of the Client.
6.3 The Manager will keep under review the Investment Objectives, Restrictions and Guidelines and may, from time to time, suggest to the Client such amendments as, in the Manager’s opinion, might be appropriately made to them.
7. THE CUSTODIAN
7.1 The Client has entered into an agreement with a Custodian for the holding and safekeeping of all of the cash and securities and other assets in the Portfolio or belonging to the Syndicate on terms reasonably acceptable to the Manager. The details of such Custodian are set out at Schedule 3 to this Agreement. The Manager shall at no time hold or be responsible for any assets belonging to the Client or the Premiums Trust Funds. The Client acknowledges that it has been and will be solely responsible for the selection, appointment, monitoring and supervision of the Custodian and for any services the Custodian provides to the Client and the Premiums Trust Funds including, without limitation, cash management services, stocklending and repo services and foreign exchange services.
7.2 For the avoidance of doubt, the Client acknowledges and agrees that the Manager shall not be liable for any act of default on the part of the Custodian, who shall (a) have sole responsibility for the safe-keeping of the assets comprising the Portifolio on behalf of the Client and the Premiums Trust Funds, including their registration and the retention of any documents of title and (b) hold the official books and records of the Syndicate and the Manager is not engaged to provide such official books and records nor to be responsible for any reconciliation of assets in relation to the Syndicate.
7.3 If the Client wishes to terminate its arrangements with the Custodian and appoint a new Custodian, it shall first give the Manager not less than 30 days prior written notice of any such proposed change and shall not effect any such change until it has the written consent
of the Manager (not to be unreasonably delayed or withheld). The Client shall ensure that at or before the time of appointment of a new Custodian it shall supply to the Manager details relating to the Custodian in the form set out at Schedule 3 hereto and ensure that the terms of its agreement with the new Custodian will comply with the terms of this Clause 7.
7.4 The Custodian agreement with the Client relating to the custody of the Investments belonging to the Syndicate shall include provisions:
(a) authorising the Custodian to open bank accounts in the name of the Client on the Manager’s instruction and to act on the instructions of the Manager in respect of payments to and from such accounts, deliveries, receipts, voting and other rights attached to Investments contained in the Portfolio and any other matters connected with the Portfolio, provided that cash and securities may not be transferred to accounts other than in the name of the Client; and
(b) instructing the Custodian to provide the Manager with such periodic statements concerning the status of the Portfolio, as the Manager may request from time to time and promptly notifying the Manager of all corporate actions and other events affecting the investments in the Portfolio of which the Custodian has received notice by passing or copying such notices to the Manager.
8. VALUATIONS AND REPORTING
8.1 The initial composition of the Portfolio has been provided to the Manager, as set out at Schedule 1 hereto.
8.2 The Manager shall provide the Client with the reports and valuations at the times and of the types set out in Schedule 6.
8.3 The Base Currency shall be used in the valuation statement. Assets and investments in other currencies shall be translated into that currency for valuation purposes at the rate of exchange shown in data sources used by the Manager.
9. FEES, EXPENSES, RIGHT TO SET-OFF
9.1 The Client shall pay a fee for the services rendered by the Manager pursuant to this Agreement, as specified in Schedule 4. The Manager shall be responsible for payment from its fee of its costs and incurred expenses in carrying out its duties hereunder (including those of its delegates) save that the Manager shall be entitled to be reimbursed by the Client for any third party fees, costs and expenses incurred by it in relation to the Portfolio subject to the prior agreement of the Client. For the avoidance of doubt, dealing costs and commissions payable in relation to the management of the Portfolio will be deducted from the Portfolio.
10. TRANSACTION PROCEDURES
10.1 The Manager will act in good faith and with due diligence in its choice of Counterparties. A list of Counterparties can be provided to the Client on request.
10.2 The Manager’s Best Execution Policy has been provided to the Client and the Client confirms receipt thereof before, or at the time of, signing this Agreement and the Client consents to the Manager’s use of its Best Execution Policy.
10.3 Subject to Clause 10.4, in effecting transactions for the Portfolio, the Manager will at all times comply with its Best Execution Policy and in particular act in the best interests of the Client. The Client agrees that the Manager may trade outside of a Regulated Market or MTF. All transactions will be effected in accordance with the rules and regulations of the relevant market or exchange, and the Manager may take all such steps as may be required or permitted by such rules and regulations and/or by appropriate market practice.
10.4 The Client acknowledges that specific Instructions in relation to the execution of orders may prevent the Manager from following its Best Execution Policy.
10.5 To the extent that the Manager places a Limit Order on behalf of the Client with a broker for execution by that broker, the Client expressly instructs the Manager not to make public the details of that Limit Order unless the Manager considers, in its absolute discretion, that it is appropriate for such details to be made public.
10.6 Where a transaction is effected in breach of the Investment Objectives, Restrictions and Guidelines or is otherwise prohibited under this Agreement, subject to Clause 10.3, the Manager or one of its Affiliated Companies may act as principal in executing a transaction with the Portfolio to correct the error.
10.7 The Client acknowledges that certain of its transactions may be subject to the provisions of MiFID, which applies certain transaction and position reporting obligations directly on the Client in respect of the assets in the Portfolio, including, but without limitation, the procurement of a valid Legal Entity Identifier. The Client undertakes to provide in a timely fashion all such information (including, but not limited to, the Client’s Legal Entity Identifier) and documentation and to promptly take all such action as the Manager may from time to time reasonably require in relation to the MiFID transaction and position reporting obligations.
10.8 The Client acknowledges that certain information about transactions the Manager wishes to and does enter into on the Client’s behalf may be made public and that the Manager will be required to report the details of certain transactions to the FCA, in some cases, via third parties, in accordance with applicable law.
11. INCOME, ADDITIONS TO, AND WITHDRAWALS FROM, THE PORTFOLIO
11.1 All income, including interests, fees, commissions, dividends, etcetera arising from the investment of the Portfolio shall be added to the Portfolio.
11.2 The Client may from time to time add assets to the Portfolio. Any such transfers to the Portfolio shall be made in accordance with the principles set forth in Schedule 2, and shall be deemed effective when the Custodian is authorised to receive instructions from the Manager or its delegates as to these assets or funds.
11.3 Withdrawals from the Portfolio can be made at any time under clear written or oral instruction by the Client to the Manager in accordance with Clause 17. If instruction is made orally, the Client will confirm this instruction in writing within two Business Days. The Manager shall comply with the Client’s instructions as soon as practicable, it being
understood that existing trading commitments have to be fulfilled by the Manager or its delegates on behalf of the Client.
12. LIABILITY OF THE MANAGER
12.1 No claim shall be made against the Manager or any Associate or any of their respective officers or employees to recover damages, losses, costs or expenses (“Loss”) which the Client may suffer or incur by reason of, or arising out of, the carrying out by the Manager or Associate on its behalf of its performance of duties or obligations and services under this Agreement unless such Loss is directly caused by the negligence, wilful default or fraud of the Manager or Associate or their directors, officers or employees in providing the services under this Agreement.
12.2 The Manager accepts no liability (whether in negligence or otherwise) and shall owe no obligation to indemnify the Client for (a) any negligence, wilful misconduct or fraud of the Client or any Associate that is proved to directly contribute to a Loss or (b) for any default or non-performance by the Client or the Custodian or any counterparties or brokers, provided that the Manager has not acted negligently or in bad faith in selecting or using the services of any such counterparty. If any broker or counterparty selected by the Manager should fail to deliver any necessary documents or fail to account for any transaction or Investments, the Manager shall (with the Client’s prior written approval) take such steps on the Client’s behalf as appear to the Manager to be reasonable to recover such documents or Investments, or any sums due, or compensation in lieu thereof, but (subject to any liability under the clause above and this clause) shall not be liable for such failure if commercially reasonable steps are taken. All reasonable costs and expenses properly incurred by the Manager shall be charged to the Portfolio except any circumstances where the Manager shall be deemed negligent, in bad faith or otherwise responsible for the costs incurred, in which case, any such costs shall be borne by the Manager for its own account.
12.3 Nothing in the Agreement shall exclude or restrict any liability or duty which the Manager may have to the Client under the Financial Services and Markets Act 2000 as amended or the FCA Rules.
12.4 The Manager shall not be deemed in breach of the Investment Objectives, Restrictions and Guidelines to the extent such breach was brought about as a result of changes in the price or value of assets or by occurrences in the market.
12.5 Any breach of the Investment Objectives, Restrictions and Guidelines shall be notified to the Client promptly, and in any event within three Business Days, after the Manager becomes aware of it. Following such notification, where the Manager is deemed to be negligent, in bad faith or otherwise responsible for such breach, the Manager shall, at its own expense, use its reasonable endeavours to rectify the breach to the Client’s reasonable satisfaction as soon as reasonably practicable.
