-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, INCkmcsbvn3L7wCL7sz4DLgVJ5XdgPqit0PhFtX4owV7bURw+zSb3PvvzGM/jRah cHJK/tJXDXNOioubDiuQ6Q== 0000950131-00-002158.txt : 20000411 0000950131-00-002158.hdr.sgml : 20000411 ACCESSION NUMBER: 0000950131-00-002158 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 22 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ACE LTD CENTRAL INDEX KEY: 0000896159 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-11778 FILM NUMBER: 583570 BUSINESS ADDRESS: STREET 1: ACE BLDG STREET 2: 30 WOODBOURNE AVE CITY: HAMILTON HM 08 BERMU STATE: D0 BUSINESS PHONE: 8092955200 MAIL ADDRESS: STREET 1: P O BOX HM 1015 CITY: HAMITON BERMUDA STATE: D0 10-K 1 FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ---------------- FORM 10-K [X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 OR [_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File No. 1-11778 ---------------- ACE LIMITED (Exact name of registrant as specified in its charter) Cayman Islands 98-0091805 (Jurisdiction of Incorporation) (I.R.S. Employer Identification No.) The ACE Building 30 Woodbourne Avenue Hamilton HM 08 Bermuda (441) 295-5200 (Address, including zip code, and telephone number,including area code, of registrant's principal executive offices) ---------------- Securities registered pursuant to Section 12(b) of the Act:
Name of Exchange Title of Each Class on which Registered ------------------- ------------------- Ordinary Shares, par value $0.041666667 per share New York Stock Exchange ACE Capital Trust I 8.875 percent Trust Originated Preferred Securities mature 2029 New York Stock Exchange Capital Re LLC 7.65 percent Trust Preferred Securities mature 2044 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None ---------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference into Part III of this Form 10-K or any amendment to this Form 10-K. [_] As of March 23, 2000, there were 217,447,254 Ordinary Shares par value $0.041666667 of the Registrant outstanding and the aggregate market value of voting stock held by non-affiliates at such date was approximately $3.85 billion. For the purposes of this computation, shares held by directors (and shares held by any entities in which they serve as officers) and officers of the registrant have been excluded. Such exclusion is not intended, nor shall it be deemed, to be an admission that such persons are affiliates of the registrant. DOCUMENTS INCORPORATED BY REFERENCE Certain portions of registrant's definitive proxy statement relating to its Annual General Meeting of Shareholders scheduled to be held on June 9, 2000, are incorporated by reference into Part III of this report and certain portions of the 1999 Annual Report to Shareholders are incorporated by reference into Parts II and IV of this report. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ACE LIMITED INDEX TO 10-K
Page ---- PART I Item 1. Business...................................................... 1 Item 2. Properties.................................................... 24 Item 3. Legal Proceedings............................................. 24 Item 4. Submission of Matters to a Vote of Security Holders........... 24 PART II Market for the Registrant's Ordinary Shares and Related Item 5. Stockholder Matters........................................... 27 Item 6. Selected Financial Data....................................... 28 Management's Discussion and Analysis of Results of Operations Item 7. and Financial Condition ...................................... 28 Item 7A Quantitative and Qualitative Disclosures about Market Risk.... 28 Item 8. Financial Statements and Supplementary Data .................. 28 Changes in and Disagreements with Accountants on Accounting Item 9. and Financial Disclosure...................................... 28 PART III Item 10. Directors and Executive Officers of the Registrant............ 29 Item 11. Executive Compensation........................................ 29 Security Ownership of Certain Beneficial Owners and Item 12. Management.................................................... 29 Item 13. Certain Relationships and Related Transactions................ 29 PART IV Exhibits, Financial Statements, Schedules and Reports on Form Item 14. 8-K .......................................................... 30
PART I Item 1. Business Safe Harbor Disclosure The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Any written or oral statements made by or on behalf of the Company may include forward-looking statements which reflect the Company's current views with respect to future events and financial performance. These forward-looking statements are subject to certain uncertainties and other factors that could cause actual results to differ materially from such statements. These uncertainties and other factors (which are described in more detail elsewhere herein and in documents filed by the Company with the Securities and Exchange Commission) include, but are not limited to, (i) uncertainties relating to government and regulatory policies (such as subjecting the Company to insurance regulation or taxation in additional jurisdictions or amending or revoking or enacting any laws, regulations or treaties affecting the Company's current operations), (ii) the occurrence of catastrophic events or other insured or reinsured events with a frequency or severity exceeding the Company's estimates, (iii) legal developments, (iv) the uncertainties of the loss reserving process including the difficulties associated with assessing environmental and latent injuries, (v) the actual amount of new and renewal business and market acceptance of expansion plans, (vi) loss of the services of any of the Company's executive officers, (vii) changing rates of inflation and other economic conditions, (viii) losses due to foreign currency exchange rate fluctuations, (ix) ability to collect reinsurance recoverables, (x) the competitive environment in which the Company operates, related trends and associated pricing pressures and developments, (xi) the impact of mergers and acquisitions, including the ability to successfully integrate acquired businesses and achieve cost savings, competing demands for ACE's capital and the risk of undisclosed liabilities, (xii) the impact of Year 2000 related issues, (xiii) developments in global financial markets which could affect the Company's investment portfolio and financing plans, and (xiv) risks associated with the introduction of new products and services. The words "believe", "anticipate", "estimate", "project", "plan", "expect", "intend", "hope", "will likely result" or "will continue" and variations thereof and similar expressions identify forward- looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. General ACE Limited ("ACE") is a holding company incorporated with limited liability under the Cayman Islands Companies Law. ACE maintains its business office in Bermuda. ACE, through its various subsidiaries, provides a broad range of insurance and reinsurance products to insureds in the United States and almost 50 other countries. In addition, ACE, through ACE Global Markets, provides funds at Lloyd's, primarily in the form of letters of credit, to support underwriting capacity for Lloyd's syndicates managed by Lloyd's managing agencies which are indirect wholly owned subsidiaries of ACE. At December 31, 1999, the Company had total assets of $30.1 billion and shareholders' equity of $4.5 billion. The Company derives its revenue principally from premiums, fees and investment income. ACE operates through six main business segments: ACE Bermuda, ACE Global Markets, ACE Global Reinsurance, ACE USA, ACE International and ACE Financial Services. ACE USA principally includes the domestic U.S. business of ACE INA which was acquired on July 2, 1999 and ACE US Holdings which was acquired on January 2, 1998 ("ACE US Holdings"). Unless the context otherwise indicates, the term "Company" refers to one or more of ACE and its consolidated subsidiaries. The Company's long-term business strategy focuses on achieving underwriting profits and providing value to its clients and shareholders through the utilization of its growing capital base within the insurance and reinsurance markets. As part of this strategy, the Company has continued to review and expand, where appropriate, its product portfolio. In addition, the Company has made a number of strategic acquisitions and entered into strategic alliances to diversify its product lines, both geographically and by product type. 1 Acquisitions The Company acquired Corporate Officers & Directors Assurance ("CODA") in 1993 which provides professional lines insurance. The Company continued its strategic diversification with the acquisition in March 1996 of Methuen Group Limited ("Methuen"), the holding company for Methuen Underwriting Limited, and in July 1996 of Tempest Reinsurance Company Limited ("Tempest Re"), a leading Bermuda-based property catastrophe reinsurer. The short-tail nature of the property catastrophe business and shorter loss payout patterns complemented the generally longer-tail nature of the Company's other product lines. Also in November 1996, the Company acquired Ockham Worldwide Holdings plc which was renamed ACE London Holdings Limited ("ACE London"). In March 1997, the Company, together with two other insurance companies, formed Sovereign Risk Insurance Limited ("Sovereign"), a Bermuda-based managing general agency, to provide underwriting services to the three organizations for political risk insurance coverage. Sovereign issues subscription policies with the Company assuming 50 percent of each risk underwritten. In 1999, ACE Bermuda and one of the other investors bought out the third investor. In January 1995, the Company formed ACE European Markets Reinsurance Limited (formerly ACE Reinsurance Company Europe Limited) ("AEMRL"). In September 1997, AEMRL formed ACE European Markets Insurance Limited (formerly ACE Insurance Company Europe Limited) ("AEMIL"). Both companies operate in the International Financial Services Centre in Dublin, Ireland. Additionally, AEMIL has an insurance license to write all 18 classes of non-life insurance in all member states of the European Union. Both companies provide flexibility mainly to European corporations that wish to access the Company's products using different structures. On January 2, 1998, the Company, through a U.S. holding company, ACE US Holdings, acquired the Westchester Specialty Group. In connection with the acquisition, National Indemnity Company, a subsidiary of Berkshire Hathaway Inc., provided $750 million (75 percent quota share of $1 billion) of reinsurance protection to ACE US Holdings with respect to its loss reserves for the 1996 and prior accident years. On April 1, 1998, the Company acquired CAT Limited ("CAT"), a privately held, Bermuda-based property catastrophe reinsurer. This acquisition increased the Company's already significant participation in the international property catastrophe reinsurance market. On July 9, 1998, the Company acquired Tarquin Limited ("Tarquin"), a UK- based holding company which owns Lloyd's managing agency Charman Underwriting Agencies Ltd. ("CUAL") and Tarquin Underwriting Limited, its corporate capital provider. The CUAL managed syndicates, 488 and 2488, are leading international underwriters of short-tail marine, aviation, political risk and specialty property-casualty insurance and reinsurance. On July 2, 1999, the Company acquired the international and domestic property and casualty businesses of CIGNA Corporation ("CIGNA"). Under the terms of the agreement the Company, through a U.S. holding company, ACE INA Holdings Inc. ("ACE INA"), acquired CIGNA's domestic property and casualty insurance operations including its run-off business and also its international property and casualty insurance companies and branches, including most of the accident and health business written through those companies. In connection with the acquisition CIGNA agreed to provide a guarantee to ACE to indemnify against unanticipated increases in recorded reserves for losses and loss adjustment expenses of certain subsidiaries being acquired by ACE. CIGNA had the option to replace its guarantee with reinsurance obtained from a mutually agreed upon third party reinsurer. CIGNA exercised this option and replaced its guarantee with reinsurance by directing certain subsidiaries being acquired to transfer $1.25 billion of investments to National Indemnity Company, a subsidiary of Berkshire Hathaway Inc., for aggregate coverage of $2.5 billion. 2 On December 30, 1999, the Company completed the acquisition of Capital Re Corporation. Following the acquisition, Capital Re Corporation was renamed ACE Financial Services Inc. and is refered to herein as Capital Re or ACE Financial Services. This transaction added significant depth and expertise to ACE's financial reinsurance capabilities and represents a strategic complement to the Company's diversified portfolio by fully establishing ACE as a key financial guaranty reinsurer. Information about Segments Presentation The business segments presented in this document have been determined under the Statement of Financial Accounting Standard No 131, "Disclosures about Segments of an Enterprise and Related Information" ("SFAS 131") which was adopted by the Company as of December 31, 1999. SFAS 131 established new standards for defining how operating segments are determined. Prior period information has been restated based on the new requirements. Competition Competitive forces in the international property and casualty insurance and reinsurance business are substantial. Results are a function of underwriting and investment performance, direct costs associated with the delivery of insurance products, including the costs of regulation, the frequency and severity of both natural and man-made disasters, as well as inflation (actual, social and judicial), which impact loss costs. Decisions made by insurers concerning their mix of business (offering certain types of coverage but declining to write other types), their methods of operations and the quality and allocation of their assets (including any reinsurance recoverable balances) will all affect their competitive position. The relative size and reputation of insurers may influence purchasing decisions of present and prospective customers and will contribute to both geographic and industrial sector market penetration. Oversupply of available capital has historically had the effect of encouraging competition and depressing prices. The Company's competitive position in the property and casualty insurance industry is influenced by all of these factors. Individual competitive information by segment is presented in the segment presentations. Ratings The Company and its subsidiaries are rated by internationally recognized rating agencies. While the significance of individual ratings varies among agencies, companies assigned ratings at the top end of the range have, in the opinion of the rating agency, the strongest capacity for repayment of debt or payment of claims, while companies at the bottom end of the range have the weakest capacity. Insurance ratings represent the opinions of the rating agencies on the financial strength of a company and its capacity to meet the obligations of insurance policies. These ratings are based upon factors relevant to policyholders, agents and intermediaries and are not directed toward the protection of investors. Such ratings are not recommendations to buy, sell or hold securities. The individual segments insurance ratings are included in the segment discussions. Debt ratings include ratings for short-term and long-term debt as well as preferred stock. These ratings are assessments of the likelihood that the Company will make timely payments of principal and interest as well as preferred stock dividends. As of December 31, 1999, ACE's senior debt ratings included Moody's at "A2" ("Upper Medium Grade"), Standard and Poor's "A-" ("Strong") and A.M. Best at "a" ("Strong"). ACE's commercial paper ratings included Moody's at "P-1" ("Superior"), Standard and Poor's at "A-2" ("Satisfactory") and Fitch IBCA at "F-1" ("Highest Credit Quality"). ACE's preferred stock ratings included Moody's at "a2" ("Upper Medium Grade"), Standard and Poor's at "BBB" ("Adequate Capacity") and A.M. Best at "a-" ("Strong"). To reflect the acquisition of ACE Financial Services, on January 4, 2000 S&P and Moody's lowered the debt ratings and the preferred stock ratings of ACE Financial Services to mirror those of ACE. S&P lowered its senior debt rating to "A-" from "A" and lowered its preferred stock rating from "BBB+" to "BBB". Both S&P ratings were also removed from Credit Watch. Moody's lowered ACE Financial Services senior debt rating from "A1" to "A2" and lowered its preferred stock rating from "a1" to "a2". Both Moody's ratings were removed from review for possible downgrade. 3 Segment Analysis of Gross Premiums Written--The following table sets forth an analysis of gross premiums written by segment for the year ended December 31, 1999 and for each of the years ended September 30, 1998 and 1997:
For the Year Ended December 31, 1999 and the years ended September 30, 1998 and 1997 ---------------------------------------------------- December September September 1999 1998 1997 Gross Gross Gross Premiums Premiums Premiums Written Percent Written Percent Written Percent -------- ------- --------- ------- --------- ------- (in millions of U.S. dollars) ACE Bermuda.............. $ 553 14% $ 520 42% $527 55% ACE Global Markets(1).... 635 16% 438 35% 316 33% ACE Global Reinsurance(2).......... 182 5% 124 10% 116 12% ACE USA(3)............... 1,567 41% 160 13% - - ACE International(4)..... 932 24% - - - - ------ --- ------ --- ---- --- $3,869 100% $1,242 100% $959 100% ====== === ====== === ==== ===
- -------- (1) On July 9, 1998, the Company completed the acquisition of Tarquin. As the transaction was accounted for on a pooling-of-interests basis, all amounts included for ACE Global Markets for 1998 and 1997 were restated in 1998 to reflect the gross premiums written for Tarquin. (2) CAT was acquired on April 1, 1998 and thus gross premiums written for Tempest Re in fiscal 1998 include gross premiums written for CAT for the six month period since acquisition. (3) ACE US Holdings was acquired on January 2, 1998 and thus gross premiums written for ACE USA in fiscal 1998 only relate to the nine month period since acquisition. Gross premiums written for fiscal 1999 include the ACE US Holdings business and the results from the domestic operations of ACE INA acquired on July 2, 1999. (4) ACE International's gross premiums written reflect results since July 2, 1999, the date of acquisition. (5) As ACE Financial Services was acquired on December 30, 1999, no statement of operations information for ACE Financial Services is reflected in the ACE results for the year ended December 31, 1999. Analysis of Gross Premiums Written by Geographic Region--The following table sets forth an analysis of gross premiums written for the year ended December 31, 1999 and for the years ended September 30, 1998 and 1997:
North Australia & Asia/ Latin America Europe New Zealand Pacific America Other Total ------- ------ ----------- ------- ------- ----- ----- 1999................ 59.4% 17.6% 7.6% 5.0% 2.7% 7.7% 100.0% 1998................ 79.1% 8.9% 4.6% 4.0% -- 3.4% 100.0% 1997................ 68.4% 12.8% 6.3% 3.6% -- 8.9% 100.0%
ACE Bermuda Principal Business ACE Bermuda provides property and casualty insurance and reinsurance coverage across a broad range of business including: excess liability, professional lines, satellite, tailored risk solutions, aviation, excess property and political risk. The nature of the coverage provided is generally expected to result in low frequency but high severity of individual losses. The reinsurance market is an integral part of the risk management strategy of ACE Bermuda and coverage has been secured on all major lines of business. ACE Bermuda's wholly-owned insurance subsidiaries include: CODA, AEMRL, AEMIL and ACE Capital Re International Limited (formerly ACE Capital Re Limited; "ACE Capital Re International"); CODA provides professional lines insurance, while AEMRL and AEMIL provide a range of products similar to ACE Bermuda. Sovereign, a Bermuda-based managing general agency, issues subscription policies for political risk insurance coverage, with ACE Bermuda assuming 50 percent of each risk underwritten with a 10 percent 4 retrocession. ACE Bermuda also participates, on a quota share basis, in two other political risk programs; co-reinsurance of MIGA (the insurance arm of the World Bank) and Exporter's Credit, which is reinsurance of trade credit risks. In March 1998, ACE Bermuda formed two companies with Capital Re: ACE Capital Re International and ACE Capital Re Managers Ltd. ACE Capital Re International, a Bermuda-domiciled insurance company, writes both traditional and custom- designed programs covering financial guaranty, mortgage guaranty and a broad range of financial risks. Operations are underwritten and managed in Bermuda by a managing agency, ACE Capital Re Managers Ltd. During the year ended December 31, 1999, ACE Bermuda purchased Capital Re's share of ACE Capital Re International and provided further capital of $85 million. On December 30, 1999, ACE completed the acquisition of Capital Re. In March 1999, ACE Bermuda, together with a major broker and a UK based insurance company, formed a joint venture named Intrepid Re Limited. The joint venture underwrites alternative risk business. Marketing and Underwriting ACE Bermuda markets its insurance products through Bermuda-based brokers and seeks to maintain a competitive advantage by providing insurance coverages which require utilization of technical skills to underwrite individual risks, emphasizing quality rather than volume of business to obtain a suitable spread of risk. This enables the company to operate with a relatively small number of employees and, together with the reduced costs of operating in favorable regulatory and tax environments, results in a significantly lower administrative expense ratio relative to other companies in the industry. The risk assessment process undertaken by ACE Bermuda involves a comprehensive analysis of historical data and estimates of future value of losses, which may not be evident in the historical data. The factors which ACE Bermuda considers include the type of risk, the attachment point and coverage limits, the type, size, complexity and location of the potential insured's operations, financial data, the industry in which the potential insured operates, details of the underlying insurance coverage provided, loss history and future corporate plans. Policyholders are generally obtained through non-U.S. insurance brokers who typically receive a brokerage commission on any business accepted and bound by the company. ACE Bermuda is not committed to accept any business from any particular broker and brokers do not have the authority to bind the company. All policy applications to ACE Bermuda (both for renewals and new policies) are subject to underwriting and acceptance by ACE Bermuda in its Bermuda office. A substantial number of policyholders meet with the company outside of the United States each year to discuss their insurance coverage. ACE Bermuda believes that conducting its operations through its offices in Bermuda has not materially or adversely affected its underwriting and marketing activities to date. ACE Bermuda receives business from approximately 100 non-U.S. brokers of which three produced approximately 52 percent of the company's business in 1999. The following table sets forth the percentage of the company's insurance business placed through each broker and its affiliates placing more than 10 percent of the company's business.
Year Ended Year Ended September 30 December 31 ------------ Name 1999 1998 1997 ---- ----------- ------ ------ J&H Marsh & McLennan, Incorporated(1)(3)....... 22% 39% 45% Aon Corporation(2)(3).......................... 23% 19% 16%
- -------- (1) During 1997, Marsh & McLennan, Incorporated acquired Johnson & Higgins. In 1999 Marsh & McLennan, Incorporated acquired Sedgwick. (2) During 1997, Aon Corporation acquired Alexander & Alexander Services, Inc. (3) The percentages shown in the table for fiscal 1997 reflect the business placed by the combined entities and their affiliates for the entire fiscal 1999, 1998, and 1997 years. 5 Competition ACE Bermuda operates in a highly competitive worldwide market and competes with most major U.S. and non-U.S. insurers, which may differ across product lines. ACE Bermuda utilizes its experienced underwriting staff, its strong capital base, its ability to market a number of insurance products to its existing client and potential client bases and its ability to be flexible in providing contracts which extend coverages for periods in excess of one year to compete in the worldwide insurance markets. Insurance Ratings ACE Bermuda has received a rating of A+ from A.M. Best. This rating covers ACE Bermuda and its operating subsidiaries, CODA, AEMRL and AEMIL. ACE Bermuda and CODA have also received A+ claims paying ability ratings from S&P. ACE Capital Re International is discussed under the ACE Financial Services segment. Claims Administration Claims arising under policies issued by ACE Bermuda are managed in Bermuda by ACE Bermuda's claims department. This department maintains a claims database into which all notices of loss are entered. If the claims department determines that a loss is of sufficient severity, it makes a further inquiry of the facts surrounding the loss and, if deemed necessary, retains outside claims counsel to monitor claims. Based upon its evaluation of the claim, the claims department may recommend that a case reserve in a specified amount is established or that all or part of a claim is paid. The claims department monitors all claims and, where appropriate, will recommend the establishment of a new case reserve or the increase or decrease of an existing case reserve with respect to a claim. With the exception of certain aviation coverages, ACE Bermuda does not undertake to defend its insureds. It has, in certain instances, provided advice to insureds with respect to the management of claims. ACE Bermuda believes that its experience in resolving large claims and its proactive approach to claims management has contributed to the favourable resolution of several cases. Because ACE Bermuda does not do business in the U.S., it must often rely on U.S. counsel to assist it in evaluating liability and damages confronting its insureds in the U.S. ACE Bermuda believes that the procedures it follows have not materially or adversely affected its ability to identify, review or settle claims. ACE Global Markets Principal Business ACE Global Markets primarily encompasses the Company's operation in the Lloyd's market. The Company owns five managing agencies at Lloyd's. These managing agencies receive fees and profit commissions in respect of the underwriting and administrative services they provide to the syndicates. For the calendar 2000 year of account, these managing agencies will manage 2 active syndicates with total capacity under management of approximately $1 billion. As the Company's participation in the syndicates under management grows, the amount of third party fees and profit commissions received by the managing agencies will decrease. The Company also provides funds at Lloyd's to support underwriting by Lloyd's syndicates managed by the managing agencies discussed above. For the 1999 year of account, the Company, through four corporate members, participated on all four of the ACE managed syndicates with an underwriting capacity of approximately $725 million out of the total $1.05 billion of capacity. Included in the four syndicates is Syndicate 2488, a dedicated corporate syndicate whose capital is provided solely by the Company, and which underwrites in parallel with Syndicate 488 comprising capacity provided by Names and other corporate members. The syndicates on which the Company participates provide liability, specialty marine, property, casualty and aviation insurance. 6 For the 2000 year of account, the ACE Global Markets operations (excluding Capital Re's Lloyd's operations discussed below) have been merged so that only Syndicate 2488 will underwrite in 2000. The capacity of this syndicate will be approximately $990 million of which approximately 84 percent or $829 million will be provided by three of the ACE corporate members referred to above. On December 30, 1999, the Company acquired RGB Underwriting Agency Limited ("RGBUA") as part of the acquisition of Capital Re. Capital Re also owns a corporate member at Lloyd's through which it participates on two syndicates managed by RGBUA for the 1999 year of account. Prior to the acquisition by the Company of Capital Re, one of the syndicates was ceased, such that for the 2000 year of account the Capital Re corporate member will participate in the remaining active syndicate. During 2000, it is envisaged the Lloyd's operations of Capital Re will transfer to ACE Global Markets. Marketing and Underwriting In the ordinary course of events, Lloyd's syndicates may only access business through Lloyd's brokers. However, for certain lines of business, it is possible to utilize a service company to access and service business from both Lloyd's and non-Lloyd's brokers. ACE Underwriting Services Limited ("AUS") was established in 1998 as such a Lloyd's service company to market and service, on behalf of ACE managed syndicates, a broad range of products in the small business, industrial and commercial markets. AUS deals predominantly with Lloyd's brokers but also accesses business from regional (non-Lloyd's) brokers. RGB Services Limited, acquired as part of the Capital Re acquisition, acts as a service company in relation to the RGBUA managed syndicates. Lloyd's has commenced a consultation process on the likely future structure of the Lloyd's distribution chain and in particular a widening of the Lloyd's broker franchise. Competition There remains significant competition in all classes of business transacted by the syndicates emanating from a number of different markets world-wide. Depending on the class of business concerned, competition comes from the London market, other Lloyd's syndicates and ILU Companies (Institute of London Underwriters), major international insurers and reinsurers. On international risks, competition also comes from the domestic insurers in the country of origin of the insured. The syndicates are able to compete successfully by developing and maintaining close, long term relationships with clients through a high quality service and an ability to deliver innovative solutions tailored to the client's needs. The establishment of AUS as described above is an example of this. Insurance Ratings The Lloyd's market has received a rating of A from A.M. Best and a claims paying ability rating of A+ from S&P. Claims Administration With respect to claims arising in Lloyd's syndicates, a claims database into which all notices of loss are entered is maintained. These are primarily notified by the Lloyd's Claims Office ("LCO") through a daily electronic data interchange message. When a syndicate is a "leading" syndicate on a Lloyd's policy, it acts through its underwriters and claims adjusters, on its own behalf and with the LCO for the following market, in dealing with the broker and/or insured for any particular claim. This may involve the appointment of attorneys and/or loss adjusters. The LCO advises all syndicates participating on the risk as to movements in case reserves. 7 All information received with respect to case reserves, whether on "lead business" or on "following business", is monitored and recorded by the syndicates. The syndicates' claims department can vary the case reserves carried from those advised by the LCO and can carry reserves for claims not processed by the LCO. Any such adjustments and entries are specifically identifiable within the claims system. ACE Global Reinsurance Principal Business The principal business of ACE Global Reinsurance is the operations of Tempest Re which provides property catastrophe reinsurance worldwide to insurers of commercial and personal property. Property catastrophe reinsurance protects a ceding company against an accumulation of losses covered by the insurance policies it has issued arising from a common event or "occurrence." Tempest Re underwrites reinsurance principally on an excess of loss basis. Other property reinsurance written by Tempest Re on a limited basis for select clients, includes proportional property and per risk excess of loss treaty reinsurance. On April 1, 1998, the Company acquired CAT Limited, another Bermuda based property catastrophe reinsurer. Underwriting operations were immediately combined with those of Tempest Re, and on January 1, 1999 CAT Limited was merged into Tempest Re. In early 2000, Tempest Re initiated plans to expand its operations to become a multiline global reinsurer. This expansion is expected to reduce volatility and enable Tempest to diversify its business and offer integrated risk solutions to satisfy client demand. Such an integrated approach is considered vital to capturing an increasing share of the future reinsurance market. Business growth will require expansion outside of Bermuda, with initial emphasis on the major markets of the United States and the United Kingdom. Further global expansion may be considered in a subsequent phase of this strategy. Business development will be sought by combining the strengths of its client relationship skills, underwriting expertise, rational pricing and capital base. New lines of business will be added in accordance with the strategy to offer risk protection across all lines of insurance and to be able to package insurance risk with financial, investment and operational risk. Marketing and Underwriting Tempest Re markets its reinsurance products worldwide through reinsurance brokers. Tempest Re's underwriting team builds relationships with key brokers and clients by explaining Tempest Re's approach and demonstrating responsiveness to customer needs. Tempest Re's approach to the business of reinsurance takes a long-term perspective. Management believes that continual strengthening of the relationships between Tempest Re, its producing brokers and their clients will continue to contribute to a stable portfolio necessary to achieve continuity. Tempest Re receives business from approximately 26 brokers. The following table sets forth the percentage of Tempest Re's business written through each broker and its affiliates placing more than 10 percent of Tempest Re's business:
Ten Months Year Ended Year Ended Ended December 31 September 30 September 30 1999 1998 1997 ----------- ------------ ------------ J&H, Marsh & McLennan, Incorporated(1).................... 37% 47% 42% E.W. Blanch......................... 15% 16% 15% Aon Corporation..................... 11% 8% 9%
- -------- (1) During 1997, Marsh & McLennan, Incorporated acquired Johnson & Higgins. The percentage shown in the table for fiscal 1997 reflects the business placed by the combined entity and its affiliates for the entire fiscal 1997 year. During 1999, Marsh and McLennan, Incorporated acquired Sedgwick. The percentages shown in the table reflect the business placed by the combined entity and its affiliates for the entire fiscal 1999, 1998 and 1997 years. 8 Rates, limits, retention and other reinsurance terms and conditions are generally established in a worldwide competitive market that evaluates exposure and balances demand for property catastrophe coverage against the available supply. Tempest Re believes it is perceived by the market as being a "lead" reinsurer and is typically involved in the negotiation and quotation of the terms and conditions of the majority of the contracts in which it participates. Because Tempest Re underwrites property catastrophe reinsurance and has large aggregate exposures to natural and man-made disasters, Tempest Re's claims experience generally will involve infrequent events of great severity. Tempest Re seeks to diversify its reinsurance portfolio to moderate the impact of this severity. The principal means of diversification are by geographic coverage and by varying attachment points and imposing coverage limits per program. Tempest Re also establishes zonal accumulation limits to avoid concentrations of risk within particular geographic areas. Tempest Re applies an underwriting process based on models that use exposure data submitted by prospective reinsureds in accordance with requirements set by Tempest Re's underwriters. The client data is then analyzed using a selection from several available catastrophe analysis tools, including externally developed event based models licensed from leading vendors as well as proprietary models developed in house. The output from the catastrophe analysis tools is also used for portfolio risk management, enabling Tempest Re to extensively simulate possible combinations of events affecting the portfolio. This analysis also supports the decision making with regard to purchasing retrocession. In 1999 and 1998, Tempest Re significantly increased its use of retrocessional coverages. Competition The property catastrophe reinsurance industry is highly competitive. Tempest Re competes worldwide with major U.S. and non-U.S. property catastrophe reinsurers, including other Bermuda-based property catastrophe reinsurers as well as reinsurance departments of numerous multi-line insurance organizations. Tempest Re competes effectively because of its strong capital position, the quality of service provided to customers, the leading role Tempest Re plays in setting the terms, pricing and conditions in negotiating contracts and its customized approach to risk selection. Insurance Ratings Tempest Re has received a rating of A from A.M. Best and a claims paying ability rating of A+ from S&P. Claims Administration Claims arising under contracts written by Tempest Re are managed in Bermuda by Tempest Re. Tempest Re also maintains a claims database into which all notices of loss are entered. Loss notices are received from brokers. They are reviewed and case reserves are established for Tempest Re's portion of the loss. Case reserves are then adjusted based on receipt of further notifications from brokers. ACE USA Principal Business The principal business of ACE USA is the combined business of ACE US Holdings, which was acquired by the Company in 1998 and the domestic operations of ACE INA acquired on July 2, 1999. The domestic operations of ACE INA include ongoing domestic operations as well as the run-off operations of Brandywine Holdings, Inc. ("Brandywine"), which does not write new policies. The ongoing operations provide specialty property and casualty products and services including: aerospace, diversified products, marine, professional risk 9 services, property, special risk, U.S. international, warranty, Westchester Specialty and "other" operations. The other operations include all remaining insurance operations of ACE USA and selected insurance related operations including residual market workers' compensation business, pools and syndicates not attributable to a single business unit and the runoff of open market facilities business. Insurance related operations include those of ESIS Inc. ("ESIS"), the Company's in-house third party claims administrator and Recovery Services International ("RSI"), which sells salvage, subrogation, and premium collection services. All renewal rights to Commercial Insurance Services ("CIS"), formerly a business unit of ACE USA acquired as part of the ACE INA acquisition, were sold during 1999 under two separate agreements. On October 11, 1999, ACE USA reached an agreement with Wausau Commercial Insurance, to sell the renewal rights to the CIS middle market, commercial business as well as non-California workers' compensation business. On November 1, 1999, ACE USA reached an agreement with Superior National Insurance Group to sell the renewal rights to the CIS California worker's compensation business. The Company has not yet sold the existing insurance reserves for the CIS book. The Brandywine run-off operation, was created in 1995 by the restructuring of ACE INA's domestic operations into two separate operations into two separate operations, ongoing and run-off. Brandywine contains substantially all of ACE INA's asbestos and environmental exposures as well as various run-off insurance and reinsurance businesses. The run-off operations do not actively sell insurance products, but are responsible for the management of run-off policies and related claims including those for asbestos-related and environmental pollution exposures. Certain competitors and policy holders of CIGNA have challenged the regulatory approvals resulting in the creation of Brandywine. In July 1999, the Pennsylvania Supreme Court upheld the action of the Pennsylvania Insurance Commissioner in granting such approvals. Marketing and Underwriting ACE USA primarily distributes its insurance products through a limited group of brokers and wholesale brokers with whom long-term relationships have been forged. ACE USA's management believes the match between its expertise and that of its brokers is one of the key reasons brokers place business with it. The majority of premium volume is currently derived from a limited number of brokers with whom ACE USA has established mutually significant relationships. Certain products are also distributed through general agents, independent agents and financial institutions. The following table sets forth the percentage of ACE USA's business written through brokers placing more than 10 percent of ACE USA's business:
Year ended Nine months ended December 31, September 30, Name 1999 1998 ---- ------------ ----------------- Rain & Hail Insurance Services(1)(2).......... 14% -- Aon Corporation(2)............................ 4% 18%
- -------- (1) Rain & Hail Insurance Services is a managing agency that specializes in crop insurance, most of which is federally reinsured. (2) The calculation for determining business provided to ACE USA by outside brokers includes premiums from both ACE US Holdings and the U.S. operations of ACE INA which are included from July 2, 1999, the date of acquisition. Operating in a market in which capacity and price adequacy for its products can change dramatically, ACE USA's underwriting strategy is to employ consistent, disciplined pricing and risk selection in order to maintain an attractive book of business. Management's priority is to ensure that criteria for risk selection are closely adhered to by its underwriting professionals and to maintain sufficient experience and expertise in its underwriting staff. ACE USA has the ability to write business on an admitted basis using forms and rates as filed with state insurance regulators and on a non-admitted, or surplus lines basis using flexible forms and rates not filed with state insurance regulators. Having access to a non-admitted carrier provides the flexibility to write non-standard coverage. 10 Competition ACE USA operates in a highly competitive industry and faces competition from both domestic and foreign insurers. Competition in the U.S. property and casualty market is based on many factors including financial strength of the insurer, ratings assigned by rating companies, premiums charged, policy terms and conditions, reputation, services offered and broker commissions. The markets in which ACE USA competes are subject to significant cycles of fluctuating capacity and wide disparities in price adequacy. ACE USA's strategy in its competitive environment has been to grow when conditions are favorable for a particular product line and to reduce writings and preserve capital when competitive pricing prevents adequate returns. The domestic operations pursue a specialist strategy and focus on those market segments where they can compete effectively based on service levels and product design and achieve an adequate level of profitability. They offer experienced claims handling, loss control and risk management staffs with proven expertise in specialty fields, including large-risk property and casualty, recreational and ocean marine, aviation, and worker's compensation. A competitive strength of all the domestic units, especially special risk facilities, is the ability to deliver global products and coverages to customers in concert with the international property and casualty operations. Insurance Ratings ACE USA's active and inactive operating subsidiaries have received ratings from A.M. Best of A and B+, respectively. These companies have claims paying ability ratings from S&P of A+ and BBB, respectively. Claims Administration The claims organization supports both ACE USA national accounts (Special Risk) and specialty insurance businesses with a national network of experts in claims and risk management services. A dedicated team of seasoned claim and risk control professionals support each specialty insurance with the unique expertise needed to effectively manage loss costs for the risk exposures underwritten by businesses of ACE USA. Specialized loss cost containment programs have been designed for marine risk, aerospace risk, global property risk, warranty programs, excess risk, inland marine risk, diversified products and professional risk services. The Special Risk Business is supported by ESIS. ESIS markets loss control, risk information and claims services to large corporate customers on a fee-for- service basis. ACE International Principal Business ACE International's operations provide insurance coverage and services on a worldwide basis excluding the United States. The principal business operations are property & casualty and accident & health. Operating management is carried out through four regional teams: Europe, Far East, Asia/ Pacific and Latin America. The international property and casualty operations are conducted through a specialist insurance organization offering capacity and technical expertise in the underwriting of large and unique risks for targeted commercial customer segments, as well as individual coverages in selected markets. Its property insurance products include traditional commercial fire coverage as well as energy industry-related and other technical coverages. Principal casualty products are commercial general liability and liability coverage for multinational organizations. Marine cargo and hull coverages are written in the London market as well as in marine markets throughout the world. The operations also design and implement risk-financing alternatives for customers whose approach to risk management includes some form of self-insurance. The international accident and health insurance operations provide products that are designed to meet the insurance needs of individuals and groups outside of U.S. insurance markets. These products include accidental death, medical, hospital indemnity and income protection coverages. 11 ACE International reduces its exposure to economic loss arising from foreign exchange by maintaining invested assets abroad in the same currency as the related liabilities. Marketing and Underwriting ACE International maintain a sales or operational presence in major insurance markets around the world. Its property and casualty business is generally written, on both a direct and assumed basis, through major international and local brokers. Accident and health and other personal lines products are distributed through agents, financial institutions and various direct marketing channels. ACE International's operations are diversified by line of business and geographic spread of risk. A global approach to risk management allows each local operation to underwrite and accept large insurance accounts. Centrally controlled internal reinsurance mechanisms facilitate appropriate risk transfer and efficient, cost-effective use of external reinsurance markets No one broker placed more than 10 percent of ACE International's business in 1999. Competition The principal competitive factors that affect the international operations are underwriting and pricing, relative operating efficiency, product differentiation, producer relations and the quality of claims and policyholder services. A competitive strength of the international operations is its global network and breadth of insurance programs, which assist individuals and business organizations to meet their risk management objectives. Across all lines of business, the operations' primary competitors include U.S.-based companies with global operations, as well as other, non-U.S. global carriers and indigenous companies in regional and local markets. For the accident and health lines of business, locally based competitors include financial institutions and bank-owned insurance subsidiaries. Insurance Ratings ACE Europe has received a rating of A from A.M. Best and a claims paying ability rating of A+ from S&P. The company's operations in Canada, Puerto Rico, Asia Pacific and New Zealand have all received ratings of A from A.M. Best. The company's Argentina operations have received a claims paying ability rating of AAA- from S&P. Claims Administration The claims handling process is essentially decentralized with the management of most aspects occurring at an individual country level. The claims organization structure in each country is driven by the composition of the portfolio of the business. Outsourcing of certain functions may occur if appropriate and if it makes business sense to do so. ACE Financial Services Principal Business The ACE Financial Services segment is primarily comprised of the companies acquired in the Capital Re acquisition on December 30, 1999 and from January 1, 2000 ACE Capital Re International, a subsidiary of ACE Bermuda. Following the acquisition Capital Re was renamed ACE Financial Services Inc. The companies in the ACE Financial Services segment provide value-added insurance and reinsurance products in several specialty insurance markets which emphasize protection from credit or financial risks through financial guaranty coverages and financial risk coverages. The financial guaranty business is composed of municipal and non-municipal financial guaranty reinsurance and credit default swaps. The financial risks business is composed of mortgage guaranty reinsurance, trade credit reinsurance, title reinsurance and financial solutions. 12 The ACE Financial Services segment primarily carries out its business lines through six insurance companies. They are: ACE Guaranty Re Company (formerly Capital Reinsurance Company; "ACE Guaranty"), ACE Capital Re International Ltd. (formerly ACE Capital Re Limited; "ACRI"), Capital Mortgage Reinsurance Company (formerly Capital Mortgage Reinsurance Company; "ACE Capital Mortgage"), ACE Capital Re Bermuda Ltd. (formerly KRE Reinsurance Ltd.; "ACE Capital Re Bermuda") and ACE Capital Title Reinsurance Company (formerly Capital Title Reinsurance Company; "ACE Capital Title"). ACE Financial Services' financial guaranty division conducts its business primarily through ACE Guaranty. ACE Guaranty is a professional reinsurance company dedicated to serving the U.S. domestic and international financial guaranty insurance markets and has established itself as a leading specialty reinsurer (by market share) of financial guaranties of investment grade debt obligations, principally municipal and non-municipal debt obligations. Financial guaranty insurance is a type of credit enhancement in the form of a surety or insurance which is regulated under the insurance laws of various jurisdictions. The insurance provides an unconditional and irrevocable guaranty which indemnifies the insured against nonpayment of principal and interest when due by an obligor on an insured debt obligation. Additionally, the financial guaranty business sells municipal and non-municipal credit risk protection on a facultative basis to a wide variety of counterparties through credit default swap transactions. Although structured as financial derivatives, credit default swaps are functionally equivalent to financial guaranty insurance. The financial risk solutions business which is principally carried out by ACRI and ACE Capital Re Bermuda is focused on providing highly structured solutions to problems of financial and risk management through reinsurance, including credit enhancement, excess of loss and surplus management covers. The financial risk solutions business includes the reinsurance of mortgage guaranty insurance, trade credit reinsurance, and title insurance. Mortgage guaranty insurance is a specialized class of credit insurance, providing protection to mortgage lending institutions against the default of borrowers on mortgage loans which at the time of the advance had a loan-to-value ("LTV") ratio in excess of 80 percent. Trade credit insurance protects sellers of goods and services from the risk of non-payment of trade receivables and is a large, well-established specialty insurance product, particularly in Western Europe. Policyholders are generally covered for short-term exposures (generally less than 180 days and averaging 60-90 days) to insolvency or payment defaults by domestic and/or foreign buyers. Some export credit policies also cover political events which can disrupt either the flow of goods and services or payment for goods and services. Title insurance essentially provides the acquirer or the mortgagee of real property with two forms of coverage: the first assures that the search and examination of the real estate records upon which the acquirer or mortgagee is relying for good and clean title was properly performed, and the second form of coverage assures that all previously existing mortgages and liens will be paid off from the proceeds of the sale or refinancing of the property. Marketing and Underwriting The majority of ACE Financial Services' business is derived from relationships it has established and maintains with the major U.S. primary financial guaranty, mortgage guaranty and title insurers. European trade credit insurers, U.S. title insurers, United Kingdom mortgage guaranty insurers and Australian mortgage guaranty insurers also provide a significant portion of ACE Financial Services' business. The principle target market for the financial guaranty market is life, accident and health insurers and reinsurers, although specialty property and casualty markets also provide opportunities. The financial risks market derives its mortgage guaranty reinsurance business principally through direct relationships with primary mortgage guaranty insurance companies. Reinsurance intermediaries and brokers are used in accessing reinsurance opportunities in the United Kingdom and the international market. Trade credit reinsurance business opportunities have been developed principally through reinsurance brokers and intermediaries. ACE 13 Capital Title has developed substantially all of its business opportunities through direct contacts with primary title insurers. The financial solutions line of business has developed its opportunities through both direct contact with life and health and property-casualty insurers and through reinsurance intermediaries. The underwriting process for financial guaranty reinsurance business is premised on the ACE Capital Re's policy of reinsuring investment grade obligations. ACE Guaranty underwrites risks on a "zero loss" basis, meaning that each reinsured policy obligation has been evaluated by ACE Guaranty under a standard of no loss expectation. ACE Guaranty has organized its underwriting procedures to provide for multiple levels of credit review and analysis. The underwriting process used in the financial solutions line places significant emphasis on actuarial analysis. Transactions are either underwritten on a risk remote basis or are subject to an aggregate limit of liability for the reinsurer, standards that are compatible with the groups "zero loss" financial guaranty underwriting standard. Moreover, many financial solutions transactions provide for the payment of additional premium to the reinsurer in the event of poor loss experience on the reinsured business and for the payment of a profit commission to the reinsured in the event of favorable loss experience. Unlike the "zero loss" standard applied in financial guaranty insurance underwriting, mortgage guaranty insurance is underwritten with the expectation of loss. Under normal economic conditions and in a stable interest rate environment, loss ratios in this line of business are generally in the 15 percent to 40 percent range and are associated with frictional unemployment, divorce and other social factors. By avoiding geographic concentrations and employing prudent underwriting, mortgage insurers are better able to manage their risk. Trade credit reinsurance underwriters manage risk by modifying the terms of coverage, by diversifying exposures to control aggregations of risks to particular buyers, industries, or territories, and by developing sophisticated databases of credit and political information. Similar to the "zero loss" standard applied in financial guaranty insurance underwriting, title reinsurance is underwritten without the expectation of any significant loss. Competition Competition in the financial guaranty reinsurance business is based upon many factors, including overall financial strength, pricing, service and evaluation of claims-paying ability by the major rating agencies. ACE Guaranty also faces competition indirectly from other triple-A rated financial institutions which provide capital substitutes to the primary financial guaranty insurance companies. Competition is also a function of the ease with which primary insurers can raise capital in the private or public equity markets. Increased primary capital increases the ability of insurers to retain risk and the need for reinsurance in general is diminished. The Company is not aware of any other U.S. professional reinsurer which specializes in mortgage guaranty reinsurance, however, several non-US reinsurers do compete directly with ACE Capital Mortgage in several product areas. Some U.S. multiline reinsurers offer capacity to the mortgage guaranty market but their participation has been limited. Federal banks are now permitted to establish operating subsidiaries, known as lender-owned captives, to reinsure a portion of the mortgage insurance issued on loans originated or purchased by the bank or its lending affiliates. The growing use of lender- owned captives that assume risk from the primary mortgage insurers has materially altered mortgage guaranty insurance industry in that the primary insurers now cede a significant percentage of premium to lender-owned captives leaving less premiums available to purchase reinsurance from third parties. Competition is also a function of the ease with which primary insurers can raise capital in the private or public equity markets. Increased primary capital increases the ability of insurers to retain risk and reduces the need for reinsurance in general. The trade credit reinsurance market is led by several large traditional multiline insurers and reinsurers, who have been able to maintain their dominant market position in part through their ownership interests in 14 many of the leading primary companies. In addition to the market leaders, there are a large number of mainly European and U.S. reinsurers that compete for the business. Reciprocal reinsurance arrangements between primary companies are widespread, thus adding to the degree of competition in the industry. ACE Capital Title is the only U.S. professional reinsurer which specializes in third-party title reinsurance. To date, substantially all title reinsurance has been provided by the large title insurance companies, except for some minor excess coverage. The financial solutions line of business is generally highly competitive, with many life and health and property-casualty reinsurers offering products similar to, or in direct competition with, those offered by the group. Insurance Ratings The financial strength of ACE Guaranty is rated AAA by S&P and Aa2 by Moody's. In addition, ACE Guaranty's claims paying ability is rated AAA by Fitch IBCA. S&P and Moody's, assign the financial strength rating of a financial guaranty insurance company to the obligations insured by that company. Because all of the major U.S. primary financial guaranty insurance companies have triple-A financial strength ratings from these rating agencies, payment obligations insured by those companies are rated triple-A. The financial strength rating of a reinsurer is particularly important in the area of financial guaranty reinsurance, because that rating affects the amount of capital credit the rating agencies will allow to a ceding company in connection with a cession to that reinsurer. S&P will permit a AAA rated ceding company 100 percent credit for a cession only if the reinsurer is also triple A rated. Moody's does not have published standards for determining the amount of credit a Aaa rated ceding company will be permitted for a cession to an Aa2 rated reinsurer; however, the rating of the reinsurer is an important element in Moody's determination of the amount of permitted credit. ACE Capital Re International's financial strength is rated AA by S&P and its claims-paying ability is rated AA+ by Duff & Phelps. The financial strength of ACE Capital Re Bermuda, ACE Capital Mortgage and ACE Capital Title is rated AA by S&P, and each of those companies' claims paying ability is rated AA+ by Duff & Phelps. Unpaid Losses and Loss Expenses The Company is required to make provisions in its financial statements for the estimated unpaid liability for losses and loss expenses for claims made against it under the terms of its policies and agreements. Estimating the ultimate liability for losses and loss expenses is an imprecise science subject to variables that are influenced by both internal and external factors. This is true because claim settlements to be made in the future may be impacted by changing rates of inflation and other economic conditions, changing legislative, judicial and social environments and changes in the Company's claims handling procedures. In many liability cases, significant periods of time, ranging up to several years or more, may elapse between the occurrence of an insured loss, the reporting of the loss to the Company and the settlement of the Company's liability for that loss. After a claim is reported to the Company, a case reserve is established for the estimated ultimate losses and loss expenses, if any, with respect to the reported claim. The amount and timing of the reserve reflects the judgement of the claims personnel based upon general corporate reserving practices and on the experience and knowledge of the claims personnel (including, where appropriate, outside counsel and claim consultants) regarding the nature and value of the specific type of claim. The Company's reserves for asbestos-related and environmental pollution claims are a reasonable estimate of its liability for these claims, based upon currently known facts, current law, and reasonable assumptions and methodologies. The Company continually evaluates its reserves in light of developing information and in light of discussions and negotiations with its insureds. While the Company is unable at this time to determine whether 15 additional reserves, (which could have a material adverse effect upon the financial condition, results of operations and cash flows of the Company) may be necessary in the future, the Company believes that its reserve for unpaid losses and loss expenses are adequate as of December 31, 1999. The Company engages an independent actuarial firm to review the methods and assumptions used by the Company in estimating the unpaid losses and loss expenses. As stated in its actuarial review, the firm believes that the methods and assumptions used by the Company are reasonable and appropriate for use in setting loss reserves at December 31, 1999. Losses and loss expenses are charged to income as incurred. The reserve for unpaid losses and loss expenses represents the estimated ultimate losses and loss expenses less paid losses and loss expenses and is composed of case reserves, loss expense reserves and IBNR loss reserves. During the loss settlement period, which can be many years in duration, additional facts regarding individual claims and trends often will become known. As these become apparent, case reserves may be adjusted by allocation from the IBNR loss reserve without any change in the overall reserve. In addition, application of statistical and actuarial methods may require the adjustment of the overall reserves upward or downward from time to time. The final liability nonetheless may be significantly greater than or less than the prior estimates. The "Analysis of Losses and Loss Expenses Development" shown below presents the subsequent development of the estimated year-end liability for unpaid losses and loss expenses at the end of each of the years in the ten year period ended September 30, 1998 as well as for the fifteen month period ended December 31, 1999. Prior to December 31, 1999, the unpaid losses and loss expenses are in respect of annual periods ending on September 30 of each year. The top line of the table shows the estimated liability for unpaid losses and loss expenses recorded at the balance sheet date for each of the indicated periods. This liability represents the estimated amount of losses and loss expenses for claims arising from all prior years' policies and agreements that were unpaid at the balance sheet date, including IBNR loss reserves. The upper (paid) portion of the table presents the amounts paid as of subsequent periods on those claims for which reserves were carried as of each balance sheet date. The lower portion of the table shows the re-estimated amount of the previously recorded liability as of the end of each succeeding period. Several aspects of the Company's operations, including the low frequency and high severity of losses in the high excess layers in which the Company provides insurance, complicate the actuarial reserving techniques utilized by the Company. Accordingly, the Company expects that ultimate losses and loss expenses attributable to any single underwriting year will be either more or less than the incremental changes in the lower portion of the following table. Management believes, however, that the losses and loss expenses which have been recorded through December 31, 1999, are adequate to cover the ultimate cost of losses and loss expenses incurred through December 31, 1999 under the terms of the company's policies and agreements. Since such provisions are necessarily based on estimates, the ultimate losses and loss expenses may be significantly greater or less than such amounts. 16 Analysis of Losses and Loss Expenses Development
Years ended September 30, except for 1999 information which is for the fifteen month period ended December 31, 1999 --------------------------------------------------------------------------------- 1989 1990 1991 1992 1993 1994 1995 --------- -------- ---------- ----------- ---------- ---------- ---------- (in thousands of U.S. dollars) Unpaid $ 78,009 $319,230 $ 470,832 $ 813,849 $ 766,402 $1,176,215 $1,489,293 Paid (Cumulative) As Of: 1 year later.... 26,190 181,525 149,493 340,836 126,566 66,888 80,080 2 years later... 82,715 207,587 490,116 465,074 183,439 121,628 414,419 3 years later... 108,689 531,502 590,847 517,366 228,638 451,746 696,470 4 years later... 432,541 601,811 611,133 551,887 558,625 725,799 1,259,344 5 years later... 459,183 622,097 627,691 881,198 837,515 1,285,599 6 years later... 476,570 631,371 764,607 1,150,628 1,398,270 7 years later... 484,549 641,060 843,283 1,672,772 8 years later... 493,326 664,896 988,087 9 years later... 505,976 727,175 10 years later.. 525,950 Liability Re- estimated As Of: End of year..... $ 78,009 $319,230 $ 470,832 $ 813,849 $ 766,402 $1,176,215 $1,489,293 1 year later.... 267,674 475,647 706,960 813,849 966,402 1,177,292 1,489,293 2 years later... 346,022 665,533 706,960 1,085,012 1,067,987 1,227,538 1,489,293 3 years later... 516,783 665,533 874,368 1,234,462 1,211,424 1,386,571 1,480,426 4 years later... 516,783 663,480 888,387 1,412,495 1,429,990 1,401,329 1,495,443 5 years later... 487,911 680,119 940,513 1,666,770 1,442,523 1,472,394 6 years later... 489,556 711,671 1,113,662 1,703,103 1,580,022 7 years later... 479,306 768,935 1,099,102 1,852,125 8 years later... 484,041 771,018 1,142,511 9 years later... 488,646 808,239 10 years later.. 508,981 Cumulative Redundancy /(deficiency)... (430,972) (489,009) (671,679) (1,038,276) (813,620) (296,179) (6,150)
Years ended September 30, except for 1999 information which is for the fifteen month period ended December 31, 1999 -------------------------------------------- 1996 1997 1998 1999 ---------- ---------- ---------- ---------- Unpaid $1,892,302 $2,006,873 $2,678,341 $8,908,817 Paid (Cumulative) As Of: 1 year later.... 358,713 337,422 1,017,822 2 years later... 663,087 925,361 3 years later... 1,247,652 4 years later... 5 years later... 6 years later... 7 years later... 8 years later... 9 years later... 10 years later.. Liability Re- estimated As Of: End of year..... $1,892,302 $2,006,873 $2,678,341 8,908,817 1 year later.... 1,892,302 1,989,744 2,753,017 2 years later... 1,881,403 1,914,936 3 years later... 1,824,449 4 years later... 5 years later... 6 years later... 7 years later... 8 years later... 9 years later... 10 years later.. Cumulative Redundancy /(deficiency)... 67,853 91,937 (74,676) --
Net unpaid losses and loss expenses................................ $ 8,908,817 Reinsurance recoverable on unpaid losses........................... $ 7,551,430 ----------- Gross unpaid losses and loss expenses.............................. $16,460,247 ===========
Notes to Analysis of Losses and Loss Expenses - ------ (1) On July 2, 1999, the Company changed its fiscal year-end from September 30 to December 31. As a result, the information provided above for the 1999 year is actually for the 15 month period from October 1, 1998 through December 31, 1999. All prior periods represent years ending on September 30. (2) The Company does not consider it appropriate to extrapolate future deficiencies or redundancies based upon the above tables, as conditions and trends that have affected development of liability in the past may not necessarily occur in the future. (3) In 1994, the Company recorded an additional reserve of $200 million, related primarily to developments in breast implant litigation, in respect of years prior to 1994. (4) In 1992, the Company began applying actuarial and statistical methods to estimate ultimate expected losses and loss expenses for all of the Company's business since inception. At September 30, 1994 the Company changed its method of allocating IBNR to accident and balance sheet years. This allocation assigns IBNR to years based upon various risk factors including immaturity of year, amount of earned premium in that year, and development of known claims. As the Company's loss experience is characterized as low frequency, and high severity, IBNR is considered a bulk reserve, and is therefore available for loss development from whichever year it may arise. Prior to 1994, the allocation of IBNR to accident and balance sheet years was based upon a loss distribution indicated by the expected loss method employed by the Company. Losses paid for the year ending September 30, 1998 include an amount of $26.0 million, which is expected to be recovered from an insured. (5) On November 1, 1993, the Company acquired CODA, on July 1, 1996, the Company acquired Tempest Re and on July 9, 1998, the Company acquired Tarquin. The table has been restated to include CODA's, Tempest Re and Tarquin's loss experience as if each of these companies had been wholly owned subsidiaries of the Company from their inception. On January 2, 1998, the Company acquired ACE US Holdings, on April 1, 1998, the Company acquired CAT Limited and on July 2, 1999, the Company acquired ACE INA. The unpaid loss information for ACE US Holdings, CAT Limited and ACE INA has been included in the table commencing in the year of acquisition. As a result, 1999 includes net reserves of $6.8 billion related to ACE INA at the date of acquisition and subsequent development thereon. (6) The "cumulative redundancy/deficiency" shown in the table represents the aggregate change in the reserve estimates over all subsequent years. The amounts noted are cumulative in nature; that is, an increase in loss estimate for prior year losses generates a deficiency in each intermediate year. For instance, a deficiency recognized in 1994 relating to losses incurred during the year ending September 30, 1992 would be included in the cumulative deficiency amount for each year from September 30, 1992 to the year the loss was recognized (1994), yet the deficiency would be reflected in operating results only in 1994. An analysis of the changes in aggregate reserves for losses and loss expenses under GAAP is presented below. Since reserves are necessarily based upon estimates, the ultimate net costs may vary from the original estimates. As adjustments to these estimates become necessary, they are reflected in current operations. 17 Reconciliation of Unpaid Losses and Loss Expenses
Three Months Year Ended Ended Year Ended Year Ended December 31 December 31 September 30 September 30 1999 1998 1998 1997 ----------- ------------ ------------ ------------ (in thousands of U.S. dollars) Gross unpaid losses and loss expenses at beginning of period...... $ 3,678,269 $3,737,869 $2,111,670 $1,977,680 Reinsurance recoverable... (1,100,464) (1,059,528) (104,797) (85,378) ----------- ---------- ---------- ---------- Net unpaid losses and loss expenses at beginning of period................... 2,577,805 2,678,341 2,006,873 1,892,302 Unpaid losses and loss expenses assumed in respect of acquired companies (net of reinsurance recoverables of $6,345,679 in 1999 and $761,618 in 1998)........ 6,940,593 -- 731,949 -- Unpaid losses and loss expenses assumed in respect of reinsurance business acquired........ 183,774 -- 6,403 50,326 ----------- ---------- ---------- ---------- Total................. 9,702,172 2,678,341 2,745,225 1,942,628 =========== ========== ========== ========== Net losses and loss expenses incurred in respect of losses occurring in: Current period.......... 1,601,278 126,139 534,021 486,140 Prior periods........... 38,265 (14,970) (17,129) -- ----------- ---------- ---------- ---------- Total................. 1,639,543 111,169 516,892 486,140 =========== ========== ========== ========== Net losses and loss expenses paid in respect of losses occurring in: Current period.......... 916,848 24,977 246,354 63,182 Prior periods........... 1,516,050 186,728 337,422 358,713 ----------- ---------- ---------- ---------- Total................. 2,432,898 211,705 583,776 421,895 =========== ========== ========== ========== Net unpaid losses and loss expenses at end of period................... 8,908,817 2,577,805 2,678,341 2,006,873 Reinsurance recoverable on unpaid losses............ 7,551,430 1,100,464 1,059,528 104,797 ----------- ---------- ---------- ---------- Gross unpaid losses and loss expenses at end of period................... $16,460,247 $3,678,269 $3,737,869 $2,111,670 =========== ========== ========== ==========
Losses and loss expenses for 1999 include incurred losses for ACE INA from July 2, 1999, the date of acquisition. With respect to the analysis of incurred and paid losses for ACE INA for the 1999 period, all losses incurred and paid, on losses occurring in the period January 1, 1999 through December 31, 1999 have been included as current period activity. Incurred losses for the 15 month period ended December 31, 1999 were affected by adverse development on property catastrophe losses occurring prior to September 30, 1998 resulting from additional information with respect to the total value of certain losses becoming available to the market. In addition, ACE Bermuda had adverse development on certain excess liability and satellite claims. This development was somewhat offset by favorable development in the tailored risk solutions division, primarily the result of earnings generated by a large multi-year contract that expired and was not renewed during the period. Incurred losses during the period were also impacted by favorable development on ACE INA's prior period loss reserves. Investments The Company's primary investment objectives are to ensure that funds will be available to meet its insurance and reinsurance obligations and then, to maximize its rate of return on invested funds within 18 specifically approved constraints as to credit quality, liquidity and volatility. Accordingly, the Company's investment portfolio is invested primarily in fixed income instruments of high credit quality. The Finance Committee of the Board of Directors is responsible for the establishment of the Company's investment policy consistent with the company's strategies, goals and objectives. The investment policy is reviewed with, and approved by, the Board of Directors. Written investment guidelines, approved by the Finance Committee, document standards to ensure portfolio liquidity and diversification, maintain credit quality, and limit volatility within approved asset allocation guidelines. The use of financial futures, forwards and options contracts, as well as certain mortgage derivative securities which do not provide a planned stable structure of principal and interest payments, require prior approval from the Finance Committee. The consolidated investment portfolio is divided into three segments. Assets which are required to match and offset certain specifically identified liabilities are segregated in an asset-liability management ("ALM") segment. The second segment, the core portfolio, supports the current general insurance exposures and is structured to have low to moderate investment risk. The remainder of the portfolio, the discretionary segment, is invested to enhance total return and return on equity by taking on additional investment risks within prudent limits. The core and discretionary portfolios are managed by professional outside managers whose performance is measured against certain recognized broad market indices. Funds are invested primarily in both U.S. and non-U.S. dollar denominated high-quality fixed maturity and equity securities and short-term investments. Fixed maturity investments include government bonds, preferred shares, publicly traded and privately placed corporate bonds, mortgage-backed securities and asset-backed securities. The majority of the non-U.S. dollar denominated fixed income securities are government-backed. At December 31, 1999, the consolidated investment portfolio was comprised of 89 percent fixed income securities and 11 percent equity. The Company's investment guidelines limit investments in high yield and convertible bonds rated B or better to 5 percent each of the consolidated investment portfolio. To ensure diversity and limit concentrations of credit risk, no more than 5 percent of the portfolio may be invested in the obligations of any one issuer (other than the U.S. government). An allocation has been made to alternative investments with the expectation that it will improve the overall risk/return profile of the portfolio. At December 31, this investment amounted to less than one percent of the consolidated investment portfolio. For additional information regarding the investment portfolio, including breakdowns of the sector and maturity distributions, see note 4 to the consolidated financial statements included in the 1999 Annual Report to Shareholders. Regulation ACE Limited's subsidiaries, in common with other insurers, are subject to regulation and supervision by the U.S. states and international jurisdictions in which they do business. The extent of such regulation most commonly has its source in statutes which delegate regulatory, supervisory and administrative power to a department of insurance. In the United States, regulation varies from state to state but generally requires that each insurance company register with the department of insurance of a state in order to transact business in that state. Regulations generally require reinsurance companies to furnish information concerning the operations of the company which may materially affect the operations, management or financial condition and solvency of the company. Regulations for reinsurers vary somewhat from primary insurers in that reinsurers are typically not subject to regulator approval of insurance policy forms or the rates agreed to between ceding insurers and their reinsurers. In general, insurance regulation is for the protection of the policyholders rather than shareholders. The extent of insurance regulation on business outside of the United States varies significantly among the countries in which the Company operates. Some countries have minimal regulation while other countries have very stringent regulatory requirements. In certain countries, foreign insurers face greater regulatory restrictions than their domestic competitors. Trade barriers include discriminatory licensing procedures, compulsory cessions of reinsurance, required localization of records and funds, higher premium and income taxes, and requirements for local participation in an insurer's ownership. 19 Bermuda In Bermuda, the Company's insurance subsidiaries are regulated by the Insurance Act 1978 (as amended by the Insurance Amendment Act 1995) and related regulations (the "Act"). The Act imposes on Bermuda insurance companies solvency and liquidity standards and auditing and reporting requirements and grants the Minister of Finance (the "Minister") powers to supervise, investigate and intervene in the affairs of insurance companies. Each registered insurer must appoint an independent auditor to audit and report on the Statutory Financial Statements and Statutory Financial Return on an annual basis. Each company must also appoint a loss reserve specialist to review and report on the loss reserves of the insurer on an annual basis. United Kingdom United Kingdom and Lloyd's Regulation The Company, certain of its UK subsidiaries and some staff employed within the Lloyd's operations are currently subject to the regulatory jurisdiction of the Council of Lloyd's (the "Council"). This jurisdiction arises by virtue of the Company being a controller of each of the Lloyd's managing agencies and the Corporate Members in which it has an interest. Certain other subsidiaries have also been approved as controllers, and are similarly subject to Lloyd's jurisdiction. Under English law, there are restrictions on the interests Lloyd's brokers or parties connected to Lloyd's brokers may have in Lloyd's managing agents or certain of their related entities. This position may change dependant upon the outcome of the consultation process in relation to brokers referred to below. Under legislation expected to be passed during 2000, the Financial Services Authority ("FSA") will become the single UK statutory regulator to supervise securities, banking and insurance business, including Lloyd's. The FSA will have wide powers to make rules, and it is envisaged these will replace the existing statutory and self regulatory arrangements relevant to these areas. A consultation process has commenced in relation to the Lloyd's regulatory framework. The Company and its subsidiaries will seek any necessary authorizations and permissions in relation to its Lloyd's operations as may be required under any new regulatory framework. Regulation of Lloyd's Entities in the United States Direct business can be written on either a licensed or a non-admitted (which includes surplus lines) basis. Licensed insurers are subject to regulation of both solvency margin and business practices such as premium rate and policy form control. Non-admitted insurers are not subject to rate and form control in most states, but regulators manage the entry to the surplus lines market by imposing minimum solvency and trust requirements for insurers wishing to be deemed "eligible" surplus lines insurers. Insurer licensing requirements do not apply to reinsurers and as a result both licensed and non-admitted reinsurers may write reinsurance in the U.S. The trading status of underwriters at Lloyd's in the U.S. is supported by a unique trust fund structure. The trust funds were reviewed and restructured in August 1995 in consultation with the New York Insurance Department, which acts as the domiciliary commissioner for Lloyd's U.S. trust funds held in the state of New York. Prior to August 1995, all U.S. dollar premiums were deposited and held in the Lloyd's American Trust Fund (LATF), regardless of the actual situs of the risk. The LATF continues to support risks for U.S. business incepting prior to August 1995, but the trust fund and accounting arrangements have changed for U.S. dollar business incepting after August 1, 1995. These include the creation of a Lloyd's Dollar Trust Fund in the UK and a series of deposit trust funds in the U.S. There are additional trust fund arrangements in certain U.S. states. 20 ACE International The extent of insurance regulation varies significantly among the countries in which ACE conducts its international operations. As a foreign insurer, ACE is, in many countries, faced with greater restrictions than domestic competitors. Trade barriers include discriminatory licensing procedures, compulsory cessions of reinsurance, required localization of records and funds, higher premium and income taxes, and requirements for local participation in an insurer's ownership. Where appropriate, ACE operates through local insurance subsidiaries to improve its position. United States of America U.S. Operations Although at the present time there is limited federal regulation of the insurance business in the U.S., the U.S. insurance subsidiaries are subject to extensive regulation in the states in which they do business. The laws of the various states establish supervisory agencies with broad authority to regulate, among other things, licenses to transact business, rates for certain business, policy language, underwriting and claims practices, transactions with affiliates, reserve adequacy, dividends and insurer solvency. In addition, the U.S. insurance subsidiaries are subject to legislative measures and judicial decisions that define the risks and benefits for which insurance is sought and provided. These include redefinitions of insured risk in such areas as product liability and environmental coverages. The U.S. insurance subsidiaries are required to file detailed annual reports with state insurance regulators in each of the states in which they do business. Such annual reports are required to be prepared on a calendar year basis. In addition, the U.S. insurance subsidiaries' operations and accounts are subject to examination at regular intervals by state regulators. The respective reports filed by the insurance regulations with respect to the most recent periodic examinations of the U.S. insurance subsidiaries, contained no material adverse findings. Statutory surplus is an important measure utilized by the regulators and rating agencies to assess the Company's U.S. insurance subsidiaries' ability to support business operations and provide dividend capacity. The Company's U.S. insurance subsidiaries are subject to various state statutory and regulatory restrictions that limit the amount of dividends that may be paid without prior approval from regulatory authorities. These restrictions differ by state, but are generally based on calculations incorporating statutory surplus, statutory net income, and/or investment income. State insurance regulators have adopted Risk Based Capital ("RBC") requirements that are applicable to the U.S. insurance subsidiaries. These RBC requirements are designed to monitor capital adequacy and to raise the level of protection that statutory surplus provides for policyholders. The RBC formula provides a mechanism for the calculation of an insurance company's Authorized Control Level (the "ACL") RBC amount. The initial RBC level which triggers regulatory action is known as the Company Action Level. Failure to achieve this level of RBC, which occurs if policyholders' surplus falls below 200 percent of the ACL, requires the insurance company to submit a plan of corrective action to the relevant insurance commissioner. There are several additional progressive RBC failure levels, which trigger more stringent regulatory action. An insurance commissioner may allow a property and casualty company at or below the mandatory control level that is writing no business and is running off its existing business to continue its run-off. Based on the RBC formula, at December 31, 1998, the policyholders' surplus of each of the ongoing U.S. insurance subsidiaries was higher than the Company Action Level. The subsidiaries in the run-off operations are running off their liabilities consistent with the terms of an Order by the Commissioner of Pennsylvania which includes periodic reporting obligations to the Pennsylvania Insurance Department, as the Commissioner has determined that these subsidiaries have sufficient assets to meet their obligations. In November 1999, the U.S. Congress passed the Gramm-Leach-Bliley Act (GLBA), financial modernization legislation that reshapes the regulation of the financial services industry in the United States. 21 GLBA repeals provisions of the Glass-Steagall Act and Bank Holding Company Act that had prevented affiliation between banks, broker-dealers and insurers. This legislation defines regulatory supervisory responsibility for newly created Financial Holding Companies. The law purports largely to preserve functional regulation of insurance companies and agents by state insurance departments. However, until the Federal Reserve issues regulations implementing its new regulatory authority over Financial Holding Companies, it is not possible to predict the exact magnitude of the impact of GLBA on ACE. Further, until the full extent of the integration of banking, securities and insurance businesses is known, it is impossible to predict the impact of this law on competition in the markets in which ACE operates. Non-U.S. Operations The Company and its non-U.S. insurance subsidiaries, excluding its Lloyd's operations, are not admitted to do business as insurers in any jurisdiction in the U.S. Each state in the U.S. licenses insurers and prohibits, with some exceptions, the sale of insurance by non-admitted insurers within its jurisdictions. Many states impose a premium tax (typically 2 percent to 4 percent of gross premiums) on insureds obtaining insurance from non-admitted foreign insurers, such as ACE Bermuda. The premiums charged by the Company do not include any U.S. state premium tax. Each insured is responsible for determining whether it is subject to any such tax and for paying such tax as may be due. The U.S. Internal Revenue Code also imposes on policyholders an excise tax on insurance and reinsurance premiums paid to foreign insurers or reinsurers with respect to risks located in the United States. The rates of tax applicable to premiums paid to ACE Bermuda are 4 percent for insurance premiums and 1 percent for reinsurance premiums. There can be no assurance that new or additional legislation in the U.S. will not be proposed and enacted that has the effect of subjecting the Company's non-U.S. insurance subsidiaries; excluding its Lloyd's operations to regulation in the U.S. Tax Matters Corporate Income Tax ACE Limited is a Cayman Islands corporation that operates as a holding company with offices only in Bermuda and does not pay U.S. corporate income taxes (other than withholding taxes on dividends or on intercompany interest income) on the basis that it is not engaged in a trade or business in the U.S. However, there can be no assurance that the Internal Revenue Service ("IRS") will not contend to the contrary. If ACE Limited were subject to U.S. income tax, there could be a material adverse effect on the Company's shareholders' equity and earnings. ACE Limited and its Bermuda-based insurance and reinsurance subsidiaries do not file U.S. income tax returns reporting income subject to U.S. income tax since they do not conduct business within the U.S. However, ACE Limited and its Bermuda-based insurance and reinsurance subsidiaries have filed protective tax returns reporting no U.S. income to preserve their ability to deduct their ordinary and necessary business expenses should the IRS successfully challenge their contention that none of their income is subject to a net income tax in the U.S. ACE has become aware of efforts by four U.S.-based insurance companies to introduce legislation that would impute taxable investment income to U.S. affiliates of Bermuda insurance companies. ACE does not believe that the putative legislation, as currently proposed, would have a material adverse effect on its results of operations. There can be no assurance that such legislation, or other legislation that could increase ACE's U.S. tax obligations, will not be enacted. Under current Cayman Islands law, ACE Limited is not required to pay any taxes on its income or capital gains. ACE Limited has received an undertaking that, in the event of any taxes being imposed, ACE Limited will be exempted from taxation in the Cayman Islands until the year 2013. 22 Under current Bermuda law, ACE Limited and its Bermuda subsidiaries are not required to pay any taxes on its income or capital gains. ACE Limited and the Bermuda subsidiaries have received an undertaking from the Minister of Finance in Bermuda that, in the event of any taxes being imposed, the Company will be exempt from taxation in Bermuda until March 2016. Income from the Company's operations at Lloyd's are subject to United Kingdom corporation taxes. Lloyd's is required to pay U.S. income tax on U.S. connected income ("U.S. income") written by Lloyd's syndicates. Lloyd's has a closing agreement with the IRS whereby the amount of tax due on this business is calculated by Lloyd's and remitted directly to the IRS. These amounts are then charged to the personal accounts of the Names/Corporate Members in proportion to their participation in the relevant syndicates. The Company's Corporate Members are subject to this arrangement but, as UK domiciled companies, will receive UK corporation tax credits for any U.S. income tax incurred up to the value of the equivalent UK corporation income tax charge on the U.S. income. ACE INA, ACE US Holdings, and ACE Financial Services are subject to income taxes imposed by U.S. authorities and will file U.S. tax returns. Certain international operations of the Company are also subject to income taxes imposed by the jurisdictions in which they operate. Related Person Insurance Income Each U.S. person who beneficially owns Ordinary Shares of the Company (directly or through foreign entities) on the last day of a non-U.S. insurance company subsidiary's fiscal year will have to include in such person's gross income for U.S. tax purposes a proportionate share (determined as described herein) of the related person insurance income ("RPII") of such insurance company subsidiary if the RPII of such insurance company subsidiary, determined on a gross basis, is 20 percent or more of that insurance company subsidiary's gross insurance income in such fiscal year. RPII is income attributable to insurance policies where the direct or indirect insureds are U.S. shareholders or are related to U.S. shareholders of the Company. RPII may be includible in a U.S. shareholder's gross income for U.S. tax purposes regardless of whether or not such shareholder is an insured. For the fiscal year ended December 31, 1999, the Company believes that gross RPII of each of its insurance company subsidiaries was below 20 percent for the year. Although no assurances can be given, the Company anticipates that gross RPII of each of its non-U.S. insurance company subsidiaries will be less than 20 percent of each such subsidiary's gross insurance income for subsequent years and the Company will endeavor to take such steps as it determines to be reasonable to cause its gross RPII to remain below such level. The RPII provisions of the Internal Revenue Code of 1986, as amended (the "Code"), have never been interpreted by the courts. Regulations interpreting the RPII provisions of the Code exist only in proposed form, having been proposed on April 16, 1991. It is not certain whether these regulations will be adopted in their proposed form or what changes or clarifications might ultimately be made thereto or whether any such changes, as well as any interpretation or application of RPII by the IRS, the courts, or otherwise, might have retroactive effect. Employees At December 31, 1999, the Company employed a total of 8,023 persons. Approximately 700 of the Company's employees are represented by various collective bargaining agreements, all of whom are outside the U.S., United Kingdom, and Bermuda. Of these employees 350 are employed in Japan and 142 in Italy. The remaining employees are in various countries in South America and Asia Pacific.
North Australia/ Asia Latin Bermuda America UK Europe New Zealand Pacific America - ------- ------- --- ------ ----------- ------- ------- 209 5,070 658 625 169 920 372
23 Item 2. Properties The Company operates from offices in almost 50 countries around the world. In Bermuda, the Company leases its principal offices from a joint venture company in which the Company has a 40 percent interest and there is an agreement with the joint venture partner which ensures the Company's ability to occupy a portion of the building until 2011. The Company is currently building new corporate headquarters in Bermuda that will house its Bermuda-based operations. It is expected that this facility will be available early in 2001. As part of the Company's acquisition of ACE INA, ACE assumed the lease of Two Liberty Place, in Philadelphia, which consists of approximately 1.25 million total square feet, and various other leases and properties in the US and other countries. The majority of all office facilities throughout the world, that are occupied by the Company and its subsidiaries, are leased. Item 3. Legal Proceedings The Company's insurance subsidiaries are subject to claims litigation involving disputed interpretations of policy coverages and in some jurisdictions, direct actions by allegedly injured persons seeking damages from policyholders. These lawsuits involving claims on policies issued by the Company's subsidiaries which are typical to the insurance industry in general and in the nmormal course of business, are considered in the Company's loss and loss expense reserves which are discussed in the unpaid losses and loss expenses discussion. In addition to claims litigation, the Company and its subsidiaries are subject to lawsuits and regulatory actions in the normal course of business that do not arise from or directly relate to claims on insurance policies. This category of business litigation typically involves, inter alia, allegations of underwriting errors or misconduct, employment claims, regulatory activity or disputes arising from the Company's business ventures. While the outcomes of the business litigation involving ACE cannot be predicted with certainty at this point, ACE is disputing and will continue to dispute allegations against it that are without merit and believes that the ultimate outcomes of matters in this category of business litigation will not have a material adverse effect on its financial condition, future operating results or liquidity. Item 4. Submission of Matters to a Vote of Security Holders No matters were submitted to a vote of stockholders during the fourth quarter of the fiscal year covered by this report. 24 EXECUTIVE OFFICERS OF THE COMPANY The table below sets forth the names, ages, positions and business experience of the executive officers of the Company.