12.6 No warranty is given by the Manager as to the performance or profitability of the Portfolio or any part of it and, for the avoidance of doubt, the Manager shall not be liable in respect of any failure to meet any performance targets that are specified in Schedule 2.
13. INDEMNITY
13.1 The Client shall indemnify the Manager and each of its Associates and its and their employees (and the Manager contracts in this respect both for itself and as agent for its Associates and its and their employees) and keep the Manager and each of its Associates and its and their employees indemnified against any costs, claims, demands or proceedings made by any person and in any way arising from the appointment of the Manager hereunder or the performance by the Manager or any of its Associates or delegates or its or their employees of acts or duties in connection with this appointment save to the extent such costs, claims, demands or proceedings are caused by the fraud, wilful default or negligence on the part of the Manager or its employees.
13.2 Any indemnity given to the Manager or any Delegate under this Agreement is in addition to, and without prejudice to, any indemnity allowed to the Manager or any Delegate under applicable law.
14. FORCE MAJEURE
14.1 The Manager shall not be liable for any loss or damage resulting from facts, events or circumstances not reasonably within the Manager’s control, including, but not limited to industrial disputes, acts or regulations of any governmental or supranational authority or securities exchanges or the breakdown failure or malfunction of any telecommunications or computer service, as long as the Manager has taken all steps as can reasonably be expected to avoid or minimise such loss or damage.
15. ASSIGNMENT
15.1 Without prejudice to the delegation provisions contained in Clause 5, no party shall assign any rights or obligations arising out of this Agreement to any third party without the prior written consent of the other party, such consent not to be unreasonably withheld, except that the Manager may assign its rights and obligations arising out of this Agreement, to any Associate of the Manager by giving the Client notice which shall specify a date upon which the assignment shall become effective.
16. TERMINATION
16.1 This Agreement may be terminated by:
(a) the Client by giving 30 days prior written notice to the Manager; or
(b) the Manager by giving 90 days prior written notice to the Client.
16.2 On notice of termination, the Manager shall, unless directed otherwise by the Client, continue to manage the Portfolio until the termination date stated in the written notice, and is authorised in any event to arrange for the retention and/or realisation of such assets as may be required to settle transactions entered into prior to the actual date of termination, and to pay outstanding liabilities of the Client or to procure that such liabilities are paid.
16.3 The Client shall pay any additional expenses necessarily incurred by the Manager or an Affiliated Company to whom delegated responsibility for Client Investments has been made, by reason of the termination of the Agreement, pursuant to Clause 16.1 above, and shall bear any losses necessarily realised by the Manager in selling or concluding outstanding obligations previously undertaken in accordance with this Agreement.
16.4 Upon termination, the Client shall pay the Manager all fees and other amounts accrued and due (subject to interest on overdue amounts in accordance with Schedule 4).
17. NOTICE- COMMUNICATIONS
17.1 Any notice, advice or report to be given pursuant to this Agreement shall be delivered by hand, sent by first class pre-paid post or sent by email to:
| | | | | | | | |
| If to the Client: Iain Lever Chief Financial Officer Pembroke Managing Agency Limited 8 Fenchurch Place Level 3 London EC3M 4AJ UK Email: iain.lever@ironshore.com | If to the Manager: Russell Büsst Chief Executive Officer Conning Asset Management Limited 24 Monument Street 8th Floor London EC3R SAJ UK Email: russell.busst@conning.com |
| | |
| | With copy to: conning.ukdocuments@conning.com |
| | |
| | In the case of complaints under Clause 21: |
| | |
| | Compliance Officer
Conning Asset Management Limited
24 Monument Street
8th Floor
London EC3R SAJ UK
Email: Louisa.Gjertsen@conning.com |
17.2 The notice shall be deemed to have been received by the recipient:
(a) in the case of delivery by hand, when delivered;
(b) in the case of first class pre-paid inland post, on the day following the day of posting;
(c) in the case of air mail, on the fifth day following the day of posting;
(d) in the case of facsimile, on acknowledgement by the recipient facsimile receiving equipment on a Business Day if such acknowledgement occurs before 5:00 p.m. local time of the recipient on the Business Day of acknowledgement, and in any other case on the next Business Day following the Business Day of acknowledgement; or
(e) in the case of email, on receipt of an automated delivery receipt or confirmation of receipt from the relevant server.
17.3 Instructions and other communications shall be given by the Client in writing, by letter, fax or email, to the Manager at its registered address or at such other address or fax number as may be notified by the Manager to the Client for the purposes of this Agreement.
17.4 The Manager shall be entitled to rely, without independent verification, on the accuracy and completeness of all information and on the instructions of any person who is a person authorised to act as the Client’s representatives in accordance with Schedule 5.
17.5 The Manager is entitled to communicate with, provide advice to, and receive instructions from, the Client’s acknowledged representatives by telephone and email, except where communication in writing is required under this Agreement. Telephone conversations between the Manager and the Client may be recorded.
17.6 Any instruction given by the Client to the Custodian shall be copied and immediately forwarded by the Client to the Manager.
18. CONFIDENTIALITY
18.1 Each party shall treat Confidential Information as confidential and shall not disclose such information except as (a) required by applicable law, (b) requested by competent regulatory or fiscal authorities, (c) a court or tribunal of competent jurisdiction or (d) or disclosed in confidence to its advisers and auditors where reasonably necessary for the performance of their professional services; provided that the Manager may disclose information it receives from or on behalf of the Client to Delegates and Associates as well as assignees officers and employees of the Manager in the course of providing the investment management and
accounting services to the Client under this Agreement, and the Manager may publicly disclose the fact that the Client is a client of the Manager.
18.2 Confidential Information shall remain confidential for a period of two (2) years from the termination date of this Agreement.
18.3 In providing the services under this Agreement, neither the Manager, its Associates nor a Delegate shall be obliged to disclose or to take into consideration (or to require any third party to disclose or take into consideration) any information:
(a) the disclosure or use of which might breach any prohibition, duty or confidence to any other person or arising under any applicable law;
(b) which comes to the notice of an employee, officer or agent of the Manager, its Associates or a Delegate, but properly does not come to the actual notice of an individual managing the Portfolio; or
(c) relating to the nature or extent of any interest the Manager or any Associate has in any investments.
19. FREEDOM TO ACT
19.1 The services of the Manager to the Client herein shall not be exclusive and the Manager shall be free to render similar services to others and nothing in this Agreement shall preclude the Manager from having dealings with or on behalf of the Client either on its own account or on account of its clients or others or make it accountable to the Client in respect of any profit or commission from any such dealings.
20. CONFLICT OF INTEREST
20.1 The Manager may, without prior reference to the Client, effect transactions in which the Manager or one or more of its Associates or another client of the Manager or of an Associate has, directly or indirectly, a material interest or a relationship of any description with another party, which involves or may involve a potential conflict with the Manager’s duty to the Client. The Manager will ensure that such transactions are effected on terms
which are not materially less favourable to the Client than if the conflict or potential conflict had not existed. Any conflicts which the Manager is not able to prevent or manage effectively shall be promptly disclosed by the Manager to the Client.
20.2 Except as required by the FCA Rules, neither the Manager nor any Associate shall be liable to account to the Client for any Manager’s or Associate’s profit, commission or remuneration made or received from or by reason of such transactions or any connected transactions nor will the Manager’s fees, unless otherwise provided, be abated.
20.3 The Conflicts of Interest Policy sets out the types of actual or potential conflicts of interest which affect the Manager’s business and provides details of how these are identified, prevented or managed. A summary of the Conflicts of Interest Policy has been separately notified to the Client. Further details of the Conflicts of Interest Policy are available to the Client on request.
20.4 In accordance with the FCA Rules the Manager will notify the Client that such potential conflicting interests or duties may arise because:
(a) the Manager or an Associate undertakes investment business for other clients;
(b) a Director or employee of the Manager, or of an Associate, is on the Board of, holds or deals in securities of, or is otherwise interested in any company whose securities are held or dealt in on behalf of the Client;
(c) a transaction is effected in securities listed by an Associate or the customer of an Associate;
(d) a transaction is effected in units or shares of collective investment schemes or companies which the Manager or an Associate is the manager or adviser;
(e) the Manager may effect transactions involving placings and/or new issues with an Associate who may be acting as principal or receiving agent’s commission;
(f) a transaction is effected in securities of a company for which the Manager or an Associate has underwritten, or managed or arranged an issue or offer for sale within the previous 12 months;
(g) a transaction is effected in securities in respect of which the Manager or an Associate, or a Director or employee of the Manager or an Associate, is contemporaneously trading or has traded on its own account or has either a long or short position; or
(h) the Manager may act as agent for the Client in relation to transactions in which it is also acting as agent for the account of other clients and/or Associates.
20.5 The Manager will act as the agent of the Client, who will therefore be bound by its actions under this Agreement taken on the Client’s behalf in accordance with the terms of this Agreement. Nevertheless, nothing in this Agreement, none of the services to be provided hereunder nor any other matter shall:
(a) oblige the Manager or any Associate to accept responsibilities more extensive than those set out in this Agreement; or
(b) give rise to any fiduciary or equitable duties which would prevent or hinder the Manager, or any Associate, from either:
i. performing the services pursuant to this Agreement; or
ii. effecting transactions with or for the Client.
20.6 The Manager may from time to time, without prior reference to the Client pay from the fees agreed pursuant to Schedule 4 sums to Associates or other persons (a) who have introduced the Client to the Manager and/or (b) in respect of particular Investments or transactions in Investments forming part of the Portfolio.
21. COMPLAINTS AND COMPENSATION
21.1 The Manager maintains procedures in accordance with the FCA’s rules for the consideration and handling of client complaints. All complaints should be made in the first
instance in writing to the Manager’s Compliance Officer in accordance with Clause 17. Complaints will be considered promptly by the Compliance Officer in conjunction with a Director of the Manager or a designee who is not personally involved in the subject matter of the complaint.
21.2 If the Client makes a valid claim against the Manager in respect of the services provided under this Agreement, and the Manager is unable to meet its liabilities in full, the Client is not entitled to redress from the Financial Services Compensation Scheme. Under FCA Rules eligible complainants have the right to make a claim for compensation under the Financial Services Compensation Scheme in respect of any inability of the Manager to satisfy a claim made against it by the Client. However, the Manager does not categorise the Client as being an eligible complainant. Therefore the Compensation Scheme does not apply. Should this change the Client should inform the Manager immediately.
22. DATA PROTECTION
22.1 Each party will comply with Data Protection Laws.
22.2 In order to provide the services the Manager or a Delegate may need to
(a) communicate with the Client’s trustees, owners, officers and employees (“Client Contacts”) in relation to the services;
(b) process identification details of the Client Contacts in order to confirm their identities;
(c) check such Personal Data against databases of individuals who are subject to sanctions, classified as “politically exposed persons” or have committed crimes and to follow up any suspicions to ensure that the Manager complies with its anti-money laundering and terrorism obligations and to avoid fraud itself;
(d) record or monitor communications as set out in Clause 23;
(e) use such Personal Data to meet the Manager’s compliance and regulatory duties;
(f) transfer such Personal Data outside the European Economic Area and the UK and disclose it to anti-fraud organisations and law enforcement or regulatory agencies anywhere in the world,
and the Manager will be acting as a data controller in respect of such processing.
22.3 Where the Client provides the Manager with Client Contact details or where requested to do so by the Manager, the Client will notify such individuals that the Manager may need to process their Personal Data for the purposes set out in Clause 22.2.
22.4 The Manager will maintain a data protection fair processing notice on its website (currently located at https://www.conning.com/-/media/marketingsite/documents/disclosures/ conning--fair-processing-notice.pdf) setting out the details of such processing and all other information required by, and in compliance with, Data Protection Laws, which the Client will also refer Client Contacts to when it makes a notification under Clause 22.3.
22.5 For the avoidance of doubt, except as set out above, the Manager shall be responsible for providing notices and obtaining any consents in relation to any processing of Client Contacts’ Personal Data, including in relation to marketing.
23. COMMUNICATIONS AND TAPING
23.1 Subject to compliance with applicable law, either party may record telephone conversations with the other. The Manager may record or monitor telephone conversations and other communications with or by the Client (including mails, emails or documentation of client orders made at meetings). The Client agrees that the Manager may deliver copies or transcripts of such recordings to any court or competent authority. A copy of any such conversations with the Client and communications with the Client will be available on request for a period of five years (or, where requested by the FCA, for a period of up to seven years) from the date when the record is made.
23.2 The Manager will communicate with the Client in English and, subject to Clause 17, will communicate with the Client as considered appropriate, including through the Manager’s website, by email or otherwise. The Client hereby consents to receiving communications
and reports under this Agreement (including but not limited to valuations) electronically online via the Manager’s secure client website (https://my.conning.com/conningportal/login.aspx). The Client understands that if documents are only available online the Client will not receive a printed version. A paper copy of such communications and reports will be available to the Client upon request.
24. MISCELLANEOUS
24.1 The Agreement, including Schedules 1 to 8 constitutes the entire agreement of the parties with respect to the management of the Portfolio, and supersedes any and all other proposals, understandings, and agreements between the Client and the Manager with respect to the subject matter hereof.
24.2 Unless otherwise provided under this Agreement, any amendments to, or alterations of, this Agreement shall not be binding unless produced in writing, signed by the parties except that:
(a) the Manager may amend the Agreement in order to comply with, or to make the Agreement consistent with, any legal or regulatory requirements or changes to which the Manager may be subject by providing a written notice to the Client of such amendment;
(b) the Client may from time to time notify the Manager in writing of any changes to the Authorised Persons; and
(c) either party may amend their contact details in Clause 17.1 by providing written notice to the other party of such amendment.
Any amendment under sub-Clauses (a), (b) and (c) shall take effect on the date specified in the written notice.
24.3 If any provision of this Agreement should, for any reason be held to be invalid, illegal or unenforceable, then such provision shall not invalidate the entire Agreement. Such provisions shall be deemed to be modified to the extent necessary to render it legal, valid and enforceable, and if no such modifications shall render it legal, valid and enforceable,
then this Agreement shall be construed as if not containing such provision, and the rights and obligations of the parties shall be construed and enforced accordingly.
24.4 If, by reason of its investment management activities, the Manager obtains material non public information, the Client understands and acknowledges that the Manager cannot and does not make any investment decisions in respect to the Portfolio based upon such information.
24.5 This Agreement may be executed in two or more counterparts, each of which when executed is deemed to be an original and all of which together are deemed to be one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including PDF or any electronic signature complying with the U.K. Electronic Communications Act 2000 (c.7)) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
24.6 The Manager is not responsible for the Client’s compliance with tax legislation, whether with regard to payment of taxes, reporting or any other matter. Notwithstanding the foregoing, the Manager or any delegate may deduct or withhold from payments all forms of taxes if obliged to do so under any applicable regulation in any jurisdiction. The Client undertakes promptly to pay or reimburse to the Manager or any delegate any shortfalls with respect to payments for taxes to be paid or paid by the Manager or any delegate on behalf of the Client.
24.7 The Client acknowledges that advice given or investments made by the Manager hereunder may extend to investments in unregulated collective investment schemes.
24.8 A person who is not a party to this Agreement has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Agreement but this does not affect any right or remedy which exists or is available apart from that Act.
24.9 No failure on the part of a party to exercise, nor delay by it in exercising, any right or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise or any right or remedy preclude any other further exercise of that right or
remedy or the exercise of any other right or remedy. The rights and remedies provided in this Agreement are cumulative and not exclusive of any rights or remedies provided by law.
24.10 So far as permitted by law, and except in the case of fraud, the Client agrees and acknowledges that its only rights and remedies shall be for breach of the terms of this Agreement, to the exclusion of all other rights and remedies including those in tort or arising under statute.
25. MONEY LAUNDERING
25.1 The Manager reserves the right to seek such information from the Client as it considers necessary to comply with any applicable legal and regulatory requirements to counter money laundering. In the course of delay or failure to provide satisfactory information, the Manager may take such action (including refusal to accept instructions from the Client in relation to the Portfolio) as it thinks fit.
26. GOVERNING LAW AND JURISDICTION
26.1 This Agreement and any dispute or claim (including non-contractual disputes or claims) arising out of or in connection with it or its subject matter or formation shall be governed by and construed in accordance with the laws of England and Wales.
26.2 The parties agree that the English courts are to have exclusive jurisdiction, and that no other court is to have jurisdiction to:
(a) determine any Proceedings; and
(b) grant interim remedies, or other provisional or protective relief.
Each party irrevocably submits to the exclusive jurisdiction of the English courts in respect of such Proceedings and waives any objection to any such Proceedings in such courts on the grounds of venue, waives any claim that Proceedings brought in such courts have been brought in an inappropriate or inconvenient forum and further waives the right to object,
with respect to such Proceedings, that such courts do not have any jurisdiction over such party.