Name Age Position ---- --- -------- Brian Duperreault........ 52 Chairman, Chief Executive Officer & Director Donald Kramer............ 62 Vice Chairman and Director Dominic J. Frederico..... 46 President and Chief Operating Officer. John Charman............. 47 Chief Executive Officer of ACE Global Markets John Engestrom........... 57 President and Chief Executive Officer, Tempest Reinsurance Company Limited Jerome F. Jurschak....... 52 President and Chief Executive Officer, ACE Financial Services Dennis B. Reding......... 51 President and Chief Executive Officer of ACE USA Gary Schmalzriedt........ 53 President and Chief Executive Officer of ACE Bermuda Insurance, Ltd. B. Kingsley Schubert..... 53 President and Chief Executive Officer of ACE International Christopher Z. Marshall.. 43 Chief Financial Officer Peter N. Mear............ 55 General Counsel & Secretary Keith P. White........... 56 Chief Administration Officer Robert Blee.............. 37 Chief Accounting Officer John C. Burville......... 52 Chief Actuary Robin J.W. Masters....... 44 Chief Investment Officer (resigned effective May 31, 2000)
Brian Duperreault has been a director of ACE since October 1994. Mr. Duperreault has served as Chairman and Chief Executive Officer of ACE since November 1999 and as Chairman, President and Chief Executive Officer of ACE from October 1994 through November 1999. Prior to joining ACE, Mr. Duperreault had been employed with American International Group ("AIG") since 1973 and served in various senior executive positions with AIG and its affiliates from 1978 until September 1994, most recently as Executive Vice President, Foreign General Insurance and, concurrently, as Chairman and Chief Executive Officer of American International Underwriters Inc., a subsidiary of AIG, from April 1994 to September 1994. Mr. Duperreault was President of American International Underwriters Inc. from 1991 to April 1994, and Chief Executive Officer of AIG affiliates in Japan and Korea from 1989 until 1991. Donald Kramer has been a director and Vice Chairman of ACE since July 1996 following the acquisition of Tempest. Mr. Kramer served as Chairman or Co- Chairman of the Board of Tempest from its formation in September 1993 until July 1996 and was President of Tempest from July 1996 until 1999. Tempest was acquired by the Company on July 1, 1996. Prior to the formation of Tempest, he was President of Kramer Capital Corporation (venture capital investments) from March to September 1993, President of Carteret Federal Savings Bank (banking) from August 1991 to March 1993, Chairman of the Board of NAC Re Corporation (reinsurance) from June 1985 to June 1993, Chairman of the Board and Chief Executive Officer of KCP Holding Company (insurance) from July 1986 to August 1991 and of its affiliates, KCC Capital Managers (insurance investments) and Kramer Capital Consultants, Inc. (insurance investments), as well as Chairman of the Board of its subsidiary, National American Insurance Company of California (insurance) from September 1988 to August 1991. Dominic J. Frederico has served as President and Chief Operating Officer of ACE and non-executive Chairman of ACE INA since November 1999. Mr. Frederico has also served as Chairman, President and Chief Executive Officer of ACE INA from May 1999 through November 1999. Mr. Frederico previously served as 25 President of ACE Bermuda since July 1997, Executive Vice President, Underwriting since December 1996, and as Executive Vice President, Financial Lines from January 1995 to December 1996. Mr. Frederico served in various capacities at AIG in Europe and the U.S. from 1982 to January 1995, most recently as Senior Vice President and Chief Financial Officer of an AIG subsidiary, with multi-regional general management responsibilities. John Charman has served as Chief Executive Officer of ACE Global Markets since July 1998, and continues to act as Active Underwriter to Lloyd's Syndicate 488/2488. Mr. Charman has been the Active Underwriter of Syndicate 488 since July 1986. Mr. Charman previously served as Managing Director of Charman Underwriting Agencies Limited, and since 1994, as Chief Executive of Tarquin Underwriters Limited, the corporate capital provider of Syndicate 2488. John Engestrom has served as President and Chief Executive Officer of Tempest Re since May 1999. From 1997 to May 1999, Mr. Engestrom served as Chief Executive Officer of Liberty Re in London. From 1992 to 1997, Mr. Engestrom served as Group Chief Executive of Mercantile and General Reinsurance Company. Mr. Engestrom began his reinsurance career at Skandia where he held various positions including Chief Operating Officer Treaty division Europe, Chief Underwriting Officer North America and finally head of Reinsurance Skandia Group worldwide. Jerome F. Jurschak joined ACE in December 1999 as President and Chief Executive Officer of ACE Financial Services when ACE acquired Capital Re. Mr. Jurschak previously served as Chief Executive Officer and President of Capital Re from 1998 to 1999. Mr. Jurschak joined Capital Re in 1987 and served as its Chief Underwriting Officer from 1987 to 1998. Prior to joining Capital Re, Mr Jurschak was Senior Vice President and Chief Underwriting Officer of financial guaranty reinsurance for Guaranty Holdings Corporation, a subsidiary of the Old Republic Insurance Company. Dennis B. Reding joined ACE in 1998 as President and CEO of ACE USA when the Company acquired Westchester Specialty Group Inc. ("WSG"). In July 1999 his role as President and CEO of ACE USA expanded to include the domestic operations of ACE INA. Mr. Reding previously served as President and Chief Executive Officer of WSG, a position he held since July 1993. Prior to joining WSG, Mr. Reding served in various senior positions at Fireman's Fund Insurance Company. Gary Schmalzriedt has been President and Chief Executive Officer of ACE Bermuda since July 1999. Since 1991, Mr. Schmalzriedt has served in several senior capacities with CIGNA, most recently, since 1998, serving as Chairman and Chief Executive Officer of CIGNA Europe. Mr. Schmalzriedt originally joined CIGNA as Senior Vice President, Property Underwriting and later became responsible for managing CIGNA International's property and casualty related businesses. Prior to joining CIGNA, Mr. Schmalzriedt spent nearly 20 years in various positions of increasing responsibility with AIG, including assignments in the U.K. and South Africa and most recently, Senior Vice President and Senior Underwriting Officer of American International Underwriters, where he managed AIG's foreign operations. B. Kingsley Schubert has served as President and Chief Executive Officer of ACE International since July 1999. Mr. Schubert previously served as President of CIGNA International Property and Casualty since January 1999, and as President of CIGNA International from February 1996 to January 1999. Mr. Schubert served as Senior Vice President of CIGNA International (Asia-Pacific) from March 1995 to February 1996, and as President of CIGNA Insurance Company in Japan from June 1992 to February 1996. Christopher Z. Marshall joined ACE in 1986 and has held a number of senior positions at ACE, most recently as Chief Financial Officer of ACE (since November 1992) and as Senior Vice President, Finance from January 1990 to November 1992. Peter N. Mear has served as General Counsel and Secretary of ACE since April 1996. Mr. Mear served as Vice President and Claims Counsel of Aetna Casualty and Surety Company from February 1991 to April 1996 and Counsel and Litigation Section Head of Aetna Life & Casualty from September 1977 to February 1991. 26 Keith P. White has served as Chief Administration Officer of ACE since July 1, 1997. Mr. White previously served as Senior Vice President, Administration of ACE since January 1990. Robert A. Blee has served as Chief Accounting Officer of ACE since October 1998. Mr. Blee served as Group Controller of ACE from January 1997 to October 1998, Vice President-Finance of ACE from July 1996 to January 1997, Assistant Vice President and Assistant Controller from October 1994 to July 1996 and Chief Accountant from August 1993 to October 1994. John C. Burville has served as Chief Actuary of ACE since January 1992. Mr. Burville served as Managing Actuarial Consultant with Tillinghast, Nelson & Warren (Bermuda) Ltd. (management consulting and actuaries) from March 1986 to December 1991. Robin J. W. Masters has served as Chief Investment Officer of ACE since July 1, 1997. Ms. Masters previously served as Senior Vice President since February 1995 and as Treasurer of the Company since October 1992. Mrs. Masters has resigned from ACE effective May 31, 2000. PART II Item 5. Market for the Registrant's Ordinary Shares and Related Stockholder Matters (a) The Company's Ordinary Shares, par value $0.041666667 per share, have been listed on the New York Stock Exchange since March 25, 1993, under the symbol ACL. On November 13, 1997, the Company declared a three-for-one split of the Company's stock. The stock split was voted on and approved by the shareholders of the company on February 6, 1998. The record date for determining those shareholders entitled to receive certificates representing additional shares pursuant to the stock split was as of close of business on February 17, 1998. Certificates representing the additional shares of stock were mailed on March 2, 1998. The following table sets forth the high and low closing sales prices of the Company's Ordinary Shares per fiscal quarters, as reported on the New York Stock Exchange Composite Tape for the periods indicated:
1999 1998 ------------------ ------------------- High Low High Low -------- --------- --------- --------- Quarter ending March.................. $33 5/8 $25 15/16 $40 15/16 $30 27/64 Quarter ending June................... 34 7/8 27 3/8 40 5/16 34 7/16 Quarter ending September.............. 28 7/16 16 9/16 42 1/8 26 15/16 Quarter ending December............... 21 9/16 15 1/2 34 13/16 25 7/16
The last reported sale price of the Ordinary Shares on the New York Stock Exchange Composite Tape on March 23, 2000 was $18 11/16. (b) The approximate number of record holders of Ordinary Shares as of March 23, 2000 was 2,608. (c) The following table represents dividends paid per share to shareholders of record on each of the following dates.
1999 1998 ----- ----- Shareholders of Record as of: March 31..................................................... $0.09 $0.08 June 30...................................................... $0.11 $0.09 September 30................................................. $0.11 $0.09 December 31(1)............................................... $0.11 $0.09
- -------- (1) The December 31, 1999 figure represents dividends declared on November 19, 1999 and paid on January 14, 2000. On April 14, 1998, the Company sold 16.5 million Ordinary Shares for net proceeds of approximately $606 million. 27 ACE is a holding company whose principal source of income is investment income and dividends from its operating subsidiaries. The ability of the operating subsidiaries to pay dividends to ACE and the Company's ability to pay dividends to its shareholders are each subject to legal and regulatory restrictions. The declaration and payment of future dividends will be at the discretion of the Board of Directors and will be dependent upon the profits and financial requirements of the Company and other factors, including legal restrictions on the payment of dividends and such other factors as the Board of Directors deems relevant. See "Management's Discussion and Analysis of Results of Operations and Financial Condition, Liquidity and Capital Resources" in the 1999 Annual Report to Shareholders filed with this Form 10-K. Item 6. Selected Financial Data Selected financial data for the year ended December 31, 1999, the three month period ended December 31, 1998 and the four years ended September 30, 1998 is incorporated by reference to page 1 of exhibit 13.1 filed with this Form 10-K. Item 7. Management's Discussion and Analysis of Results of Operations and Financial Condition This item is incorporated by reference to pages 18 through 36 of the 1999 Annual Report to Shareholders filed with this Form 10-K. Item 7A. Quantitative and Qualitative Disclosures about Market Risk This item is incorporated by reference to page 34 of the 1999 Annual Report to Shareholders filed with this Form 10-K. Item 8. Financial Statements and Supplementary Data This item is incorporated by reference to pages 37 through 79 of the 1999 Annual Report to Shareholders filed with this Form 10-K. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There have been no changes in nor any disagreements with accountants on accounting and financial disclosure within the 27 months ended December 31, 1999. 28 PART III Item 10. Directors and Executive Officers of the Registrant This item is incorporated by reference to the sections entitled "Election of Directors--Nominees for Election to Terms Expiring in 2000," "Election of Directors--Nominees for Election to Terms Expiring in 2001" and "Election of Directors--Directors Whose Terms of Office Will Continue After This Meeting" of the definitive proxy statement for the Annual General Meeting of Shareholders to be held on June 9, 2000, which involves the election of directors and will be filed with the Securities and Exchange Commission not later than 120 days after the close of the fiscal year pursuant to regulation 14A. Item 11. Executive Compensation This item is incorporated by reference to the section entitled "'Executive Compensation" of the definitive proxy statement for the Annual General Meeting of Shareholders to be held on June 9, 2000, which will be filed with the Securities and Exchange Commission not later than 120 days after the close of the fiscal year pursuant to regulation 14A. Item 12. Security Ownership and Certain Beneficial Owners and Management This item is incorporated by reference to the section entitled "Beneficial Ownership of Ordinary Shares" of the definitive proxy statement for the Annual General Meeting of Shareholders to be held on June 9, 2000, which will be filed with the Securities and Exchange Commission not later than 120 days after the close of the fiscal year pursuant to regulation 14A. Item 13. Certain Relationships and Related Transactions This item is incorporated by reference to the section entitled "Election of Directors-Certain Business Relationships" of the definitive proxy statement for the Annual General Meeting of Shareholders to be held on June 9, 2000, which will be filed with the Securities and Exchange Commission not later than 120 days after the close of the fiscal year pursuant to regulation 14A. 29 PART IV Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K (a) Financial Statements, Schedules and Exhibits 1. Financial Statements The following is a list of financial statements filed as part of this Report, all of which have been incorporated by reference to the material in the 1999 Annual Report to Shareholders as described under item 8 of this Report -- Report of Independent Accountants -- Consolidated Balance Sheets at December 31, 1999 and 1998 -- Consolidated Statements of Operations for the year ended December 31, 1999, the three months ended December 31, 1998 and the years ended September 30, 1998 and 1997 -- Consolidated Statements of Shareholders' Equity for the year ended December 31, 1999, the three months ended December 31, 1998 and the years ended September 30, 1998 and 1997 -- Consolidated Statements of Cash Flows for the year ended December 31, 1999, the three months ended December 31, 1998 and the years ended September 30, 1998 and 1997 -- Notes to Consolidated Financial Statements. 2. Financial Statement Schedules Included in Part IV of this report.
Schedule Number Page -------- ---- -- Report of Independent Accountants on financial statement schedules included in Form 10-K........................... 34 -- Summary of Investments.................................... I 35 -- Condensed financial information of the Registrant as of December 31, 1999 and 1998 and for the year ended December 31, 1999, the three months ended December 31, 1998 and the years ended September 30, 1998 and 1997................... II 36 -- Supplemental information concerning Property/Casualty Insurance Operations........................................ VI 39
Other schedules have been omitted as they are not applicable to the Company, or the required information has been included in the financial statements and related notes. 3. Exhibits 2.1 Amended and Restated Agreement and Plan of Merger, dated as of October 26, 1999 among Capital Re Corporation, ACE Limited and CapRe Acquisition Corp. (incorporated by reference to Exhibit 2.1 to Registration Statement on Form S-4 (No. 333-90927) 2.2 First Amendment to Amended and Restated Agreement and Plan of Merger, dated as of November 29, 1999, among Capital Re Corporation, ACE Limited and CapRe Acquisition Corp. (incorporated by reference to Exhibit 2.5 to Registration Statement on Form S-4 (No. 333-90927) 2.3 Acquisition Agreement, dated as of January 11, 1999, among CIGNA Corporation, CIGNA Holdings, Inc. and ACE Limited (incorporated by reference to Exhibit 2.1 of Form 8-K current report (Date of earliest event reported: July 2, 1999)) 2.4 Amendment No. 1 to Acquisition Agreement, dated as of July 2, 1999, CIGNA Corporation, CIGNA Holdings, Inc. and ACE Limited (incorporated by reference to Exhibit 2.2 of Form 8-K current report (Date of earliest event reported: July 2, 1999)) 2.5 Amendment No. 2 to Acquisition Agreement, dated as of July 2, 1999, CIGNA Corporation, CIGNA Holdings, Inc. and ACE Limited (incorporated by reference to Exhibit 2.3 of Form 8-K current report (Date of earliest event reported: July 2, 1999)) 3.1 Memorandum of Association of the Company (incorporated by reference to Exhibit 3.1 to Form 10-K for the year ended September 30, 1998). 3.2 Articles of Association of the Company (incorporated by reference to Exhibit 3.2 to Form 10-K for the year ended September 30, 1998). 4.1 Memorandum of Association of the Company (see Exhibit 3.1). 4.2 Articles of Association of the Company (see Exhibit 3.2).
30 4.3 Specimen certificate representing Ordinary Shares, (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-1 of the Company (No. 33-57206)). 4.4 Form of the Declaration of Terms of Capital Re LLC 7.65% Cumulative Monthly Income Preferred Shares, Series A, January 24, 1994 (incorporated by reference to Exhibit 4.2 to Capital Re's Registration Statement on Form S-3 (Reg. No. 33-72090)). 4.5 Form of Liability Assumption Agreement dated as of January 24, 1994 between Capital Re Corporation and Capital Re LLC (incorporated by reference to Exhibit 99.2 to Capital Re's Registration Statement on Form S-3 (Reg. No. 33-72090)). 4.6 Form of Loan Agreement dated as of January 24, 1994, between Capital Re Corporation and Capital Re LLC (incorporated by reference to Exhibit 99.1 to Capital Re's Registration Statement on Form S-3 (Reg. No. 33- 72090)). 4.7 Form of Payment and Guarantee Agreement dated as of January 24, 1994 by Capital Re Corporation and Capital Re LLC (incorporated by reference to Exhibit 4.1 to Capital Re's Registration Statement on Form S-3 (Reg. No. 33-72090)). 10.1* ACE Limited Annual Performance Incentive Plan, (incorporated by reference to Exhibit 10.13 to the Registration Statement on Form S-1 of the Company (No. 33-57206)). 10.2* ACE Limited Equity Linked Incentive Plan, (incorporated by reference to Exhibit 10.14 to the Registration Statement on Form S-1 of the Company (No. 33-57206)). 10.3* Amendment to ACE Limited Equity Linked Incentive Plan, (incorporated by reference to Exhibit 10.15 to the Registration Statement on Form S-1 of the Company (No. 33-57206)). 10.4* ACE Limited Employee Retirement Plan, as amended through January 1, 1999 10.5* ACE Limited Supplement Retirement Plan, (incorporated by reference to Exhibit 10.25 to the Registration Statement on Form S-1 of the Company (No. 33-57206)). 10.6* First Amendment to ACE Limited Supplement Retirement Plan, (incorporated by reference to Exhibit 10.26 to the Registration Statement on Form S-1 of the Company (No. 33-57206)). 10.7* Second Amendment to ACE Limited Supplement Retirement Plan, (incorporated by reference to Exhibit 10.27 to the Registration Statement on Form S-1 of the Company (No. 33-57206)). 10.8* Form of restricted stock award dated August 24, 1993 to ACE Limited Directors, (incorporated by reference to Exhibit 10.39 to Form 10-K of the Company for the year ended September 30, 1993). 10.9* Employment Agreement, dated October 1, 1994, between ACE Limited and Brian Duperreault, (incorporated by reference to Exhibit 10.42 to Form 10-K of the Company for the year ended September 30, 1994). 10.10* Option and Restricted Share Agreement, dated October 1, 1994, between ACE Limited and Brian Duperreault, (incorporated by reference to Exhibit 10.43 to Form 10-K of the Company for the year ended September 30, 1994). 10.11* Employment Agreement, dated January 9, 1995, between ACE Limited and Dominic J. Frederico, (incorporated by reference to Exhibit 10.45 to Form 10-K of the Company for the year ended September 30, 1995). 10.12* Second amendment to ACE Limited Equity Linked Incentive Plan, (incorporated by reference to Exhibit 10.45 to Form 10-K of the Company for the year ended September 30, 1995). 10.13* ACE Limited 1995 Long Term Incentive Plan (incorporated by reference to Exhibit 10.35 to Form 10-Q of the Company for the quarter ended March 31, 1996). 10.14* Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.36 to Form 10-Q of the Company for the quarter ended March 31, 1996). 10.15* 1995 Outside Directors Plan (incorporated by reference to Exhibit 10.37 to Form 10-Q of the Company for the quarter ended March 31, 1996). 10.16* ACE Limited 1996 Tempest Replacement Option Plan (incorporated by reference to Exhibit 10.24 to Form 10-K of the Company for the year ended September 30, 1996). 10.17* First Amendment of ACE Limited 1995 Long Term Incentive Plan (incorporated by reference to Exhibit 10.27 to Form 10-K of the Company for the year ended September 30, 1996). 10.18* Third Amendment to Equity Linked Incentive Plan--Stock Appreciation Right Plan (incorporated by reference to Exhibit 10.28 to Form 10-Q of the Company for the quarter ended March 31, 1997). 10.19* First Amendment of ACE Limited 1995 Outstanding Directors Plan (incorporated by reference to Exhibit 10.29 to Form 10-Q of the Company for the quarter ended June 30, 1997). 10.20 364 day Credit Agreement dated as of December 11, 1997 among ACE Limited, A.C.E. Insurance Company Ltd., Corporate Officers & Directors Assurance Ltd. and Tempest Reinsurance Company Limited, the Banks listed on the signature pages hereof and Morgan Guaranty Trust Company of New York, as Administrative Agent (incorporated by reference to Exhibit 10.30 to Form 10-Q of the Company for the quarter ended June 30, 1997). 10.21 Five year Credit Agreement dated as of December 11, 1997 among ACE Limited, A.C.E. Insurance Company Ltd., Corporate Officers & Directors Assurance Ltd. and Tempest Reinsurance Company Limited, the Banks listed on the signature pages hereof and Morgan Guaranty Trust Company of New York, as Administrative Agent (incorporated by reference to exhibit 10.31 to Form 10-K of the Company for the year ended September 30, 1997).
31 10.22 Amended and Restated Reimbursement Agreement dated as of December 11, 1997 among A.C.E. Insurance Company Ltd., the Banks listed on the signature pages hereof and Morgan Guaranty Trust Company of New York, as Issuing Bank and Administrative Agent, (incorporated by reference to exhibit 10.32 to Form 10-K of the Company for the year ended September 30, 1997). 10.23 Term Loan Agreement dated as of December 11, 1997 among ACE US Holdings, Inc., ACE Limited, the Banks listed on the signature pages hereof and Morgan Guaranty Trust Company of New York, as Administrative Agent, (incorporated by reference to exhibit 10.33 to Form 10-K of the Company for the year ended September 30, 1997). 10.24* ACE Limited Elective Deferred Compensation Plan (incorporated by reference to Exhibit 10.1 to Form 10-Q of the Company for the quarter ended December 31, 1997). 10.25* ACE Limited Rules of the Approved U.K. Stock Option Program, (incorporated by reference to Exhibit 10.1 to Form 10-Q of the Company for the quarter ended December 31, 1997). 10.26 ACE US Holdings, Inc. Credit Sensitive Senior Notes due 2008 Indenture dated as of October 27, 1998 (incorporated by reference to Exhibit 10.37 of Form 10-K of the Company for the year ended September 30, 1998). 10.27* ACE Limited 1998 Long-Term Incentive Plan (as amended through the first amendment) (incorporated by reference to Exhibit 10.1 to Form 10-Q of the Company for the quarter ended December 31, 1998) 10.28* ACE Limited Shareholder Rights Plan, dated as of May 7, 1999 (incorporated by reference to Exhibit 99.1 of the Form 8-K current report (date of earliest event reported: May 7, 1999). 10.29 Information Technology Services Agreement, dated as of June 29, 1999, among ACE INA Holdings Inc. and International Business Machines Corporation (incorporated by reference to Exhibit 99.1 of Form 8-K current report (Date of earliest event reported: July 2, 1999)) 10.30 Remarketing and Contingent Purchase Agreement, dated June 30, 1999, among ACE Limited, ACE INA Holdings Inc., ACE RHINOS Trust and Banc of America Securities LLC (incorporated by reference to Exhibit 99.2 of Form 8-K current report (Date of earliest event reported: July 2, 1999)) 10.31 Letter agreement, dated as of June 29, 1999, between Bank of America Securities LLC and ACE Limited (incorporated by reference to Exhibit 99.3 of Form 8-K current report (Date of earliest event reported: July 2, 1999)) 10.32 Indenture, dated as of June 15, 1999, between ACE RHINOS Trust, Holdings and The First National Bank of Chicago, as Trustee (incorporated by reference to Exhibit 99.4 of Form 8-K current report (Date of earliest event reported: July 2, 1999)) 10.33 Supplemental Indenture, dated as of June 30, 1999, between ACE RHINOS Trust, Holdings and The First National Bank of Chicago, as Trustee (incorporated by reference to Exhibit 99.5 of Form 8-K current report (Date of earliest event reported: July 2, 1999)) 10.34* Second Amendment of the ACE Limited 1995 Outside Directors Plan (incorporated by reference to Exhibit 10.1 to Form 10-Q of the Company for the quarter ended June 30, 1999). 10.35* Third Amendment of the ACE Limited 1995 Outside Directors Plan (incorporated by reference to Exhibit 10.2 to Form 10-Q of the Company for the quarter ended June 30, 1999). 10.36 Senior Indenture, dated as of August 1, 1999, among ACE INA Holdings, Inc., ACE Limited and The First National Bank of Chicago, as trustee (incorporated by reference to exhibit 4.5 to registration statement on Form S-1 of the Company (No. 333-78841)). 10.37* ACE Limited 1999 Replacement Long Term Incentive Plan (incorporated by reference to Exhibit 10.1 to Form 10-Q of the Company for the quarter ended September 30, 1999). 10.38 Indenture, dated as of November 30, 1999, among ACE INA Holdings, Inc. and Bank One Trust Company, N.A., as trustee 10.39 Supplemental Indenture No. 1, dated as of December 6, 1999, among ACE INA Holdings, Inc. and Bank One Trust Company, N.A., as trustee 10.40 Amended and Restated Trust Agreement, dated December 20, 1999, among ACE INA Holdings, Inc., Bank One Trust Company, National Association, as property trustee, Bank One Delaware Inc., as Delaware trustee and the administrative trustees named therein 10.41 Indenture, dated as of December 1, 1999, among ACE INA Holdings, Inc., ACE Limited and Bank One Trust Company, National Association 10.42 Common Securities Guarantee Agreement, dated as of December 20, 1999 10.43 Preferred Securities Guarantee Agreement, dated as of December 20, 1999 10.44* Service Agreement between ACE London Services Limited and John Robert Charman dated July 9, 1998 10.45* Deed of Covenant dated July 9, 1998 between John Robert Charman and Tarquin Limited 10.46* Consulting Agreement dated as of January 1, 2000 between Kramer Capital Corp. and the Company 10.47* Promissory note from Dominic Frederico. 10.48 $75 million Credit Facility (subsequently amended to $100 million) between Capital Re Company, Various Banks and Deutsche Bank AG, as Agent (incorporated by reference to Exhibit 4.09 to the Annual Report on Form 10-K for Capital Re Corporation for the fiscal year ended December 31, 1994 (Comm. File No. 1-10995)) 10.49 $2.05 billion Credit Agreement dated as of June 11, 1999 among ACE INA Holdings Inc., as borrower, and ACE Limited, ACE Bermuda Insurance Ltd., and Tempest Reinsurance Company Limited as guarantors, various lenders, Merrill Lynch, Pierce, Fenner & Smith Incorporated as Lead Arranger and Syndication Agent and Morgan Guaranty Trust Company of New York as Administrative Agent.
32 10.50 $250 million Credit Agreement dated as of June 11, 1999 with ACE Limited, ACE INA Holdings Inc., ACE Bermuda Insurance Ltd., and Tempest Reinsurance Company Limited as borrowers, various lenders, Merrill Lynch, Pierce, Fenner & Smith Incorporated as Lead Arranger and Syndication Agent and Morgan Guaranty Trust Company of New York as Administrative Agent. 10.51 $750 million Credit Agreement dated as of June 11, 1999 with ACE Limited, ACE INA Holdings Inc., ACE Bermuda Insurance Ltd., and Tempest Reinsurance Company Limited as borrowers, various lenders, Merrill Lynch, Pierce, Fenner & Smith Incorporated as Lead Arranger and Syndication Agent and Morgan Guaranty Trust Company of New York as Administrative Agent. 10.52 Reimbursement Agreement dated as of September 8, 1999 among ACE Limited, ACE Bermuda Insurance Ltd., Tempest Reinsurance Company Limited, as account parties, various banks, financial institutions and other institutional lenders, Mellon Bank, N.A., as issuing bank, Deutsche Bank AG, New York and/or Cayman Islands Branches and Fleet National Bank as documentation agents, and Mellon Bank, N.A. as administrative agent. 10.53 GBP 290 million Credit Agreement dated November 26, 1999 with Ace Limited as borrower, Ace Insurance Company Ltd. as guarantor, various lenders and Citibank N.A. as Arranger. 10.54* ACE Limited 1999 Replacement Stock Plan. 10.55 Amendment dated as of January 27, 1998 to $100 Million Credit Facility between Capital Reinsurance Company, Various Banks and Deutsche Bank AG, as Agent (Incorporated by reference to Exhibit 4.11 to Form 10-K for the year ended December 31, 1997 for Capital Re Corporation (Comm. File No. 1-10995)) 10.56 Amendment dated as of March 22, 1999 to $100 Million Credit Facility between Capital Reinsurance Company, Various Banks and Deutsche Bank AG, as Agent (Incorporated by reference to Exhibit 4.11 to Form 10-K for the year ended December 31, 1998 for Capital Re Corporation (Comm. File No. 1-10995)) 13.1 Pages 1 and 18 through 79 of the 1999 Annual Report to Shareholders. 21.1 Subsidiaries of the Company. 23.1 Consent of PricewaterhouseCoopers LLP. 27.1 Financial Data Schedule.
* Management Contract or Compensation Plan (b) Reports on Form 8-K The Company filed a Form 8-K current report (date of earlier event reported: December 30, 1999) pertaining to its acquisition of Capital Reinsurance Corporation. 33 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES INCLUDED IN FORM 10-K Our report on the consolidated financial statements of ACE LIMITED AND SUBSIDIARIES has been incorporated by reference in this Form 10-K from page 38 of the 1999 Annual Report to Shareholders of ACE Limited. In connection with our audits of such financial statements, we have also audited the related financial statement schedules listed in item 14 of this Form 10-K. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as whole, present fairly, in all material respects, the information required to be included therein. PricewaterhouseCoopers LLP New York, New York February 16, 2000 34 SCHEDULE I SUMMARY OF INVESTMENTS--OTHER THAN INVESTMENTS IN RELATED PARTIES ACE LIMITED AND SUBSIDIARIES December 31, 1999
Cost or Amount Amortized at which shown in Cost Fair Value the balance sheet ----------- ----------- ----------------- (in thousands of U.S. dollars) Fixed maturities: Bonds: U.S. Treasury and agency........... $ 1,007,797 $ 982,417 $ 982,417 Non-U.S. governments............... 682,679 681,770 681,770 Corporate securities............... 4,829,052 4,688,341 4,688,341 Mortgage-backed securities......... 2,107,397 2,067,137 2,067,137 States, municipalities and political subdivision............. 1,453,477 1,430,138 1,430,138 ----------- ----------- ----------- Total fixed maturities........... 10,080,402 9,849,803 9,849,803 =========== =========== =========== Equity securities: Common stock: Public utilities................... 72,533 76,104 76,104 Banks, trust and insurance companies......................... 105,119 113,314 113,314 Industrial, miscellaneous and all other............................. 595,309 735,791 735,791 Non redeemable preferred stock....... 7,597 8,105 8,105 ----------- ----------- ----------- Total equity securities.......... 780,558 933,314 933,314 ----------- ----------- ----------- Other investments.................... 303,714 300,311 300,311 ----------- ----------- ----------- Short-term investments and cash...... 1,794,188 1,792,107 1,792,107 ----------- ----------- ----------- Total investments and cash....... $12,958,862 $12,875,535 $12,875,535 =========== =========== ===========
35 SCHEDULE II CONDENSED FINANCIAL INFORMATION OF REGISTRANT ACE LIMITED AND SUBSIDIARIES BALANCE SHEETS (Parent Company Only) December 31, 1999 and 1998
1999 1998 ---------- ---------- (in thousands of U.S. dollars) Assets Investments and cash Investments in subsidiaries and affiliate on equity basis............................................... $4,438,895 $3,561,093 Fixed maturities..................................... 201,596 -- Short-term investments............................... 27,503 305,423 Other investments, at cost........................... 27,850 21,013 Cash................................................. 15,457 27,458 ---------- ---------- Total investments and cash......................... 4,711,301 3,914,987 Due from subsidiaries and affiliates, net.............. 201,548 7,394 Other assets........................................... 29,497 10,067 ---------- ---------- Total assets....................................... $4,942,346 $3,932,448 ========== ========== Liabilities Accounts payable and accrued liabilities............... $ 42,979 $ 5,171 Dividend payable....................................... 23,921 17,700 Short-term debt........................................ 424,886 -- ---------- ---------- Total liabilities.................................. 491,786 22,871 ---------- ---------- Shareholders' equity Ordinary Shares........................................ 9,061 8,070 Additional paid-in capital............................. 2,214,989 1,767,188 Unearned stock grant compensation...................... (28,908) (15,087) Retained earnings...................................... 2,321,570 2,040,664 Accumulated other comprehensive income................. (66,152) 108,742 ---------- ---------- Total shareholders' equity......................... 4,450,560 3,909,577 ---------- ---------- Total liabilities and shareholders' equity............. $4,942,346 $3,932,448 ========== ==========
36 SCHEDULE II (Cont'd.) CONDENSED FINANCIAL INFORMATION OF REGISTRANT ACE LIMITED AND SUBSIDIARIES STATEMENTS OF OPERATIONS (Parent Company Only) For the year ended December 31, 1999, the three months ended December 31, 1998 and the years ended September 30, 1998 and 1997
Year Ended Three Months Ended Year Ended Year Ended December 31 December 31 September 30 September 30 1999 1998 1998 1997 ----------- ------------------ ------------ ------------ (in thousands of U.S. dollars) Revenues Investment income, including intercompany interest income............... $ 33,877 $ 2,951 $(12,514) $(17,348) Equity in net income of subsidiaries and affiliate............ 400,623 245,619 616,658 522,368 Net realized losses on investments.......... (9,354) (4) (6) (16) Management fees....... -- -- -- 26,601 -------- -------- -------- -------- --- 425,146 248,566 604,138 531,605 Expenses Administrative expenses............. (60,183) (10,027) (43,987) (28,880) -------- -------- -------- -------- --- Net income.......... $364,963 $238,539 $560,151 $502,725 ======== ======== ======== ======== ===
37 SCHEDULE II (Cont'd.) CONDENSED FINANCIAL INFORMATION OF REGISTRANT ACE LIMITED AND SUBSIDIARIES STATEMENTS OF CASH FLOWS (Parent Company Only) For the year ended December 31, 1999, the three months ended December 31, 1998 and the years ended September 30, 1998 and 1997
Three Year Ended Months Ended Year Ended Year Ended December 31 December 31 September 30 September 30 1999 1998 1998 1997 ----------- ------------ ------------ ------------ (in thousands of U.S. Dollars) Cash flows from operating activities Net income............... $ 364,963 $ 238,539 $ 560,151 $ 502,725 Adjustments to reconcile net income to net cash provided by operating activities Equity in net income of subsidiaries and affiliate.............. (400,623) (245,619) (616,658) (522,368) Realized losses on investments............ 9,354 4 6 16 Amortization of premium/discounts on fixed maturities....... (3,176) -- -- -- Amounts due to subsidiaries and affiliate, net......... (113,634) 49,463 (41,585) (6,944) Accounts payable and accrued liabilities.... 37,808 (1,606) (33) (10,004) Accrued interest on advances from affiliate.............. (15,353) -- (18,250) 3,978 Other................... (19,430) (10,919) 2,405 (6,804) ----------- --------- --------- --------- Net cash flows from (used for) operating activities........... (140,091) 29,862 (114,966) (39,401) ----------- --------- --------- --------- Cash flow from investing activities Purchases of fixed maturities............. (402,079) (305,423) -- -- Sales of fixed maturities............. 467,010 -- -- -- Other investments....... (6,837) 12,453 (314) -- Dividends received from subsidiaries........... 966,000 300,000 365,000 190,000 Capitalization of subsidiary............. (1,160,351) -- (856,477) -- Advances to affiliate... (400,000) -- -- (241,000) Repayment of advances from affiliate......... (20,039) -- -- (19,817) ----------- --------- --------- --------- Net cash from (used for) investing activities........... (556,296) 7,030 (491,791) (70,817) ----------- --------- --------- --------- Cash flows from financing activities Dividends paid.......... (77,836) (17,422) (54,389) (43,028) Proceeds from short-term debt................... 424,886 -- 635,000 -- Proceeds from exercise of options for shares.. 5,672 1,931 4,243 2,191 Proceeds from shares issued under ESPP...... 1,151 -- 955 -- Advances from affiliate.............. 330,513 -- 504,600 525,020 Repayment of bank debt.. -- -- (385,000) -- Proceeds from shares issued under SAR Plan.. -- -- -- 4,156 Net proceeds from issuance of Ordinary Shares................. -- -- 605,899 -- Repurchase of Ordinary Shares................. -- -- (107,644) (182,648) Loan Repayments......... -- -- (608,620) (180,000) ----------- --------- --------- --------- Net cash from (used for) financing activities........... 648,386 (15,491) 595,044 125,691 ----------- --------- --------- --------- Net increase (decrease) in cash..................... (12,001) 21,401 (11,713) 15,473 Cash-beginning of period.. 27,458 6,057 17,770 2,297 ----------- --------- --------- --------- Cash end of period........ $ 15,457 $ 27,458 $ 6,057 $ 17,770 =========== ========= ========= =========
38 SCHEDULE VI ACE LIMITED AND SUBSIDIARIES SUPPLEMENTARY INFORMATION CONCERNING PROPERTY/CASUALTY OPERATIONS
Net Reserves Amortization for Unpaid of Deferred Paid Deferred Losses and Net Losses and loss Policy Losses and Net Acquisition Loss Unearned Earned Investment Expenses Incurred Acquisition Loss Premiums Costs Expenses Premium Premium Income Related to Costs Expenses Written ----------- ---------- ---------- ---------- ---------- ------------------- ------------ ---------- ---------- Current Prior Year Year ---------- -------- (in thousands of U.S. dollars) Dec. 31, 1999... $514,425 $8,908,817 $2,428,828 $2,485,737 $493,337 $1,601,278 $ 38,265 $338,076 $2,432,898 $2,495,348 Dec. 31, 1998 (3 months)..... $ 67,502 $2,577,805 $ 705,712 $ 218,007 $ 85,095 $ 126,139 $(14,970) $ 27,812 $ 211,705 $ 154,103 Sept. 30, 1998.. $ 76,445 $2,678,341 $ 773,702 $ 894,303 $324,254 $ 534,021 $(17,129) $105,654 $ 583,776 $ 880,973 Sept. 30, 1997.. $ 51,191 $2,006,873 $ 510,231 $ 805,372 $253,440 $ 486,140 -- $ 85,762 $ 421,895 $ 789,773
39 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ACE Limited /s/ Christopher Z. Marshall By:__________________________________ Christopher Z. Marshall Chief Financial Officer March 28, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature Title Date --------- ----- ---- /s/ Brian Duperreault Chairman, Chief Executive March 28, 2000 ______________________________________ Officer; Director Brian Duperreault /s/ Christopher Z. Marshall Chief Financial Officer March 28, 2000 ______________________________________ (Principal Financial Christopher Z. Marshall Officer) /s/ Robert A. Blee Chief Accounting Officer March 28, 2000 ______________________________________ (Principal Accounting Robert A. Blee Officer) /s/ Donald Kramer Vice Chairman; Director March 28, 2000 ______________________________________ Donald Kramer /s/ Michael G. Atieh Director March 28, 2000 ______________________________________ Michael G. Atieh /s/ Bruce L. Crockett Director March 28, 2000 ______________________________________ Bruce L. Crockett /s/ Roberto G. Mendoza Director March 28, 2000 ______________________________________ Roberto G. Mendoza /s/ Meryl D. Hartzband Director March 28, 2000 ______________________________________ Meryl D. Hartzband /s/ Robert M. Hernandez Director March 28, 2000 ______________________________________ Robert M. Hernandez /s/ Peter Menikoff Director March 28, 2000 ______________________________________ Peter Menikoff /s/ Thomas J. Neff Director March 28, 2000 :_____________________________________ Thomas J. Neff
40
Signature Title Date --------- ----- ---- /s/ Glen M. Renfrew Director March 28, 2000 ______________________________________ Glen M. Renfrew /s/ Robert Ripp Director March 28, 2000 ______________________________________ Robert Ripp /s/ Walter A. Scott Director March 28, 2000 ______________________________________ Walter A. Scott /s/ Dermot F. Smurfit Director March 28, 2000 ______________________________________ Dermot F. Smurfit /s/ Robert W. Staley Director March 28, 2000 ______________________________________ Robert W. Staley /s/ Gary M. Stuart Director March 28, 2000 ______________________________________ Gary M. Stuart /s/ Sidney F. Wentz Director March 28, 2000 ______________________________________
Sidney F. Wentz 41 EX-10.4 2 ACE LIMITED EMPLOYEE RETIREMENT PLAN Exhibit 10.04 Conformed Copy January 1, 1999 ACE LIMITED EMPLOYEE RETIREMENT PLAN ------------------------ (As Amended and Restated Effective as of October 1, 1989, and as further amended through January 1, 1999) PREAMBLE -------- WHEREAS, effective October 1, 1987, ACE Limited, a corporation organized and existing under the laws of the Cayman Islands, having its principal place of business at 8, Wesley Street, Hamilton, Bermuda HM 11, established ACE Limited Employee Retirement Plan (the "Plan") for the exclusive benefit of its employees and their beneficiaries and now desires to amend, restate and continue the Plan as in effect immediately prior to October 1, 1989, the "Effective Date" of the Plan as set forth herein. The Plan is intended to qualify as a profit-sharing plan under section 401(a) of the Internal Revenue Code of 1986 of the United States of America, as amended. The provisions of this Plan shall be as follows: Table of Contents ----------------- Pages ----- Article I Definitions 1-6 Article II Contributions 6-8 Article III Participation in the Plan 8-10 Article IV Maintenance of Accounts; Allocation of Contributions; Vesting of Interests of Participants Therein 10-11 Article V Evaluation of the Trust Fund and the Interest of the Participants and Beneficiaries Therein 11-13 Article VI Distribution of Benefits 13-22 Article VII Committee 23-28 Article VIII Continuance and Amendment of the Plan 28-31 Article IX The Trust Fund 32-33 Article X Loans 33-36 Article XI Miscellaneous 36-39 -i- ACE LIMITED EMPLOYEE RETIREMENT PLAN ARTICLE I DEFINITIONS ----------- Section 1.1. Definitions. - ------------ ----------- The following words and phrases when used herein shall have the following meanings, unless a different meaning is plainly required by the context: 1. "Account" means the account established on behalf of a Participant to receive Company Contributions and any income or earnings thereon. 2. "Beneficiary" means such person as will be entitled to receive benefits after the death of the Participant, in accordance with the provisions of Section 6.4. 3. "Benefit Commencement Date" means, in the case of a Participant who terminates employment for a reason other than death or total disability prior to attainment of age 55, the first day of the month coinciding with or next following his 55th birthday; and in the case of a -1- Participant who terminates employment on or after his 55th birthday, or because of death or total disability, the first day of the month coinciding with or next following his termination of employment. Early retirement under the Plan shall include any Benefit Commencement Date occurring after the Participant's attainment of age 55 and prior to age 65. 4. "Code" means the Internal Revenue Code of 1986 of the United States of America, as amended from time to time. 5. "Committee" means the committee provided for in Article VII. 6. "Company" means ACE Limited or any company into which said Company may be merged or consolidated, or to whom the assets of the Company may be transferred or sold, and which shall agree to continue this plan as hereinafter provided. The term "Related Company" shall mean any and all other corporations, trades and/or businesses, the employees of which together with employees of the Company are required, by subsections (b), (c), (m) or (n) of section 414 of the Code, to be treated as if they were employed by a single employer. 7. "Company Contribution" means an amount paid into the Trust Fund by the Company in accordance with Article II. -2- 8. "Compensation", for all purposes of the Plan, means the Employee's wages, salary, commissions, bonuses and other amounts received (in cash or kind) during the Plan Year from the Company for services actually rendered in the course of employment and includible in gross income, including taxable fringe benefits, nonqualified stock options taxable in the year of grant, amounts taxable under a section 83(b) election and nondeductible moving expenses; provided, however, that the Compensation of any Participant taken into account under the Plan for any Plan Year shall not exceed the maximum amount permitted to be taken into account for such Plan Year under Section 401(a)(17) of the Code and applicable United States Treasury regulations thereunder, taking into account any proration of such amount required on account of family member aggregation. The term Compensation shall not include distributions from any deferred compensation plan (qualified or nonqualified), amounts realized from the exercise of (or disposition of stock acquired under) any nonqualified stock option, insurance premiums, or other benefits given special tax treatment, payments made out of the Trust Fund, or any contributions or payments made by the Company to the Trust Fund. 9. "Effective Date" of this Plan as restated herein means October 1, 1989. -3- 10. "Employee" means any person employed by the Company. 11. "Participant" means an Employee who qualifies for participation in this Plan in accordance with the provisions of Article III. 12. "Plan" means the ACE Limited Employee Retirement Plan as described herein, or as the same may be amended from time to time. 13. "Plan Year" means the 12-consecutive month period from October 1 to the succeeding September 30. Effective October 1, 1998, the period beginning October 1, 1998 and ending December 31, 1998 shall be one short Plan Year; and thereafter the Plan Year shall be the 12-consecutive month period from January 1 to the succeeding December 31. 14. "Trust Agreement" means the agreement between the Company and the Trustee, or any successor thereof, a copy of which is annexed hereto and made a part hereof. 15. "Trust Fund" means the trust established pursuant to this Plan out of which the benefits payable under this Plan shall be made. -4- 16. "Trustee" means Bermuda Trust Company Ltd. (or such other trustee as the Company may later appoint). 17. "Valuation Date" means the last day of each Plan Year, and such intermediate dates as the Committee shall establish in its sole discretion in accordance with Section 5.3. 18. "Year of Service" means twelve months of employment with the Company or a Related Company, whether or not consecutive, commencing on the date the employee is first employed by the Company or a Related Company, with fractional weeks and days being credited as an additional month. For the purpose of determining whether he has a Year of Service, an employee shall be considered to be employed by the Company or a Related Company during any absence from service (other than by reasons of quit, retirement, discharge or death), but only for up to 12 months for each such absence. In addition, an employee whose employment with the Company and all Related Companies terminates as a result of quit, discharge or retirement and who returns to employment with the Company or a Related Company within 12 months thereafter shall be considered to have been employed by the Company or a Related Company during the period between his termination of employment and rehire. -5- Section 1.2. - ------------ Unless the context otherwise requires, words in the masculine or feminine gender shall be construed so as to include the other, the singular shall include the plural, and the plural shall include the singular. ARTICLE II CONTRIBUTIONS ------------- Section 2.1. Company Contributions. - ------------ --------------------- Subject to Section 4.2, the Company shall make a contribution for each Plan Year in an amount equal to fifteen percent (15%) of the Compensation of each Participant who is actively employed by the Company anytime during such Plan Year. In accordance with uniform procedures, such contribution shall be allocated to Participants' Accounts in accordance with Section 4.1 no later than as of the last day of the Plan Year. Such Company Contribution shall not be contingent upon the existence of the Company's current or accumulated profits. The Company shall pay to the Trustee its Company Contribution for each Plan Year no later than 30 days after the end of the Plan Year. Nothing contained herein shall prevent the Company from amending the above formula for Company Contributions or terminating the -6- Plan or discontinuing the making of all further Company Contri butions; provided, however, that any such amendment, termination or discontinuance shall apply only to Plan Years ending on or after the date on which the Company takes such action. It shall not be the duty of the Trustee or Committee to make any investigation to determine whether the Contributions made by the Company conform to the provisions of this Section 2.1. Section 2.2. Limitations on Company Contributions. - ------------ ------------------------------------ Notwithstanding any other provisions of the Plan, in no event shall the contributions credited to a Participant's Account exceed the limitations specified in Section 415 of the Code. If as a result of a reasonable error in estimating a Participant's Compensation or such other mitigating circumstances as the Commissioner of Internal Revenue shall prescribe, the contributions credited to a Participant's Account for a Plan Year exceed the aforementioned limitation, the excess amounts shall be treated, as necessary, in accordance with Treas. Reg. (S) 1.415-6(b)(6)(ii). Section 2.3. Employee Contributions Not Permitted. - ------------ ------------------------------------ Employee contributions to the Plan are neither required nor permitted. -7- ARTICLE III PARTICIPATION IN THE PLAN ------------------------- Section 3.1. Eligibility. - ------------ ----------- Each individual who was a Participant in the Plan immediately prior to the Effective Date will continue as such on and after that date. On and after the Effective Date, an individual shall become a Participant immediately upon his employment by the Company. An Employee or former Employee shall remain a Participant in the Plan as long as an Account continues to be maintained for him under the Plan. Section 3.2. Determination of Committee. - ------------ -------------------------- The eligibility of an Employee to participate in the Plan shall be determined by the Committee. Any such determination shall be binding upon the Company, the Trustee, the Employees, the Participants, and all Beneficiaries. Section 3.3. Leased Employees. - ------------ ---------------- If a person satisfies the requirements of section 414(n) of the Code and applicable Treasury regulations for treatment as a "Leased Employee", such Leased Employee shall not be eligible to participate in this Plan or in any other plan maintained by the -8- Company or a Related Company which is qualified under section 401(a) of the Code, but, to the extent required by section 414(n) of the Code and applicable Treasury regulations, such person shall be treated as if the services performed by him in such capacity were performed by him as an employee of a Related Company which has not adopted the Plan; provided, however, that no such service shall be credited: (a) for any period during which not more than 20% of the non-Highly Compensated workforce of the Company and the Related Companies consists of Leased Employees and the Leased Employee is a participant in a money purchase pension plan maintained by the leasing organization which (i) provides for a nonintegrated employer contribution of at least 10 percent of compensation, (ii) provides for full and immediate vesting, and (iii) covers all employees of the leasing organization (beginning with the date they become employees), other than those employees excluded under section 414(n)(5) of the Code; or (b) for any other period unless the Leased Employee provides satisfactory evidence to the Company or Related Company that he meets all of the conditions of this subsection 3.3 and applicable law required for treatment as a Leased Employee. -9- For purposes of paragraph (a) above, "Highly Compensated" shall have the meaning set forth in section 414(p) of the Code. ARTICLE IV MAINTENANCE OF ACCOUNTS; ALLOCATION OF CONTRIBUTIONS; VESTING OF INTERESTS OF PARTICIPANTS THEREIN ---------------------------------------------------- Section 4.1. Maintenance of Accounts. - ------------ ----------------------- An Account will be maintained for each Participant, showing the amount of Company Contributions, any adjustments thereto resulting from revaluation of the Trust assets, and the amount of distributions, if any. Section 4.2. Investment Funds. - ------------ ---------------- The Committee may establish one or more investment funds within the Trust Fund (an "Investment Fund") for the purpose of allowing Participants to choose among different investment options. The Committee may add additional Investment Funds, or delete any existing Investment Fund, at any time in its sole discretion. In the event of the establishment of any such Investment Funds, the Committee shall set forth uniform rules governing the timing and form of investment elections and transfers from one Investment Fund to another, including but not limited to setting minimum amounts or percentages for investment. The Trustee shall maintain adequate records to reflect each Participant's -10- investment in the Investment Funds, and the valuation provisions of Article V shall be appropriately modified, so that the total net value of the Trust Fund equals the combined values of the Investment Funds as of the Valuation Date. ARTICLE V EVALUATION OF THE TRUST FUND AND THE INTEREST OF THE PARTICIPANTS AND BENEFICIARIES THEREIN --------------------------------------------- Section 5.1. Valuation. - ------------ --------- The amount of the respective interests of the Participants or their Beneficiaries in the Trust Fund shall be ascertained and determined as of the "Valuation Date" in the following manner: 1. The total net value of the assets of the Trust Fund, but prior to the addition of the Company Contributions with regard to the current Plan Year, shall be determined as provided in Section 5.4 hereof. The Accounts of Participants shall then be adjusted to reflect an allocation of the increase or decrease, if applicable, in the total net value in Plan assets since the prior Valuation Date to all such Accounts proportionately in accordance with a ratio which the value of each such Account prior to the Valuation Date bears to the value of all such Accounts prior to the Valuation Date. -11- 2. There shall then be added or credited to each Participant's Account his respective share in each Company Contribution to the Trust Fund with regard to the current Plan Year. Section 5.2. Notice to Participants. - ------------ ---------------------- Within a reasonable time after each Plan Year, the Committee shall notify each Participant of the value of his Account as of the end of the Plan Year. Section 5.3. Valuation At Other Times. - ------------ ------------------------ Whenever it shall be necessary, for any reason, to value the interest of any Participant or Beneficiary, other than upon a Valuation Date as hereinabove provided, the interest of such Participant as of the end of the month in which it becomes necessary to value such interest shall be deemed to be the amount of such interest in the Trust Fund, and the amount so ascertained and determined shall be the amount held for the benefit of said Participant or his Beneficiary for payment as hereinafter provided. Section 5.4. Trust Fund Valuation. - ------------ -------------------- The Trustee shall cause to be determined the value of the Trust Fund, and shall notify the Committee of such value as of the -12- Valuation Date, and as of the end of any other month as the Committee may request. Such value shall be the market value of the Trust Fund, insofar as the market value can be determined, on the Valuation Date or end of the month, as the case may be, and shall be determined in accordance with the provisions of the Trust Agreement, on an accrual basis, in conformity with generally accepted accounting principles, and shall be binding and conclusive for all purposes. ARTICLE VI DISTRIBUTION OF BENEFITS ------------------------ Section 6.1. Distribution of Vested Interest. - ------------ ------------------------------- (a) A Participant who (i) is credited with at least one Year of Service, (ii) attains age 65 or (iii) dies while employed by the Company shall have a fully vested, nonforfeitable interest in his entire Account balance under the Plan. (b) If a Participant's employment with the Company and Related Companies is terminated before he becomes vested under the Plan, his entire Account balance shall be forfeited at the end of the 60th month following his termination of employment (provided he has not been credited with any portion of a Year of Service during such 60-month period). -13- (c) If a Participant forfeits his Account balance pursuant to subsection (b) above and he is later rehired by the Company or a Related Company after the end of the 60-month period following his termination of employment (provided that no portion of a Year of Service has been credited to him during such 60-month period), his employment with the Company or Related Companies or participation in the Plan after such rehire shall have no effect on the amount of the forfeiture. (d) Amounts which have been forfeited in accordance with subsection (b) above shall be used to reduce Company Contributions for the Plan Year in which any such forfeiture occurs. Section 6.2. Form of Distribution. - ------------ -------------------- If a Participant's employment with the Company and Related Companies is terminated (for any reason except death), the vested portion of his Account shall be distributed in accordance with the following provisions of this section 6.2, subject to the provisions of sections 6.3 and 6.5: (a) Pursuant to the election of the Participant, distribution shall be made in accordance with either clause (i) or clause (ii) as follows: -14- (i) One lump sum distribution in cash; or (ii) Distribution in annual installments over a period of years not extending beyond the life of the Participant, or beyond the lives of the Participant and a designated Beneficiary with the amount of each installment being equal to the quotient obtained by dividing the Participant's Account balance as of the last day of the preceding Plan Year by the number of remaining installments to be paid to the Participant. Any installment distribution selected pursuant to this clause (ii) shall comply with the minimum distribution incidental benefit requirements set forth in Treasury Regulation (S)1.401(a)(9)- 2. Life expectancies under this clause (ii) shall not be recalculated. (b) In the discretion of the Committee and subject to applicable currency exchange laws, any payment under the Plan may be made in U.S. dollars or any foreign currency in an amount determined under the currency exchange rate of the Trustee as of the date of the payment. -15- Section 6.3. Time of Distribution. - ------------ -------------------- (a) Subject to the provisions of Section 6.2, distribution of a Participant's Account shall begin on the Participant's Benefit Commencement Date, subject to the following: (i) In the case of a Participant whose vested interest in the Plan is greater than $5,000 but less than $60,000, distribution shall take place on such earlier date (after his termination of employment) in such form as the Participant may elect, in writing and in accordance with such uniform procedures established by the Committee pursuant to the provisions of clause (i) of subsection 6.2(a). (ii) Distribution shall begin on such later date as the Participant may elect, provided that such later date be on or before the Participant's "Required Beginning Date". (iii) Except as provided in clause (iv) below, in no event shall a Participant be paid (or commence to be paid) his vested Account balance before he attains age 65 without his written consent. (iv) Anything herein to the contrary notwithstanding, in the -16- case of any Participant who terminates employment with the Company and Related Companies and whose vested interest in the Plan (including any loans outstanding on the date of his termination of employment) is equal to $5,000 or less, the Committee shall direct that the balance of such Participant's Account be immediately distributed to him in a lump sum. Notwithstanding the foregoing provisions of this subsection 6.3(a), to the extent the Participant's vested interest in the Plan was not distributed prior to January 1, 1999 because the value was greater than $15,000 (or because the value was greater than $3,500 but less than $5,000), the value of such vested interest shall be distributed as soon as practicable after January 1, 1999, to the extent that such value does not then exceed $60,000, subject to the Participant's written consent if required under clause (iii) above. (b) For purposes of this Section 6.3, a Participant's "Required Beginning Date" shall mean April 1 of the calendar year following the calendar year in which the Participant attains age 70-1/2. Section 6.4. Distribution at Death. - ------------ --------------------- -17- (a) Distribution shall be made to the Participant if living. In the event that a Participant dies prior to receiving any benefit from the Plan, distribution of his benefit shall be made to the Participant's designated Beneficiary as described in subsection (b) below. Payment shall be made in either of the alternative modes of distribution, as described in Section 6.2, as elected by the Beneficiary. Such payment shall be made (or shall commence) as soon as administratively feasible after the Participant's death, unless the Beneficiary directs otherwise in accordance with the provisions of subsection (d) below. (b) A Participant may designate his Beneficiary upon becoming a Participant, and may change such designation at any time, by filing a written designation with the Committee; provided, however, that a married Participant may designate a Beneficiary other than his spouse only by submitting a written designation which must be signed by the Participant's spouse acknowledging the spouse's consent to the designation of a person other than the spouse as Beneficiary and the effect of such designation. The written consent of the spouse must be witnessed by a notary public. If the Participant establishes to the satisfaction of the Company that such written consent cannot be obtained because there is no spouse or the spouse cannot be located, the Beneficiary designation will be deemed effective without the -18- spouse's signature. A Participant may revoke or change his Beneficiary designation at any time (and any number of times) without the consent of the Beneficiary, subject to the spousal consent requirements of this subsection (b). Upon the death of a Participant, if there is no designated Beneficiary then living, or if the designation is not effective for any reason as determined by the Committee, the Participant's Beneficiary shall be his surviving spouse or if he has none, his surviving children. If he has none of the above, then his Beneficiary shall be his estate. (c) If distribution of a Participant's benefits has commenced prior to a Participant's death and such Participant dies before his entire benefit is distributed to him, distribution of the remaining portion of the benefit to the Beneficiary shall be made at least as rapidly as under the method of distribution in effect as of the date of the Participant's death. (d) If a Participant dies before distribution of his benefit has commenced, distribution to any Beneficiary shall be made within five years after such Participant's death, provided, however, that any distribution to a designated Beneficiary (other than a Beneficiary selected by the Committee in accordance with subsection (b) above) may be made over the -19- life of the Beneficiary or any period not extending beyond the life expectancy of the Beneficiary. Such distribution shall commence not later than one year after such Participant's death or, in the event the Beneficiary is the Participant's surviving spouse, not later than the date on which such Participant would have attained age 70-1/2. If such Participant's surviving spouse dies after such Participant's death, but before distributions to such spouse commence or are completed, the rules of this subsection (d) shall be applied as if such surviving spouse were the Participant. Section 6.5. Compliance with Section 401(a)(9). - ------------ --------------------------------- Notwithstanding any other provision of the Plan to the contrary, distributions hereunder shall be made in accordance with section 401(a)(9) of the Code and applicable regulations thereunder. Section 6.6. Direct Rollover Option. - ------------ ---------------------- To the extent required under Section 401(a)(31) of the Code and regulations issued thereunder, any person receiving an "eligible rollover distribution" (as defined therein) on or after January 1, 1993 may direct the Committee to transfer such distributable amount, or a portion thereof, to an "eligible retirement plan" -20- (as defined therein), in accordance with uniform rules established by the Committee. Section 6.7. Appeal Procedure for Denial of Benefits. - ------------ --------------------------------------- (a) The Committee shall provide adequate notice in writing to any Participant or Beneficiary whose claim for benefits under the Plan has been denied. This notice shall include specific references to pertinent plan provisions, a description of any additional material and information needed to perfect the claim, and shall advise such Participant or Beneficiary that any appeal of such adverse determination must be in writing to the Committee within a reasonable period of time as established by the Committee, which shall not be less than 60 days after receipt of such notification. (b) If the Participant or Beneficiary fails to appeal such action to the Committee in writing, within the prescribed period of time, the Committee's determination shall be final. (c) If an appeal is filed with the Committee, the Participant or Beneficiary shall submit such issues as he feels are pertinent to the Committee. The Committee shall re-examine all facts, make a final determination as to whether the -21- denial of benefits is justified under the circumstances, and advise the Participant or Beneficiary in writing of its decision and the specific reasons for its decision within 60 days of receipt of such written request, unless special circumstances require a reasonable extension of such 60-day period. Section 6.8. Spendthrift Trust Provision. - ------------ --------------------------- The assets of the Trust Fund are intended for the purpose of providing for the support of the Participants upon their retirement, and for the support of their families, as herein provided. Except as provided under a qualified domestic relations order as defined in Section 414(p) of the Code, no right or interest of any kind of any Participant in the Trust or in any part of the Trust Fund shall be transferable or assignable by the Participant or subject to alienation, anticipation or encumbrance by the Participant, and no rights or interest of any kind of any Participant in the Trust or in any part of the Trust Fund shall be subject to garnishment, attachment, execution or levy of any kind, except with respect to the debts of Participants to the Trustee. Notwithstanding any other provision of the Plan to the contrary, a domestic relations order may permit distribution of the entire vested Account balance of a Participant awarded to his alternate payee, in a lump sum payment, as soon as practicable after the Committee determines -22- that such order is qualified, without regard to whether the Participant would himself be entitled under the terms of the Plan to withdraw or receive a distribution of such vested amount at that time. ARTICLE VII COMMITTEE ----------- Section 7.1. Appointment of Committee. - ------------ ------------------------ The Committee shall consist of three (3) members appointed by the Board of Directors of the Company. The Board of Directors shall by resolution appoint all the original members of such Committee at a time proximate to the execution of the Trust Agreement, and such members shall hold office until the membership is changed at a meeting of the Board of Directors. The Board of Directors may change the membership at any time as set forth in Section 7.3. Section 7.2. Resignation of Members. - ------------ ---------------------- Any member of the Committee may resign at any time by giving written notice to the other members and the Board of Directors of the Company. -23- Section 7.3. Appointment of Successors, Term of Office. etc. - ------------ ---------------------------------------------- The Board of Directors may change the membership of the Committee at any time by notice given with or without cause, as upon death, resignation or expiration of the term. Upon the death, resignation or expiration of the term of any member, the Board of Directors shall, within a reasonable time, appoint by resolution a successor. Notice of termination of the membership and notice of appointment of a successor shall be made by the Board of Directors in writing to the Trustee and to the Committee. Until receipt by the Trustee of such written notice of any change in membership of the Committee the Trustee shall not be charged with knowledge or notice of any such change. Section 7.4. Powers of Committee. - ------------ ------------------- The Committee shall be charged with the administration of this Plan, and shall have all such powers as may be necessary to discharge its duties hereunder, including, but not by way of limitation, the power to conclusively interpret or construe this Plan, to conclusively determine all questions of eligibility and the status and rights of Participants, Beneficiaries and any other persons hereunder, and to conclusively decide any dispute arising hereunder. Provided, however, that no members of the Committee shall participate in any action of the Committee on a matter involving solely any funds hereunder in his name or for -24- his account, but such matters shall be determined by the other members of the Committee. The Committee shall direct the Trustee concerning all payments which are made out of the Trust Fund pursuant to the provisions of this Plan and shall have such other powers with respect to the administration of the Trust Fund as may be conferred upon it by the Trust Agreement under which the Trust Fund shall be paid; provided, however, that payment of any benefits to, or on behalf of, Participants pursuant to Article VI may be made at the direction of any two of the following officers of the Company: (a) Chief Executive Officer, (b) Executive Vice President, Underwriting, (c) Senior Vice President, Finance, or (d) Senior Vice President, Administration. Section 7.5. Organization of Committee; Appointment of Agent, etc. - ------------ ----------------------------------------------------- The Committee may adopt such by-laws and regulations as it deems desirable for the conduct of its affairs, and appoint one of its own members Chairman, and appoint a Secretary and one or more assistant Secretaries and one or more other agents none of whom need be a member of the Committee, but any of whom may, but need not be an officer or employee of a Company or may be the Trustee. It may delegate to any agent such duties and powers both ministerial and discretionary, as it deems appropriate, excepting only that any dispute shall be determined by the Committee. Any determination of the Committee may be made by a majority of the -25- Committee at a meeting thereof or without a meeting by a resolution or memorandum signed by all its members. The determination of the Committee on any matter pertaining to the Plan within the powers and discretions granted to it hereunder shall be final and conclusive on the Company, the Trustee, Participants and Beneficiaries claiming any rights hereunder and as to all third parties dealing with the Committee or with the Trustee. Section 7.6. Notices. - ------------ ------- All notices, directions, information and other communications between the Committee and the Trustee, and between the Board of Directors and/or Company and the Committee and/or Trustee shall be in writing. Section 7.7. Compensation and Expenses of Committee. - ------------ -------------------------------------- The members of the Committee shall serve without compensation but the reasonable and necessary expenses of such Committee or the members thereof and the compensation of all offices, agents, attorneys, accountants, or other persons retained or employed by the Committee, shall be fixed and approved by the Committee and paid by the Company. -26- Section 7.8. Records. - ------------ ------- The Committee shall keep a record of all of its proceedings and shall keep or cause to be kept all such books of account, records and other data as may be necessary or advisable in its judgment for the administration of this Plan and to properly reflect the affairs thereof, and to determine the amount of the vested and/or contingent interests of the respective Participants in the Trust Fund, and the amount of all retirement benefits or other benefits hereunder. As a part thereof, it shall maintain or cause to be maintained a separate account for each Participant, but the maintenance of such separate accounts shall in no way restrict the Trustee in the investing of the Trust Funds, which, for investment purposes, may be operated as if it were a single fund, and except for purposes of making debits and credits to the individual account of the Participants, there shall be no segregation or separate treatment of assets or credits. To the extent required by law, the records of the Committee shall be audited annually by the certified public accountants appointed by the Company to audit its records for such year who shall, upon completion of the audit, submit a certified report of such audit to the Committee. Any person dealing with the Committee may rely on and shall be fully protected in relying on a certificate or memorandum in writing signed by the Secretary of the Committee or by a majority of the members of the Committee as evidence of any action taken, or resolution adopted by the Committee. -27- Section 7.9. Reports of Trust Fund Opened to Participants. - ------------ -------------------------------------------- The Committee shall keep on file, in such form as it shall deem convenient and proper, all annual reports of the Trust Fund received by it from the Trustee and a statement of each Participant's proportionate interest in the Trust Fund as from time to time determined by the Committee. The annual report of the Trust Fund may be made available by the Committee to examination by each Participant during reasonable business hours. Section 7.10. Immunity from Liability. - ------------- ----------------------- No member of the Committee shall incur any liability for anything done or omitted by him. ARTICLE VIII CONTINUANCE AND AMENDMENT OF THE PLAN ------------------------------------- Section 8.1. Continuance of the Plan not a Contractual Obligation of Company. - ------------ ---------------------------------------------------------------- It is the expectation of the Company that it will continue this Plan indefinitely, but the continuance of this Plan is not assumed as a contractual obligation by the Company, and the right is reserved to the Company by action of its Board of Directors at any time to discontinue the Plan. The discontinuance of this -28- Plan by the Company shall not have the effect of revesting in the Company any part of the Trust Fund except as provided in Section 11.4. Section 8.2. Continuance of the Plan by Successor Corporation. - ------------ ------------------------------------------------ In the event of the consolidation or merger of the Company with or into any corporation or the sale or transfer by the Company of its assets to any partnership or corporation, which succeeds to the business of the Company, the successor partnership or corporation may continue this Plan by adopting the same by action of its partners or by resolution of its Board of Directors and appointing a new Committee as though all members thereof had resigned and by executing a proper supplemental agreement to the Trust Agreement with the Trustee. In the event of such adoption by a successor partnership or corporation, this Plan and Trust fund shall not be deemed to have terminated, and the termination of service of any Participant shall not be deemed to be a termination hereunder, provided such Participant is re-employed by the successor partnership or corporation within thirty (30) days after such termination. If, within ninety (90) days from the effective date of the consolidation, merger or sale or transfer of assets, such new partnership or corporation does not adopt this Plan as herein provided, this Plan shall automatically be terminated and the Trust Fund disposed of as hereinafter provided in Section 8.4 hereof. The merger or consolidation -29- with, or transfer of assets and liabilities to, any other qualified retirement plan shall be permitted only if the benefit each Participant would receive if the Plan were terminated immediately after such merger or consolidation, or transfer of assets and liabilities, would be at least as great as the benefit he would have received had the Plan been terminated immediately before any such transaction. Section 8.3. Discontinuance of the Plan on Dissolution of Company. - ------------------------------------------------------------------- In the event that the Company is legally dissolved or liquidated by any procedure other than by a consolidation or merger or sale or transfer of its assets, this plan shall automatically be terminated and the Trust Fund disposed of as hereinafter provided in Section 8.4 hereof. Section 8.4. Distribution of Trust Fund on Discontinuance of the Plan. - ----------------------------------------------------------------------- If this Plan should at any time be terminated, whether by the terms of Section 8.1, Section 8.2, or Section 8.3 hereof, the Committee shall determine or cause to be determined the value of the Trust Fund and shall ascertain and determine the amount of the respective interests of the Participants having an interest therein, in the manner and according to the formula contained in -30- Article V hereof. The Committee shall then distribute the net balance thereof remaining in its hands to the Participants entitled thereto in proportion to the value of their respective interests and shall direct the Trustee to hold and/or dispose of the same as to each such Participant in accordance with the terms, conditions and provisions of Section 6.2 of this Plan. Upon termination of the Plan or complete discontinuance of contributions thereunder, the Accounts of all Participants shall be fully vested. Section 8.5. Amendments. - ------------ ---------- The Company by action of its Board of Directors may at any time and from time to time amend this Plan; provided, however, that no amendment shall be made at any time pursuant to which the Trust Fund may be diverted to purposes other than for the exclusive benefit of the Participants and their Beneficiaries, and no amendment shall be made at any time prejudicial to any interest of any Participant or his Beneficiaries. Notwithstanding anything therein to the contrary, however, the Plan may be amended at any time if found necessary in order to conform to the provisions and requirements of the Code or regulations issued pursuant thereto, or any similar act or any amendments thereto, and no such amendments shall be considered prejudicial to any interest of any Participant hereunder, or of his Beneficiaries. -31- ARTICLE IX THE TRUST FUND -------------- Section 9.1. Establishment of Trust. - ------------ ---------------------- The Company shall designate the Trustee and execute a Trust Agreement. The Trust Agreement shall provide for the administration of the Trust by the Trustee thereof, and shall be in such form and contain such provisions as the Company deems appropriate, including, but not by way of limitation, provisions with respect to the powers and authority of the Trustee, the limitation on the liability of the Trustee, authority of the Company and of the Committee to settle the accounts of the Trustee on behalf of all persons having any interest in the Trust and from time to time to appoint a new Trustee in the place of any then acting Trustee, and that with respect to any payments to or for the benefit of any Participant or Beneficiary under this Plan the Trustee shall follow the directions of the Committee. Section 9.2. Trust Part of Plan. - ------------ ------------------ The Trust Agreement shall be deemed to form a part of this Plan, and any and all rights or benefits which may accrue to any person under this Plan shall be subject to all the terms and provisions of the said Trust Agreement. -32- Section 9.3. Composition of the Trust Fund. - ------------ ----------------------------- The Trust Fund to be administered under the Trust Agreement shall consist of the contributions of the Company to the Trust as the same may be invested from time to time, and the earnings and profits thereon, less the distributions and charges which at the time of reference shall have been made as herein provided. Section 9.4. Co-Trustees. - ------------ ----------- If there is more than one Trustee serving at any time, specific responsibilities, obligations or duties may be allocated among the Trustees as they may agree, and no Trustee shall be liable for any act or omission on the part of another Trustee to whom the responsibility with respect to such act or omission has been allocated. ARTICLE X LOANS ----- Section 10.1. Loans to Participant. - ------------- -------------------- (a) Upon application by a Participant who is an Employee, but subject to such uniform and non-discriminatory rules as the Committee may establish and to the provisions of this Section 10.1, the Committee may in its discretion direct the -33- Trustee to make a loan or loans to such Participant, but only for the purpose of either paying educational expenses for himself or one or more of his dependents or acquiring a home, in an amount which, when aggregated with all other outstanding loan balances, does not exceed the lesser of (A) $50,000, reduced by the excess (if any) of the highest outstanding balance of loans from the Plan during the one-year period ending on the date preceding the date of such loan, over the outstanding balances of loans on the date of the loan, or (B) 50% of the Participant's vested Account balance. For the purpose of the above limitation, all loans from all plans of the Company and the Related Companies are aggregated. The minimum loan that may be made from the Plan is $1,000. (b) Loans made pursuant to subsection (a) above (i) shall constitute an individual directed investment of the borrowing Participant (with respect to which only his account bears any risk of loss), (ii) shall be secured by the Participant's vested interest in the Plan and such other collateral as the Committee may require, (iii) shall -34- be available to all Participants on a reasonably equivalent basis that shall not result in discrimination in favor of employees of the Company who are officers, shareholders or highly compensated and (iv) shall be evidenced by a promissory note executed by the Participant which provides for a reasonable rate of interest determined by the Committee and for repayment (A) within a specified period of time, which shall not extend beyond 5 years from the time the loan is made unless the loan proceeds are used to acquire a dwelling which within a reasonable time (determined at the time the loan is made) is to be used as the principal residence of the Participant, (B) upon a fixed repayment schedule (including payroll deductions) with substantially level amortization over the term of the loan and in payments no less frequently than quarterly, and (C) upon such other terms and conditions as the Committee shall determine. Notwithstanding any other provision of the Plan, such loan shall be a first lien against the Participant's interest in the Trust Fund and any amount of principal or interest due and unpaid thereon shall be deducted from such interest before the payment of any portion thereof to the Participant or his Beneficiary. (c) Notwithstanding the foregoing provisions of this Section 10.1, loans made to Participants under the Plan shall be immediately due and payable upon the Participant's -35- termination of employment with the Company, whether by death, retirement or otherwise. ARTICLE XI MISCELLANEOUS ------------- Section 11.1. Right of Company to Dismiss Employees. - ------------- ------------------------------------- Neither the action of the Company in establishing this Plan, nor any action taken by it or by the Committee under the provisions hereof, nor any provision of this Plan shall be construed as giving to any Employee the right to be retained in its employ or any right to any payment whatsoever, except to the extent of the benefits provided by this Plan to be paid from the Trust Fund. The Company expressly reserves its right at any time to dismiss any Employee without any liability for any claim against the Trust Fund for any payment whatsoever except to the extent of the benefits provided by this Plan to be paid from the Trust Fund. Section 11.2. Benefits to be Provided Solely from the Trust Fund; Company Not - ------------- --------------------------------------------------------------- Liable Therefor. - ---------------- All benefits under the Plan shall be made or provided for solely from the Trust Fund and the Company assumes no liability or responsibility therefor. -36- Section 11.3. Notices of Participants to be Filed with Committee. - ------------- --------------------------------------------------- Wherever provision is made that a Participant may exercise any option or designate any Beneficiary the action of such Participant shall be evidenced by written notice thereof, signed by the Participant on a blank, if any, furnished by the Committee for such purpose and filed with such Committee. Section 11.4. Plan Intended to Conform to Applicable Law. - ------------- ------------------------------------------ It is the intention of the Company that it shall be impossible for any part of the Trust Fund to be used for or diverted to purposes other than for the exclusive benefit of the Employees of the Company and their Beneficiaries. The Plan is intended to comply by its terms with applicable provisions of the Code, including but not limited to the top heavy rules of Section 416 thereof. In the event that upon initial submission of the Plan to the Internal Revenue Service, the Service holds that the Plan does not meet the requirements of Section 401(a) of the Code, and the Company concludes that it is not practicable to amend the Plan in such a manner as to obtain the approval of the Service, the Plan shall be deemed to have never taken effect and the Committee will direct the Trustee promptly to transfer the assets held in the Trust Fund and any income earned thereon to the Company and the Trust will thereupon terminate. -37- Section 11.5. Infants and Incompetents. - ------------- ------------------------ If any person to whom a benefit is payable hereunder is an infant, or if the Committee determines that any person to whom such benefit is payable is mentally incompetent by reason of physical or mental disability, the Committee shall have the power to cause the payments becoming due to such person to be made to another for his benefit without responsibility of the Committee or the Trustees to see the application of such payments. Any payment made pursuant to such power shall, as to such payment, operate as a complete discharge of the Trust Fund, the Trustee and the Committee. Section 11.6. Fiduciaries. - ------------- ----------- The fiduciaries: (a) The Committee shall be the Plan Administrator and the named fiduciary with respect to all responsibilities delegated to them under Article VII. (b) The Board of Directors of the Company shall be the named fiduciary with respect to the appointment of the Committee and Trustee of the Plan, the amendment of the Trust, the amendment or termination of the Plan and the determination of contributions to the Plan under Article II. -38- (c) The Trustee shall be the named fiduciary with respect to the responsibilities delegated to him under Article IX. (d) The Comptroller of the Company shall be the named fiduciary responsible for the calculation of and remittance of contributions to the Plan. Section 11.7. Context to Control. - ------------- ------------------ The headings of articles and sections are included solely for convenience of reference and if there by any conflict between such headings and the text of this Plan, the text shall control. Section 11.8. Communication of Plan. - ------------- --------------------- The substance of this Plan and the amendments made thereto from time to time shall be communicated to all Employees of the Company. IN WITNESS WHEREOF, ACE Limited has caused this Plan to be executed by its duly authorized officer this _________ day of ________________, 19___. ACE LIMITED By:___________________________ -39- EX-10.38 3 INDENTURE DATED 11/30/1999 Exhibit 10.38 ACE INA HOLDINGS INC., Issuer to BANK ONE TRUST COMPANY, NA Trustee _______________ INDENTURE _______________ Dated as of November 30, 1999 Subordinated Debt Securities Reconciliation and tie between Trust Indenture Act of 1939 (the "Trust Indenture Act") and Indenture Trust Indenture Act Section Indenture Section ----------------- ----------------- (S)310(a)(1) 6.7 (a)(2) 6.7 (b) 6.8 (S)312(a) 7.1 (b) 7.2 (c) 7.2 (S)313(a) 7.3 (b)(2) 7.3 (c) 7.3 (d) 7.3 (S)314(a) 7.4 (c)(1) 1.2 (c)(2) 1.2 (e) 1.2 (f) 1.2 (S)316(a) (last sentence) 1.1 (a)(1)(A) 5.2, 5.12 (a)(1)(B) 5.13 (b) 5.8 (S)317(a)(1) 5.3 (a)(2) 5.4 (b) 10.3 (S)318(a) 10.8 - -------------------------- Note: This reconciliation and tie shall not, for any purpose, be deemed to be part of the Indenture. i TABLE OF CONTENTS ARTICLE 1 Definitions and Other Provisions of General Application.................. 2 Section 1.1 Definitions............................................ 2 Act................................................................. 2 Additional Amounts.................................................. 2 Additional Interest................................................. 2 Affiliate........................................................... 3 Authenticating Agent................................................ 3 Authorized Newspaper................................................ 3 Authorized Officer.................................................. 3 Bearer Security..................................................... 3 Board of Directors.................................................. 3 Board Resolution.................................................... 3 Business Day........................................................ 3 Capital Stock....................................................... 4 Capitalized Lease Obligation........................................ 4 Commission.......................................................... 4 Common Stock........................................................ 4 Company............................................................. 4 Company Request..................................................... 4 Company Senior Indebtedness......................................... 4 Conversion Event.................................................... 5 Corporate Trust Office.............................................. 5 Corporation......................................................... 5 Coupon.............................................................. 5 Currency............................................................ 5 CUSIP number........................................................ 5 Defaulted Interest.................................................. 5 Dollars............................................................. 5 Event of Default.................................................... 5 Foreign Currency.................................................... 6 Government Obligations.............................................. 6 Holder.............................................................. 6 Indebtedness........................................................ 6 Indenture........................................................... 7 Independent Public Accountants...................................... 7 ii Indexed Security.................................................... 7 Interest............................................................ 7 Interest Payment Date............................................... 7 Judgment Currency................................................... 7 Lien................................................................ 8 Maturity............................................................ 8 New York Banking Day................................................ 8 "Office" or "Agency"................................................ 8 Officer's Certificate............................................... 8 Opinion of Counsel.................................................. 8 Original Issue Discount Security.................................... 8 Outstanding......................................................... 8 Paying Agent........................................................10 Person..............................................................10 Place of Payment....................................................10 Predecessor Security................................................10 Preferred Stock.....................................................10 Redemption Date.....................................................10 Redemption Price....................................................10 Registered Security.................................................11 Regular Record Date.................................................11 Required Currency...................................................11 Responsible Officer.................................................11 "Security" or "Securities"..........................................11 "Security Register" and "Security Registrar"........................11 Senior Indebtedness.................................................11 Special Record Date.................................................11 Stated Maturity.....................................................11 Subsidiary..........................................................11 Trust Indenture Act.................................................12 Trustee.............................................................12 United States.......................................................12 United States Alien.................................................12 "U.S. Depository" or "Depository"...................................12 Vice President......................................................13 Section 1.2 Compliance Certificates and Opinions...................13 Section 1.3 Form of Documents Delivered to Trustee.................13 Section 1.4 Acts of Holders........................................14 Section 1.5 Notices, etc. to Trustee and Company...................16 Section 1.6 Notice to Holders of Securities; Waiver................17 Section 1.7 Language of Notices....................................18 iii Section 1.8 Conflict with Trust Indenture Act......................18 Section 1.9 Effect of Headings and Table of Contents...............18 Section 1.10 Successors and Assigns.................................18 Section 1.11 Separability Clause....................................19 Section 1.12 Reserved...............................................19 Section 1.13 Benefits of Indenture..................................19 Section 1.14 Governing Law..........................................19 Section 1.15 Legal Holidays.........................................19 Section 1.16 Counterparts...........................................20 Section 1.17 Judgment Currency......................................20 Section 1.18 No Security Interest Created...........................20 Section 1.19 Limitation on Individual Liability.....................21 Section 1.20 Submission to Jurisdiction.............................21 ARTICLE 2 Securities Forms.........................................................22 Section 2.2 Form of Trustee's Certificate of Authentication........23 Section 3.2 Currency; Denominations................................29 Section 3.3 Execution, Authentication, Delivery and Dating.........29 Section 3.4 Temporary Securities...................................31 Section 3.5 Registration, Transfer and Exchange....................32 Section 3.6 Mutilated, Destroyed, Lost and Stolen Securities.......36 Section 3.7 Payment of Interest and Certain Additional Amounts; Rights to Interest and Certain Additional Amounts Preserved..............................................37 Section 3.8 Persons Deemed Owners..................................39 Section 3.9 Cancellation...........................................40 Section 3.10 Computation of Interest................................40 Section 3.11 Agreed Tax Treatment...................................40 ARTICLE 4 Satisfaction and Discharge of Indenture..................................40 Section 4.1 Satisfaction and Discharge.............................40 Section 4.2 Defeasance and Covenant Defeasance.....................42 Section 4.3 Application of Trust Money.............................47 iv ARTICLE 5 Remedies.................................................................47 Section 5.1 Events of Default......................................47 Section 5.2 Acceleration of Maturity; Rescission and Annulment.....50 Section 5.3 Collection of Indebtedness and Suits for Enforcement by Trustee................................................51 Section 5.4 Trustee May File Proofs of Claim.......................52 Section 5.5 Trustee May Enforce Claims without Possession of Securities or Coupons..................................53 Section 5.6 Application of Money Collected.........................53 Section 5.7 Limitations on Suits...................................54 Section 5.8 Unconditional Right of Holders to Receive Principal and any Premium, Interest and Additional Amounts...........55 Section 5.9 Restoration of Rights and Remedies.....................55 Section 5.10 Rights and Remedies Cumulative.........................55 Section 5.11 Delay or Omission Not Waiver...........................55 Section 5.12 Control by Holders of Securities.......................56 Section 5.13 Waiver of Past Defaults................................56 Section 5.15 Undertaking for Costs..................................57 ARTICLE 6 The Trustee..............................................................57 Section 6.1 Certain Rights of Trustee..............................57 Section 6.2 Notice of Defaults.....................................59 Section 6.3 Not Responsible for Recitals or Issuance of Securities.60 Section 6.4 May Hold Securities....................................60 Section 6.6 Compensation and Reimbursement.........................60 Section 6.7 Corporate Trustee Required; Eligibility................61 Section 6.8 Resignation and Removal; Appointment of Successor......62 Section 6.9 Acceptance of Appointment by Successor.................63 Section 6.10 Merger, Conversion, Consolidation or Succession to Business...............................................65 Section 6.11 Appointment of Authenticating Agent....................65 Section 7.1 Company to Furnish Trustee Names and Addresses of Holders................................................67 Section 7.2 Preservation of Information; Communications to Holders.68 Section 7.3 Reports by Trustee.....................................68 v Section 7.4 Reports by Company.....................................68 ARTICLE 8 Consolidation, Amalgamations, Merger and Sales...........................69 Section 8.1 Company May Consolidate, Etc., Only on Certain Terms...69 Section 8.2 Successor Person Substituted for Company...............70 ARTICLE 9 Supplemental Indentures..................................................71 Section 9.1 Supplemental Indentures without Consent of Holders.....71 Section 9.2 Supplemental Indentures with Consent of Holders........72 Section 9.3 Execution of Supplemental Indentures...................74 Section 9.4 Effect of Supplemental Indentures......................74 Section 9.5 Reference in Securities to Supplemental Indentures.....74 Section 9.6 Conformity with Trust Indenture Act....................74 Section 9.7 Effect on Senior Indebtedness..........................75 Section 9.8 Notice of Supplemental Indenture.......................75 ARTICLE 10 Covenants................................................................75 Section 10.1 Payment of Principal, any Premium, Interest and Additional Amounts....................................75 Section 10.2 Maintenance of Office or Agency.......................75 Section 10.3 Money for Securities Payments to Be Held in Trust.....77 Section 10.4 Additional Amounts....................................78 Section 10.5 Corporate Existence...................................79 Section 10.6 Waiver of Certain Covenants...........................80 Section 10.7 Company Statement as to Compliance; Notice of Certain Defaults..............................................80 ARTICLE 11 Redemption of Securities.................................................81 Section 11.1 Applicability of Article..............................81 vi Section 11.2 Election to Redeem; Notice to Trustee.................81 Section 11.3 Selection by Trustee of Securities to be Redeemed.....81 Section 11.4 Notice of Redemption..................................82 Section 11.5 Deposit of Redemption Price...........................84 Section 11.6 Securities Payable on Redemption Date.................84 Section 11.7 Securities Redeemed in Part...........................85 ARTICLE 12 Sinking Funds............................................................85 Section 12.1 Applicability of Article..............................85 Section 12.2 Satisfaction of Sinking Fund Payments with Securities.86 Section 12.3 Redemption of Securities for Sinking Fund.............86 ARTICLE 13 Repayment at the Option of Holders.......................................87 Section 13.1 Applicability of Article..............................87 ARTICLE 14 Securities in Foreign Currencies.........................................87 Section 14.1 Applicability of Article..............................87 ARTICLE 15 Meetings of Holders of Securities........................................88 Section 15.1 Purposes for Which Meetings May Be Called.............88 Section 15.2 Call, Notice and Place of Meetings....................88 Section 15.3 Persons Entitled to Vote at Meetings..................89 Section 15.4 Quorum; Action........................................89 Section 15.5 Determination of Voting Rights; Conduct and Adjournment of Meetings...............................90 Section 15.6 Counting Votes and Recording Action of Meetings.......91 ARTICLE 16 Subordination Of Securities..............................................91 vii Section 16.1 Agreement to Subordinate..............................91 Section 16.2 Default on Company Senior Indebtedness................92 Section 16.3 Liquidation; Dissolution; Bankruptcy..................92 Section 16.4 Subrogation...........................................94 Section 16.5 Trustee to Effectuate Subordination...................95 Section 16.6 Notice by the Company.................................95 Section 16.7 Rights of the Trustee; Holders of Company Senior Indebtedness..........................................97 Section 16.8 Subordination May Not Be Impaired.....................97 viii INDENTURE, dated as of November 30, 1999 (the "Indenture"), among ACE INA HOLDINGS INC., a corporation duly organized and existing under the laws of the State of Delaware (hereinafter called the "Company"), having its principal executive office located at Two Liberty Place, 1601 Chestnut Street, Philadelphia, Pennsulvania 19101 and BANK ONE TRUST COMPANY, NA, a national banking association duly organized and existing under the laws of the United States of America (including any successors, the "Trustee"), having its Corporate Trust Office located at 1 Bank One, Plaza, Suite IL1-0126, Chicago, Illinois 60670-0126. Recitals The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of its subordinated unsecured debentures, notes or other evidences of indebtedness (hereinafter called the "Securities"), unlimited as to principal amount, to bear such rates of interest, to mature at such time or times, to be issued in one or more series and to have such other provisions as shall be fixed as hereinafter provided. The Company has duly authorized the execution and delivery of this Indenture. All things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done. This Indenture is subject to the provisions of the Trust Indenture Act of 1939, as amended, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder that are required to be part of this Indenture and, to the extent applicable, shall be governed by such provisions. Now, Therefore, This Indenture Witnesseth: For and in consideration of the premises and the purchase of the Securities by the Holders (as herein defined) thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities or of any series thereof and any Coupons (as herein defined), as follows: ARTICLE 1 Definitions and Other Provisions of General Application Section 1.1 Definitions. Except as otherwise expressly provided in or pursuant to this Indenture or unless the context otherwise requires, for all purposes of this Indenture: (1) the terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular; (2) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles in the United States of America and, except as otherwise herein expressly provided, the terms "generally accepted accounting principles" or "GAAP" with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted in the United States of America at the date or time of such computation; (4) the words "herein," "hereof," "hereto" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; and (5) the word "or" is always used inclusively (for example, the phrase "A or B" means "A or B or both," not "either A or B but not both"). Certain terms used principally in certain Articles hereof are defined in those Articles. "Act," when used with respect to any Holders, has the meaning specified in Section 1.4. "Additional Amounts" means any additional amounts which are required hereby or by any Security, under circumstances specified herein or therein, to be paid by the Company in respect of certain taxes, assessments or other governmental charges imposed on Holders specified therein and which are owing to such Holders. "Additional Interest" means the interest, if any, that shall accrue on any interest on the Securities of any series the payment of which has not been made on the applicable Interest 2 Payment Date and which shall accrue at the rate per annum specified or determined as specified in such Security. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control," when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have the meanings correlative to the foregoing. "Authenticating Agent" means any Person authorized by the Trustee pursuant to Section 6.11 to act on behalf of the Trustee to authenticate Securities of one or more series. "Authorized Newspaper" means a newspaper, in an official language of the place of publication or in the English language, customarily published on each day that is a Business Day in the place of publication, whether or not published on days that are Legal Holidays in the place of publication, and of general circulation in each place in connection with which the term is used or in the financial community of each such place. Where successive publications are required to be made in Authorized Newspapers, the successive publications may be made in the same or in different newspapers in the same city meeting the foregoing requirements and in each case on any day that is a Business Day in the place of publication. "Authorized Officer" means, when used with respect to the Company, the Chairman of the Board of Directors, a Vice Chairman, the President, any Vice President, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company. "Bearer Security" means any Security in the form established pursuant to Section 2.1 which is payable to bearer. "Board of Directors" means the board of directors of the Company or any committee of that board duly authorized to act generally or in any particular respect for the Company hereunder. "Board Resolution" means a copy of one or more resolutions, certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, delivered to the Trustee. "Business Day," with respect to any Place of Payment or other location, means, unless otherwise specified with respect to any Securities pursuant to Section 3.1, any day other than a Saturday, Sunday or other day on which banking institutions in such Place of Payment or other location are authorized or obligated by law, regulation or executive order to close. 3 "Capital Stock" of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including Preferred Stock, but excluding any debt securities convertible into such equity. "Capitalized Lease Obligation" means an obligation under a lease that is required to be capitalized for financial reporting purposes in accordance with generally accepted accounting principles, and the amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with such principles. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, as amended, or, if at any time after the execution of this Indenture such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Stock" in respect of any Corporation means Capital Stock of any class or classes (however designated) which has no preference as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Corporation, and which is not subject to redemption by such Corporation. "Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person, and any other obligor upon the Securities. "Company Request" and "Company Order" mean, respectively, a written request or order, as the case may be, signed in the name of the Company by an Authorized Officer, and delivered to the Trustee. "Company Senior Indebtedness" means, with respect to the Securities of any particular series, all Indebtedness of the Company outstanding at any time, except (a) the Securities of such series, (b) Indebtedness as to which, by the terms of the instrument creating or evidencing the same, it is provided that such Indebtedness is subordinated to or pari passu with the Securities of such series, (c) Indebtedness of the Company to an Affiliate of the Company, (d) interest accruing after the filing of a petition initiating any proceeding relating to the Company referred to in Section 5.1(7) and 5.1(8) unless such interest is an allowed claim enforceable against the Company in a proceeding under federal or state bankruptcy laws, (e) trade accounts payable and (f) any Indebtedness, including all other debt securities and guaranties in respect of those debt securities, initially issued to ACE Capital Trust I, ACE Capital Trust II, ACE Capital Trust III and ACE RHINOS Trust, each a statutory business trust formed under the laws of the State of 4 Delaware, or any other similar trust created to issued common and preferred securities and to use the proceeds from the sale thereof to purchase debt securities of the Company. "Conversion Event" means the cessation of use of (i) a Foreign Currency both by the government of the country or the confederation which issued such Foreign Currency and for the settlement of transactions by a central bank or other public institutions of or within the international banking community or (ii) any currency unit or composite currency for the purposes for which it was established. "Corporate Trust Office" means the principal corporate trust office of the Trustee at which at any particular time its corporate trust business shall be administered, which office at the date of original execution of this Indenture is located at 1 Bank One Plaza, Suite IL1-0126, Chicago, Illinois 60670-0126. "Corporation" includes corporations and limited liability companies and, except for purposes of Article 8, associations, companies and business trusts. "Coupon" means any interest coupon appertaining to a Bearer Security. "Currency," with respect to any payment, deposit or other transfer in respect of the principal of or any premium or interest on or any Additional Amounts with respect to any Security, means Dollars or the Foreign Currency, as the case may be, in which such payment, deposit or other transfer is required to be made by or pursuant to the terms hereof or such Security and, with respect to any other payment, deposit or transfer pursuant to or contemplated by the terms hereof or such Security, means Dollars. "CUSIP number" means the alphanumeric designation assigned to a Security by Standard & Poor's Ratings Service, CUSIP Service Bureau. "Defaulted Interest" has the meaning specified in Section 3.7. "Dollars" or "$" means a dollar or other equivalent unit of legal tender for payment of public or private debts in the United States of America. "Event of Default" has the meaning specified in Section 5.1. "Foreign Currency" means any currency, currency unit or composite currency, including, without limitation, the euro, issued by the government of one or more countries other than the United States of America or by any recognized confederation or association of such governments. 5 "Government Obligations" means securities which are (i) direct obligations of the United States of America or the other government or governments which issued the Foreign Currency in which the principal of or any premium or interest on such Security or any Additional Amounts in respect thereof shall be payable, in each case where the payment or payments thereunder are supported by the full faith and credit of such government or governments or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America or such other government or governments, in each case where the timely payment or payments thereunder are unconditionally guaranteed as a full faith and credit obligation by the United States of America or such other government or governments, and which, in the case of (i) or (ii), are not callable or redeemable at the option of the issuer or issuers thereof, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such Government Obligation or a specific payment of interest on or principal of or other amount with respect to any such Government Obligation held by such custodian for the account of the holder of a depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the Government Obligation or the specific payment of interest on or principal of or other amount with respect to the Government Obligation evidenced by such depository receipt. "Holder," in the case of any Registered Security, means the Person in whose name such Security is registered in the Security Register and, in the case of any Bearer Security, means the bearer thereof and, in the case of any Coupon, means the bearer thereof. "Indebtedness" means, with respect to any Person, (i) the principal of and any premium and interest on (a) indebtedness of such Person for money borrowed and (b) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable; (ii) all Capitalized Lease Obligations of such Person; (iii) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations and all obligations under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business); (iv) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction (other than obligations with respect to letters of credit securing obligations (other than obligations described in (i) through (iii) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the third Business Day following receipt by such Person of a demand for reimbursement following payment on the letter of credit); (v) all obligations of the type referred to in clauses (i) through (iv) of other Persons and all dividends of other Persons for the payment of which, in either case, such Person is responsible or liable as obligor, guarantor or otherwise; (vi) all obligations of the type referred to in clauses (i) through (v) of other Persons secured by any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person), the amount of such 6 obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured; and (vii) any amendments, modifications, refundings, renewals or extensions of any indebtedness or obligation described as Indebtedness in clauses (i) through (vi) above. "Indenture" means this instrument as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof and, with respect to any Security, by the terms and provisions of such Security and any Coupon appertaining thereto established pursuant to Section 3.1 (as such terms and provisions may be amended pursuant to the applicable provisions hereof). "Independent Public Accountants" means accountants or a firm of accountants that, with respect to the Company and any other obligor under the Securities or the Coupons, are independent public accountants within the meaning of the Securities Act of 1933, as amended, and the rules and regulations promulgated by the Commission thereunder, who may be the independent public accountants regularly retained by the Company or who may be other independent public accountants. Such accountants or firm shall be entitled to rely upon any Opinion of Counsel as to the interpretation of any legal matters relating to this Indenture or certificates required to be provided hereunder. "Indexed Security" means a Security the terms of which provide that the principal amount thereof payable at Stated Maturity may be more or less than the principal face amount thereof at original issuance. "Interest", with respect to any Original Issue Discount Security which by its terms bears interest only after Maturity, means interest payable after Maturity and, when used with respect to a Security which provides for the payment of Additional Amounts pursuant to Section 10.4, includes such Additional Amounts. "Interest Payment Date," with respect to any Security, means the Stated Maturity of an installment of interest on such Security. "Judgment Currency" has the meaning specified in Section 1.16. "Lien" means any mortgage, pledge, lien, security interest or other encumbrance. "Maturity", with respect to any Security, means the date on which the principal of such Security or an installment of principal becomes due and payable as provided in or pursuant to this Indenture, whether at the Stated Maturity or by declaration of acceleration, notice of redemption or repurchase, notice of option to elect repayment or otherwise, and includes the Redemption Date. 7 "New York Banking Day" has the meaning specified in Section 1.16. "Office" or "Agency," with respect to any Securities, means an office or agency of the Company maintained or designated in a Place of Payment for such Securities pursuant to Section 10.2 or any other office or agency of the Company maintained or designated for such Securities pursuant to Section 10.2 or, to the extent designated or required by Section 10.2 in lieu of such office or agency, the Corporate Trust Office of the Trustee. "Officer's Certificate" means a certificate signed by an Authorized Officer that complies with the requirements of Section 314(e) of the Trust Indenture Act and is delivered to the Trustee. "Opinion of Counsel" means a written opinion of counsel, who may be an employee of or counsel for the Company or other counsel who shall be reasonably acceptable to the Trustee, that, if required by the Trust Indenture Act, complies with the requirements of Section 314(e) of the Trust Indenture Act. "Original Issue Discount Security" means a Security issued pursuant to this Indenture which provides for declaration of an amount less than the principal face amount thereof to be due and payable upon acceleration pursuant to Section 5.2. "Outstanding," when used with respect to any Securities, means, as of the date of determination, all such Securities theretofore authenticated and delivered under this Indenture, except: (a) any such Security theretofore cancelled by the Trustee or the Security Registrar or delivered to the Trustee or the Security Registrar for cancellation; (b) any such Security for whose payment at the Maturity thereof money in the necessary amount has been theretofore deposited pursuant hereto (other than pursuant to Section 4.2) with the Trustee or any Paying Agent (other than the Company) in trust or set aside and segregated in trust by the Company (if the Company shall act as its own Paying Agent) for the Holders of such Securities and any Coupons appertaining thereto, provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; 8 (c) any such Security with respect to which the Company has effected defeasance pursuant to the terms hereof, except to the extent provided in Section 4.2; (d) any such Security which has been paid pursuant to Section 3.6 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, unless there shall have been presented to the Trustee proof satisfactory to it that such Security is held by a bona fide purchaser in whose hands such Security is a valid obligation of the Company; and (e) any such Security converted or exchanged as contemplated by this Indenture into securities of the Company or another issuer, if the terms of such Security provide for such conversion or exchange pursuant to Section 3.1; provided, however, that in determining whether the Holders of the requisite principal amount of Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder or are present at a meeting of Holders of Securities for quorum purposes, (i) the principal amount of an Original Issue Discount Security that may be counted in making such determination and that shall be deemed to be Outstanding for such purposes shall be equal to the amount of the principal thereof that pursuant to the terms of such Original Issue Discount Security would be declared (or shall have been declared to be) due and payable upon a declaration of acceleration thereof pursuant to Section 5.2 at the time of such determination, and (ii) the principal amount of any Indexed Security that may be counted in making such determination and that shall be deemed Outstanding for such purposes shall be equal to the principal face amount of such Indexed Security at original issuance, unless otherwise provided in or pursuant to this Indenture, and (iii) the principal amount of a Security denominated in a Foreign Currency shall be the Dollar equivalent, determined on the date of original issuance of such Security, of the principal amount (or, in the case of an Original Issue Discount Security, the Dollar equivalent on the date of original issuance of such Security of the amount determined as provided in (i) above) of such Security, and (iv) Securities owned by the Company or any other obligor upon the Securities or any Affiliate of the Company or such other obligor, shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in making any such determination or relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which a Responsible Officer of the Trustee actually knows to be so owned shall be so disregarded. Securities so owned which shall have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee (A) the pledgee's right so to act with respect to such Securities and (B) that the pledgee is not the Company or any other obligor upon the Securities or any Coupons appertaining thereto or an Affiliate of the Company or such other obligor. 9 "Paying Agent" means any Person authorized by the Company to pay the principal of, or any premium or interest on, or any Additional Amounts with respect to, any Security or any Coupon on behalf of the Company. "Person" means any individual, Corporation, partnership, joint venture, jointstock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Place of Payment," with respect to any Security, means the place or places where the principal of, or any premium or interest on, or any Additional Amounts with respect to such Security are payable as provided in or pursuant to this Indenture or such Security. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same Indebtedness as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 3.6 in exchange for or in lieu of a lost, destroyed, mutilated or stolen Security or any Security to which a mutilated, destroyed, lost or stolen Coupon appertains shall be deemed to evidence the same Indebtedness as the lost, destroyed, mutilated or stolen Security or the Security to which a mutilated, destroyed, lost or stolen Coupon appertains. "Preferred Stock" in respect of any Corporation means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Corporation, over shares of Capital Stock of any other class of such Corporation. "Redemption Date," with respect to any Security or portion thereof to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture or such Security. "Redemption Price," with respect to any Security or portion thereof to be redeemed, means the price at which it is to be redeemed as determined by or pursuant to this Indenture or such Security. "Registered Security" means any Security established pursuant to Section 2.1 which is registered in a Security Register. "Regular Record Date" for the interest payable on any Registered Security on any Interest Payment Date therefor means the date, if any, specified in or pursuant to this Indenture or such Security as the "Regular Record Date". "Required Currency" has the meaning specified in Section 1.16. 10 "Responsible Officer" means any vice president, any assistant vice president, the secretary, any assistant secretary, the treasurer, any assistant treasurer, or any trust officer or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his or her knowledge of and familiarity with the particular subject. "Security" or "Securities" means any note or notes, bond or bonds, debenture or debentures, or any other evidences of Indebtedness, as the case may be, authenticated and delivered under this Indenture; provided, however, that, if at any time there is more than one Person acting as Trustee under this Indenture, "Securities," with respect to any such Person, shall mean Securities authenticated and delivered under this Indenture, exclusive, however, of Securities of any series as to which such Person is not Trustee. "Security Register" and "Security Registrar" have the respective meanings specified in Section 3.5. "Senior Indebtedness," with respect to the Securities of any particular series means Company Senior Indebtedness with respect to the Securities of such series. "Special Record Date" for the payment of any Defaulted Interest on any Registered Security means a date fixed by the Company pursuant to Section 3.7. "Stated Maturity," with respect to any Security or any installment of principal thereof or interest thereon or any Additional Amounts with respect thereto, means the date established by or pursuant to this Indenture or such Security as the fixed date on which the principal of such Security or such installment of principal or interest is, or such Additional Amounts are, due and payable. "Subsidiary" means, in respect of any Person, any Corporation, limited or general partnership or other business entity of which at the time of determination more than 50% of the voting power of the shares of its Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is owned or controlled, directly or indirectly, by (i) such Person, (ii) such Person and one or more Subsidiaries of such Person or (iii) one or more Subsidiaries of such Person. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, and any reference herein to the Trust Indenture Act or a particular provision thereof shall mean such Act or provision, as the case may be, as amended or replaced from time to time or as supplemented 11 from time to time by rules or regulations adopted by the Commission under or in furtherance of the purposes of such Act or provision, as the case may be. "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such with respect to one or more series of Securities pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean each Person who is then a Trustee hereunder; provided, however, that if at any time there is more than one such Person, "Trustee" shall mean each such Person and as used with respect to the Securities of any series shall mean the Trustee with respect to the Securities of such series. "United States," except as otherwise provided in or pursuant to this Indenture or any Security, means the United States of America (including the states thereof and the District of Columbia), its territories and possessions and other areas subject to its jurisdiction. "United States Alien," except as otherwise provided in or pursuant to this Indenture or any Security, means any Person who, for United States Federal income tax purposes, is a foreign corporation, a nonresident alien individual, a nonresident alien fiduciary of a foreign estate or trust, or a foreign partnership one or more of the members of which is, for United States Federal income tax purposes, a foreign corporation, a nonresident alien individual or a nonresident alien fiduciary of a foreign estate or trust. "U.S. Depository" or "Depository" means, with respect to any Security issuable or issued in the form of one or more global Securities, the Person designated as U.S. Depository or Depository by the Company in or pursuant to this Indenture, which Person must be, to the extent required by applicable law or regulation, a clearing agency registered under the Securities Exchange Act of 1934, as amended, and, if so provided with respect to any Security, any successor to such Person. If at any time there is more than one such Person, "U.S. Depository" or "Depository" shall mean, with respect to any Securities, the qualifying entity which has been appointed with respect to such Securities. "Vice President," when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "Vice President". Section 1.2 Compliance Certificates and Opinions. Except as otherwise expressly provided in this Indenture, upon any application or request by the Company to the Trustee to take any action under any provision of this Indenture, the Company shall furnish to the Trustee an Officer's Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that, in the opinion of such counsel, all such 12 conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents or any of them is specifically required by any provision of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that the individual signing such certificate or opinion has read such condition or covenant and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such condition or covenant has been complied with; and (4) a statement as to whether, in the opinion of such individual, such condition or covenant has been complied with. Section 1.3 Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company may be based, insofar as it relates to legal matters, upon an Opinion of Counsel, provided that such officer, after reasonable inquiry, has no reason to believe and does not believe that the Opinion of Counsel with respect to the matters upon which his certificate or opinion is based is erroneous. Any such Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company stating that the information with respect to such factual matters is in the possession of the Company provided that such counsel, after reasonable inquiry, has no reason to believe and does not believe that the certificate or opinion or representations with respect to such matters are erroneous. 13 Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture or any Security, they may, but need not, be consolidated and form one instrument. Section 1.4 Acts of Holders. (1) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by or pursuant to this Indenture to be given or taken by Holders may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders, in person or by an agent duly appointed in writing. If, but only if, Securities of a series are issuable as Bearer Securities, any request, demand, authorization, direction, notice, consent, waiver or other action provided in or pursuant to this Indenture to be given or taken by Holders of Securities of such series may, alternatively, be embodied in and evidenced by the record of Holders of Securities of such series voting in favor thereof, either in person or by proxies duly appointed in writing, at any meeting of Holders of Securities of such series duly called and held in accordance with the provisions of Article 15, or a combination of such instruments and any such record. Except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments or record or both are delivered to the Trustee and, where it is hereby expressly required, to the Company. Such instrument or instruments and any such record (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders signing such instrument or instruments or so voting at any such meeting. Proof of execution of any such instrument or of a writing appointing any such agent, or of the holding by any Person of a Security, shall be sufficient for any purpose of this Indenture and (subject to Section 315 of the Trust Indenture Act) conclusive in favor of the Trustee and the Company and any agent of the Trustee or the Company, if made in the manner provided in this Section. The record of any meeting of Holders of Securities shall be proved in the manner provided in Section 15.6. Without limiting the generality of this Section 1.4, unless otherwise provided in or pursuant to this Indenture, a Holder, including a U.S. Depository that is a Holder of a global Security, may make, give or take, by a proxy or proxies, duly appointed in writing, any request, demand, authorization, direction, notice, consent, waiver or other Act provided in or pursuant to this Indenture to be made, given or taken by Holders, and a U.S. Depository that is a Holder of a global Security may provide its proxy or proxies to the beneficial owners of interests in any such global Security through such U.S. Depository's standing instructions and customary practices. The Company shall fix a record date for the purpose of determining the Persons who are beneficial owners of interest in any permanent global Security held by a U.S. 14 Depository entitled under the procedures of such U.S. Depository to make, give or take, by a proxy or proxies duly appointed in writing, any request, demand, authorization, direction, notice, consent, waiver or other Act provided in or pursuant to this Indenture to be made, given or taken by Holders. If such a record date is fixed, the Holders on such record date or their duly appointed proxy or proxies, and only such Persons, shall be entitled to make, give or take such request, demand, authorization, direction, notice, consent, waiver or other Act, whether or not such Holders remain Holders after such record date. No such request, demand, authorization, direction, notice, consent, waiver or other Act shall be valid or effective if made, given or taken more than 90 days after such record date. (2) The fact and date of the execution by any Person of any such instrument or writing referred to in this Section 1.4 may be proved in any reasonable manner; and the Trustee may in any instance require further proof with respect to any of the matters referred to in this Section. (3) The ownership, principal amount and serial numbers of Registered Securities held by any Person, and the date of the commencement and the date of the termination of holding the same, shall be proved by the Security Register. (4) The ownership, principal amount and serial numbers of Bearer Securities held by any Person, and the date of the commencement and the date of the termination of holding the same, may be proved by the production of such Bearer Securities or by a certificate executed, as depositary, by any trust company, bank, banker or other depositary reasonably acceptable to the Company, wherever situated, if such certificate shall be deemed by the Company and the Trustee to be satisfactory, showing that at the date therein mentioned such Person had on deposit with such depositary, or exhibited to it, the Bearer Securities therein described; or such facts may be proved by the certificate or affidavit of the Person holding such Bearer Securities, if such certificate or affidavit is deemed by the Trustee to be satisfactory. The Trustee and the Company may assume that such ownership of any Bearer Security continues until (i) another certificate or affidavit bearing a later date issued in respect of the same Bearer Security is produced, or (ii) such Bearer Security is produced to the Trustee by some other Person, or (iii) such Bearer Security is surrendered in exchange for a Registered Security, or (iv) such Bearer Security is no longer Outstanding. The ownership, principal amount and serial numbers of Bearer Securities held by the Person so executing such instrument or writing and the date of the commencement and the date of the termination of holding the same may also be proved in any other manner which the Company and the Trustee deem sufficient. (5) If the Company shall solicit from the Holders of any Registered Securities any request, demand, authorization, direction, notice, consent, waiver or other Act, the 15 Company, may at its option (but is not obligated to), by Board Resolution, fix in advance a record date for the determination of Holders of Registered Securities entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such record date, but only the Holders of Registered Securities of record at the close of business on such record date shall be deemed to be Holders for the purpose of determining whether Holders of the requisite proportion of Outstanding Securities have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other Act, and for that purpose the Outstanding Securities shall be computed as of such record date; provided that no such authorization, agreement or consent by the Holders of Registered Securities shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than six months after the record date. (6) Any request, demand, authorization, direction, notice, consent, waiver or other Act by the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done or suffered to be done by the Trustee, any Security Registrar, any Paying Agent or the Company in reliance thereon, whether or not notation of such Act is made upon such Security. Section 1.5 Notices, etc. to Trustee and Company. Any request, demand, authorization, direction, notice, consent, waiver or other Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee by any Holder or the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, or (2) the Company, by the Trustee or any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, firstclass postage prepaid, to the Company addressed to the attention of its Treasurer, with a copy to the attention of its General Counsel, at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Company. Section 1.6 Notice to Holders of Securities; Waiver. 16 Except as otherwise expressly provided in or pursuant to this Indenture, where this Indenture provides for notice to Holders of Securities of any event, (1) such notice shall be sufficiently given to Holders of Registered Securities if in writing and mailed, firstclass postage prepaid, to each Holder of a Registered Security affected by such event, at his address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice; and (2) such notice shall be sufficiently given to Holders of Bearer Securities, if any, if published in an Authorized Newspaper in The City of New York and, if such Securities are then listed on any stock exchange outside the United States, in an Authorized Newspaper in such city as the Company shall advise the Trustee that such stock exchange so requires, on a Business Day at least twice, the first such publication to be not earlier than the earliest date and the second such publication not later than the latest date prescribed for the giving of such notice. In any case where notice to Holders of Registered Securities is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder of a Registered Security shall affect the sufficiency of such notice with respect to other Holders of Registered Securities or the sufficiency of any notice to Holders of Bearer Securities given as provided herein. Any notice which is mailed in the manner herein provided shall be conclusively presumed to have been duly given or provided. In the case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. In case by reason of the suspension of publication of any Authorized Newspaper or Authorized Newspapers or by reason of any other cause it shall be impracticable to publish any notice to Holders of Bearers Securities as provided above, then such notification to Holders of Bearer Securities as shall be given with the approval of the Trustee shall constitute sufficient notice to such Holders for every purpose hereunder. Neither failure to give notice by publication to Holders of Bearer Securities as provided above, nor any defect in any notice so published, shall affect the sufficiency of any notice mailed to Holders of Registered Securities as provided above. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders of Securities shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. 17 Section 1.7 Language of Notices. Any request, demand, authorization, direction, notice, consent, election or waiver required or permitted under this Indenture shall be in the English language, except that, if the Company, so elects, any published notice may be in an official language of the country of publication. Section 1.8 Conflict with Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with any duties under any required provision of the Trust Indenture Act imposed hereon by Section 318(c) thereof, such required provision shall control. Section 1.9 Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. Section 1.10 Successors and Assigns. All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. Section 1.11 Separability Clause. In case any provision in this Indenture, any Security or any Coupon shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 1.12 Reserved. Section 1.13 Benefits of Indenture. Nothing in this Indenture, any Security or any Coupon, express or implied, shall give to any Person, other than the parties hereto and the holders of Senior Indebtedness, any Security Registrar, any Paying Agent, any Authenticating Agent and their successors hereunder and the Holders of Securities or Coupons, any benefit or any legal or equitable right, remedy or claim under this Indenture. 18 Section 1.14 Governing Law. This Indenture, the Securities and any Coupons shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made or instruments entered into and, in each case, performed in said state. Section 1.15 Legal Holidays. Unless otherwise specified in or pursuant to this Indenture or any Securities, in any case where any Interest Payment Date, Stated Maturity or Maturity of any Security, or the last date on which a Holder has the right to convert or exchange Securities of a series that are convertible or exchangeable, shall not be a Business Day at any Place of Payment, then (notwithstanding any other provision of this Indenture, any Security or any Coupon other than a provision in any Security or Coupon that specifically states that such provision shall apply in lieu hereof) payment need not be made at such Place of Payment on such date, and such Securities need not be converted or exchanged on such date, but such payment may be made, and such Securities may be converted or exchanged, on the next succeeding day that is a Business Day at such Place of Payment, and no interest shall accrue on the amount payable on such date or at such time for the period from and after such Interest Payment Date, Stated Maturity, Maturity or last day for conversion or exchange, as the case may be, to such next succeeding Business Day, except that if such next succeeding Business Day is in the next succeeding calendar year, such payment may be made, and such Securities may be converted or exchanged, on the immediately preceding Business Day (in the case of each of the foregoing, with the same force and effect as if made on such Interest Payment Date or at such Stated Maturity or Maturity or on such last day for conversion or exchange, as the case may be). Section 1.16 Counterparts. This Indenture may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. Section 1.17 Judgment Currency. The Company agrees, to the fullest extent that it may effectively do so under applicable law, that (a) if for the purpose of obtaining judgment in any court it is necessary to convert the sum due in respect of the principal of, or premium or interest, if any, or Additional Amounts on the Securities of any series (the "Required Currency") into a currency in which a judgment will be rendered (the "Judgment Currency"), the rate of exchange used shall be the rate at which in accordance with normal banking procedures the Trustee could purchase in The City of New York the requisite amount of the Required Currency with the Judgment Currency on the New York Banking Day preceding the day on which a final unappealable judgment is given and (b) its 19 obligations under this Indenture to make payments in the Required Currency (i) shall not be discharged or satisfied by any tender, or any recovery pursuant to any judgment (whether or not entered in accordance with clause (a)), in any currency other than the Required Currency, except to the extent that such tender or recovery shall result in the actual receipt, by the payee, of the full amount of the Required Currency expressed to be payable in respect of such payments, (ii) shall be enforceable as an alternative or additional cause of action for the purpose of recovering in the Required Currency the amount, if any, by which such actual receipt shall fall short of the full amount of the Required Currency so expressed to be payable and (iii) shall not be affected by judgment being obtained for any other sum due under this Indenture. For purposes of the foregoing, "New York Banking Day" means any day except a Saturday, Sunday or a legal holiday in The City of New York or a day on which banking institutions in The City of New York are authorized or obligated by law, regulation or executive order to be closed. Section 1.18 No Security Interest Created. Nothing in this Indenture or in any Securities, express or implied, shall be construed to constitute a security interest under the Uniform Commercial Code or similar legislation, as now or hereafter enacted and in effect in any jurisdiction where property of the Company or its Subsidiaries is or may be located. Section 1.19 Limitation on Individual Liability. No recourse under or upon any obligation, covenant or agreement contained in this Indenture or in any Security, or for any claim based thereon or otherwise in respect thereof, shall be had against any incorporator, shareholder, officer or director, as such, past, present or future, of the Company, either directly or through the Company, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that this Indenture and the obligations issued hereunder are solely corporate obligations, and that no such personal liability whatever shall attach to, or is or shall be incurred by, the incorporators, shareholders, officers or directors, as such, of the Company, or any of them, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any Security or implied therefrom; and that any and all such personal liability of every name and nature, either at common law or in equity or by constitution or statute, of, and any and all such rights and claims against, every such incorporator, shareholder, officer or director, as such, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any Security or implied therefrom, are hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issuance of such Security. Section 1.20 Submission to Jurisdiction. 20 The Company agrees that any judicial proceedings instituted in relation to any matter arising under this Indenture, the Securities or any Coupons appertaining thereto may be brought in any United States Federal or New York State court sitting in the Borough of Manhattan, The City of New York, New York to the extent that such court has subject matter jurisdiction over the controversy, and, by execution and delivery of this Indenture, the Company hereby irrevocably accepts, generally and unconditionally, the jurisdiction of the aforesaid courts, acknowledges their competence and irrevocably agrees to be bound by any judgement rendered in such proceeding. The Company also irrevocably and unconditionally waives for the benefit of the Trustee and the Holders of the Securities and Coupons any immunity from jurisdiction and any immunity from legal process (whether through service or notice, attachment prior to judgement, attachment in the aid of execution, execution or otherwise) in respect of this Indenture. The Company hereby irrevocably designates and appoints for the benefit of the Trustee and the Holders of the Securities and Coupons for the term of this Indenture ACE USA, Inc., 1133 Avenue of the Americas, 32/nd/ Floor, New York, New York 10036, as its agent to receive on its behalf service of all process (with a copy of all such service of process to be delivered to Peter N. Mear, General Counsel and Secretary, ACE Limited, The ACE Building, 30 Woodbourne Avenue, Hamilton, HM 08, Bermuda) brought against it with respect to any such proceeding in any such court in The City of New York, such service being hereby acknowledged by each of the Company to be effective and binding service on it in every respect whether or not the Company shall then be doing or shall have at any time done business in New York. Such appointment shall be irrevocable so long as any of the Securities or Coupons or the respective obligations of the Company hereunder remain outstanding, or until the appointment of a successor by the Company and such successor's acceptance of such appointment. Upon such acceptance, the Company shall notify the Trustee of the name and address of such successor. The Company further agrees for the benefit of the Trustee and the Holders of the Securities and the Coupons to take any and all action, including the execution and filing of any and all such documents and instruments, as may be necessary to continue such designation and appointment of said ACE USA, Inc. in full force and effect so long as any of the Securities or Coupons or the respective obligations of the Company hereunder shall be outstanding. The Trustee shall not be obligated and shall have no responsibility with respect to any failure by the Company to take any such action. Nothing herein shall affect the right to serve process in any other manner permitted by any law or limit the right of the Trustee or any Holder to institute proceedings against the Company in the courts of any other jurisdiction or jurisdictions. ARTICLE 2 Securities Forms Section 2.1 Forms Generally. 21 Each Registered Security, Bearer Security, Coupon and temporary or permanent global Security issued pursuant to this Indenture shall be in the form established by or pursuant to a Board Resolution or in one or more indentures supplemental hereto, shall have such appropriate insertions, omissions, substitutions and other variations as are required or permitted by or pursuant to this Indenture or any indenture supplemental hereto and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may, consistently herewith, be determined by the officers executing such Security or Coupon as evidenced by their execution of such Security or Coupon. Unless otherwise provided in or pursuant to this Indenture or any Securities, the Securities shall be issuable in registered form without Coupons and shall not be issuable upon the exercise of warrants. Definitive Securities and definitive Coupons shall be printed, lithographed or engraved or produced by any combination of these methods on a steel engraved border or steel engraved borders or may be produced in any other manner, all as determined by the officers of the Company executing such Securities or Coupons, as evidenced by their execution of such Securities or Coupons. Section 2.2 Form of Trustee's Certificate of Authentication. Subject to Section 6.11, the Trustee's certificate of authentication shall be in substantially the following form: This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. BANK ONE TRUST COMPANY, NA, as Trustee By Authorized Officer Section 2.3 Securities in Global Form. Unless otherwise provided in or pursuant to this Indenture or any Securities, the Securities shall not be issuable in temporary or permanent global form. If Securities of a series shall be issuable in global form, any such Security may provide that it or any number of such Securities shall represent the aggregate amount of all Outstanding Securities of such series (or such lesser amount as is permitted by the terms thereof) from time to time endorsed thereon and 22 may also provide that the aggregate amount of Outstanding Securities represented thereby may from time to time be increased or reduced to reflect exchanges. Any endorsement of any Security in global form to reflect the amount, or any increase or decrease in the amount, or changes in the rights of Holders, of Outstanding Securities represented thereby shall be made in such manner and by such Person or Persons as shall be specified therein or in the Company Order to be delivered pursuant to Section 3.3 or 3.4 with respect thereto. Subject to the provisions of Section 3.3 and, if applicable, Section 3.4, the Trustee shall deliver and redeliver, in each case at the Company's expense, any Security in permanent global form in the manner and upon instructions given by the Person or Persons specified therein or in the applicable Company Order. If a Company Order pursuant to Section 3.3 or 3.4 has been, or simultaneously is, delivered, any instructions by the Company with respect to a Security in global form shall be in writing but need not be accompanied by or contained in an Officer's Certificate and need not be accompanied by an Opinion of Counsel. Notwithstanding the provisions of Section 3.7, unless otherwise specified in or pursuant to this Indenture or any Securities, payment of principal of, any premium and interest on, and any Additional Amounts in respect of, any Security in temporary or permanent global form shall be made to the Person or Persons specified therein. Notwithstanding the provisions of Section 3.8 and except as provided in the preceding paragraph, the Company, the Trustee and any agent of the Company, or the Trustee shall treat as the Holder of such principal amount of Outstanding Securities represented by a global Security (i) in the case of a global Security in registered form, the Holder of such global Security in registered form, or (ii) in the case of a global Security in bearer form, the Person or Persons specified pursuant to Section 3.1. ARTICLE 3 The Securities Section 3.1 Amount Unlimited; Issuable in Series. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited. The Securities may be issued in one or more series. The Securities of each series shall be subordinated in right of payment to all Company Senior Indebtedness with respect to such series as provided in Article 16. With respect to any Securities to be authenticated and delivered hereunder, there shall be established in or pursuant to a Board Resolution and set forth in an Officer's Certificate, or established in one or more indentures supplemental hereto, 23 (1) the title of such Securities and the series in which such Securities shall be included; (2) any limit upon the aggregate principal amount of the Securities of such title or the Securities of such series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of such series pursuant to Section 3.4, 3.5, 3.6, 9.5 or 11.7, upon repayment in part of any Registered Security of such series pursuant to Article 13, upon surrender in part of any Registered Security for conversion into other securities of the Company or exchange for securities of another issuer pursuant to its terms, or pursuant to or as contemplated by the terms of such Securities); (3) if such Securities are to be issuable as Registered Securities, as Bearer Securities or alternatively as Bearer Securities and Registered Securities, and whether the Bearer Securities are to be issuable with Coupons, without Coupons or both, and any restrictions applicable to the offer, sale or delivery of the Bearer Securities and the terms, if any, upon which Bearer Securities may be exchanged for Registered Securities and vice versa; (4) if any of such Securities are to be issuable in global form, when any of such Securities are to be issuable in global form and (i) whether such Securities are to be issued in temporary or permanent global form or both, (ii) whether beneficial owners of interests in any such global Security may exchange such interests for Securities of the same series and of like tenor and of any authorized form and denomination, and the circumstances under which any such exchanges may occur, if other than in the manner specified in Section 3.5, and (iii) the name of the Depository or the U.S. Depository, as the case may be, with respect to any such global Security; (5) if any of such Securities are to be issuable as Bearer Securities or in global form, the date as of which any such Bearer Security or global Security shall be dated (if other than the date of original issuance of the first of such Securities to be issued); (6) if any of such Securities are to be issuable as Bearer Securities, whether interest in respect of any portion of a temporary Bearer Security in global form payable in respect of an Interest Payment Date therefor prior to the exchange, if any, of such temporary Bearer Security for definitive Securities shall be paid to any clearing organization with respect to the portion of such temporary Bearer Security held for its account and, in such event, the terms and conditions (including any certification requirements) upon which any such interest payment received by a clearing organization will be credited to the Persons entitled to interest payable on such Interest Payment Date; 24 (7) the date or dates, or the method or methods, if any, by which such date or dates shall be determined, on which the principal of such Securities is payable; (8) the rate or rates at which such Securities shall bear interest, if any, or the method or methods, if any, by which such rate or rates are to be determined, the rate or rates and the extent to which Additional Interest, if any, shall be payable in respect of such Securities, the date or dates, if any, from which such interest shall accrue or the method or methods, if any, by which such date or dates are to be determined, the Interest Payment Dates, if any, on which such interest shall be payable and the Regular Record Date, if any, for the interest payable on Registered Securities on any Interest Payment Date, whether and under what circumstances Additional Amounts on such Securities or any of them shall be payable, the notice, if any, to Holders regarding the determination of interest on a floating rate Security and the manner of giving such notice, and the basis upon which interest shall be calculated if other than that of a 360-day year of twelve 30-day months; (9) if in addition to or other than the Borough of Manhattan, The City of New York, the place or places where the principal of, any premium and interest on or any Additional Amounts with respect to such Securities shall be payable, any of such Securities that are Registered Securities may be surrendered for registration of transfer or exchange, any of such Securities may be surrendered for conversion or exchange and notices or demands to or upon the Company in respect of such Securities and this Indenture may be served, the extent to which, or the manner in which, any interest payment or Additional Amounts on a global Security on an Interest Payment Date, will be paid and the manner in which any principal of or premium, if any, on any global Security will be paid; (10) whether any of such Securities are to be redeemable at the option of the Company and, if so, the date or dates on which, the period or periods within which, the price or prices at which and the other terms and conditions upon which such Securities may be redeemed, in whole or in part, at the option of the Company; (11) whether the Company is obligated to redeem or purchase any of such Securities pursuant to any sinking fund or analogous provision or at the option of any Holder thereof and, if so, the date or dates on which, the period or periods within which, the price or prices at which and the other terms and conditions upon which such Securities shall be redeemed or purchased, in whole or in part, pursuant to such obligation, and any provisions for the remarketing of such Securities so redeemed or purchased; 25 (12) the denominations in which any of such Securities that are Registered Securities shall be issuable if other than denominations of $1,000 and any integral multiple thereof, and the denominations in which any of such Securities that are Bearer Securities shall be issuable if other than the denomination of $5,000; (13) whether the Securities of the series will be convertible into other securities of the Company and/or exchangeable for securities of another issuer, and if so, the terms and conditions upon which such Securities will be so convertible or exchangeable, and any deletions from or modifications or additions to this Indenture to permit or to facilitate the issuance of such convertible or exchangeable Securities or the administration thereof; (14) if other than the principal amount thereof, the portion of the principal amount of any of such Securities that shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 5.2 or the method by which such portion is to be determined; (15) if other than Dollars, the Foreign Currency in which payment of the principal of, any premium or interest on or any Additional Amounts with respect to any of such Securities shall be payable; (16) if the principal of, any premium or interest on or any Additional Amounts with respect to any of such Securities are to be payable, at the election of the Company or a Holder thereof or otherwise, in Dollars or in a Foreign Currency other than that in which such Securities are stated to be payable, the date or dates on which, the period or periods within which, and the other terms and conditions upon which, such election may be made, and the time and manner of determining the exchange rate between the Currency in which such Securities are stated to be payable and the Currency in which such Securities or any of them are to be paid pursuant to such election, and any deletions from or modifications of or additions to the terms of this Indenture to provide for or to facilitate the issuance of Securities denominated or payable, at the election of the Company or a Holder thereof or otherwise, in a Foreign Currency; (17) whether the amount of payments of principal of, any premium or interest on or any Additional Amounts with respect to such Securities may be determined with reference to an index, formula or other method or methods (which index, formula or method or methods may be based, without limitation, on one or more Currencies, commodities, equity securities, equity indices or other indices), and, if so, the terms and conditions upon which and the manner in which such amounts shall be determined and paid or payable; 26 (18) the relative degree, if any, to which Securities of such series shall be senior to or be subordinated to other series of Securities or other Indebtedness of the Company, in right of payment, whether such other series of Securities or other Indebtedness is outstanding or not; (19) any deletions from, modifications of or additions to the Events of Default or covenants of the Company with respect to any of such Securities, whether or not such Events of Default or covenants are consistent with the Events of Default or covenants set forth herein; (20) whether either or both of Section 4.2(2) relating to defeasance or Section 4.2(3) relating to covenant defeasance shall not be applicable to the Securities of such series, or any covenants in addition to those specified in Section 4.2(3) relating to the Securities of such series which shall be subject to covenant defeasance, and any deletions from, or modifications or additions to, the provisions of Article 4 in respect of the Securities of such series; (21) whether any of such Securities are to be issuable upon the exercise of warrants, and the time, manner and place for such Securities to be authenticated and delivered; (22) if any of such Securities are to be issuable in global form and are to be issuable in definitive form (whether upon original issue or upon exchange of a temporary Security) only upon receipt of certain certificates or other documents or satisfaction of other conditions, then the form and terms of such certificates, documents or conditions; (23) if there is more than one Trustee, the identity of the Trustee and, if not the Trustee, the identity of each Security Registrar, Paying Agent or Authenticating Agent with respect to such Securities; and (24) any other terms of such Securities and any other deletions from or modifications or additions to this Indenture in respect of such Securities. All Securities of any one series and all Coupons, if any, appertaining to Bearer Securities of such series shall be substantially identical except as to Currency of payments due thereunder, denomination and the rate of interest thereon, or method of determining the rate of interest, if any, Maturity, and the date from which interest, if any, shall accrue and except as may otherwise be provided by the Company in or pursuant to the Board Resolution and set forth in the Officer's Certificate or in any indenture or indentures supplemental hereto pertaining to such series of Securities. The terms of the Securities of any series may provide, without limitation, that the Securities shall be authenticated and delivered by the Trustee on original issue from time to time 27 upon written order of persons designated in the Officer's Certificate or supplemental indenture and that such persons are authorized to determine, consistent with such Officer's Certificate or any applicable supplemental indenture, such terms and conditions of the Securities of such series as are specified in such Officer's Certificate or supplemental indenture. All Securities of any one series need not be issued at the same time and, unless otherwise so provided, a series may be reopened for issuances of additional Securities of such series or to establish additional terms of such series of Securities. If any of the terms of the Securities of any series shall be established by action taken by or pursuant to a Board Resolution, the Board Resolution shall be delivered to the Trustee at or prior to the delivery of the Officer's Certificate setting forth the terms of such series. Section 3.2 Currency; Denominations. Unless otherwise provided in or pursuant to this Indenture, the principal of, any premium and interest on and any Additional Amounts with respect to the Securities shall be payable in Dollars. Unless otherwise provided in or pursuant to this Indenture, Registered Securities denominated in Dollars shall be issuable in registered form without Coupons in denominations of $1,000 and any integral multiple thereof, and the Bearer Securities denominated in Dollars shall be issuable in the denomination of $5,000. Securities not denominated in Dollars shall be issuable in such denominations as are established with respect to such Securities in or pursuant to this Indenture. Section 3.3 Execution, Authentication, Delivery and Dating. Securities shall be executed on behalf of the Company by its Chairman of the Board, a Vice Chairman, its President, or a Vice President under its corporate seal reproduced thereon and attested by its Treasurer, Secretary or one of its Assistant Treasurers or Secretaries. Coupons shall be executed on behalf of the Company by the Treasurer or any Assistant Treasurer of the Company. The signature of any of these officers on the Securities or any Coupons appertaining thereto may be manual or facsimile. Securities and any Coupons appertaining thereto bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities and Coupons or did not hold such offices at the date of original issuance of such Securities or Coupons. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities, together with any Coupons appertaining thereto, executed by the Company, to the Trustee for authentication and, provided that the Board Resolution and 28 Officer's Certificate or supplemental indenture or indentures with respect to such Securities referred to in Section 3.1 and a Company Order for the authentication and delivery of such Securities have been delivered to the Trustee, the Trustee in accordance with the Company Order and subject to the provisions hereof and of such Securities shall authenticate and deliver such Securities. In authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such Securities and any Coupons appertaining thereto, the Trustee shall be entitled to receive, and (subject to Sections 315(a) through 315(d) of the Trust Indenture Act) shall be fully protected in relying upon, (1) an Opinion of Counsel to the effect that: (a) the form or forms and terms of such Securities and Coupons, if any, have been established in conformity with the provisions of this Indenture; (b) all conditions precedent to the authentication and delivery of such Securities and Coupons, if any, appertaining thereto, have been complied with and that such Securities and Coupons, when completed by appropriate insertions, executed under the Company's corporate seal and attested by duly authorized officers of the Company, delivered by duly authorized officers of the Company to the Trustee for authentication pursuant to this Indenture, and authenticated and delivered by the Trustee and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute legally valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as enforcement thereof may be subject to or limited by bankruptcy, insolvency, reorganization, moratorium, arrangement, fraudulent conveyance, fraudulent transfer or other similar laws relating to or affecting creditors' rights generally, and subject to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law) and will entitle the Holders thereof to the benefits of this Indenture; such Opinion of Counsel need express no opinion as to the availability of equitable remedies; (c) all laws and requirements in respect of the execution and delivery by the Company of such Securities and Coupons, if any, have been complied with; and (d) this Indenture is in a form sufficient for qualification under the Trust Indenture Act; and (2) an Officer's Certificate stating that, to the best knowledge of the Persons executing such certificate, all conditions precedent to the execution, authentication and delivery of such Securities and Coupons, if any, appertaining thereto, have been complied with, and no 29 event which is, or after notice or lapse of time would become, an Event of Default with respect to any of the Securities shall have occurred and be continuing. If all the Securities of any series are not to be issued at one time, it shall not be necessary to deliver an Opinion of Counsel and an Officer's Certificate at the time of issuance of each Security, but such opinion and certificates, with appropriate modifications, shall be delivered at or before the time of issuance of the first Security of such series. After any such first delivery, any separate written request by an Authorized Officer of the Company or any person designated in writing by an Authorized Officer that the Trustee authenticate and deliver Securities of such series for original issue will be deemed to be a certification by the Company that all conditions precedent provided for in this Indenture relating to authentication and delivery of such Securities continue to have been complied with and that no Event of Default with respect to any of the Securities has occurred or is continuing. The Trustee shall not be required to authenticate or to cause an Authenticating Agent to authenticate any Securities if the issue of such Securities pursuant to this Indenture will affect the Trustee's own rights, duties or immunities under the Securities and this Indenture or otherwise in a manner which is not reasonably acceptable to the Trustee or if the Trustee, being advised by counsel, determines that such action may not lawfully be taken. Each Registered Security shall be dated the date of its authentication. Each Bearer Security and any Bearer Security in global form shall be dated as of the date specified in or pursuant to this Indenture. No Security or Coupon appertaining thereto shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose, unless there appears on such Security a certificate of authentication substantially in the form provided for in Section 2.2 or 6.11 executed by or on behalf of the Trustee or by the Authenticating Agent by the manual signature of one of its authorized officers. Such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. Except as permitted by Section 3.6 or 3.7, the Trustee shall not authenticate and deliver any Bearer Security unless all Coupons appertaining thereto then matured have been detached and cancelled. Section 3.4 Temporary Securities. Pending the preparation of definitive Securities, the Company may execute and deliver to the Trustee and, upon Company Order, the Trustee shall authenticate and deliver, in the manner provided in Section 3.3, temporary Securities in lieu thereof which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued, in 30 registered form or, if authorized in or pursuant to this Indenture, in bearer form with one or more Coupons or without Coupons and with such appropriate insertions, omissions, substitutions and other variations as the officers of the Company executing such Securities may determine, as conclusively evidenced by their execution of such Securities. Such temporary Securities may be in global form. Except in the case of temporary Securities in global form, which shall be exchanged in accordance with the provisions thereof, if temporary Securities are issued, the Company shall cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive Securities of the same series and containing terms and provisions that are identical to those of any temporary Securities, such temporary Securities shall be exchangeable for such definitive Securities upon surrender of such temporary Securities at an Office or Agency for such Securities, without charge to any Holder thereof. Upon surrender for cancellation of any one or more temporary Securities (accompanied by any unmatured Coupons appertaining thereto), the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of authorized denominations of the same series and containing identical terms and provisions; provided, however, that no definitive Bearer Security, except as provided in or pursuant to this Indenture, shall be delivered in exchange for a temporary Registered Security; and provided, further, that a definitive Bearer Security shall be delivered in exchange for a temporary Bearer Security only in compliance with the conditions set forth in or pursuant to this Indenture. Unless otherwise provided in or pursuant to this Indenture with respect to a temporary global Security, until so exchanged the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series. Section 3.5 Registration, Transfer and Exchange. With respect to the Registered Securities of each series, if any, the Company shall cause to be kept a register (each such register being herein sometimes referred to as the "Security Register") at an Office or Agency for such series in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of the Registered Securities of such series and of transfers of the Registered Securities of such series. Such Office or Agency shall be the "Security Registrar" for that series of Securities. Unless otherwise specified in or pursuant to this Indenture or the Securities, the Trustee shall be the initial Security Registrar for each series of Securities. The Company shall have the right to remove and replace from time to time the Security Registrar for any series of Securities; provided that no such removal or replacement shall be effective until a successor Security Registrar with respect to such series of Securities shall have been appointed by the Company and shall have accepted such appointment by the Company. In the event that the Trustee shall not be or shall cease to be Security Registrar with respect to a series of Securities, it shall have the right to examine the Security Register for 31 such series at all reasonable times. There shall be only one Security Register for each series of Securities. Upon surrender for registration of transfer of any Registered Security of any series at any Office or Agency for such series, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Registered Securities of the same series denominated as authorized in or pursuant to this Indenture, of a like aggregate principal amount bearing a number not contemporaneously outstanding and containing identical terms and provisions. At the option of the Holder, Registered Securities of any series may be exchanged for other Registered Securities of the same series containing identical terms and provisions, in any authorized denominations, and of a like aggregate principal amount, upon surrender of the Securities to be exchanged at any Office or Agency for such series. Whenever any Registered Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Registered Securities which the Holder making the exchange is entitled to receive. If provided in or pursuant to this Indenture, with respect to Securities of any series, at the option of the Holder, Bearer Securities of such series may be exchanged for Registered Securities of such series containing identical terms, denominated as authorized in or pursuant to this Indenture and in the same aggregate principal amount, upon surrender of the Bearer Securities to be exchanged at any Office or Agency for such series, with all unmatured Coupons and all matured Coupons in default thereto appertaining. If the Holder of a Bearer Security is unable to produce any such unmatured Coupon or Coupons or matured Coupon or Coupons in default, such exchange may be effected if the Bearer Securities are accompanied by payment in funds acceptable to the Company and the Trustee in an amount equal to the face amount of such missing Coupon or Coupons, or the surrender of such missing Coupon or Coupons may be waived by the Company and the Trustee if there is furnished to them such security or indemnity as they may require to save each of them and any Paying Agent harmless. If thereafter the Holder of such Bearer Security shall surrender to any Paying Agent any such missing Coupon in respect of which such a payment shall have been made, such Holder shall be entitled to receive the amount of such payment; provided, however, that, except as otherwise provided in Section 10.2, interest represented by Coupons shall be payable only upon presentation and surrender of those Coupons at an Office or Agency for such series located outside the United States. Notwithstanding the foregoing, in case a Bearer Security of any series is surrendered at any such Office or Agency for such series in exchange for a Registered Security of such series and like tenor after the close of business at such Office or Agency on (i) any Regular Record Date and before the opening of business at such Office or Agency on the next succeeding Interest Payment Date, or (ii) any Special Record Date and before the opening of business at such Office or Agency on the related date for payment of Defaulted Interest, such Bearer Security shall be 32 surrendered without the Coupon relating to such Interest Payment Date or proposed date of payment, as the case may be (or, if such Coupon is so surrendered with such Bearer Security, such Coupon shall be returned to the Person so surrendering the Bearer Security), and interest or Defaulted Interest, as the case may be, shall not be payable on such Interest Payment Date or proposed date for payment, as the case may be, in respect of the Registered Security issued in exchange for such Bearer Security, but shall be payable only to the Holder of such Coupon when due in accordance with the provisions of this Indenture. If provided in or pursuant to this Indenture with respect to Securities of any series, at the option of the Holder, Registered Securities of such series may be exchanged for Bearer Securities upon such terms and conditions as may be provided in or pursuant to this Indenture with respect to such series. Whenever any Securities are surrendered for exchange as contemplated by the immediately preceding two paragraphs, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. Notwithstanding the foregoing, except as otherwise provided in or pursuant to this Indenture, any global Security shall be exchangeable for definitive Securities only if (i) the Depository is at any time unwilling, unable or ineligible to continue as depository and a successor depository is not appointed by the Company within 90 days of the date the Company is so informed in writing, (ii) the Company executes and delivers to the Trustee a Company Order to the effect that such global Security shall be so exchangeable, or (iii) an Event of Default has occurred and is continuing with respect to the Securities. If the beneficial owners of interests in a global Security are entitled to exchange such interests for definitive Securities as the result of an event described in clause (i), (ii) or (iii) of the preceding sentence, then without unnecessary delay but in any event not later than the earliest date on which such interests may be so exchanged, the Company shall deliver to the Trustee definitive Securities in such form and denominations as are required by or pursuant to this Indenture, and of the same series, containing identical terms and in aggregate principal amount equal to the principal amount of such global Security, executed by the Company. On or after the earliest date on which such interests may be so exchanged, such global Security shall be surrendered from time to time by the U.S. Depository or such other Depository as shall be specified in the Company Order with respect thereto, and in accordance with instructions given to the Trustee and the U.S. Depository or such other Depository, as the case may be (which instructions shall be in writing but need not be contained in or accompanied by an Officer's Certificate or be accompanied by an Opinion of Counsel), as shall be specified in the Company Order with respect thereto to the Trustee, as the Company's agent for such purpose, to be exchanged, in whole or in part, for definitive Securities as described above without charge. The Trustee shall authenticate and make available for delivery, in exchange for each portion of such surrendered global Security, a like aggregate 33 principal amount of definitive Securities of the same series of authorized denominations and of like tenor as the portion of such global Security to be exchanged, which (unless such Securities are not issuable both as Bearer Securities and as Registered Securities, in which case the definitive Securities exchanged for the global Security shall be issuable only in the form in which the Securities are issuable, as provided in or pursuant to this Indenture) shall be in the form of Bearer Securities or Registered Securities, or any combination thereof, as shall be specified by the beneficial owner thereof, but subject to the satisfaction of any certification or other requirements to the issuance of Bearer Securities; provided, however, that no such exchanges may occur during a period beginning at the opening of business 15 days before any selection of Securities of the same series to be redeemed and ending on the relevant Redemption Date; and provided, further, that (unless otherwise provided in or pursuant to this Indenture) no Bearer Security delivered in exchange for a portion of a global Security shall be mailed or otherwise delivered to any location in the United States. Promptly following any such exchange in part, such global Security shall be returned by the Trustee to such Depository or the U.S. Depository, as the case may be, or such other Depository or U.S. Depository referred to above in accordance with the instructions of the Company referred to above. If a Registered Security is issued in exchange for any portion of a global Security after the close of business at the Office or Agency for such Security where such exchange occurs on or after (i) any Regular Record Date for such Security and before the opening of business at such Office or Agency on the next succeeding Interest Payment Date, or (ii) any Special Record Date for such Security and before the opening of business at such Office or Agency on the related proposed date for payment of interest or Defaulted Interest, as the case may be, interest shall not be payable on such Interest Payment Date or proposed date for payment, as the case may be, in respect of such Registered Security, but shall be payable on such Interest Payment Date or proposed date for payment, as the case may be, only to the Person to whom interest in respect of such portion of such global Security shall be payable in accordance with the provisions of this Indenture. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt and entitling the Holders thereof to the same benefits under this Indenture as the Securities surrendered upon such registration of transfer or exchange. Every Registered Security presented or surrendered for registration of transfer or for exchange or redemption shall (if so required by the Company or the Security Registrar for such Security) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar for such Security duly executed by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange, or redemption of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge and any other expenses (including fees and expenses of the 34 Trustee) that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 3.4, 9.5 or 11.7 not involving any transfer. Except as otherwise provided in or pursuant to this Indenture, the Company shall not be required (i) to issue, register the transfer of or exchange any Securities during a period beginning at the opening of business 15 days before the day of mailing of a notice of redemption of Securities of like tenor and the same series under Section 11.3 and ending at the close of business on the day of such mailing, or (ii) to register the transfer of or exchange any Registered Security selected for redemption in whole or in part, except in the case of any Security to be redeemed in part, the portion thereof not to be redeemed, or (iii) to exchange any Bearer Security selected for redemption except, to the extent provided with respect to such Bearer Security, that such Bearer Security may be exchanged for a Registered Security of like tenor and the same series, provided that such Registered Security shall be immediately surrendered for redemption with written instruction for payment consistent with the provisions of this Indenture or (iv) to issue, register the transfer of or exchange any Security which, in accordance with its terms, has been surrendered for repayment at the option of the Holder, except the portion, if any, of such Security not to be so repaid. Section 3.6 Mutilated, Destroyed, Lost and Stolen Securities. If any mutilated Security or a Security with a mutilated Coupon appertaining to it is surrendered to the Trustee, subject to the provisions of this Section 3.6, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of the same series containing identical terms and of like principal amount and bearing a number not contemporaneously outstanding, with Coupons appertaining thereto corresponding to the Coupons, if any, appertaining to the surrendered Security. If there be delivered to the Company and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security or Coupon, and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company or the Trustee that such Security or Coupon has been acquired by a bona fide purchaser, the Company shall execute and, upon the Company's request the Trustee shall authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Security or in exchange for the Security to which a destroyed, lost or stolen Coupon appertains with all appurtenant Coupons not destroyed, lost or stolen, a new Security of the same series containing identical terms and of like principal amount and bearing a number not contemporaneously outstanding, with Coupons appertaining thereto corresponding to the Coupons, if any, appertaining to such destroyed, lost or stolen Security or to the Security to which such destroyed, lost or stolen Coupon appertains. 35 Notwithstanding the foregoing provisions of this Section 3.6, in case any mutilated, destroyed, lost or stolen Security or Coupon has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security or Coupon; provided, however, that payment of principal of, any premium or interest on or any Additional Amounts with respect to any Bearer Securities shall, except as otherwise provided in Section 10.2, be payable only at an Office or Agency for such Securities located outside the United States and, unless otherwise provided in or pursuant to this Indenture, any interest on Bearer Securities and any Additional Amounts with respect to such interest shall be payable only upon presentation and surrender of the Coupons appertaining thereto. Upon the issuance of any new Security under this Section 3.6, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security, with any Coupons appertaining thereto issued pursuant to this Section 3.6 in lieu of any destroyed, lost or stolen Security, or in exchange for a Security to which a destroyed, lost or stolen Coupon appertains shall constitute a separate obligation of the Company, whether or not the destroyed, lost or stolen Security and Coupons appertaining thereto or the destroyed, lost or stolen Coupon shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of such series and any Coupons, if any, duly issued hereunder. The provisions of this Section 3.6, as amended or supplemented pursuant to this Indenture with respect to particular Securities or generally, shall be exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities or Coupons. Section 3.7 Payment of Interest and Certain Additional Amounts; Rights to Interest and Certain Additional Amounts Preserved. Unless otherwise provided in or pursuant to this Indenture, any interest on and any Additional Amounts with respect to any Registered Security which shall be payable, and are punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name such Security (or one or more Predecessor Securities) is registered as of the close of business on the Regular Record Date for such interest. Unless otherwise provided in or pursuant to this Indenture, any interest on and any Additional Amounts with respect to any Registered Security which shall be payable, but shall not be punctually paid or duly provided for, on any Interest Payment Date for such Registered Security (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder 36 thereof on the relevant Regular Record Date by virtue of having been such Holder; and such Defaulted Interest may be paid by the Company, at its election, as provided in Clause (1) or (2) below: (1) The Company may elect to make payment of any Defaulted Interest to the Person in whose name such Registered Security (or a Predecessor Security thereof) shall be registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed by the Company in the following manner. The Company shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on such Registered Security, the Special Record Date therefor and the date of the proposed payment, and at the same time the Company shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit on or prior to the date of the proposed payment, such money when so deposited to be held in trust for the benefit of the Person entitled to such Defaulted Interest as in this Clause provided. The Special Record Date for the payment of such Defaulted Interest shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after notification to the Trustee of the proposed payment. The Trustee shall, in the name and at the expense of the Company, cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, firstclass postage prepaid, to the Holder of such Registered Security (or a Predecessor Security thereof) at his address as it appears in the Security Register not less than 10 days prior to such Special Record Date. The Trustee may, in its discretion, in the name and at the expense of the Company, cause a similar notice to be published at least once in an Authorized Newspaper of general circulation in the Borough of Manhattan, The City of New York, but such publication shall not be a condition precedent to the establishment of such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the Person in whose name such Registered Security (or a Predecessor Security thereof) shall be registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (2). (2) The Company may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Security may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company to the Trustee of the proposed payment pursuant to this Clause, such payment shall be deemed practicable by the Trustee. Unless otherwise provided in or pursuant to this Indenture or the Securities of any particular series pursuant to the provisions of this Indenture, at the option of the Company, 37 interest on Registered Securities that bear interest may be paid by mailing a check to the address of the Person entitled thereto as such address shall appear in the Security Register or by transfer to an account maintained by the payee with a bank located in the United States. Subject to the foregoing provisions of this Section and Section 3.5, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. In the case of any Registered Security of any series that is convertible into other securities of the Company or exchangeable for securities of another issuer, which Registered Security is converted or exchanged after any Regular Record Date and on or prior to the next succeeding Interest Payment Date (other than any Registered Security with respect to which the Stated Maturity is prior to such Interest Payment Date), interest with respect to which the Stated Maturity is on such Interest Payment Date shall be payable on such Interest Payment Date notwithstanding such conversion or exchange, and such interest (whether or not punctually paid or duly provided for) shall be paid to the Person in whose name that Registered Security (or one or more predecessor Registered Securities) is registered at the close of business on such Regular Record Date. Except as otherwise expressly provided in the immediately preceding sentence, in the case of any Registered Security which is converted or exchanged, interest with respect to which the Stated Maturity is after the date of conversion or exchange of such Registered Security shall not be payable. Section 3.8 Persons Deemed Owners. Prior to due presentment of a Registered Security for registration of transfer, the Company, the Trustee and any agent of the Company or the Trustee may treat the Person in whose name such Registered Security is registered in the Security Register as the owner of such Registered Security for the purpose of receiving payment of principal of, any premium and (subject to Sections 3.5 and 3.7) interest on and any Additional Amounts with respect to such Registered Security and for all other purposes whatsoever, whether or not any payment with respect to such Registered Security shall be overdue, and none of the Company, the Trustee or any agent of the Company or the Trustee shall be affected by notice to the contrary. The Company, the Trustee and any agent of the Company or the Trustee may treat the bearer of any Bearer Security or the bearer of any Coupon as the absolute owner of such Security or Coupon for the purpose of receiving payment thereof or on account thereof and for all other purposes whatsoever, whether or not any payment with respect to such Security or Coupon shall be overdue, and none of the Company, the Trustee or any agent of the Company or the Trustee shall be affected by notice to the contrary. 38 No Holder of any beneficial interest in any global Security held on its behalf by a Depository shall have any rights under this Indenture with respect to such global Security, and such Depository may be treated by the Company, the Trustee, and any agent of the Company or the Trustee as the owner of such global Security for all purposes whatsoever. None of the Company, the Trustee, any Paying Agent or the Security Registrar will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of a global Security or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. Section 3.9 Cancellation. All Securities and Coupons surrendered for payment, redemption, registration of transfer, exchange or conversion or for credit against any sinking fund payment shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee, and any such Securities and Coupons, as well as Securities and Coupons surrendered directly to the Trustee for any such purpose, shall be cancelled promptly by the Trustee. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and all Securities so delivered shall be cancelled promptly by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section, except as expressly permitted by or pursuant to this Indenture. All cancelled Securities and Coupons held by the Trustee shall be destroyed by the Trustee, unless by a Company Order the Company directs their return to it. Section 3.10 Computation of Interest. Except as otherwise provided in or pursuant to this Indenture or in any Security, interest on the Securities shall be computed on the basis of a 360-day year of twelve 30-day months. Section 3.11 Agreed Tax Treatment. Each Security issued hereunder shall provide that the Company and, by its acceptance of a Security or a beneficial interest therein, the Holder of, and any Person that acquires a beneficial interest in, such Security agree that for United States Federal, state and local tax purposes it is intended that such Security constitute indebtedness. ARTICLE 4 Satisfaction and Discharge of Indenture 39 Section 4.1 Satisfaction and Discharge. Upon the direction of the Company by a Company Order, this Indenture shall cease to be of further effect with respect to any series of Securities specified in such Company Order and any Coupons appertaining thereto, and the Trustee, on receipt of a Company Order, at the expense of the Company, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture as to such series, when (1) either (a) all Securities of such series theretofore authenticated and delivered and all Coupons appertaining thereto (other than (i) Coupons appertaining to Bearer Securities of such series surrendered in exchange for Registered Securities of such series and maturing after such exchange whose surrender is not required or has been waived as provided in Section 3.5, (ii) Securities and Coupons of such series which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.6, (iii) Coupons appertaining to Securities of such series called for redemption and maturing after the relevant Redemption Date whose surrender has been waived as provided in Section 11.7, and (iv) Securities and Coupons of such series for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company and thereafter repaid to the Company, as the case may be, or discharged from such trust, as provided in Section 10.3) have been delivered to the Trustee for cancellation; or (b) all Securities of such series and, in the case of (i) or (ii) below, any Coupons appertaining thereto not theretofore delivered to the Trustee for cancellation (i) have become due and payable, or (ii) will become due and payable at their Stated Maturity within one year, or (iii) if redeemable at the option of the Company, are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company, and the Company, in the case of (i), (ii) or (iii) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for such purpose, money in the Currency in which such Securities are payable in an amount sufficient to pay and discharge the entire indebtedness on such Securities and any Coupons appertaining thereto not theretofore delivered to the Trustee for cancellation, including the principal of, any premium and interest (including any Additional Interest) on, and any Additional Amounts with respect to such Securities and any Coupons appertaining thereto, to the date of such deposit (in the case of Securities which have become due and payable) or to the Maturity thereof, as the case may be; 40 (2) the Company has paid or caused to be paid all other sums payable hereunder by the Company with respect to the Outstanding Securities of such series and any Coupons appertaining thereto; and (3) the Company has delivered to the Trustee an Officer's Certificate and an Opinion of Counsel stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture as to such series have been complied with. In the event there are Securities of two or more series hereunder, the Trustee shall be required to execute an instrument acknowledging satisfaction and discharge of this Indenture only if requested to do so with respect to Securities of such series as to which it is Trustee and if the other conditions thereto are met. Notwithstanding the satisfaction and discharge of this Indenture with respect to any series of Securities, the obligations of the Company to the Trustee under Section 6.6 and, if money shall have been deposited with the Trustee pursuant to subclause (b) of clause (1) of this Section, the obligations of the Company and the Trustee with respect to the Securities of such series under Sections 3.5, 3.6, 4.3, 10.2 and 10.3, with respect to the payment of Additional Amounts, if any, with respect to such Securities as contemplated by Section 10.4 (but only to the extent that the Additional Amounts payable with respect to such Securities exceed the amount deposited in respect of such Additional Amounts pursuant to Section 4.1(1)(b)), and with respect to any rights to convert or exchange such Securities into securities of the Company or another issuer shall survive. Section 4.2 Defeasance and Covenant Defeasance. (1) Unless pursuant to Section 3.1, either or both of (i) defeasance of the Securities of or within a series under clause (2) of this Section 4.2 shall not be applicable with respect to the Securities of such series or (ii) covenant defeasance of the Securities of or within a series under clause (3) of this Section 4.2 shall not be applicable with respect to the Securities of such series, then such provisions, together with the other provisions of this Section 4.2 (with such modifications thereto as may be specified pursuant to Section 3.1 with respect to any Securities), shall be applicable to such Securities and any Coupons appertaining thereto, and the Company may at its option by Board Resolution, at any time, with respect to such Securities and any Coupons appertaining thereto, elect to have Section 4.2(2) or Section 4.2(3) be applied to such Outstanding Securities and any Coupons appertaining thereto upon compliance with the conditions set forth below in this Section 4.2. (2) Upon the Company's exercise of the above option applicable to this Section 4.2(2) with respect to any Securities of or within a series, the Company shall be 41 deemed to have been discharged from its obligations with respect to such Outstanding Securities and any Coupons appertaining thereto on the date the conditions set forth in clause (4) of this Section 4.2 are satisfied (hereinafter, "defeasance"). For this purpose, such defeasance means that the Company shall be deemed to have paid and discharged the entire Indebtedness represented by such Outstanding Securities and any Coupons appertaining thereto which shall thereafter be deemed to be "Outstanding" only for the purposes of clause (5) of this Section 4.2 and the other Sections of this Indenture referred to in clauses (i) and (ii) below, and to have satisfied all of its other obligations under such Securities and any Coupons appertaining thereto, and this Indenture insofar as such Securities and any Coupons appertaining thereto, are concerned (and the Trustee, at the expense of the Company, shall execute proper instruments acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (i) the rights of Holders of such Outstanding Securities and any Coupons appertaining thereto to receive, solely from the trust fund described in clause (4) of this Section 4.2 and as more fully set forth in such clause, payments in respect of the principal of (and premium, if any) and interest (including any Additional Interest), if any, on, and Additional Amounts, if any, with respect to, such Securities and any Coupons appertaining thereto when such payments are due, and any rights of such Holder to convert such Securities into other securities of the Company or exchange such Securities for securities of another issuer, (ii) the obligations of the Company and the Trustee with respect to such Securities under Sections 3.5, 3.6, 10.2 and 10.3 and with respect to the payment of Additional Amounts, if any, on such Securities as contemplated by Section 10.4 (but only to the extent that the Additional Amounts payable with respect to such Securities exceed the amount deposited in respect of such Additional Amounts pursuant to Section 4.2(4)(a) below), and with respect to any rights to convert such Securities into other securities of the Company or exchange such Securities for securities of another issuer, (iii) the rights, powers, trusts, duties and immunities of the Trustee hereunder and (iv) this Section 4.2. The Company may exercise its option under this Section 4.2(2) notwithstanding the prior exercise of its option under clause (3) of this Section 4.2 with respect to such Securities and any Coupons appertaining thereto. (3) Upon the Company's exercise of the option to have this Section 4.2(3) apply with respect to any Securities of or within a series, the Company shall be released from its obligations under any covenant applicable to such Securities specified pursuant to Section 3.1(20), with respect to such Outstanding Securities and any Coupons appertaining thereto, on and after the date the conditions set forth in clause (4) of this Section 4.2 are satisfied (hereinafter, "covenant defeasance"), and such Securities and any Coupons appertaining thereto shall thereafter be deemed to be not "Outstanding" for the purposes of any direction, waiver, consent or declaration or Act of Holders (and the consequences of any thereof) in connection with any such covenant, but shall continue to be deemed "Outstanding" for all other purposes hereunder. For this purpose, such 42 covenant defeasance means that, with respect to such Outstanding Securities and any Coupons appertaining thereto, the Company may omit to comply with, and shall have no liability in respect of, any term, condition or limitation set forth in any such Section or such other covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such Section or such other covenant or by reason of reference in any such Section or such other covenant to any other provision herein or in any other document and such omission to comply shall not constitute a default or an Event of Default under Section 5.1(4) or 5.1(9) or otherwise, as the case may be, but, except as specified above, the remainder of this Indenture and such Securities and Coupons appertaining thereto shall be unaffected thereby. (4) The following shall be the conditions to application of clause (2) or (3) of this Section 4.2 to any Outstanding Securities of or within a series and any Coupons appertaining thereto: (a) The Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 6.7 who shall agree to comply with the provisions of this Section 4.2 applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities and any Coupons appertaining thereto, (1) an amount in Dollars or in such Foreign Currency in which such Securities and any Coupons appertaining thereto are then specified as payable at Stated Maturity, or (2) Government Obligations applicable to such Securities and Coupons appertaining thereto (determined on the basis of the Currency in which such Securities and Coupons appertaining thereto are then specified as payable at Stated Maturity) which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment of principal of (and premium, if any) and interest (including any Additional Interest), if any, on such Securities and any Coupons appertaining thereto, money in an amount, or (3) a combination thereof, in any case, in an amount, sufficient, without consideration of any reinvestment of such principal and interest, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge, (y) the principal of (and premium, if any) and interest (including any Additional Interest), if any, on such Outstanding Securities and any Coupons appertaining thereto at the Stated Maturity of such principal or installment of principal or premium or interest and (z) any mandatory sinking fund payments or analogous payments applicable to such Outstanding Securities and any Coupons appertaining thereto on the days on 43 which such payments are due and payable in accordance with the terms of this Indenture and of such Securities and any Coupons appertaining thereto. (b) Such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, this Indenture or any other material agreement or instrument to which the Company is a party or by which it is bound. (c) No Event of Default or event which with notice or lapse of time or both would become an Event of Default with respect to such Securities and any Coupons appertaining thereto shall have occurred and be continuing on the date of such deposit and, with respect to defeasance only, at any time during the period ending on the 123rd day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period). (d) In the case of an election under clause (2) of this Section 4.2, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (i) the Company has received from the Internal Revenue Service a letter ruling, or there has been published by the Internal Revenue Service a Revenue Ruling, or (ii) since the date of execution of this Indenture, there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of such Outstanding Securities and any Coupons appertaining thereto will not recognize income, gain or loss for Federal income tax purposes as a result of such defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred. (e) In the case of an election under clause (3) of this Section 4.2, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of such Outstanding Securities and any Coupons appertaining thereto will not recognize income, gain or loss for Federal income tax purposes as a result of such covenant defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred. (f) The Company shall have delivered to the Trustee an Opinion of Counsel to the effect that, after the 123rd day after the date of deposit, all money and Government Obligations (or other property as may be provided pursuant to Section 3.1) (including the proceeds thereof) deposited or caused to be deposited with the Trustee (or other qualifying trustee) pursuant to this clause (4) to be held in trust will not be subject to any case or proceeding (whether voluntary or 44 involuntary) in respect of the Company under any Federal or State bankruptcy, insolvency, reorganization or other similar law, or any decree or order for relief in respect of the Company issued in connection therewith. (g) The Company shall have delivered to the Trustee an Officer's Certificate and the Company shall have delivered to the Trustee an Opinion of Counsel, each stating that all conditions precedent to the defeasance or covenant defeasance under clause (2) or (3) of this Section 4.2 (as the case may be) have been complied with. (h) Notwithstanding any other provisions of this Section 4.2(4), such defeasance or covenant defeasance shall be effected in compliance with any additional or substitute terms, conditions or limitations which may be imposed on the Company in connection therewith pursuant to Section 3.1. (5) Unless otherwise specified in or pursuant to this Indenture or any Security, if, after a deposit referred to in Section 4.2(4)(a) has been made, (a) the Holder of a Security in respect of which such deposit was made is entitled to, and does, elect pursuant to Section 3.1 or the terms of such Security to receive payment in a Currency other than that in which the deposit pursuant to Section 4.2(4)(a) has been made in respect of such Security, or (b) a Conversion Event occurs in respect of the Foreign Currency in which the deposit pursuant to Section 4.2(4)(a) has been made, the indebtedness represented by such Security and any Coupons appertaining thereto shall be deemed to have been, and will be, fully discharged and satisfied through the payment of the principal of (and premium, if any), and interest (including any Additional Interest), if any, on, and Additional Amounts, if any, with respect to, such Security as the same becomes due out of the proceeds yielded by converting (from time to time as specified below in the case of any such election) the amount or other property deposited in respect of such Security into the Currency in which such Security becomes payable as a result of such election or Conversion Event based on (x) in the case of payments made pursuant to clause (a) above, the applicable market exchange rate for such Currency in effect on the second Business Day prior to each payment date, or (y) with respect to a Conversion Event, the applicable market exchange rate for such Foreign Currency in effect (as nearly as feasible) at the time of the Conversion Event. The Company shall pay and indemnify the Trustee (or other qualifying trustee, collectively for purposes of this Section 4.2(5) and Section 4.3, the "Trustee") against any tax, fee or other charge, imposed on or assessed against the Government Obligations deposited pursuant to this Section 4.2 or the principal or interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of such Outstanding Securities and any Coupons appertaining thereto. 