The parties have executed this Agreement on the respective dates specified below with effect from the Effective Date.
| | | | | | | | | | | | | | | | | | | | | | | |
| SIGNED by: | | | Name: Iain G. Lever | |
| for and on behalf of: | | | |
| PEMBROKE MANAGING AGENCY LIMITED | | Title: Finance Director | |
| | | | | | |
| | | | | | |
| | | | | | |
| SIGNED by: | | | Name: | | |
| for and on behalf of: | | | | |
| CONNING ASSET MANAGEMENT | | Title: | | |
| LIMITED | | | | | |
Exhibit 10.23
Execution Version
IRONSHORE EUROPE DAC
- and -
CONNING ASSET MANAGEMENT LIMITED
DISCRETIONARY
INVESTMENT MANAGEMENT
AGREEMENT
Contents
| | | | | | | | |
| Clause | Page |
| | |
| 1. | DEFINITIONS AND INTERPRETATION | 4 |
| 2. | APPOINTMENT OF MANAGER | 7 |
| 3. | PORTFOLIO | 8 |
| 4. | DISCRETIONARY AUTHORITY | 8 |
| 5. | DELEGATION | 9 |
| 6. | INVESTMENT OBJECTIVES, RESTRICTIONS AND GUIDELINES | 10 |
| 7. | THE CUSTODIAN | 10 |
| 8. | VALUATIONS AND REPORTING | 11 |
| 9. | FEES, EXPENSES, RIGHT TO SET-OFF | 12 |
| 10. | TRANSACTION PROCEDURES | 12 |
| 11. | INCOME, ADDITIONS TO, AND WITHDRAWALS FROM, THE PORTFOLIO | 13 |
| 12. | LIABILITY OF THE MANAGER | 13 |
| 13. | INDEMNITY | 15 |
| 14. | FORCE MAJEURE | 15 |
| 15. | ASSIGNMENT | 15 |
| 16. | TERMINATION | 15 |
| 17. | NOTICE — COMMUNICATIONS | 16 |
| 18. | CONFIDENTIALITY | 18 |
| 19. | FREEDOM TO ACT | 18 |
| 20. | CONFLICT OF INTEREST | 18 |
| 21. | COMPLAINTS AND COMPENSATION | 20 |
| 22. | DATA PROTECTION | 20 |
| 23. | COMMUNICATIONS AND TAPING | 21 |
| 24. | MISCELLANEOUS | 22 |
| 25. | MONEY LAUNDERING | 23 |
| 26. | GOVERNING LAW AND JURISDICTION | 24 |
| | | | | |
| SCHEDULE 1 Portfolio | 25 |
| SCHEDULE 2 Investment Objectives, Restrictions and Guidelines | 26 |
| SCHEDULE 3 Custodian | 29 |
| SCHEDULE 4 Management Fee | 30 |
| SCHEDULE 5 Authorised Signatory / Verbal Instruction List | 32 |
| SCHEDULE 6 Deliverables: Provision of Information (Including Valuations and Reports) | 33 |
| SCHEDULE 7 General Description of Investment Risks | 35 |
| SCHEDULE 8 Associates | 38 |
THIS AGREEMENT (this “Agreement”) is made on 1 July 2019 (“Effective Date”) BETWEEN:-
(1) IRONSHORE EUROPE DAC whose registered office is at 2 Shelbourne Buildings, Shelbourne Road, Ballsbridge, Dublin 4 Ireland (the “Client”); and
(2) CONNING ASSET MANAGEMENT LIMITED whose registered office is at 24 Monument Street, 8th Floor, London EC3R 8AJ, UK (the “Manager”).
RECITALS
(A) The Manager is Authorised and regulated by the Financial Conduct Authority. The Manager
is entered in the FCA Register with the reference number 189316. Its VAT number is 980057613.
(B) The Client wishes to be provided with investment management services and the Manager is
willing to provide these on the terms and subject to the conditions of this Agreement in lieu of any other agreement which may be in force between the parties in relation to all or any of the matters referred to herein.
(C) The services to be provided by the Manager to the Client under this Agreement will be provided to the Client on the basis that the Client is a Professional Client for the purposes of the FCA Rules.
(D) This Agreement will come into force on the Effective Date.
THE PARTIES AGREE AS FOLLOWS:
I. REPRESENTATIONS BY THE MANAGER
The Manager represents and warrants to, and agrees with, the Client on the Effective Date and on a continuing basis that:
(a) it is authorised and regulated by the FCA in carrying out the business of managing investments and shall remain so authorised and regulated at all times during the term of this Agreement;
(b) it is duly organised and validly existing under the laws of England and Wales; and
(c) it has the requisite power and authority to enter into this Agreement and to carry out its duties and obligations hereunder.
II. REPRESENTATIONS BY THE CLIENT
The Client represents and warrants to, and agrees with, the Manager on the Effective Date and on a continuing basis that:
(a) it is duly organised and validly existing under the laws of its jurisdiction of incorporation;
(b) it has the ability to engage the Manager as a discretionary investment manager in respect of the assets of the Portfolio and to authorise the Manager to negotiate, execute, deliver and perform any agreement in connection with the provision of services under this Agreement on its behalf and to perform its obligations under any such agreements and enter into the transactions contemplated by this Agreement;
(c) it has all requisite power and authority to execute, deliver and perform its obligations under this Agreement and the transactions contemplated hereunder will be legally binding upon the Client;
(d) nothing under this Agreement shall violate or result in default under any agreement to which the Client is a party, or any statute, rule, regulation or order of a governmental authority;
(e) the assets of the Portfolio are and shall knowingly for the duration of this Agreement remain assets belonging to the Client, and are free from all liens, encumbrances and charges other than those disclosed in Schedule l and no such liens, charges and encumbrances shall arise during the term of this Agreement which would prevent the Manager from exercising its powers and discretions under this Agreement; and
(f) any information or documentation provided by the Client or its agents to the Manager in relation to the Client including its domicile for taxation purposes is accurate, up-to-date and not misleading in any respect and the Client has notified the Manager of all such information which is reasonably relevant to the performance of the Manager’s duties under this Agreement; and the Client shall inform the Manager of any material change in this information.
1. DEFINITIONS AND INTERPRETATION
1.1 In this Agreement the following words and expressions shall have the following meaning unless the context otherwise requires:-
“Affiliated Company” has the meaning set out in the FCA Rules;
“Associate” has the meaning set out in the Glossary of the FCA Rules;
“Base Currency” means US Dollars;
“Best Execution Policy” means the policy of the Manager relating to the execution of orders and decisions to deal on behalf of clients as required by the FCA Rules and as amended by the Manager from time to time;
“Business Day” means a day other than a Saturday, Sunday or public holiday in England when commercial banks in London are generally open for business;
“Confidential Information” means all information or material communicated between the parties, including the terms of this Agreement, provided that Confidential Information shall exclude information or material which at the time of its disclosure is, or which thereafter becomes (in each case otherwise than as a result of any act or default by the recipient) (a) part of the public domain by publication or otherwise; (b) is disclosed by the recipient with the prior written approval of the disclosing party; (c) is independently developed by the recipient without use of confidential information; or (d) becomes available to the recipient from a source other than the disclosing party or its agents or advisors, provided that such source is not known by the recipient, after reasonable inquiry, to be bound by a confidentiality agreement with or other obligation of secrecy or confidentiality to the disclosing party;
“Conflicts of Interest Policy” means the policy of the Manager relating to the identification of conflicts of interest that arise, or may arise, when providing services and whose existence may damage the interests of clients and that specifies procedures in order to prevent or manage such conflicts as required by the FCA Rules and as amended by the Manager from time to time;
“Counterparty(ies)” means any entity which effects a transaction, executes orders or passes or places orders for execution and includes brokers, dealers, market makers, executing brokers and clearing brokers (whether acting as principal or agent);
“Custodian” means the person appointed by the Client pursuant to Clause 7 hereof;
“Data Protection Laws” means all applicable statutes and regulations in any jurisdiction pertaining to the processing of Personal Data, including the privacy and security of Personal Data;
”Delegate” means any person (whether or not an Affiliated Company of the Manager) appointed by the Manager to perform any services in respect of which the Manager is appointed pursuant to Clause 5 but excluding any Counterparties or the Custodian;
“Director” means a member of the Board of Directors of the Manager;
“Effective Date” means the date specified at the commencement of this Agreement;
“FCA” means The Financial Conduct Authority of the United Kingdom or its successors or assigns;
“FCA Rules” means the rules and guidance contained in the handbook established by the FCA, as amended from time to time;
“Investment Objectives, Restrictions and Guidelines” means the investment objectives, restrictions and guidelines set out in Schedule 2 (as the same may be modified from time to time pursuant to Clause 6 of this Agreement) which shall include restrictions so all investments would be fully admissible for solvency as defined by the Central Bank of Ireland, . In no event may notice obligations or other requirements that are in addition to, or in conflict with, those imposed upon Manager and specified in this Agreement be imposed by the Client on Manager solely as a result of being stated in the Investment Objectives, Restrictions and Guidelines or referenced in investment policies delivered to Manager;
“Investments” includes any asset, right or interest within any paragraph in Part III of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 and any other asset, right or interest in respect of property of any kind (including cash) and, without prejudice to the foregoing, wherever situate and whether or not producing income;
“MiFID” means Directive 2014/65/EU on markets in financial instruments, Regulation (EIJ) No 600/2014 on markets in financial instruments, and any secondary legislation, rules, regulations and procedures made pursuant thereto;
“Multilateral Trading Facility” or “MTF” means a multilateral system set up in accordance with MiFID which brings together multiple buying and selling interests in financial instruments in accordance with non-discretionary rules in a way that results in a contract;
”Personal Data” means any information relating to an identified or identifiable natural living person;
“Portfolio” means the portfolio of assets of the Client as defined in Clause 3, including uninvested cash, as designated from time to time by the Client and subject to the management of the Manager pursuant to this Agreement;
“PRA” means the Prudential Regulation Authority or any successor regulatory body;
“Proceedings” means any suit, action or proceedings relating to any dispute arising out of or in connection with this Agreement including any dispute relating to any non-contractual obligations arising out of or in connection with this Agreement;
“Professional Client” has the meaning given to it in the FCA Rules;
“Regulated Market” means a regulated market within the meaning of the FCA Rules;
“Retail Client” has the meaning given to it in the FCA Rules; and
“VAT” means value added tax as provided for in the Value Added Tax Act 1994 and any other tax of a similar nature.
In this Agreement,
1.2 references to a) any other words or phrases used which are defined in the FCA Rules shall have the same meanings in this Agreement unless the context requires otherwise; (b) regulations, statutory provisions, notices or the FCA Rules shall where the context so admits, be deemed to include those provisions, regulations, notices or rules as amended, extended, consolidated, substituted or re-enacted from time to time and (c) references to legislation, Acts of Parliament or other statutory provisions are, for the avoidance of doubt, references to United Kingdom legislation, Acts of Parliament and statutes;
1.3 references to Clauses and Schedules are, respectively, to clauses of and schedules to this Agreement; and
1.4 the headings in this Agreement are inserted only for convenience and shall not affect its construction.
2. APPOINTMENT OF MANAGER
2.1 The Client hereby appoints the Manager as investment manager, and the Manager hereby accepts the appointment, to manage the cash, securities and other assets, including income arising therefrom, as may be entrusted from time to time by the Client to the Manager in the Portfolio under the terms and conditions set forth in this Agreement with effect from the Effective Date.
2.2 The Manager may provide such other services to the Client as may be agreed between the parties. If the Manager does provide such other services, the terms of this Agreement will apply to those services to the extent possible except that fees in relation to such services will be separately agreed between the parties in advance.
2.3 For the purposes of the FCA Rules and based on information obtained in respect of the Client, the Manager has categorised the Client as a Professional Client in relation to the services provided under this Agreement. The Client hereby acknowledges that it is a Professional Client for the purposes of the FCA Rules. The Client should be aware that Professional Clients will not be entitled to certain protections afforded in the FCA Rules to Retail Clients.
2.4 The Client has the right to request that the Manager recategorise the Client as a Retail Client either generally or in specific circumstances. However, the Manager is not obligated to accede to any such requests. The Manager does not have permission to deal with Retail Clients and if the Client is recategorised as a Retail Client, this Agreement will automatically terminate on the date of such recategorisation and the provisions of Clauses 16.1 and 16.2 shall apply.
2.5 It is the Client’s responsibility to keep the Manager informed of any material changes in the Client’s circumstances that could lead to the need for recategorisation.
3. PORTFOLIO
The Portfolio shall initially be comprised of the assets identified in Schedule 1, which are held by or to the order of the Custodian on behalf of the Client. Assets may be added to, or withdrawn from, the Portfolio from time to time in accordance with Clause 11 of this Agreement.
4. DISCRETIONARY AUTHORITY
4.1 Subject to the Investment Objectives, Restrictions and Guidelines and other terms and conditions hereof, the Client hereby appoints the Manager as a discretionary investment manager of the cash, securities, and other assets within the Portfolio and such other cash, securities and other assets as may be placed under the authority of the Manager for the purposes of this Agreement from time to time and the Manager will act in good faith and with skill, care and diligence to:
(a) take any investment decisions;
(b) subscribe for, purchase, sell, exchange, convert or otherwise effect investment transactions in securities (shares, bonds, certificates, etc.) capital market instruments that are not materially issued in the form of a certificate, precious metals and foreign currencies; and
(c) procure the exercise of any corporate actions attaching to the investments in the Portfolio in accordance with the Client’s instructions, but not to vote proxies for the Client’s securities, unless otherwise agreed between the parties. In addition, the Manager does not have any obligation or responsibility with respect to any class action for which the Client may be a potential class member or claimant as a result of a security held in the Portfolio.
4.2 The Manager is authorised, subject to the Investment Objectives, Restrictions and Guidelines, to execute investment transactions with one or more securities broker/dealer firms selected in its discretion.
4.3 Except as stated in the Investment Objectives, Restrictions and Guidelines and subject to the terms of the Manager’s regulatory authorisation, there are no restrictions on the types of Investments in which the Client wishes to invest, the markets on which the Client wishes transactions to be effected, the amount of any one investment and the proportion of the Portfolio that any one investment may constitute.
4.4 The Client acknowledges receipt of a general description of the nature and risks of the Investments in respect of which the Manager will provide services under the terms of this Agreement, as set out in Schedule 7.
4.5 Subject to Clause 16.1, the Client hereby requests the Manager to continue providing services pursuant to this Agreement in the event of a “Hard Brexit” or “Soft Brexit” where no transitional deal has been reached between the UK and the EU that would permit (without challenge) the Manager’s ability to passport its regulatory license into the EU.
5. DELEGATION
5.1 The Client hereby consents to the delegation by the Manager of discretionary authority in respect of the management of parts of the Portfolio to such Associates of the Manager that are specified in Schedule 8 (as may be amended by agreement in writing between the parties from time to time).
5.2 The Manager may appoint or retain any person (whether an Affiliated Company or non-Affiliated Company) to perform any other aspect of the services under this Agreement that does not amount to investment decision-making without prior reference to the Client.
5.3 Unless otherwise agreed with the Client and subject to Clause 9, the Manager shall be responsible for the fees and charges of any person appointed or retained under this Clause 5.
6. INVESTMENT OBJECTIVES, RESTRICTIONS AND GUIDELINES
6.1 The Client may from time to time amend the Investment Objectives, Restrictions and Guidelines by written notification to the Manager. Amendments may include, but are not restricted to:
(a) inclusion or exclusion of specified classes of assets;
(b) limitation of the amounts to be invested in specified classes of Investments;
(c) limitation as to certain counterparties;
(d) other restrictions of any reasonable nature.
6.2 Upon receipt of such written notification, the Manager shall, within a reasonable period of time, as agreed between the Client and the Manager, invest, realise or reinvest the relevant parts of the Portfolio in order to comply with the Client’s instructions, it being understood that existing trading commitments have to be fulfilled by the Manager on behalf of the Client.
6.3 The Manager will keep under review the Investment Objectives, Restrictions and Guidelines and may, from time to time, suggest to the Client such amendments as, in the Manager’s opinion, might be appropriately made to them.
7. THE CUSTODIAN
7.1 The Client has entered into an agreement with a Custodian for the holding and safekeeping of all of the cash and securities and other assets in the Portfolio on terms reasonably acceptable to the Manager. The details of such Custodian are set out at Schedule 3 to this Agreement. The Manager shall at no time hold or be responsible for any assets belonging to the Client. The Client acknowledges that it has been and will be solely responsible for the selection, appointment, monitoring and supervision of the Custodian and for any services the Custodian provides to the Client including, without limitation, cash management services, stocklending and repo services and foreign exchange services.
7.2 For the avoidance of doubt, the Client acknowledges and agrees that the Manager shall not be liable for any act of default on the part of the Custodian, who shall (a) have sole responsibility for the safe-keeping of the assets comprising the Portfolio on behalf of the Client, including their registration and the retention of any documents of title and (b) hold the official books and records of the Portfolio and the Manager is not engaged to provide such official books and records nor to be responsible for any reconciliation of assets in relation to the Portfolio.
7.3 If the Client wishes to terminate its arrangements with the Custodian and appoint a new Custodian, it shall first give the Manager not less than 30 days prior written notice of any such proposed change and shall not effect any such change until it has the written consent of the Manager (not to be unreasonably delayed or withheld). The Client shall ensure that at or before the time of appointment of a new Custodian it shall supply to the Manager details relating to the Custodian in the form set out at Schedule 3 hereto and ensure that the terms of its agreement with the new Custodian will comply with the terms of this Clause 7.
7.4 The Custodian agreement with the Client relating to the custody of the Investments in the Portfolio shall include provisions:
(a) authorising the Custodian to open bank accounts in the name of the Client on the Manager’s instruction and to act on the instructions of the Manager in respect of payments to and from such accounts, deliveries, receipts, voting and other rights attached to Investments contained in the Portfolio and any other matters connected with the Portfolio, provided that cash and securities may not be transferred to accounts other than in the name of the Client; and
(b) instructing the Custodian to provide the Manager with such periodic statements concerning the status of the Portfolio, as the Manager may request from time to time and promptly notifying the Manager of all corporate actions and other events affecting the investments in the Portfolio of which the Custodian has received notice by passing or copying such notices to the Manager.