45 Anything in this Section 4.2 to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request, any money or Government Obligations (or other property and any proceeds therefrom) held by it as provided in clause (4) of this Section 4.2 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect a defeasance or covenant defeasance, as applicable, in accordance with this Section 4.2. Section 4.3 Application of Trust Money. Subject to the provisions of the last paragraph of Section 10.3, all money and Government Obligations (or other property as may be provided pursuant to Section 3.1) (including the proceeds thereof) deposited with the Trustee pursuant to Section 4.1 or 4.2 in respect of any Outstanding Securities of any series and any Coupons appertaining thereto shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and any Coupons appertaining thereto and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent) as the Trustee may determine, to the Holders of such Securities and any Coupons appertaining thereto of all sums due and to become due thereon in respect of principal (and premium, if any) and interest (including any Additional Interest) and Additional Amounts, if any; but such money and Government Obligations need not be segregated from other funds except to the extent required by law. ARTICLE 5 Remedies Section 5.1 Events of Default. "Event of Default," wherever used herein with respect to Securities of any series, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body), unless such event is specifically deleted or modified in or pursuant to the supplemental indenture, Board Resolution or Officer's Certificate establishing the terms of such Series pursuant to this Indenture: (1) default in the payment of any interest on any Security of such series, including any Additional Interest in respect thereof, or any Additional Amounts payable with respect thereto, when such interest becomes or such Additional Amounts become 46 due and payable, and continuance of such default for a period of 30 days (subject to any deferral of any due date in the case of an Extension Period); or (2) default in the payment of the principal of or any premium on any Security of such series, or any Additional Amounts payable with respect thereto, when such principal or premium becomes or such Additional Amounts become due and payable at their Maturity; or (3) default in the deposit of any sinking fund payment when and as due by the terms of a Security of such series; or (4) default in the performance, or breach, of any covenant or warranty of the Company in this Indenture or the Securities (other than a covenant or warranty a default in the performance or the breach of which is elsewhere in this Section specifically dealt with or which has been expressly included in this Indenture solely for the benefit of a series of Securities other than such series), and continuance of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities of such series, a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or (5) if any event of default as defined in any mortgage, indenture or instrument under which there may be issued, or by which there may be secured or evidenced, any Indebtedness of the Company (including an Event of Default under any other series of Securities), whether such Indebtedness now exists or shall hereafter be created or incurred, shall happen and shall consist of default in the payment of more than $50,000,000 in principal amount of such Indebtedness at the maturity thereof (after giving effect to any applicable grace period) or shall result in such Indebtedness in principal amount in excess of $50,000,000 becoming or being declared due and payable prior to the date on which it would otherwise become due and payable, and such default shall not be cured or such acceleration shall not be rescinded or annulled within a period of 30 days after there shall have been given, by registered or certified mail, to the Company by the Trustee or to the Company and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities of such series, a written notice specifying such event of default and requiring the Company to cause such acceleration to be rescinded or annulled or to cause such Indebtedness to be discharged and stating that such notice is a "Notice of Default" hereunder; or (6) the Company shall fail within 60 days to pay, bond or otherwise discharge any uninsured judgment or court order for the payment of money in excess of 47 $50,000,000, which is not stayed on appeal or is not otherwise being appropriately contested in good faith; or (7) the entry by a court having competent jurisdiction of: (a) a decree or order for relief in respect of the Company in an involuntary proceeding under any applicable bankruptcy, insolvency, reorganization (other than a reorganization under a foreign law that does not relate to insolvency) or other similar law and such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or (b) a decree or order adjudging the Company to be insolvent, or approving a petition seeking reorganization (other than a reorganization under a foreign law that does not relate to insolvency), arrangement, adjustment or composition of the Company and such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or (c) a final and nonappealable order appointing a custodian, receiver, liquidator, assignee, trustee or other similar official of the Company of any substantial part of the property of the Company or ordering the winding up or liquidation of the affairs of the Company; or (8) the commencement by the Company of a voluntary proceeding under any applicable bankruptcy, insolvency, reorganization (other than a reorganization under a foreign law that does not relate to insolvency) or other similar law or of a voluntary proceeding seeking to be adjudicated insolvent or the consent by the Company to the entry of a decree or order for relief in an involuntary proceeding under any applicable bankruptcy, insolvency, reorganization or other similar law or to the commencement of any insolvency proceedings against it, or the filing by the Company of a petition or answer or consent seeking reorganization, arrangement, adjustment or composition of the Company or relief under any applicable law, or the consent by the Company to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee or similar official of the Company or any substantial part of the property of the Company or the making by the Company of an assignment for the benefit of creditors, or the taking of corporate action by the Company in furtherance of any such action; or (9) any other Event of Default provided in or pursuant to this Indenture with respect to Securities of such series. Section 5.2 Acceleration of Maturity; Rescission and Annulment. 48 If an Event of Default with respect to Securities of any series at the time Outstanding (other than an Event of Default specified in clause (7) or (8) of Section 5.1) occurs and is continuing, then the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities of such series may declare the principal of all the Securities of such series, or such lesser amount as may be provided for in the Securities of such series, and all accrued interest (including Additional Interest) and accrued Additional Amounts, if any, to be due and payable immediately, by a notice in writing to the Company (and to the Trustee if given by the Holders), and upon any such declaration such principal or such lesser amount and all accrued interest (including Additional Interest) and accrued Additional Amounts, if any, shall become immediately due and payable; and upon any such declaration such principal or such lesser amount and all accrued and unpaid interest (including any Additional Interest) thereon shall become immediately due and payable, provided that the payment of principal and interest and all other amounts due with respect to such Securities shall remain subordinated to the extent provided in Article 16. If an Event of Default specified in clause (7) or (8) of Section 5.1 occurs, all unpaid principal of and accrued interest (including any Additional Interest) and Additional Amounts, if any, on the Outstanding Securities of that series (or such lesser amount as may be provided for in the Securities of such series) shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder of any Security of that series. At any time after a declaration of acceleration with respect to the Securities of any series has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of not less than a majority in principal amount of the Outstanding Securities of such series by written notice to the Company and the Trustee, may rescind and annul such declaration and its consequences if (1) the Company has paid or deposited with the Trustee a sum of money sufficient to pay (a) all overdue installments of any interest (including any Additional Interest) on and Additional Amounts with respect to all Securities of such series and any Coupon appertaining thereto, (b) the principal of and any premium on any Securities of such series which have become due otherwise than by such declaration of acceleration and interest thereon and any Additional Amounts with respect thereto at the rate or rates borne by or provided for in such Securities, 49 (c) to the extent that payment of such interest or Additional Amounts is lawful, interest upon overdue installments of any interest and Additional Amounts at the rate or rates borne by or provided for in such Securities, and (d) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and all other amounts due the Trustee under Section 6.6; and (2) all Events of Default with respect to Securities of such series, other than the nonpayment of the principal of, any premium and interest on, and any Additional Amounts with respect to Securities of such series which shall have become due solely by such declaration of acceleration, shall have been cured or waived as provided in Section 5.13. No such rescission shall affect any subsequent default or impair any right consequent thereon. Section 5.3 Collection of Indebtedness and Suits for Enforcement by Trustee. The Company covenants that if (1) default is made in the payment of any installment of interest (including any Additional Interest) on or any Additional Amounts with respect to any Security or any Coupon appertaining thereto when such interest or Additional Amounts shall have become due and payable and such default continues for a period of 30 days, or (2) default is made in the payment of the principal of or any premium on any Security or any Additional Amounts with respect thereto at their Maturity, the Company, shall, upon demand of the Trustee, pay to the Trustee, for the benefit of the Holders of such Securities and any Coupons appertaining thereto, the whole amount of money then due and payable with respect to such Securities and any Coupons appertaining thereto, with interest (including any Additional Interest) upon the overdue principal, any premium and (to the extent that payment of such interest shall be legally enforceable) upon any overdue installments of interest and Additional Amounts at the rate or rates borne by or provided for in such Securities, and, in addition thereto, such further amount of money as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and all other amounts due to the Trustee under Section 6.6. 50 If the Company fails to pay the money it is required to pay the Trustee pursuant to the preceding paragraph forthwith upon the demand of the Trustee, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the money so due and unpaid, and may prosecute such proceeding to judgment or final decree, and may enforce the same against the Company or any other obligor upon such Securities and any Coupons appertaining thereto and collect the monies adjudged or decreed to be payable in the manner provided by law out of the property of the Company or any other obligor upon such Securities and any Coupons appertaining thereto, wherever situated. If an Event of Default with respect to Securities of any series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such series and any Coupons appertaining thereto by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or such Securities or in aid of the exercise of any power granted herein or therein, or to enforce any other proper remedy. Section 5.4 Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company or any other obligor upon the Securities of any series or the property of the Company or such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company for the payment of any overdue principal, premium, interest (including any Additional Interest) or Additional Amounts) shall be entitled and empowered, by intervention in such proceeding or otherwise, (1) to file and prove a claim for the whole amount, or such lesser amount as may be provided for in the Securities of any applicable series, of the principal and any premium, interest (including any Additional Interest) and Additional Amounts owing and unpaid in respect of the Securities and any Coupons appertaining thereto and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents or counsel) and of the Holders of Securities or any Coupons appertaining thereto allowed in such judicial proceeding, and (2) to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same; 51 and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Holder of Securities or any Coupons to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Holders of Securities or any Coupons, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and any other amounts due the Trustee under Section 6.6. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder of a Security or any Coupon any plan of reorganization, arrangement, adjustment or composition affecting the Securities or Coupons or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder of a Security or any Coupon in any such proceeding. Section 5.5 Trustee May Enforce Claims without Possession of Securities or Coupons. All rights of action and claims under this Indenture or any of the Securities or Coupons may be prosecuted and enforced by the Trustee without the possession of any of the Securities or Coupons or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery or judgment, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, shall be for the ratable benefit of each and every Holder of the Securities or Coupons in respect of which such judgment has been recovered. Section 5.6 Application of Money Collected. Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal, or any premium, interest (including any Additional Interest) or Additional Amounts, upon presentation of the Securities or Coupons, or both, as the case may be, and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee and any predecessor Trustee under Section 6.6; SECOND: To the payment of the amounts then due and unpaid upon the Securities and any Coupons for principal and any premium, interest and Additional Amounts in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the aggregate amounts 52 due and payable on such Securities and Coupons for principal and any premium, interest (including any Additional Interest) and Additional Amounts, respectively; THIRD: The balance, if any, to the Person or Persons entitled thereto. Section 5.7 Limitations on Suits. No Holder of any Security of any series or any Coupons appertaining thereto shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Securities of such series; (2) the Holders of not less than 25% in principal amount of the Outstanding Securities of such series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee such indemnity as is reasonably satisfactory to it against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities of such series; it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture or any Security to affect, disturb or prejudice the rights of any other such Holders or Holders of Securities of any other series, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all such Holders. Section 5.8 Unconditional Right of Holders to Receive Principal and any Premium, Interest and Additional Amounts. Notwithstanding any other provision in this Indenture, the Holder of any Security or Coupon shall have the right, which is absolute and unconditional, to receive payment of the 53 principal of, any premium and (subject to Sections 3.5 and 3.7) interest (including any Additional Interest) on, and any Additional Amounts with respect to such Security or payment of such Coupon, as the case may be, on the respective Stated Maturity or Maturities therefor specified in such Security or Coupon (or, in the case of redemption, on the Redemption Date or, in the case of repayment at the option of such Holder if provided in or pursuant to this Indenture, on the date such repayment is due) and to institute suit for the enforcement of any such payment, and such right shall not be impaired without the consent of such Holder. Section 5.9 Restoration of Rights and Remedies. If the Trustee or any Holder of a Security or a Coupon has instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee, to such Holder, then and in every such case the Company, the Trustee and each such Holder shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Trustee and each such Holder shall continue as though no such proceeding had been instituted. Section 5.10 Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities or Coupons in the last paragraph of Section 3.6, no right or remedy herein conferred upon or reserved to the Trustee, to each and every Holder of a Security or a Coupon is intended to be exclusive of any other right or remedy, and every right and remedy, to the extent permitted by law, 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, to the extent permitted by law, prevent the concurrent assertion or employment of any other appropriate right or remedy. Section 5.11 Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Security or Coupon to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to any Holder of a Security or a Coupon may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by such Holder, as the case may be. Section 5.12 Control by Holders of Securities. 54 The Holders of a majority in principal amount of the Outstanding Securities of any series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee with respect to the Securities of such series and any Coupons appertaining thereto, provided that (1) such direction shall not be in conflict with any rule of law or with this Indenture or with the Securities of such series, (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, and (3) such direction is not unduly prejudicial to the rights of the other Holders of Securities of such series not joining in such action. Section 5.13 Waiver of Past Defaults. The Holders of not less than a majority in principal amount of the Outstanding Securities of any series on behalf of the Holders of all the Securities of such series and any Coupons appertaining thereto may waive any past default hereunder with respect to such series and its consequences, except a default (1) in the payment of the principal of, any premium or interest (including any Additional Interest) on, or any Additional Amounts with respect to, any Security of such series or any Coupons appertaining thereto, or (2) in respect of a covenant or provision hereof which under Article 9 cannot be modified or amended without the consent of the Holder of each Outstanding Security of such series affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. Section 5.14 Waiver of Usury, Stay or Extension Laws. The Company covenants that (to the extent that it may lawfully do so) it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any usury, stay or extension law wherever enacted, now or at any time hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company expressly waives (to the extent that it may lawfully do so) all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to 55 the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. Section 5.15 Undertaking for Costs All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of any undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section 5.15 shall not apply to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of Outstanding Securities of any series, or to any suit instituted by any Holder for the enforcement of the payment of the principal of (or premium, if any) or interest (including any Additional Interest), if any, on or Additional Amounts, if any, with respect to any Security on or after the respective Stated Maturities expressed in such Security (or, in the case of redemption, on or after the Redemption Date, and, in the case of repayment, on or after the date for repayment) or for the enforcement of the right, if any, to convert or exchange any Security into other securities in accordance with its terms. ARTICLE 6 The Trustee Section 6.1 Certain Rights of Trustee. Subject to Sections 315(a) through 315(d) of the Trust Indenture Act: (1) the Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, coupon or other paper or document reasonably believed by it to be genuine and to have been signed or presented by the proper party or parties; (2) any request or direction of the Company mentioned herein shall be sufficiently evidenced by a Company Request or a Company Order (in each case, other than delivery of any Security, together with any Coupons appertaining thereto, to the Trustee for authentication and delivery pursuant to Section 3.3 which shall be sufficiently 56 evidenced as provided therein) and any resolution of the Board of Directors may be sufficiently evidenced by a Board Resolution; (3) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence shall be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officer's Certificate; (4) the Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (5) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by or pursuant to this Indenture at the request or direction of any of the Holders of Securities of any series or any Coupons appertaining thereto pursuant to this Indenture, unless such Holders shall have offered to the Trustee such security or indemnity as is reasonably satisfactory to it against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (6) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, coupon or other paper or document, but the Trustee, in its discretion, may, but shall not be obligated to make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine, during business hours and upon reasonable notice, the books, records and premises of the Company, personally or by agent or attorney; (7) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (8) the Trustee shall not be liable for any action taken or error of judgment made in good faith by a Responsible Officer or Responsible Officers of the Trustee, unless it shall be proved that the Trustee was negligent, acted in bad faith or engaged in willful misconduct; (9) the Authenticating Agent, Paying Agent, and Security Registrar shall have the same protections as the Trustee set forth hereunder; and 57 (10) the Trustee shall not be liable with respect to any action taken, suffered or omitted to be taken by it in good faith in accordance with an Act of the Holders hereunder, and, to the extent not so provided herein, with respect to any act requiring the Trustee to exercise its own discretion, relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture or any Securities, unless it shall be proved that, in connection with any such action taken, suffered or omitted or any such act, the Trustee was negligent, acted in bad faith or engaged in willful misconduct. Section 6.2 Notice of Defaults. Within 90 days after the occurrence of any default hereunder with respect to the Securities of any series, the Trustee shall transmit by mail to all Holders of Securities of such series entitled to receive reports pursuant to Section 7.3(3), notice of such default hereunder actually known to a Responsible Officer of the Trustee, unless such default shall have been cured or waived; provided, however, that, except in the case of a default in the payment of the principal of (or premium, if any), or interest (including any Additional Interest), if any, on, or Additional Amounts or any sinking fund or purchase fund installment with respect to, any Security of such series, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the best interest of the Holders of Securities and Coupons of such series; and provided, further, that in the case of any default of the character specified in Section 5.1(5) with respect to Securities of such series, no such notice to Holders shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to Securities of such series. Section 6.3 Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in the Securities, except the Trustee's certificate of authentication, and in any Coupons shall be taken as the statements of the Company and neither the Trustee nor any Authenticating Agent assumes any responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities or the Coupons, except that the Trustee represents that it is duly authorized to execute and deliver this Indenture, authenticate the Securities and perform its obligations hereunder. Neither the Trustee nor any Authenticating Agent shall be accountable for the use or application by the Company of the Securities or the proceeds thereof. Section 6.4 May Hold Securities. 58 The Trustee, any Authenticating Agent, any Paying Agent, any Security Registrar or any other Person that may be an agent of the Trustee or the Company, in its individual or any other capacity, may become the owner or pledgee of Securities or Coupons and, subject to Sections 310(b) and 311 of the Trust Indenture Act, may otherwise deal with the Company with the same rights it would have if it were not the Trustee, Authenticating Agent, Paying Agent, Security Registrar or such other Person. Section 6.5 Money Held in Trust. Except as provided in Section 4.3 and Section 10.3, money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law and shall be held uninvested. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed to in writing with the Company. Section 6.6 Compensation and Reimbursement. The Company agrees: (1) to pay to the Trustee from time to time reasonable compensation for all services rendered by the Trustee hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture or arising out of or in connection with the acceptance or administration of the trust or trusts hereunder (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to the Trustee's negligence or bad faith; and (3) to indemnify the Trustee and its agents, officers, directors and employees for, and to hold them harmless against, any loss, liability or expense incurred without negligence or bad faith on their part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses of defending themselves against any claim or liability in connection with the exercise or performance of any of their powers or duties hereunder, except to the extent that any such loss, liability or expense was due to the Trustee's negligence or bad faith. As security for the performance of the obligations of the Company under this Section, the Trustee shall have a lien prior to the Securities of any series upon all property and funds held or 59 collected by the Trustee as such, except funds held in trust for the payment of principal of, and premium or interest (including any Additional Interest) on or any Additional Amounts with respect to Securities or any Coupons appertaining thereto. To the extent permitted by law, any compensation or expense incurred by the Trustee after a default specified in or pursuant to Section 5.1 is intended to constitute an expense of administration under any then applicable bankruptcy or insolvency law. "Trustee" for purposes of this Section 6.6 shall include any predecessor Trustee but the negligence or bad faith of any Trustee shall not affect the rights of any other Trustee under this Section 6.6. The provisions of this Section 6.6 shall survive the satisfaction and discharge of this Indenture or the earlier resignation or removal of the Trustee and shall apply with equal force and effect to the Trustee in its capacity as Authenticating Agent, Paying Agent or Security Registrar. Section 6.7 Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder that is a Corporation organized and doing business under the laws of the United States of America, any state thereof or the District of Columbia, that is eligible under Section 310(a)(1) of the Trust Indenture Act to act as trustee under an indenture qualified under the Trust Indenture Act and that has a combined capital and surplus (computed in accordance with Section 310(a)(2) of the Trust Indenture Act) of at least $50,000,000, and that is subject to supervision or examination by Federal or state authority. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. Section 6.8 Resignation and Removal; Appointment of Successor. (1) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee pursuant to Section 6.9. (2) The Trustee may resign at any time with respect to the Securities of one or more series by giving written notice thereof to the Company. If the instrument of acceptance by a successor Trustee required by Section 6.9 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to such series. 60 (3) The Trustee may be removed at any time with respect to the Securities of any series by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series, delivered to the Trustee and the Company. (4) If at any time: (a) the Trustee shall fail to comply with the obligations imposed upon it under Section 310(b) of the Trust Indenture Act with respect to Securities of any series after written request therefor by the Company or any Holder of a Security of such series who has been a bona fide Holder of a Security of such series for at least six months, or (b) the Trustee shall cease to be eligible under Section 6.7 and shall fail to resign after written request therefor by the Company or any such Holder, or (c) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Company, by or pursuant to a Board Resolution may remove the Trustee with respect to all Securities or the Securities of such series, or (ii) subject to Section 315(e) of the Trust Indenture Act, any Holder of a Security who has been a bona fide Holder of a Security of such series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee with respect to all Securities of such series and the appointment of a successor Trustee or Trustees. (5) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any cause, with respect to the Securities of one or more series, the Company, by or pursuant to a Board Resolution, shall promptly appoint a successor Trustee or Trustees with respect to the Securities of such series (it being understood that any such successor Trustee may be appointed with respect to the Securities of one or more or all of such series and that at any time there shall be only one Trustee with respect to the Securities of any particular series) and shall comply with the applicable requirements of Section 6.9. If, within one year after such resignation, removal or incapacity, or the occurrence of such vacancy, a successor Trustee with respect to the Securities of any series shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Company and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements 61 of Section 6.9, become the successor Trustee with respect to the Securities of such series and to that extent supersede the successor Trustee appointed by the Company. If no successor Trustee with respect to the Securities of any series shall have been so appointed by the Company or the Holders of Securities and accepted appointment in the manner required by Section 6.9, any Holder of a Security who has been a bona fide Holder of a Security of such series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. (6) The Company shall give notice of each resignation and each removal of the Trustee with respect to the Securities of any series and each appointment of a successor Trustee with respect to the Securities of any series by mailing written notice of such event by first class mail, postage prepaid, to the Holders of Registered Securities, if any, of such series as their names and addresses appear in the Security Register and, if Securities of such series are issued as Bearer Securities, by publishing notice of such event once in an Authorized Newspaper in each Place of Payment located outside the United States. Each notice shall include the name of the successor Trustee with respect to the Securities of such series and the address of its Corporate Trust Office. (7) In no event shall any retiring Trustee be liable for the acts or omissions of any successor Trustee hereunder. Section 6.9 Acceptance of Appointment by Successor. (1) Upon the appointment hereunder of any successor Trustee with respect to all Securities, such successor Trustee so appointed shall execute, acknowledge and deliver to the Company and the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties hereunder of the retiring Trustee; but, on the request of the Company or such successor Trustee, such retiring Trustee, upon payment of its charges, shall execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and, subject to Section 10.3, shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder, subject nevertheless to its claim, if any, provided for in Section 6.6. (2) Upon the appointment hereunder of any successor Trustee with respect to the Securities of one or more (but not all) series, the Company, the retiring Trustee and such successor Trustee shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (1) shall 62 contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, such successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust, that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee and that no Trustee shall be responsible for any notice given to, or received by, or any act or failure to act on the part of any other Trustee hereunder, and, upon the execution and delivery of such supplemental indenture, the resignation or removal of the retiring Trustee shall become effective to the extent provided therein, such retiring Trustee shall have no further responsibility for the exercise of rights and powers or for the performance of the duties and obligations vested in the Trustee under this Indenture with respect to the Securities of that or those series to which the appointment of such successor Trustee relates other than as hereinafter expressly set forth, and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates; but, on request of the Company or such successor Trustee, such retiring Trustee, upon payment of its charges with respect to the Securities of that or those series to which the appointment of such successor Trustee relates and subject to Section 10.3 shall duly assign, transfer and deliver to such successor Trustee, to the extent contemplated by such supplemental indenture, the property and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, subject to its claim, if any, provided for in Section 6.6. (3) Upon request of any Person appointed hereunder as a successor Trustee, the Company shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in paragraph (1) or (2) of this Section, as the case may be. (4) No Person shall accept its appointment hereunder as a successor Trustee unless at the time of such acceptance such successor Person shall be qualified and eligible under this Article. 63 Section 6.10 Merger, Conversion, Consolidation or Succession to Business. Any Corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any Corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, shall be the successor of the Trustee hereunder, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated but not delivered by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. Section 6.11 Appointment of Authenticating Agent. The Trustee may appoint one or more Authenticating Agents acceptable to the Company with respect to one or more series of Securities which shall be authorized to act on behalf of the Trustee to authenticate Securities of that or those series issued upon original issue, exchange, registration of transfer, partial redemption or partial repayment or pursuant to Section 3.6, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent must be acceptable to the Company and, except as provided in or pursuant to this Indenture, shall at all times be a corporation that would be permitted by the Trust Indenture Act to act as trustee under an indenture qualified under the Trust Indenture Act, is authorized under applicable law and by its charter to act as an Authenticating Agent and has a combined capital and surplus (computed in accordance with Section 310(a)(2) of the Trust Indenture Act) of at least $50,000,000. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect specified in this Section. Any Corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any Corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any Corporation succeeding to all or substantially all of the corporate agency or corporate trust business of an Authenticating Agent, shall be the successor of such Authenticating Agent hereunder, provided such Corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. 64 An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee and the Company. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent and the Company. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and shall (i) mail written notice of such appointment by first class mail, postage prepaid, to all Holders of Registered Securities, if any, of the series with respect to which such Authenticating Agent shall serve, as their names and addresses appear in the Security Register, and (ii) if Securities of the series are issued as Bearer Securities, publish notice of such appointment at least once in an Authorized Newspaper in the place where such successor Authenticating Agent has its principal office if such office is located outside the United States. Any successor Authenticating Agent, upon acceptance of its appointment hereunder, shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section. The Company agrees to pay each Authenticating Agent from time to time reasonable compensation for its services under this Section. If the Trustee makes such payments, it shall be entitled to be reimbursed for such payments, subject to the provisions of Section 6.6. The provisions of Sections 3.8, 6.3 and 6.4 shall be applicable to each Authenticating Agent. If an Authenticating Agent is appointed with respect to one or more series of Securities pursuant to this Section, the Securities of such series may have endorsed thereon, in addition to or in lieu of the Trustee's certificate of authentication, an alternate certificate of authentication in substantially the following form: This is one of the Securities of the series designated herein referred to in the within-mentioned Indenture. BANK ONE TRUST COMPANY, NA, as Trustee By as Authenticating Agent By Authorized Officer 65 If all of the Securities of any series may not be originally issued at one time, and if the Trustee does not have an office capable of authenticating Securities upon original issuance located in a Place of Payment where the Company wishes to have Securities of such series authenticated upon original issuance, the Trustee, if so requested in writing (which writing need not be accompanied by or contained in an Officer's Certificate by the Company), shall appoint in accordance with this Section an Authenticating Agent having an office in a Place of Payment designated by the Company with respect to such series of Securities. ARTICLE 7 Holders Lists and Reports by Trustee and Company Section 7.1 Company to Furnish Trustee Names and Addresses of Holders. In accordance with Section 312(a) of the Trust Indenture Act, the Company shall furnish or cause to be furnished to the Trustee (1) semiannually with respect to Securities of each series not later than May 1 and November 1 of the year or upon such other dates as are set forth in or pursuant to the Board Resolution or indenture supplemental hereto authorizing such series, a list, in each case in such form as the Trustee may reasonably require, of the names and addresses of Holders as of the applicable date, and (2) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company Of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished, provided, however, that so long as the Trustee is the Security Registrar no such list shall be required to be furnished. Section 7.2 Preservation of Information; Communications to Holders. The Trustee shall comply with the obligations imposed upon it pursuant to Section 312 of the Trust Indenture Act. Every Holder of Securities or Coupons, by receiving and holding the same, agrees with the Company and the Trustee that none of the Company, the Trustee, any Paying Agent or any Security Registrar shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders of Securities in accordance with Section 312(c) of the Trust Indenture Act, regardless of the source from which such information was derived, and 66 that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under Section 312(b) of the Trust Indenture Act. Section 7.3 Reports by Trustee. (1) Within 60 days after September 15 of each year commencing with the first September 15 following the first issuance of Securities pursuant to Section 3.1, if required by Section 313(a) of the Trust Indenture Act, the Trustee shall transmit, pursuant to Section 313(c) of the Trust Indenture Act, a brief report dated as of such September 15 with respect to any of the events specified in said Section 313(a) which may have occurred since the later of the immediately preceding September 15 and the date of this Indenture. (2) The Trustee shall transmit the reports required by Section 313(a) of the Trust Indenture Act at the times specified therein. (3) Reports pursuant to this Section shall be transmitted in the manner and to the Persons required by Sections 313(c) and 313(d) of the Trust Indenture Act. Section 7.4 Reports by Company. The Company, pursuant to Section 314(a) of the Trust Indenture Act, shall: (1) file with the Trustee, within 15 days after the Company is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended; or, if the Company is not required to file information, documents or reports pursuant to either of said Sections, then it shall file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Securities Exchange Act of 1934, as amended, in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations; (2) file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company with the conditions 67 and covenants of this Indenture as may be required from time to time by such rules and regulations; and (3) transmit within 30 days after the filing thereof with the Trustee, in the manner and to the extent provided in Section 313(c) of the Trust Indenture Act, such summaries of any information, documents and reports required to be filed by the Company pursuant to paragraphs (1) and (2) of this Section as may be required by rules and regulations prescribed from time to time by the Commission. ARTICLE 8 Consolidation, Amalgamations, Merger and Sales Section 8.1 Company May Consolidate, Etc., Only on Certain Terms. The Company shall not consolidate or amalgamate with or merge into any other Person (whether or not affiliated with the Company), or convey, transfer or lease its properties and assets as an entirety or substantially as an entirety to any other Person (whether or not affiliated with the Company), and the Company shall not permit any other Person (whether or not affiliated with the Company) to consolidate or amalgamate with or merge into the Company or convey, transfer or lease its properties and assets as an entirety or substantially as an entirety to the Company; unless: (1) in case the Company shall consolidate or amalgamate with or merge into another Person or convey, transfer or lease its properties and assets as an entirety or substantially as an entirety to any Person, the Person formed by such consolidation or amalgamation or into which the Company is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of the Company as an entirety or substantially as an entirety shall be a Corporation organized and existing under the laws of the United States of America or any state thereof or the District of Columbia and shall expressly assume, by an indenture (or indentures, if at such time there is more than one Trustee) supplemental hereto, executed by the successor Person and delivered to the Trustee the due and punctual payment of the principal of, any premium and interest (including any Additional Interest) on and any Additional Amounts with respect to all the Securities and the performance of every obligation in this Indenture and the Outstanding Securities on the part of the Company to be performed or observed and shall provide for conversion or exchange rights in accordance with the provisions of the Securities of any series that are convertible or exchangeable into Common Stock or other securities; 68 (2) immediately after giving effect to such transaction and treating any indebtedness which becomes an obligation of the Company or a Subsidiary as a result of such transaction as having been incurred by the Company or such Subsidiary at the time of such transaction, no Event of Default or event which, after notice or lapse of time, or both, would become an Event of Default, shall have occurred and be continuing; and (3) either the Company or the successor Person shall have delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with. Section 8.2 Successor Person Substituted for Company. Upon any consolidation or amalgamation by the Company with or merger of the Company into any other Person or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety to any Person in accordance with Section 8.1, the successor Person formed by such consolidation or amalgamation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; and thereafter, except in the case of a lease, the predecessor Person shall be released from all obligations and covenants under this Indenture, the Securities and the Coupons. ARTICLE 9 Supplemental Indentures Section 9.1 Supplemental Indentures without Consent of Holders. Without the consent of any Holders of Securities or Coupons, the Company (when authorized by or pursuant to a Board Resolution) and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, for any of the following purposes: (1) to evidence the succession of another Person to the Company, and the assumption by any such successor of the covenants of the Company contained herein and in the Securities; or 69 (2) to add to the covenants of the Company for the benefit of the Holders of all or any series of Securities (as shall be specified in such supplemental indenture or indentures) or to surrender any right or power herein conferred upon the Company; or (3) to add to or change any of the provisions of this Indenture to provide that Bearer Securities may be registrable as to principal, to change or eliminate any restrictions on the payment of principal of, any premium or interest (including any Additional Interest) on or any Additional Amounts with respect to Securities, to permit Bearer Securities to be issued in exchange for Registered Securities, to permit Bearer Securities to be exchanged for Bearer Securities of other authorized denominations or to permit or facilitate the issuance of Securities in uncertificated form, provided any such action shall not adversely affect the interests of the Holders of Outstanding Securities of any series or any Coupons appertaining thereto in any material respect; or (4) to establish the form or terms of Securities of any series and any Coupons appertaining thereto as permitted by Sections 2.1 and 3.1; or (5) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 6.9; or (6) to cure any ambiguity or to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture which shall not adversely affect the interests of the Holders of Securities of any series then Outstanding or any Coupons appertaining thereto; or (7) to add to, delete from or revise the conditions, limitations and restrictions on the authorized amount, terms or purposes of issue, authentication and delivery of Securities, as herein set forth; or (8) to add any additional Events of Default with respect to all or any series of Securities (as shall be specified in such supplemental indenture); or (9) to supplement any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate the defeasance and discharge of any series of Securities pursuant to Article 4, provided that any such action shall not adversely affect the interests of any Holder of an Outstanding Security of such series and any Coupons appertaining thereto or any other Outstanding Security or Coupon; or 70 (10) to secure the Securities; or (11) to make provisions with respect to conversion or exchange rights of Holders of Securities of any series; or (12) to amend or supplement any provision contained herein or in any supplemental indenture, provided that no such amendment or supplement shall materially adversely affect the interests of the Holders of any Securities then Outstanding. Section 9.2 Supplemental Indentures with Consent of Holders. With the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of each series affected by such supplemental indenture, by Act of said Holders delivered to the Company and the Trustee, the Company (when authorized by or pursuant to a Company's Board Resolution) and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of Securities of such series under this Indenture or of the Securities of such series; provided, however, that no such supplemental indenture, without the consent of the Holder of each Outstanding Security affected thereby, shall (1) change the Stated Maturity of the principal of, or any premium or installment of interest (including any Additional Interest) on or any Additional Amounts with respect to, any Security, or reduce the principal amount thereof or the rate (or modify the calculation of such rate) of interest (including any Additional Interest) thereon or any Additional Amounts with respect thereto, or any premium payable upon the redemption thereof or otherwise, or change the obligation of the Company to pay Additional Amounts pursuant to the terms hereof (except as contemplated by Section 8.1(1) and permitted by Section 9.1(1)), or reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 5.2 or the amount thereof provable in bankruptcy pursuant to Section 5.4, change the redemption provisions or adversely affect the right of repayment at the option of any Holder as contemplated by Article 13, or change the Place of Payment, Currency in which the principal of, any premium or interest (including any Additional Interest) on, or any Additional Amounts with respect to any Security is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date or, in the case of repayment at the option of the Holder, on or after the date for repayment), or 71 (2) reduce the percentage in principal amount of the Outstanding Securities of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or reduce the requirements of Section 15.4 for quorum or voting, or (3) modify any of the provisions of this Indenture relating to the subordination of the Securities in respect thereof in a manner adverse to Holders of Securities, or (4) modify any of the provisions of this Section, Section 5.13 or Section 10.6, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby, or (5) make any change that adversely affects the right to convert or exchange any Security into or for securities of the Company or other securities (whether or not issued by the Company), cash or property in accordance with its terms. A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which shall have been included expressly and solely for the benefit of one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series. It shall not be necessary for any Act of Holders of Securities under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. Section 9.3 Execution of Supplemental Indentures. As a condition to executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trust created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 315 of the Trust Indenture Act) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture and an Officer's Certificate stating that all conditions precedent to the execution of such supplemental indenture have been fulfilled. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. 72 Section 9.4 Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of a Security theretofore or thereafter authenticated and delivered hereunder and of any Coupon appertaining thereto shall be bound thereby. Section 9.5 Reference in Securities to Supplemental Indentures. Securities of any series authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities of any series so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities of such series. Section 9.6 Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act as then in effect. Section 9.7 Effect on Senior Indebtedness. No supplemental indenture shall directly or indirectly modify or eliminate the provisions of Article 16 in any manner which might terminate or impair the subordination of the Securities of any series to Company Senior Indebtedness with respect to such series without the prior written consent of the holders of such Company Senior Indebtedness. Section 9.8 Notice of Supplemental Indenture. Promptly after the execution by the Company and the Trustee of any supplemental indenture pursuant to Section 9.2, the Company shall transmit to the Holders of Outstanding Securities of any series affected thereby a notice setting forth the substance of such supplemental indenture. ARTICLE 10 Covenants 73 Section 10.1 Payment of Principal, any Premium, Interest and Additional Amounts. The Company covenants and agrees for the benefit of the Holders of the Securities of each series that it will duly and punctually pay the principal of, any premium and interest (including any Additional Interest) on and any Additional Amounts with respect to the Securities of such series in accordance with the terms thereof, any Coupons appertaining thereto and this Indenture. Any interest due on any Bearer Security on or before the Maturity thereof, and any Additional Amounts payable with respect to such interest, shall be payable only upon presentation and surrender of the Coupons appertaining thereto for such interest as they severally mature. Section 10.2 Maintenance of Office or Agency. The Company shall maintain in each Place of Payment for any series of Securities an Office or Agency where Securities of such series (but not Bearer Securities, except as otherwise provided below, unless such Place of Payment is located outside the United States) may be presented or surrendered for payment, where Securities of such series may be surrendered for registration of transfer or exchange, where Securities of such series that are convertible or exchangeable may be surrendered for conversion or exchange, and where notices and demands to or upon the Company in respect of the Securities of such series relating thereto and this Indenture may be served. If Securities of a series are issuable as Bearer Securities, the Company shall maintain, subject to any laws or regulations applicable thereto, an Office or Agency in a Place of Payment for such series which is located outside the United States where Securities of such series and any Coupons appertaining thereto may be presented and surrendered for payment; provided, however, that if the Securities of such series are listed on The Stock Exchange of the United Kingdom and the Republic of Ireland or the Luxembourg Stock Exchange or any other stock exchange located outside the United States and such stock exchange shall so require, the Company shall maintain a Paying Agent in London, Luxembourg or any other required city located outside the United States, as the case may be, so long as the Securities of such series are listed on such exchange. The Company will give prompt written notice to the Trustee of the location, and any change in the location, of such Office or Agency. If at any time the Company shall fail to maintain any such required Office or Agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, except that Bearer Securities of such series and any Coupons appertaining thereto may be presented and surrendered for payment at the place specified for the purpose with respect to such Securities as provided in or pursuant to this Indenture, and the Company hereby appoints the Trustee as its agent to receive all such presentations, surrenders, notices and demands. Except as otherwise provided in or pursuant to this Indenture, no payment of principal, premium, interest or Additional Amounts with respect to Bearer Securities shall be made at any 74 Office or Agency in the United States or by check mailed to any address in the United States or by transfer to an account maintained with a bank located in the United States; provided, however, if amounts owing with respect to any Bearer Securities shall be payable in Dollars, payment of principal of, any premium or interest on and any Additional Amounts with respect to any such Security may be made at the Corporate Trust Office of the Trustee or any Office or Agency designated by the Company in the Borough of Manhattan, The City of New York, if (but only if) payment of the full amount of such principal, premium, interest or Additional Amounts at all offices outside the United States maintained for such purpose by the Company in accordance with this Indenture is illegal or effectively precluded by exchange controls or other similar restrictions. The Company may also from time to time designate one or more other Offices or Agencies where the Securities of one or more series may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an Office or Agency in each Place of Payment for Securities of any series for such purposes. The Company shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other Office or Agency. Unless otherwise provided in or pursuant to this Indenture, the Company hereby designates as the Place of Payment for each series of Securities the Borough of Manhattan, The City of New York, and initially appoint the Corporate Trust Office of the Trustee as the Office or Agency of the Company in the Borough of Manhattan, The City of New York for such purpose. The Company may subsequently appoint a different Office or Agency in the Borough of Manhattan, The City of New York for the Securities of any series. Unless otherwise specified with respect to any Securities pursuant to Section 3.1, if and so long as the Securities of any series (i) are denominated in a Foreign Currency or (ii) may be payable in a Foreign Currency, or so long as it is required under any other provision of this Indenture, then the Company will maintain with respect to each such series of Securities, or as so required, at least one exchange rate agent. Section 10.3 Money for Securities Payments to Be Held in Trust. If the Company shall at any time act as its own Paying Agent with respect to any series of Securities, it shall, on or before each due date of the principal of, any premium or interest (including any Additional Interest) on or Additional Amounts with respect to any of the Securities of such series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum in the currency or currencies, currency unit or units or composite currency or currencies in which the Securities of such series are payable (except as otherwise specified pursuant to Section 3.1 for the Securities of such series) sufficient to pay the principal or any premium, interest (including any Additional Interest) or Additional Amounts so becoming due until such sums 75 shall be paid to such Persons or otherwise disposed of as herein provided, and shall promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents for any series of Securities, it shall, on or prior to each due date of the principal of, any premium or interest (including any Additional Interest) on or any Additional Amounts with respect to any Securities of such series, deposit with any Paying Agent a sum (in the currency or currencies, currency unit or units or composite currency or currencies described in the preceding paragraph) sufficient to pay the principal or any premium, interest (including any Additional Interest) or Additional Amounts so becoming due, such sum to be held in trust for the benefit of the Persons entitled thereto, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act. The Company shall cause each Paying Agent for any series of Securities other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent shall: (1) hold all sums held by it for the payment of the principal of, any premium or interest (including any Additional Interest) on or any Additional Amounts with respect to Securities of such series in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as provided in or pursuant to this Indenture; (2) give the Trustee notice of any default by the Company (or any other obligor upon the Securities of such series) in the making of any payment of principal, any premium or interest (including any Additional Interest) on or any Additional Amounts with respect to the Securities of such series; and at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. The Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company or such Paying Agent, such sums to be held by the Trustee upon the same terms as those upon which such sums were held by the Company or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such sums. Except as otherwise provided herein or pursuant hereto, any money deposited with the Trustee or any Paying Agent, or then held by the Company, in trust for the payment of the principal of, any premium or interest (including any Additional Interest) on or any Additional 76 Amounts with respect to any Security of any series or any Coupon appertaining thereto and remaining unclaimed for two years after such principal or any such premium or interest or any such Additional Amounts shall have become due and payable shall be paid to the Company on Company Request, or (if then held by the Company) shall be discharged from such trust; and the Holder of such Security or any Coupon appertaining thereto shall thereafter, as an unsecured general creditor, look only to the Company for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company cause to be published once, in an Authorized Newspaper in each Place of Payment for such series or to be mailed to Holders of Registered Securities of such series, or both, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication or mailing nor shall it be later than two years after such principal and any premium or interest or Additional Amounts shall have become due and payable, any unclaimed balance of such money then remaining will be repaid to the Company. Section 10.4 Additional Amounts. If any Securities of a series provide for the payment of Additional Amounts, the Company agrees to pay to the Holder of any such Security or any Coupon appertaining thereto Additional Amounts as provided in or pursuant to this Indenture or such Securities. Whenever in this Indenture there is mentioned, in any context, the payment of the principal of or any premium or interest on, or in respect of, any Security of any series or any Coupon or the net proceeds received on the sale or exchange of any Security of any series, such mention shall be deemed to include mention of the payment of Additional Amounts provided by the terms of such series established hereby or pursuant hereto to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof pursuant to such terms, and express mention of the payment of Additional Amounts (if applicable) in any provision hereof shall not be construed as excluding Additional Amounts in those provisions hereof where such express mention is not made. Except as otherwise provided in or pursuant to this Indenture or the Securities of the applicable series, if the Securities of a series provide for the payment of Additional Amounts, at least 10 days prior to the first Interest Payment Date with respect to such series of Securities (or if the Securities of such series shall not bear interest prior to Maturity, the first day on which a payment of principal is made), and at least 10 days prior to each date of payment of principal or interest if there has been any change with respect to the matters set forth in the below-mentioned Officer's Certificate, the Company shall furnish to the Trustee and the principal Paying Agent or Paying Agents, if other than the Trustee, an Officer's Certificate instructing the Trustee and such Paying Agent or Paying Agents whether such payment of principal of and premium, if any, or interest on the Securities of such series shall be made to Holders of Securities of such series or 77 the Coupons appertaining thereto who are United States Aliens without withholding for or on account of any tax, assessment or other governmental charge described in the Securities of such series. If any such withholding shall be required, then such Officer's Certificate shall specify by country the amount, if any, required to be withheld on such payments to such Holders of Securities or Coupons, and the Company agrees to pay to the Trustee or such Paying Agent the Additional Amounts required by the terms of such Securities. The Company covenants to indemnify the Trustee and any Paying Agent for, and to hold them harmless against, any loss, liability or expense reasonably incurred without negligence or bad faith on their part arising out of or in connection with actions taken or omitted by any of them in reliance on any Officer's Certificate furnished pursuant to this Section 10.4. Section 10.5 Corporate Existence. Subject to Article 8, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its respective corporate existence and that of each of its Subsidiaries and their respective rights (charter and statutory) and franchises; provided, however, that the foregoing shall not obligate the Company or any of its Subsidiaries to preserve any such right or franchise if the Company or any such Subsidiary shall determine that the preservation thereof is no longer desirable in the conduct of its business or the business of such Subsidiary and that the loss thereof is not disadvantageous in any material respect to any Holder. Section 10.6 Waiver of Certain Covenants. The Company may omit in any particular instance to comply with any term, provision or condition set forth in Section 10.5 with respect to the Securities of any series if before the time for such compliance the Holders of at least a majority in principal amount of the Outstanding Securities of such series, by Act of such Holders, either shall waive such compliance in such instance or generally shall have waived compliance with such term, provision or condition, but no such waiver shall extend to or affect such term, provision or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the duties of the Trustee in respect of any such term, provision or condition shall remain in full force and effect. Section 10.7 Company Statement as to Compliance; Notice of Certain Defaults. (1) The Company shall deliver to the Trustee, within 120 days after the end of each fiscal year, a written statement (which need not be contained in or accompanied by an Officer's Certificate) signed by the principal executive officer, the principal financial officer or the principal accounting officer of the Company, stating that 78 (a) a review of the activities of the Company during such year and of its performance under this Indenture has been made under his or her supervision, and (b) to the best of his or her knowledge, based on such review, (a) the Company has complied with all the conditions and covenants imposed on it under this Indenture throughout such year, or, if there has been a default in the fulfillment of any such condition or covenant, specifying each such default known to him or her and the nature and status thereof, and (b) no event has occurred and is continuing which is, or after notice or lapse of time or both would become, an Event of Default, or, if such an event has occurred and is continuing, specifying each such event known to him and the nature and status thereof. (2) The Company shall deliver to the Trustee, within five days after the occurrence thereof, written notice of any Event of Default or any event which after notice or lapse of time or both would become an Event of Default pursuant to clause (4) or (5) of Section 5.1. (3) The Trustee shall have no duty to monitor the Company's compliance with the covenants contained in this Article 10 other than as specifically set forth in this Section 10.7. ARTICLE 11 Redemption of Securities Section 11.1 Applicability of Article. Redemption of Securities of any series at the option of the Company as permitted or required by the terms of such Securities shall be made in accordance with the terms of such Securities and (except as otherwise provided herein or pursuant hereto) this Article. Section 11.2 Election to Redeem; Notice to Trustee. The election of the Company to redeem any Securities shall be evidenced by or pursuant to a Board Resolution. In case of any redemption at the election of the Company of (a) less than all of the Securities of any series or (b) all of the Securities of any series, with the same issue date, interest rate or formula, Stated Maturity and other terms, the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Securities of such series to be redeemed. 79 Section 11.3 Selection by Trustee of Securities to be Redeemed. If less than all of the Securities of any series with the same issue date, interest rate or formula, Stated Maturity and other terms are to be redeemed, the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee from the Outstanding Securities of such series not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions of the principal amount of Registered Securities of such series; provided, however, that no such partial redemption shall reduce the portion of the principal amount of a Registered Security of such series not redeemed to less than the minimum denomination for a Security of such series established herein or pursuant hereto. The Trustee shall promptly notify the Company and the Security Registrar (if other than itself) in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal of such Securities which has been or is to be redeemed. Unless otherwise specified in or pursuant to this Indenture or the Securities of any series, if any Security selected for partial redemption is converted into other securities of the Company or exchanged for securities of another issuer in part before termination of the conversion or exchange right with respect to the portion of the Security so selected, the converted portion of such Security shall be deemed (so far as may be) to be the portion selected for redemption. Securities which have been converted or exchanged during a selection of Securities to be redeemed shall be treated by the Trustee as Outstanding for the purpose of such selection. Section 11.4 Notice of Redemption. Notice of redemption shall be given in the manner provided in Section 1.6, not less than 30 nor more than 60 days prior to the Redemption Date, unless a shorter period is specified in the Securities to be redeemed, to the Holders of Securities to be redeemed. Failure to give notice by mailing in the manner herein provided to the Holder of any Registered Securities designated for redemption as a whole or in part, or any defect in the notice to any such Holder, shall not affect the validity of the proceedings for the redemption of any other Securities or portion thereof. 80 Any notice that is mailed to the Holder of any Registered Securities in the manner herein provided shall be conclusively presumed to have been duly given, whether or not such Holder receives the notice. All notices of redemption shall state: (1) the Redemption Date, (2) the Redemption Price, (3) if less than all Outstanding Securities of any series are to be redeemed, the identification (and, in the case of partial redemption, the principal amount) of the particular Security or Securities to be redeemed, (4) in case any Security is to be redeemed in part only, the notice which relates to such Security shall state that on and after the Redemption Date, upon surrender of such Security, the Holder of such Security will receive, without charge, a new Security or Securities of authorized denominations for the principal amount thereof remaining unredeemed, (5) that, on the Redemption Date, the Redemption Price shall become due and payable upon each such Security or portion thereof to be redeemed, and, if applicable, that interest thereon shall cease to accrue on and after said date, (6) the place or places where such Securities, together (in the case of Bearer Securities) with all Coupons appertaining thereto, if any, maturing after the Redemption Date, are to be surrendered for payment of the Redemption Price and any accrued interest and Additional Amounts pertaining thereto, (7) that the redemption is for a sinking fund, if such is the case, (8) that, unless otherwise specified in such notice, Bearer Securities of any series, if any, surrendered for redemption must be accompanied by all Coupons maturing subsequent to the date fixed for redemption or the amount of any such missing Coupon or Coupons will be deducted from the Redemption Price, unless security or indemnity satisfactory to the Company, the Trustee and any Paying Agent is furnished, (9) if Bearer Securities of any series are to be redeemed and no Registered Securities of such series are to be redeemed, and if such Bearer Securities may be exchanged for Registered Securities not subject to redemption on the Redemption Date 81 pursuant to Section 3.5 or otherwise, the last date, as determined by the Company, on which such exchanges may be made, (10) in the case of Securities of any series that are convertible into Common Stock of the Company or exchangeable for other securities, the conversion or exchange price or rate, the date or dates on which the right to convert or exchange the principal of the Securities of such series to be redeemed will commence or terminate and the place or places where such Securities may be surrendered for conversion or exchange, and (11) the CUSIP number or the Euroclear or the Cedel reference numbers of such Securities, if any (or any other numbers used by a Depository to identify such Securities). A notice of redemption published as contemplated by Section 1.6 need not identify particular Registered Securities to be redeemed. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. Section 11.5 Deposit of Redemption Price. On or prior to any Redemption Date, the Company shall deposit, with respect to the Securities of any series called for redemption pursuant to Section 11.4, with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent, segregate and hold in trust as provided in Section 10.3) an amount of money in the applicable Currency sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date, unless otherwise specified pursuant to Section 3.1 or in the Securities of such series) any accrued interest (including any Additional Interest) on and Additional Amounts with respect thereto, all such Securities or portions thereof which are to be redeemed on that date. Section 11.6 Securities Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company shall default in the payment of the Redemption Price and accrued interest) such Securities shall cease to bear interest and the Coupons for such interest appertaining to any Bearer Securities so to be redeemed, except to the extent provided below, shall be void. Upon surrender of any such Security for redemption in accordance with said notice, together with all Coupons, if any, appertaining thereto maturing after the Redemption Date, such Security shall be paid by the Company at the Redemption Price, 82 together with any accrued interest and Additional Amounts to the Redemption Date; provided, however, that, except as otherwise provided in or pursuant to this Indenture or the Bearer Securities of such series, installments of interest on Bearer Securities whose Stated Maturity is on or prior to the Redemption Date shall be payable only upon presentation and surrender of Coupons for such interest (at an Office or Agency located outside the United States except as otherwise provided in Section 10.2), and provided, further, that, except as otherwise specified in or pursuant to this Indenture or the Registered Securities of such series, installments of interest on Registered Securities whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the Regular Record Dates therefor according to their terms and the provisions of Section 3.7. If any Bearer Security surrendered for redemption shall not be accompanied by all appurtenant Coupons maturing after the Redemption Date, such Security may be paid after deducting from the Redemption Price an amount equal to the face amount of all such missing Coupons, or the surrender of such missing Coupon or Coupons may be waived by the Company and the Trustee if there be furnished to them such security or indemnity as they may require to save each of them and any Paying Agent harmless. If thereafter the Holder of such Security shall surrender to the Trustee or any Paying Agent any such missing Coupon in respect of which a deduction shall have been made from the Redemption Price, such Holder shall be entitled to receive the amount so deducted; provided, however, that any interest or Additional Amounts represented by Coupons shall be payable only upon presentation and surrender of those Coupons at an Office or Agency for such Security located outside of the United States except as otherwise provided in Section 10.2. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal and any premium, until paid, shall bear interest from the Redemption Date at the rate prescribed therefor in the Security. Section 11.7 Securities Redeemed in Part. Any Registered Security which is to be redeemed only in part shall be surrendered at any Office or Agency for such Security (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing) and the Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Registered Security or Securities of the same series, containing identical terms and provisions, of any authorized denomination as requested by such Holder in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered. If a Security in global form is so surrendered, the Company shall execute, and the Trustee shall authenticate and deliver to the U.S. Depository or 83 other Depository for such Security in global form as shall be specified in the Company Order with respect thereto to the Trustee, without service charge, a new Security in global form in a denomination equal to and in exchange for the unredeemed portion of the principal of the Security in global form so surrendered. ARTICLE 12 Sinking Funds Section 12.1 Applicability of Article. The provisions of this Article shall be applicable to any sinking fund for the retirement of Securities of a series, except as otherwise permitted or required in or pursuant to this Indenture or any Security of such series issued pursuant to this Indenture. The minimum amount of any sinking fund payment provided for by the terms of Securities of any series is herein referred to as a "mandatory sinking fund payment," and any payment in excess of such minimum amount provided for by the terms of Securities of such series is herein referred to as an "optional sinking fund payment". If provided for by the terms of Securities of any series, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 12.2. Each sinking fund payment shall be applied to the redemption of Securities of any series as provided for by the terms of Securities of such series and this Indenture. Section 12.2 Satisfaction of Sinking Fund Payments with Securities. The Company may, in satisfaction of all or any part of any sinking fund payment with respect to the Securities of any series to be made pursuant to the terms of such Securities (1) deliver Outstanding Securities of such series (other than any of such Securities previously called for redemption or any of such Securities in respect of which cash shall have been released to the Company), together in the case of any Bearer Securities of such series with all unmatured Coupons appertaining thereto, and (2) apply as a credit Securities of such series which have been redeemed either at the election of the Company pursuant to the terms of such series of Securities or through the application of permitted optional sinking fund payments pursuant to the terms of such Securities, provided that such series of Securities have not been previously so credited. Such Securities shall be received and credited for such purpose by the Trustee at the Redemption Price specified in such Securities for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly. If, as a result of the delivery or credit of Securities of any series in lieu of cash payments pursuant to this Section 12.2, the principal amount of Securities of such series to be redeemed in order to satisfy the remaining sinking fund payment shall be less than $100,000, the Trustee need not call Securities of such 84 series for redemption, except upon Company Request, and such cash payment shall be held by the Trustee or a Paying Agent and applied to the next succeeding sinking fund payment, provided, however, that the Trustee or such Paying Agent shall at the request of the Company from time to time pay over and deliver to the Company any cash payment so being held by the Trustee or such Paying Agent upon delivery by the Company to the Trustee of Securities of that series purchased by the Company having an unpaid principal amount equal to the cash payment requested to be released to the Company. Section 12.3 Redemption of Securities for Sinking Fund. Not less than 75 days prior to each sinking fund payment date for any series of Securities, the Company shall deliver to the Trustee an Officer's Certificate specifying the amount of the next ensuing mandatory sinking fund payment for that series pursuant to the terms of that series, the portion thereof, if any, which is to be satisfied by payment of cash and the portion thereof, if any, which is to be satisfied by delivering and crediting of Securities of that series pursuant to Section 12.2, and the optional amount, if any, to be added in cash to the next ensuing mandatory sinking fund payment, and will also deliver to the Trustee any Securities to be so credited and not theretofore delivered. If such Officer's Certificate shall specify an optional amount to be added in cash to the next ensuing mandatory sinking fund payment, the Company shall thereupon be obligated to pay the amount therein specified. Not less than 60 days before each such sinking fund payment date the Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 11.3 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 11.4. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Sections 11.6 and 11.7. ARTICLE 13 Repayment at the Option of Holders Section 13.1 Applicability of Article. Securities of any series which are repayable at the option of the Holders thereof before their Stated Maturity shall be repaid in accordance with the terms of the Securities of such series. The repayment of any principal amount of Securities pursuant to such option of the Holder to require repayment of Securities before their Stated Maturity, for purposes of Section 3.9, shall not operate as a payment, redemption or satisfaction of the Indebtedness represented by such Securities unless and until the Company, at its option, shall deliver or surrender the same to the Trustee with a directive that such Securities be cancelled. Notwithstanding anything to the contrary contained in this Section 13.1, in connection with any repayment of Securities, the 85 Company may arrange for the purchase of any Securities by an agreement with one or more investment bankers or other purchasers to purchase such Securities by paying to the Holders of such Securities on or before the close of business on the repayment date an amount not less than the repayment price payable by the Company on repayment of such Securities, and the obligation of the Company to pay the repayment price of such Securities shall be satisfied and discharged to the extent such payment is so paid by such purchasers. ARTICLE 14 Securities in Foreign Currencies Section 14.1 Applicability of Article. Whenever this Indenture provides for (i) any action by, or the determination of any of the rights of, Holders of Securities of any series in which not all of such Securities are denominated in the same Currency, or (ii) any distribution to Holders of Securities, in the absence of any provision to the contrary in the form of Security of any particular series or pursuant to this Indenture or the Securities, any amount in respect of any Security denominated in a Currency other than Dollars shall be treated for any such action or distribution as that amount of Dollars that could be obtained for such amount on such reasonable basis of exchange and as of the record date with respect to Registered Securities of such series (if any) for such action, determination of rights or distribution (or, if there shall be no applicable record date, such other date reasonably proximate to the date of such action, determination of rights or distribution) as the Company may specify in a written notice to the Trustee. ARTICLE 15 Meetings of Holders of Securities Section 15.1 Purposes for Which Meetings May Be Called. A meeting of Holders of Securities of any series may be called at any time and from time to time pursuant to this Article to make, give or take any request, demand, authorization, direction, notice, consent, waiver or other Act provided by this Indenture to be made, given or taken by Holders of Securities of such series. Section 15.2 Call, Notice and Place of Meetings. 86 (1) The Trustee may at any time call a meeting of Holders of Securities of any series for any purpose specified in Section 15.1, to be held at such time and at such place in the Borough of Manhattan, The City of New York, or, if Securities of such series have been issued in whole or in part as Bearer Securities, in London or in such place outside the United States as the Trustee shall determine. Notice of every meeting of Holders of Securities of any series, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting, shall be given, in the manner provided in Section 1.6, not less than 21 nor more than 180 days prior to the date fixed for the meeting. (2) In case at any time the Company (by or pursuant to a Board Resolution) or the Holders of at least 10% in principal amount of the Outstanding Securities of any series shall have requested the Trustee to call a meeting of the Holders of Securities of such series for any purpose specified in Section 15.1, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have mailed notice of or made the first publication of the notice of such meeting within 21 days after receipt of such request (whichever shall be required pursuant to Section 1.6) or shall not thereafter proceed to cause the meeting to be held as provided herein, then the Company or the Holders of Securities of such series in the amount above specified, as the case may be, may determine the time and the place in the Borough of Manhattan, The City of New York, or, if Securities of such series are to be issued as Bearer Securities, in London for such meeting and may call such meeting for such purposes by giving notice thereof as provided in clause (1) of this Section. Section 15.3 Persons Entitled to Vote at Meetings. To be entitled to vote at any meeting of Holders of Securities of any series, a Person shall be (1) a Holder of one or more Outstanding Securities of such series, or (2) a Person appointed by an instrument in writing as proxy for a Holder or Holders of one or more Outstanding Securities of such series by such Holder or Holders. The only Persons who shall be entitled to be present or to speak at any meeting of Holders of Securities of any series shall be the Persons entitled to vote at such meeting and their counsel, any representatives of the Trustee and its counsel and any representatives of the Company and its counsel. Section 15.4 Quorum; Action. The Persons entitled to vote a majority in principal amount of the Outstanding Securities of a series shall constitute a quorum for any meeting of Holders of Securities of such series. In the absence of a quorum within 30 minutes after the time appointed for any such meeting, the meeting shall, if convened at the request of Holders of Securities of such series, be dissolved. In any other case the meeting may be adjourned for a period of not less than 10 days as determined 87 by the chairman of the meeting prior to the adjournment of such meeting. In the absence of a quorum at any reconvened meeting, such reconvened meeting may be further adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such reconvened meeting. Notice of the reconvening of any adjourned meeting shall be given as provided in Section 15.2(1), except that such notice need be given only once not less than five days prior to the date on which the meeting is scheduled to be reconvened. Notice of the reconvening of an adjourned meeting shall state expressly the percentage, as provided above, of the principal amount of the Outstanding Securities of such series which shall constitute a quorum. Except as limited by the proviso to Section 9.2, any resolution presented to a meeting or adjourned meeting duly reconvened at which a quorum is present as aforesaid may be adopted only by the affirmative vote of the Holders of a majority in principal amount of the Outstanding Securities of that series; provided, however, that, except as limited by the proviso to Section 9.2, any resolution with respect to any request, demand, authorization, direction, notice, consent, waiver or other Act which this Indenture expressly provides may be made, given or taken by the Holders of a specified percentage, which is less than a majority, in principal amount of the Outstanding Securities of a series may be adopted at a meeting or an adjourned meeting duly reconvened and at which a quorum is present as aforesaid by the affirmative vote of the Holders of such specified percentage in principal amount of the Outstanding Securities of such series. Any resolution passed or decision taken at any meeting of Holders of Securities of any series duly held in accordance with this Section shall be binding on all the Holders of Securities of such series and the Coupons appertaining thereto, whether or not such Holders were present or represented at the meeting. Section 15.5 Determination of Voting Rights; Conduct and Adjournment of Meetings. (1) Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Holders of Securities of such series in regard to proof of the holding of Securities of such series and of the appointment of proxies and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall deem appropriate. Except as otherwise permitted or required by any such regulations, the holding of Securities shall be proved in the manner specified in Section 1.4 and the appointment of any proxy shall be proved in the manner specified in Section 1.4 or by having the signature of the person executing the proxy witnessed or guaranteed by any trust company, bank or banker authorized by Section 1.4 to certify to the holding of Bearer Securities. Such regulations may provide that written instruments appointing 88 proxies, regular on their face, may be presumed valid and genuine without the proof specified in Section 1.4 or other proof. (2) The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by Holders of Securities as provided in Section 15.2(2), in which case the Company or the Holders of Securities of the series calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the Persons entitled to vote a majority in principal amount of the Outstanding Securities of such series represented at the meeting. (3) At any meeting, each Holder of a Security of such series or proxy shall be entitled to one vote for each $1,000 principal amount of Securities of such series held or represented by him; provided, however, that no vote shall be cast or counted at any meeting in respect of any Security challenged as not Outstanding and ruled by the chairman of the meeting to be not Outstanding. The chairman of the meeting shall have no right to vote, except as a Holder of a Security of such series or proxy. (4) Any meeting of Holders of Securities of any series duly called pursuant to Section 15.2 at which a quorum is present may be adjourned from time to time by Persons entitled to vote a majority in principal amount of the Outstanding Securities of such series represented at the meeting; and the meeting may be held as so adjourned without further notice. Section 15.6 Counting Votes and Recording Action of Meetings. The vote upon any resolution submitted to any meeting of Holders of Securities of any series shall be by written ballots on which shall be subscribed the signatures of the Holders of Securities of such series or of their representatives by proxy and the principal amounts and serial numbers of the Outstanding Securities of such series held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in triplicate of all votes cast at the meeting. A record, at least in triplicate, of the proceedings of each meeting of Holders of Securities of any series shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was given as provided in Section 15.2 and, if applicable, Section 15.4. Each copy shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one such copy shall be delivered to the Company, and another to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted 89 at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated. ARTICLE 16 Subordination Of Securities Section 16.1 Agreement to Subordinate. The Company covenants and agrees, and each Holder of Securities issued hereunder and under any indenture supplemental hereto or pursuant to a Board Resolution and Officer's Certificate ("Additional Provisions") by such Holder's acceptance thereof likewise covenants and agrees, that all Securities shall be issued subject to the provisions of this Article 16; and each Holder of a Security, whether upon original issue or upon transfer or assignment thereof, accepts and agrees to be bound by such provisions. The payment by the Company of the principal of, any premium and interest (including any Additional Interest) on and any Additional Amounts with respect to all Securities of each series issued hereunder and under any Additional Provisions shall, to the extent and in the manner hereinafter set forth, be subordinate in right of payment to the prior payment in full of all Company Senior Indebtedness with respect to such series, whether outstanding at the date of this Indenture or thereafter incurred. No provision of this Article 16 shall prevent the occurrence of any default or Event of Default hereunder. Section 16.2 Default on Company Senior Indebtedness. In the event and during the continuation of any default by the Company in the payment of principal, premium, interest or any other amount due on any Company Senior Indebtedness with respect to the Securities of any series, or in the event that the maturity of any Company Senior Indebtedness with respect to the Securities of any series has been accelerated because of a default, then, in either case, no payment shall be made by the Company with respect to the principal (including redemption and sinking fund payments) of, any premium or interest (including any Additional Interest) on, or any Additional Amounts with respect to, the Securities of such series. In the event that, notwithstanding the foregoing, any payment shall be received by the Trustee when such payment is prohibited by the preceding paragraph of this Section 16.2, such payment shall be held in trust for the benefit of, and shall be paid over or delivered to, the 90 holders of such Company Senior Indebtedness or their respective representatives, or to the trustee or trustees under any indenture pursuant to which any of such Company Senior Indebtedness may have been issued, as their respective interests may appear, but only to the extent that the holders of such Company Senior Indebtedness (or their representative or representatives or a trustee) notify the Trustee in writing within 90 days of such payment of the amounts then due and owing on such Company Senior Indebtedness and only the amounts specified in such notice to the Trustee shall be paid to the holders of such Company Senior Indebtedness. Section 16.3 Liquidation; Dissolution; Bankruptcy. Upon any payment by the Company or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any dissolution, winding-up, liquidation or reorganization of the Company, whether voluntary or involuntary, or in bankruptcy, insolvency, receivership or other proceedings, all amounts due upon all Company Senior Indebtedness with respect to the Securities of any series shall first be paid in full, or payment thereof provided for in money in accordance with its terms, before any payment is made by the Company on account of the principal of, premium or interest (including any Additional Interest) on, or Additional Amounts with respect to, the Securities of such series; and upon any such dissolution, winding-up, liquidation or reorganization, or in any such bankruptcy, insolvency, receivership or other proceeding, any payment by the Company, or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the Holders or the Trustee would be entitled to receive from the Company, except for the provisions of this Article 16, shall be paid by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the Holders or by the Trustee under this Indenture if received by them or it, directly to the holders of such Company Senior Indebtedness (pro rata to such holders on the basis of the respective amounts of such Company Senior Indebtedness held by such holders, as calculated by the Company) or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing such Company Senior Indebtedness may have been issued, as their respective interests may appear, to the extent necessary to pay such Company Senior Indebtedness in full, in money or money's worth, after giving effect to any concurrent payment or distribution to or for the holders of such Company Senior Indebtedness, before any payment or distribution is made to the Holders of the Securities of such series or to the Trustee. In the event that, notwithstanding the foregoing, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, prohibited by the foregoing shall be received by the Trustee before all such Company Senior Indebtedness is paid in full, or provision is made for such payment in money in accordance with its terms, such payment or distribution shall be held in trust for the benefit of and shall be paid over or delivered 91 to the holders of such Company Senior Indebtedness or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing such Company Senior Indebtedness may have been issued, as their respective interests may appear, as calculated by the Company, for application to the payment of all such Company Senior Indebtedness remaining unpaid to the extent necessary to pay such Company Senior Indebtedness in full in money in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the benefit of the holders of such Company Senior Indebtedness. For purposes of this Article 16, the words "cash, property or securities" shall not be deemed to include shares of stock of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment, the payment of which is subordinated at least to the extent provided in this Article 16 with respect to the Securities of the relevant series to the payment of all Company Senior Indebtedness with respect to the Securities of such series that may at the time be outstanding, provided that (i) such Company Senior Indebtedness is assumed by the new corporation, if any, resulting from any such reorganization or readjustment, and (ii) the rights of the holders of such Company Senior Indebtedness are not, without the consent of such holders, altered by such reorganization or readjustment. The consolidation of the Company with, or the merger of the Company into, another Person or the liquidation or dissolution of the Company following the conveyance, transfer or lease of its property as an entirety, or substantially as an entirety, to another Person upon the terms and conditions provided for in Sections 8.1 and 8.2 of this Indenture shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section 16.3 if such other Person shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions stated in Sections 8.1 and 8.2 of this Indenture. Nothing in Section 16.2 or in this Section 16.3 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 6.6 of this Indenture. Section 16.4 Subrogation. Subject to the payment in full of all Company Senior Indebtedness with respect to the Securities of any series, the rights of the Holders of the Securities of such series shall be subrogated to the rights of the holders of such Company Senior Indebtedness to receive payments or distributions of cash, property or securities of the Company applicable to such Company Senior Indebtedness until the principal of, any premium and interest (including any Additional Interest) on, and any Additional Amounts with respect to, the Securities of such series shall be paid in full; and, for the purposes of such subrogation, no payments or distributions to the holders of such Company Senior Indebtedness of any cash, property or securities to which the Holders or the Trustee would be entitled except for the provisions of this Article 16, and no payment over pursuant to the provisions of this Article 16 to or for the benefit of the holders of such Company Senior Indebtedness by Holders of the Securities of such series or the Trustee, 92 shall, as between the Company, its creditors other than holders of such Company Senior Indebtedness, and the Holders of the Securities of such series, be deemed to be a payment by the Company to or on account of such Company Senior Indebtedness. It is understood that the provisions of this Article 16 are and are intended solely for the purposes of defining the relative rights of the Holders of the Securities of each series, on the one hand, and the holders of the Company Senior Indebtedness with respect to the Securities of such series on the other hand. Nothing contained in this Article 16 or elsewhere in this Indenture, any Additional Provisions or in the Securities of any series is intended to or shall impair, as between the Company, its creditors other than the holders of Company Senior Indebtedness with respect to the Securities of such series, and the Holders of the Securities of such series, the obligation of the Company, which is absolute and unconditional, to pay to the Holders of the Securities of such series the principal of, any premium and interest (including any Additional Interest) on, and any Additional Amounts with respect to, the Securities of such series as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders of the Securities of such series and creditors of the Company, other than the holders of such Company Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or the Holder of any Security of such series from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article 16 of the holders of such Company Senior Indebtedness in respect of cash, property or securities of the Company, as the case may be, received upon the exercise of any such remedy. Upon any payment or distribution of assets of the Company referred to in this Article 16, the Trustee, subject to the provisions of Article 6 of this Indenture, and the Holders shall be entitled to conclusively rely upon any order or decree made by any court of competent jurisdiction in which such dissolution, winding-up, liquidation or reorganization proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidation trustee, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders of the Securities of any series, for the purposes of ascertaining the Persons entitled to participate in such distribution, the holders of Company Senior Indebtedness with respect to the Securities of such series and other indebtedness of the Company, as the case may be, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 16. Section 16.5 Trustee to Effectuate Subordination. Each Holder of Securities by such Holder's acceptance thereof authorizes and directs the Trustee on such Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article 16 and appoints the Trustee such Holder's attorney-in-fact for any and all such purposes. 