8. VALUATIONS AND REPORTING
8.1 The initial composition of the Portfolio has been provided to the Manager, as set out at Schedule 1 hereto.
8.2 The Manager shall provide the Client with the reports and valuations at the times and of the types set out in Schedule 6.
8.3 The Base Currency shall be used in the valuation statement. Assets and investments in other currencies shall be translated into that currency for valuation purposes at the rate of exchange shown in data sources used by the Manager.
9. FEES, EXPENSES, RIGHT TO SET-OFF
9.1 The Client shall pay a fee for the services rendered by the Manager pursuant to this Agreement, as specified in Schedule 4. The Manager shall be responsible for payment from its fee of its costs and incurred expenses in carrying out its duties hereunder (including those of its delegates) save that the Manager shall be entitled to be reimbursed by the Client for any third party fees, costs and expenses incurred by it in relation to the Portfolio subject to the prior agreement of the Client. For the avoidance of doubt, dealing costs and commissions payable in relation to the management of the Portfolio will be deducted from the Portfolio.
10. TRANSACTION PROCEDURES
10.1 The Manager will act in good faith and with due diligence in its choice of Counterparties. A list of Counterparties can be provided to the Client on request.
10.2 The Manager’s Best Execution Policy has been provided to the Client and the Client confirms receipt thereof before, or at the time of, signing this Agreement and the Client consents to the Manager’s use of its Best Execution Policy.
10.3 Subject to Clause 10.4, in effecting transactions for the Portfolio, the Manager will at all times comply with its Best Execution Policy and in particular act in the best interests of the Client. The Client agrees that the Manager may trade outside of a Regulated Market or MTF. All transactions will be effected in accordance with the rules and regulations of the relevant market or exchange, and the Manager may take all such steps as may be required or permitted by such rules and regulations and/or by appropriate market practice.
10.4 The Client acknowledges that specific Client instructions in relation to the execution of orders may prevent the Manager from following its Best Execution Policy.
10.5 To the extent that the Manager places a “Limit Order” on behalf of the Client with a broker for execution by that broker, the Client expressly instructs the Manager not to make public the details of that Limit Order unless the Manager considers, in its absolute discretion, that it is appropriate for such details to be made public.
10.6 Where a transaction is effected in breach of the Investment Objectives, Restrictions and Guidelines or is otherwise prohibited under this Agreement, subject to Clause 10.3, the Manager or one of its Affiliated Companies may act as principal in executing a transaction with the Portfolio to correct the error.
10.7 The Client acknowledges that certain of its transactions may be subject to the provisions of MiFID, which applies certain transaction and position reporting obligations directly on the Client in respect of the assets in the Portfolio, including, but without limitation, the procurement of a valid Legal Entity Identifier. The Client undertakes to provide in a timely fashion all such information (including, but not limited to, the Client’s Legal Entity Identifier) and documentation and to promptly take all such action as the Manager may from time to time reasonably require in relation to the MiFID transaction and position reporting obligations.
10.8 The Client acknowledges that certain information about transactions the Manager wishes to and does enter into on the Client’s behalf may be made public and that the Manager will be required to report the details of certain transactions to the FCA, in some cases, via third parties, in accordance with applicable law.
11. INCOME, ADDITIONS TO, AND WITHDRAWALS FROM, THE PORTFOLIO
11.1 All income, including interests, fees, commissions, dividends, etcetera arising from the investment of the Portfolio shall be added to the Portfolio.
11.2 The Client may from time to time add assets to the Portfolio. Any such transfers to the Portfolio shall be made in accordance with the principles set forth in Schedule 2, and shall be deemed effective when the Custodian is authorised to receive instructions from the Manager or its delegates as to these assets or funds.
11.3 Withdrawals from the Portfolio can be made at any time under clear written or oral instruction by the Client to the Manager in accordance with Clause 17. If instruction is made orally, the Client will confirm this instruction in writing within two Business Days. The Manager shall comply with the Client’s instructions as soon as practicable, it being understood that
existing trading commitments have to be fulfilled by the Manager or its delegates on behalf of the Client.
12. LIABILITY OF THE MANAGER
12.1 No claim shall be made against the Manager or any Associate or any of their respective officers or employees to recover damages, losses, costs or expenses (“Loss”) which the Client may suffer or incur by reason of, or arising out of, the carrying out by the Manager or Associate on its behalf of its performance of duties or obligations and services under this Agreement unless such Loss is directly caused by the negligence, wilful default or fraud of the Manager or Associate or their directors, officers or employees in providing the services under this Agreement.
12.2 The Manager accepts no liability (whether in negligence or otherwise) and shall owe no obligation to indemnify the Client for (a) any negligence, wilful misconduct or fraud of the Client or any Associate that is proved to directly contribute to a Loss or (b) for any default or non-performance by the Client or the Custodian or any counterparties or brokers, provided that the Manager has not acted negligently or in bad faith in selecting or using the services of any such counterparty. If any broker or counterparty selected by the Manager should fail to deliver any necessary documents or fail to account for any transaction or Investments, the Manager shall (with the Client’s prior written approval) take such steps on the Client’s behalf as appear to the Manager to be reasonable to recover such documents or Investments, or any sums due, or compensation in lieu thereof, but (subject to any liability under the clause above and this clause) shall not be liable for such failure if commercially reasonable steps are taken. All reasonable costs and expenses properly incurred by the Manager shall be charged to the Portfolio except any circumstances where the Manager shall be deemed negligent, in bad faith or otherwise responsible for the costs incurred, in which case, any such costs shall be borne by the Manager for its own account.
12.3 Nothing in the Agreement shall exclude or restrict any liability or duty which the Manager may have to the Client under the Financial Services and Markets Act 2000 as amended or the FCA Rules, or, where relevant the Pensions Act 1995.
12.4 The Manager shall not be deemed in breach of the Investment Objectives, Restrictions and Guidelines to the extent such breach was brought about as a result of changes in the price or value of assets or by occurrences in the market.
12.5 Any breach of the Investment Objectives, Restrictions and Guidelines shall be notified to the Client promptly, and in any event within three Business Days, after the Manager becomes aware of it. Following such notification, where the Manager is deemed to be negligent, in bad faith or otherwise responsible for such breach, the Manager shall, at its own expense, use its reasonable endeavours to rectify the breach to the Client’s reasonable satisfaction as soon as reasonably practicable.
12.6 No warranty is given by the Manager as to the performance or profitability of the Portfolio or any part of it and, for the avoidance of doubt, the Manager shall not be liable in respect of any failure to meet any performance targets that are specified in Schedule 2.
13. INDEMNITY
13.1 The Client shall indemnify the Manager and each of its Associates and its and their employees (and the Manager contracts in this respect both for itself and as agent for its Associates and its and their employees) and keep the Manager and each of its Associates and its and their employees indemnified against any costs, claims, demands or proceedings made by any person and in any way arising from the appointment of the Manager hereunder or the performance by the Manager or any of its Associates or delegates or its or their employees of acts or duties in connection with this appointment save to the extent such costs, claims, demands or proceedings are caused by the fraud, wilful default or negligence on the part of the Manager or its employees.
13.2 Any indemnity given to the Manager or any Delegate under this Agreement is in addition to, and without prejudice to, any indemnity allowed to the Manager or any Delegate under applicable law.
14. FORCE MAJEURE
14.1 The Manager shall not be liable for any loss or damage resulting from facts, events or circumstances not reasonably within the Manager’s control, including, but not limited to industrial disputes, acts or regulations of any governmental or supranational authority or securities exchanges or the breakdown failure or malfunction of any telecommunications or computer service, as long as the Manager has taken all steps as can reasonably be expected to avoid or minimise such loss or damage.
15. ASSIGNMENT
15.1 Without prejudice to the delegation provisions contained in Clause 5, no party shall assign any rights or obligations arising out of this Agreement to any third party without the prior written consent of the other party, such consent not to be unreasonably withheld, except that the Manager may assign its rights and obligations arising out of this Agreement, to any Associate of the Manager by giving the Client notice which shall specify a date upon which the assignment shall become effective.
16. TERMINATION
16.1 This Agreement may be terminated by:
(a) the Client by giving 60 days prior written notice to the Manager; or
(b) the Manager by giving 90 days prior written notice to the Client.
16.2 On notice of termination, the Manager shall, unless directed otherwise by the Client, continue to manage the Portfolio until the termination date stated in the written notice, and is authorised in any event to arrange for the retention and/or realisation of such assets as may be required to settle transactions entered into prior to the actual date of termination, and to pay outstanding liabilities of the Client or to procure that such liabilities are paid. The Manager will no longer be responsible for compliance with the Investment Objectives, Restrictions and Guidelines or achieving the investment objectives and the Client acknowledges that the
performance of the Portfolio may fall short of the performance otherwise achievable for an on-going portfolio.