93 Section 16.6 Notice by the Company. The Company shall give prompt written notice to a Responsible Officer of the Trustee of any fact known to the Company that would prohibit the making of any payment of monies to or by the Trustee in respect of the Securities of any series pursuant to the provisions of this Article 16. Notwithstanding the provisions of this Article 16 or any other provision of this Indenture or any Additional Provisions, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment of monies to or by the Trustee in respect of the Securities of any series pursuant to the provisions of this Article 16, unless and until a Responsible Officer of the Trustee shall have received written notice thereof from the Company or a holder or holders of Company Senior Indebtedness with respect to the Securities of such series or from any trustee therefor; and before the receipt of any such written notice, the Trustee, subject to the provisions of Article 6 of this Indenture, shall be entitled in all respects to assume that no such facts exist; provided, however, that if the Trustee shall not have received the notice provided for in this Section 16.6 at least two Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose (including, without limitation, the payment of the principal of, any premium or interest (including any Additional Interest) on, or any Additional Amounts with respect to, any Security of such series), then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such money and to apply the same to the purposes for which they were received, and shall not be affected by any notice to the contrary that may be received by it within two Business Days prior to such date. The Trustee, subject to the provisions of Article 6 of this Indenture, shall be entitled to conclusively rely on the delivery to it of a written notice by a Person representing himself to be a holder of Company Senior Indebtedness with respect to the Securities of any series (or a trustee on behalf of such holder), to establish that such notice has been given by a holder of such Company Senior Indebtedness or a trustee on behalf of any such holder or holders. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of such Company Senior Indebtedness to participate in any payment or distribution pursuant to this Article 16, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of such Company Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article 16, and, if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. Upon any payment or distribution of assets of the Company referred to in this Article 16, the Trustee and the Holders shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such insolvency, bankruptcy, receivership, liquidation, 94 reorganization, dissolution, winding-up or similar case or proceeding is pending, or a certificate of the trustee in bankruptcy, liquidating trustee, custodian, receiver, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders of the Securities of any series, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of Company Senior Indebtedness with respect to the Securities of such series and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 16. Section 16.7 Rights of the Trustee; Holders of Company Senior Indebtedness. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article 16 in respect of any Company Senior Indebtedness with respect to the Securities of any series at any time held by it, to the same extent as any other holder of such Company Senior Indebtedness, and nothing in this Indenture or any Additional Provisions shall deprive the Trustee of any of its rights as such holder. With respect to the holders of Company Senior Indebtedness with respect to the Securities of any series, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article 16, and no implied covenants or obligations with respect to the holders of such Company Senior Indebtedness shall be read into this Indenture or any Additional Provisions against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of such Company Senior Indebtedness and, subject to the provisions of Article 6 of this Indenture, the Trustee shall not be liable to any holder of such Company Senior Indebtedness if it shall pay over or deliver to Holders of the Securities of such series, the Company or any other Person money or assets to which any holder of such Company Senior Indebtedness shall be entitled by virtue of this Article 16 or otherwise. Nothing in this Article 16 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 6.6. Section 16.8 Subordination May Not Be Impaired No right of any present or future holder of any Company Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company, or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof that any such holder may have or otherwise be charged with. 95 Without in any way limiting the generality of the foregoing paragraph, the holders of Company Senior Indebtedness with respect to the Securities of any series may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of Securities of such series, without incurring responsibility to such Holders and without impairing or releasing the subordination provided in this Article 16 or the obligations hereunder of the Holders of the Securities of such series to the holders of such Company Senior Indebtedness, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, such Company Senior Indebtedness, or otherwise amend or supplement in any manner such Company Senior Indebtedness or any instrument evidencing the same or any agreement under which such Company Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing such Company Senior Indebtedness; (iii) release any Person liable in any manner for the collection of such Company Senior Indebtedness; and (iv) exercise or refrain from exercising any rights against the Company and any other Person. * * * 96 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed, all as of the day and year first above written. [SEAL] ACE INA Holdings Inc. Attest: By Name: Title: [SEAL] BANK ONE TRUST COMPANY, NA, as Trustee Attest: By Name: Title: 97 EX-10.39 4 SUPPLEMENTAL INDENTURE #1 DATED 12/06/1999 Exhibit 10.39 ================================================================================ SUPPLEMENTAL INDENTURE NO. 1 Dated as of December 6, 1999 to INDENTURE Dated as of November 30, 1999 between ACE INA HOLDINGS INC., as Issuer and BANK ONE TRUST COMPANY, NA, as Trustee ================================================================================ THIS SUPPLEMENTAL INDENTURE NO. 1 dated as of December 6, 1999 (this "Supplemental Indenture") to Indenture dated November 30, 1999, is hereby entered into by and between ACE INA HOLDINGS INC., a Delaware corporation (the "Company") and BANK ONE TRUST COMPANY, NA, a national banking association organized under the laws of the United States of America (the "Trustee"). W I T N E S S E T H: WHEREAS, the Company and Trustee executed and delivered an Indenture, dated as of November 30, 1999 (as supplemented hereby, the "Indenture"), to provide for the issuance from time to time of the Issuer's notes, bonds, debentures or any other evidences of Indebtedness to be issued in one or more series (the "Securities"); WHEREAS, pursuant to a Board Resolution, the Company has authorized the issuance of $300,000,000 of its Subordinated Notes due 2009 (the "Notes"); and WHEREAS, the Company desires to establish the terms and conditions of the Notes in accordance with Section 3.1 of the Indenture. ARTICLE 1 TERMS SECTION 101. DEFINITIONS. The terms defined in this Section 101 ----------- (except to the extent the application of such definitions is expressly limited to certain instances, and except as otherwise expressly provided in this Supplemental Indenture or the Indenture or unless the context otherwise requires) for all purposes of this Supplemental Indenture shall have the respective meanings specified in this Section 101. "Base Redemption Price" has the meaning set forth in Section 102(11) of this Supplemental Indenture. "Consolidated" with reference to any term used herein, means that term as applied to the accounts of a Person and its Subsidiaries, consolidated in accordance with GAAP consistently applied. "Depositary" has the meaning set forth in Appendix A attached hereto. ---------- "DTC" has the meaning set forth in Section 102(4) of this Supplemental Indenture. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "GAAP" means generally accepted accounting principles in the United States of America as in effect from time to time, including those set forth in (i) the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public 1 Accountants, (ii) statements and pronouncements of the Financial Accounting Standards Board, (iii) such other statements by such other entity as approved by a significant segment of the accounting profession and (iv) the rules and regulations of the Commission governing the inclusion of financial statements (including pro forma financial statements) in periodic reports required to be filed pursuant to Section 13 of the Exchange Act, including opinions and pronouncements in staff accounting bulletins and similar written statements from the accounting staff of the Commission. All ratios and computations based on GAAP contained in this Indenture shall be computed in conformity with GAAP. "Global Security" has the meaning set forth in Appendix A attached ---------- hereto. "Reference Swap Transaction" means the transaction described in Exhibit A attached hereto. - --------- "Reference Swap Transaction Value" means, as of any day, (i) an amount (which may be positive or negative) determined in good faith on such day by The Chase Manhattan Bank to be the present mark-to-market value of the Reference Swap Transaction, based on its mid-market quotation for transactions on substantially the same terms as the Reference Swap Transaction, (ii) divided by the aggregate principal amount of all Notes outstanding on such day, expressed as a percentage. If the amount in clause (i) in the preceding sentence is (a) a positive number, it is subtracted from the Base Redemption Price or (b) a negative number, it is added to the Base Redemption Price. Mark-to-market value shall be determined from the perspective of the Fixed Rate Payer (as defined in Exhibit A). - --------- "Securities Act" has the meaning set forth in Appendix A attached ---------- hereto. "Securities Register" and "Securities Registrar" have the meanings set forth in Section 102(3) of this Supplemental Indenture. SECTION 102. TERMS OF NOTES. The following terms relating to the -------------- Notes are hereby established: (1) The Notes shall constitute a series of Securities having the title "11.20% Subordinated Notes due 2009." (2) The aggregate principal amount of the Notes that may be authenticated and delivered under this Indenture (except for Notes authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Notes of the series pursuant to Section 3.4, 3.5, 3.6, 9.5, 11.7 or Appendix A, or pursuant to or as contemplated by the terms of the Notes) shall - ---------- be $300,000,000. (3) With respect to the Notes, Section 3.5 of the Indenture shall be deleted in its entirety and shall be replaced with the following: "Section 3.5 Registration, Transfer and Exchange. With respect to the Notes, the Company shall cause to be kept a register (each such register being herein sometimes referred to as the "Security Register") at an Office or Agency (the "Security Registrar") in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of the Notes and of transfers of the Notes. The Company shall have the right to remove and replace from time to time the Security Registrar; provided that no such removal or replacement shall be effective until a successor Security Registrar shall have been appointed by the Company and shall have accepted such appointment by the Company. If the Trustee shall not be or shall cease to be Security Registrar, the Trustee shall have the right to examine the Security Register at all reasonable times. The Notes shall be transferable only upon the surrender of a Note for registration of transfer and in compliance with Appendix A to Supplemental ---------- Indenture No. 1 to this Indenture. When a Note is presented to the Security Registrar with a request to register a transfer, the Security Registrar shall register the transfer as requested if the requirements of Section 8-401(a)(1) of the Uniform Commercial Code are met. When Notes are presented to the Security Registrar with a request to exchange them for an equal principal amount of Notes of other denominations, the Security Registrar shall make the exchange as requested if the same requirements are met. To permit registration of transfers and exchanges, the Company shall execute and the Trustee shall authenticate Notes at the Security Registrar's request. The Company may require payment of a sum sufficient to pay all taxes, assessments or other governmental charges in connection with any transfer or exchange pursuant to this Section 3.5. The Company shall not be required to make and the Security Registrar need not register transfers or exchanges of Notes selected for redemption (except, in the case of Notes to be redeemed in part, the portion thereof not to be redeemed) or any Notes for a period of 15 days before a selection of Notes to be redeemed. Prior to the due presentation for registration of transfer of any Note, the Company, the Trustee, the Paying Agent, and the Security Registrar may deem and treat the Person in whose name a Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest, if any, on such Note and for all other purposes whatsoever, whether or not such Note is overdue, and none of the Company, the Trustee, the Authenticating Agent, the Paying Agent, or the Security Registrar shall be affected by notice to the contrary. All Notes issued upon any transfer or exchange pursuant to the terms of this Indenture will evidence the same debt and will be entitled to the same benefits under this Indenture as the Notes surrendered upon such transfer or exchange." (4) The Notes will be issued initially as Global Securities and the Depository will be The Depository Trust Company ("DTC"). Beneficial owners of interests in any such Global Security may exchange such interests for Notes of like tenor and of any authorized form and denomination in the manner specified in Appendix A. ---------- (5) Global Securities will be dated as of the date of original issuance of the first Note issued. (6) The Notes will be issuable only as Registered Securities without Coupons. (7) The entire outstanding principal of the Notes will mature on December 6, 2009. (8) The principal of, any premium and interest on or any Additional Amounts with respect to the Notes shall be payable at the office or agency of the Company maintained for such purposes in The City of New York, State of New York from time to time, and the Company hereby appoints the Trustee, acting through its office or agency in The City of New York designated from time to time for such purpose, as its agent for the foregoing purposes; provided, that payments of the Notes may be made, in the case of a Holder of at least $5,000,000 aggregate principal amount of Notes, by wire transfer to a United States Dollar account maintained by the payee with a bank in the United States if such Holder elects payment by wire transfer by giving written notice to the Trustee or Paying Agent to such effect designating such account no later than 30 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion); and provided further, that (subject to Section 10.2 of the Indenture) the Company may at any time remove the Trustee as its office or agency in The City of New York designated for the foregoing purposes and may from time to time designate one or more other offices or agencies for the foregoing purposes and may from time to time rescind such designations. (9) The rate at which the Notes shall bear interest shall be 11.20% per annum; Additional Interest shall accrue at the rate borne by the Notes plus 1% per annum and interest on overdue principal and overdue Additional Amounts shall accrue interest at the same rate; the date from which interest shall accrue shall be December 6, 1999; the Interest Payment Dates for the Notes on which interest will be payable in arrears shall be June 6 and December 6 in each year, beginning June 6, 2000; the Regular Record Dates for the interest payable on the Notes on any Interest Payment Date shall be the 15th calendar day immediately preceding the applicable Interest Payment Date. (10) Payments of principal of or interest on the Notes shall not be determined with reference to an index, formula or other method. (11) The Notes shall be redeemable at the option of the Company, at any time and from time to time, in whole or in part, on not less than 30 nor more than 60 days prior notice, at the following base redemption prices (expressed as percentages of principal amount) (the "Base Redemption Price"), plus accrued and unpaid interest (if any) to the Redemption Date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant Interest Payment Date), plus the Reference Swap Transaction Value allocable to such Notes (collectively, the "Redemption Price"), if redeemed during the 12-month period commencing on December 6 of the years set forth below: Base Year Redemption Price ----------------------------------------------------------------------- 1999 108.76% 2000 108.14% 2001 107.51% 2002 106.84% 2003 106.10% 2004 105.28% 2005 104.39% 2006 103.42% 2007 102.37% 2008 101.23% (12) The Notes are not subject to any sinking fund. (13) The Notes shall not be repayable at the option of the Holders thereof before their Stated Maturity. (14) The Notes will not be convertible or exchangeable into other securities of the Company or another issuer. (15) The currency of payment of the principal of, any premium or interest on or any Additional Amounts with respect to the Notes shall be Dollars. (16) The Notes shall be subordinated in right of payment to the prior payment in full of all Company Senior Indebtedness as set forth in Article 16 of the Indenture. (17) In addition to the covenants set forth in the Indenture, the Notes shall have the additional covenants set forth in Sections 103 and 104 of this Supplemental Indenture. (18) The Notes shall have no additional Events of Default in addition to the Events of Default set forth in Article 5 of the Indenture other than the amendment to Section 5.1(5) set forth in Section 106 of this Supplemental Indenture. (19) Each of Section 4.2(2) relating to defeasance and Section 4.2(3) relating to covenant defeasance in the Indenture shall be applicable to the Notes. Subject to Section 4.2(3), the Company's obligations under Sections 103, 104(a) and 104(b) of the Supplemental Indenture and under Section 10.7 of the Indenture and the operation of Sections 5.1(4), 5.1(5) and 5.1(6) of the Indenture will terminate. (20) No warrants shall be issued in connection with the Notes. (21) Bank One Trust Company, NA shall be the Trustee with respect to the Notes. (22) The Trustee shall also be the Security Registrar, Paying Agent and Authenticating Agent with respect to the Notes. SECTION 103. PROHIBITION AGAINST DIVIDENDS, ETC. The Company ---------------------------------- covenants and agrees with each Holder that it will not, and will not permit any of its Subsidiaries to, (a) declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of the outstanding Capital Stock of the Company, or (b) make any payment of principal of, interest or premium, if any, on or repay, repurchase or redeem any debt security of the Company that ranks junior in right of payment to the Notes or make any guarantee payments with respect to any guarantee by the Company of the debt securities of any Subsidiary of the Company if such guarantee ranks junior in right of payment to the Notes (other than (i) dividends or distributions in Common Stock of the Company, (ii) redemptions or purchases of any rights outstanding under a shareholder rights plan of the Company or the declaration of a dividend of such rights or the issuance of stock under such plans in the future and (iii) purchases of Common Stock related to the issuance of Common Stock under any benefit plans of the Company for its directors, officers or employees) if at such time there shall have occurred any event of which the Company has actual knowledge that either is, or with the giving of notice or the lapse of time or both, would constitute an Event of Default hereunder. SECTION 104. CERTAIN INFORMATION. At any time while any Notes are ------------------- Outstanding: (a) within 90 days after the end of each fiscal year, the Company shall provide to the Trustee and Holders a Consolidated balance sheet of the Company and its Subsidiaries as of the end of such fiscal year and the related Consolidated statements of income, stockholders' equity and cash flow of the Company and its Subsidiaries for such fiscal year, setting forth in each case in comparative form the Consolidated figures for the previous fiscal year, all in reasonable detail and accompanied by (i) a report thereon of independent certified public accountants of recognized national standing selected by the Company stating that such Consolidated financial statements fairly present the Consolidated financial position of the Company and its Subsidiaries as of the date indicated and their results of operations and cash flows for the periods indicated in conformity with GAAP (except as otherwise stated therein) and that the examination by such accountants in connection with such Consolidated financial statements has been made in accordance with generally accepted auditing standards and (ii) a management's discussion and analysis of financial condition and results of operations substantially as would be required to be included in an annual report on Form 10-K if the Company were subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act; (b) within 45 days after the end of each fiscal quarter (other than the last fiscal quarter of any fiscal year) the Company shall provide to the Trustee and Holders an unaudited Consolidated balance sheet of the Company and its Subsidiaries as of the end of such quarter and the related unaudited Consolidated statements of income, stockholders' equity and cash flow for such quarter and the portion of the fiscal year ended at the end of such quarter, setting forth in each case in comparative form the Consolidated figures for the corresponding periods of the prior fiscal year, all in reasonable detail and certified by the Company's chief financial officer as fairly presenting the Consolidated financial condition of the Company and its Subsidiaries as of the dates indicated, and their Consolidated results of operations and cash flows for the periods indicated, in conformity with GAAP, subject to normal year-end adjustments and the absence of footnotes; and (c) the Company shall furnish to the Holders and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act. SECTION 105. AMENDMENT TO SECTION 1.15. With respect to the Notes, ------------------------- Section 1.15 of the Indenture shall be amended by deleting the following language: "except that if such next succeeding Business Day is in the next succeeding calendar year, such payment may be made, and such Securities may be converted or exchanged, on the immediately preceding Business Day". SECTION 106. AMENDMENT TO SECTION 5.1(5). With respect to the Notes, --------------------------- Section 5.1(5) of the Indenture shall be amended by deleting the following language: "such default shall not be cured or". SECTION 107. FORM OF NOTE. The form of the Note is attached hereto ------------ as Exhibit B. --------- ARTICLE II MISCELLANEOUS SECTION 201. DEFINITIONS. Capitalized terms used but not defined in ----------- this Supplemental Indenture shall have the meanings ascribed thereto in the Indenture. SECTION 202. CONFIRMATION OF INDENTURE. The Indenture, as heretofore ------------------------- supplemented and amended by this Supplemental Indenture, is in all respects ratified and confirmed, and the Indenture, this Supplemental Indenture and all indentures supplemental thereto shall be read, taken and construed as one and the same instrument. SECTION 203. CONCERNING THE TRUSTEE. The Trustee assumes no duties, ---------------------- responsibilities or liabilities by reason of this Supplemental Indenture other than as set forth in the Indenture and, in carrying out its responsibilities hereunder, shall have all of the rights, protections and immunities which it possesses under the Indenture. The Trustee makes no representation as to the validity or sufficiency of this Supplemental Indenture. SECTION 204. GOVERNING LAW. This Supplemental Indenture, the ------------- Indenture and the Notes shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made or instruments entered into and, in each case, performed in said state. SECTION 205. SEPARABILITY. In case any provision in this ------------ Supplemental Indenture shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. SECTION 206. COUNTERPARTS. This Supplemental Indenture may be ------------ executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same document. SECTION 207. EFFECT OF HEADINGS. The Section headings herein are for ------------------ convenience only and shall not effect as of the construction thereof. IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture No. 1 to be duly executed as of the day and year first above written. ACE INA HOLDINGS INC. By: ____________________________________________ Name: Title: BANK ONE TRUST COMPANY, NA, as Trustee By: ____________________________________________ Name: Title: ================================================================================ APPENDIX A PROVISIONS RELATING TO SECURITIES --------------------------------- 1. Definitions ----------- 1.1 Definitions ----------- For the purposes of this Appendix A the following terms shall have the meanings indicated below: "Applicable Procedures" means, with respect to any transfer or transaction involving a Regulation S Global Security or beneficial interest therein, the rules and procedures of the Depositary for such Global Security, Euroclear and Cedel, in each case to the extent applicable to such transaction and as in effect from time to time. "Cedel" means Cedel Bank, S.A., or any successor securities clearing agency. "Definitive Security" means a certificated Security (bearing the Restricted Securities Legend if the transfer of such Security is restricted by applicable law) that does not include the Global Securities Legend. "Depositary" means The Depository Trust Company, its nominees and their respective successors. "Distribution Compliance Period", with respect to any Securities, means the period of 40 consecutive days beginning on and including the later of (i) the day on which such Securities are first offered to persons other than distributors (as defined in Regulation S under the Securities Act) in reliance on Regulation S and (ii) the date on which such Securities are originally issued. "Euroclear" means the Euroclear Clearance System or any successor securities clearing agency. "Global Securities Legend" means the legend set forth under that caption in Exhibit C to this Indenture. "Purchase Agreement" means the Purchase Agreement dated November 30, 1999, between the Company and Westdeutsche Landesbank Gironzentrale, New York Branch, as the purchaser. "QIB" means a "qualified institutional buyer" as defined in Rule 144A. "Regulation S" means Regulation S under the Securities Act. "Regulation S Securities" means all Securities offered and sold outside the United States in reliance on Regulation S. 1 "Restricted Securities Legend" means the legend set forth in Section 2.3(e)(i) herein. "Rule 144A" means Rule 144A under the Securities Act. "Rule 144A Securities" means all Securities offered and sold to QIBs in reliance on Rule 144A. "Securities Act" means the Securities Act of 1933, as amended. "Securities Custodian" means the custodian with respect to a Global Security (as appointed by the Depositary) or any successor person thereto. "Transfer Restricted Securities" means Definitive Securities and any other Securities that bear or are required to bear the Restricted Securities Legend. 1.2 Other Definitions ----------------- Term: Defined in Section: ----- ------------------ "Agent Members".................................................... 2.1(b) "Global Security".................................................. 2.1(a) "Regulation S Global Security"..................................... 2.1(a) "Rule 144A Global Security"........................................ 2.1(a) 2. The Securities -------------- 2.1 Form and Dating --------------- The Securities issued on the date hereof will be (i) offered and sold by the Company pursuant to the Purchase Agreement and (ii) resold, initially only to (A) QIBs in reliance on Rule 144A and (B) Persons other than U.S. Persons (as defined in Regulation S) in reliance on Regulation S. Such Securities may thereafter be transferred to, among others, QIBs and purchasers in reliance on Regulation S. (a) Global Securities. Rule 144A Securities shall be issued initially ----------------- in the form of one or more permanent global Securities in definitive, fully registered form (collectively, the "Rule 144A Global Security") and Regulation S Securities shall be issued initially in the form of one or more global Securities (collectively, the "Regulation S Global Security"), in each case without interest coupons and bearing the Global Securities Legend and Restricted Securities Legend, which shall be deposited on behalf of the purchasers of the Securities represented thereby with the Securities Custodian, and registered in the name of the Depositary or a nominee of the Depositary, duly executed by the Company and authenticated by the Trustee as provided in this Indenture. Beneficial ownership interests in the Regulation S Global Security shall not be exchangeable for interests in the Rule 144A Global Security or any other Security without a Restricted Securities Legend until the expiration of the Distribution Compliance Period. The Rule 144A Global Security and the Regulation S Global Security are each referred to herein as a "Global Security" and are collectively referred to herein as "Global Securities." The aggregate 2 principal amount of the Global Securities may from time to time be increased or decreased by adjustments made on the records of the Trustee and the Depositary or its nominee as hereinafter provided. (b) Book-Entry Provisions. This Section 2.1(b) shall apply only to a --------------------- Global Security deposited with or on behalf of the Depositary. The Company shall execute and the Trustee shall, in accordance with this Section 2.1(b) and pursuant to an order of the Company, authenticate and deliver initially one or more Global Securities that (a) shall be registered in the name of the Depositary for such Global Security or Global Securities or the nominee of such Depositary and (b) shall be delivered by the Trustee to such Depositary or pursuant to such Depositary's instructions or held by the Trustee as Securities Custodian. Members of, or participants in, the Depositary ("Agent Members") shall have no rights under this Indenture with respect to any Global Security held on their behalf by the Depositary or by the Trustee as Securities Custodian or under such Global Security, and the Depositary may be treated by the Company, the Trustee and any agent of the Company or the Trustee as the absolute owner of such Global Security for all purposes whatsoever. Notwithstanding the foregoing, nothing herein shall prevent the Company, the Trustee or any agent of the Company or the Trustee from giving effect to any written certification, proxy or other authorization furnished by the Depositary or impair, as between the Depositary and its Agent Members, the operation of customary practices of such Depositary governing the exercise of the rights of a holder of a beneficial interest in any Global Security. (c) Definitive Securities. Except as provided in Section 2.3 or 2.4, --------------------- owners of beneficial interests in Global Securities will not be entitled to receive physical delivery of certificated Securities. 2.2 Authentication. The Trustee shall authenticate and make -------------- available for delivery upon a written order of the Company signed by two Officers Securities for original issue on the date hereof in an aggregate principal amount of $300,000,000. Such order shall specify the amount of the Securities to be authenticated and the date on which the original issue of Securities is to be authenticated. 2.3 Transfer and Exchange. (a) Transfer and Exchange of Definitive --------------------- ----------------------------------- Securities. When Definitive Securities are presented to the Security Registrar - ---------- with a request: (x) to register the transfer of such Definitive Securities; or (y) to exchange such Definitive Securities for an equal principal amount of Definitive Securities of other authorized denominations, the Security Registrar shall register the transfer or make the exchange as requested if its reasonable requirements for such transaction are met; provided, -------- however, that the Definitive Securities surrendered for transfer or exchange: - ------- 3 (i) shall be duly endorsed or accompanied by a written instrument of transfer in form reasonably satisfactory to the Company and the Security Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing; and (ii) are accompanied by the following additional information and documents, as applicable: (A) if such Definitive Securities are being delivered to the Security Registrar by a Holder for registration in the name of such Holder, without transfer, a certification from such Holder to that effect (in the form set forth on the reverse side of the Security); or (B) if such Definitive Securities are being transferred to the Company, a certification to that effect (in the form set forth on the reverse side of the Security); or (C) if such Definitive Securities are being transferred pursuant to an exemption from registration in accordance with Rule 144 under the Securities Act or in reliance upon another exemption from the registration requirements of the Securities Act, (i) a certification to that effect (in the form set forth on the reverse side of the Security) and (ii) if the Company so requests, an opinion of counsel or other evidence reasonably satisfactory to it as to the compliance with the restrictions set forth in the legend set forth in Section 2.3(e)(i). (b) Restrictions on Transfer of a Definitive Security for a Beneficial --------------------------- -------------------------------------- Interest in a Global Security. A Definitive Security may not be exchanged for a - ------------- --------------- beneficial interest in a Global Security except upon satisfaction of the requirements set forth below. Upon receipt by the Trustee of a Definitive Security, duly endorsed or accompanied by a written instrument of transfer in form reasonably satisfactory to the Company and the Security Registrar, together with: (i) certification (in the form set forth on the reverse side of the Security) that such Definitive Security is being transferred (A) to a QIB in accordance with Rule 144A, or (B) outside the United States in an offshore transaction within the meaning of Regulation S and in compliance with Rule 904 under the Securities Act; and (ii) written instructions directing the Trustee to make, or to direct the Securities Custodian to make, an adjustment on its books and records with respect to such Global Security to reflect an increase in the aggregate principal amount of the Securities represented by the Global Security, such instructions to contain information regarding the Depositary account to be credited with such increase, then the Trustee shall cancel such Definitive Security and cause, or direct the Securities Custodian to cause, in accordance with the standing instructions and procedures existing between the Depositary and the Securities Custodian, the aggregate principal amount of Securities represented by the Global Security to be increased by the aggregate principal amount of the Definitive Security to be exchanged and shall credit or cause to be credited to the account of the Person specified in such instructions a beneficial interest in the Global Security equal to the 4 principal amount of the Definitive Security so canceled. If no Global Securities are then outstanding and the Global Security has not been previously exchanged for certificated securities pursuant to Section 2.4, the Company shall issue and the Trustee shall authenticate, upon written order of the Company in the form of an Officers' Certificate, a new Global Security in the appropriate principal amount. (c) Transfer and Exchange of Global Securities. (i) The transfer and ------------------------------------------ exchange of Global Securities or beneficial interests therein shall be effected through the Depositary, in accordance with this Indenture (including applicable restrictions on transfer set forth herein, if any) and the procedures of the Depositary therefor. A transferor of a beneficial interest in a Global Security shall deliver a written order given in accordance with the Depositary's procedures containing information regarding the participant account of the Depositary to be credited with a beneficial interest in such Global Security or another Global Security and such account shall be credited in accordance with such order with a beneficial interest in the applicable Global Security and the account of the Person making the transfer shall be debited by an amount equal to the beneficial interest in the Global Security being transferred. Transfers by an owner of a beneficial interest in the Rule 144A Global Security to a transferee who takes delivery of such interest through the Regulation S Global Security, whether before or after the expiration of the Distribution Compliance Period, shall be made only upon receipt by the Trustee of a certification from the transferor to the effect that such transfer is being made in accordance with Regulation S or (if available) Rule 144 under the Securities Act and that, if such transfer is being made prior to the expiration of the Distribution Compliance Period, the interest transferred shall be held immediately thereafter through Euroclear or Cedel. (ii) If the proposed transfer is a transfer of a beneficial interest in one Global Security to a beneficial interest in another Global Security, the Security Registrar shall reflect on its books and records the date and an increase in the principal amount of the Global Security to which such interest is being transferred in an amount equal to the principal amount of the interest to be so transferred, and the Security Registrar shall reflect on its books and records the date and a corresponding decrease in the principal amount of Global Security from which such interest is being transferred. (iii) Notwithstanding any other provisions of this Appendix (other than the provisions set forth in Section 2.4), a Global Security may not be transferred as a whole except by the Depositary to a nominee of the Depositary or by a nominee of the Depositary to the Depositary or another nominee of the Depositary or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. (iv) In the event that a Global Security is exchanged for Definitive Securities pursuant to Section 2.4, such Securities may be exchanged only in accordance with such procedures as are substantially consistent with the provisions of this Section 2.3 (including the certification requirements set forth on the reverse of the Securities intended to ensure that such transfers comply with Rule 144A, Regulation S or such other applicable exemption from registration under the Securities Act, as the case may be) and such other procedures as may from time to time be adopted by the Company. 5 (d) Restrictions on Transfer of Regulation S Global Security. (i) -------------------------------------------------------- Prior to the expiration of the Distribution Compliance Period, interests in the Regulation S Global Security may only be held through Euroclear or Cedel. During the Distribution Compliance Period, beneficial ownership interests in the Regulation S Global Security may only be sold, pledged or transferred through Euroclear or Cedel in accordance with the Applicable Procedures and only (A) to the Company, (B) so long as such security is eligible for resale pursuant to Rule 144A, to a person whom the selling holder reasonably believes is a QIB that purchases for its own account or for the account of a QIB to whom notice is given that the resale, pledge or transfer is being made in reliance on Rule 144A, (C) in an offshore transaction in accordance with Regulation S, (D) pursuant to an exemption from registration under the Securities Act provided by Rule 144 (if applicable) under the Securities Act, or (E) pursuant to an effective registration statement under the Securities Act, in each case in accordance with any applicable securities laws of any state of the United States. Prior to the expiration of the Distribution Compliance Period, transfers by an owner of a beneficial interest in the Regulation S Global Security to a transferee who takes delivery of such interest through the Rule 144A Global Security shall be made only in accordance with Applicable Procedures and upon receipt by the Trustee of a written certification from the transferor of the beneficial interest in the form provided on the reverse of the Security to the effect that such transfer is being made to a person whom the transferor reasonably believes is a QIB within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A. Such written certification shall no longer be required after the expiration of the Distribution Compliance Period. (ii) Upon the expiration of the Distribution Compliance Period, beneficial ownership interests in the Regulation S Global Security shall be transferable in accordance with applicable law and the other terms of this Indenture. (e) Legend. ------ (i) Except as permitted by the following paragraphs (ii) or (iii), each Security certificate evidencing the Global Securities and the Definitive Securities (and all Securities issued in exchange therefor or in substitution thereof) shall bear a legend in substantially the following form (each defined term in the legend being defined as such for purposes of the legend only): "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF 6 THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, OR (E) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL (IN THE CASE OF CLAUSE (E) ONLY), CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. Each Definitive Security shall bear the following additional legend: "IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE SECURITY REGISTRAR AND TRUSTEE SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRUSTEE MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS." (ii) Upon any sale or transfer of a Transfer Restricted Security that is a Definitive Security, the Security Registrar shall permit the Holder thereof to exchange such Transfer Restricted Security for a Definitive Security that does not bear the legends set forth above and rescind any restriction on the transfer of such Transfer Restricted Security if the Holder certifies in writing to the Security Registrar that its request for such exchange was made in reliance on Rule 144 (such certification to be in the form set forth on the reverse of the Security). (iii) Upon the lapsing of the two-year period under Rule 144(k) of a Transfer Restricted Security that is a Definitive Security, the Security Registrar shall permit the Holder thereof to exchange such Transfer Restricted Security for a Definitive Security that does not bear the legends set forth above. 7 (iii) Upon a sale or transfer after the expiration of the Distribution Compliance Period of any Security acquired pursuant to Regulation S, all requirements that such Security bear the Restricted Securities Legend shall cease to apply and the requirements requiring any such Security be issued in global form shall continue to apply. (f) Cancellation or Adjustment of Global Security. At such time as --------------------------------------------- all beneficial interests in a Global Security have either been exchanged for Definitive Securities, transferred, redeemed, repurchased or canceled, such Global Security shall be returned by the Depositary to the Trustee for cancellation or retained and canceled by the Trustee. At any time prior to such cancellation, if any beneficial interest in a Global Security is exchanged for Definitive Securities, transferred in exchange for an interest in another Global Security, redeemed, repurchased or canceled, the principal amount of Securities represented by such Global Security shall be reduced and an adjustment shall be made on the books and records of the Trustee (if it is then the Securities Custodian for such Global Security) with respect to such Global Security, by the Trustee or the Securities Custodian, to reflect such reduction. (g) Obligations with Respect to Transfers and Exchanges of ------------------------------------------------------ Securities. ---------- (i) To permit registrations of transfers and exchanges, the Company shall execute and the Trustee shall authenticate, Definitive Securities and Global Securities at the Security Registrar's request. (ii) No service charge shall be made for any registration of transfer or exchange, but the Company may require payment of a sum sufficient to cover any transfer tax, assessments, or similar governmental charge payable in connection therewith (other than any such transfer taxes, assessments or similar governmental charge payable upon exchanges pursuant to Sections 3.4, 9.5 or 11.7 of this Indenture not involving any transfer). (iii) Prior to the due presentation for registration of transfer of any Security, the Company, the Trustee, the Authenticating Agent, the Paying Agent or the Security Registrar may deem and treat the person in whose name a Security is registered as the absolute owner of such Security for the purpose of receiving payment of principal of and interest on such Security and for all other purposes whatsoever, whether or not such Security is overdue, and none of the Company, the Trustee, the Authenticating Agent, the Paying Agent or the Security Registrar shall be affected by notice to the contrary. (iv) All Securities issued upon any transfer or exchange pursuant to the terms of this Indenture shall evidence the same debt and shall be entitled to the same benefits under this Indenture as the Securities surrendered upon such transfer or exchange. (h) No Obligation of the Trustee. ---------------------------- (i) The Trustee shall have no responsibility or obligation to any beneficial owner of a Global Security, a member of, or a participant in the Depositary or any other Person with respect to the accuracy of the records of the Depositary or its nominee or of any participant or member thereof, with respect to any ownership interest in the Securities or with respect to the delivery to any participant, member, beneficial owner or 8 other Person (other than the Depositary) of any notice (including any notice of redemption or repurchase) or the payment of any amount, under or with respect to such Securities. All notices and communications to be given to the Holders and all payments to be made to Holders under the Securities shall be given or made only to the registered Holders (which shall be the Depositary or its nominee in the case of a Global Security). The rights of beneficial owners in any Global Security shall be exercised only through the Depositary subject to the applicable rules and procedures of the Depositary. The Trustee may rely and shall be fully protected in relying upon information furnished by the Depositary with respect to its members, participants and any beneficial owners. (ii) The Trustee shall have no obligation or duty to monitor, determine or inquire as to compliance with any restrictions on transfer imposed under this Indenture or under applicable law with respect to any transfer of any interest in any Security (including any transfers between or among Depositary participants, members or beneficial owners in any Global Security) other than to require delivery of such certificates and other documentation or evidence as are expressly required by, and to do so if and when expressly required by, the terms of this Indenture, and to examine the same to determine substantial compliance as to form with the express requirements hereof. 2.4 Definitive Securities --------------------- (a) A Global Security deposited with the Depositary or with the Trustee as Securities Custodian pursuant to Section 2.1 shall be transferred to the beneficial owners thereof in the form of Definitive Securities in an aggregate principal amount equal to the principal amount of such Global Security, in exchange for such Global Security, only if such transfer complies with Section 2.3 and (i) the Depositary notifies the Company that it is unwilling or unable to continue as a Depositary for such Global Security or if at any time the Depositary ceases to be a "clearing agency" registered under the Exchange Act, and a successor depositary is not appointed by the Company within 90 days of such notice, or (ii) an Event of Default has occurred and is continuing or (iii) the Company, in its sole discretion, notifies the Trustee in writing that it elects to cause the issuance of certificated Securities under this Indenture. (b) Any Global Security that is transferable to the beneficial owners thereof pursuant to this Section 2.4 shall be surrendered by the Depositary to the Trustee, to be so transferred, in whole or from time to time in part, without charge, and the Trustee shall authenticate and deliver, upon such transfer of each portion of such Global Security, an equal aggregate principal amount of Definitive Securities of authorized denominations. Any portion of a Global Security transferred pursuant to this Section shall be executed, authenticated and delivered only in denominations of $1,000 and any integral multiple thereof and registered in such names as the Depositary shall direct. Any certificated Security in the form of a Definitive Security delivered in exchange for an interest in the Global Security shall, except as otherwise provided by Section 2.3(e), bear the Restricted Securities Legend. (c) Subject to the provisions of Section 2.4(b), the registered Holder of a Global Security may grant proxies and otherwise authorize any Person, including Agent 9 Members and Persons that may hold interests through Agent Members, to take any action which a Holder is entitled to take under this Indenture or the Securities. (d) In the event of the occurrence of any of the events specified in Section 2.4(a)(i), (ii) or (iii), the Company will promptly make available to the Trustee a reasonable supply of Definitive Securities in fully registered form without interest coupons. 10 EXHIBIT C [FORM OF FACE OF INITIAL SECURITY] [Global Securities Legend] UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN. TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE INDENTURE REFERRED TO ON THE REVERSE HEREOF. [Restricted Securities Legend] "THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE "RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY Appendix A-1 BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, OR (E) PURSUANT TO ANY OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D) OR (E) TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL (IN THE CASE OF CLAUSE (E) ONLY), CERTIFICATION AND/OR OTHER INFORMATION SATISFACTORY TO EACH OF THEM. THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE. Each definitive Security shall bear the following additional legend: "IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE SECURITY REGISTRAR AND TRUSTEE SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRUSTEE MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS." Appendix A-1 EXHIBIT A REFERENCE SWAP TRANSACTION [Reference swap documentation to be attached.] Exhibit A-1 EXHIBIT B FORM OF FACE OF NOTE No. $__________ SUBORDINATED NOTE DUE 2009 CUSIP No. _____ ACE INA Holdings Inc., a Delaware corporation (hereinafter called the "Company", which term includes any successor under the Indenture referred to below), for value received, promises to pay to ___________ or registered assigns, the principal sum of _______________ Dollars [listed on the Schedule of Increases or Decreases in Global Security attached hereto]/1/ on December 6, 2009, and to pay interest on the principal amount of this Note semiannually on June 6 and December 6 of each year (each, an "Interest Payment Date"), commencing June 6, 2000, and at the Stated Maturity, at the rate of 11.20% per annum, until the principal hereof is paid or duly made available for payment. Interest on the Notes shall accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date hereof. Interest shall be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal and overdue Additional Amounts at the rate borne by the Notes plus 1% per annum, and it shall pay interest on overdue installments of interest ("Additional Interest") at the same rate to the extent lawful. The interest on and any Additional Amounts with respect to the Notes payable and punctually paid or duly provided for on any Interest Payment Date (other than Defaulted Interest) will, as provided in the Indenture referred to below, be paid to the Person in whose name this Note (or one or more Predecessor Securities) is registered at the close of business on the Regular Record Date for such interest, which shall be the 15th calendar day immediately preceding the applicable Interest Payment Date (each, a "Regular Record Date"). Any such interest which is payable, but is not punctually paid or duly provided for, on any Interest Payment Date shall forthwith cease to be payable to the registered Holder hereof on the relevant Regular Record Date by virtue of having been such holder, and may be paid, at the election of the Company, (i) to the Person in whose name this Note (or one or more Predecessor Securities) is registered at the close of business on a Special Record Date for the Payment of such Defaulted Interest to be fixed by the Company, notice whereof shall be given to ___________________ /1/ Use the Schedule of Increases and Decreases language if Security is in Global Form. the Holder of this Note by the Trustee not less than 10 days prior to such Special Record Date or (ii) in any other lawful manner elected by the Company and deemed practicable by the Trustee. Holders must surrender Notes to a Paying Agent to collect principal payments. The Company shall pay principal, premium, interest and Additional Amounts in Dollars. Payments in respect of the Notes represented by a Global Security (including principal, premium, interest and Additional Amounts, if any) shall be made by wire transfer of immediately available funds to the accounts specified by The Depository Trust Company. The Company will make all payments of interest in respect of a certificated Note by mailing a check to the registered address of each Holder thereof; provided, however, that payments on -------- ------- the Notes may also be made, in the case of a Holder of at least $5,000,000 aggregate principal amount of Notes, by wire transfer to a United States Dollar account maintained by the payee with a bank in the United States if such Holder elects payment by wire transfer by giving written notice to the Trustee or the Paying Agent to such effect designating such account no later than 30 days immediately preceding the relevant due date for payment (or such other date as the Trustee may accept in its discretion). Additional provisions of this Note are set forth on the reverse of this Note, which provisions shall for all purposes have the same effect as if set forth at this place. B-3 IN WITNESS WHEREOF, the parties have caused this instrument to be duly executed. ACE INA HOLDINGS INC., By:__________________________________ Name: Title: By:__________________________________ Name: Title: Dated: TRUSTEE'S CERTIFICATE OF AUTHENTICATION BANK ONE TRUST COMPANY, NA as Trustee, certifies that this is one of the Notes of the series designated therein referred to in the within-mentioned Indenture. By:___________________________ Authorized Signatory B-4 FORM OF REVERSE SIDE OF NOTE SUBORDINATED NOTE DUE 2009 1. Indenture --------- This Note is one of a duly authorized issue of Securities of the Company (herein called the Notes") issued under an Indenture dated as of November 30, 1999 among the Company and Bank One Trust Company, NA (herein called the "Trustee", which term includes any successor trustee under the Indenture), as supplemented by the Supplemental Indenture No. 1 dated December 6, 1999 among the Company and the Trustee (together, the "Indenture"). The terms of the Notes include those stated in the Indenture. Terms defined in the Indenture and not defined herein have the meanings ascribed thereto in the Indenture. The Notes are subject to all terms and provisions of the Indenture, and Holders are referred to the Indenture for a statement of such terms and provisions. The Notes are unsecured subordinated obligations of the Company limited to $300,000,000 aggregate principal amount at any one time outstanding. The Indenture imposes certain limitations on the ability of the Company to consolidate or merge with or into any other Person or convey, transfer or lease all or substantially all of the property of the Company. 2. Authenticating Agent, Paying Agent and Security Registrar --------------------------------------------------------- Initially, Bank One Trust Company, NA (herein called the "Trustee", which term includes any successor trustee under the Indenture), will act as Authenticating Agent, Paying Agent and Security Registrar. 3. Optional Redemption ------------------- The Notes shall be redeemable at the option of the Company, at any time and from time to time, in whole or in part, at the following base redemption prices (expressed as percentages of principal amount) (the "Base Redemption Price"), plus accrued and unpaid interest (if any) to the redemption date (subject to the right of holders of record on the relevant record date to receive interest due on the relevant interest payment date), plus the Reference Swap Transaction Value allocable to such Notes (collectively, the "Redemption Price"), if redeemed during the 12-month period commencing on December 6 of the years set forth below: Base Year Redemption Price -------------------------------------------------------------------- 1999 108.76% 2000 108.14% 2001 107.51% B-5 2002 106.84% 2003 106.10% 2004 105.28% 2005 104.39% 2006 103.42% 2007 102.37% 2008 101.23% 4. Sinking Fund ------------ The Notes are not subject to any sinking fund. 5. Notice of Redemption -------------------- Notice of redemption will be mailed by first-class mail at least 30 days but not more than 60 days before the redemption date to each Holder to be redeemed at his or her registered address. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000. If money sufficient to pay the Redemption Price of, any accrued interest on and Additional Amounts with respect to all Notes (or portions thereof) to be redeemed on the redemption date is deposited with the Trustee or Paying Agent on or before the redemption date and certain other conditions are satisfied, on and after such date interest ceases to accrue on such Notes (or such portions thereof) called for redemption. 6. Subordination ------------- The Notes are subordinated to Company Senior Indebtedness, as defined in the Indenture. To the extent provided in the Indenture, Company Senior Indebtedness must be paid before the Notes may be paid. The Company agrees, and each Holder by accepting a Note agrees, to the subordination provisions contained in the Indenture and authorizes the Trustee to give it effect and appoints the Trustee as attorney-in-fact for such purpose 7. Denominations; Transfer; Exchange --------------------------------- The Notes are Registered Securities without coupons in denominations of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange Notes in accordance with the Indenture. Upon any transfer or exchange, the Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements or transfer documents and to pay any taxes required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Notes selected for redemption (except, in the case of a Note to be redeemed in part, the portion of the Note not to be redeemed) or to transfer or exchange any Notes for a period of 15 days prior to a selection of Notes to be redeemed. 8. Persons Deemed Owners --------------------- The registered Holder of this Note may be treated as the owner of it for all purposes. B-6 9. Unclaimed Money --------------- If money for the payment of principal or interest remains unclaimed for two years, the Trustee or Paying Agent shall pay the money back to the Company at its written request unless an abandoned property law designates another Person. After any such payment, Holders entitled to the money must look only to the Company and not to the Trustee for payment. 10. Discharge and Defeasance ------------------------ Subject to certain conditions, the Company at any time may terminate all its obligations under the Notes and the Indenture if the Company deposits with the Trustee money or Government Obligations for the payment of principal, premium (if any), interest and Additional Amounts (if any) on the Notes to redemption or maturity, as the case may be. 11. Amendment, Waiver ----------------- Subject to certain exceptions set forth in the Indenture, (i) the Indenture or the Notes may be amended without prior notice to any Holder but with the written consent of the Holders of at least a majority in aggregate principal amount of the outstanding Notes and (ii) any default or noncompliance with any provision may be waived with the written consent of the Holders of at least a majority in principal amount of the outstanding Notes. Subject to certain exceptions set forth in the Indenture, without the consent of any Holders, the Company and the Trustee may amend the Indenture or the Notes (i) evidence the succession of another Person to the Company, (ii) to add covenants or to surrender any right or power conferred on the Company, (iii) to provide for the acceptance of appointment by a successor Trustee, (iv) to cure any ambiguity, defect or inconsistency, (v) to add additional Events of Default, (vi) to supplement provisions to permit or facilitate the defeasance and discharge of the Notes in a manner that is not adverse to the interest of the Holders, (vii) to secure the Notes, (viii) to make provisions for conversion or exchange rights of the Holders, or (ix) to make any change that does not adversely affect the rights of any Holder. 12. Defaults and Remedies --------------------- If an Event of Default occurs (other than an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of the Company) and is continuing, the Trustee or the Holders of at least 25% in principal amount of the outstanding Notes may declare the principal of and accrued but unpaid interest on all the Notes to be due and payable. If an Event of Default relating to certain events of bankruptcy, insolvency or reorganization of the Company occurs, the principal of and interest on all the Notes shall become immediately due and payable without any declaration or other act on the part of the Trustee or any Holders. Under certain circumstances, the Holders of a majority in principal amount of the outstanding Notes may rescind any such acceleration with respect to the Notes and its consequences. If an Event of Default occurs and is continuing, the Trustee shall be under no obligation to exercise any of the rights or powers under the Indenture at the request or direction of any of the Holders unless such Holders have offered to the Trustee reasonable indemnity or B-7 security against any loss, liability or expense. Except to enforce the right to receive payment of principal, premium (if any), interest or Additional Amounts (if any) when due, no Holder may pursue any remedy with respect to the Indenture or the Notes unless (i) such Holder has previously given the Trustee notice that an Event of Default is continuing, (ii) Holders of at least 25% in principal amount of the outstanding Notes have requested the Trustee in writing to pursue the remedy, (iii) such Holders have offered the Trustee such indemnity as is reasonably satisfactory to it against any costs, expenses and liabilities, (iv) the Trustee has not complied with such request within 60 days after the receipt of the notice, request and offer of indemnity and (v) the Holders of a majority in principal amount of the outstanding Notes have not given the Trustee a direction inconsistent with such request within such 60-day period. Subject to certain restrictions, the Holders of a majority in principal amount of the outstanding Notes are given the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or of exercising any trust or power conferred on the Trustee. The Trustee, however, may refuse to follow any direction that conflicts with law or the Indenture or that the Trustee determines is unduly prejudicial to the rights of any other Holder or that would involve the Trustee in personal liability. In addition, the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. Prior to taking any action under the Indenture, the Trustee shall be entitled to such security or indemnity as is reasonably satisfactory to it against any costs, expenses and liabilities caused by taking or not taking such action. 13. Trustee, Authenticating Agent, Paying Agent and Security Registrar Dealings --------------------------------------------------------------------------- with the Company - ---------------- The Trustee, any Authenticating Agent, any Paying Agent, any Security Registrar or any other Person that may be an agent of the Trustee of the Company, in its individual or any other capacity, may become the owner or pledgee of Notes and may otherwise deal with the Company with the same rights it would have if it were not Trustee, Authenticating Agent, Paying Agent, Security Registrar or an agent of the Company. 14. No Recourse Against Others -------------------------- Any incorporator, shareholder, officer or director, as such, of the Company shall not have any liability for any obligation, covenant or agreement of the Company under the Notes or the Indenture or for any claim based thereon or otherwise in respect thereof. By accepting a Note, each Holder waives and releases all such liability. The waiver and release are part of the consideration for the issue of the Notes. 15. Authentication -------------- This Note shall not be valid until an authorized signatory of the Trustee (or an Authenticating Agent) manually signs the certificate of authentication on the other side of this Note. 16. Abbreviations ------------- B-8 Customary abbreviations may be used in the name of a Holder or an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors Act). 17. Governing Law THIS NOTE AND THE INDENTURE SHALL BE GOVERNED BY AND ------------- CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE OR INSTRUMENTS ENTERED INTO AND, IN EACH CASE, PERFORMED IN SAID STATE. The Company will furnish to any Holder upon written request and without charge to the Holder a copy of the Indenture which has in it the text of this Note. B-9 ASSIGNMENT FORM To assign this Note, fill in the form below: I or we assign and transfer this Note to (Print or type assignee's name, address and zip code) (Insert assignee's soc. sec. or tax I.D. No.) and irrevocably appoint agent to transfer this Note on the books of the Company. The agent may substitute another to act for him. __________________________________________________________________ Date: _________________ Your Signature: _________________________ __________________________________________________________________ Sign exactly as your name appears on the other side of this Note. B-10 CERTIFICATE TO BE DELIVERED UPON EXCHANGE OR REGISTRATION OF TRANSFER RESTRICTED SECURITIES This certificate relates to $__________ principal amount of Notes held in (check applicable space) ____ book-entry or _____ definitive form by the undersigned. The undersigned (check one box below): [_] has requested the Trustee by written order to deliver in exchange for its beneficial interest in the Global Security held by the Depositary a Note or Notes in definitive, registered form of authorized denominations and an aggregate principal amount equal to its beneficial interest in such Global Security (or the portion thereof indicated above); [_] has requested the Trustee by written order to exchange or register the transfer of a Note or Notes. In connection with any transfer of any of the Notes evidenced by this certificate occurring prior to the expiration of the period referred to in Rule 144(k) under the Securities Act, the undersigned confirms that such Notes are being transferred in accordance with its terms: CHECK ONE BOX BELOW (1) [_] to the Company; or (2) [_] pursuant to an effective registration statement under the Securities Act of 1933; or (3) [_] inside the United States to a "qualified institutional buyer" (as defined in Rule 144A under the Securities Act of 1933) that purchases for its own account or for the account of a qualified institutional buyer to whom notice is given that such transfer is being made in reliance on Rule 144A, in each case pursuant to and in compliance with Rule 144A under the Securities Act of 1933; or (4) [_] outside the United States in an offshore transaction within the meaning of Regulation S under the Securities Act in compliance with Rule 904 under the Securities Act of 1933; or (5) [_] pursuant to another available exemption from registration provided by Rule 144 under the Securities Act of 1933. B-11 Unless one of the boxes is checked, the Trustee will refuse to register any of the Notes evidenced by this certificate in the name of any Person other than the registered holder thereof; provided, however, that if box (4) or (5) is checked, the Trustee may require, prior to registering any such transfer of the Notes, such legal opinions (in the case of box (5) only), certifications and other information as the Company has reasonably requested to confirm that such transfer is being made pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act of 1933. _____________________________________ Your Signature Signature Guarantee: Date:________________________ _____________________________________ Signature must be guaranteed Signature of Signature Guarantee by a participant in a recognized signature guaranty medallion program or other signature guarantor acceptable to the Trustee TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED. The undersigned represents and warrants that it is purchasing this Note for its own account or an account with respect to which it exercises sole investment discretion and that it and any such account is a "qualified institutional buyer" within the meaning of Rule 144A under the Securities Act of 1933, and is aware that the sale to it is being made in reliance on Rule 144A and acknowledges that it has received such information regarding the Company as the undersigned has requested pursuant to Rule 144A or has determined not to request such information and that it is aware that the transferor is relying upon the undersigned's foregoing representations in order to claim the exemption from registration provided by Rule 144A. Date:_____________________ _____________________________ NOTICE: To be executed by an executive B-12 [TO BE ATTACHED TO GLOBAL SECURITIES] SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY The initial principal amount of this Global Security is $______. The following increases or decreases in this Global Security have been made: Amount of decrease Amount of increase Principal amount Signature of in Principal in Principal of this Global authorized Amount of this Amount of this Security following signatory of Global Security Global Security such decrease or Trustee Date of Exchange increase
B-13 EX-10.40 5 AMENDED & RESTATED TRUST AGREEMENT DATED 12/20 1999 Exhibit 10.40 - -------------------------------------------------------------------------------- ACE CAPITAL TRUST I AMENDED AND RESTATED TRUST AGREEMENT AMONG ACE INA HOLDINGS INC., AS DEPOSITOR BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, AS PROPERTY TRUSTEE BANK ONE DELAWARE, INC., AS DELAWARE TRUSTEE AND THE ADMINISTRATIVE TRUSTEES NAMED HEREIN DATED AS OF DECEMBER 20, 1999 - -------------------------------------------------------------------------------- 1 ACE Capital Trust I Certain Sections of this Trust Agreement relating to Sections 310 through 318 of the Trust Indenture Act of 1939:
Trust Trust Indenture Agreement Act Section Section - ----------- ------- (S)310(a)(1) 8.7 (a)(2) 8.7 (a)(3) 8.9 (a)(4) 2.7(a)(ii) (b) 8.8 (S)311(a) 8.13 (b) 8.13 (S)312(a) 5.7 (b) 5.7 (c) 5.7 (S)313(a) 8.14(a) (a)(4) 8.14(b) (b) 8.14(b) (c) 10.8 (d) 8.14(c) (S)314(a) 8.15 (b) Not Applicable (c)(1) 8.16 (c)(2) 8.16 (c)(3) Not Applicable (d) Not Applicable (e) 1.1, 8.16 (S)315(a) 8.1(a), 8.3(a) (b) 8.2, 10.8 (c) 8.1(a) (d) 8.1, 8.3 (e) Not Applicable (S)316(a) Not Applicable (a)(1)(A) Not Applicable (a)(1)(B) Not Applicable (a)(2) Not Applicable (b) Not Applicable (c) 6.7 (S)317(a)(1) Not Applicable (a)(2) Not Applicable (b) 5.9
2 (S)318(a) 10.10
- ------------------ Note: This reconciliation and tie sheet shall not, for any purpose be deemed to be a part of the Trust Agreement. 3 Table of Contents
Page ---- ARTICLE I. DEFINED TERMS Section 1.1 Definitions 2 ARTICLE II. ESTABLISHMENT OF THE TRUST Section 2.1 Name 10 Section 2.2 Office of the Delaware Trustee; Principal Place of Business 10 Section 2.3 Initial Contribution of Trust Property; Organizational Expenses 10 Section 2.4 Issuance of the Preferred Securities 10 Section 2.5 Issuance of the Common Securities; Subscription and Purchase of Debentures 11 Section 2.6 Declaration of Trust 11 Section 2.7 Authorization to enter into Certain Transactions 12 Section 2.8 Assets of Trust 15 Section 2.9 Title to Trust Property 15 ARTICLE III. PAYMENT ACCOUNT Section 3.1 Payment Account 15 ARTICLE IV. CERTAIN TERMS OF THE TRUST SECURITIES Section 4.1 Distributions 16 Section 4.2 Redemption 17 Section 4.3 Subordination of Common Securities 19 Section 4.4 Payment Procedures 20 Section 4.5 Tax Returns and Reports 20 Section 4.6 Payment of Taxes, Duties, etc. of the Trust 21 Section 4.7 Payments under Indenture 21 ARTICLE V. TRUST SECURITIES CERTIFICATES Section 5.1 Initial Ownership 21 Section 5.2 The Trust Securities Certificates 21 Section 5.3 Execution and Delivery of Trust Securities Certificates 21 Section 5.4 Registration of Transfer and Exchange of Preferred Securities Certificates 22
4 Section 5.5 Mutilated, Destroyed, Lost or Stolen Trust Securities Certificates 22 Section 5.6 Persons Deemed Securityholders 23 Section 5.7 Access to List of Securityholders' Names and Addresses 23 Section 5.8 Maintenance of Office or Agency 23 Section 5.9 Appointment of Paying Agent 24 Section 5.10 Ownership of Common Securities by Depositor 24 Section 5.11 Book-Entry Preferred Securities Certificates; Common Securities Certificate 25 Section 5.12 Notices to Clearing Agency 26 Section 5.13 Definitive Preferred Securities Certificates 26 Section 5.14 Rights of Securityholders 26 ARTICLE VI. ACTS OF SECURITYHOLDERS; MEETINGS; VOTING Section 6.1 Limitations on Voting Rights 29 Section 6.2 Notice of Meetings 30 Section 6.3 Meetings of Preferred Securityholders 30 Section 6.4 Voting Rights 30 Section 6.5 Proxies, etc. 31 Section 6.6 Securityholder Action by Written Consent 31 Section 6.7 Record Date for Voting and Other Purposes 31 Section 6.8 Acts of Securityholders 31 Section 6.9 Inspection of Records 32 ARTICLE VII. REPRESENTATIONS AND WARRANTIES Section 7.1 Representations and Warranties of the Property Trustee and the Delaware Trustee 32 Section 7.2 Representations and Warranties of Depositor 34 ARTICLE VIII. THE TRUSTEES Section 8.1 Certain Duties and Responsibilities 34 Section 8.2 Certain Notices 35 Section 8.3 Certain Rights of Property Trustee 35 Section 8.4 Not Responsible for Recitals or Issuance of Securities 37 Section 8.5 May hold Securities 37 Section 8.6 Compensation; Indemnity; Fees 38 Section 8.7 Corporate Property Trustee Required; Eligibility of Trustees 38 Section 8.8 Conflicting Interests 39 Section 8.9 Co-Trustees and Separate Trustee 39 Section 8.10 Resignation and Removal; Appointment of Successor 40 Section 8.11 Acceptance of Appointment by Successor 42 Section 8.12 Merger, Conversion, Consolidation or Succession to Business 43
5 Section 8.13 Preferential Collection of Claims Against Depositor, Debenture Issuer or Trust 43 Section 8.14 Reports by Property Trustee 43 Section 8.15 Reports to the Property Trustee 44 Section 8.16 Evidence of Compliance with Conditions Precedent 44 Section 8.17 Number of Trustees 44 Section 8.18 Delegation of Power 44
6 ARTICLE IX. DISSOLUTION, LIQUIDATION, TERMINATION AND MERGER Section 9.1 Dissolution upon Expiration Date 45 Section 9.2 Early Dissolution 45 Section 9.3 Termination 45 Section 9.4 Liquidation 46 Section 9.5 Mergers, Consolidations, Amalgamations or Replacements of the Trust 47 ARTICLE X. MISCELLANEOUS PROVISIONS Section 10.1 Limitation of Rights of Securityholders 48 Section 10.2 Amendment 48 Section 10.3 Separability 49 Section 10.4 Governing Law 49 Section 10.5 Payments due on Non-Business Day 50 Section 10.6 Successors 50 Section 10.7 Headings 50 Section 10.8 Reports, Notices and Demands 50 Section 10.9 Agreement not to Petition 51 Section 10.10 Trust Indenture Act; Conflict with Trust Indenture Act 51 Section 10.11 Acceptance of Terms of Trust Agreement, Guarantee and Indenture 52
Exhibit A-1 Certificate of Trust of ACE Capital Trust I Exhibit A-2 Assignment and Assumption Agreement and First Amendment to the Trust Agreement of ACE Capital Trust I Exhibit B Form of Certificate Depository Agreement Pertaining to the Trust Originated Preferred Securities Exhibit C Form of Common Security Certificate Exhibit D Form of Agreement as to Expenses and Liabilities Exhibit E Form of Preferred Security Certificate 7 AMENDED AND RESTATED TRUST AGREEMENT, dated as of December 20, 1999, among (i) ACE INA HOLDINGS INC., a corporation duly organized and existing under the laws of the State of Delaware (including any successors or assigns, the "Depositor"), (ii) BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, previously known as The First National Bank of Chicago, a national banking association duly organized and existing under the laws of the United States, as property trustee (the "Property Trustee" and, in its individual capacity and not in its capacity as Property Trustee, the "Bank"), (iii) BANK ONE DELAWARE, INC., a Delaware corporation, as Delaware trustee (in such capacity, the "Delaware Trustee,"), (iv) Robert A. Blee, an individual, and Christopher Z. Marshall, an individual, each of whose address is c/o ACE Limited, The ACE Building, 30 Woodbourne Avenue, Hamilton, HM08, Bermuda (each an "Administrative Trustee" and collectively, the "Administrative Trustees") (the Property Trustee, the Delaware Trustee and the Administrative Trustees are referred to collectively as the "Trustees") and (v) the several Holders, as hereinafter defined. WITNESSETH WHEREAS, ACE Limited, as original sponsor of the Trust (the "Original Depositor") and certain of the Trustees (the "Original Trustees") have heretofore duly declared and established a business trust pursuant to the Delaware Business Trust Act by the entering into of that certain Trust Agreement, dated as of May 19, 1999 (the "Initial Trust Agreement"), and by the execution by the Original Trustees and filing with the Secretary of State of the State of Delaware of the Certificate of Trust, filed on May 19, 1999 (the "Certificate of Trust"), attached as Exhibit A-1; WHEREAS, the Original Depositor has assigned to the Depositor, and the Depositor has assumed, all of the Original Depositor's right, title and interest in and to, and its obligations as Trust sponsor under, the Initial Trust Agreement, pursuant to the Assignment and Assumption Agreement and First Amendment to the Trust Agreement of ACE Capital Trust I, dated as of August 5, 1999 (the "Amendment"), among the Original Depositor, the Depositor and the Original Trustees (the Initial Trust Agreement as amended by the Amendment being hereinafter referred to as the "Original Trust Agreement"), attached as Exhibit A-2; and WHEREAS, the Depositor (as successor Trust sponsor) and the Trustees desire to amend and restate the Original Trust Agreement in its entirety as set forth herein to provide for, among other things, (i) the issuance of the Common Securities by the Trust to the Depositor, (ii) the issuance and sale of the Preferred Securities by the Trust pursuant to the Underwriting Agreement, (iii) the acquisition by the Trust from the Debenture Issuer (as hereinafter defined) of all of the right, title and interest in the Debentures and (iv) the appointment of an additional Administrative Trustee; NOW THEREFORE, in consideration of the agreements and obligations set forth herein and for other good and valuable consideration, the sufficiency of which is hereby acknowledged, each party, for the benefit of the other parties and for the benefit of the Securityholders, hereby amends and restates the Original Trust Agreement in its entirety and 8 agrees as follows: ARTICLE I. DEFINED TERMS Section 1.1 Definitions. For all purposes of this Trust Agreement, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Article have the meanings assigned to them in this Article and include the plural as well as the singular; (b) all other terms used herein that are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (c) unless the context otherwise requires, any reference to an "Article" or a "Section" refers to an Article or a Section, as the case may be, of this Trust Agreement; and (d) the words "herein," "hereof" and "hereunder" and other words of similar import refer to this Trust Agreement as a whole and not to any particular Article, Section or other subdivision. "Act" has the meaning specified in Section 6.8. "Additional Amounts" means, with respect to Trust Securities of a given Liquidation Amount, for a given period, the amount of any Additional Interest and any Additional Amounts (as defined in the Indenture) paid by the Debenture Issuer or the Debenture Guarantor on a Like Amount of Debentures for such period. "Additional Interest" has the meaning specified in Section 1.1 of the Indenture. "Additional Sums" has the meaning specified in Section 10.9 of the Indenture. "Administrative Trustee" means each of Robert A. Blee and Christopher Z. Marshall, solely in such Person's capacity as Administrative Trustee of the Trust and not in such Person's individual capacity, or such Administrative Trustee's successor in interest in such capacity, or any successor trustee appointed as herein provided. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Bank" has the meaning specified in the preamble to this Trust Agreement. 9 "Bankruptcy Event" means, with respect to any Person: (a) the entry of a decree or order by a court having jurisdiction in the premises judging such Person a bankrupt or insolvent, or approving as properly filed a petition seeking reorganization, arrangement, adjudication or composition of or in respect of such Person under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law, or appointing a receiver, liquidator, assignee, trustee, sequestrator (or other similar official) of such Person or of any substantial part of its property or ordering the winding up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; or (b) the institution by such Person of proceedings to be adjudicated a bankrupt or insolvent, or the consent by it to the institution of bankruptcy or insolvency proceedings against it, or the filing by it of a petition or answer or consent seeking reorganization or relief under any applicable Federal or State bankruptcy, insolvency, reorganization or other similar law, or the consent by it to the filing of any such petition or to the appointment of a receiver, liquidator, assignee, trustee, sequestrator (or similar official) of such Person or of any substantial part of its property, or the making by it of an assignment for the benefit of creditors, or the admission by it in writing of its inability to pay its debts generally as they become due and its willingness to be adjudicated a bankrupt, or the taking of corporate action by such Person in furtherance of any such action. "Bankruptcy Law" has the meaning specified in Section 10.9. "Board Resolution" means a copy of a resolution, certified by the Secretary or an Assistant Secretary of the Depositor to have been duly adopted by the Depositor's Board of Directors, or such committee of the Board of Directors or officers of the Depositor to which authority to act on behalf of the Board of Directors has been delegated, and to be in full force and effect on the date of such certification, delivered to the appropriate Trustee or Trustees. "Book-Entry Preferred Securities Certificates" means a beneficial interest in the Preferred Securities Certificates, ownership and transfers of which shall be made through book entries by a Clearing Agency as described in Section 5.11. "Business Day" means a day other than (a) a Saturday or Sunday, (b) a day on which banking institutions in The City of New York are authorized or required by law or executive order to remain closed, or (c) a day on which the Property Trustee's Corporate Trust Office or the Corporate Trust Office of the Debenture Trustee is closed for business. "Certificate Depository Agreement" means the agreement among the Trust, the Depositor and DTC, as the initial Clearing Agency, dated as of the Closing Date, relating to the Trust Securities Certificates, substantially in the form attached as Exhibit B, as the same may be amended and supplemented from time to time. "Certificate of Trust" has the meaning specified in the recitals to this Trust Agreement. "Clearing Agency" means an organization registered as a "clearing agency" pursuant to Section 17A of the Securities Exchange Act of 1934, as amended. DTC will be the initial Clearing Agency. 10 "Clearing Agency Participant" means a broker, dealer, bank, other financial institution or other Person for whom from time to time a Clearing Agency effects book-entry transfers and pledges of securities deposited with the Clearing Agency. "Closing Time" has the meaning specified in the Underwriting Agreement, which date is also the date of execution and delivery of this Trust Agreement. "Code" means the Internal Revenue Code of 1986, as amended. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, as amended, or, if at any time after the execution of this instrument such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Security" means an undivided beneficial interest in the assets of the Trust, having a Liquidation Amount of $25 and having the rights provided therefor in this Trust Agreement, including the right to receive Distributions and a Liquidation Distribution as provided herein. "Common Securities Certificate" means a certificate evidencing ownership of Common Securities, substantially in the form attached as Exhibit C. "Corporate Trust Office" means the principal office of the Property Trustee located in Chicago, Illinois. "Date of Delivery" has the meaning specified in the Underwriting Agreement. "Debenture Event of Default" means an "Event of Default" as defined in the Indenture. "Debenture Guarantor" means ACE Limited, a Cayman Islands company, in its capacity as guarantor under the Indenture, and its successors. "Debenture Issuer" means ACE INA Holdings Inc., a Delaware corporation, in its capacity as the issuer of the Debentures under the Indenture, and its successors. "Debenture Redemption Date" means, with respect to any Debentures to be redeemed under the Indenture, the date fixed for redemption under the Indenture. "Debenture Trustee" means the Bank, in its capacity as trustee under the Indenture, or any successor trustee appointed as therein provided. "Debentures" means the aggregate principal amount of the Debenture Issuer's 8.875% Junior Subordinated Deferrable Interest Debentures due 2029, issued pursuant to the Indenture. "Definitive Preferred Securities Certificates" means either or both (as the context requires) of (a) Preferred Securities Certificates issued as Book-Entry Preferred Securities 11 Certificates as provided in Section 5.11(a) and (b) Preferred Securities Certificates issued in certificated, fully registered form as provided in Section 5.13. "Delaware Business Trust Act" means Chapter 38 of Title 12 of the Delaware Code, 12 Del. C. Section 3801, et seq., as it may be amended from time to time. "Delaware Trustee" means the corporation identified as the "Delaware Trustee" in the first paragraph of this Trust Agreement solely in its capacity as Delaware Trustee of the Trust and not in its individual capacity, or its successor in interest in such capacity, or any successor trustee appointed as herein provided. "Depositor" has the meaning specified in the preamble to this Trust Agreement. "Direct Action" has the meaning specified in Section 5.14(c). "Distribution Date" has the meaning specified in Section 4.1(a). "Distributions" means amounts payable in respect of the Trust Securities as provided in Section 4.1. "DTC" means The Depository Trust Company. "Early Termination Event" has the meaning specified in Section 9.2. "Event of Default" means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body): (a) the occurrence of a Debenture Event of Default; or (b) default by the Property Trustee in the payment of any Distribution when it becomes due and payable, and continuation of such default for a period of 30 days; or (c) default by the Property Trustee in the payment of any Redemption Price of any Trust Security when it becomes due and payable; or (d) default in the performance, or breach, in any material respect, of any covenant or warranty of the Trustees in this Trust Agreement (other than a covenant or warranty a default in the performance or breach of which is dealt with in clause (b) or (c) above) and continuation of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the defaulting Trustee or Trustees by the Holders of at least 25% in aggregate liquidation preference of the Outstanding Preferred Securities a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or (e) the occurrence of a Bankruptcy Event with respect to the Property Trustee and the failure by the Depositor to appoint a successor Property Trustee within 60 days thereof. "Expense Agreement" means the Agreement as to Expenses and Liabilities between the Depositor and the Trust, substantially in the form attached as Exhibit D, as amended from time to time. 12 "Expiration Date" has the meaning specified in Section 9.1. "Extension Period" has the meaning specified in Section 4.1(a). "Guarantee" means the Preferred Securities Guarantee Agreement executed and delivered by the Preferred Securities Guarantor and the Bank, as Guarantee Trustee, contemporaneously with the execution and delivery of this Trust Agreement, for the benefit of the Holders of the Preferred Securities, as amended from time to time. "Indenture" means the Subordinated Indenture, dated as of December 1, 1999, among the Debenture Issuer, the Debenture Guarantor and the Debenture Trustee, as trustee, as amended or supplemented from time to time. "Initial Trust Agreement" has the meaning specified in the recitals to this Trust Agreement. "Investment Company Act" means the Investment Company Act of 1940, as amended. "Lien" means any lien, pledge, charge, encumbrance, mortgage, deed of trust, adverse ownership interest, hypothecation, assignment, security interest or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever. "Like Amount" means (a) with respect to a redemption of Trust Securities, Trust Securities having a Liquidation Amount equal to the principal amount of Debentures to be contemporaneously redeemed in accordance with the Indenture, the proceeds of which will be used to pay the Redemption Price of such Trust Securities, and (b) with respect to a distribution of Debentures to Holders of Trust Securities in connection with a dissolution or liquidation of the Trust, Debentures having a principal amount equal to the Liquidation Amount of the Trust Securities of the Holder to whom such Debentures are distributed. "Liquidation Amount" means the stated amount of $25 per Trust Security. "Liquidation Date" means the date on which Debentures are to be distributed to Holders of Trust Securities in connection with a dissolution and liquidation of the Trust pursuant to Section 9.4(a). "Liquidation Distribution" has the meaning specified in Section 9.4(e). "Officers' Certificate" means a certificate signed by the Chairman of the Board of Directors, a Vice Chairman, the President, any Vice President, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of the Depositor, that complies with the requirements of Section 314(e) of the Trust Indenture Act and is delivered to the appropriate Trustee or Trustees. "Opinion of Counsel" means a written opinion of counsel, who may be counsel for the Trust, the Property Trustee or the Depositor, as the case may be, or other counsel who shall be reasonably acceptable to the Property Trustee, that, if required by the Trust Indenture Act, 13 complies with the requirements of Section 314(e) of the Trust Indenture Act. "Original Depositor" has the meaning specified in the recitals to this Trust Agreement. "Original Trust Agreement" has the meaning specified in the recitals to this Trust Agreement. "Original Trustees" has the meaning specified in the recitals to this Trust Agreement. "Outstanding," when used with respect to Preferred Securities, means, as of the date of determination, all Preferred Securities theretofore executed and delivered under this Trust Agreement, except: (a) Preferred Securities theretofore cancelled by the Property Trustee or delivered to the Property Trustee for cancellation; (b) Preferred Securities for whose payment or redemption money in the necessary amount has been theretofore deposited with the Property Trustee or any Paying Agent for the Holders of such Preferred Securities; provided that, if such Preferred Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Trust Agreement; and (c) Preferred Securities which have been paid or in exchange for or in lieu of which other Preferred Securities have been executed and delivered pursuant to Sections 5.4, 5.5, 5.11 and 5.13, unless there shall have been presented to the Property Trustee proof satisfactory to it that such Preferred Security is held by a bona fide purchaser in whose hand such Preferred Security is a valid obligation of the Trust; provided, however, that in determining whether the Holders of the requisite Liquidation Amount of the Outstanding Preferred Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder or are present at a meeting of Securityholders for quorum purposes, Preferred Securities owned by the Depositor, any Trustee or any Affiliate of the Depositor or any Trustee, shall be disregarded and deemed not to be Outstanding, except that (a) in determining whether any Trustee shall be protected in relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Preferred Securities that such Trustee knows to be so owned shall be so disregarded and (b) the foregoing shall not apply at any time when all of the outstanding Preferred Securities are owned by the Depositor, one or more of the Trustees and/or any such Affiliate. Preferred Securities so owned which have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Administrative Trustees the pledgee's right so to act with respect to such Preferred Securities and that the pledgee is not the Depositor or any Affiliate of the Depositor. "Owner" means each Person who is the beneficial owner of a Book-Entry Preferred Securities Certificate as reflected in the records of the Clearing Agency or, if a Clearing Agency Participant is not the Owner, then as reflected in the records of a Person maintaining an account with such Clearing Agency (directly or indirectly, in accordance with the rules of such Clearing 14 Agency). "Paying Agent" means any paying agent or co-paying agent appointed pursuant to Section 5.9 and shall initially be the Bank. "Payment Account" means a segregated non-interest-bearing corporate trust account maintained by the Property Trustee with the Paying Agent in its trust department for the benefit of the Securityholders in which all amounts paid in respect of the Debentures will be held and from which the Property Trustee shall make payments to the Securityholders in accordance with Sections 4.1 and 4.2. "Person" means any individual, corporation, partnership, joint venture, trust, limited liability company or corporation, unincorporated organization or government or any agency or political subdivision thereof. "Preferred Security" means an undivided beneficial interest in the assets of the Trust, having a Liquidation Amount of $25 and having the rights provided therefor in this Trust Agreement, including the right to receive Distributions and a Liquidation Distribution as provided herein. "Preferred Securities Certificate" means a certificate evidencing ownership of Preferred Securities, substantially in the form attached as Exhibit E. "Preferred Securities Guarantor" means ACE Limited, a Cayman Islands company, in its capacity as guarantor under the Guarantee, and its successors. "Property Trustee" means the commercial bank or trust company identified as the "Property Trustee" in the preamble to this Trust Agreement solely in its capacity as Property Trustee of the Trust and not in its individual capacity, or its successor in interest in such capacity, or any successor property trustee appointed as herein provided. "Redemption Date" means, with respect to any Trust Security to be redeemed, the date fixed for such redemption by or pursuant to this Trust Agreement; provided that each Debenture Redemption Date and the stated maturity of the Debentures shall be a Redemption Date for a Like Amount of Trust Securities. "Redemption Price" means, with respect to any Trust Security, the Liquidation Amount of such Trust Security plus accumulated and unpaid Distributions to the Redemption Date, plus the related amount of the premium, if any, and any Additional Amounts paid by the Debenture Issuer or the Debenture Guarantor upon the concurrent redemption of a Like Amount of Debentures, allocated on a pro rata basis (based on Liquidation Amounts) among the Trust Securities. "Relevant Trustee" shall have the meaning specified in Section 8.10. "Securities Register" and "Securities Registrar" have the respective meanings specified in 15 Section 5.4. "Securityholder" or "Holder" means a Person in whose name a Trust Security or Securities is registered in the Securities Register; any such Person being a beneficial owner within the meaning of the Delaware Business Trust Act; provided, however, that in determining whether the Holders of the requisite amount of Preferred Securities have voted on any matter provided for in this Trust Agreement, then for purposes of any such determination, so long as Definitive Preferred Securities Certificates have not been issued, the term Securityholders or Holders as used herein shall refer to the Owners. "Successor Securities" has the meaning specified in Section 9.5. "Time of Delivery" means, collectively, the Closing Time and each Date of Delivery. "Trust" means the Delaware business trust created by the Original Trust Agreement and the Certificate of Trust and continued hereby and identified on the cover page to this Trust Agreement. "Trust Agreement" means this Amended and Restated Trust Agreement, as the same may be modified, amended or supplemented in accordance with the applicable provisions hereof, including all exhibits hereto, including, for all purposes of this Trust Agreement and any such modification, amendment or supplement, the provisions of the Trust Indenture Act that are deemed to be a part of and govern this Trust Agreement and any such modification, amendment or supplement, respectively. "Trust Indenture Act" means the Trust Indenture Act of 1939 as in force at the date as of which this instrument was executed; provided, however, that in the event the Trust Indenture Act of 1939 is amended after such date, "Trust Indenture Act" means, to the extent required by any such amendment, the Trust Indenture Act of 1939 as so amended. "Trust Property" means (a) the Debentures, (b) any cash on deposit in, or owing to, the Payment Account and (c) all proceeds and rights in respect of the foregoing and any other property and assets for the time being held or deemed to be held by the Property Trustee pursuant to this Trust Agreement. "Trust Security" means any one of the Common Securities or the Preferred Securities. "Trust Securities Certificate" means any one of the Common Securities Certificates or the Preferred Securities Certificates. "Trustees" means, collectively, the Property Trustee, the Delaware Trustee and the Administrative Trustees. "Underwriting Agreement" means the Underwriting Agreement, dated as of December 15, 1999, among the Trust, the Depositor, ACE Limited and the Underwriters named therein. 16 ARTICLE II. ESTABLISHMENT OF THE TRUST Section 2.1 Name. The Trust continued hereby shall be known as "ACE Capital Trust I," as such name may be modified from time to time by the Administrative Trustees following written notice to the Holders of Trust Securities and the other Trustees, in which name the Trustees may conduct the business of the Trust, make and execute contracts and other instruments on behalf of the Trust and sue and be sued. Section 2.2 Office of the Delaware Trustee; Principal Place of Business. The address of the Delaware Trustee in the State of Delaware is Three Christina Centre, 201 North Walnut Street, Wilmington, Delaware 19801, or such other address in the State of Delaware as the Delaware Trustee may designate by written notice to the Depositor. The principal executive office of the Trust is c/o ACE INA Holdings Inc., Two Liberty Place, 1601 Chestnut Street, Philadelphia, Pennsylvania 19101. Section 2.3 Initial Contribution of Trust Property; Organizational Expenses. The Trustees acknowledge receipt in trust from the Original Depositor in connection with the Initial Trust Agreement of the sum of $10, which constituted the initial Trust Property. The Depositor shall pay organizational expenses of the Trust as they arise or shall, upon request of any Trustee, promptly reimburse such Trustee for any such expenses paid by such Trustee. The Depositor shall make no claim upon the Trust Property for the payment of such expenses. Section 2.4 Issuance of the Preferred Securities. The Depositor, on behalf of the Trust and as successor Trust sponsor under the Initial Trust Agreement, has executed and delivered the Underwriting Agreement. At the Closing Time, an Administrative Trustee, on behalf of the Trust, shall execute in accordance with Section 5.2 and deliver to the Underwriters named in the Underwriting Agreement Preferred Securities Certificates, registered in the name of the nominee of the initial Clearing Agency, in an aggregate amount of 4,000,000 Preferred Securities having an aggregate Liquidation Amount of $100,000,000, against receipt of such aggregate purchase price of such Preferred Securities of $100,000,000, which amount such Administrative Trustee shall promptly deliver to the Property Trustee. On each Date of Delivery, an Administrative Trustee, on behalf of the Trust, shall execute in accordance with Section 5.2 and deliver to the Underwriters named in the Underwriting Agreement Preferred Securities Certificates, registered in the name of the nominee of the initial Clearing Agency, in an aggregate amount of up to 600,000 Preferred Securities (less such number of Preferred Securities evidenced by Preferred Securities Certificates executed and delivered on any prior Dates of Delivery) having an aggregate Liquidation Amount of up to $15,000,000 (less the aggregate Liquidation Amount of any Preferred Securities evidenced by Preferred Securities Certificates executed and delivered on any prior Dates of Delivery), against receipt of such aggregate purchase price of such Preferred Securities of $15,000,000 (less the 17 aggregate Liquidation Amount of any Preferred Securities evidenced by Preferred Securities Certificates executed and delivered on any prior Dates of Delivery), which amount such Administrative Trustee shall promptly deliver to the Property Trustee. Section 2.5 Issuance of the Common Securities; Subscription and Purchase of Debentures. (a) At the Closing Time, an Administrative Trustee, on behalf of the Trust, shall execute in accordance with Section 5.2 and deliver to the Depositor Common Securities Certificates, registered in the name of the Depositor, in an aggregate amount of 123,712 Common Securities having an aggregate Liquidation Amount of $3,092,800, against payment by the Depositor of such amount, which amount such Administrative Trustee shall promptly deliver to the Property Trustee. On each Date of Delivery, an Administrative Trustee, on behalf of the Trust, shall execute in accordance with Section 5.2 and deliver to the Depositor Common Securities Certificates, registered in the name of the Depositor, in an aggregate amount of up to 18,557 Common Securities (less such number of Common Securities evidenced by Common Securities Certificates executed and delivered on any prior Dates of Delivery) having an aggregate Liquidation Amount of up to $463,925 (less the aggregate Liquidation Amount of any Common Securities evidenced by Common Securities Certificates executed and delivered on any prior Dates of Delivery), against payment by the Depositor of such amount, which amount such Administrative Trustee shall promptly deliver to the Property Trustee. (b) At the Closing Time and on each Date of Delivery, an Administrative Trustee, on behalf of the Trust, shall subscribe to and purchase from the Debenture Issuer Debentures, registered in the name of the Trust and having an aggregate principal amount equal to the aggregate Liquidation Amount of the Preferred Securities and Common Securities issued and sold on such date, and, in satisfaction of the purchase price for such Debentures, the Property Trustee, on behalf of the Trust, shall deliver to the Debenture Issuer the amount received on such date from one of the Administrative Trustees pursuant to Section 2.4 and Section 2.5. Section 2.6 Declaration of Trust. The exclusive purposes and functions of the Trust are (a) to issue and sell Trust Securities and use the proceeds from such sale to acquire the Debentures, and (b) to engage in those activities necessary, convenient or incidental thereto. The Depositor hereby appoints the Trustees as trustees of the Trust, to have all the rights, powers and duties to the extent set forth herein, and the Trustees hereby accept such appointment. The Property Trustee hereby declares that it will hold the Trust Property upon and subject to the conditions set forth herein for the benefit of the Securityholders. The Administrative Trustees shall have all rights, powers and duties set forth herein and in accordance with applicable law with respect to accomplishing the purposes of the Trust. The Delaware Trustee shall not be entitled to exercise any powers, nor shall the Delaware Trustee have any of the duties and responsibilities, of the Trustees set forth herein except as required by the Delaware Business Trust Act. The Delaware Trustee shall be one of the Trustees of the Trust for the sole and limited purpose of fulfilling the requirements of Section 3807(a) of the Delaware Business Trust Act. Section 2.7 Authorization to enter into Certain Transactions. 