16.3 The Client shall pay any additional expenses necessarily incurred by the Manager or an Affiliated Company to whom delegated responsibility for Client Investments has been made, by reason of the termination of the Agreement, pursuant to Clause 16.1 above, and shall bear any losses necessarily realised by the Manager in selling or concluding outstanding obligations previously undertaken in accordance with this Agreement.
16.4 Upon termination, the Client shall pay the Manager all fees and other amounts accrued and due (subject to interest on overdue amounts in accordance with Schedule 4).
16.5 Termination of this Agreement shall not affect accrued rights, existing commitments or any contractual provision intended to survive termination.
17. NOTICE — COMMUNICATIONS
17.1 Any notice, advice or report to be given pursuant to this Agreement shall be delivered by hand, sent by first class pre-paid post or sent by email to:
| | | | | |
| If to the Client: | If to the Manager: |
| |
lain Lever Chief Financial Officer Ironshore Europe DAC 2 Shelbourne Buildings, Shelbourne Road, Ballsbridge, Dublin 4 Email: iain.lever@ironshore.com | Russell Büsst
Chief Executive Officer
Conning Asset Management Limited 24 Monument Street
8111 Floor
London EC3R 8AJ
UK |
| |
| Email: russell.busst@conning.com |
| With copy to: conning.ukdocuments@conning.com |
| |
| In the case of complaints under Clause 21: |
| |
| Compliance Officer Conning Asset Management Limited 24 Monument Street 8th Floor London EC3R 8AJ UK Email: Louisa.Gjertsen@conning.com |
17.2 The notice shall be deemed to have been received by the recipient:
(a) in the case of delivery by hand, when delivered;
(b) in the case of first class pre-paid inland post, on the day following the day of posting;
(c) in the case of air mail, on the fifth day following the day of posting;
(d) in the case of facsimile, on acknowledgement by the recipient facsimile receiving equipment on a Business Day if such acknowledgement occurs before 5:00 p.m. local time of the recipient on the Business Day of acknowledgement, and in any other case on the next Business Day following the Business Day of acknowledgement; or
(e) in the case of email, on receipt of an automated delivery receipt or confirmation of receipt from the relevant server.
17.3 Instructions and other communications shall be given by the Client in writing, by letter, fax or email, to the Manager at its registered address or at such other address or fax number as may be notified by the Manager to the Client for the purposes of this Agreement.
17.4 The Manager shall be entitled to rely, without independent verification, on the accuracy and completeness of all information and on the instructions of any person who is a person authorised to act as the Client’s representatives in accordance with Schedule 5.
17.5 The Manager is entitled to communicate with, provide advice to, and receive instructions from, the Client’s acknowledged representatives by telephone and email, except where communication in writing is required under this Agreement. Telephone conversations between the Manager and the Client may be recorded.
17.6 Any instruction given by the Client to the Custodian shall be copied and immediately forwarded by the Client to the Manager.
18. CONFIDENTIALITY
18.1 Each party shall treat Confidential Information as confidential and shall not disclose such information except as (a) required by applicable law, (b) requested by competent regulatory or fiscal authorities, (c) a court or tribunal of competent jurisdiction or (d) or disclosed in confidence to its advisers and auditors where reasonably necessary for the performance of their professional services; provided that the Manager may disclose information it receives from or on behalf of the Client to Delegates and Associate’s as well as assignees officers and employees of the Manager in the course of providing the investment management and accounting services to the Client under this Agreement, and the Manager may publicly disclose the fact that the Client is a client of the Manager.
18.2 Confidential Information shall remain confidential for a period of two (2) years from the termination date of this Agreement.
18.3 In providing the services under this Agreement, neither the Manager, its Associates nor a Delegate shall be obliged to disclose or to take into consideration (or to require any third party to disclose or take into consideration) any information:
(a) the disclosure or use of which might breach any prohibition, duty or confidence to any other person or arising under any applicable law;
(b) which comes to the notice of an employee, officer or agent of the Manager, its Associates or a Delegate, but properly does not come to the actual notice of an individual managing the Portfolio; or
(c) relating to the nature or extent of any interest the Manager or any Associate has in any investments.
19. FREEDOM TO ACT
19.1 The services of the Manager to the Client herein shall not be exclusive and the Manager shall be free to render similar services to others and nothing in this Agreement shall preclude the Manager from having dealings with or on behalf of the Client either on its own account or on account of its clients or others or make it accountable to the Client in respect of any profit or commission from any such dealings.
20. CONFLICT OF INTEREST
20.1 The Manager may, without prior reference to the Client, effect transactions in which the Manager or one or more of its Associates or another client of the Manager or of an Associate has, directly or indirectly, a material interest or a relationship of any description with another party, which involves or may involve a potential conflict with the Manager’s duty to the Client. The Manager will ensure that such transactions are effected on terms which are not materially less favourable to the Client than if the conflict or potential conflict had not existed. Any conflicts which the Manager is not able to prevent or manage effectively shall be promptly disclosed by the Manager to the Client.
20.2 Except as required by the FCA Rules, neither the Manager nor any Associate shall be liable to account to the Client for any Manager’s or Associate’s profit, commission or remuneration made or received from or by reason of such transactions or any connected transactions nor will the Manager’s fees, unless otherwise provided, be abated.
20.3 The Conflicts of Interest Policy sets out the types of actual or potential conflicts of interest which affect the Manager’s business and provides details of how these are identified, prevented or managed. A summary of the Conflicts of Interest Policy has been separately notified to the Client. Further details of the Conflicts of Interest Policy are available to the Client on request.
20.4 In accordance with the FCA Rules the Manager will notify the Client that such potential conflicting interests or duties may arise because:
(a) the Manager or an Associate undertakes investment business for other clients;
(b) a Director or employee of the Manager, or of an Associate, is on the Board of, holds or deals in securities of, or is otherwise interested in any company whose securities are held or dealt in on behalf of the Client;
(c) a transaction is effected in securities listed by an Associate or the customer of an Associate;
(d) a transaction is effected in units or shares of collective investment schemes or companies which the Manager or an Associate is the manager or adviser;
(e) the Manager may effect transactions involving placings and/or new issues with an Associate who may be acting as principal or receiving agent’s commission;
(f) a transaction is effected in securities of a company for which the Manager or an Associate has underwritten, or managed or arranged an issue or offer for sale within the previous 12 months;
(g) a transaction is effected in securities in respect of which the Manager or an Associate, or a Director or employee of the Manager or an Associate, is contemporaneously trading or has traded on its own account or has either a long or short position; or
(h) the Manager may act as agent for the Client in relation to transactions in which it is also acting as agent for the account of other clients and/or Associates.
20.5 The Manager will act as the agent of the Client, who will therefore be bound by its actions under this Agreement taken on the Client’s behalf in accordance with the terms of this Agreement. Nevertheless, nothing in this Agreement, none of the services to be provided hereunder nor any other matter shall:
(a) oblige the Manager or any Associate to accept responsibilities more extensive than those set out in this Agreement; or
(b) give rise to any fiduciary or equitable duties which would prevent or hinder the Manager, or any Associate, from either:
i. performing the services pursuant to this Agreement; or
ii. effecting transactions with or for the Client.
20.6 The Manager may from time to time, without prior reference to the Client pay from the fees agreed pursuant to Schedule 4 sums to Associates or other persons (a) who have introduced the Client to the Manager and/or (b) in respect of particular Investments or transactions in Investments forming part of the Portfolio.
21. COMPLAINTS AND COMPENSATION
21.1 The Manager maintains procedures in accordance with the FCA’s rules for the consideration and handling of client complaints. All complaints should be made in the first instance in writing to the Manager’s Compliance Officer in accordance with Clause 17. Complaints will be considered promptly by the Compliance Officer in conjunction with a Director of the Manager or a designee who is not personally involved in the subject matter of the complaint.
21.2 If the Client makes a valid claim against the Manager in respect of the services provided under this Agreement, and the Manager is unable to meet its liabilities in full, the Client is not entitled to redress from the Financial Services Compensation Scheme. Under FCA Rules eligible complainants have the right to make a claim for compensation under the Financial Services Compensation Scheme in respect of any inability of the Manager to satisfy a claim made against it by the Client. However, the Manager does not categorise the Client as being an eligible complainant. Therefore the Compensation Scheme does not apply. Should this change the Client should inform the Manager immediately.
22. DATA PROTECTION
22.1 Each party will comply with Data Protection Laws.
22.2 In order to provide the services the Manager or a Delegate may need to
(a) communicate with the Client’s trustees, owners, officers and employees (“Client Contacts”) in relation to the services;
(b) process identification details of the Client Contacts in order to confirm their identities;
(c) check such Personal Data against databases of individuals who are subject to sanctions, classified as “politically exposed persons” or have committed crimes and to follow up any suspicions to ensure that the Manager complies with its anti-money laundering and terrorism obligations and to avoid fraud itself;
(d) record or monitor communications as set out in Clause 23;
(e) use such Personal Data to meet the Manager’s compliance and regulatory duties;
(f) transfer such Personal Data outside the European Economic Area and the UK and disclose it to anti-fraud organisations and law enforcement or regulatory agencies anywhere in the world, and the Manager will be acting as a data controller in respect of such processing.