18 (a) The Trustees shall conduct the affairs of the Trust in accordance with the terms of this Trust Agreement. Subject to the limitations set forth in paragraph (b) of this Section and Article VIII, and in accordance with the following provisions (i) and (ii), the Administrative Trustees shall have the authority to enter into all transactions and agreements determined by the Trustees to be appropriate in exercising the authority, express or implied, otherwise granted to the Trustees under this Trust Agreement, and to perform all acts in furtherance thereof, including without limitation, the following: (i) As among the Trustees, each of the Administrative Trustees, acting singly or together, shall have the power and authority to act on behalf of the Trust with respect to the following matters: (A) the issuance and sale of the Trust Securities; (B) to cause the Trust to enter into, and to execute, deliver and perform on behalf of the Trust, the Expense Agreement and the Certificate Depository Agreement and such other agreements as may be necessary or desirable in connection with the purposes and function of the Trust; (C) to assist in the registration of the Preferred Securities under the Securities Act of 1933, as amended, and under state securities or blue sky laws, and the qualification of this Trust Agreement as a trust indenture under the Trust Indenture Act; (D) to assist in the listing of the Preferred Securities upon such securities exchange or exchanges as shall be determined by the Depositor and the registration of the Preferred Securities under the Securities Exchange Act of 1934, as amended, and the preparation and filing of all periodic and other reports and other documents pursuant to the foregoing; and to seek relief from the reporting requirements of the Securities Exchange Act of 1934, as amended; (E) the sending of notices (other than notices of default) and other information regarding the Trust Securities and the Debentures to the Securityholders in accordance with this Trust Agreement; (F) the appointment of a Paying Agent, authenticating agent and Securities Registrar in accordance with this Trust Agreement; (G) the establishment of a record date for any of the purposes contemplated by Section 6.7 hereof; (H) to the extent provided in this Trust Agreement, the winding up of the affairs of and liquidation of the Trust and the preparation, execution and filing of the certificate of cancellation with the Secretary of State of the State of Delaware; (I) unless otherwise determined by the Depositor, the Property Trustee or the 19 Administrative Trustees, or as otherwise required by the Delaware Business Trust Act or the Trust Indenture Act, to execute on behalf of the Trust (either acting alone or together with any or all of the Administrative Trustees) any documents that the Administrative Trustees have the power to execute pursuant to this Trust Agreement; and (J) the taking of any action incidental to the foregoing as the Trustees may from time to time determine is necessary or advisable to give effect to the terms of this Trust Agreement for the benefit of the Securityholders (without consideration of the effect of any such action on any particular Securityholder). (ii) As among the Trustees, the Property Trustee shall have the power, duty and authority to act on behalf of the Trust with respect to the following matters: (A) the establishment of the Payment Account; (B) the receipt of the Debentures; (C) the collection of interest, principal and any other payments made in respect of the Debentures in the Payment Account; (D) the distribution of amounts owed to the Securityholders in respect of the Trust Securities; (E) the exercise of all of the rights, powers and privileges of a holder of the Debentures; (F) the sending of notices of default and other information regarding the Trust Securities and the Debentures to the Securityholders in accordance with this Trust Agreement; (G) the distribution of the Trust Property in accordance with the terms of this Trust Agreement; (H) to the extent provided in this Trust Agreement, the winding up of the affairs of and liquidation of the Trust and the preparation, execution and filing of the certificate of cancellation with the Secretary of State of the State of Delaware; (I) after an Event of Default, the taking of any action incidental to the foregoing as the Property Trustee may from time to time determine is necessary or advisable to give effect to the terms of this Trust Agreement and to protect and conserve the Trust Property for the benefit of the Securityholders (without consideration of the effect of any such action on any particular Securityholder); and (J) engaging in such ministerial activities as shall be necessary, appropriate, convenient or incidental to effect the repayment of the Preferred Securities and the 20 Common Securities to the extent the Debentures mature or are redeemed. Except as otherwise provided in this Section 2.7(a)(ii), the Property Trustee shall have none of the duties, liabilities, powers or the authority of the Administrative Trustees set forth in Section 2.7(a)(i). (b) So long as this Trust Agreement remains in effect, the Trust (or the Trustees acting on behalf of the Trust) shall not undertake any business, activities or transaction except as expressly provided herein or contemplated hereby. In particular, the Trustees shall not cause the Trust to (i) acquire any investments or engage in any activities not authorized by this Trust Agreement, (ii) sell, assign, transfer, exchange, mortgage, pledge, set-off or otherwise dispose of any of the Trust Property or interests therein, including to Securityholders, except as expressly provided herein, (iii) take any action that would cause the Trust to fail or cease to qualify as a "grantor trust" for United States Federal income tax purposes, (iv) incur any indebtedness for borrowed money or issue any other debt or (v) take or consent to any action that would result in the placement of a Lien on any of the Trust Property. The Administrative Trustees shall defend all claims and demands of all Persons at any time claiming any Lien on any of the Trust Property adverse to the interest of the Trust or the Securityholders in their capacity as Securityholders. (c) In connection with the issue and sale of the Preferred Securities, the Depositor shall have the right and responsibility to assist the Trust with respect to, or effect on behalf of the Trust, the following (and any actions taken by the Depositor in furtherance of the following prior to the date of this Trust Agreement are hereby ratified and confirmed in all respects): (i) the preparation and filing by the Trust with the Commission and the execution on behalf of the Trust of a registration statement on the appropriate form in relation to the Preferred Securities, including any amendments thereto; (ii) the determination of the States in which to take appropriate action to qualify or register for sale all or part of the Preferred Securities and the determination of any and all such acts, other than actions which must be taken by or on behalf of the Trust, and the advice to the Trustees of actions they must take on behalf of the Trust, and the preparation for execution and filing of any documents to be executed and filed by the Trust or on behalf of the Trust, as the Depositor deems necessary or advisable in order to comply with the applicable laws of any such States; (iii) the preparation for filing by the Trust and execution on behalf of the Trust of an application to the New York Stock Exchange or any other national stock exchange or the Nasdaq National Market for listing upon notice of issuance of any Preferred Securities; (iv) the preparation for filing by the Trust with the Commission and the execution on behalf of the Trust of a registration statement on Form 8- A relating to the registration of the Preferred Securities under Section 12(b) or 12(g) of the Exchange Act, including any amendments thereto; (v) the negotiation of the terms of, and the execution and delivery of, the 21 Underwriting Agreement providing for the sale of the Preferred Securities; and (vi) the taking of any other actions deemed by the Depositor to be necessary or desirable to carry out any of the foregoing activities. (d) Notwithstanding anything herein to the contrary, the Administrative Trustees are authorized and directed to conduct the affairs of the Trust and to operate the Trust so that the Trust will not be deemed to be an "investment company" required to be registered under the Investment Company Act or classified as an association taxable as a corporation for United States Federal income tax purposes and so that the Debentures will be treated as indebtedness of the Debenture Issuer for United States Federal income tax purposes. In this connection, the Depositor and the Administrative Trustees are authorized to take any action, not inconsistent with applicable law, the Certificate of Trust or this Trust Agreement, that each of the Depositor and the Administrative Trustees determines in their discretion to be necessary or desirable for such purposes, as long as such action does not adversely affect in any material respect the interests of the Holders of the Preferred Securities. Section 2.8 Assets of Trust. The assets of the Trust shall consist of the Trust Property. Section 2.9 Title to Trust Property. Legal title to all Trust Property shall be vested at all times in the Property Trustee (in its capacity as such) and shall be held and administered by the Property Trustee for the benefit of the Trust and the Securityholders in accordance with this Trust Agreement. ARTICLE III. PAYMENT ACCOUNT Section 3.1 Payment Account. (a) On or prior to the Closing Date, the Property Trustee shall establish the Payment Account. The Property Trustee and any agent of the Property Trustee shall have exclusive control and sole right of withdrawal with respect to the Payment Account for the purpose of making deposits in and withdrawals from the Payment Account in accordance with this Trust Agreement. All monies and other property deposited or held from time to time in the Payment Account shall be held by the Property Trustee in the Payment Account for the exclusive benefit of the Securityholders and for distribution as herein provided, including (and subject to) any priority of payments provided for herein. (b) The Property Trustee shall deposit in the Payment Account, promptly upon receipt, all payments of principal of or interest on, and any other payments or proceeds with respect to, the Debentures. Amounts held in the Payment Account shall not be invested by the Property Trustee pending distribution thereof. 22 ARTICLE IV. CERTAIN TERMS OF THE TRUST SECURITIES Section 4.1 Distributions. (a) Distributions on the Trust Securities shall be cumulative, and will accumulate whether or not there are funds of the Trust available for the payment of Distributions. Distributions shall accrue from December 20, 1999, and shall be payable quarterly in arrears on March 31, June 30, September 30 and December 31 of each year, commencing on March 31, 2000, except as otherwise described below. The Debenture Issuer has the right under the Indenture, at any time and from time to time, to defer payments of interest for such period or periods as may be specified with respect to the Debentures (each, an "Extension Period"), on the terms and conditions specified in the Indenture. As a consequence of such deferral, Distributions will also be deferred. Despite such deferral, quarterly Distributions will continue to accumulate at the rate set forth in paragraph (b) of this Section 4.1, together with additional distributions thereon (to the extent permitted by applicable law) at the rate at which Additional Interest is then accruing on the Debentures, compounded quarterly during any such Extension Period. If any date on which a Distribution is otherwise payable on the Trust Securities is not a Business Day, then the payment of such Distribution shall be made on the next succeeding day that is a Business Day (and without any additional distributions or other payment in respect of any such delay), except that, if such Business Day is in the next succeeding calendar year, payment of such Distribution shall be made on the immediately preceding Business Day, in each case with the same force and effect as if made on the date such payment was originally payable (each date on which distributions are payable in accordance with this Section 4.1(a), a "Distribution Date"). (b) The Trust Securities represent undivided beneficial interests in the Trust Property, and the Distributions on the Trust Securities shall be payable at a rate of 8.875% per annum of the Liquidation Amount of the Trust Securities. The term "Distributions" as used herein includes such cash distributions and any accumulated or additional distributions that are payable hereunder unless otherwise stated. The amount of Distributions payable for any full or partial period shall be computed on the basis of a 360-day year of twelve 30-day months. The amount of Distributions payable for any period shall include Additional Amounts, if any. (c) Distributions on the Trust Securities shall be made by the Property Trustee from the Payment Account and shall be payable on each Distribution Date only to the extent that the Trust has funds then on hand and available in the Payment Account for the payment of such Distributions. (d) Distributions on the Trust Securities with respect to a Distribution Date shall be payable to the Holders thereof as they appear on the Securities Register at the close of business on the relevant record date, which, as long as the Preferred Securities remain in book-entry only form, shall be the date one Business Day immediately preceding such Distribution Date. The relevant record dates for the Common Securities shall be the same record dates as for the Preferred Securities. If the Preferred Securities shall not continue to remain in book-entry only form or are not in book-entry only form at issuance, the relevant record dates for the Preferred Securities 23 shall be the date 15 days prior to the relevant Distribution Date, which Distribution Dates shall correspond to the interest payment dates on the Debentures. Distributions payable on any Trust Securities that are not punctually paid on any Distribution Date, as a result of the Debenture Issuer (or the Debenture Guarantor on its behalf) having failed to make an interest payment under the Debentures, will cease to be payable to the Person in whose name such Trust Securities are registered on the relevant record date, and such defaulted Distribution will instead be payable to the Person in whose name such Trust Securities are registered on the special record date or other specified date for determining Debentureholders entitled to such defaulted interest established in accordance with the Indenture. (e) In the event that there is any money or other property held by or for the Trust that is not accounted for hereunder, such property shall be distributed pro rata among the Holders of the Trust Securities. A reference herein to any payment, distribution or treatment as being "pro rata" shall mean pro rata to each Holder of Trust Securities according to the aggregate Liquidation Amount of the Trust Securities held by the relevant Holder in relation to the aggregate Liquidation Amount of all Trust Securities outstanding unless, in relation to a payment, a Debenture Event of Default has occurred and is continuing, in which case any funds available to make such payment shall be paid first to each Holder of the Preferred Securities pro rata according to the aggregate Liquidation Amount of Preferred Securities held by the relevant Holder relative to the aggregate Liquidation Amount of all Preferred Securities outstanding, and only after satisfaction of all amounts owed to the Holders of the Preferred Securities, to each Holder of Common Securities pro rata according to the aggregate Liquidation Amount of Common Securities held by the relevant Holder relative to the aggregate Liquidation Amount of all Common Securities outstanding. Section 4.2 Redemption. (a) On each Debenture Redemption Date and on the stated maturity of the Debentures, the Trust will be required to redeem a Like Amount of Trust Securities at a price per Trust Security equal to the Redemption Price. (b) Notice of redemption shall be given by the Property Trustee by first- class mail, postage prepaid, mailed not less than 30 nor more than 60 days prior to the Redemption Date to each Holder of Trust Securities to be redeemed, at such Holder's address appearing in the Security Register. All notices of redemption shall state: (i) the Redemption Date; (ii) the Redemption Price; (iii) the CUSIP number; (iv) if less than all the Outstanding Trust Securities are to be redeemed, the identification and the total Liquidation Amount of the particular Trust Securities to be redeemed; and 24 (v) that on the Redemption Date the Redemption Price will become due and payable upon each such Trust Security to be redeemed and that distributions thereon will cease to accrue on and after said date. (c) The Trust Securities redeemed on each Redemption Date shall be redeemed at the Redemption Price with the proceeds from the contemporaneous redemption of Debentures. Redemptions of the Trust Securities shall be made and the Redemption Price shall be payable on each Redemption Date only to the extent that the Trust has funds then on hand and available in the Payment Account for the payment of such Redemption Price. (d) If the Property Trustee gives a notice of redemption (which notice shall be irrevocable) in respect of any Preferred Securities, then, by 12:00 noon, New York City time, on the Redemption Date, subject to Section 4.2(c), the Property Trustee will, so long as the Preferred Securities are in book-entry- only form, irrevocably deposit with the Clearing Agency for the Preferred Securities funds sufficient to pay the applicable Redemption Price and will give such Clearing Agency irrevocable instructions and authority to pay the Redemption Price to the relevant Persons' accounts at such Clearing Agency on the applicable Redemption Date. If the Preferred Securities are no longer in book-entry-only form, and in the case of the Common Securities, the Property Trustee, subject to Section 4.2(c), will irrevocably deposit with the Paying Agent funds sufficient to pay the applicable Redemption Price and will give the Paying Agent irrevocable instructions and authority to pay the Redemption Price to the Holders thereof upon surrender of their Trust Securities Certificates. Notwithstanding the foregoing, Distributions payable on or prior to the Redemption Date for any Trust Securities called for redemption shall be payable to the Holders of such Trust Securities as they appear on the Securities Register for the Trust Securities on the relevant record dates for the related Distribution Dates. If notice of redemption shall have been given and funds deposited as required, then immediately prior to the close of business on the date of such deposit, all rights of Securityholders holding Trust Securities so called for redemption will cease, except the right of such Securityholders to receive the Redemption Price and any Distributions payable on or prior to the Redemption Date, but without interest, and such Securities will cease to be outstanding. In the event that any date on which any Redemption Price is payable is not a Business Day, then payment of the Redemption Price payable on such date will be made on the next succeeding day that is a Business Day (and without any interest or other payment in respect of any such delay), except that, if such Business Day falls in the next calendar year, such payment will be made on the immediately preceding Business Day, in each case, with the same force and effect as if made on such date. In the event that payment of the Redemption Price in respect of any Trust Securities called for redemption is improperly withheld or refused and not paid either by the Trust or by the Preferred Securities Guarantor pursuant to the Guarantee, Distributions on such Trust Securities will continue to accrue, at the then applicable rate, from the Redemption Date originally established by the Trust for such Trust Securities to the date such Redemption Price is actually paid, in which case the actual payment date will be the date fixed for redemption for purposes of calculating the Redemption Price. (e) Payment of the Redemption Price on the Trust Securities shall be made to the recordholders thereof as they appear on the Securities Register for the Trust Securities on the 25 relevant record date, which shall be one Business Day prior to the relevant Redemption Date; provided, however, that in the event that the Preferred Securities do not remain in book-entry-only form, the relevant record date shall be the date fifteen days prior to the relevant Redemption Date. (f) Subject to Section 4.3(a), if less than all the Outstanding Trust Securities are to be redeemed on a Redemption Date, then the aggregate Liquidation Amount of Trust Securities to be redeemed shall be allocated on a pro rata basis (based on Liquidation Amounts) among the Common Securities and the Preferred Securities. The particular Preferred Securities to be redeemed shall be selected on a pro rata basis (based upon Liquidation Amounts) not more than 60 days prior to the Redemption Date by the Property Trustee from the Outstanding Preferred Securities not previously called for redemption, by such method (including, without limitation, by lot) as the Property Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions (equal to $25 or an integral multiple of $25 in excess thereof) of the Liquidation Amount of Preferred Securities of a denomination larger than $25. The Property Trustee shall promptly notify the Security Registrar in writing of the Preferred Securities selected for redemption and, in the case of any Preferred Securities selected for partial redemption, the Liquidation Amount thereof to be redeemed. For all purposes of this Trust Agreement, unless the context otherwise requires, all provisions relating to the redemption of Preferred Securities shall relate, in the case of any Preferred Securities redeemed or to be redeemed only in part, to the portion of the Liquidation Amount of Preferred Securities that has been or is to be redeemed. (g) Subject to applicable law, the Preferred Securities Guarantor and its subsidiaries, including the Depositor, may at any time and from time to time purchase Outstanding Preferred Securities by tender in the open market or by private agreement. Section 4.3 Subordination of Common Securities. (a) Payment of Distributions (including Additional Amounts, if applicable) on, and the Redemption Price of, the Trust Securities, as applicable, shall be made, subject to Section 4.2(f), pro rata among the Common Securities and the Preferred Securities based on the Liquidation Amount of the Trust Securities; provided, however, that if on any Distribution Date or Redemption Date any Event of Default resulting from a Debenture Event of Default shall have occurred and be continuing, no payment of any Distribution (including Additional Amounts, if applicable) on, or Redemption Price of, any Common Security, and no other payment on account of the redemption, liquidation or other acquisition of Common Securities, shall be made unless payment in full in cash of all accumulated and unpaid Distributions (including Additional Amounts, if applicable) on all Outstanding Preferred Securities for all Distribution periods terminating on or prior thereto, or in the case of payment of the Redemption Price the full amount of such Redemption Price on all Outstanding Preferred Securities, shall have been made or provided for, and all funds immediately available to the Property Trustee shall first be applied to the payment in full in cash of all Distributions (including Additional Amounts, if applicable) on, or the Redemption Price of, Preferred Securities then due and payable. 26 (b) In the case of the occurrence of any Event of Default resulting from any Debenture Event of Default, the Holder of Common Securities will be deemed to have waived any right to act with respect to any such Event of Default under this Trust Agreement until the effect of all such Events of Default with respect to the Preferred Securities have been cured, waived or otherwise eliminated. Until any such Event of Default under this Trust Agreement with respect to the Preferred Securities has been so cured, waived or otherwise eliminated, the Property Trustee shall act solely on behalf of the Holders of the Preferred Securities and not the Holder of the Common Securities, and only the Holders of the Preferred Securities will have the right to direct the Property Trustee to act on their behalf. Section 4.4 Payment Procedures. Payments of Distributions (including Additional Amounts, if applicable) in respect of the Preferred Securities shall be made by check mailed to the address of the Person entitled thereto as such address shall appear on the Securities Register or, if the Preferred Securities are held by a Clearing Agency, such Distributions shall be made to the Clearing Agency in immediately available funds, which shall credit the relevant Persons' accounts at such Clearing Agency on the applicable distribution dates. Payments in respect of the Common Securities shall be made in such manner as shall be mutually agreed between the Property Trustee and the Common Securityholder. Section 4.5 Tax Returns and Reports. The Administrative Trustees shall prepare (or cause to be prepared), at the Depositor's expense, and file all United States Federal, state and local tax and information returns and reports required to be filed by or in respect of the Trust. In this regard, the Administrative Trustees shall (a) prepare and file (or cause to be prepared and filed) the appropriate Internal Revenue Service Form required to be filed in respect of the Trust in each taxable year of the Trust and (b) prepare and furnish (or cause to be prepared and furnished) to each Securityholder the appropriate Internal Revenue Service form required by the Code to be provided. The Administrative Trustees shall provide the Depositor and the Property Trustee with a copy of all such returns and reports promptly after such filing or furnishing. The Trustees shall comply with United States Federal withholding and backup withholding tax laws and information reporting requirements with respect to any payments to Securityholders under the Trust Securities. Section 4.6 Payment of Taxes, Duties, etc. of the Trust. Upon receipt under the Debentures of Additional Sums, the Property Trustee shall promptly pay any taxes, duties or governmental charges of whatsoever nature (other than withholding taxes) imposed on the Trust by the United States or any other taxing authority. Section 4.7 Payments under Indenture. Any amount payable hereunder to any Holder of Preferred Securities shall be reduced by 27 the amount of any corresponding payment such Holder (and any Owner with respect thereto) has directly received pursuant to Section 5.8 of the Indenture. ARTICLE V. TRUST SECURITIES CERTIFICATES Section 5.1 Initial Ownership. Upon the formation of the Trust and the contribution by the Depositor pursuant to Section 2.3 and until the issuance of the Trust Securities, and at any time during which no Trust Securities are outstanding, the Depositor shall be the sole beneficial owner of the Trust. Section 5.2 The Trust Securities Certificates. The Preferred Securities Certificates shall be issued in minimum denominations of $25 Liquidation Amount and integral multiples of $25 in excess thereof, and the Common Securities Certificates shall be issued in minimum denominations of $25 Liquidation Amount and integral multiples of $25 in excess thereof. The Trust Securities Certificates shall be executed on behalf of the Trust by manual signature of at least one Administrative Trustee. Trust Securities Certificates bearing the manual signatures of individuals who were, at the time when such signatures shall have been affixed, authorized to sign on behalf of the Trust, shall be validly issued and entitled to the benefits of this Trust Agreement, notwithstanding that such individuals or any of them shall have ceased to be so authorized prior to the delivery of such Trust Securities Certificates or did not hold such offices at the date of delivery of such Trust Securities Certificates. A transferee of a Trust Securities Certificate shall become a Securityholder, and shall be entitled to the rights and subject to the obligations of a Securityholder hereunder, upon due registration of such Trust Securities Certificate in such transferee's name pursuant to Sections 5.4, 5.11 and 5.13. Section 5.3 Execution and Delivery of Trust Securities Certificates. At each Time of Delivery, the Administrative Trustees shall cause Trust Securities Certificates, in an aggregate Liquidation Amount as provided in Sections 2.4 and 2.5, to be executed on behalf of the Trust and delivered to or upon the written order of the Depositor, signed by its Chairman of the Board, a Vice Chairman, its President, a Vice President or its Treasurer and attested by its Secretary or one of its Assistant Secretaries, without further corporate action by the Depositor, in authorized denominations. Section 5.4 Registration of Transfer and Exchange of Preferred Securities Certificates. The Depositor shall keep or cause to be kept, at the office or agency maintained pursuant to Section 5.8, a register or registers for the purpose of registering Trust Securities Certificates and transfers and exchanges of Preferred Securities Certificates (the "Securities Register"). The registrar designated by the Depositor (the "Securities Registrar"), subject to such reasonable regulations as it may prescribe, shall provide for the registration of Preferred Securities Certificates and Common Securities Certificates (subject to Section 5.10 in the case of the 28 Common Securities Certificates) and registration of transfers and exchanges of Preferred Securities Certificates as herein provided. The Bank shall be the initial Securities Registrar. Upon surrender for registration of transfer of any Preferred Securities Certificate at the office or agency maintained pursuant to Section 5.8, the Administrative Trustees or any one of them shall execute and deliver, in the name of the designated transferee or transferees, one or more new Preferred Securities Certificates in authorized denominations of a like aggregate Liquidation Amount dated the date of execution by such Administrative Trustee or Trustees. The Securities Registrar shall not be required to register the transfer of any Preferred Securities after such Preferred Securities have been called for redemption. At the option of a Holder, Preferred Securities Certificates may be exchanged for other Preferred Securities Certificates in authorized denominations of the same class and of a like aggregate Liquidation Amount upon surrender of the Preferred Securities Certificates to be exchanged at the office or agency maintained pursuant to Section 5.8. Every Preferred Securities Certificate presented or surrendered for registration of transfer or exchange shall be accompanied by a written instrument of transfer in form satisfactory to an Administrative Trustee and the Securities Registrar duly executed by the Holder or his attorney duly authorized in writing. Each Preferred Securities Certificate surrendered for registration of transfer or exchange shall be cancelled and subsequently disposed of by an Administrative Trustee in accordance with customary practice. Registration of transfers or exchanges of Preferred Securities Certificates shall be effected without service charge by or on behalf of the Trust, but the Securities Registrar may require payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection with any such transfer or exchange. Section 5.5 Mutilated, Destroyed, Lost or Stolen Trust Securities Certificates. If (a) any mutilated Trust Securities Certificate shall be surrendered to the Securities Registrar, or if the Securities Registrar shall receive evidence to its satisfaction of the destruction, loss or theft of any Trust Securities Certificate and (b) there shall be delivered to the Securities Registrar and the Administrative Trustees such security or indemnity as may be required by them to save each of them harmless, then in the absence of notice that such Trust Securities Certificate shall have been acquired by a bona fide purchaser, the Administrative Trustees, or any one of them, on behalf of the Trust shall execute and make available for delivery, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Trust Securities Certificate, a new Trust Securities Certificate of like class, tenor and denomination. In connection with the issuance of any new Trust Securities Certificate under this Section, the Administrative Trustees or the Securities Registrar may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in connection therewith. Any duplicate Trust Securities Certificate issued pursuant to this Section shall constitute conclusive evidence of an undivided beneficial interest in the assets of the Trust, as if originally issued, whether or not the lost, stolen or destroyed Trust Securities Certificate shall be found at any time. Section 5.6 Persons Deemed Securityholders. Prior to due presentation of a Trust Securities Certificate for registration of transfer, the Administrative Trustees or the Securities Registrar shall treat the Person in whose name any 29 Trust Securities Certificate shall be registered in the Securities Register as the owner of such Trust Securities Certificate for the purpose of receiving distributions and for all other purposes whatsoever, and neither the Trustees nor the Securities Registrar shall be bound by any notice to the contrary. Section 5.7 Access to List of Securityholders' Names and Addresses. The Administrative Trustees shall furnish or cause to be furnished (x) to the Depositor, within 15 days after receipt by any Administrative Trustee of a request therefor from the Depositor in writing and (y) to the Property Trustee, promptly after receipt by any Administrative Trustee of a request therefor from the Property Trustee in writing in order to enable the Property Trustee to discharge its obligations under this Trust Agreement, a list, in such form as the Depositor or the Property Trustee may reasonably require, of the names and addresses of the Securityholders as of a recent date. If Holders of Trust Securities Certificates evidencing ownership at such time and for the previous six months of not less than 25% of the Outstanding aggregate Liquidation Amount apply in writing to any Administrative Trustee, and such application states that the applicants desire to communicate with other Securityholders with respect to their rights under this Trust Agreement or under the Trust Securities Certificates and such application is accompanied by a copy of the communication that such applicants propose to transmit, then the Administrative Trustees shall, within five Business Days after the receipt of such application, afford such applicants access during normal business hours to the current list of Securityholders. Each Holder, by receiving and holding a Trust Securities Certificate, and each Owner shall be deemed to have agreed not to hold the Depositor, the Property Trustee or the Administrative Trustees accountable by reason of the disclosure of its name and address, regardless of the source from which such information was derived. Section 5.8 Maintenance of Office or Agency. The Administrative Trustees shall maintain in Chicago, Illinois, an office or offices or agency or agencies where Preferred Securities Certificates may be surrendered for registration of transfer or exchange and where notices and demands to or upon the Trustees in respect of the Trust Securities and the Trust Agreement may be served. The Administrative Trustees initially designate Bank One Trust Company, National Association, Bank One Plaza, Suite IL1-0126, Chicago, Illinois 60670-0126; Attention: Corporate Trust Services Division, as the principal corporate trust office for such purposes. The Administrative Trustees shall give prompt written notice to the Depositor and to the Securityholders of any change in the location of the Securities Register or any such office or agency. Section 5.9 Appointment of Paying Agent. The Paying Agent shall make distributions to Securityholders from the Payment Account and shall report the amounts of such distributions to the Property Trustee and the Administrative Trustees. Any Paying Agent shall have the revocable power to withdraw funds from the Payment Account for the purpose of making the distributions referred to above. The Administrative Trustees may revoke such power and remove the Paying Agent if such Trustees determine in their sole discretion that the Paying Agent shall have failed to perform its 30 obligations under this Trust Agreement in any material respect. The Paying Agent shall initially be the Bank, and any co-paying agent chosen by the Bank, and acceptable to the Administrative Trustees and the Depositor. Any Person acting as Paying Agent shall be permitted to resign as Paying Agent upon 30 days' written notice to the Administrative Trustees, the Property Trustee and the Depositor. In the event that the Bank shall no longer be the Paying Agent or a successor Paying Agent shall resign or its authority to act be revoked, the Administrative Trustees shall appoint a successor (which shall be a bank or trust company that is acceptable to the Administrative Trustees and the Depositor) to act as Paying Agent. The Administrative Trustees shall cause such successor Paying Agent or any additional Paying Agent appointed by the Administrative Trustees to execute and deliver to the Trustees an instrument in which such successor Paying Agent or additional Paying Agent shall agree with the Trustees that as Paying Agent, such successor Paying Agent or additional Paying Agent will hold all sums, if any, held by it for payment to the Securityholders in trust for the benefit of the Securityholders entitled thereto until such sums shall be paid to such Securityholders. The Paying Agent shall return all unclaimed funds to the Property Trustee and upon removal of a Paying Agent such Paying Agent shall also return all funds in its possession to the Property Trustee. The provisions of Sections 8.1, 8.3 and 8.6 herein shall apply to the Paying Agent appointed hereunder and, to the extent applicable, to any other paying agent appointed hereunder. Any reference in this Agreement to the Paying Agent shall include any co-paying agent unless the context requires otherwise. Section 5.10 Ownership of Common Securities by Depositor. At each Time of Delivery, the Depositor shall acquire and retain beneficial and record ownership of all of the Common Securities then issued by the Trust, in an amount equal to at least 3% of the total capital of the Trust, at the same time as the Preferred Securities are issued and sold. The aggregate Liquidation Amount of the Common Securities at any time shall not be less than 3% of the total capital of the Trust. To the fullest extent permitted by law, other than a transfer in connection with a consolidation or merger of the Depositor into another corporation, or any conveyance, transfer or lease by the Depositor of its properties and assets substantially as an entirety to any Person, pursuant to Section 8.1 of the Indenture, any attempted transfer of the Common Securities shall be void. The Administrative Trustees shall cause each Common Securities Certificate issued to the Depositor to contain a legend stating "THIS CERTIFICATE IS NOT TRANSFERABLE EXCEPT AS PROVIDED IN THE TRUST AGREEMENT (AS DEFINED BELOW)". Section 5.11 Book-Entry Preferred Securities Certificates; Common Securities Certificate. (a) The Preferred Securities Certificates, upon original issuance, will be issued in the form of a typewritten Preferred Securities Certificate or Certificates representing Book-Entry Preferred Securities Certificates, to be delivered to DTC, the initial Clearing Agency, by, or on behalf of, the Trust. Such Preferred Securities Certificate or Certificates shall initially be registered on the Securities Register in the name of Cede & Co., the nominee of the initial Clearing Agency, and no beneficial owner will receive a Definitive Preferred Securities Certificate representing such beneficial owner's interest in such Preferred Securities, except as provided in Section 5.13. Except for Definitive Preferred Securities Certificates as specified herein, unless and until 31 Definitive Preferred Securities Certificates have been issued to beneficial owners pursuant to Section 5.13: (i) the provisions of this Section 5.11(a) shall be in full force and effect; (ii) the Securities Registrar and the Trustees shall be entitled to deal with the Clearing Agency for all purposes of this Trust Agreement relating to the Book-Entry Preferred Securities Certificates (including the payment of the Liquidation Amount of and Distributions on the Book-Entry Preferred Securities and the giving of instructions or directions to Owners of Book-Entry Preferred Securities) as the sole Holder of Book-Entry Preferred Securities and shall have no obligations to the Owners thereof; (iii) to the extent that the provisions of this Section 5.11 conflict with any other provisions of this Trust Agreement, the provisions of this Section 5.11 shall control; and (iv) the rights of the Owners of the Book-Entry Preferred Securities Certificates shall be exercised only through the Clearing Agency and shall be limited to those established by law and agreements between such Owners and the Clearing Agency and/or the Clearing Agency Participants; provided, that solely for the purposes of determining whether the Holders of the requisite amount of Preferred Securities have voted on any matter provided for in this Trust Agreement, so long as Definitive Preferred Security Certificates have not been issued, the Trustees may conclusively rely on, and shall be protected in relying on, any written instrument (including a proxy) delivered to the Trustees by the Clearing Agency setting forth the Owners' votes or assigning the right to vote on any matter to any other Persons either in whole or in part. Pursuant to the Certificate Depository Agreement, unless and until Definitive Preferred Securities Certificates are issued pursuant to Section 5.13, the initial Clearing Agency will make book-entry transfers among the Clearing Agency Participants and receive and transmit payments on the Preferred Securities to such Clearing Agency Participants. (b) A single Common Securities Certificate representing the Common Securities shall be issued to the Depositor in the form of a definitive Common Securities Certificate. Section 5.12 Notices to Clearing Agency. (a) To the extent that a notice or other communication to the Owners is required under this Trust Agreement, unless and until Definitive Preferred Securities Certificates shall have been issued to Owners pursuant to Section 5.13, the Trustees shall give all such notices and communications specified herein to be given to Owners to the Clearing Agency, and shall have no obligations to the Owners. Section 5.13 Definitive Preferred Securities Certificates. If (a) the Depositor advises the Trustees in writing that the Clearing Agency is no longer willing or able to act as clearing agency with respect to the Preferred Securities Certificates, and the Depositor fails to appoint a qualified successor within 90 days, (b) the Depositor at its option 32 advises the Trustees in writing that it elects to terminate the book-entry system through the Clearing Agency or (c) after the occurrence of a Debenture Event of Default, Owners of Preferred Securities Certificates representing beneficial interests aggregating at least a majority of the Liquidation Amount of the Outstanding Preferred Securities advise the Property Trustee in writing that the continuation of a book-entry system through the Clearing Agency is no longer in the best interest of the Owners of Preferred Securities Certificates, then the Property Trustee shall notify the Clearing Agency and the Clearing Agency shall notify all Owners of Preferred Securities Certificates and the other Trustees of the occurrence of any such event and of the availability of the Definitive Preferred Securities Certificates to Owners of such class or classes, as applicable, requesting the same. Upon surrender to the Property Trustee of the typewritten Preferred Securities Certificate or Certificates representing the Book Entry Preferred Securities Certificates by the Clearing Agency, accompanied by registration instructions, the Administrative Trustees, or any one of them, shall execute the Definitive Preferred Securities Certificates in accordance with the instructions of the Clearing Agency. Neither the Securities Registrar nor the Trustees shall be liable for any delay in delivery of such instructions and may conclusively rely on, and shall be protected in relying on, such instructions. Upon the issuance of Definitive Preferred Securities Certificates, the Trustees shall recognize the Holders of the Definitive Preferred Securities Certificates as Securityholders. The Definitive Preferred Securities Certificates shall be printed, lithographed or engraved or may be produced in any other manner as is reasonably acceptable to the Administrative Trustees, as evidenced by the execution thereof by the Administrative Trustees or any one of them. Section 5.14 Rights of Securityholders. (a) The legal title to the Trust Property is vested exclusively in the Property Trustee (in its capacity as such) in accordance with Section 2.9, and the Securityholders shall not have any right or title therein other than the undivided beneficial interest in the assets of the Trust conferred by their Trust Securities and they shall have no right to call for any partition or division of property, profits or rights of the Trust except as described below. The Trust Securities shall be personal property giving only the rights specifically set forth therein and in this Trust Agreement. The Trust Securities shall have no preemptive or similar rights and when issued and delivered to Securityholders against payment of the purchase price therefor will be fully paid and nonassessable by the Trust. The Holders of the Trust Securities, in their capacities as such, shall be entitled to the same limitation of personal liability extended to stockholders of private corporations for profit organized under the General Corporation Law of the State of Delaware. (b) For so long as any Preferred Securities remain Outstanding, if, upon a Debenture Event of Default, the Debenture Trustee fails or the holders of not less than 25% in principal amount of the outstanding Debentures fail to declare the principal of all of the Debentures to be immediately due and payable, the Holders of at least 25% in Liquidation Amount of the Preferred Securities then Outstanding shall have such right by a notice in writing to the Debenture Issuer, the Debenture Guarantor, the Debenture Trustee and the Property Trustee; and upon any such declaration such principal amount of and the accrued interest on all of the Debentures shall become immediately due and payable, provided that the payment of principal, interest, and any other amounts payable with respect to such Debentures shall remain 33 subordinated to the extent provided in the Indenture. At any time after such a declaration of acceleration with respect to the Debentures has been made and before a judgment or decree for payment of the money due has been obtained by the Debenture Trustee as in the Indenture provided, the Holders of a majority in Liquidation Amount of the Preferred Securities then Outstanding, by written notice to the Debenture Issuer, the Debenture Guarantor, the Debenture Trustee and the Property Trustee, may rescind and annul such declaration and its consequences if: (i) the Debenture Issuer or the Debenture Guarantor has paid or deposited with the Debenture Trustee a sum sufficient to pay (A) all overdue installments of interest (including any Additional Interest) on, and any other Additional Amounts with respect to, all of the Debentures, (B) the principal of and premium on any Debentures which have become due otherwise than by such declaration of acceleration and interest thereon and any Additional Amounts with respect thereto at the rate or rates borne by or provided for in the Debentures, (C) to the extent the payment of such interest or Additional Amounts is lawful, interest upon overdue installments of any interest and Additional Amounts at the rate or rates borne by or provided for in the Debentures, and (D) all sums paid or advanced by the Debenture Trustee under the Indenture and the reasonable compensation, expenses, disbursements and advances of the Debenture Trustee, its agents and counsel and all other amounts due the Debenture Trustee under the Indenture; and (ii) all Events of Default with respect to the Debentures, other than the non-payment of the principal of, any premium and interest on, and any Additional Amounts with respect to the Debentures which have become due solely by such acceleration, have been cured or waived as provided in Section 5.13 of the Indenture. No such rescission shall affect any subsequent default or impair any right consequent thereon. The Holders of not less than a majority in Liquidation Amount of the Preferred Securities then Outstanding may, on behalf of the Holders of all the Preferred Securities, waive any past default under the Indenture, except a default (i) in the payment of principal of, any premium or interest (including any Additional Interest) on, or any other Additional Amounts with respect to, the Debentures or (ii) in respect of a covenant or provision which under the Indenture cannot be modified or amended without the consent of the holder of each outstanding Debenture. Upon receipt by the Property Trustee of written notice declaring such an 34 acceleration, or rescission and annulment thereof, by Holders of the Preferred Securities all or part of which are represented by Book-Entry Preferred Securities Certificates, a record date shall be established for determining Holders of Outstanding Preferred Securities entitled to join in such notice, which record date shall be at the close of business on the day the Property Trustee receives such notice. The Holders on such record date, or their duly designated proxies, and only such Persons, shall be entitled to join in such notice, whether or not such Holders remain Holders after such record date; provided, that, unless such declaration of acceleration, or rescission and annulment, as the case may be, shall have become effective by virtue of the requisite percentage having joined in such notice prior to the day which is 90 days after such record date, such notice of declaration of acceleration, or rescission and annulment, as the case may be, shall automatically and without further action by any Holder be canceled and of no further effect. Nothing in this paragraph shall prevent a Holder, or a proxy of a Holder, from giving, after expiration of such 90-day period, a new written notice of declaration of acceleration, or rescission and annulment thereof, as the case may be, that is identical to a written notice which has been canceled pursuant to the proviso to the preceding sentence, in which event a new record date shall be established pursuant to the provisions of this Section 5.14(b). (c) For so long as any Preferred Securities remain Outstanding, to the fullest extent permitted by law and subject to the terms of this Trust Agreement and the Indenture, any Holder of Preferred Securities shall have the right, upon a Debenture Event of Default specified in Section 5.1(1) or 5.1(2) of the Indenture, to institute directly a proceeding against the Debenture Issuer or the Debenture Guarantor, as the case may be, pursuant to Section 5.8 of the Indenture, for enforcement of payment to such Holder of the principal of, and any premium and (subject to the provisions of the Indenture) interest (including any Additional Interest) on, and any other Additional Amounts with respect to, such Debentures having a principal amount equal to the Liquidation Amount of the Preferred Securities of such Holder (a "Direct Action"). In connection with any such Direct Action, the rights of the Holders of Common Securities will be subrogated to the rights of any Holder of Preferred Securities to the extent of any payment made by the Debenture Issuer or the Debenture Guarantor, as the case may be, to such Holder of Preferred Securities as a result of such Direct Action. Except as set forth in Section 5.14(b) and (c), or as otherwise contemplated by the Indenture, the Holders of Preferred Securities shall have no right to exercise directly any right or remedy available to the holders of, or in respect of, the Debentures. ARTICLE VI. ACTS OF SECURITYHOLDERS; MEETINGS; VOTING Section 6.1 Limitations on Voting Rights. (a) Except as provided in this Section, in Sections 5.14, 8.10 and 10.2 and in the Indenture and as otherwise required by law, no Holder of Preferred Securities shall have any right to vote or in any manner otherwise control the administration, operation and management of the Trust or the obligations of the parties hereto, nor shall anything herein set forth, or contained in the terms of the Trust Securities Certificates, be construed so as to constitute the Securityholders from time to time as partners or members of an association. 35 (b) So long as any Debentures are held by the Property Trustee, the Trustees shall not (i) direct the time, method and place of conducting any proceeding for any remedy available to the Debenture Trustee, or executing any trust or power conferred on the Debenture Trustee with respect to such Debentures, (ii) waive any past default which is waivable under Section 5.13 of the Indenture, (iii) exercise any right to rescind or annul a declaration that the principal of all the Debentures shall be due and payable, or (iv) consent to any amendment, modification or termination of the Indenture or the Debentures, where such consent shall be required, without, in each case, obtaining the prior approval of the Holders of at least a majority in Liquidation Amount of all Outstanding Preferred Securities; provided, however, that where a consent under the Indenture would require the consent of each holder of Debentures affected thereby, no such consent shall be given by the Property Trustee without the prior written consent of each Holder of Preferred Securities. The Trustees shall not revoke any action previously authorized or approved by a vote of the Holders of Preferred Securities, except by a subsequent vote of the Holders of Preferred Securities. The Property Trustee shall notify all Holders of the Preferred Securities of any notice of default received from the Debenture Trustee with respect to the Debentures. In addition to obtaining the foregoing approvals of the Holders of the Preferred Securities, prior to taking any of the foregoing actions, the Trustees shall, at the expense of the Depositor, obtain an Opinion of Counsel rendered by counsel experienced in such matters to the effect that the Trust will not be classified as an association taxable as a corporation for United States Federal income tax purposes on account of such action. (c) If any proposed amendment to the Trust Agreement provides for, or the Trustees otherwise propose to effect, (i) any action that would adversely affect in any material respect the powers, preferences or special rights of the Preferred Securities, whether by way of amendment to the Trust Agreement or otherwise, or (ii) the dissolution, winding-up or termination of the Trust, other than pursuant to the terms of this Trust Agreement, then the Holders of Outstanding Preferred Securities as a class will be entitled to vote on such amendment or proposal and such amendment or proposal shall not be effective except with the approval of the Holders of at least a majority in Liquidation Amount of the Outstanding Preferred Securities. No amendment to this Trust Agreement may be made if, as a result of such amendment, the Trust would be classified as an association taxable as a corporation for United States federal income tax purposes. Section 6.2 Notice of Meetings. 36 Notice of all meetings of the Preferred Securityholders, stating the time, place and purpose of the meeting, shall be given by the Property Trustee pursuant to Section 10.8 to each Preferred Securityholder of record, at his registered address, at least 15 days and not more than 90 days before the meeting. At any such meeting, any business properly before the meeting may be so considered whether or not stated in the notice of the meeting. Any adjourned meeting may be held as adjourned without further notice. Section 6.3 Meetings of Preferred Securityholders. No annual meeting of Securityholders is required to be held. The Administrative Trustees, however, shall call a meeting of Securityholders to vote on any matter upon the written request of the Preferred Securityholders of record of 25% of the Preferred Securities (based upon their Liquidation Amount) and the Administrative Trustees or the Property Trustee may, at any time in their discretion, call a meeting of Preferred Securityholders to vote on any matters as to which Preferred Securityholders are entitled to vote. Preferred Securityholders of record of 50% of the Outstanding Preferred Securities (based upon their Liquidation Amount), present in person or by proxy, shall constitute a quorum at any meeting of Securityholders. If a quorum is present at a meeting, an affirmative vote by the Preferred Securityholders of record present, in person or by proxy, holding a majority of the Preferred Securities (based upon their Liquidation Amount) held by the Preferred Securityholders of record present, either in person or by proxy, at such meeting shall constitute the action of the Securityholders, unless this Trust Agreement requires a greater number of affirmative votes. Section 6.4 Voting Rights. Securityholders shall be entitled to one vote for each $25 of Liquidation Amount represented by their Trust Securities in respect of any matter as to which such Securityholders are entitled to vote. Section 6.5 Proxies, etc. At any meeting of Securityholders, any Securityholder entitled to vote thereat may vote by proxy, provided that no proxy shall be voted at any meeting unless it shall have been placed on file with the Administrative Trustees, or with such other officer or agent of the Trust as the Administrative Trustees may direct, for verification prior to the time at which such vote shall be taken. Pursuant to a resolution of the Property Trustee, proxies may be solicited in the name of the Property Trustee or one or more officers of the Property Trustee. Only Securityholders of record shall be entitled to vote. When Trust Securities are held jointly by several Persons, any one of them may vote at any meeting in person or by proxy in respect of such Trust Securities, but if more than one of them shall be present at such meeting in person or by proxy, and such joint owners or their proxies so present disagree as to any vote to be cast, such vote shall not be received in respect of such Trust Securities. A proxy purporting to be executed by or on behalf of a Securityholder shall be deemed valid unless challenged at or prior to its exercise, and the burden of proving invalidity shall rest on the challenger. No proxy shall be valid more than three years after its date of execution. 37 Section 6.6 Securityholder Action by Written Consent. Any required approval or action which may be given or taken by Securityholders at a meeting convened for such purpose may be given or taken without a meeting and without prior notice if Securityholders holding a majority of all Outstanding Trust Securities (based upon their Liquidation Amount) entitled to vote in respect of such action (or such larger proportion thereof as shall be required by any express provision of this Trust Agreement) shall consent to the action in writing. Section 6.7 Record Date for Voting and Other Purposes. For the purposes of determining the Securityholders who are entitled to notice of and to vote at any meeting or to act by written consent, or to participate in any distribution on the Trust Securities in respect of which a record date is not otherwise provided for in this Trust Agreement, or for the purpose of any other action, the Administrative Trustees may from time to time fix a date, not more than 90 days prior to the date of any meeting of Securityholders or the payment of a distribution or other action, as the case may be, as a record date for the determination of the identity of the Securityholders of record for such purposes. Section 6.8 Acts of Securityholders. Any request, demand, authorization, direction, notice, consent, waiver or other action provided or permitted by this Trust Agreement to be given, made or taken by Securityholders or Owners may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Securityholders or Owners in person or by an agent duly appointed in writing; and, except as otherwise expressly provided herein, such action shall become effective when such instrument or instruments are delivered to an Administrative Trustee. Such instrument or instruments (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Securityholders or Owners signing such instrument or instruments. Proof of execution of any such instrument or of a writing appointing any such agent shall be sufficient for any purpose of this Trust Agreement and (subject to Section 8.1) conclusive in favor of the Trustees, if made in the manner provided in this Section. The fact and date of the execution by any Person of any such instrument or writing may be proved by the affidavit of a witness of such execution or by a certificate of a notary public or other officer authorized by law to take acknowledgments of deeds, certifying that the individual signing such instrument or writing acknowledged to him the execution thereof. Where such execution is by a signer acting in a capacity other than his individual capacity, such certificate or affidavit shall also constitute sufficient proof of his authority. The fact and date of the execution of any such instrument or writing, or the authority of the Person executing the same, may also be proved in any other manner which any Trustee receiving the same deems sufficient. The ownership of Preferred Securities shall be proved by the Securities Register. Any request, demand, authorization, direction, notice, consent, waiver or other Act of the Securityholder of any Trust Security shall bind every future Securityholder of the same Trust Security and the Securityholder of every Trust Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done, omitted or suffered to be done by the Trustees or the 38 Trust in reliance thereon, whether or not notation of such action is made upon such Trust Security. Without limiting the foregoing, a Securityholder entitled hereunder to take any action hereunder with regard to any particular Trust Security may do so with regard to all or any part of the Liquidation Amount of such Trust Security or by one or more duly appointed agents each of which may do so pursuant to such appointment with regard to all or any part of such Liquidation Amount. If any dispute shall arise between the Securityholders and the Administrative Trustees or among such Securityholders or Trustees with respect to the authenticity, validity or binding nature of any request, demand, authorization, direction, consent, waiver or other Act of such Securityholder or Trustee under this Article VI, then the determination of such matter by the Property Trustee shall be conclusive with respect to such matter. Section 6.9 Inspection of Records. Upon reasonable notice to the Administrative Trustees and the Property Trustee, the records of the Trust shall be open to inspection by Securityholders during normal business hours for any purpose reasonably related to such Securityholder's interest as a Securityholder. ARTICLE VII. REPRESENTATIONS AND WARRANTIES Section 7.1 Representations and Warranties of the Property Trustee and the Delaware Trustee. The Property Trustee and the Delaware Trustee, each severally on behalf of and solely as each such representation or warranty applies to itself, hereby represents and warrants for the benefit of the Depositor and the Securityholders that: (a) the Property Trustee is a national banking association duly organized, validly existing and in good standing under the laws of the United States, and the Delaware Trustee is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; (b) each of the Property Trustee and the Delaware Trustee has full corporate power, authority and legal right to execute, deliver and perform its obligations under this Trust Agreement and has taken all necessary action to authorize the execution, delivery and performance by it of this Trust Agreement, and, in the case of the Delaware Trustee, satisfies for the Trust Section 3807(a) of the Delaware Business Trust Act; (c) this Trust Agreement has been duly authorized, executed and delivered by each of the Property Trustee and the Delaware Trustee and constitutes the respective valid and legally binding agreement of each of the Property Trustee and the Delaware Trustee enforceable against it in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles; (d) the execution, delivery and performance by each of the Property Trustee and the Delaware Trustee of this Trust Agreement has been duly authorized by all necessary corporate or other action on the part of the Property Trustee or the Delaware Trustee, as the case may be, and 39 does not require any approval of stockholders of the Property Trustee or the Delaware Trustee, and such execution, delivery and performance will not (i) violate the Property Trustee's or the Delaware Trustee's Charter or By-laws, (ii) violate any provision of, or constitute, with or without notice or lapse of time, a default under, or result in the creation or imposition of, any Lien on any properties included in the Trust Property pursuant to the provisions of, any indenture, mortgage, credit agreement, license or other agreement or instrument to which the Property Trustee or the Delaware Trustee, as the case may be, is a party or by which it is bound, or (iii) violate any law, governmental rule or regulation of the United States or the State of Delaware, as the case may be, governing the corporate, banking or trust powers of the Property Trustee or the Delaware Trustee (as appropriate in context) or any order, judgment or decree applicable to the Property Trustee or the Delaware Trustee; (e) neither the authorization, execution or delivery by the Property Trustee or the Delaware Trustee, as the case may be, of this Trust Agreement nor the consummation of any of the transactions by the Property Trustee or the Delaware Trustee, as the case may be, contemplated herein or therein requires the consent or approval of, the giving of notice to, the registration with or the taking of any other action with respect to any governmental authority or agency under any existing Federal law governing the corporate, banking or trust powers of the Property Trustee or the Delaware Trustee, as appropriate in context, under the laws of the United States or the State of Delaware; and (f) there are no proceedings pending or, to the best of each of the Property Trustee's and the Delaware Trustee's knowledge, threatened against or affecting the Property Trustee or the Delaware Trustee in any court or before any governmental authority, agency or arbitration board or tribunal which, individually or in the aggregate, would materially and adversely affect the Trust or would question the right, power and authority of the Property Trustee or the Delaware Trustee, as the case may be, to enter into or perform its obligations as one of the Trustees under this Trust Agreement. Section 7.2 Representations and Warranties of Depositor. The Depositor hereby represents and warrants for the benefit of the Securityholders that the Trust Securities Certificates issued at each Time of Delivery on behalf of the Trust have been duly authorized and will have been, duly and validly executed, issued and delivered by the Trustees pursuant to the terms and provisions of, and in accordance with the requirements of, this Trust Agreement and the Securityholders will be, as of each such date, entitled to the benefits of this Trust Agreement. ARTICLE VIII. THE TRUSTEES Section 8.1 Certain Duties and Responsibilities. (a) The duties and responsibilities of the Trustees shall be as provided by this Trust Agreement and, in the case of the Property Trustee, subject to the Trust Indenture Act. Notwithstanding the foregoing, no provision of this Trust Agreement shall require the Trustees to 40 expend or risk their own funds or otherwise incur any financial liability in the performance of any of their duties hereunder, or in the exercise of any of their rights or powers, if they shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it. Whether or not therein expressly so provided, every provision of this Trust Agreement relating to the conduct or affecting the liability of or affording protection to the Trustees shall be subject to the provisions of this Section. To the extent that, at law or in equity, an Administrative Trustee has duties (including fiduciary duties) and liabilities relating thereto to the Trust or to the Securityholders, such Administrative Trustee shall not be liable to the Trust or to any Securityholder for such Trustee's good faith reliance on the provisions of this Trust Agreement. The provisions of this Trust Agreement, to the extent that they restrict the duties and liabilities of the Administrative Trustees otherwise existing at law or in equity, are agreed by the Depositor and the Securityholders to replace such other duties and liabilities of the Administrative Trustees. (b) All payments made by the Property Trustee or a Paying Agent in respect of the Trust Securities shall be made only from the revenue and proceeds from the Trust Property and only to the extent that there shall be sufficient revenue or proceeds from the Trust Property to enable the Property Trustee or a Paying Agent to make payments in accordance with the terms hereof. Each Securityholder, by its acceptance of a Trust Security, agrees that it will look solely to the revenue and proceeds from the Trust Property to the extent legally available for distribution to it as herein provided and that the Trustees are not personally liable to it for any amount distributable in respect of any Trust Security or for any other liability in respect of any Trust Security. This Section 8.1(b) does not limit the liability of the Trustees expressly set forth elsewhere in this Trust Agreement and, in the case of the Property Trustee, in the Trust Indenture Act. (c) No provision of this Trust Agreement shall be construed to relieve the Property Trustee from liability for its own bad faith, negligence or willful misconduct, except that: (i) the Property Trustee undertakes to perform only those duties specifically set forth in this Agreement, provided that, it must exercise the same degree of care as a prudent person would exercise in the conduct of his or her own affairs; (ii) the Property Trustee shall not be liable for any error of judgment made in good faith by an authorized officer of the Property Trustee, unless it shall be proved that the Property Trustee was negligent in ascertaining the pertinent facts; (iii) the Property Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a majority in Liquidation Amount of the Trust Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Property Trustee, or exercising any trust or power conferred upon the Property Trustee under this Trust Agreement; (iv) the Property Trustee's sole duty with respect to the custody, safe keeping and physical preservation of the Debentures and the Payment Account shall be to deal with such Property in a similar manner as the Property Trustee deals with similar property for its own account, subject to the protections and limitations on liability afforded to the Property Trustee under this Trust Agreement and the Trust Indenture Act; (v) the Property Trustee shall not be liable for any interest on any money received by it except as it may otherwise agree with the Depositor; and money held by the Property Trustee need not be segregated from other funds held by it except in relation to the Payment Account maintained by the Property Trustee pursuant to Section 3.1 and except to the extent otherwise 41 required by law; and (vi) the Property Trustee shall not be responsible for monitoring the compliance by the Administrative Trustees or the Depositor with their respective duties under this Trust Agreement, nor shall the Property Trustee be liable for the default or misconduct of the Administrative Trustees or the Depositor. Section 8.2 Certain Notices. Within ninety (90) Business Days after the occurrence of any Event of Default actually known to the Property Trustee, the Property Trustee shall transmit, in the manner and to the extent provided in Section 10.8, notice of such Event of Default to the Securityholders, the Administrative Trustees and the Depositor, unless such Event of Default shall have been cured or waived. Within five Business Days after the receipt of notice of the Debenture Issuer's exercise of its right to defer the payment of interest on the Debentures pursuant to the Indenture, the Administrative Trustees shall transmit, in the manner and to the extent provided in Section 10.8, notice of such exercise to the Securityholders and the Property Trustee, unless such exercise shall have been revoked. Section 8.3 Certain Rights of Property Trustee. Subject to the provisions of Section 8.1: (a) the Property Trustee may rely and shall be protected in acting or refraining from acting in good faith upon any resolution, Opinion of Counsel, certificate, written representation of a Holder or transferee, certificate of auditors or any other certificate, statement, instrument, opinion, report, notice, request, consent, order, appraisal, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed or presented by the proper party or parties; (b) if (i) in performing its duties under this Trust Agreement the Property Trustee is required to decide between alternative courses of action or (ii) in construing any of the provisions of this Trust Agreement the Property Trustee finds the same ambiguous or inconsistent with any other provisions contained herein or (iii) the Property Trustee is unsure of the application of any provision of this Trust Agreement, then, except as to any matter as to which the Preferred Securityholders are entitled to vote under the terms of this Trust Agreement, the Property Trustee shall deliver a notice to the Depositor requesting written instructions of the Depositor as to the course of action to be taken and the Property Trustee shall take such action, or refrain from taking such action, as the Property Trustee shall be instructed in writing to take, or to refrain from taking, by the Depositor and the Property Trustee shall be fully protected in acting in accordance with such instructions; provided, however, that if the Property Trustee does not receive such instructions of the Depositor within ten (10) Business Days after it has delivered such notice, or such reasonably shorter period of time set forth in such notice (which to the extent practicable shall not be less than two (2) Business Days), it may, but shall be under no duty to, take or refrain from taking such action not inconsistent with this Trust Agreement as it shall deem advisable and in the best interests of the Securityholders, in which event the Property Trustee shall have no liability except for its own bad faith, negligence or willful misconduct; 42 (c) any direction or act of the Depositor or the Administrative Trustees contemplated by this Trust Agreement shall be sufficiently evidenced by an Officers' Certificate; (d) whenever in the administration of this Trust Agreement, the Property Trustee shall deem it desirable that a matter be established before undertaking, suffering or omitting any action hereunder, the Property Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and rely upon an Officers' Certificate which, upon receipt of such request, shall be promptly delivered by the Depositor or the Administrative Trustees; (e) the Property Trustee shall have no duty to see to any recording, filing or registration of any instrument (including any financing or continuation statement or any filing under tax or securities laws) or any rerecording, refiling or reregistration thereof; (f) the Property Trustee may consult with counsel (which counsel may be counsel to the Depositor or any of its Affiliates, and may include any of its employees) and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon and in accordance with such advice; the Property Trustee shall have the right at any time to seek instructions concerning the administration of this Trust Agreement from any court of competent jurisdiction; (g) the Property Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Trust Agreement at the request or direction of any of the Securityholders pursuant to this Trust Agreement, unless such Securityholders shall have offered to the Property Trustee reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (h) the Property Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order, approval, bond, debenture, note or other evidence of indebtedness or other paper or document, unless requested in writing to do so by one or more Securityholders, but the Property Trustee may make such further inquiry or investigation into such facts or matters as it may see fit; (i) the Property Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through its agents or attorneys, provided that the Property Trustee shall be responsible for its own negligence or recklessness with respect to selection of any agent or attorney appointed by it hereunder; (j) whenever in the administration of this Trust Agreement the Property Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Property Trustee (i) may request instructions from the Holders of the Trust Securities which instructions may only be given by the Holders of the same proportion in Liquidation Amount of the Trust Securities as would be entitled to direct the Property Trustee under the terms of the Trust Securities in respect of such remedy, right or action, (ii) may refrain from enforcing such remedy or right or taking such other action until such instructions are 43 received, and (iii) shall be protected in acting in accordance with such instructions; and (k) except as otherwise expressly provided by this Trust Agreement, the Property Trustee shall not be under any obligation to take any action that is discretionary under the provisions of this Trust Agreement. No provision of this Trust Agreement shall be deemed to impose any duty or obligation on the Property Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it, in any jurisdiction in which it shall be illegal, or in which the Property Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts, or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Property Trustee shall be construed to be a duty. Section 8.4 Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in the Trust Securities Certificates shall be taken as the statements of the Depositor, and the Trustees do not assume any responsibility for their correctness. The Trustees shall not be accountable for the use or application by the Debenture Issuer of the proceeds of the Debentures. Section 8.5 May hold Securities. Any Trustee or any other agent of any Trustee or the Trust, in its individual or any other capacity, may become the owner or pledgee of Trust Securities and, except as otherwise provided in the definition of "Outstanding" in Article I and subject to Sections 8.8 and 8.13, may otherwise deal with the Trust with the same rights it would have if it were not a Trustee or such other agent. Section 8.6 Compensation; Indemnity; Fees. The Depositor agrees: (a) to pay to the Trustees from time to time reasonable compensation for all services rendered by them hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (b) except as otherwise expressly provided herein, to reimburse the Trustees upon request for all reasonable expenses, disbursements and advances incurred or made by the Trustees in accordance with any provision of this Trust Agreement (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to its bad faith, negligence or willful misconduct; and (c) to indemnify each of the Trustees and their agents, officers, directors and employees or any predecessor Trustee for, and to hold them harmless against, any loss, damage, claims, liability, penalty or expense incurred without bad faith, negligence or willful misconduct on their 44 part, arising out of or in connection with the acceptance or administration of this Trust Agreement, including the costs and expenses of defending themselves against any claim or liability in connection with the exercise or performance of any of their powers or duties hereunder. The provisions of this Section 8.6 shall survive the termination of this Trust Agreement or the resignation or removal of any Trustee. No Trustee may claim any lien or charge on any Trust Property as a result of any amount due pursuant to this Section 8.6. Section 8.7 Corporate Property Trustee Required; Eligibility of Trustees. (a) There shall at all times be a Property Trustee hereunder. The Property Trustee shall be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital and surplus of at least $50,000,000. If any such Person publishes reports of condition at least annually, pursuant to law or to the requirements of its supervising or examining authority, then for the purposes of this Section, the combined capital and surplus of such Person shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. If at any time the Property Trustee with respect to the Trust Securities shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. (b) There shall at all times be one or more Administrative Trustees hereunder. Each Administrative Trustee shall be either a natural person who is at least 21 years of age or a legal entity that shall act through one or more persons authorized to bind that entity. (c) There shall at all times be a Delaware Trustee. The Delaware Trustee shall either be (i) a natural person who is at least 21 years of age and a resident of the State of Delaware or (ii) a legal entity with its principal place of business in the State of Delaware and that otherwise meets the requirements of applicable Delaware law that shall act through one or more persons authorized to bind such entity. Section 8.8 Conflicting Interests. If the Property Trustee has or shall acquire a conflicting interest within the meaning of the Trust Indenture Act, the Property Trustee shall either eliminate such interest or resign, to the extent and in the manner provided by, and subject to the provisions of, the Trust Indenture Act and this Trust Agreement. Subject to the foregoing, the Depositor and any Trustee 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 Trust, and the Trust and the Holders shall have no rights by virtue of this Trust Agreement in and to such independent ventures or the income or profits derived therefrom, and the pursuit of any such venture, even if competitive with the business of the Trust, shall not be deemed wrongful or improper. Neither the Depositor, nor any Trustee, shall be obligated to present any particular investment or other opportunity to the Trust even if such opportunity is of a character that, if presented to the Trust, could be taken by the Trust, and the Depositor or any Trustee shall have the right to take for its own account (individually or as a partner or fiduciary) or to recommend to others any such particular 45 investment or other opportunity. Any Trustee may engage in any financial or other transaction with the Depositor or any Affiliate of the Depositor, or may act as depository for, trustee or agent for, or act on any committee or body of holders of, securities or other obligations of the Depositor or its Affiliates. Section 8.9 Co-Trustees and Separate Trustee. Unless an Event of Default shall have occurred and be continuing, at any time or times, for the purpose of meeting the legal requirements of the Trust Indenture Act or of any jurisdiction in which any part of the Trust Property may at the time be located, the Depositor and the Administrative Trustees, by agreed action of the majority of such Trustees, shall have power to appoint, and upon the written request of the Administrative Trustees, the Depositor shall for such purpose join with the Administrative Trustees in the execution, delivery, and performance of all instruments and agreements necessary or proper to appoint, one or more Persons approved by the Property Trustee either to act as co- trustee, jointly with the Property Trustee, of all or any part of such Trust Property, or to the extent required by law to act as separate trustee of any such property, in either case with such powers as may be provided in the instrument of appointment, and to vest in such Person or Persons in the capacity aforesaid, any property, title, right or power deemed necessary or desirable, subject to the other provisions of this Section. If the Depositor does not join in such appointment within 15 days after the receipt by it of a request so to do, or in case a Debenture Event of Default has occurred and is continuing, the Property Trustee alone shall have power to make such appointment. Any co- trustee or separate trustee appointed pursuant to this Section shall either be (i) a natural person who is at least 21 years of age and a resident of the United States or (ii) a legal entity with its principal place of business in the United States that shall act through one or more persons authorized to bind such entity. Should any written instrument from the Depositor be required by any co- trustee or separate trustee so appointed for more fully confirming to such co- trustee or separate trustee such property, title, right, or power, any and all such instruments shall, on request, be executed, acknowledged and delivered by the Depositor. Every co-trustee or separate trustee shall, to the extent permitted by law, but to such extent only, be appointed subject to the following terms, namely: (a) The Trust Securities shall be executed and delivered and all rights, powers, duties, and obligations hereunder in respect of the custody of securities, cash and other personal property held by, or required to be deposited or pledged with, the Trustees specified hereunder, shall be exercised, solely by such Trustees and not by such co-trustee or separate trustee. (b) The rights, powers, duties, and obligations hereby conferred or imposed upon the Property Trustee in respect of any property covered by such appointment shall be conferred or imposed upon and exercised or performed by the Property Trustee or by the Property Trustee and such co-trustee or separate trustee jointly, as shall be provided in the instrument appointing such co-trustee or separate trustee, except to the extent that under any law of any jurisdiction in which any particular act is to be performed, the Property Trustee shall be incompetent or unqualified to perform such act, in which event such rights, powers, duties and obligations shall be exercised and performed by such co- trustee or separate trustee. 46 (c) The Property Trustee at any time, by an instrument in writing executed by it, with the written concurrence of the Depositor, may accept the resignation of or remove any co-trustee or separate trustee appointed under this Section, and, in case a Debenture Event of Default has occurred and is continuing, the Property Trustee shall have power to accept the resignation of, or remove, any such co-trustee or separate trustee without the concurrence of the Depositor. Upon the written request of the Property Trustee, the Depositor shall join with the Property Trustee in the execution, delivery and performance of all instruments and agreements necessary or proper to effectuate such resignation or removal. A successor to any co-trustee or separate trustee so resigned or removed may be appointed in the manner provided in this Section. (d) No co-trustee or separate trustee hereunder shall be personally liable by reason of any act or omission of the Property Trustee or any other trustee hereunder. (e) The Property Trustee shall not be liable by reason of any act of a co- trustee or separate trustee. (f) Any Act of Holders delivered to the Property Trustee shall be deemed to have been delivered to each such co-trustee and separate trustee. Section 8.10 Resignation and Removal; Appointment of Successor. No resignation or removal of any Trustee (the "Relevant Trustee") and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee in accordance with the applicable requirements of Section 8.11. Subject to the immediately preceding sentence, the Relevant Trustee may resign at any time with respect to the Trust Securities by giving written notice thereof to the Depositor. If the instrument of acceptance by the successor Trustee required by Section 8.11 shall not have been delivered to the Relevant Trustee within 30 days after the giving of such notice of resignation, the Relevant Trustee may petition, at the expense of the Depositor, any court of competent jurisdiction for the appointment of a successor Relevant Trustee with respect to the Trust Securities. Unless a Debenture Event of Default shall have occurred and be continuing, any Trustee may be removed at any time by Act of the Common Securityholder. If a Debenture Event of Default shall have occurred and be continuing, the Property Trustee or the Delaware Trustee, or both of them, may be removed at such time by Act of the Holders of a majority in Liquidation Amount of the Preferred Securities, delivered to the Relevant Trustee (in its individual capacity and on behalf of the Trust). In no event will the Holders of Preferred Securities have the right to vote to appoint, remove or replace the Administrative Trustees. An Administrative Trustee may be removed by Act of the Common Securityholder at any time. If any Trustee shall resign, be removed or become incapable of acting as Trustee, or if a vacancy shall occur in the office of any Trustee for any cause, at a time when no Debenture Event of Default shall have occurred and be continuing, the Common Securityholder, by Act of the Common Securityholder delivered to the retiring Trustee, shall promptly appoint a successor Trustee or Trustees with respect to the Trust Securities and the Trust, and the retiring Trustee shall comply with the applicable requirements of Section 8.11. If the Property Trustee or the Delaware Trustee shall resign, be removed or become incapable of continuing to act as the 47 Property Trustee or the Delaware Trustee, as the case may be, at a time when a Debenture Event of Default shall have occurred and be continuing, the Preferred Securityholders, by Act of the Securityholders of a majority in Liquidation Amount of the Preferred Securities then Outstanding delivered to the retiring Relevant Trustee, shall promptly appoint a successor Relevant Trustee or Trustees with respect to the Trust Securities and the Trust, and such successor Trustee shall comply with the applicable requirements of Section 8.11. If an Administrative Trustee shall resign, be removed or become incapable of acting as Administrative Trustee, at a time when a Debenture Event of Default shall have occurred and be continuing, the Common Securityholder by Act of the Common Securityholder delivered to the Administrative Trustee shall promptly appoint a successor Administrative Trustee or Administrative Trustees with respect to the Trust Securities and the Trust, and such successor Administrative Trustee or Trustees shall comply with the applicable requirements of Section 8.11. If no successor Relevant Trustee with respect to the Trust Securities shall have been so appointed by the Common Securityholder or the Preferred Securityholders and accepted appointment in the manner required by Section 8.11, any Securityholder who has been a Securityholder of Trust Securities for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Relevant Trustee with respect to the Trust Securities. The Depositor shall give notice of each resignation and each removal of the Property Trustee or the Delaware Trustee and each appointment of a successor Property Trustee or Delaware Trustee to all Securityholders in the manner provided in Section 10.8. Each notice shall include the name of the successor Relevant Trustee and the address of its Corporate Trust Office if it is the Property Trustee. Notwithstanding the foregoing or any other provision of this Trust Agreement, in the event any Administrative Trustee or a Delaware Trustee who is a natural person dies or becomes, in the opinion of the Depositor, incompetent or incapacitated, the vacancy created by such death, incompetence or incapacity may be filled by (a) the unanimous act of remaining Administrative Trustees if there are at least two of them or (b) otherwise by the Depositor (with the successor in each case being a Person who satisfies the eligibility requirement for Administrative Trustees set forth in Section 8.7). Section 8.11 Acceptance of Appointment by Successor. In case of the appointment hereunder of a successor Trustee such successor Trustee so appointed shall execute, acknowledge and deliver to the Trust and to the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee; but, on the request of the Depositor or the successor Trustee, such retiring Trustee shall, upon payment of its charges, execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and if the Property Trustee is the resigning Trustee shall duly assign, transfer and deliver to the successor Trustee all property and money held by such retiring Property Trustee hereunder. In case of the appointment hereunder of a successor Relevant Trustee with respect to the Trust Securities and the Trust, the retiring Relevant Trustee and each successor Relevant Trustee with respect to the Trust Securities shall execute and deliver an amendment hereto wherein each successor Relevant Trustee shall accept such appointment and which 48 (a) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, each successor Relevant Trustee all the rights, powers, trusts and duties of the retiring Relevant Trustee with respect to the Trust Securities and the Trust and (b) shall add to or change any of the provisions of this Trust Agreement as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Relevant Trustee, it being understood that nothing herein or in such amendment shall constitute such Relevant Trustees co-trustees of the same trust and that each such Relevant Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Relevant Trustee and upon the execution and delivery of such amendment the resignation or removal of the retiring Relevant Trustee shall become effective to the extent provided therein and each such successor Relevant Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Relevant Trustee with respect to the Trust Securities and the Trust; but, on request of the Trust or any successor Relevant Trustee such retiring Relevant Trustee shall duly assign, transfer and deliver to such successor Relevant Trustee all Trust Property, all proceeds thereof and money held by such retiring Relevant Trustee hereunder with respect to the Trust Securities and the Trust. Upon request of any such successor Relevant Trustee, the Trust shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Relevant Trustee all such rights, powers and trusts referred to in the first or second preceding paragraph, as the case may be. No successor Relevant Trustee shall accept its appointment unless at the time of such acceptance such successor Relevant Trustee shall be qualified and eligible under this Article. Section 8.12 Merger, Conversion, Consolidation or Succession to Business. Any corporation into which the Property Trustee or the Delaware Trustee (or any Administrative Trustee that is not a natural person) may be merged or converted or with which it may be consolidated, or any corporation resulting from any merger, conversion or consolidation to which such Relevant Trustee shall be a party, shall be the successor of such Relevant Trustee hereunder, provided such corporation shall be otherwise qualified and eligible under this Article, without the execution or filing of any paper or any further act on the part of any of the parties hereto. Section 8.13 Preferential Collection of Claims Against Depositor, Debenture Issuer or Trust. If and when the Property Trustee or the Delaware Trustee shall be or become a creditor of the Depositor, the Debenture Issuer or the Trust (or any other obligor upon the Debentures or the Trust Securities), the Property Trustee or the Delaware Trustee, as the case may be, shall be subject to and shall take all actions necessary in order to comply with the provisions of the Trust Indenture Act regarding the collection of claims against the Depositor, Debenture Issuer or Trust (or any such other obligor). Section 8.14 Reports by Property Trustee. (a) Within 60 days after September 15 of each year commencing with the first September 15 49 following the first issuance of Preferred Securities pursuant to this Trust Agreement, the Property Trustee shall transmit to all Securityholders in accordance with Section 10.8, and to the Depositor, a brief report dated as of such September 15 with respect to: (i) its eligibility under Section 8.7 or, in lieu thereof, if to the best of its knowledge it has continued to be eligible under said Section, a written statement to such effect; (ii) a statement that the Property Trustee has complied with all of its obligations under this Trust Agreement during the twelve-month period (or, in the case of the initial report, the period since the Closing Time) ending with such September 15 or, if the Property Trustee has not complied in any material respect with such obligations, a description of such noncompliance; and (iii) any change in the property and funds in its possession as Property Trustee since the date of its last report and any action taken by the Property Trustee in the performance of its duties hereunder which it has not previously reported and which in its opinion materially affects the Trust Securities. (b) In addition the Property Trustee shall transmit to Securityholders such reports concerning the Property Trustee and its actions under this Trust Agreement as may be required pursuant to the Trust Indenture Act at the times and in the manner provided pursuant thereto. (c) A copy of each such report shall, at the time of such transmission to Holders, be filed by the Property Trustee with each stock exchange, interdealer quotation system or other self-regulatory organization upon which the Trust Securities are listed or traded, with the Commission and with the Depositor. Section 8.15 Reports to the Property Trustee. The Depositor and the Administrative Trustees on behalf of the Trust shall provide to the Property Trustee such documents, reports and information as required by Section 314 of the Trust Indenture Act (if any) and the compliance certificate required by Section 314(a) of the Trust Indenture Act in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act. Section 8.16 Evidence of Compliance with Conditions Precedent. Each of the Depositor and the Administrative Trustees on behalf of the Trust shall provide to the Property Trustee such evidence of compliance with any conditions precedent, if any, provided for in this Trust Agreement that relate to any of the matters set forth in Section 314 (c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to Section 314(c)(1) of the Trust Indenture Act shall be given in the form of an Officers' Certificate. Section 8.17 Number of Trustees. (a) The number of Trustees shall be four, provided that the Holder of all of the Common Securities by written instrument may increase or decrease the number of Administrative Trustees. The Property Trustee and the Delaware Trustee may be the same person if the Property Trustee meets the applicable requirements. 50 (b) If a Trustee ceases to hold office for any reason and the number of Administrative Trustees is not reduced pursuant to Section 8.17(a), or if the number of Trustees is increased pursuant to Section 8.17(a), a vacancy shall occur. The vacancy shall be filled with a Trustee appointed in accordance with Section 8.10. (c) The death, resignation, retirement, removal, bankruptcy, incompetence or incapacity to perform the duties of a Trustee shall not operate to annul, dissolve or terminate the Trust. Whenever a vacancy in the number of Administrative Trustees shall occur, until such vacancy is filled by the appointment of an Administrative Trustee in accordance with Section 8.10, the Administrative Trustees in office, regardless of their number (and notwithstanding any other provision of this Agreement), shall have all the powers granted to the Administrative Trustees and shall discharge all the duties imposed upon the Administrative Trustees by this Trust Agreement. Section 8.18 Delegation of Power. (a) Any Administrative Trustee may, by power of attorney consistent with applicable law, delegate to any other natural person over the age of 21 his or her power for the purpose of executing any documents contemplated in Section 2.7(a), including any registration statement or amendment thereto filed with the Commission, or making any other governmental filing; and (b) The Administrative Trustees shall have power to delegate from time to time to such of their number or to the Depositor the doing of such things and the execution of such instruments either in the name of the Trust or the names of the Administrative Trustees or otherwise as the Administrative Trustees may deem expedient, to the extent such delegation is not prohibited by applicable law or contrary to the provisions of the Trust, as set forth herein. ARTICLE IX. DISSOLUTION, LIQUIDATION, TERMINATION AND MERGER Section 9.1 Dissolution upon Expiration Date. Unless earlier dissolved, the Trust shall automatically dissolve on December 31, 2054 (the "Expiration Date"). Section 9.2 Early Dissolution. The first to occur of any of the following events is an "Early Termination Event", upon the occurrence of which the Trust shall be dissolved: (a) the occurrence of a Bankruptcy Event in respect of, or the dissolution or liquidation of, the Debenture Issuer or the Debenture Guarantor; (b) the written direction to the Property Trustee from the Depositor at any time (which direction is optional and wholly within the discretion of the Depositor) to dissolve the Trust and distribute a Like Amount of Debentures to Securityholders in exchange for the Trust Securities; 51 (c) the redemption of all of the Trust Securities in connection with the redemption of all the Debentures; and (d) the entry of an order for dissolution of the Trust by a court of competent jurisdiction. Section 9.3 Termination. The respective obligations and responsibilities of the Trustees and the Trust shall terminate upon the latest to occur of the following: (a) the distribution by the Property Trustee to Securityholders upon the liquidation of the Trust pursuant to Section 9.4, or upon the redemption of all of the Trust Securities pursuant to Section 4.2, of all amounts required to be distributed hereunder upon the final payment of the Trust Securities; (b) the payment of any expenses owed by the Trust; and (c) the discharge of all administrative duties of the Administrative Trustees, including the performance of any tax reporting obligations with respect to the Trust or the Securityholders. Section 9.4 Liquidation. (a) If an Early Termination Event specified in clause (a), (b), or (d) of Section 9.2 occurs or upon the Expiration Date, the Trust shall be liquidated by the Trustees as expeditiously as the Trustees determine to be possible by distributing, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, to each Securityholder a Like Amount of Debentures, subject to Section 9.4(e). (b) Notice of liquidation shall be given by the Property Trustee by first- class mail, postage prepaid mailed not later than 30 nor more than 60 days prior to the Liquidation Date to each Holder of Trust Securities at such Holder's address appearing in the Securities Register. All notices of liquidation shall: (i) state the Liquidation Date; (ii) state that from and after the Liquidation Date, the Trust Securities will no longer be deemed to be Outstanding and any Trust Securities Certificates not surrendered for exchange will be deemed to represent a Like Amount of Debentures; and (iii) provide such information with respect to the mechanics by which Holders may exchange Trust Securities Certificates for Debentures, or if Section 9.4(e) applies, receive a Liquidation Distribution, as the Administrative Trustees or the Property Trustee shall deem appropriate. (c) Except where Section 9.2(c) or 9.4(e) applies, in order to effect the liquidation of the Trust and distribution of the Debentures to Securityholders, the Property Trustee shall establish a record date for such distribution (which shall be not more than 45 days prior to the Liquidation Date) and, either itself acting as exchange agent or through the appointment of a separate exchange agent, shall establish such procedures as it shall deem appropriate to effect the distribution of Debentures in exchange for the Outstanding Trust Securities Certificates. 52 (d) Except where Section 9.2(c) or 9.4(e) applies, on and after the Liquidation Date, (i) the Trust Securities will no longer be deemed to be Outstanding, (ii) certificates representing a Like Amount of Debentures will be issued to the Holders of Trust Securities Certificates, upon surrender of such certificates to the Administrative Trustees or their agent for exchange, (iii) the Depositor shall cause the Debenture Issuer to use its reasonable efforts to have the Debentures listed or traded on the such stock exchange, interdealer quotation system and/or other self-regulatory organization as the Preferred Securities are then listed or traded, (iv) any Trust Securities Certificates not so surrendered for exchange will be deemed to represent a Like Amount of Debentures, accruing interest at the rate provided for in the Debentures from the last Distribution Date on which a Distribution was made on such Trust Securities Certificates until such certificates are so surrendered (and until such certificates are so surrendered, no payments of interest or principal will be made to Holders of Trust Securities Certificates with respect to such Debentures) and (v) all rights of Securityholders holding Trust Securities will cease, except the right of such Securityholders to receive Debentures upon surrender of Trust Securities Certificates. (e) In the event that, notwithstanding the other provisions of this Section 9.4, whether because of an order for dissolution entered by a court of competent jurisdiction or otherwise, distribution of the Debentures in the manner provided herein is determined by the Property Trustee not to be practical, the Trust Property shall be liquidated, and the Trust shall be wound-up and terminated by the Property Trustee in such manner as the Property Trustee determines. In such event, Securityholders will be entitled to receive out of the assets of the Trust available for distribution to Securityholders, after satisfaction of liabilities to creditors of the Trust as provided by applicable law, an amount equal to the Liquidation Amount per Trust Security plus accumulated and unpaid Distributions thereon to the date of payment (such amount being the "Liquidation Distribution"). If, upon any such winding up, the Liquidation Distribution can be paid only in part because the Trust has insufficient assets available to pay in full the aggregate Liquidation Distribution, then, subject to the next succeeding sentence, the amounts payable by the Trust on the Trust Securities shall be paid on a pro rata basis (based upon Liquidation Amounts). The Holder of the Common Securities will be entitled to receive Liquidation Distributions upon any such dissolution pro rata (determined as aforesaid) with Holders of Preferred Securities, except that, if a Debenture Event of Default has occurred and is continuing, the Preferred Securities shall have a priority over the Common Securities. Section 9.5 Mergers, Consolidations, Amalgamations or Replacements of the Trust. The Trust may not merge with or into, convert into, consolidate, amalgamate, or be replaced by, or convey, transfer or lease its properties and assets substantially as an entirety to any corporation or other entity, except pursuant to this Section 9.5 or Section 9.4. The Trust may, at the request of the Depositor, with the consent of only the Administrative Trustees and without the consent of the Holders of the Preferred Securities, merge with or into, convert into, consolidate, amalgamate, or be replaced by or convey, transfer or lease its properties and assets substantially as an entirety to a trust organized as such under the laws of any State; provided, that (i) such successor entity either (a) expressly assumes all of the obligations of the Trust with respect to the Preferred Securities or (b) substitutes for the Preferred Securities other securities 53 having substantially the same terms as the Preferred Securities (the "Successor Securities") so long as the Successor Securities rank the same as the Preferred Securities rank in priority with respect to distributions and payments upon liquidation, redemption and otherwise, (ii) the Depositor expressly appoints a trustee of such successor entity possessing the same powers and duties as the Property Trustee as the holder of the Debentures, (iii) the Successor Securities are listed or traded, or any Successor Securities will be listed upon notification of issuance, on any national securities exchange or other organization on which the Preferred Securities are then listed or traded, if any, (iv) such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease does not cause the Preferred Securities (including any Successor Securities) to be downgraded by any nationally recognized statistical rating organization, (v) such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the Holders of the Preferred Securities (including any Successor Securities) in any material respect, (vi) such successor entity has a purpose substantially identical to that of the Trust, (vii) prior to such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease, the Depositor has received an Opinion of Counsel rendered by independent counsel experienced in such matters to the effect that (a) such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease does not adversely affect the rights, preferences and privileges of the Holders of the Preferred Securities (including any Successor Securities) in any material respect, and (b) following such merger, conversion, consolidation, amalgamation, replacement, conveyance, transfer or lease, neither the Trust nor such successor entity will be required to register as an investment company under the Investment Company Act and (viii) the Depositor (or any permitted successor or assignee) owns all of the common securities of such successor entity and guarantees the obligations of such successor entity under the Successor Securities at least to the extent provided by the Guarantee. Notwithstanding the foregoing, the Trust shall not, except with the consent of holders of 100% in Liquidation Amount of the Preferred Securities, consolidate, amalgamate, merge with or into, convert into, or be replaced by or convey, transfer or lease its properties and assets substantially as an entirety to any other entity or permit any other entity to consolidate, amalgamate, merge with or into, convert into, or replace it if such consolidation, amalgamation, merger, conversion, replacement, conveyance, transfer or lease would cause the Trust or the successor entity to be classified as other than a grantor trust for United States Federal income tax purposes. ARTICLE X. MISCELLANEOUS PROVISIONS Section 10.1 Limitation of Rights of Securityholders. The death or incapacity of any person having an interest, beneficial or otherwise, in Trust Securities shall not operate to terminate this Trust Agreement, nor entitle the legal representatives or heirs of such person or any Securityholder for such person, to claim an accounting, take any action or bring any proceeding in any court for a partition or winding up of the arrangements contemplated hereby, nor otherwise affect the rights, obligations and liabilities of the parties hereto or any of them. 54 Section 10.2 Amendment. (a) This Trust Agreement may be amended from time to time by the Trustees and the Depositor, without the consent of any Securityholders, (i) to cure any ambiguity, correct or supplement any provision herein which may be inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Trust Agreement, which shall not be inconsistent with the other provisions of this Trust Agreement, or (ii) to modify, eliminate or add to any provisions of this Trust Agreement to such extent as shall be necessary to ensure that the Trust will be classified for United States Federal income tax purposes as a grantor trust at all times that any Trust Securities are outstanding or to ensure that the Trust will not be required to register as an investment company under the Investment Company Act; provided, however, that in the case of clause (i), such action shall not adversely affect in any material respect the interests of any Securityholder. Any such amendments of this Trust Agreement shall become effective when notice thereof is given to the Securityholders. (b) Except as provided in Section 10.2(c) hereof, any provision of this Trust Agreement may be amended by the Trustees and the Depositor with (i) the consent of Trust Securityholders representing not less than a majority (based upon Liquidation Amounts) of the Trust Securities then Outstanding and (ii) receipt by the Trustees of an Opinion of Counsel to the effect that such amendment or the exercise of any power granted to the Trustees in accordance with such amendment will not affect the Trust's status as a grantor trust for United States Federal income tax purposes or the Trust's exemption from status of an investment company under the Investment Company Act. (c) In addition to and notwithstanding any other provision in this Trust Agreement, without the consent of each affected Securityholder, this Trust Agreement may not be amended to (i) change the amount or timing of any Distribution on the Trust Securities or otherwise adversely affect the amount of any Distribution required to be made in respect of the Trust Securities as of a specified date or (ii) restrict the right of a Securityholder to institute suit for the enforcement of any such payment on or after such date. Notwithstanding any other provision herein, without the unanimous consent of the Securityholders, this paragraph (c) of this Section 10.2 may not be amended. (d) Notwithstanding any other provisions of this Trust Agreement, no Trustee shall enter into or consent to any amendment to this Trust Agreement which would cause the Trust to fail or cease to qualify for the exemption from status of an investment company under the Investment Company Act or fail or cease to be classified as a grantor trust for United States Federal income tax purposes. (e) Notwithstanding anything in this Trust Agreement to the contrary, this Trust Agreement may not be amended in a manner which imposes any additional obligation on the Depositor, the Property Trustee or the Delaware Trustee without the consent of the Depositor, the Property Trustee or the Delaware Trustee, as the case may be. (f) In the event that any amendment to this Trust Agreement is made, the Administrative Trustees shall promptly provide to the Depositor a copy of such amendment. 55 (g) Neither the Property Trustee nor the Delaware Trustee shall be required to enter into any amendment to this Trust Agreement which affects its own rights, duties or immunities under this Trust Agreement. The Property Trustee shall be entitled to receive an Opinion of Counsel and an Officers' Certificate stating that any amendment to this Trust Agreement is in compliance with this Trust Agreement. Section 10.3 Separability. In case any provision in this Trust Agreement or in the Trust Securities Certificates shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 10.4 Governing Law. This Trust Agreement and the rights and obligations of each of the Securityholders, the Trust and the Trustees with respect to this Trust Agreement and the Trust Securities shall be construed in accordance with and governed by the laws of the State of Delaware. Section 10.5 Payments due on Non-Business Day. If the date fixed for any payment on any Trust Security shall be a day that is not a Business Day, then such payment need not be made on such date but may be made on the next succeeding day that is a Business Day (except as otherwise provided in Sections 4.1(a) and 4.2(d)), with the same force and effect as though made on the date fixed for such payment, and no interest shall accrue thereon for the period after such date. Section 10.6 Successors. This Trust Agreement shall be binding upon and shall inure to the benefit of any successor to the Depositor, the Trust or the Relevant Trustee, including any successor by operation of law. Except in connection with a consolidation, merger or sale involving the Depositor that is permitted under Article Eight of the Indenture and pursuant to which the assignee agrees in writing to perform the Depositor's obligations hereunder, the Depositor shall not assign its obligations hereunder. Section 10.7 Headings. The Article and Section headings are for convenience only and shall not affect the construction of this Trust Agreement. Section 10.8 Reports, Notices and Demands. Any report, notice, demand or other communication which by any provision of this Trust Agreement is required or permitted to be given or served to or upon any Securityholder or the Depositor may be given or served in writing by deposit thereof, first-class postage prepaid, in the United States mail, hand delivery or facsimile transmission, in each case, addressed, (a) in the case of a Preferred Securityholder, to such Preferred Securityholder as such Securityholder's 56 name and address may appear on the Securities Register; and (b) in the case of the Common Securityholder or the Depositor, to ACE INA Holdings Inc., Two Liberty Place, 1601 Chestnut Street, Philadelphia, Pennsylvania 19101, Attention: General Counsel, facsimile no.: 215-761-5380. Any notice to Preferred Securityholders shall also be given to such owners as have, within two years preceding the giving of such notice, filed their names and addresses with the Property Trustee for that purpose. Such notice, demand or other communication to or upon a Securityholder shall be deemed to have been sufficiently given or made, for all purposes, upon hand delivery, mailing or transmission. Any notice, demand or other communication which by any provision of this Trust Agreement is required or permitted to be given or served to or upon the Trust, the Property Trustee or the Administrative Trustees shall be given in writing addressed (until another address is published by the Trust) as follows: (a) with respect to the Property Trustee, to Bank One Trust Company, National Association, Bank One Plaza, Suite IL1-0126, Chicago, Illinois 60670-0126, Attention: Corporate Trust Services Division; (b) with respect to the Delaware Trustee, to Bank One Delaware, Inc., Three Christina Center, 201 North Walnut Street, Wilmington, Delaware 19801, Attention: Legal Department/First USA; and (c) with respect to the Administrative Trustees, to them at c/o ACE Limited, The ACE Building, 30 Woodbourne Avenue, Hamilton, HM08, Bermuda, Attention: General Counsel, facsimile no.: 441-296-7799, marked "Attention Administrative Trustees of ACE Capital Trust I." Such notice, demand or other communication to or upon the Trust or the Property Trustee shall be deemed to have been sufficiently given or made only upon actual receipt of the writing by the Trust or the Property Trustee. Section 10.9 Agreement not to Petition. Each of the Trustees and the Depositor agree for the benefit of the Securityholders that, until at least one year and one day after the Trust has been dissolved in accordance with Article IX, they shall not file, or join in the filing of, a petition against the Trust under any bankruptcy, insolvency, reorganization or other similar law (including, without limitation, the United States Bankruptcy Code) (collectively, "Bankruptcy Laws") or otherwise join in the commencement of any proceeding against the Trust under any Bankruptcy Law. In the event the Depositor takes action in violation of this Section 10.9, the Property Trustee agrees, for the benefit of Securityholders, that at the expense of the Depositor, it shall file an answer with the bankruptcy court or otherwise properly contest the filing of such petition by the Depositor against the Trust or the commencement of such action and raise the defense that the Depositor has agreed in writing not to take such action and should be stopped and precluded therefrom and such other defenses, if any, as counsel for the Trustee or the Trust may assert. The provisions of this Section 10.9 shall survive the termination of this Trust Agreement. Section 10.10 Trust Indenture Act; Conflict with Trust Indenture Act. (a) This Trust Agreement is subject to the provisions of the Trust Indenture Act that are required to be part of this Trust Agreement and shall, to the extent applicable, be governed by such provisions. (b) The Property Trustee shall be the only Trustee which is a trustee for the purposes of the 57 Trust Indenture Act. (c) If any provision hereof limits, qualifies or conflicts with another provision hereof which is required to be included in this Trust Agreement by any of the provisions of the Trust Indenture Act, such required provision shall control. If any provision of this Trust Agreement modifies or excludes any provision of the Trust Indenture Act which may be so modified or excluded, the latter provision shall be deemed to apply to this Trust Agreement as so modified or excluded, as the case may be. (d) The application of the Trust Indenture Act to this Trust Agreement shall not affect the nature of the Trust Securities as equity securities representing undivided beneficial interests in the assets of the Trust. 58 Section 10.11 Acceptance of Terms of Trust Agreement, Guarantee and Indenture. THE RECEIPT AND ACCEPTANCE OF A TRUST SECURITY OR ANY INTEREST THEREIN BY OR ON BEHALF OF A SECURITYHOLDER OR ANY BENEFICIAL OWNER, WITHOUT ANY SIGNATURE OR FURTHER MANIFESTATION OF ASSENT, SHALL CONSTITUTE THE UNCONDITIONAL ACCEPTANCE BY THE SECURITYHOLDER AND ALL OTHERS HAVING A BENEFICIAL INTEREST IN SUCH TRUST SECURITY OF ALL THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT AND AGREEMENT TO THE SUBORDINATION PROVISIONS AND OTHER TERMS OF THE GUARANTEE AND THE INDENTURE, AND SHALL CONSTITUTE THE AGREEMENT OF THE TRUST, SUCH SECURITYHOLDER AND SUCH OTHERS THAT THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT SHALL BE BINDING, OPERATIVE AND EFFECTIVE AS BETWEEN THE TRUST AND SUCH SECURITYHOLDER AND SUCH OTHERS. ACE INA HOLDINGS INC., as Depositor By: Name: Title: BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, as Property Trustee By: Name: Title: BANK ONE DELAWARE, INC., as Delaware Trustee By: Name: Title: Robert A. Blee, as Administrative Trustee Christopher Z. Marshall, as Administrative Trustee 59 EXHIBIT A-1 ----------- CERTIFICATE OF TRUST OF ACE CAPITAL TRUST I This Certificate of Trust of ACE Capital Trust I (the "Trust"), dated as of May 19, 1999, is being duly executed and filed by the undersigned, as trustees, to form a business trust under the Delaware Business Trust Act (12 Del.C. (S) 3801. et seq.) 1. Name. The name of the business trust formed hereby is ACE Capital Trust I. 2. Delaware Trustee. The name and business address of the trustee of the Trust with a principal place of business in the State of Delaware is Bank One Delaware, Inc., Three Christina Centre, 201 North Walnut Street, Wilmington, Delaware 19801. 3. Effective Date. This Certificate of Trust shall be effective upon filing with the Secretary of State of the State of Delaware. IN WITNESS WHEREOF, the undersigned being the trustees of the Trust, have executed this Certificate of Trust as of the date first above written. THE FIRST NATIONAL BANK OF CHICAGO, not in its individual capacity but solely as trustee of the trust By: _________________________________ Name: Title: BANK ONE DELAWARE, INC., not in its individual capacity but solely as trustee of the Trust By: _________________________________ Name: Title: _______________________________________ ROBERT A. BLEE, not in his individual capacity but solely as trustee of the Trust A-1-61 EXHIBIT A-2 ----------- ASSIGNMENT AND ASSUMPTION AGREEMENT AND FIRST AMENDMENT TO THE TRUST AGREEMENT OF ACE CAPITAL TRUST I This Assignment and Assumption Agreement and First Amendment to the Trust Agreement of ACE Capital Trust I (the "Trust"), dated as of August 5, 1999 (this "Assignment and Amendment Agreement"), is made and entered into by and among ACE Limited, a Cayman Islands company limited by shares, as the original depositor (the "Original Depositor"), ACE INA Holdings Inc., a Delaware corporation, as the substitute depositor (the "Substitute Depositor"), The First National Bank of Chicago, a national banking association, as property trustee (the "Property Trustee"), Bank One Delaware, Inc., a Delaware corporation, as trustee (the "Delaware Trustee"), and Robert A. Blee, an individual, as trustee (the "Administrative Trustee") (the Property Trustee, the Delaware Trustee and the Administrative Trustee being hereinafter collectively referred to as the "Trustees"). WITNESSETH ---------- WHEREAS, the Trust is a Delaware statutory business trust that was created under Chapter 38 of Title 12 of the Delaware Code, 12 Del. C. (S) 3801, et seq. pursuant to (i) the Trust Agreement of the Trust, dated as of May 19, 1999 (the "Trust Agreement"), and (ii) the Certificate of the Trust of the Trust, dated as of May 19, 1999, as filed with the office of the Secretary of State of the State of Delaware on May 19, 1999; WHEREAS, the Original Depositor, as the depositor under the Trust Agreement, desires to assign, transfer and convey all of its right, title and interest in the Trust (the "Depositor's Interest") to the Substitute Depositor, and the Original Depositor desires to cease to be the depositor of the Trust; WHEREAS, the Substitute Depositor desires to acquire the Depositor's Interest currently held by the Original Depositor, and the Substitute Depositor desires to become the depositor of the Trust; and WHEREAS, the undersigned, being the Original Depositor, the Substitute Depositor and all the Trustees of the Trust, to accomplish the foregoing, desire to amend the Trust Agreement in the manner set forth herein. NOW, THEREFORE, in consideration of the mutual promises and obligations contained herein, the parties, intending to be legally bound, hereby agree as follows: 1. Assignment. Notwithstanding any provision in the Trust Agreement to the contrary, for value received, the receipt and sufficiency of which are hereby acknowledged, upon the execution of this Assignment and Amendment Agreement by the parties hereto, the Original Depositor does hereby assign, transfer and convey the Depositor's Interest to the Substitute Depositor. 2. Substitution. Notwithstanding any provision in the Trust Agreement to the contrary, contemporaneously with the assignment described in Section 1 of this Assignment and Amendment Agreement, the Substitute Depositor shall become the depositor of the Trust and shall have all rights, powers and obligations of the Depositor (as such term is used in the Trust Agreement) under the Trust Agreement. 3. Cessation. Notwithstanding any provision in the Trust Agreement to the contrary, immediately following the Substitute Depositor becoming the depositor of the Trust, the Original Depositor shall cease to be the depositor of the Trust, and shall thereupon cease to have any right, obligation or power as the depositor of the Trust. 4. Continuation of the Trust. The parties hereto agree that (i) the assignment of the Depositor's Interest, the Substitute Depositor becoming the depositor of the Trust and the Original Depositor's ceasing to be the depositor of the Trust shall not dissolve the Trust and (ii) the business of the Trust shall continue without dissolution. 5. Successors and Assigns. This Assignment and Amendment Agreement shall be binding upon, and shall enure to the benefit of, the parties hereto and their respective successors and assigns. 6. Full Force and Effect. Except to the extent modified hereby, the Trust Agreement shall remain in full force and effect. 7. Counterparts. This Assignment and Amendment Agreement may be executed in counterparts, all of which together shall constitute one agreement binding on all parties hereto, notwithstanding that all such parties are not signatories to the original or same counterpart. 8. Governing Law. This Assignment and Amendment Agreement shall be interpreted in accordance with the laws of the State of Delaware (without regard to conflict of laws principles), all rights and remedies being governed by such laws. 9. Effectiveness of Amendment. This Assignment and Amendment Agreement shall become a legally effective and binding instrument as of the date hereof. [SIGNATURE PAGES FOLLOW] A-2-63 IN WITNESS WHEREOF, the undersigned have executed this Assignment and Amendment Agreement as of the day and year first above written. ACE LIMITED, as Original Depositor By: __________________________________ Name: Title: ACE INA HOLDINGS INC., as Substitute Depositor By: __________________________________ Name: Title: THE FIRST NATIONAL BANK OF CHICAGO, not in its individual capacity but solely as trustee of the Trust By: _________________________________ Name: Title: BANK ONE DELAWARE, INC., not in its individual capacity but solely as trustee of the Trust By: ________________________________ Name: Title: ____________________________________ ROBERT A. BLEE, not in his individual capacity but solely as trustee of the Trust A-2-64 EXHIBIT B FORM OF CERTIFICATE DEPOSITORY AGREEMENT PERTAINING TO THE TRUST ORIGINATED PREFERRED SECURITIES The Depository Trust Company 55 Water Street, 49th Floor New York, New York 10041-0099 Attention: John C. Drennan General Counsel's Officer Re: ACE Capital Trust I 8.875% Trust Originated Preferred Securities Ladies and Gentlemen: The purpose of this letter is to set forth certain matters relating to the issuance and deposit with The Depository Trust Company ("DTC") of the ACE Capital Trust I 8.875% Trust Originated Preferred Securities (the "Preferred Securities") of ACE Capital Trust I, a Delaware business trust (the "Issuer"), governed by an Amended and Restated Trust Agreement among ACE INA Holdings Inc. ("ACE INA"), Bank One Trust Company, National Association, as Property Trustee, Bank One Delaware, Inc., as Delaware Trustee, and the Administrative Trustees named therein (the "Trust Agreement"). The payment of distributions on the Preferred Securities, and payments due upon liquidation of the Issuer or redemption of the Preferred Securities, to the extent the Issuer has funds available for the payment thereof are guaranteed by ACE Limited, a Cayman Islands company and the parent of ACE INA ("ACE"), to the extent set forth in the Preferred Securities Guarantee Agreement, dated December 20, 1999, between ACE and Bank One Trust Company, National Association, as Guarantee Trustee. ACE INA, ACE and the Issuer propose to sell the Preferred Securities to certain Underwriters (the "Underwriters") pursuant to an Underwriting Agreement, dated December 15, 1999, by and among the Underwriters, the Issuer, ACE INA and ACE and the Underwriters wish to take delivery of the Preferred Securities through DTC. Bank One Trust Company, National Association is acting as transfer agent and registrar with respect to the Preferred Securities (the "Transfer Agent and Registrar"). To induce DTC to accept the Preferred Securities as eligible for deposit at DTC, and to act in accordance with DTC's rules with respect to the Preferred Securities, the Issuer, the Transfer Agent and Registrar and DTC agree among each other as follows: (1) Prior to the closing of the sale of the Preferred Securities to the Underwrites, which is expected to occur on or about December 20, 1999 there shall be deposited with DTC one or more global certificates (individually and collectively, the "Global Certificate") registered in the name of DTC's Preferred Securities nominee, Cede & Co., representing an aggregate of Preferred Securities and bearing the following legend: Unless this certificate is presented by an authorized representative of The Depository Trust Company, a New York corporation ("DTC"), to the Issuer or its agent for registration of transfer, exchange, or payment, and any certificate issued is registered in the name of Cede & Co. or in such other name as is requested by an authorized representative of DTC (and any payment is made to Cede & Co. or to such other entity as is requested by an authorized representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has an interest herein. (2) The Trust Agreement provides for the voting by holders of the Preferred Securities under certain limited circumstances. The Issuer shall establish a record date for such purposes and shall, to the extent possible, give DTC notice of such record date not less than 15 calendar days in advance of such record date. (3) In the event of a stock split, conversion, recapitalization, reorganization or any other similar transaction resulting in the cancellation of all or any part of the Preferred Securities outstanding, the Issuer or the Transfer Agent and Registrar shall send DTC a notice of such event at least 5 business days prior to the effective date of such event. (4) In the event of distribution on, or an offering or issuance of rights with respect to, the Preferred Securities outstanding, the Issuer or the Transfer Agent and Registrar shall send DTC a notice specifying: (a) the amount of and conditions, if any, applicable to the payment of any such distribution or any such offering or issuance of rights; (b) any applicable expiration or deadline date, or any date by which any action on the part of the holders of Preferred Securities is required; and (c) the date any required notice is to be mailed by or on behalf of the Issuer to holders of Preferred Securities or published by or on behalf of the Issuer (whether by mail or publication, the "Publication Date"). Such notice shall be sent to DTC by a secure means (e.g., legible telecopy, registered or certified mail, overnight delivery) in a timely manner designed to assure that such notice is in DTC's possession no later than the close of business on the business day before the Publication Date. The Issuer or the Transfer Agent and Registrar will forward such notice either in a separate secure transmission for each CUSIP number or in a secure transmission of multiple CUSIP numbers (if applicable) that includes a manifest or list of each CUSIP number submitted in that transmission. (The party sending such notice shall have a method to verify subsequently the use of such means and the timeliness of such notice.) The Publication Date shall be not less than 30 calendar days nor more than 60 calendar days prior to the payment of any such distribution or any such offering or issuance of rights with respect to the Preferred Securities. After establishing the amount of payment to be made on the Preferred Securities, the Issuer or the Transfer Agent and Registrar will notify DTC's Dividend Department of such payment 5 business days prior to payment date. Notices to DTC's Dividend Department by telecopy shall be sent to (212) 709-1723. Such notices by mail or by any other means shall be sent to: Manager, Announcements Dividend Department The Depository Trust Company B-66 7 Hanover Square, 23rd Floor New York, New York 10004-2695. The Issuer or the Transfer Agent and Registrar shall confirm DTC's receipt of such telecopy by telephoning the Dividend Department at (212) 709-1270. (5) In the event of a redemption by the Issuer of the Preferred Securities, notice specifying the terms of the redemption and the Publication Date of such notice shall be sent by the Issuer or the Transfer Agent and Registrar to DTC not less than 30 calendar days prior to such event by a secure means in the manner set forth in paragraph 4. Such redemption notice shall be sent to DTC's Call Notification Department at (516) 227-4164 or (516) 227-4190, and receipt of such notice shall be confirmed by telephoning (516) 227-4070. Notice by mail or by any other means shall be sent to: Call Notification Department The Depository Trust Company 711 Stewart Avenue Garden City, New York 11530-4719. (6) In the event of any invitation to tender the Preferred Securities, notice specifying the terms of the tender and the Publication Date of such notice shall be sent by the Issuer or the Transfer Agent and Registrar to DTC by a secure means and in a timely manner as described in paragraph 4. Notices to DTC pursuant to this paragraph and notices of other corporate actions (including mandatory tenders, exchanges and capital changes) shall be sent, unless notification to another department is expressly provided for herein, by telecopy to DTC's Reorganization Department at (212) 709-1093 or (212) 709-1094 and receipt of such notice shall be confirmed by telephoning (212) 709-6884, or by mail or any other means to: Manager, Reorganization Department Reorganization Window The Depository Trust Company 7 Hanover Square, 23rd Floor New York, New York 10004-2695. (7) All notices and payment advices sent to DTC shall contain the CUSIP number or numbers of the Preferred Securities and the accompanying designation of the Preferred Securities, which, as of the date of this letter, is ACE Capital Trust I 8.875% Trust Originated Preferred Securities. (8) Distribution payments or other cash payments with respect to the Preferred Securities evidenced by the Global Certificate shall be received by Cede & Co., as nominee of DTC, or its registered assigns in next day funds on each payment date (or in accordance with existing arrangements between the Issuer or the Transfer Agent and Registrar and DTC). Such payments shall be made payable to the order of Cede & Co., and shall be addressed as follows: NDFS Redemption Department The Depository Trust Company B-67 7 Hanover Square, 23rd Floor New York, New York 10004-2695. (9) DTC may by prior written notice direct the Issuer and the Transfer Agent and Registrar to use any other telecopy number or address of DTC as the number or address to which notices or payments may be sent. (10) In the event of a conversion, redemption, or any other similar transaction (e.g., tender made and accepted in response to the Issuer's or the Transfer Agent and Registrar's invitation) necessitating a reduction in the aggregate number of Preferred Securities outstanding evidenced by Global Certificates, DTC, in its discretion: (a) may request the Issuer or the Transfer Agent and Registrar to issue and countersign a new Global Certificate; or (b) may make an appropriate notation on the Global Certificate indicating the date and amount of such reduction. (11) DTC may discontinue its services as a securities depositary with respect to the Preferred Securities at any time by giving at least 90 days' prior written notice to the Issuer and the Transfer Agent and Registrar (at which time DTC will confirm with the Issuer or the Transfer Agent and Registrar the aggregate number of Preferred Securities deposited with it) and discharging its responsibilities with respect thereto under applicable law. Under such circumstances, the Issuer may determine to make alternative arrangements for book-entry settlement for the Preferred Securities, make available one or more separate global certificates evidencing Preferred Securities to any Participant having Preferred Securities credited to its DTC account, or issue definitive Preferred Securities to the beneficial holders thereof, and in any such case, DTC agrees to cooperate fully with the Issuer and the Transfer Agent and Registrar, and to return the Global Certificate duly endorsed for transfer as directed by the Issuer or the Transfer Agent and Registrar, together with any other documents of transfer reasonably requested by the Issuer of the Transfer Agent and Registrar. (12) In the event that the Issuer determines that beneficial owners of Preferred Securities shall be able to obtain definitive Preferred Securities, the Issuer or the Transfer Agent and Registrar shall notify DTC of the availability of certificates. In such event, the Issuer or the Transfer Agent and Registrar shall issue, transfer and exchange certificates in appropriate amounts, as required by DTC and others, and DTC agrees to cooperate fully with the Issuer and the Transfer Agent and Registrar and to return the Global Certificate, duly endorsed for transfer as directed by the Issuer or the Transfer Agent and Registrar, together with any other documents of transfer reasonably requested by the Issuer or the Transfer Agent and Registrar. B-68 (13) This letter may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original, but all such counterparts shall together constitute but one and the same instrument. Nothing herein shall be deemed to require the Transfer Agent and Registrar to advance funds on behalf of ACE Capital Trust I. Very truly yours, ACE CAPITAL TRUST I, as Issuer By: Name: Administrative Trustee BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, as Transfer Agent and Registrar By: Name: Title: Received and Accepted: THE DEPOSITORY TRUST COMPANY By:________________________________ Authorized Officer B-69 EXHIBIT C [FORM OF COMMON SECURITY CERTIFICATE] THIS CERTIFICATE IS NOT TRANSFERABLE EXCEPT AS PROVIDED IN THE TRUST AGREEMENT (AS DEFINED BELOW) Certificate Number Number of Common Securities CS-____________ Certificate Evidencing Common Securities of ACE CAPITAL TRUST I ___ % Common Securities (liquidation amount $25 per Common Security) ACE CAPITAL TRUST I, a statutory business trust created under the laws of the State of Delaware (the "Trust"), hereby certifies that ACE INA Holdings Inc. (the "Holder") is the registered owner of ___________________ (_________) common securities of the Trust representing undivided beneficial interests in the assets of the Trust designated the ______% Common Securities (liquidation amount $25 per Common Security) (the "Common Securities"). In accordance with section 5.10 of the Trust Agreement (as defined below), the Common Securities are not transferable and any attempted transfer hereof shall be void. The designations, rights, privileges, restrictions, preferences and other terms and provisions of the Common Securities are set forth in, and this certificate and the Common Securities represented hereby are issued and shall in all respects be subject to the terms and provisions of the Amended and Restated Trust Agreement of the Trust, dated as of December __, 1999, as the same may be amended from time to time (the "Trust Agreement"), including the designation of the terms of the Common Securities as set forth therein. Capitalized terms used but not defined herein shall have the meaning given them in the Trust Agreement. The Holder is entitled to the benefit of the Common Securities Guarantee Agreement, dated as of December __, 1999 (the "Common Securities Guarantee"). The Sponsor will provide a copy of the Trust Agreement and the Common Securities Guarantee to the Holder without charge upon written request to the Trust at its principal place of business or registered office. Upon receipt of this certificate, the Holder is bound by the Trust Agreement and is entitled to the benefits thereunder and to the benefits of the Common Securities Guarantee to the extent provided therein. By acceptance, the Holder agrees to treat, for United States Federal income tax purposes, the Debentures as indebtedness and the Common Securities as evidence of indirect beneficial ownership in the Debentures. C-71 IN WITNESS WHEREOF, one of the Administrative Trustees of the Trust has executed this certificate this ___ day of December, 1999. ACE CAPITAL TRUST I By: _________________________ Name: Administrative Trustee C-72 [FORM OF REVERSE OF SECURITY] Distributions on each Common Security will be payable at a rate per annum of ___% (the "Distribution Rate") of the Liquidation Amount of $25 per Common Security, such rate being the rate of interest payable on the Debentures to be held by the Property Trustee. Distributions in arrears for more than one quarterly period will bear additional distributions thereon compounded quarterly at the applicable periodic Distribution Rate (to the extent permitted by applicable law). The term "Distributions", as used herein, includes any such additional distributions unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Debentures held by the Property Trustee and to the extent the Property Trustee has funds legally available therefor. Distributions on the Common Securities will be cumulative, will accumulate from the most recent date to which Distributions have been paid or, if no Distributions have been paid, from December __, 1999, to but excluding the related Distribution Date (as defined herein) or any date fixed for redemption (a "Redemption Date"), and will be payable quarterly in arrears on ___________, ___________, ___________ and ____________ of each year, commencing ___________, 2000 (each, a "Distribution Date"), except as otherwise described below and in the Trust Agreement. The amount of Distributions payable for any Distribution Period will be computed on the basis of a 360-day year consisting of twelve 30- day months. "Distribution Period" means the period from and including the immediately preceding Distribution Date (or December __, 1999, in the case of the first Distribution Period) to but excluding the applicable Distribution Date or Redemption Date. If a Distribution Date is not a Business Day, then such Distribution Date and the first day of the Distribution Period commencing on such Distribution Date will be the next succeeding Business Day and no interest or other payment in respect of any such delay shall accumulate for the period to but excluding such Business Day. However, if the next succeeding Business Day is in the next calendar year, payment of Distributions will be made on the immediately preceding Business Day. As long as no event of default has occurred and is continuing under the Indenture, the Debenture Issuer has the right under the Indenture to defer payments of interest by extending the interest payment period at any time and from time to time on the Debentures for a period not exceeding 20 consecutive quarterly periods (each, an "Extension Period"), provided that an Extension Period must end on an interest payment date for the Debentures and may not extend beyond the stated maturity date or Redemption Date for the Debentures. As a consequence of such deferral, Distributions will also be deferred. Despite such deferral, quarterly Distributions will continue to accumulate with additional interest thereon (to the extent permitted by applicable law but not at a rate greater than the rate at which interest is then accruing on the Debentures) at the Distribution Rate then in effect compounded quarterly during any such Extension Period. Prior to the termination of any such Extension Period, the Debenture Issuer may further defer payments of interest by further extending such Extension Period; provided that such Extension Period, together with all such previous and further extensions, may not exceed 20 consecutive quarterly periods, must end on an interest payment date for the Debentures and may not extend beyond the maturity date or Redemption Date of the Debentures. At the end of the Extension Period, all accumulated and unpaid Distributions (but only to the extent payments are made in C-73 respect of the Debentures held by the Property Trustee and to the extent the Property Trustee has funds legally available therefor) will be payable to the Holders as they appear on the books and records of the Trust on the record date immediately preceding the end of the Extension Period. Upon the termination of any Extension Period and the payment of all amounts then due, the Debenture Issuer may commence a new Extension Period, subject to the foregoing requirements. The Common Securities shall be redeemable as provided in the Trust Agreement. C-74 EXHIBIT D FORM OF AGREEMENT AS TO EXPENSES AND LIABILITIES AGREEMENT dated as of December 20, 1999, between ACE Limited, a Cayman Islands company ("ACE"), and ACE Capital Trust I, a Delaware statutory business trust (the "Trust"). WHEREAS, the Trust intends to issue its Common Securities (the "Common Securities") to and receive Debentures from ACE INA Holdings Inc., a Delaware corporation and a wholly-owned subsidiary of ACE ("ACE INA"), and to issue and sell 8.875% Trust Originated Preferred Securities (the "Preferred Securities") with such powers, preferences and special rights and restrictions as are set forth in the Amended and Restated Trust Agreement of the Trust dated as of December 20, 1999, as the same may be amended from time to time (the "Trust Agreement"); WHEREAS, ACE INA will directly or indirectly own all of the Common Securities of the Trust and will issue the Debentures; WHEREAS, ACE will guarantee the obligations of ACE INA under the Debentures and has agreed to guarantee certain expenses and liabilities of the Trust as provided herein; NOW, THEREFORE, in consideration of the purchase by each holder of the Preferred Securities, which purchase ACE hereby agrees shall benefit ACE and which purchase ACE acknowledges will be made in reliance upon the execution and delivery of this Agreement, ACE and Trust hereby agree as follows: ARTICLE I Section 1.1. Guarantee by ACE. Subject to the terms and conditions hereof, ACE hereby irrevocably and unconditionally guarantees to each person or entity to whom the Trust is now or hereafter becomes indebted or liable (the "Beneficiaries") the full payment, when and as due, of any and all Obligations (as hereinafter defined) to such Beneficiaries. As used herein, "Obligations" means any costs, expenses or liabilities of the Trust, other than obligations of the Trust to pay to holders of any Preferred Securities or other similar interests in the Trust the amounts due such holders pursuant to the terms of the Preferred Securities or such other similar interests, as the case may be. This Agreement is intended to be for the benefit of, and to be enforceable by, all such Beneficiaries, whether or not such Beneficiaries have received notice hereof. Section 1.2. Term of Agreement. This Agreement shall terminate and be of no further force and effect upon the later of (a) the date on which full payment has been made of all amounts payable to all holders of all the Preferred Securities (whether upon redemption, liquidation, exchange or otherwise) and (b) the date one which there are no Beneficiaries remaining; provided, however, that this Agreement shall continue to be effective or shall be reinstated, as the case may be, if at any time any holder D-75 of Preferred Securities or any Beneficiary must restore payment of any sums paid under the Preferred Securities, under any Obligation, under the Guarantee Agreement dated the date hereof between ACE, in its capacity as guarantor with respect to the Preferred Securities, and Bank One Trust Company, National Association, as guarantee trustee, or under this Agreement for any reason whatsoever. This Agreement is continuing, irrevocable, unconditional and absolute. Section 1.3. Waiver of Notice. ACE hereby waives notice of acceptance of this Agreement and of any Obligation to which it applies or may apply, and ACE hereby waives presentment, demand for payment, protest, notices of nonpayment, notice of dishonor, notice of redemption and all other notices and demands. Section 1.4. No Impairment. The obligations, covenants, agreements and duties of ACE under this Agreement shall in no way be affected or impaired by reason of the happening from time to time of any of the following: (a) the extension of time for the payment by the Trust of all or any portion of the Obligations or for the performance of any other obligation under, arising out of, or in connection with, the Obligations; (b) any failure, omission, delay or lack of diligence on the part of the Beneficiaries to enforce, assert or exercise any right, privilege, power or remedy conferred on the Beneficiaries with respect to the Obligations or any action on the part of the Trust granting indulgence or extension of any kind; (c) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement composition or readjustment of debt of, or other similar proceedings affecting, the Trust or any of the assets of the Trust. There shall be no obligation of the Beneficiaries to give notice to, or obtain the consent of, ACE with respect to the happening of any of the foregoing. Section 1.5. Enforcement. A Beneficiary may enforce this Agreement directly against ACE, and ACE waives any right or remedy to require that any action be brought against the Trust or any other person or entity before proceeding against ACE. Section 1.6. Subrogation. ACE shall be subrogated to all (if any) rights of the Trust in respect of any amounts paid to the Beneficiaries by ACE under this Agreement; provided, however, that ACE shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise D-76 any rights which it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Agreement, if, at the time of any such payment, any amounts are due and unpaid under this Agreement. ARTICLE II. Section 2.1. Binding Effect. All guarantees and agreements contained in this Agreement shall bind the successors, assigns, receivers, trustees and representatives of ACE and shall inure to the benefit of the Beneficiaries. Section 2.2. Amendment. So long as there remains any Beneficiary or any Preferred Securities are outstanding, this Agreement shall not be modified or amended in any manner adverse to such Beneficiary or to the holders of the Preferred Securities. Section 2.3. Notices. Any notice, request or other communication required or permitted to be given hereunder shall be given in writing by delivering the same against receipt therefor by facsimile transmission (confirmed by mail), telex or by registered or certified mail, addressed as follows (and if so given, shall be deemed given when mailed or upon receipt of an answer-back, if sent by telex): ACE Capital Trust I c/o ACE USA Inc. Six Concourse Parkway Suite 2500 Atlanta, Georgia 30328 Facsimile: Attention: ACE Limited The ACE Building 30 Woodbourne Avenue Hamilton 08 Bermuda Facsimile: Attention: D-77 Section 2.4 Governing Law. This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of New York. THIS AGREEMENT is executed as of the day and year first above written. ACE LIMITED By: Name: Title: ACE CAPITAL TRUST I By: Name: Title: D-78 EXHIBIT E [FORM OF PREFERRED SECURITY CERTIFICATE] [IF THIS PREFERRED SECURITY IS A GLOBAL PREFERRED SECURITY, INSERT: THIS PREFERRED SECURITY IS A GLOBAL PREFERRED SECURITY WITHIN THE MEANING OF THE TRUST AGREEMENT HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF THE DEPOSITORY TRUST COMPANY (THE "CLEARING AGENCY") OR A NOMINEE OF THE CLEARING AGENCY. THIS PREFERRED SECURITY IS EXCHANGEABLE FOR PREFERRED SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE CLEARING AGENCY OR ITS NOMINEE ONLY IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE TRUST AGREEMENT AND NO TRANSFER OF THIS PREFERRED SECURITY (OTHER THAN A TRANSFER OF THIS PREFERRED SECURITY AS A WHOLE BY THE CLEARING AGENCY TO A NOMINEE OF THE CLEARING AGENCY OR BY A NOMINEE OF THE CLEARING AGENCY TO THE CLEARING AGENCY OR ANOTHER NOMINEE OF THE CLEARING AGENCY) MAY BE REGISTERED EXCEPT IN LIMITED CIRCUMSTANCES. UNLESS THIS PREFERRED SECURITY IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE CLEARING AGENCY TO ACE CAPITAL TRUST I OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY PREFERRED SECURITY ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE CLEARING AGENCY AND ANY PAYMENT HEREON IS MADE TO CEDE & CO., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS WRONGFUL SINCE THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.] E-79 Certificate Number Number of Preferred Securities PS-____________ CUSIP NO. __________ Certificate Evidencing Preferred Securities of ACE CAPITAL TRUST I ___% Trust Originated Preferred Securities (liquidation amount $25 per Preferred Security) ACE CAPITAL TRUST I, a statutory business trust organized under the laws of the State of Delaware (the "Trust"), hereby certifies that Cede & Co. (the "Holder") is the registered owner of __________ (__________) preferred securities of the Trust representing undivided beneficial interests in the assets of the Trust designated the ACE Capital Trust I ___% Trust Originated Preferred Securities (liquidation amount $25 per Preferred Security) (the "Preferred Securities"). The Preferred Securities are transferable on the books and records of the Trust, in person or by a duly authorized attorney, upon surrender of this certificate duly endorsed and in proper form for transfer as provided in Section 5.4 of the Trust Agreement (as defined below). The designations, rights, privileges, restrictions, preferences and other terms and provisions of the Preferred Securities represented hereby are set forth in, and this certificate and the Preferred Securities represented hereby are issued and shall in all respects be subject to the terms and provisions of the Amended and Restated Trust Agreement of the Trust, dated as of December __, 1999, as the same may be amended from time to time (the "Trust Agreement"), including the designation of the terms of the Preferred Securities as set forth therein. Capitalized terms used but not defined herein shall have the meaning given them in the Trust Agreement. The Holder is entitled to the benefit of the Preferred Securities Guarantee Agreement entered into by ACE Limited, a Cayman Islands company, and Bank One Trust Company, National Association, as guarantee trustee, dated as of December __, 1999 (the "Preferred Securities Guarantee"), to the extent provided therein. The Trust will provide a copy of the Trust Agreement and the Preferred Securities Guarantee to the Holder without charge upon written request to the Trust at its principal place of business or registered office. Upon receipt of this certificate, the Holder is bound by the Trust Agreement and is entitled to the benefits thereunder and to the benefits of the Preferred Securities Guarantee to the extent provided therein. By acceptance, the Holder agrees to treat, for United States Federal income tax purposes, the Debentures as indebtedness and the Preferred Securities as evidence of indirect beneficial ownership in the Debentures. E-80 IN WITNESS WHEREOF, one of the Administrative Trustees of the Trust has executed this certificate this ___ day of December, 1999. ACE CAPITAL TRUST I By: ________________________ Name: Administrative Trustee E-81 [FORM OF REVERSE OF SECURITY] Distributions on each Preferred Security will be payable at a rate per annum of ____ % (the "Distribution Rate") of the Liquidation Amount of $25 per Preferred Security, such rate being the rate of interest payable on the Debentures to be held by the Property Trustee. Distributions in arrears for more than one quarterly period will bear additional distributions thereon compounded quarterly at the applicable periodic Distribution Rate (to the extent permitted by applicable law). The term "Distributions," as used herein, includes any such additional distributions unless otherwise stated. A Distribution is payable only to the extent that payments are made in respect of the Debentures held by the Property Trustee and to the extent the Property Trustee has funds legally available therefor. Distributions on the Preferred Securities will be cumulative, will accumulate from the most recent date to which Distributions have been paid or, if no Distributions have been paid, from December __, 1999, to but excluding the related Distribution Date (as defined herein) or any date fixed for redemption (a "Redemption Date") and will be payable quarterly in arrears on ________, _________, ________ and _________ of each year, commencing ___________, 2000 (each, a "Distribution Date"), except as otherwise described below and in the Trust Agreement. The amount of Distributions payable for any Distribution Period will be computed on the basis of a 360-day year consisting of twelve 30- day months. "Distribution Period" means the period from and including the immediately preceding Distribution Date (or December __, 1999, in the case of the first Distribution Period) to but excluding the applicable Distribution Date or Redemption Date. If a Distribution Date is not a Business Day, then such Distribution Date and the first day of the Distribution Period commencing on such Distribution Date will be the next succeeding Business Day and no interest or other payment in respect of such delay shall accumulate for the period to but excluding such Business Day. However, if the next succeeding Business Day is in the next calendar year, payment of the Distributions will be made on the immediately preceding Business Day. As long as no event of default has occurred and is continuing under the Indenture, the Debenture Issuer has the right under the Indenture to defer payments of interest by extending the interest payment period at any time and from time to time on the Debentures for a period not exceeding 20 consecutive quarterly periods (each, an "Extension Period"), provided that an Extension Period must end on an interest payment date for the Debentures and may not extend beyond the stated maturity date or Redemption Date for the Debentures. As a consequence of such deferral, Distributions will also be deferred. Despite such deferral, quarterly Distributions will continue to accumulate with additional interest thereon (to the extent permitted by applicable law but not at a rate greater than the rate at which interest is then accruing on the Debentures) at the Distribution Rate then in effect compounded quarterly during any such Extension Period. Prior to the termination of any such Extension Period, the Debenture Issuer may further defer payments of interest by further extending such Extension Period; provided that such Extension Period, together with all such previous and further extensions, may not exceed 20 consecutive quarterly periods, must end on an interest payment date for the Debentures and may not extend beyond the maturity date or Redemption Date of the Debentures. At the end of the Extension Period, all accumulated and unpaid Distributions (but only to the extent payments are made in E-82 respect of the Debentures held by the Property Trustee and to the extent the Property Trustee has funds available therefor) will be payable to the Holders as they appear on the books and records of the Trust on the record date immediately preceding the end of the Extension Period. Upon the termination of any Extension Period (or any extension period thereof) and the payment of all amounts then due, the Debenture Issuer may commence a new Extension Period, subject to the foregoing requirements. The Preferred Securities shall be redeemable as provided in the Trust Agreement. E-83 ASSIGNMENT _____________________ FOR VALUE RECEIVED, the undersigned assigns and transfers this Preferred Security Certificate to: (Insert assignee's social security or tax identification number) (Insert address and zip code of assignee) and irrevocably appoints agent to transfer this Preferred Security Certificate on the books of the Trust. The agent may substitute another to act for him or her. Date: _______________________ Signature: __________________ (Sign exactly as your name appears on the other side of this Preferred Security Certificate) Signature Guarantee**: ___________________________________ - ----------------------- ** Signature must be guaranteed by an "eligible guarantor institution" that is a bank, stockbroker, savings and loan association or credit union meeting the requirements of the Registrar, which requirements include membership or participation in the Securities Transfer Agents Medallion Program ("STAMP") or such other "signature guarantee program" as may be determined by the Registrar in addition to, or in substitution for, STAMP, all in accordance with the Securities and Exchange Act of 1934, as amended. E-84 EX-10.41 6 INDENTURE DATED AS OF 12/01/1999 Exhibit 10.41 ACE INA HOLDINGS INC., Issuer and ACE LIMITED, Guarantor to BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, Trustee _______________ INDENTURE _______________ Dated as of December 1, 1999 Subordinated Debt Securities Reconciliation and tie between Trust Indenture Act of 1939 (the "Trust Indenture Act") and Indenture
Trust Indenture Act Section Indenture Section - --------------- ----------------- (S)310(a)(1)................................................................6.7 (a)(2).....................................................................6.7 (b)........................................................................6.8 (S)312(a)...................................................................7.1 (b)........................................................................7.2 (c)........................................................................7.2 (S)313(a)...................................................................7.3 (b)(2).....................................................................7.3 (c)........................................................................7.3 (d)........................................................................7.3 (S)314(a)...................................................................7.4 (c)(1).....................................................................1.2 (c)(2).....................................................................1.2 (e)........................................................................1.2 (f)........................................................................1.2 (S)316(a) (last sentence)...................................................1.1 (a)(1)(A)............................................................5.2, 5.12 (a)(1)(B).................................................................5.13 (b)........................................................................5.8 (S)317(a)(1)................................................................5.3 (a)(2).....................................................................5.4 (b).......................................................................10.3 (S)318(a)..................................................................10.8
- --------------- Note: This reconciliation and tie shall not, for any purpose, be deemed to be part of the Indenture.Table of Contents Table of Contents
Page ---- ARTICLE 1 DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION Section 1.1. Definitions.................................................... 2 ACE Trusts..................................................... 2 Act............................................................ 2 Additional Amounts............................................. 2 Additional Interest............................................ 2 Additional Sums................................................ 3 Additional Taxes............................................... 3 Affiliate...................................................... 3 Authenticating Agent........................................... 3 Authorized Newspaper........................................... 3 Authorized Officer............................................. 3 Bearer Security................................................ 3 Board of Directors............................................. 3 Board Resolution............................................... 3 Business Day................................................... 4 Capital Stock.................................................. 4 Capitalized Lease Obligation................................... 4 Commission..................................................... 4 Common Securities.............................................. 4 Common Stock................................................... 4 Company........................................................ 4 Company Request and Company Order.............................. 4 Company Senior Indebtedness.................................... 4 Conversion Event............................................... 5 Corporate Trust Office......................................... 5 Corporation.................................................... 5 Coupon......................................................... 5 Currency....................................................... 5 CUSIP number................................................... 5 Defaulted Interest............................................. 5 Direct Action.................................................. 5 Distributions.................................................. 5 Dollars or $................................................... 5 Event of Default............................................... 5 Extension Period............................................... 6 Foreign Currency............................................... 6 Government Obligations......................................... 6 Guarantee...................................................... 6 Guarantee Agreement............................................ 6 Guarantor...................................................... 6 Guarantor's Board of Directors................................. 6
i Guarantor's Board Resolution................................... 6 Guarantor's Officer's Certificate.............................. 7 Guarantor Request and Guarantor Order.......................... 7 Guarantor Senior Indebtedness.................................. 7 Holder......................................................... 7 Indebtedness................................................... 7 Indenture...................................................... 8 Independent Public Accountants................................. 8 Indexed Security............................................... 8 Interest....................................................... 8 Interest Payment Date.......................................... 8 Investment Company Event....................................... 9 Judgment Currency.............................................. 9 Lien........................................................... 9 Maturity....................................................... 9 New York Banking Day........................................... 9 1940 Act....................................................... 9 Office or Agency............................................... 9 Officer's Certificate.......................................... 9 Opinion of Counsel............................................. 9 Original Issue Discount Security............................... 9 Outstanding................................................... 10 Paying Agent.................................................. 11 Person........................................................ 11 Place of Payment.............................................. 11 Preferred Securities.......................................... 11 Preferred Securities Guarantee................................ 11 Predecessor Security.......................................... 11 Preferred Stock............................................... 11 Property Trustee.............................................. 12 Redemption Date............................................... 12 Redemption Price.............................................. 12 Registered Security........................................... 12 Regular Record Date........................................... 12 Required Currency............................................. 12 Responsible Officer........................................... 12 Security or Securities........................................ 12 Security Register and Security Registrar...................... 12 Senior Indebtedness........................................... 12 Special Event................................................. 12 Special Record Date........................................... 13 Stated Maturity............................................... 13 Subsidiary.................................................... 13 Tax Event..................................................... 13 Trust Agreement............................................... 13 Trust Indenture Act........................................... 13
ii Trust Securities.............................................. 14 Trustee....................................................... 14 United States................................................. 14 United States Alien........................................... 14 U.S. Depository or Depository................................. 14 Vice President................................................ 14 Section 1.2. Compliance Certificates and Opinions.......................... 14 Section 1.3. Form of Documents Delivered to Trustee........................ 15 Section 1.4. Acts of Holders............................................... 16 Section 1.5. Notices, etc. to Trustee, Company and Guarantor............... 18 Section 1.6. Notice to Holders of Securities; Waiver....................... 18 Section 1.7. Language of Notices........................................... 19 Section 1.8. Conflict with Trust Indenture Act............................. 19 Section 1.9. Effect of Headings and Table of Contents...................... 20 Section 1.10. Successors and Assigns........................................ 20 Section 1.11. Separability Clause........................................... 20 Section 1.12. Holders of Preferred Securities as Third Party Beneficiaries.. 20 Section 1.13. Benefits of Indenture......................................... 20 Section 1.14. Governing Law................................................. 20 Section 1.15. Legal Holidays................................................ 21 Section 1.16. Counterparts.................................................. 21 Section 1.17. Judgment Currency............................................. 21 Section 1.18. No Security Interest Created.................................. 22 Section 1.19. Limitation on Individual Liability............................ 22 Section 1.20. Submission to Jurisdiction.................................... 22 ARTICLE 2 SECURITIES FORMS Section 2.1. Forms Generally............................................... 23 Section 2.2. Form of Trustee's Certificate of Authentication............... 24 Section 2.3. Securities in Global Form..................................... 24 ARTICLE 3 THE SECURITIES Section 3.1. Amount Unlimited; Issuable in Series.......................... 25 Section 3.2. Currency; Denominations....................................... 29 Section 3.3. Execution, Authentication, Delivery and Dating................ 30 Section 3.4. Temporary Securities.......................................... 32 Section 3.5. Registration, Transfer and Exchange........................... 32 Section 3.6. Mutilated, Destroyed, Lost and Stolen Securities.............. 36 Section 3.7. Payment of Interest and Certain Additional Amounts; Rights to Interest and Certain Additional Amounts Preserved............. 37 Section 3.8. Persons Deemed Owners......................................... 39 Section 3.9. Cancellation.................................................. 39 Section 3.10. Computation of Interest....................................... 40
iii Section 3.11. Extension of Interest Payment Period.......................... 40 Section 3.12. Right of Set-Off.............................................. 41 Section 3.13. Agreed Tax Treatment.......................................... 41 Section 3.14. Extension of Stated Maturity; Adjustment of Stated Maturity Upon an Exchange.............................................. 41 ARTICLE 4 SATISFACTION AND DISCHARGE OF INDENTURE Section 4.1. Satisfaction and Discharge.................................... 42 Section 4.2. Defeasance and Covenant Defeasance............................ 43 Section 4.3. Application of Trust Money.................................... 48 ARTICLE 5 REMEDIES Section 5.1. Events of Default............................................. 48 Section 5.2. Acceleration of Maturity; Rescission and Annulment............ 50 Section 5.3. Collection of Indebtedness and Suits for Enforcement by Trustee....................................................... 52 Section 5.4. Trustee May File Proofs of Claim.............................. 53 Section 5.5. Trustee May Enforce Claims without Possession of Securities or Coupons....................................................... 54 Section 5.6. Application of Money Collected................................ 54 Section 5.7. Limitations on Suits.......................................... 55 Section 5.8. Unconditional Right of Holders to Receive Principal and any Premium, Interest and Additional Amounts...................... 55 Section 5.9. Restoration of Rights and Remedies............................ 56 Section 5.10. Rights and Remedies Cumulative................................ 56 Section 5.11. Delay or Omission Not Waiver.................................. 56 Section 5.12. Control by Holders of Securities.............................. 57 Section 5.13. Waiver of Past Defaults....................................... 57 Section 5.14. Waiver of Usury, Stay or Extension Laws....................... 57 Section 5.15. Undertaking for Costs......................................... 58 ARTICLE 6 THE TRUSTEE Section 6.1. Certain Rights of Trustee..................................... 58 Section 6.2. Notice of Defaults............................................ 60 Section 6.3. Not Responsible for Recitals or Issuance of Securities........ 60 Section 6.4. May Hold Securities........................................... 60 Section 6.5. Money Held in Trust........................................... 61 Section 6.6. Compensation and Reimbursement................................ 61 Section 6.7. Corporate Trustee Required; Eligibility....................... 62 Section 6.8. Resignation and Removal; Appointment of Successor............. 62 Section 6.9. Acceptance of Appointment by Successor........................ 64 Section 6.10. Merger, Conversion, Consolidation or Succession to Business... 65 Section 6.11. Appointment of Authenticating Agent........................... 65
iv ARTICLE 7 HOLDERS LISTS AND REPORTS BY TRUSTEE, GUARANTOR AND COMPANY Section 7.1. Company and Guarantor to Furnish Trustee Names and Addresses of Holders.......................................... 67 Section 7.2. Preservation of Information; Communications to Holders........ 68 Section 7.3. Reports by Trustee............................................ 68 Section 7.4. Reports by Company and Guarantor.............................. 68 ARTICLE 8 CONSOLIDATION, AMALGAMATIONS, MERGER AND SALES Section 8.1. Company May Consolidate, Etc., Only on Certain Terms.......... 69 Section 8.2. Successor Person Substituted for Company...................... 70 Section 8.3. Guarantor May Consolidate, Etc., Only on Certain Terms........ 71 Section 8.4. Successor Person Substituted for Guarantor.................... 72 ARTICLE 9 SUPPLEMENTAL INDENTURES Section 9.1. Supplemental Indentures without Consent of Holders............ 72 Section 9.2. Supplemental Indentures with Consent of Holders............... 73 Section 9.3. Execution of Supplemental Indentures.......................... 75 Section 9.4. Effect of Supplemental Indentures............................. 76 Section 9.5. Reference in Securities to Supplemental Indentures............ 76 Section 9.6. Conformity with Trust Indenture Act........................... 76 Section 9.7. Effect on Senior Indebtedness................................. 76 Section 9.8. Notice of Supplemental Indenture.............................. 76 ARTICLE 10 COVENANTS Section 10.1. Payment of Principal, any Premium, Interest and Additional Amounts...................................................... 77 Section 10.2. Maintenance of Office or Agency.............................. 77 Section 10.3. Money for Securities Payments to Be Held in Trust............ 78 Section 10.4. Additional Amounts........................................... 80 Section 10.5. Corporate Existence.......................................... 81 Section 10.6. Waiver of Certain Covenants.................................. 81 Section 10.7. Company Statement as to Compliance; Notice of Certain Defaults..................................................... 81 Section 10.8. Guarantor Statement as to Compliance; Notice of Certain Defaults..................................................... 82 Section 10.9. Additional Sums.............................................. 83 Section 10.10. Prohibition Against Dividends, etc. ......................... 83 Section 10.11. Payment of Expenses of each ACE Trust........................ 84 Section 10.12. Ownership of Common Securities............................... 84
v ARTICLE 11 REDEMPTION OF SECURITIES Section 11.1. Applicability of Article...................................... 85 Section 11.2. Election to Redeem; Notice to Trustee......................... 85 Section 11.3. Selection by Trustee of Securities to be Redeemed............. 85 Section 11.4. Notice of Redemption.......................................... 86 Section 11.5. Deposit of Redemption Price................................... 87 Section 11.6. Securities Payable on Redemption Date......................... 88 Section 11.7. Securities Redeemed in Part................................... 88 Section 11.8. Right of Redemption of Securities Issued to an ACE Trust...... 89 ARTICLE 12 SINKING FUNDS Section 12.1. Applicability of Article...................................... 89 Section 12.2. Satisfaction of Sinking Fund Payments with Securities......... 90 Section 12.3. Redemption of Securities for Sinking Fund..................... 90 ARTICLE 13 REPAYMENT AT THE OPTION OF HOLDERS Section 13.1. Applicability of Article...................................... 91 ARTICLE 14 SECURITIES IN FOREIGN CURRENCIES Section 14.1. Applicability of Article...................................... 91 ARTICLE 15 MEETINGS OF HOLDERS OF SECURITIES Section 15.1. Purposes for Which Meetings May Be Called..................... 92 Section 15.2. Call, Notice and Place of Meetings............................ 92 Section 15.3. Persons Entitled to Vote at Meetings.......................... 92 Section 15.4. Quorum; Action................................................ 93 Section 15.5. Determination of Voting Rights; Conduct and Adjournment of Meetings...................................................... 93 Section 15.6. Counting Votes and Recording Action of Meetings............... 94 ARTICLE 16 SUBORDINATION OF SECURITIES Section 16.1. Agreement to Subordinate...................................... 95 Section 16.2. Default on Company Senior Indebtedness........................ 95 Section 16.3. Liquidation; Dissolution; Bankruptcy.......................... 96 Section 16.4. Subrogation................................................... 97 Section 16.5. Trustee to Effectuate Subordination........................... 98 Section 16.6. Notice by the Company......................................... 98
vi Section 16.7. Rights of the Trustee; Holders of Company Senior Indebtedness. 99 Section 16.8. Subordination May Not Be Impaired.............................100 ARTICLE 17 GUARANTEE AND INDEMNITY Section 17.1. The Guarantee.................................................101 Section 17.2. Net Payments..................................................101 Section 17.3. Guarantee Unconditional, etc. ................................103 Section 17.4. Reinstatement.................................................104 Section 17.5. Subrogation...................................................104 Section 17.6. Indemnity.....................................................104 ARTICLE 18 SUBORDINATION OF GUARANTEE Section 18.1. Agreement to Subordinate Guarantee............................104 Section 18.2. Default on Guarantor Senior Indebtedness......................105 Section 18.3. Liquidation; Dissolution; Bankruptcy..........................105 Section 18.4. Subrogation...................................................107 Section 18.5. Trustee to Effectuate Subordination...........................108 Section 18.6. Notice by the Guarantor.......................................108 Section 18.7. Rights of the Trustee; Holders of Guarantor Senior Indebtedness..................................................109 Section 18.8. Subordination May Not Be Impaired.............................109
vii INDENTURE, dated as of December 1, 1999 (the "Indenture"), among ACE INA HOLDINGS INC., a corporation duly organized and existing under the laws of the State of Delaware (hereinafter called the "Company"), having its principal executive office located at Two Liberty Place, 1601 Chestnut Street, Philadelphia, Pennsylvania 19101, ACE LIMITED, a company duly organized and existing under the laws of the Cayman Islands (hereinafter called the "Guarantor"), having its principal executive office at The ACE Building, 30 Woodbourne Avenue, Hamilton HM 08, Bermuda, and BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, a national banking association duly organized and existing under the laws of the United States of America (hereinafter called the "Trustee"), having its Corporate Trust Office located at Bank One Plaza, Suite 0126, Chicago, Illinois 60670-0126. Recitals The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of its subordinated unsecured debentures, notes or other evidences of indebtedness (hereinafter called the "Securities"), including, without limitation, Securities issued to evidence loans made to the Company of the proceeds from the issuance from time to time by one or more ACE Trusts (as defined herein) of preferred beneficial interests in the assets of such Trusts (the "Preferred Securities") and common beneficial interests in the assets of such Trusts (the "Common Securities" and, collectively with the Preferred Securities, the "Trust Securities"), unlimited as to principal amount, to bear such rates of interest, to mature at such time or times, to be issued in one or more series and to have such other provisions as shall be fixed as hereinafter provided. The Company has duly authorized the execution and delivery of this Indenture. All things necessary to make this Indenture a valid agreement of the Company, in accordance with its terms, have been done. For value received, the Guarantor has duly authorized the execution and delivery of this Indenture to provide for the issuance of the Guarantee and the indemnity provided for herein. All things necessary to make this Indenture a valid agreement of the Guarantor, in accordance with its terms, have been done. This Indenture is subject to the provisions of the Trust Indenture Act of 1939, as amended, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder that are required to be part of this Indenture and, to the extent applicable, shall be governed by such provisions. Now, Therefore, This Indenture Witnesseth: For and in consideration of the premises and the purchase of the Securities by the Holders (as herein defined) thereof, it is mutually covenanted and agreed, for the equal and proportionate benefit of all Holders of the Securities or of any series thereof and any Coupons (as herein defined), as follows: ARTICLE 1 Definitions and Other Provisions of General Application Section 1.1. Definitions. Except as otherwise expressly provided in or pursuant to this Indenture or unless the context otherwise requires, for all purposes of this Indenture: (1) the terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular; (2) all other terms used herein which are defined in the Trust Indenture Act, either directly or by reference therein, have the meanings assigned to them therein; (3) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with generally accepted accounting principles in the United States of America and, except as otherwise herein expressly provided, the terms "generally accepted accounting principles" or "GAAP" with respect to any computation required or permitted hereunder shall mean such accounting principles as are generally accepted in the United States of America at the date or time of such computation; (4) the words "herein," "hereof," "hereto" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision; and (5) the word "or" is always used inclusively (for example, the phrase "A or B" means "A or B or both," not "either A or B but not both"). Certain terms used principally in certain Articles hereof are defined in those Articles. "ACE Trusts" means, collectively, ACE Capital Trust I, ACE Capital Trust II and ACE Capital Trust III, each a statutory business trust formed under the laws of the State of Delaware, or any other similar trust created to issue Trust Securities and to use the proceeds from the sale thereof to purchase Securities issued under this Indenture . "Act," when used with respect to any Holders, has the meaning specified in Section 1.4. "Additional Amounts" means any additional amounts which are required hereby or by any Security, under circumstances specified herein or therein, to be paid by the Company or the Guarantor in respect of certain taxes, assessments or other governmental charges imposed on Holders specified therein and which are owing to such Holders. "Additional Interest" means the interest, if any, that shall accrue on any interest on the Securities of any series the payment of which has not been made on the applicable Interest 2 Payment Date and which shall accrue at the rate per annum specified or determined as specified in such Security. "Additional Sums" has the meaning specified in Section 10.9. "Additional Taxes" means the sum of any additional taxes, duties and other governmental charges to which an ACE Trust has become subject from time to time as a result of a Tax Event. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person; provided, however, that an Affiliate of the Company or the Guarantor, as the case may be, shall not be deemed to include any ACE Trust to which Securities and the Guarantee in respect thereof have been issued. For the purposes of this definition, "control," when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have the meanings correlative to the foregoing. "Authenticating Agent" means any Person authorized by the Trustee pursuant to Section 6.11 to act on behalf of the Trustee to authenticate Securities of one or more series. "Authorized Newspaper" means a newspaper, in an official language of the place of publication or in the English language, customarily published on each day that is a Business Day in the place of publication, whether or not published on days that are Legal Holidays in the place of publication, and of general circulation in each place in connection with which the term is used or in the financial community of each such place. Where successive publications are required to be made in Authorized Newspapers, the successive publications may be made in the same or in different newspapers in the same city meeting the foregoing requirements and in each case on any day that is a Business Day in the place of publication. "Authorized Officer" means, when used with respect to the Company, the Chairman of the Board of Directors, a Vice Chairman, the President, any Vice President, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary, of the Company. "Bearer Security" means any Security in the form established pursuant to Section 2.1 which is payable to bearer. "Board of Directors" means the board of directors of the Company or any committee of that board duly authorized to act generally or in any particular respect for the Company hereunder. "Board Resolution" means a copy of one or more resolutions, certified by the Secretary or an Assistant Secretary of the Company to have been duly adopted by the Board of Directors and to be in full force and effect on the date of such certification, delivered to the Trustee. 3 "Business Day," with respect to any Place of Payment or other location, means, unless otherwise specified with respect to any Securities pursuant to Section 3.1, any day other than a Saturday, Sunday or other day on which banking institutions in such Place of Payment or other location are authorized or obligated by law, regulation or executive order to close. "Capital Stock" of any Person means any and all shares, interests, rights to purchase, warrants, options, participations or other equivalents of or interests in (however designated) equity of such Person, including Preferred Stock, but excluding any debt securities convertible into such equity. "Capitalized Lease Obligation" means an obligation under a lease that is required to be capitalized for financial reporting purposes in accordance with generally accepted accounting principles, and the amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with such principles. "Commission" means the Securities and Exchange Commission, as from time to time constituted, created under the Securities Exchange Act of 1934, as amended, or, if at any time after the execution of this Indenture such Commission is not existing and performing the duties now assigned to it under the Trust Indenture Act, then the body performing such duties at such time. "Common Securities" has the meaning specified in the first recital of this Indenture. "Common Stock" in respect of any Corporation means Capital Stock of any class or classes (however designated) which has no preference as to the payment of dividends, or as to the distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Corporation, and which is not subject to redemption by such Corporation. "Company" means the Person named as the "Company" in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Company" shall mean such successor Person, and any other obligor upon the Securities. "Company Request" and "Company Order" mean, respectively, a written request or order, as the case may be, signed in the name of the Company by an Authorized Officer, and delivered to the Trustee. "Company Senior Indebtedness" means, with respect to the Securities of any particular series, all Indebtedness of the Company outstanding at any time, except (a) the Securities of such series, (b) Indebtedness as to which, by the terms of the instrument creating or evidencing the same, it is provided that such Indebtedness is subordinated to or pari passu with the Securities of such series, (c) Indebtedness of the Company to an Affiliate of the Company, (d) interest accruing after the filing of a petition initiating any proceeding relating to the Company referred to in Section 5.1(7) and 5.1(8) unless such interest is an allowed claim enforceable against the Company in a proceeding under federal or state bankruptcy laws, (e) trade accounts payable and 4 (f) any Indebtedness, including all other debt securities and guarantees in respect of those debt securities, initially issued to (x) any ACE Trust or (y) any trust, partnership or other entity affiliated with the Guarantor which is a financing vehicle of the Guarantor or any Affiliate of the Guarantor in connection with the issuance by such entity of Preferred Securities or other securities which are similar to Preferred Securities that are guaranteed by the Guarantor pursuant to an instrument that ranks pari passu with or junior in right of payment to the Preferred Securities Guarantees. "Conversion Event" means the cessation of use of (i) a Foreign Currency both by the government of the country or the confederation which issued such Foreign Currency and for the settlement of transactions by a central bank or other public institutions of or within the international banking community or (ii) any currency unit or composite currency for the purposes for which it was established. "Corporate Trust Office" means the principal corporate trust office of the Trustee at which at any particular time its corporate trust business shall be administered, which office at the date of original execution of this Indenture is located at 14 Wall Street, Window 2, 8th Floor, New York, New York 10003. "Corporation" includes corporations and limited liability companies and, except for purposes of Article 8, associations, companies and business trusts. "Coupon" means any interest coupon appertaining to a Bearer Security. "Currency," with respect to any payment, deposit or other transfer in respect of the principal of or any premium or interest on or any Additional Amounts with respect to any Security, means Dollars or the Foreign Currency, as the case may be, in which such payment, deposit or other transfer is required to be made by or pursuant to the terms hereof or such Security and, with respect to any other payment, deposit or transfer pursuant to or contemplated by the terms hereof or such Security, means Dollars. "CUSIP number" means the alphanumeric designation assigned to a Security by Standard & Poor's Ratings Service, CUSIP Service Bureau. "Defaulted Interest" has the meaning specified in Section 3.7. "Direct Action" has the meaning specified in Section 5.8. "Distributions," with respect to any ACE Trust, has the meaning specified in the applicable Trust Agreement of such ACE Trust. "Dollars" or "$" means a dollar or other equivalent unit of legal tender for payment of public or private debts in the United States of America. "Event of Default" has the meaning specified in Section 5.1. 5 "Extension Period" has the meaning specified in Section 3.11. "Foreign Currency" means any currency, currency unit or composite currency, including, without limitation, the euro, issued by the government of one or more countries other than the United States of America or by any recognized confederation or association of such governments. "Government Obligations" means securities which are (i) direct obligations of the United States of America or the other government or governments which issued the Foreign Currency in which the principal of or any premium or interest on such Security or any Additional Amounts in respect thereof shall be payable, in each case where the payment or payments thereunder are supported by the full faith and credit of such government or governments or (ii) obligations of a Person controlled or supervised by and acting as an agency or instrumentality of the United States of America or such other government or governments, in each case where the timely payment or payments thereunder are unconditionally guaranteed as a full faith and credit obligation by the United States of America or such other government or governments, and which, in the case of (i) or (ii), are not callable or redeemable at the option of the issuer or issuers thereof, and shall also include a depository receipt issued by a bank or trust company as custodian with respect to any such Government Obligation or a specific payment of interest on or principal of or other amount with respect to any such Government Obligation held by such custodian for the account of the holder of a depository receipt, provided that (except as required by law) such custodian is not authorized to make any deduction from the amount payable to the holder of such depository receipt from any amount received by the custodian in respect of the Government Obligation or the specific payment of interest on or principal of or other amount with respect to the Government Obligation evidenced by such depository receipt. "Guarantee" means the unconditional guarantee of the payment of the principal of, any premium or interest on, and any Additional Amounts with respect to the Securities by the Guarantor, as more fully set forth in Article 17. "Guarantee Agreement" means the Guarantee Agreement with respect to the Preferred Securities of an ACE Trust, substantially in such form as may be specified as contemplated by Section 3.1 with respect to the Securities of any series, in each case as amended from time to time. "Guarantor" means the Person named as the "Guarantor" in the first paragraph of this instrument until a successor Person shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Guarantor" shall mean such successor Person. "Guarantor's Board of Directors"' means the board of directors of the Guarantor or any committee of that board duly authorized to act generally or in any particular respect for the Guarantor hereunder. "Guarantor's Board Resolution"' means a copy of one or more resolutions, certified by the Secretary or an Assistant Secretary of the Guarantor to have been duly adopted by the 6 Guarantor's Board of Directors and to be in full force and effect on the date of such certification, delivered to the Trustee. "Guarantor's Officer's Certificate"'' means a certificate signed by the Chairman of the Guarantor's Board of Directors, a Vice Chairman, the President, the Chief Financial Officer, the Chief Investment Officer, the Chief Accounting Officer, the General Counsel or the Secretary of the Guarantor, that complies with the requirements of Section 314(e) of the Trustee Indenture Act and is delivered to the Trustee. "Guarantor Request" and "Guarantor Order"} mean, respectively, a written request or order, as the case may be, signed in the name of the Guarantor by the Chairman of the Guarantor's Board of Directors, a Vice Chairman, the President, the Chief Financial Officer, the Chief Investment Officer, the Chief Accounting Officer, the General Counsel or the Secretary of the Guarantor, and delivered to the Trustee. "Guarantor Senior Indebtedness" means, with respect to the Securities of any particular series, all Indebtedness of the Guarantor outstanding at any time, except (a) the Guarantor's obligations under the Guarantee in respect of the Securities of such series, (b) Indebtedness as to which, by the terms of the instrument creating or evidencing the same, it is provided that such Indebtedness is subordinated to or pari passu with the Guarantor's obligations under the Guarantee in respect of the Securities of such series, (c) Indebtedness of the Guarantor to an Affiliate of the Guarantor, (d) interest accruing after the filing of a petition initiating any proceeding relating to the Guarantor referred to in Section 5.1(7) and 5.1(8) unless such interest is an allowed claim enforceable against the Guarantor in a proceeding under federal or state bankruptcy laws, (e) trade accounts payable, (f) the Guarantor's obligations under the Guarantee in respect of the Securities of such series initially issued to (x) any ACE Trust or (y) any trust, partnership or other entity affiliated with the Guarantor which is a financing vehicle of the Guarantor or any Affiliate of the Guarantor in connection with the issuance by such entity of Preferred Securities or other securities which are similar to Preferred Securities that are guaranteed by the Guarantor pursuant to an instrument that ranks pari passu with or junior in right of payment to the Preferred Securities Guarantees and (g) all Preferred Securities Guarantees and all guarantees similar to the Preferred Securities Guarantees issued by the Guarantor on behalf of holders of Preferred Securities of an ACE Trust or other securities similar to Preferred Securities issued by any trust, partnership or other entity affiliated with the Guarantor which is a financing vehicle of the Guarantor or any Affiliate of the Guarantor. "Holder," in the case of any Registered Security, means the Person in whose name such Security is registered in the Security Register and, in the case of any Bearer Security, means the bearer thereof and, in the case of any Coupon, means the bearer thereof. "Indebtedness" means, with respect to any Person, (i) the principal of and any premium and interest on (a) indebtedness of such Person for money borrowed and (b) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable; (ii) all Capitalized Lease Obligations of such Person; (iii) all obligations of such Person issued or assumed as the deferred purchase price of property, all 7 conditional sale obligations and all obligations under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business); (iv) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction (other than obligations with respect to letters of credit securing obligations (other than obligations described in (i) through (iii) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the third Business Day following receipt by such Person of a demand for reimbursement following payment on the letter of credit); (v) all obligations of the type referred to in clauses (i) through (iv) of other Persons and all dividends of other Persons for the payment of which, in either case, such Person is responsible or liable as obligor, guarantor or otherwise; (vi) all obligations of the type referred to in clauses (i) through (v) of other Persons secured by any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person), the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured; and (vii) any amendments, modifications, refundings, renewals or extensions of any indebtedness or obligation described as Indebtedness in clauses (i) through (vi) above. "Indenture" means this instrument as it may from time to time be supplemented or amended by one or more indentures supplemental hereto entered into pursuant to the applicable provisions hereof and, with respect to any Security, by the terms and provisions of such Security and any Coupon appertaining thereto established pursuant to Section 3.1 (as such terms and provisions may be amended pursuant to the applicable provisions hereof). "Independent Public Accountants" means accountants or a firm of accountants that, with respect to the Company, the Guarantor and any other obligor under the Securities or the Coupons, are independent public accountants within the meaning of the Securities Act of 1933, as amended, and the rules and regulations promulgated by the Commission thereunder, who may be the independent public accountants regularly retained by the Company or the Guarantor or who may be other independent public accountants. Such accountants or firm shall be entitled to rely upon any Opinion of Counsel as to the interpretation of any legal matters relating to this Indenture or certificates required to be provided hereunder. "Indexed Security" means a Security the terms of which provide that the principal amount thereof payable at Stated Maturity may be more or less than the principal face amount thereof at original issuance. "Interest", with respect to any Original Issue Discount Security which by its terms bears interest only after Maturity, means interest payable after Maturity and, when used with respect to a Security which provides for the payment of Additional Amounts pursuant to Section 10.4 or 17.2, includes such Additional Amounts. "Interest Payment Date," with respect to any Security, means the Stated Maturity of an installment of interest on such Security. 8 "Investment Company Event" means, in respect of an ACE Trust, the receipt by such ACE Trust of an Opinion of Counsel, rendered by an independent law firm experienced in such matters, to the effect that, as a result of the occurrence of a change in law or regulation or a change in interpretation or application of law or regulation by any legislative body, court, governmental agency or regulatory authority (a "Change in 1940 Act Law"), such ACE Trust is or will be considered an investment company that is required to be registered under the 1940 Act, which Change in 1940 Act Law becomes effective on or after the date of original issuance of the Preferred Securities of such ACE Trust. "Judgment Currency" has the meaning specified in Section 1.17. "Lien" means any mortgage, pledge, lien, security interest or other encumbrance. "Maturity", with respect to any Security, means the date on which the principal of such Security or an installment of principal becomes due and payable as provided in or pursuant to this Indenture, whether at the Stated Maturity or by declaration of acceleration, notice of redemption or repurchase, notice of option to elect repayment or otherwise, and includes the Redemption Date. "New York Banking Day" has the meaning specified in Section 1.17. "1940 Act" means the Investment Company Act of 1940, as amended. "Office" or "Agency," with respect to any Securities, means an office or agency of the Company and the Guarantor maintained or designated in a Place of Payment for such Securities pursuant to Section 10.2 or any other office or agency of the Company and the Guarantor maintained or designated for such Securities pursuant to Section 10.2 or, to the extent designated or required by Section 10.2 in lieu of such office or agency, the Corporate Trust Office of the Trustee. "Officer's Certificate" means a certificate signed by an Authorized Officer that complies with the requirements of Section 314(e) of the Trust Indenture Act and is delivered to the Trustee. "Opinion of Counsel" means a written opinion of counsel, who may be an employee of or counsel for the Company or the Guarantor, as the case may be, or other counsel who shall be reasonably acceptable to the Trustee, that, if required by the Trust Indenture Act, complies with the requirements of Section 314(e) of the Trust Indenture Act. "Original Issue Discount Security" means a Security issued pursuant to this Indenture which provides for declaration of an amount less than the principal face amount thereof to be due and payable upon acceleration pursuant to Section 5.2. 