22.3 Where the Client provides the Manager with Client Contact details or where requested to do so by the Manager, the Client will notify such individuals that the Manager may need to process their Personal Data for the purposes set out in Clause 22.2.
22.4 The Manager will maintain a data protection fair processing notice on its website (currently located at https://www.conning.com/-/media/marketingsite/documents/disclosures/conning-- -fair-processing-notice.pdf) setting out the details of such processing and all other information required by, and in compliance with, Data Protection Laws, which the Client will also refer Client Contacts to when it makes a notification under Clause 22.3.
22.5 For the avoidance of doubt, except as set out above, the Manager shall be responsible for providing notices and obtaining any consents in relation to any processing of Client Contacts’ Personal Data, including in relation to marketing.
23. COMMUNICATIONS AND TAPING
23.1 Subject to compliance with applicable law, either party may record telephone conversations with the other. The Manager may record or monitor telephone conversations and other communications with or by the Client (including mails, emails or documentation of client orders made at meetings). The Client agrees that the Manager may deliver copies or transcripts of such recordings to any court or competent authority. A copy of any such conversations with the Client and communications with the Client will be available on request for a period of five years (or, where requested by the FCA, for a period of up to seven years) from the date when the record is made.
23.2 The Manager will communicate with the Client in English and, subject to Clause 17, will communicate with the Client as considered appropriate, including through the Manager’s website, by email or otherwise. The Client hereby consents to receiving communications and reports under this Agreement (including but not limited to valuations) electronically online via the Manager’s secure client website (https://my.conning.com/conningportal/login.aspx). The Client understands that if documents are only available online the Client will not receive a printed version. A paper copy of such communications and reports will be available to the Client upon request.
24. MISCELLANEOUS
24.1 The Agreement, including Schedules 1 to 8 constitutes the entire agreement of the parties with respect to the management of the Portfolio, and supersedes any and all other proposals, understandings, and agreements between the Client and the Manager with respect to the subject matter hereof.
24.2 Unless otherwise provided under this Agreement, any amendments to, or alterations of, this Agreement shall not be binding unless produced in writing, signed by the parties except that:
(a) the Manager may amend the Agreement in order to comply with, or to make the Agreement consistent with, any legal or regulatory requirements or changes to which the Manager may be subject by providing a written notice to the Client of such amendment;
(b) the Client may from time to time notify the Manager in writing of any changes to the Authorised Persons; and
(c) either party may amend their contact details in Clause 17.1 by providing written notice to the other party of such amendment.
Any amendment under sub-Clauses (a), (b) and (c) shall take effect on the date specified in the written notice.
24.3 If any provision of this Agreement should, for any reason be held to be invalid, illegal or unenforceable, then such provision shall not invalidate the entire Agreement. Such provisions shall be deemed to be modified to the extent necessary to render it legal, valid and enforceable, and if no such modifications shall render it legal, valid and enforceable, then this Agreement
shall be construed as if not containing such provision, and the rights and obligations of the parties shall be construed and enforced accordingly.
24.4 If, by reason of its investment management activities, the Manager obtains material non-public information, the Client understands and acknowledges that the Manager cannot and does not make any investment decisions in respect to the Portfolio based upon such information.
24.5 This Agreement may be executed in two or more counterparts, each of which when executed is deemed to be an original and all of which together are deemed to be one and the same instrument. Counterparts may be delivered via facsimile, electronic mail (including PDF or any electronic signature complying with the U.K. Electronic Communications Act 2000 (c.7)) or other transmission method and any counterpart so delivered shall be deemed to have been duly and validly delivered and be valid and effective for all purposes.
24.6 The Manager is not responsible for the Client’s compliance with tax legislation, whether with regard to payment of taxes, reporting or any other matter. Notwithstanding the foregoing, the Manager or any delegate may deduct or withhold from payments all forms of taxes if obliged to do so under any applicable regulation in any jurisdiction. The Client undertakes promptly to pay or reimburse to the Manager or any delegate any shortfalls with respect to payments for taxes to be paid or paid by the Manager or any delegate on behalf of the Client.
24.7 The Client acknowledges that advice given or investments made by the Manager hereunder may extend to investments in unregulated collective investment schemes.
24.8 A person who is not a party to this Agreement has no right under the Contracts (Rights of Third Parties) Act 1999 to enforce any term of this Agreement but this does not affect any right or remedy which exists or is available apart from that Act.
24.9 No failure on the part of a party to exercise, nor delay by it in exercising, any right or remedy under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise or any right or remedy preclude any other further exercise of that right or remedy or the exercise of any other right or remedy. The rights and remedies provided in this Agreement are cumulative and not exclusive of any rights or remedies provided by law.
24.10 So far as permitted by law, and except in the case of fraud, the Client agrees and acknowledges that its only rights and remedies shall be for breach of the terms of this Agreement, to the exclusion of all other rights and remedies including those in tort or arising under statute.
25. MONEY LAUNDERING
25.1 The Manager reserves the right to seek such information from the Client as it considers necessary to comply with any applicable legal and regulatory requirements to counter money laundering. In the course of delay or failure to provide satisfactory information, the Manager may take such action (including refusal to accept instructions from the Client in relation to the Portfolio) as it thinks fit.
26. GOVERNING LAW AND JURISDICTION
26.1 This Agreement and any dispute or claim (including non-contractual disputes or claims) arising out of or in connection with it or its subject matter or formation shall be governed by and construed in accordance with the laws of England and Wales.
26.2 The parties agree that the English courts are to have exclusive jurisdiction, and that no other court is to have jurisdiction to:
(a) determine any Proceedings; and
(b) grant interim remedies, or other provisional or protective relief.
26.3 Each party irrevocably submits to the exclusive jurisdiction of the English courts in respect of such Proceedings and waives any objection to any such Proceedings in such courts on the grounds of venue, waives any claim that Proceedings brought in such courts have been brought in an inappropriate or inconvenient forum and further waives the right to object, with respect to such Proceedings, that such courts do not have any jurisdiction over such party.
The parties have executed this Agreement on the respective dates specified below with effect from the Effective Date.
| | | | | | | | | | | | | | | | | |
| Signed by | Iain Lever | | Name: Iain G. Lever |
| for and on behalf of: | | |
| IRONSHORE EUROPE DAC | | Title: CFO |
| | | |
| | | | | |
| | | | | |
| SIGNED by | Russell Büsst | | Name: Russell Büsst |
| for and on behalf of | | |
| CONNING ASSET MANAGEMENT LIMITED | | Title: Chief Executive Officer Conning Asset Management Limited |
HAMILTON INSURANCE GROUP, LTD.
SUBSIDIARIES OF REGISTRANT
| | | | | |
| Legal Name | Jurisdiction of Incorporation |
| Hamilton UK Holdings II Limited | United Kingdom |
| Hamilton BDA Services Limited | Bermuda |
| Hamilton Re, Ltd. | Bermuda |
| Hamilton ILS Holdings Limited | Bermuda |
| Hamilton UK Holdings Limited | United Kingdom |
| Hamilton US Holdings II, Inc. | Delaware |
| Turing Re, Ltd. | Bermuda |
| Hamilton Insurance Services (Bermuda), Ltd. | Bermuda |
| Ada Capital Management, Limited | Bermuda |
| Hamilton Insurance Designated Activity Company | Ireland |
| Hamilton Corporate Member Limited | United Kingdom |
| Hamilton U.S. Services, LLC | Delaware |
| Hamilton Managing General Agency Americas LLC | Delaware |
| Hamilton Select Holdings Inc. | Delaware |
| Hamilton Insurance DAC London Branch | United Kingdom |
| Hamilton Select Insurance Inc. | Delaware |
| Hamilton UK Services Limited | United Kingdom |
| Hamilton Corporate Member II Limited | United Kingdom |
| Hamilton UK Services Dublin Branch | Ireland |
| Hamilton Managing Agency Limited | United Kingdom |
| Hamilton Corporate Member III Limited | United Kingdom |
| Hamilton Managing General Agency United Kingdom Ltd | United Kingdom |
| Hamilton Corporate Member IV Limited | United Kingdom |
Consent of Independent Registered Public Accounting Firm
We consent to the reference to our firm under the caption "Experts" and to the use of our report dated May 12, 2023, in the Registration Statement (Form S-1) and related Prospectus of Hamilton Insurance Group, Ltd. for the registration of shares of its common stock.
| | |
/s/ Ernst & Young Ltd. |
Hamilton, Bermuda |
October 16, 2023 |