9 "Outstanding," when used with respect to any Securities, means, as of the date of determination, all such Securities theretofore authenticated and delivered under this Indenture, except: (a) any such Security theretofore cancelled by the Trustee or the Security Registrar or delivered to the Trustee or the Security Registrar for cancellation; (b) any such Security for whose payment at the Maturity thereof money in the necessary amount has been theretofore deposited pursuant hereto (other than pursuant to Section 4.2) with the Trustee or any Paying Agent (other than the Company or the Guarantor) in trust or set aside and segregated in trust by the Company or the Guarantor (if the Company shall act as its own, or authorize the Guarantor to act as, Paying Agent) for the Holders of such Securities and any Coupons appertaining thereto, provided that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made; (c) any such Security with respect to which the Company or the Guarantor has effected defeasance pursuant to the terms hereof, except to the extent provided in Section 4.2; (d) any such Security which has been paid pursuant to Section 3.6 or in exchange for or in lieu of which other Securities have been authenticated and delivered pursuant to this Indenture, unless there shall have been presented to the Trustee proof satisfactory to it that such Security is held by a bona fide purchaser in whose hands such Security is a valid obligation of the Company; and (e) any such Security converted or exchanged as contemplated by this Indenture into securities of the Company or the Guarantor or another issuer, if the terms of such Security provide for such conversion or exchange pursuant to Section 3.1; provided, however, that in determining whether the Holders of the requisite principal amount of Outstanding Securities have given any request, demand, authorization, direction, notice, consent or waiver hereunder or are present at a meeting of Holders of Securities for quorum purposes, (i) the principal amount of an Original Issue Discount Security that may be counted in making such determination and that shall be deemed to be Outstanding for such purposes shall be equal to the amount of the principal thereof that pursuant to the terms of such Original Issue Discount Security would be declared (or shall have been declared to be) due and payable upon a declaration of acceleration thereof pursuant to Section 5.2 at the time of such determination, and (ii) the principal amount of any Indexed Security that may be counted in making such determination and that shall be deemed Outstanding for such purposes shall be equal to 10 the principal face amount of such Indexed Security at original issuance, unless otherwise provided in or pursuant to this Indenture, and (iii) the principal amount of a Security denominated in a Foreign Currency shall be the Dollar equivalent, determined on the date of original issuance of such Security, of the principal amount (or, in the case of an Original Issue Discount Security, the Dollar equivalent on the date of original issuance of such Security of the amount determined as provided in (i) above) of such Security, and (iv) Securities owned by the Company, the Guarantor or any other obligor upon the Securities or any Affiliate of the Company, the Guarantor or such other obligor, shall be disregarded and deemed not to be Outstanding, except that, in determining whether the Trustee shall be protected in making any such determination or relying upon any such request, demand, authorization, direction, notice, consent or waiver, only Securities which a Responsible Officer of the Trustee actually knows to be so owned shall be so disregarded. Securities so owned which shall have been pledged in good faith may be regarded as Outstanding if the pledgee establishes to the satisfaction of the Trustee (A) the pledgee's right so to act with respect to such Securities and (B) that the pledgee is not the Company, the Guarantor or any other obligor upon the Securities or any Coupons appertaining thereto or an Affiliate of the Company, the Guarantor or such other obligor. "Paying Agent" means any Person authorized by the Company to pay the principal of, or any premium or interest on, or any Additional Amounts with respect to, any Security or any Coupon on behalf of the Company. "Person" means any individual, Corporation, partnership, joint venture, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Place of Payment," with respect to any Security, means the place or places where the principal of, or any premium or interest on, or any Additional Amounts with respect to such Security are payable as provided in or pursuant to this Indenture or such Security. "Preferred Securities" has the meaning specified in the first recital of this Indenture. "Preferred Securities Guarantee" means the guarantee by ACE Limited, in its capacity as guarantor with respect to the Preferred Securities of an ACE Trust, of distributions on such Preferred Securities to the extent provided in the Guarantee Agreement. "Predecessor Security" of any particular Security means every previous Security evidencing all or a portion of the same Indebtedness as that evidenced by such particular Security; and, for the purposes of this definition, any Security authenticated and delivered under Section 3.6 in exchange for or in lieu of a lost, destroyed, mutilated or stolen Security or any Security to which a mutilated, destroyed, lost or stolen Coupon appertains shall be deemed to evidence the same Indebtedness as the lost, destroyed, mutilated or stolen Security or the Security to which a mutilated, destroyed, lost or stolen Coupon appertains. "Preferred Stock" in respect of any Corporation means Capital Stock of any class or classes (however designated) which is preferred as to the payment of dividends, or as to the 11 distribution of assets upon any voluntary or involuntary liquidation or dissolution of such Corporation, over shares of Capital Stock of any other class of such Corporation. "Property Trustee," with respect to any ACE Trust, means the entity acting in the capacity of Property Trustee pursuant to the related Trust Agreement. "Redemption Date," with respect to any Security or portion thereof to be redeemed, means the date fixed for such redemption by or pursuant to this Indenture or such Security. "Redemption Price," with respect to any Security or portion thereof to be redeemed, means the price at which it is to be redeemed as determined by or pursuant to this Indenture or such Security. "Registered Security" means any Security established pursuant to Section 2.1 which is registered in a Security Register. "Regular Record Date" for the interest payable on any Registered Security on any Interest Payment Date therefor means the date, if any, specified in or pursuant to this Indenture or such Security as the "Regular Record Date". "Required Currency" has the meaning specified in Section 1.17. "Responsible Officer" means any vice president, any assistant vice president, the secretary, any assistant secretary, the treasurer, any assistant treasurer, or any trust officer or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his or her knowledge of and familiarity with the particular subject. "Security" or "Securities" means any note or notes, bond or bonds, debenture or debentures, or any other evidences of Indebtedness, as the case may be, authenticated and delivered under this Indenture; provided, however, that, if at any time there is more than one Person acting as Trustee under this Indenture, "Securities," with respect to any such Person, shall mean Securities authenticated and delivered under this Indenture, exclusive, however, of Securities of any series as to which such Person is not Trustee. "Security Register" and "Security Registrar" have the respective meanings specified in Section 3.5. "Senior Indebtedness," with respect to the Securities of any particular series, means, collectively, Company Senior Indebtedness with respect to the Securities of such series and Guarantor Senior Indebtedness with respect to the Securities of such series. "Special Event" means an Investment Company Event or a Tax Event. 12 "Special Record Date" for the payment of any Defaulted Interest on any Registered Security means a date fixed by the Company pursuant to Section 3.7. "Stated Maturity," with respect to any Security or any installment of principal thereof or interest thereon or any Additional Amounts with respect thereto, means the date established by or pursuant to this Indenture or such Security as the fixed date on which the principal of such Security or such installment of principal or interest is, or such Additional Amounts are, due and payable. "Subsidiary" means, in respect of any Person, any Corporation, limited or general partnership or other business entity of which at the time of determination more than 50% of the voting power of the shares of its Capital Stock or other interests (including partnership interests) entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers or trustees thereof is owned or controlled, directly or indirectly, by (i) such Person, (ii) such Person and one or more Subsidiaries of such Person or (iii) one or more Subsidiaries of such Person. "Tax Event" means, in respect of an ACE Trust, the receipt by such ACE Trust or the Company of an Opinion of Counsel, rendered by an independent law firm experienced in such matters, to the effect that, as a result of any amendment to, or change (including any announced prospective change) in, the laws (or any regulations thereunder) of the United States or any political subdivision or taxing authority thereof or therein, or as a result of any official administrative pronouncement or judicial decision interpreting or applying such laws or regulations, which amendment or change is effective or which pronouncement or decision is announced on or after the date of original issuance of the Preferred Securities of such ACE Trust, there is more than an insubstantial risk that (i) such ACE Trust is, or will be within 90 days of the date of such Opinion of Counsel, subject to United States Federal income tax with respect to income received or accrued on the corresponding series of Securities, (ii) interest payable by the Company on the corresponding series of Securities is not, or within 90 days of the date of such Opinion of Counsel will not be, deductible by the Company, in whole or in part, for United States Federal income tax purposes or (iii) such ACE Trust is, or will be within 90 days of the date of such Opinion of Counsel, subject to more than a de minimis amount of other taxes, duties or other governmental charges. "Trust Agreement" means the Trust Agreement substantially in the form attached hereto as Annex A, as amended by an Amended and Restated Trust Agreement substantially in such form as may be specified as contemplated by Section 3.1 with respect to the Securities of any series, in each case as amended from time to time. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended, and any reference herein to the Trust Indenture Act or a particular provision thereof shall mean such Act or provision, as the case may be, as amended or replaced from time to time or as supplemented from time to time by rules or regulations adopted by the Commission under or in furtherance of the purposes of such Act or provision, as the case may be. 13 "Trust Securities," with respect to any ACE Trust, means, collectively, the Common Securities and Preferred Securities issued by such ACE Trust. "Trustee" means the Person named as the "Trustee" in the first paragraph of this instrument until a successor Trustee shall have become such with respect to one or more series of Securities pursuant to the applicable provisions of this Indenture, and thereafter "Trustee" shall mean each Person who is then a Trustee hereunder; provided, however, that if at any time there is more than one such Person, "Trustee" shall mean each such Person and as used with respect to the Securities of any series shall mean the Trustee with respect to the Securities of such series. "United States," except as otherwise provided in or pursuant to this Indenture or any Security, means the United States of America (including the states thereof and the District of Columbia), its territories and possessions and other areas subject to its jurisdiction. "United States Alien," except as otherwise provided in or pursuant to this Indenture or any Security, means any Person who, for United States Federal income tax purposes, is a foreign corporation, a non-resident alien individual, a non-resident alien fiduciary of a foreign estate or trust, or a foreign partnership one or more of the members of which is, for United States Federal income tax purposes, a foreign corporation, a non-resident alien individual or a non-resident alien fiduciary of a foreign estate or trust. "U.S. Depository" or "Depository" means, with respect to any Security issuable or issued in the form of one or more global Securities, the Person designated as U.S. Depository or Depository by the Company in or pursuant to this Indenture, which Person must be, to the extent required by applicable law or regulation, a clearing agency registered under the Securities Exchange Act of 1934, as amended, and, if so provided with respect to any Security, any successor to such Person. If at any time there is more than one such Person, "U.S. Depository" or "Depository" shall mean, with respect to any Securities, the qualifying entity which has been appointed with respect to such Securities. "Vice President," when used with respect to the Company or the Trustee, means any vice president, whether or not designated by a number or a word or words added before or after the title "Vice President". Section 1.2. Compliance Certificates and Opinions. Except as otherwise expressly provided in this Indenture, upon any application or request by the Company or the Guarantor to the Trustee to take any action under any provision of this Indenture, the Company or the Guarantor, as the case may be, shall furnish to the Trustee an Officer's Certificate or a Guarantor's Officer's Certificate stating that all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent, if any, have been complied with, except that in the case of any such application or request as to which the furnishing of such documents or any of them is specifically required by any provision 14 of this Indenture relating to such particular application or request, no additional certificate or opinion need be furnished. Every certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that the individual signing such certificate or opinion has read such condition or covenant and the definitions herein relating thereto; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such individual, he has made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such condition or covenant has been complied with; and (4) a statement as to whether, in the opinion of such individual, such condition or covenant has been complied with. Section 1.3. Form of Documents Delivered to Trustee. In any case where several matters are required to be certified by, or covered by an opinion of, any specified Person, it is not necessary that all such matters be certified by, or covered by the opinion of, only one such Person, or that they be so certified or covered by only one document, but one such Person may certify or give an opinion with respect to some matters and one or more other such Persons as to other matters, and any such Person may certify or give an opinion as to such matters in one or several documents. Any certificate or opinion of an officer of the Company or the Guarantor may be based, insofar as it relates to legal matters, upon an Opinion of Counsel, provided that such officer, after reasonable inquiry, has no reason to believe and does not believe that the Opinion of Counsel with respect to the matters upon which his certificate or opinion is based is erroneous. Any such Opinion of Counsel may be based, insofar as it relates to factual matters, upon a certificate or opinion of, or representations by, an officer or officers of the Company or the Guarantor, as the case may be, stating that the information with respect to such factual matters is in the possession of the Company or the Guarantor, as the case may be, provided that such counsel, after reasonable inquiry, has no reason to believe and does not believe that the certificate or opinion or representations with respect to such matters are erroneous. Where any Person is required to make, give or execute two or more applications, requests, consents, certificates, statements, opinions or other instruments under this Indenture or any Security, they may, but need not, be consolidated and form one instrument. 15 Section 1.4. Acts of Holders. (1) Any request, demand, authorization, direction, notice, consent, waiver or other action provided by or pursuant to this Indenture to be given or taken by Holders or by holders of Preferred Securities may be embodied in and evidenced by one or more instruments of substantially similar tenor signed by such Holders or holders of Preferred Securities, as applicable, in person or by an agent duly appointed in writing. If, but only if, Securities of a series are issuable as Bearer Securities, any request, demand, authorization, direction, notice, consent, waiver or other action provided in or pursuant to this Indenture to be given or taken by Holders of Securities of such series may, alternatively, be embodied in and evidenced by the record of Holders of Securities of such series voting in favor thereof, either in person or by proxies duly appointed in writing, at any meeting of Holders of Securities of such series duly called and held in accordance with the provisions of Article 15, or a combination of such instruments and any such record. Except as herein otherwise expressly provided, such action shall become effective when such instrument or instruments or record or both are delivered to the Trustee and, where it is hereby expressly required, to the Company or the Guarantor or both of them. Such instrument or instruments and any such record (and the action embodied therein and evidenced thereby) are herein sometimes referred to as the "Act" of the Holders or holders of Preferred Securities signing such instrument or instruments or so voting at any such meeting. Proof of execution of any such instrument or of a writing appointing any such agent, or of the holding by any Person of a Security, shall be sufficient for any purpose of this Indenture and (subject to Section 315 of the Trust Indenture Act) conclusive in favor of the Trustee, the Company and the Guarantor and any agent of the Trustee, the Company or the Guarantor, if made in the manner provided in this Section. The record of any meeting of Holders of Securities shall be proved in the manner provided in Section 15.6. Without limiting the generality of this Section 1.4, unless otherwise provided in or pursuant to this Indenture, a Holder, including a U.S. Depository that is a Holder of a global Security, may make, give or take, by a proxy or proxies, duly appointed in writing, any request, demand, authorization, direction, notice, consent, waiver or other Act provided in or pursuant to this Indenture to be made, given or taken by Holders, and a U.S. Depository that is a Holder of a global Security may provide its proxy or proxies to the beneficial owners of interests in any such global Security through such U.S. Depository's standing instructions and customary practices. The Company shall fix a record date for the purpose of determining the Persons who are beneficial owners of interest in any permanent global Security held by a U.S. Depository entitled under the procedures of such U.S. Depository to make, give or take, by a proxy or proxies duly appointed in writing, any request, demand, authorization, direction, notice, consent, waiver or other Act provided in or pursuant to this Indenture to be made, given or taken by Holders. If such a record date is fixed, the Holders on such record date or their duly appointed proxy or proxies, and only such Persons, shall be 16 entitled to make, give or take such request, demand, authorization, direction, notice, consent, waiver or other Act, whether or not such Holders remain Holders after such record date. No such request, demand, authorization, direction, notice, consent, waiver or other Act shall be valid or effective if made, given or taken more than 90 days after such record date. (2) The fact and date of the execution by any Person of any such instrument or writing referred to in this Section 1.4 may be proved in any reasonable manner; and the Trustee may in any instance require further proof with respect to any of the matters referred to in this Section. (3) The ownership, principal amount and serial numbers of Registered Securities held by any Person, and the date of the commencement and the date of the termination of holding the same, shall be proved by the Security Register. (4) The ownership, principal amount and serial numbers of Bearer Securities held by any Person, and the date of the commencement and the date of the termination of holding the same, may be proved by the production of such Bearer Securities or by a certificate executed, as depositary, by any trust company, bank, banker or other depositary reasonably acceptable to the Company and the Guarantor, wherever situated, if such certificate shall be deemed by the Company, the Guarantor and the Trustee to be satisfactory, showing that at the date therein mentioned such Person had on deposit with such depositary, or exhibited to it, the Bearer Securities therein described; or such facts may be proved by the certificate or affidavit of the Person holding such Bearer Securities, if such certificate or affidavit is deemed by the Trustee to be satisfactory. The Trustee, the Company and the Guarantor may assume that such ownership of any Bearer Security continues until (i) another certificate or affidavit bearing a later date issued in respect of the same Bearer Security is produced, or (ii) such Bearer Security is produced to the Trustee by some other Person, or (iii) such Bearer Security is surrendered in exchange for a Registered Security, or (iv) such Bearer Security is no longer Outstanding. The ownership, principal amount and serial numbers of Bearer Securities held by the Person so executing such instrument or writing and the date of the commencement and the date of the termination of holding the same may also be proved in any other manner which the Company, the Guarantor and the Trustee deem sufficient. (5) If the Company or the Guarantor shall solicit from the Holders of any Registered Securities any request, demand, authorization, direction, notice, consent, waiver or other Act, the Company or the Guarantor, as the case may be, may at its option (but is not obligated to), by Board Resolution or Guarantor's Board Resolution, as the case may be, fix in advance a record date for the determination of Holders of Registered Securities entitled to give such request, demand, authorization, direction, notice, consent, waiver or other Act. If such a record date is fixed, such request, demand, authorization, direction, notice, consent, waiver or other Act may be given before or after such record date, but only the Holders of Registered Securities of record at the close of business on 17 such record date shall be deemed to be Holders for the purpose of determining whether Holders of the requisite proportion of Outstanding Securities have authorized or agreed or consented to such request, demand, authorization, direction, notice, consent, waiver or other Act, and for that purpose the Outstanding Securities shall be computed as of such record date; provided that no such authorization, agreement or consent by the Holders of Registered Securities shall be deemed effective unless it shall become effective pursuant to the provisions of this Indenture not later than six months after the record date. (6) Any request, demand, authorization, direction, notice, consent, waiver or other Act by the Holder of any Security shall bind every future Holder of the same Security and the Holder of every Security issued upon the registration of transfer thereof or in exchange therefor or in lieu thereof in respect of anything done or suffered to be done by the Trustee, any Security Registrar, any Paying Agent, the Guarantor or the Company in reliance thereon, whether or not notation of such Act is made upon such Security. Section 1.5. Notices, etc. to Trustee, Company and Guarantor. Any request, demand, authorization, direction, notice, consent, waiver or other Act of Holders or other document provided or permitted by this Indenture to be made upon, given or furnished to, or filed with, (1) the Trustee by any Holder, the Guarantor or the Company shall be sufficient for every purpose hereunder if made, given, furnished or filed in writing to or with the Trustee at its Corporate Trust Office, or (2) the Company or the Guarantor, as the case may be, by the Trustee or any Holder shall be sufficient for every purpose hereunder (unless otherwise herein expressly provided) if in writing and mailed, first-class postage prepaid, to the Company or the Guarantor, as the case may be, addressed to the attention of its Treasurer, with a copy to the attention of its General Counsel, at the address of its principal office specified in the first paragraph of this instrument or at any other address previously furnished in writing to the Trustee by the Company or the Guarantor, as the case may be. Section 1.6. Notice to Holders of Securities; Waiver. Except as otherwise expressly provided in or pursuant to this Indenture, where this Indenture provides for notice to Holders of Securities of any event, (1) such notice shall be sufficiently given to Holders of Registered Securities if in writing and mailed, first-class postage prepaid, to each Holder of a Registered Security affected by such event, at his address as it appears in the Security Register, not later than the latest date, and not earlier than the earliest date, prescribed for the giving of such notice; and 18 (2) such notice shall be sufficiently given to Holders of Bearer Securities, if any, if published in an Authorized Newspaper in The City of New York and, if such Securities are then listed on any stock exchange outside the United States, in an Authorized Newspaper in such city as the Company shall advise the Trustee that such stock exchange so requires, on a Business Day at least twice, the first such publication to be not earlier than the earliest date and the second such publication not later than the latest date prescribed for the giving of such notice. In any case where notice to Holders of Registered Securities is given by mail, neither the failure to mail such notice, nor any defect in any notice so mailed, to any particular Holder of a Registered Security shall affect the sufficiency of such notice with respect to other Holders of Registered Securities or the sufficiency of any notice to Holders of Bearer Securities given as provided herein. Any notice which is mailed in the manner herein provided shall be conclusively presumed to have been duly given or provided. In the case by reason of the suspension of regular mail service or by reason of any other cause it shall be impracticable to give such notice by mail, then such notification as shall be made with the approval of the Trustee shall constitute a sufficient notification for every purpose hereunder. In case by reason of the suspension of publication of any Authorized Newspaper or Authorized Newspapers or by reason of any other cause it shall be impracticable to publish any notice to Holders of Bearers Securities as provided above, then such notification to Holders of Bearer Securities as shall be given with the approval of the Trustee shall constitute sufficient notice to such Holders for every purpose hereunder. Neither failure to give notice by publication to Holders of Bearer Securities as provided above, nor any defect in any notice so published, shall affect the sufficiency of any notice mailed to Holders of Registered Securities as provided above. Where this Indenture provides for notice in any manner, such notice may be waived in writing by the Person entitled to receive such notice, either before or after the event, and such waiver shall be the equivalent of such notice. Waivers of notice by Holders of Securities shall be filed with the Trustee, but such filing shall not be a condition precedent to the validity of any action taken in reliance upon such waiver. Section 1.7. Language of Notices. Any request, demand, authorization, direction, notice, consent, election or waiver required or permitted under this Indenture shall be in the English language, except that, if the Company or the Guarantor, as the case may be, so elects, any published notice may be in an official language of the country of publication. Section 1.8. Conflict with Trust Indenture Act. If any provision hereof limits, qualifies or conflicts with any duties under any required provision of the Trust Indenture Act imposed hereon by Section 318(c) thereof, such required provision shall control. 19 Section 1.9. Effect of Headings and Table of Contents. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. Section 1.10. Successors and Assigns. All covenants and agreements in this Indenture by the Company shall bind its successors and assigns, whether so expressed or not. All covenants and agreements in this Indenture by the Guarantor shall bind its successors and assigns, whether so expressed or not. Section 1.11. Separability Clause. In case any provision in this Indenture, any Security or any Coupon shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. Section 1.12. Holders of Preferred Securities as Third Party Beneficiaries. The Company and the Guarantor hereby acknowledge that, to the extent specifically set forth herein, the holders of the Preferred Securities of an ACE Trust shall expressly be third party beneficiaries of this Indenture. The Company and the Guarantor further acknowledge that, if an Event of Default has occurred and is continuing and is attributable to the failure of the Company and the Guarantor to pay the principal of or premium, if any, or interest on or Additional Amounts with respect to the Securities of the series held by such ACE Trust, any holder of the Preferred Securities of such ACE Trust may institute a Direct Action against the Company or the Guarantor. Section 1.13. Benefits of Indenture. Except as other expressly provided herein with respect to holders of Preferred Securities, nothing in this Indenture, any Security or any Coupon, express or implied, shall give to any Person, other than the parties hereto and the holders of Senior Indebtedness, any Security Registrar, any Paying Agent, any Authenticating Agent and their successors hereunder and the Holders of Securities or Coupons, any benefit or any legal or equitable right, remedy or claim under this Indenture. Section 1.14. Governing Law. This Indenture, the Securities and any Coupons shall be governed by and construed in accordance with the laws of the State of New York applicable to agreements made or instruments entered into and, in each case, performed in said state. 20 Section 1.15. Legal Holidays. Unless otherwise specified in or pursuant to this Indenture or any Securities, in any case where any Interest Payment Date, Stated Maturity or Maturity of any Security, or the last date on which a Holder has the right to convert or exchange Securities of a series that are convertible or exchangeable, shall not be a Business Day at any Place of Payment, then (notwithstanding any other provision of this Indenture, any Security or any Coupon other than a provision in any Security or Coupon that specifically states that such provision shall apply in lieu hereof) payment need not be made at such Place of Payment on such date, and such Securities need not be converted or exchanged on such date, but such payment may be made, and such Securities may be converted or exchanged, on the next succeeding day that is a Business Day at such Place of Payment, and no interest shall accrue on the amount payable on such date or at such time for the period from and after such Interest Payment Date, Stated Maturity, Maturity or last day for conversion or exchange, as the case may be, to such next succeeding Business Day, except that if such next succeeding Business Day is in the next succeeding calendar year, such payment may be made, and such Securities may be converted or exchanged, on the immediately preceding Business Day (in the case of each of the foregoing, with the same force and effect as if made on such Interest Payment Date or at such Stated Maturity or Maturity or on such last day for conversion or exchange, as the case may be). Section 1.16. Counterparts. This Indenture may be executed in several counterparts, each of which shall be an original and all of which shall constitute but one and the same instrument. Section 1.17. Judgment Currency. The Company and the Guarantor each agrees, to the fullest extent that it may effectively do so under applicable law, that (a) if for the purpose of obtaining judgment in any court it is necessary to convert the sum due in respect of the principal of, or premium or interest, if any, or Additional Amounts on the Securities of any series (the "Required Currency") into a currency in which a judgment will be rendered (the "Judgment Currency"), the rate of exchange used shall be the rate at which in accordance with normal banking procedures the Trustee could purchase in The City of New York the requisite amount of the Required Currency with the Judgment Currency on the New York Banking Day preceding the day on which a final unappealable judgment is given and (b) its obligations under this Indenture to make payments in the Required Currency (i) shall not be discharged or satisfied by any tender, or any recovery pursuant to any judgment (whether or not entered in accordance with clause (a)), in any currency other than the Required Currency, except to the extent that such tender or recovery shall result in the actual receipt, by the payee, of the full amount of the Required Currency expressed to be payable in respect of such payments, (ii) shall be enforceable as an alternative or additional cause of action for the purpose of recovering in the Required Currency the amount, if any, by which such actual receipt shall fall short of the full amount of the Required Currency so expressed to be payable and (iii) shall not be affected by judgment being obtained for any other sum due under this Indenture. For purposes of the foregoing, "New York Banking Day" means any day except 21 a Saturday, Sunday or a legal holiday in The City of New York or a day on which banking institutions in The City of New York are authorized or obligated by law, regulation or executive order to be closed. Section 1.18. No Security Interest Created. Nothing in this Indenture or in any Securities, express or implied, shall be construed to constitute a security interest under the Uniform Commercial Code or similar legislation, as now or hereafter enacted and in effect in any jurisdiction where property of the Company, the Guarantor or their respective Subsidiaries is or may be located. Section 1.19. Limitation on Individual Liability. No recourse under or upon any obligation, covenant or agreement contained in this Indenture or in any Security, or for any claim based thereon or otherwise in respect thereof, shall be had against any incorporator, shareholder (except in a shareholder's corporate capacity as Guarantor), officer or director, as such, past, present or future, of the Company or the Guarantor, as the case may be, either directly or through the Company or the Guarantor, as the case may be, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that this Indenture and the obligations issued hereunder are solely corporate obligations, and that no such personal liability whatever shall attach to, or is or shall be incurred by, the incorporators, shareholders, officers or directors, as such, of the Company or the Guarantor, as the case may be, or any of them, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any Security or implied therefrom; and that any and all such personal liability of every name and nature, either at common law or in equity or by constitution or statute, of, and any and all such rights and claims against, every such incorporator, shareholder, officer or director, as such, because of the creation of the indebtedness hereby authorized, or under or by reason of the obligations, covenants or agreements contained in this Indenture or in any Security or implied therefrom, are hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issuance of such Security. Section 1.20. Submission to Jurisdiction. The Company and the Guarantor each agrees that any judicial proceedings instituted in relation to any matter arising under this Indenture, the Securities or any Coupons appertaining thereto may be brought in any United States Federal or New York State court sitting in the Borough of Manhattan, The City of New York, New York to the extent that such court has subject matter jurisdiction over the controversy, and, by execution and delivery of this Indenture, the Company and the Guarantor each hereby irrevocably accepts, generally and unconditionally, the jurisdiction of the aforesaid courts, acknowledges their competence and irrevocably agrees to be bound by any judgement rendered in such proceeding. The Company and the Guarantor each also irrevocably and unconditionally waives for the benefit of the Trustee and the Holders of the Securities and Coupons any immunity from jurisdiction and any immunity from legal process 22 (whether through service or notice, attachment prior to judgement, attachment in the aid of execution, execution or otherwise) in respect of this Indenture. The Company and the Guarantor each hereby irrevocably designates and appoints for the benefit of the Trustee and the Holders of the Securities and Coupons for the term of this Indenture ACE USA, Inc., 1133 Avenue of the Americas, 32nd Floor, New York, New York 10036, as its agent to receive on its behalf service of all process (with a copy of all such service of process to be delivered to Peter N. Mear, General Counsel and Secretary, ACE Limited, The ACE Building, 30 Woodbourne Avenue, Hamilton, HM 08, Bermuda) brought against it with respect to any such proceeding in any such court in The City of New York, such service being hereby acknowledged by each of the Company and the Guarantor to be effective and binding service on it in every respect whether or not the Company or the Guarantor, as the case may be, shall then be doing or shall have at any time done business in New York. Such appointment shall be irrevocable so long as any of the Securities or Coupons or the respective obligations of the Company and the Guarantor hereunder remain outstanding, or until the appointment of a successor by the Company or the Guarantor, as the case may be, and such successor's acceptance of such appointment. Upon such acceptance, the Company or the Guarantor, as the case may be, shall notify the Trustee of the name and address of such successor. The Company and the Guarantor each further agrees for the benefit of the Trustee and the Holders of the Securities and the Coupons to take any and all action, including the execution and filing of any and all such documents and instruments, as may be necessary to continue such designation and appointment of said ACE USA, Inc. in full force and effect so long as any of the Securities or Coupons or the respective obligations of the Company and the Guarantor hereunder shall be outstanding. The Trustee shall not be obligated and shall have no responsibility with respect to any failure by the Company or the Guarantor to take any such action. Nothing herein shall affect the right to serve process in any other manner permitted by any law or limit the right of the Trustee or any Holder to institute proceedings against the Company or the Guarantor in the courts of any other jurisdiction or jurisdictions. ARTICLE 2 Securities Forms Section 2.1. Forms Generally. Each Registered Security, Bearer Security, Coupon and temporary or permanent global Security issued pursuant to this Indenture shall be in the form established by or pursuant to a Board Resolution or in one or more indentures supplemental hereto, shall have such appropriate insertions, omissions, substitutions and other variations as are required or permitted by or pursuant to this Indenture or any indenture supplemental hereto and may have such letters, numbers or other marks of identification and such legends or endorsements placed thereon as may, consistently herewith, be determined by the officers executing such Security or Coupon as evidenced by their execution of such Security or Coupon. 23 Unless otherwise provided in or pursuant to this Indenture or any Securities, the Securities shall be issuable in registered form without Coupons and shall not be issuable upon the exercise of warrants. Definitive Securities and definitive Coupons shall be printed, lithographed or engraved or produced by any combination of these methods on a steel engraved border or steel engraved borders or may be produced in any other manner, all as determined by the officers of the Company executing such Securities or Coupons, as evidenced by their execution of such Securities or Coupons. Section 2.2. Form of Trustee's Certificate of Authentication. Subject to Section 6.11, the Trustee's certificate of authentication shall be in substantially the following form: This is one of the Securities of the series designated therein referred to in the within-mentioned Indenture. BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, as Trustee By ------------------------------ Authorized Officer Section 2.3. Securities in Global Form. Unless otherwise provided in or pursuant to this Indenture or any Securities, the Securities shall not be issuable in temporary or permanent global form. If Securities of a series shall be issuable in global form, any such Security may provide that it or any number of such Securities shall represent the aggregate amount of all Outstanding Securities of such series (or such lesser amount as is permitted by the terms thereof) from time to time endorsed thereon and may also provide that the aggregate amount of Outstanding Securities represented thereby may from time to time be increased or reduced to reflect exchanges. Any endorsement of any Security in global form to reflect the amount, or any increase or decrease in the amount, or changes in the rights of Holders, of Outstanding Securities represented thereby shall be made in such manner and by such Person or Persons as shall be specified therein or in the Company Order to be delivered pursuant to Section 3.3 or 3.4 with respect thereto. Subject to the provisions of Section 3.3 and, if applicable, Section 3.4, the Trustee shall deliver and redeliver, in each case at the Company's expense, any Security in permanent global form in the manner and upon instructions given by the Person or Persons specified therein or in the applicable Company Order. If a Company Order pursuant to Section 3.3 or 3.4 has been, or simultaneously is, delivered, any instructions by the Company with respect to a Security in global form shall be 24 in writing but need not be accompanied by or contained in an Officer's Certificate and need not be accompanied by an Opinion of Counsel. Notwithstanding the provisions of Section 3.7, unless otherwise specified in or pursuant to this Indenture or any Securities, payment of principal of, any premium and interest on, and any Additional Amounts in respect of, any Security in temporary or permanent global form shall be made to the Person or Persons specified therein. Notwithstanding the provisions of Section 3.8 and except as provided in the preceding paragraph, the Company, the Guarantor, the Trustee and any agent of the Company, the Guarantor or the Trustee shall treat as the Holder of such principal amount of Outstanding Securities represented by a global Security (i) in the case of a global Security in registered form, the Holder of such global Security in registered form, or (ii) in the case of a global Security in bearer form, the Person or Persons specified pursuant to Section 3.1. ARTICLE 3 The Securities Section 3.1. Amount Unlimited; Issuable in Series. The aggregate principal amount of Securities which may be authenticated and delivered under this Indenture is unlimited. The Securities may be issued in one or more series. The Securities of each series shall be subordinated in right of payment to all Company Senior Indebtedness with respect to such series as provided in Article 16. The Securities of each series shall be guaranteed by the Guarantor, which Guarantee shall be subordinated in right of payment to all Guarantor Senior Indebtedness with respect to such series as provided in Article 18. With respect to any Securities to be authenticated and delivered hereunder, there shall be established in or pursuant to a Board Resolution and set forth in an Officer's Certificate, or established in one or more indentures supplemental hereto, (1) the title of such Securities and the series in which such Securities shall be included; (2) any limit upon the aggregate principal amount of the Securities of such title or the Securities of such series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of such series pursuant to Section 3.4, 3.5, 3.6, 9.5 or 11.7, upon repayment in part of any Registered Security of such series pursuant to Article 13, upon surrender in part of any Registered Security for conversion into other securities of the Company or exchange for securities of the Guarantor or another issuer pursuant to its terms, or pursuant to or as contemplated by the terms of such Securities); 25 (3) if such Securities are to be issuable as Registered Securities, as Bearer Securities or alternatively as Bearer Securities and Registered Securities, and whether the Bearer Securities are to be issuable with Coupons, without Coupons or both, and any restrictions applicable to the offer, sale or delivery of the Bearer Securities and the terms, if any, upon which Bearer Securities may be exchanged for Registered Securities and vice versa; (4) if any of such Securities are to be issuable in global form, when any of such Securities are to be issuable in global form and (i) whether such Securities are to be issued in temporary or permanent global form or both, (ii) whether beneficial owners of interests in any such global Security may exchange such interests for Securities of the same series and of like tenor and of any authorized form and denomination, and the circumstances under which any such exchanges may occur, if other than in the manner specified in Section 3.5, and (iii) the name of the Depository or the U.S. Depository, as the case may be, with respect to any such global Security; (5) if any of such Securities are to be issuable as Bearer Securities or in global form, the date as of which any such Bearer Security or global Security shall be dated (if other than the date of original issuance of the first of such Securities to be issued); (6) if any of such Securities are to be issuable as Bearer Securities, whether interest in respect of any portion of a temporary Bearer Security in global form payable in respect of an Interest Payment Date therefor prior to the exchange, if any, of such temporary Bearer Security for definitive Securities shall be paid to any clearing organization with respect to the portion of such temporary Bearer Security held for its account and, in such event, the terms and conditions (including any certification requirements) upon which any such interest payment received by a clearing organization will be credited to the Persons entitled to interest payable on such Interest Payment Date; (7) the date or dates, or the method or methods, if any, by which such date or dates shall be determined, on which the principal of such Securities is payable; (8) the rate or rates at which such Securities shall bear interest, if any, or the method or methods, if any, by which such rate or rates are to be determined, the rate or rates and the extent to which Additional Interest, if any, shall be payable in respect of such Securities, the date or dates, if any, from which such interest shall accrue or the method or methods, if any, by which such date or dates are to be determined, the Interest Payment Dates, if any, on which such interest shall be payable and the Regular Record Date, if any, for the interest payable on Registered Securities on any Interest Payment Date, the right, pursuant to Section 3.11 hereof or as otherwise set forth therein, of the Company to defer or extend an interest payment period and the duration of any such Extension Period, including the maximum consecutive period during which interest payment periods may be extended, whether and under what circumstances Additional Amounts on such Securities or any of them shall be payable, the notice, if any, to Holders regarding the determination of interest on a floating rate Security and the manner of 26 giving such notice, and the basis upon which interest shall be calculated if other than that of a 360-day year of twelve 30-day months; (9) if in addition to or other than the Borough of Manhattan, The City of New York, the place or places where the principal of, any premium and interest on or any Additional Amounts with respect to such Securities shall be payable, any of such Securities that are Registered Securities may be surrendered for registration of transfer or exchange, any of such Securities may be surrendered for conversion or exchange and notices or demands to or upon the Company or the Guarantor in respect of such Securities and this Indenture may be served, the extent to which, or the manner in which, any interest payment or Additional Amounts on a global Security on an Interest Payment Date, will be paid and the manner in which any principal of or premium, if any, on any global Security will be paid; (10) whether any of such Securities are to be redeemable at the option of the Company and, if so, the date or dates on which, the period or periods within which, the price or prices at which and the other terms and conditions upon which such Securities may be redeemed, in whole or in part, at the option of the Company; (11) whether the Company is obligated to redeem or purchase any of such Securities pursuant to any sinking fund or analogous provision or at the option of any Holder thereof and, if so, the date or dates on which, the period or periods within which, the price or prices at which and the other terms and conditions upon which such Securities shall be redeemed or purchased, in whole or in part, pursuant to such obligation, and any provisions for the remarketing of such Securities so redeemed or purchased; (12) the denominations in which any of such Securities that are Registered Securities shall be issuable if other than denominations of $1,000 and any integral multiple thereof, and the denominations in which any of such Securities that are Bearer Securities shall be issuable if other than the denomination of $5,000; (13) whether the Securities of the series will be convertible into other securities of the Company and/or exchangeable for securities of the Guarantor or another issuer, and if so, the terms and conditions upon which such Securities will be so convertible or exchangeable, and any deletions from or modifications or additions to this Indenture to permit or to facilitate the issuance of such convertible or exchangeable Securities or the administration thereof; (14) if other than the principal amount thereof, the portion of the principal amount of any of such Securities that shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 5.2 or the method by which such portion is to be determined; 27 (15) if other than Dollars, the Foreign Currency in which payment of the principal of, any premium or interest on or any Additional Amounts with respect to any of such Securities shall be payable; (16) if the principal of, any premium or interest on or any Additional Amounts with respect to any of such Securities are to be payable, at the election of the Company or a Holder thereof or otherwise, in Dollars or in a Foreign Currency other than that in which such Securities are stated to be payable, the date or dates on which, the period or periods within which, and the other terms and conditions upon which, such election may be made, and the time and manner of determining the exchange rate between the Currency in which such Securities are stated to be payable and the Currency in which such Securities or any of them are to be paid pursuant to such election, and any deletions from or modifications of or additions to the terms of this Indenture to provide for or to facilitate the issuance of Securities denominated or payable, at the election of the Company or a Holder thereof or otherwise, in a Foreign Currency; (17) whether the amount of payments of principal of, any premium or interest on or any Additional Amounts with respect to such Securities may be determined with reference to an index, formula or other method or methods (which index, formula or method or methods may be based, without limitation, on one or more Currencies, commodities, equity securities, equity indices or other indices), and, if so, the terms and conditions upon which and the manner in which such amounts shall be determined and paid or payable; (18) the relative degree, if any, to which Securities of such series and the Guarantee in respect thereof shall be senior to or be subordinated to other series of Securities and the Guarantee in respect thereof or other Indebtedness of the Company or the Guarantor, as the case may be, in right of payment, whether such other series of Securities or other Indebtedness is outstanding or not; (19) any deletions from, modifications of or additions to the Events of Default or covenants of the Company or the Guarantor with respect to any of such Securities, whether or not such Events of Default or covenants are consistent with the Events of Default or covenants set forth herein; (20) whether either or both of Section 4.2(2) relating to defeasance or Section 4.2(3) relating to covenant defeasance shall not be applicable to the Securities of such series, or any covenants in addition to those specified in Section 4.2(3) relating to the Securities of such series which shall be subject to covenant defeasance, and any deletions from, or modifications or additions to, the provisions of Article 4 in respect of the Securities of such series; (21) the form or forms of the Trust Agreement (if different from the form attached hereto as Annex A), Amended and Restated Trust Agreement and Guarantee Agreement; 28 (22) whether any of such Securities are to be issuable upon the exercise of warrants, and the time, manner and place for such Securities to be authenticated and delivered; (23) if any of such Securities are to be issuable in global form and are to be issuable in definitive form (whether upon original issue or upon exchange of a temporary Security) only upon receipt of certain certificates or other documents or satisfaction of other conditions, then the form and terms of such certificates, documents or conditions; (24) if there is more than one Trustee, the identity of the Trustee and, if not the Trustee, the identity of each Security Registrar, Paying Agent or Authenticating Agent with respect to such Securities; and (25) any other terms of such Securities and any other deletions from or modifications or additions to this Indenture in respect of such Securities. All Securities of any one series and all Coupons, if any, appertaining to Bearer Securities of such series shall be substantially identical except as to Currency of payments due thereunder, denomination and the rate of interest thereon, or method of determining the rate of interest, if any, Maturity, and the date from which interest, if any, shall accrue and except as may otherwise be provided by the Company in or pursuant to the Board Resolution and set forth in the Officer's Certificate or in any indenture or indentures supplemental hereto pertaining to such series of Securities. The terms of the Securities of any series may provide, without limitation, that the Securities shall be authenticated and delivered by the Trustee on original issue from time to time upon written order of persons designated in the Officer's Certificate or supplemental indenture and that such persons are authorized to determine, consistent with such Officer's Certificate or any applicable supplemental indenture, such terms and conditions of the Securities of such series as are specified in such Officer's Certificate or supplemental indenture. All Securities of any one series need not be issued at the same time and, unless otherwise so provided, a series may be reopened for issuances of additional Securities of such series or to establish additional terms of such series of Securities. If any of the terms of the Securities of any series shall be established by action taken by or pursuant to a Board Resolution, the Board Resolution shall be delivered to the Trustee at or prior to the delivery of the Officer's Certificate setting forth the terms of such series. Section 3.2. Currency; Denominations. Unless otherwise provided in or pursuant to this Indenture, the principal of, any premium and interest on and any Additional Amounts with respect to the Securities shall be payable in Dollars. Unless otherwise provided in or pursuant to this Indenture, Registered Securities denominated in Dollars shall be issuable in registered form without Coupons in denominations of $1,000 and any integral multiple thereof, and the Bearer Securities denominated in Dollars shall be issuable in the denomination of $5,000. Securities not denominated in Dollars shall be 29 issuable in such denominations as are established with respect to such Securities in or pursuant to this Indenture. Section 3.3. Execution, Authentication, Delivery and Dating. Securities shall be executed on behalf of the Company by its Chairman of the Board, a Vice Chairman, its President, its Treasurer or a Vice President under its corporate seal reproduced thereon and attested by its Secretary or one of its Assistant Secretaries. Coupons shall be executed on behalf of the Company by the Treasurer or any Assistant Treasurer of the Company. The signature of any of these officers on the Securities or any Coupons appertaining thereto may be manual or facsimile. Securities and any Coupons appertaining thereto bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company and the Guarantor, notwithstanding that such individuals or any of them have ceased to hold such offices prior to the authentication and delivery of such Securities and Coupons or did not hold such offices at the date of original issuance of such Securities or Coupons. At any time and from time to time after the execution and delivery of this Indenture, the Company may deliver Securities, together with any Coupons appertaining thereto, executed by the Company, to the Trustee for authentication and, provided that the Board Resolution and Officer's Certificate or supplemental indenture or indentures with respect to such Securities referred to in Section 3.1 and a Company Order for the authentication and delivery of such Securities have been delivered to the Trustee, the Trustee in accordance with the Company Order and subject to the provisions hereof and of such Securities shall authenticate and deliver such Securities. In authenticating such Securities, and accepting the additional responsibilities under this Indenture in relation to such Securities and any Coupons appertaining thereto, the Trustee shall be entitled to receive, and (subject to Sections 315(a) through 315(d) of the Trust Indenture Act) shall be fully protected in relying upon, (1) an Opinion of Counsel to the effect that: (a) the form or forms and terms of such Securities and Coupons, if any, have been established in conformity with the provisions of this Indenture; (b) all conditions precedent to the authentication and delivery of such Securities and Coupons, if any, appertaining thereto, have been complied with and that such Securities and Coupons, when completed by appropriate insertions, executed under the Company's corporate seal and attested by duly authorized officers of the Company, delivered by duly authorized officers of the Company to the Trustee for authentication pursuant to this Indenture, and authenticated and delivered by the Trustee and issued by the Company in the manner and subject to any conditions specified in such Opinion of Counsel, will constitute legally valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except as enforcement thereof may be subject to or limited by bankruptcy, insolvency, reorganization, 30 moratorium, arrangement, fraudulent conveyance, fraudulent transfer or other similar laws relating to or affecting creditors' rights generally, and subject to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law) and will entitle the Holders thereof to the benefits of this Indenture, including the Guarantee; such Opinion of Counsel need express no opinion as to the availability of equitable remedies; (c) all laws and requirements in respect of the execution and delivery by the Company of such Securities and Coupons, if any, have been complied with; and (d) this Indenture has been qualified under the Trust Indenture Act; and (2) an Officer's Certificate and a Guarantor's Officer's Certificate, in each case stating that, to the best knowledge of the Persons executing such certificate, all conditions precedent to the execution, authentication and delivery of such Securities and Coupons, if any, appertaining thereto, have been complied with, and no event which is, or after notice or lapse of time would become, an Event of Default with respect to any of the Securities shall have occurred and be continuing. If all the Securities of any series are not to be issued at one time, it shall not be necessary to deliver an Opinion of Counsel and an Officer's Certificate and Guarantor's Officer's Certificate at the time of issuance of each Security, but such opinion and certificates, with appropriate modifications, shall be delivered at or before the time of issuance of the first Security of such series. After any such first delivery, any separate written request by an Authorized Officer of the Company or any person designated in writing by an Authorized Officer that the Trustee authenticate and deliver Securities of such series for original issue will be deemed to be a certification by the Company and the Guarantor that all conditions precedent provided for in this Indenture relating to authentication and delivery of such Securities continue to have been complied with and that no Event of Default with respect to any of the Securities has occurred or is continuing. The Trustee shall not be required to authenticate or to cause an Authenticating Agent to authenticate any Securities if the issue of such Securities pursuant to this Indenture will affect the Trustee's own rights, duties or immunities under the Securities and this Indenture or otherwise in a manner which is not reasonably acceptable to the Trustee or if the Trustee, being advised by counsel, determines that such action may not lawfully be taken. Each Registered Security shall be dated the date of its authentication. Each Bearer Security and any Bearer Security in global form shall be dated as of the date specified in or pursuant to this Indenture. No Security or Coupon appertaining thereto shall be entitled to any benefit under this Indenture or be valid or obligatory for any purpose, unless there appears on such Security a certificate of authentication substantially in the form provided for in Section 2.2 or 6.11 executed by or on behalf of the Trustee or by the Authenticating Agent by the manual signature of one of 31 its authorized officers. Such certificate upon any Security shall be conclusive evidence, and the only evidence, that such Security has been duly authenticated and delivered hereunder. Except as permitted by Section 3.6 or 3.7, the Trustee shall not authenticate and deliver any Bearer Security unless all Coupons appertaining thereto then matured have been detached and cancelled. Section 3.4. Temporary Securities. Pending the preparation of definitive Securities, the Company may execute and deliver to the Trustee and, upon Company Order, the Trustee shall authenticate and deliver, in the manner provided in Section 3.3, temporary Securities in lieu thereof which are printed, lithographed, typewritten, mimeographed or otherwise produced, in any authorized denomination, substantially of the tenor of the definitive Securities in lieu of which they are issued, in registered form or, if authorized in or pursuant to this Indenture, in bearer form with one or more Coupons or without Coupons and with such appropriate insertions, omissions, substitutions and other variations as the officers of the Company executing such Securities may determine, as conclusively evidenced by their execution of such Securities. Such temporary Securities may be in global form. Except in the case of temporary Securities in global form, which shall be exchanged in accordance with the provisions thereof, if temporary Securities are issued, the Company shall cause definitive Securities to be prepared without unreasonable delay. After the preparation of definitive Securities of the same series and containing terms and provisions that are identical to those of any temporary Securities, such temporary Securities shall be exchangeable for such definitive Securities upon surrender of such temporary Securities at an Office or Agency for such Securities, without charge to any Holder thereof. Upon surrender for cancellation of any one or more temporary Securities (accompanied by any unmatured Coupons appertaining thereto), the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a like principal amount of definitive Securities of authorized denominations of the same series and containing identical terms and provisions; provided, however, that no definitive Bearer Security, except as provided in or pursuant to this Indenture, shall be delivered in exchange for a temporary Registered Security; and provided, further, that a definitive Bearer Security shall be delivered in exchange for a temporary Bearer Security only in compliance with the conditions set forth in or pursuant to this Indenture. Unless otherwise provided in or pursuant to this Indenture with respect to a temporary global Security, until so exchanged the temporary Securities of any series shall in all respects be entitled to the same benefits under this Indenture as definitive Securities of such series. Section 3.5. Registration, Transfer and Exchange. With respect to the Registered Securities of each series, if any, the Company shall cause to be kept a register (each such register being herein sometimes referred to as the "Security Register") at an Office or Agency for such series in which, subject to such reasonable regulations as it may prescribe, the Company shall provide for the registration of the Registered Securities of such series and of transfers of the Registered Securities of such series. Such Office or Agency shall be the "Security Registrar" for that series of Securities. Unless otherwise specified in or pursuant to this Indenture or the Securities, the Trustee shall be the initial Security Registrar for 32 each series of Securities. The Company shall have the right to remove and replace from time to time the Security Registrar for any series of Securities; provided that no such removal or replacement shall be effective until a successor Security Registrar with respect to such series of Securities shall have been appointed by the Company and shall have accepted such appointment by the Company. In the event that the Trustee shall not be or shall cease to be Security Registrar with respect to a series of Securities, it shall have the right to examine the Security Register for such series at all reasonable times. There shall be only one Security Register for each series of Securities. Upon surrender for registration of transfer of any Registered Security of any series at any Office or Agency for such series, the Company shall execute, and the Trustee shall authenticate and deliver, in the name of the designated transferee or transferees, one or more new Registered Securities of the same series denominated as authorized in or pursuant to this Indenture, of a like aggregate principal amount bearing a number not contemporaneously outstanding and containing identical terms and provisions. At the option of the Holder, Registered Securities of any series may be exchanged for other Registered Securities of the same series containing identical terms and provisions, in any authorized denominations, and of a like aggregate principal amount, upon surrender of the Securities to be exchanged at any Office or Agency for such series. Whenever any Registered Securities are so surrendered for exchange, the Company shall execute, and the Trustee shall authenticate and deliver, the Registered Securities which the Holder making the exchange is entitled to receive. If provided in or pursuant to this Indenture, with respect to Securities of any series, at the option of the Holder, Bearer Securities of such series may be exchanged for Registered Securities of such series containing identical terms, denominated as authorized in or pursuant to this Indenture and in the same aggregate principal amount, upon surrender of the Bearer Securities to be exchanged at any Office or Agency for such series, with all unmatured Coupons and all matured Coupons in default thereto appertaining. If the Holder of a Bearer Security is unable to produce any such unmatured Coupon or Coupons or matured Coupon or Coupons in default, such exchange may be effected if the Bearer Securities are accompanied by payment in funds acceptable to the Company, the Guarantor and the Trustee in an amount equal to the face amount of such missing Coupon or Coupons, or the surrender of such missing Coupon or Coupons may be waived by the Company, the Guarantor and the Trustee if there is furnished to them such security or indemnity as they may require to save each of them and any Paying Agent harmless. If thereafter the Holder of such Bearer Security shall surrender to any Paying Agent any such missing Coupon in respect of which such a payment shall have been made, such Holder shall be entitled to receive the amount of such payment; provided, however, that, except as otherwise provided in Section 10.2, interest represented by Coupons shall be payable only upon presentation and surrender of those Coupons at an Office or Agency for such series located outside the United States. Notwithstanding the foregoing, in case a Bearer Security of any series is surrendered at any such Office or Agency for such series in exchange for a Registered Security of such series and like tenor after the close of business at such Office or Agency on (i) any 33 Regular Record Date and before the opening of business at such Office or Agency on the next succeeding Interest Payment Date, or (ii) any Special Record Date and before the opening of business at such Office or Agency on the related date for payment of Defaulted Interest, such Bearer Security shall be surrendered without the Coupon relating to such Interest Payment Date or proposed date of payment, as the case may be (or, if such Coupon is so surrendered with such Bearer Security, such Coupon shall be returned to the Person so surrendering the Bearer Security), and interest or Defaulted Interest, as the case may be, shall not be payable on such Interest Payment Date or proposed date for payment, as the case may be, in respect of the Registered Security issued in exchange for such Bearer Security, but shall be payable only to the Holder of such Coupon when due in accordance with the provisions of this Indenture. If provided in or pursuant to this Indenture with respect to Securities of any series, at the option of the Holder, Registered Securities of such series may be exchanged for Bearer Securities upon such terms and conditions as may be provided in or pursuant to this Indenture with respect to such series. Whenever any Securities are surrendered for exchange as contemplated by the immediately preceding two paragraphs, the Company shall execute, and the Trustee shall authenticate and deliver, the Securities which the Holder making the exchange is entitled to receive. Notwithstanding the foregoing, except as otherwise provided in or pursuant to this Indenture, any global Security shall be exchangeable for definitive Securities only if (i) the Depository is at any time unwilling, unable or ineligible to continue as depository and a successor depository is not appointed by the Company within 90 days of the date the Company is so informed in writing, (ii) the Company executes and delivers to the Trustee a Company Order to the effect that such global Security shall be so exchangeable, or (iii) an Event of Default has occurred and is continuing with respect to the Securities. If the beneficial owners of interests in a global Security are entitled to exchange such interests for definitive Securities as the result of an event described in clause (i), (ii) or (iii) of the preceding sentence, then without unnecessary delay but in any event not later than the earliest date on which such interests may be so exchanged, the Company shall deliver to the Trustee definitive Securities in such form and denominations as are required by or pursuant to this Indenture, and of the same series, containing identical terms and in aggregate principal amount equal to the principal amount of such global Security, executed by the Company. On or after the earliest date on which such interests may be so exchanged, such global Security shall be surrendered from time to time by the U.S. Depository or such other Depository as shall be specified in the Company Order with respect thereto, and in accordance with instructions given to the Trustee and the U.S. Depository or such other Depository, as the case may be (which instructions shall be in writing but need not be contained in or accompanied by an Officer's Certificate or be accompanied by an Opinion of Counsel), as shall be specified in the Company Order with respect thereto to the Trustee, as the Company's agent for such purpose, to be exchanged, in whole or in part, for definitive Securities as described above without charge. The Trustee shall authenticate and make available for delivery, in exchange for each portion of such surrendered global Security, a like aggregate 34 principal amount of definitive Securities of the same series of authorized denominations and of like tenor as the portion of such global Security to be exchanged, which (unless such Securities are not issuable both as Bearer Securities and as Registered Securities, in which case the definitive Securities exchanged for the global Security shall be issuable only in the form in which the Securities are issuable, as provided in or pursuant to this Indenture) shall be in the form of Bearer Securities or Registered Securities, or any combination thereof, as shall be specified by the beneficial owner thereof, but subject to the satisfaction of any certification or other requirements to the issuance of Bearer Securities; provided, however, that no such exchanges may occur during a period beginning at the opening of business 15 days before any selection of Securities of the same series to be redeemed and ending on the relevant Redemption Date; and provided, further, that (unless otherwise provided in or pursuant to this Indenture) no Bearer Security delivered in exchange for a portion of a global Security shall be mailed or otherwise delivered to any location in the United States. Promptly following any such exchange in part, such global Security shall be returned by the Trustee to such Depository or the U.S. Depository, as the case may be, or such other Depository or U.S. Depository referred to above in accordance with the instructions of the Company referred to above. If a Registered Security is issued in exchange for any portion of a global Security after the close of business at the Office or Agency for such Security where such exchange occurs on or after (i) any Regular Record Date for such Security and before the opening of business at such Office or Agency on the next succeeding Interest Payment Date, or (ii) any Special Record Date for such Security and before the opening of business at such Office or Agency on the related proposed date for payment of interest or Defaulted Interest, as the case may be, interest shall not be payable on such Interest Payment Date or proposed date for payment, as the case may be, in respect of such Registered Security, but shall be payable on such Interest Payment Date or proposed date for payment, as the case may be, only to the Person to whom interest in respect of such portion of such global Security shall be payable in accordance with the provisions of this Indenture. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company and the Guarantor, respectively, evidencing the same debt and entitling the Holders thereof to the same benefits under this Indenture as the Securities surrendered upon such registration of transfer or exchange. Every Registered Security presented or surrendered for registration of transfer or for exchange or redemption shall (if so required by the Company or the Security Registrar for such Security) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Security Registrar for such Security duly executed by the Holder thereof or his attorney duly authorized in writing. No service charge shall be made for any registration of transfer or exchange, or redemption of Securities, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge and any other expenses (including fees and expenses of the Trustee) that may be imposed in connection with any registration of transfer or exchange of Securities, other than exchanges pursuant to Section 3.4, 9.5 or 11.7 not involving any transfer. 35 Except as otherwise provided in or pursuant to this Indenture, the Company shall not be required (i) to issue, register the transfer of or exchange any Securities during a period beginning at the opening of business 15 days before the day of mailing of a notice of redemption of Securities of like tenor and the same series under Section 11.3 and ending at the close of business on the day of such mailing, or (ii) to register the transfer of or exchange any Registered Security selected for redemption in whole or in part, except in the case of any Security to be redeemed in part, the portion thereof not to be redeemed, or (iii) to exchange any Bearer Security selected for redemption except, to the extent provided with respect to such Bearer Security, that such Bearer Security may be exchanged for a Registered Security of like tenor and the same series, provided that such Registered Security shall be immediately surrendered for redemption with written instruction for payment consistent with the provisions of this Indenture or (iv) to issue, register the transfer of or exchange any Security which, in accordance with its terms, has been surrendered for repayment at the option of the Holder, except the portion, if any, of such Security not to be so repaid. Section 3.6. Mutilated, Destroyed, Lost and Stolen Securities. If any mutilated Security or a Security with a mutilated Coupon appertaining to it is surrendered to the Trustee, subject to the provisions of this Section 3.6, the Company shall execute and the Trustee shall authenticate and deliver in exchange therefor a new Security of the same series containing identical terms and of like principal amount and bearing a number not contemporaneously outstanding, with Coupons appertaining thereto corresponding to the Coupons, if any, appertaining to the surrendered Security. If there be delivered to the Company, the Guarantor and the Trustee (i) evidence to their satisfaction of the destruction, loss or theft of any Security or Coupon, and (ii) such security or indemnity as may be required by them to save each of them and any agent of either of them harmless, then, in the absence of notice to the Company, the Guarantor or the Trustee that such Security or Coupon has been acquired by a bona fide purchaser, the Company shall execute and, upon the Company's request the Trustee shall authenticate and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost or stolen Security or in exchange for the Security to which a destroyed, lost or stolen Coupon appertains with all appurtenant Coupons not destroyed, lost or stolen, a new Security of the same series containing identical terms and of like principal amount and bearing a number not contemporaneously outstanding, with Coupons appertaining thereto corresponding to the Coupons, if any, appertaining to such destroyed, lost or stolen Security or to the Security to which such destroyed, lost or stolen Coupon appertains. Notwithstanding the foregoing provisions of this Section 3.6, in case any mutilated, destroyed, lost or stolen Security or Coupon has become or is about to become due and payable, the Company in its discretion may, instead of issuing a new Security, pay such Security or Coupon; provided, however, that payment of principal of, any premium or interest on or any Additional Amounts with respect to any Bearer Securities shall, except as otherwise provided in Section 10.2, be payable only at an Office or Agency for such Securities located outside the United States and, unless otherwise provided in or pursuant to this Indenture, any interest 36 on Bearer Securities and any Additional Amounts with respect to such interest shall be payable only upon presentation and surrender of the Coupons appertaining thereto. Upon the issuance of any new Security under this Section 3.6, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Trustee) connected therewith. Every new Security, with any Coupons appertaining thereto issued pursuant to this Section 3.6 in lieu of any destroyed, lost or stolen Security, or in exchange for a Security to which a destroyed, lost or stolen Coupon appertains shall constitute a separate obligation of the Company and the Guarantor, whether or not the destroyed, lost or stolen Security and Coupons appertaining thereto or the destroyed, lost or stolen Coupon shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of such series and any Coupons, if any, duly issued hereunder. The provisions of this Section 3.6, as amended or supplemented pursuant to this Indenture with respect to particular Securities or generally, shall be exclusive and shall preclude (to the extent lawful) all other rights and remedies with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities or Coupons. Section 3.7. Payment of Interest and Certain Additional Amounts; Rights to Interest and Certain Additional Amounts Preserved. Unless otherwise provided in or pursuant to this Indenture, any interest on and any Additional Amounts with respect to any Registered Security which shall be payable, and are punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name such Security (or one or more Predecessor Securities) is registered as of the close of business on the Regular Record Date for such interest. Unless otherwise provided in or pursuant to this Indenture, any interest on and any Additional Amounts with respect to any Registered Security which shall be payable, but shall not be punctually paid or duly provided for, on any Interest Payment Date for such Registered Security (herein called "Defaulted Interest") shall forthwith cease to be payable to the Holder thereof on the relevant Regular Record Date by virtue of having been such Holder; and such Defaulted Interest may be paid by the Company or the Guarantor, at its election in each case, as provided in Clause (1) or (2) below: (1) The Company or the Guarantor, as the case may be, may elect to make payment of any Defaulted Interest to the Person in whose name such Registered Security (or a Predecessor Security thereof) shall be registered at the close of business on a Special Record Date for the payment of such Defaulted Interest, which shall be fixed by the Company in the following manner. The Company or the Guarantor, as the case may be, shall notify the Trustee in writing of the amount of Defaulted Interest proposed to be paid on such Registered Security, the Special Record Date therefor and the date of the 37 proposed payment, and at the same time the Company or the Guarantor, as the case may be, shall deposit with the Trustee an amount of money equal to the aggregate amount proposed to be paid in respect of such Defaulted Interest or shall make arrangements satisfactory to the Trustee for such deposit on or prior to the date of the proposed payment, such money when so deposited to be held in trust for the benefit of the Person entitled to such Defaulted Interest as in this Clause provided. The Special Record Date for the payment of such Defaulted Interest shall be not more than 15 days and not less than 10 days prior to the date of the proposed payment and not less than 10 days after notification to the Trustee of the proposed payment. The Trustee shall, in the name and at the expense of the Company or the Guarantor, cause notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor to be mailed, first-class postage prepaid, to the Holder of such Registered Security (or a Predecessor Security thereof) at his address as it appears in the Security Register not less than 10 days prior to such Special Record Date. The Trustee may, in its discretion, in the name and at the expense of the Company or the Guarantor, cause a similar notice to be published at least once in an Authorized Newspaper of general circulation in the Borough of Manhattan, The City of New York, but such publication shall not be a condition precedent to the establishment of such Special Record Date. Notice of the proposed payment of such Defaulted Interest and the Special Record Date therefor having been mailed as aforesaid, such Defaulted Interest shall be paid to the Person in whose name such Registered Security (or a Predecessor Security thereof) shall be registered at the close of business on such Special Record Date and shall no longer be payable pursuant to the following clause (2). (2) The Company or the Guarantor, as the case may be, may make payment of any Defaulted Interest in any other lawful manner not inconsistent with the requirements of any securities exchange on which such Security may be listed, and upon such notice as may be required by such exchange, if, after notice given by the Company or the Guarantor, as the case may be, to the Trustee of the proposed payment pursuant to this Clause, such payment shall be deemed practicable by the Trustee. Unless otherwise provided in or pursuant to this Indenture or the Securities of any particular series pursuant to the provisions of this Indenture, at the option of the Company or the Guarantor, interest on Registered Securities that bear interest may be paid by mailing a check to the address of the Person entitled thereto as such address shall appear in the Security Register or by transfer to an account maintained by the payee with a bank located in the United States. Subject to the foregoing provisions of this Section and Section 3.5, each Security delivered under this Indenture upon registration of transfer of or in exchange for or in lieu of any other Security shall carry the rights to interest accrued and unpaid, and to accrue, which were carried by such other Security. In the case of any Registered Security of any series that is convertible into other securities of the Company or exchangeable for securities of the Guarantor or another issuer, 38 which Registered Security is converted or exchanged after any Regular Record Date and on or prior to the next succeeding Interest Payment Date (other than any Registered Security with respect to which the Stated Maturity is prior to such Interest Payment Date), interest with respect to which the Stated Maturity is on such Interest Payment Date shall be payable on such Interest Payment Date notwithstanding such conversion or exchange, and such interest (whether or not punctually paid or duly provided for) shall be paid to the Person in whose name that Registered Security (or one or more predecessor Registered Securities) is registered at the close of business on such Regular Record Date. Except as otherwise expressly provided in the immediately preceding sentence, in the case of any Registered Security which is converted or exchanged, interest with respect to which the Stated Maturity is after the date of conversion or exchange of such Registered Security shall not be payable. Section 3.8. Persons Deemed Owners. Prior to due presentment of a Registered Security for registration of transfer, the Company, the Guarantor, the Trustee and any agent of the Company or the Guarantor or the Trustee may treat the Person in whose name such Registered Security is registered in the Security Register as the owner of such Registered Security for the purpose of receiving payment of principal of, any premium and (subject to Sections 3.5 and 3.7) interest on and any Additional Amounts with respect to such Registered Security and for all other purposes whatsoever, whether or not any payment with respect to such Registered Security shall be overdue, and none of the Company, the Guarantor, the Trustee or any agent of the Company, the Guarantor or the Trustee shall be affected by notice to the contrary. The Company, the Guarantor, the Trustee and any agent of the Company, the Guarantor or the Trustee may treat the bearer of any Bearer Security or the bearer of any Coupon as the absolute owner of such Security or Coupon for the purpose of receiving payment thereof or on account thereof and for all other purposes whatsoever, whether or not any payment with respect to such Security or Coupon shall be overdue, and none of the Company, the Guarantor, the Trustee or any agent of the Company, the Guarantor or the Trustee shall be affected by notice to the contrary. No Holder of any beneficial interest in any global Security held on its behalf by a Depository shall have any rights under this Indenture with respect to such global Security, and such Depository may be treated by the Company, the Guarantor, the Trustee, and any agent of the Company, the Guarantor or the Trustee as the owner of such global Security for all purposes whatsoever. None of the Company, the Guarantor, the Trustee, any Paying Agent or the Security Registrar will have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests of a global Security or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. Section 3.9. Cancellation. All Securities and Coupons surrendered for payment, redemption, registration of transfer, exchange or conversion or for credit against any sinking fund payment shall, if surrendered to 39 any Person other than the Trustee, be delivered to the Trustee, and any such Securities and Coupons, as well as Securities and Coupons surrendered directly to the Trustee for any such purpose, shall be cancelled promptly by the Trustee. The Company or the Guarantor may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company or the Guarantor may have acquired in any manner whatsoever, and all Securities so delivered shall be cancelled promptly by the Trustee. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section, except as expressly permitted by or pursuant to this Indenture. All cancelled Securities and Coupons held by the Trustee shall be destroyed by the Trustee, unless by a Company Order or Guarantor Order the Company or the Guarantor, as the case may be, directs their return to it. Section 3.10. Computation of Interest. Except as otherwise provided in or pursuant to this Indenture or in any Security, interest on the Securities shall be computed on the basis of a 360-day year of twelve 30-day months. Section 3.11. Extension of Interest Payment Period. If specified as contemplated by Section 3.1 with respect to the Securities of a particular series and subject to the terms, conditions and covenants, if any, so specified, the Company shall have the right, at any time and from time to time during the term of such series, to defer the payment of interest on such Securities for such period or periods as may be specified as contemplated by Section 3.1 (each, an "Extension Period"), during which Extension Periods the Company shall have the right to make partial payments of interest on any Interest Payment Date. No Extension Period shall end on a day other than an Interest Payment Date. At the end of any such Extension Period, the Company shall pay all interest then accrued and unpaid on the Securities (together with Additional Interest thereon, if any, at the rate specified for the Securities of such series to the extent permitted by applicable law). Prior to the termination of any such Extension Period, the Company may further extend the interest payment period, provided that no Extension Period shall exceed the period or periods specified in such Securities or extend beyond the Stated Maturity of the principal of such Securities. Upon termination of any Extension Period and upon the payment of all accrued and unpaid interest and any Additional Interest then due on any Interest Payment Date, the Company may elect to begin a new Extension Period, subject to the above requirements. No interest shall be due and payable during an Extension Period, except at the end thereof. The Company shall give the Holders of the Securities of such series and the Trustee notice of its election to begin any such Extension Period at least one Business Day prior to the Interest Payment Date or, with respect to the Securities of a series issued to an ACE Trust, prior to the earlier of (i) the date the Distributions on the Preferred Securities of such ACE Trust are payable or (ii) the date the trustees of such ACE Trust are required to give notice to any securities exchange or other applicable self-regulatory organization or to holders of such Preferred Securities of the record date or the date such Distributions are payable, but in any event not less than one Business Day prior to such record date. 40 The Trustee shall promptly give notice of the Company's election to begin any such Extension Period to the Holders of the outstanding Securities of such series. Section 3.12. Right of Set-Off. With respect to the Securities of a series issued to an ACE Trust, notwithstanding anything to the contrary in this Indenture, the Company or the Guarantor, as applicable, shall each have the right to set-off any payment it is otherwise required to make thereunder in respect of any such Security to the extent the Company or the Guarantor, as applicable, has theretofore made, or is concurrently on the date of such payment making, a payment under the Preferred Securities Guarantee relating to such Security or under Section 5.8 hereof, as applicable. Section 3.13. Agreed Tax Treatment. Each Security issued hereunder shall provide that the Company, the Guarantor and, by its acceptance of a Security or a beneficial interest therein, the Holder of, and any Person that acquires a beneficial interest in, such Security agree that for United States Federal, state and local tax purposes it is intended that such Security constitute indebtedness. Section 3.14. Extension of Stated Maturity; Adjustment of Stated Maturity Upon an Exchange. If specified as contemplated by Section 3.1 with respect to the Securities of a particular series, the Company shall have the right to (a) change the Stated Maturity of the principal of the Securities of such series upon the dissolution of the applicable ACE Trust and the exchange of such Securities for the Preferred Securities of such ACE Trust, or (b) extend the Stated Maturity of the principal of the Securities of such series; provided that, at the time any election to extend such Stated Maturity is made and at the time of such extension, (i) neither the Company nor the Guarantor is in bankruptcy, otherwise insolvent or in liquidation, (ii) neither the Company nor the Guarantor is in default in the payment of any interest or principal or Additional Amounts on the Securities of such series or under the Guarantee in respect thereof, as the case may be, and no deferred interest payments thereon have accrued, (iii) the applicable ACE Trust is not in arrears on payments of Distributions on its Preferred Securities and no deferred Distributions thereon have accumulated, (iv) the Securities of such series are rated not less than BBB- by Standard & Poor's Ratings Services or Baa3 by Moody's Investors Service, Inc. or the equivalent by any other nationally recognized statistical rating organization and (v) the extended Stated Maturity is no later than the 49th anniversary of the initial issuance of the Preferred Securities of the applicable ACE Trust; provided, further, that, if the Company exercises its right to dissolve the applicable ACE Trust and exchange the Securities of such series for the Preferred Securities of such ACE Trust as specified in clause (a) above, any changed Stated Maturity of the principal of the Securities of such series shall be no earlier than the date that is five years after the initial issue date of the Preferred Securities and no later than the date 30 years (plus an extended term of up to an additional 19 years if the above-referenced conditions are satisfied) after the initial issue date of the Preferred Securities of the applicable ACE Trust. 41 ARTICLE 4 Satisfaction and Discharge of Indenture Section 4.1. Satisfaction and Discharge. Upon the direction of the Company by a Company Order or of the Guarantor by a Guarantor Order, this Indenture shall cease to be of further effect with respect to any series of Securities specified in such Company Order or Guarantor Order and any Coupons appertaining thereto, and the Trustee, on receipt of a Company Order or a Guarantor Order, at the expense of the Company and the Guarantor, shall execute proper instruments acknowledging satisfaction and discharge of this Indenture as to such series, when (1) either (a) all Securities of such series theretofore authenticated and delivered and all Coupons appertaining thereto (other than (i) Coupons appertaining to Bearer Securities of such series surrendered in exchange for Registered Securities of such series and maturing after such exchange whose surrender is not required or has been waived as provided in Section 3.5, (ii) Securities and Coupons of such series which have been destroyed, lost or stolen and which have been replaced or paid as provided in Section 3.6, (iii) Coupons appertaining to Securities of such series called for redemption and maturing after the relevant Redemption Date whose surrender has been waived as provided in Section 11.7, and (iv) Securities and Coupons of such series for whose payment money has theretofore been deposited in trust or segregated and held in trust by the Company or the Guarantor and thereafter repaid to the Company or the Guarantor, as the case may be, or discharged from such trust, as provided in Section 10.3) have been delivered to the Trustee for cancellation; or (b) all Securities of such series and, in the case of (i) or (ii) below, any Coupons appertaining thereto not theretofore delivered to the Trustee for cancellation (i) have become due and payable, or (ii) will become due and payable at their Stated Maturity within one year, or (iii) if redeemable at the option of the Company, are to be called for redemption within one year under arrangements satisfactory to the Trustee for the giving of notice of redemption by the Trustee in the name, and at the expense, of the Company and the Guarantor, and the Company or the Guarantor, in the case of (i), (ii) or (iii) above, has deposited or caused to be deposited with the Trustee as trust funds in trust for such purpose, money in the Currency in which such Securities are payable in an amount sufficient to pay and discharge the entire indebtedness on such Securities and any Coupons appertaining thereto not theretofore delivered to the Trustee for cancellation, including the principal of, any premium and interest (including any Additional Interest) on, and any Additional Amounts with respect to such Securities and any 42 Coupons appertaining thereto, to the date of such deposit (in the case of Securities which have become due and payable) or to the Maturity thereof, as the case may be; (2) the Company or the Guarantor has paid or caused to be paid all other sums payable hereunder by the Company and the Guarantor with respect to the Outstanding Securities of such series and any Coupons appertaining thereto; and (3) the Company has delivered to the Trustee an Officer's Certificate and an Opinion of Counsel and the Guarantor has delivered to the Trustee a Guarantor's Officer's Certificate, each stating that all conditions precedent herein provided for relating to the satisfaction and discharge of this Indenture as to such series have been complied with. In the event there are Securities of two or more series hereunder, the Trustee shall be required to execute an instrument acknowledging satisfaction and discharge of this Indenture only if requested to do so with respect to Securities of such series as to which it is Trustee and if the other conditions thereto are met. Notwithstanding the satisfaction and discharge of this Indenture with respect to any series of Securities, the obligations of the Company and the Guarantor to the Trustee under Section 6.6 and, if money shall have been deposited with the Trustee pursuant to subclause (b) of clause (1) of this Section, the obligations of the Company, the Guarantor and the Trustee with respect to the Securities of such series under Sections 3.5, 3.6, 4.3, 10.2 and 10.3, with respect to the payment of Additional Amounts, if any, with respect to such Securities as contemplated by Sections 10.4 and 17.2 (but only to the extent that the Additional Amounts payable with respect to such Securities exceed the amount deposited in respect of such Additional Amounts pursuant to Section 4.1(1)(b)), and with respect to any rights to convert or exchange such Securities into securities of the Company or the Guarantor or another issuer shall survive. Section 4.2. Defeasance and Covenant Defeasance. (1) Unless pursuant to Section 3.1, either or both of (i) defeasance of the Securities of or within a series under clause (2) of this Section 4.2 shall not be applicable with respect to the Securities of such series or (ii) covenant defeasance of the Securities of or within a series under clause (3) of this Section 4.2 shall not be applicable with respect to the Securities of such series, then such provisions, together with the other provisions of this Section 4.2 (with such modifications thereto as may be specified pursuant to Section 3.1 with respect to any Securities), shall be applicable to such Securities and any Coupons appertaining thereto, and the Company may at its option by Board Resolution, at any time, with respect to such Securities and any Coupons appertaining thereto, elect to have Section 4.2(2) or Section 4.2(3) be applied to such Outstanding Securities and any Coupons appertaining thereto upon compliance with the conditions set forth below in this Section 4.2. 43 (2) Upon the Company's exercise of the above option applicable to this Section 4.2(2) with respect to any Securities of or within a series, the Company and the Guarantor shall be deemed to have been discharged from its obligations with respect to such Outstanding Securities and any Coupons appertaining thereto and under the Guarantee in respect thereof, respectively, on the date the conditions set forth in clause (4) of this Section 4.2 are satisfied (hereinafter, "defeasance"). For this purpose, such defeasance means that the Company or the Guarantor shall be deemed to have paid and discharged the entire Indebtedness represented by such Outstanding Securities and any Coupons appertaining thereto, and under the Guarantee in respect thereof, which shall thereafter be deemed to be "Outstanding" only for the purposes of clause (5) of this Section 4.2 and the other Sections of this Indenture referred to in clauses (i) and (ii) below, and to have satisfied all of its other obligations under such Securities and any Coupons appertaining thereto, and under the Guarantee in respect thereof, and this Indenture insofar as such Securities and any Coupons appertaining thereto, and the Guarantee in respect thereof, are concerned (and the Trustee, at the expense of the Company and the Guarantor, shall execute proper instruments acknowledging the same), except for the following which shall survive until otherwise terminated or discharged hereunder: (i) the rights of Holders of such Outstanding Securities and any Coupons appertaining thereto to receive, solely from the trust fund described in clause (4) of this Section 4.2 and as more fully set forth in such clause, payments in respect of the principal of (and premium, if any) and interest (including any Additional Interest), if any, on, and Additional Amounts, if any, with respect to, such Securities and any Coupons appertaining thereto when such payments are due, and any rights of such Holder to convert such Securities into other securities of the Company or exchange such Securities for securities of the Guarantor or another issuer, (ii) the obligations of the Company, the Guarantor and the Trustee with respect to such Securities under Sections 3.5, 3.6, 10.2 and 10.3 and with respect to the payment of Additional Amounts, if any, on such Securities as contemplated by Sections 10.4 and 17.2 (but only to the extent that the Additional Amounts payable with respect to such Securities exceed the amount deposited in respect of such Additional Amounts pursuant to Section 4.2(4)(a) below), and with respect to any rights to convert such Securities into other securities of the Company or exchange such Securities for securities of the Guarantor or another issuer, (iii) the rights, powers, trusts, duties and immunities of the Trustee hereunder and (iv) this Section 4.2. The Company may exercise its option under this Section 4.2(2) notwithstanding the prior exercise of its option under clause (3) of this Section 4.2 with respect to such Securities and any Coupons appertaining thereto. (3) Upon the Company's exercise of the option to have this Section 4.2(3) apply with respect to any Securities of or within a series, the Company and the Guarantor shall be released from their obligations under any covenant applicable to such Securities specified pursuant to Section 3.1(20), with respect to such Outstanding Securities and any Coupons appertaining thereto, and the Guarantee in respect thereof, on and after the date the conditions set forth in clause (4) of this Section 4.2 are satisfied (hereinafter, "covenant defeasance"), and such Securities and any Coupons appertaining thereto shall 44 thereafter be deemed to be not "Outstanding" for the purposes of any direction, waiver, consent or declaration or Act of Holders (and the consequences of any thereof) in connection with any such covenant, but shall continue to be deemed "Outstanding" for all other purposes hereunder. For this purpose, such covenant defeasance means that, with respect to such Outstanding Securities and any Coupons appertaining thereto, the Company and the Guarantor may omit to comply with, and shall have no liability in respect of, any term, condition or limitation set forth in any such Section or such other covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such Section or such other covenant or by reason of reference in any such Section or such other covenant to any other provision herein or in any other document and such omission to comply shall not constitute a default or an Event of Default under Section 5.1(4) or 5.1(9) or otherwise, as the case may be, but, except as specified above, the remainder of this Indenture and such Securities and Coupons appertaining thereto and the Guarantee in respect thereof shall be unaffected thereby. (4) The following shall be the conditions to application of clause (2) or (3) of this Section 4.2 to any Outstanding Securities of or within a series and any Coupons appertaining thereto and the Guarantee in respect thereof: (a) The Company or the Guarantor shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 6.7 who shall agree to comply with the provisions of this Section 4.2 applicable to it) as trust funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of such Securities and any Coupons appertaining thereto, (1) an amount in Dollars or in such Foreign Currency in which such Securities and any Coupons appertaining thereto are then specified as payable at Stated Maturity, or (2) Government Obligations applicable to such Securities and Coupons appertaining thereto (determined on the basis of the Currency in which such Securities and Coupons appertaining thereto are then specified as payable at Stated Maturity) which through the scheduled payment of principal and interest in respect thereof in accordance with their terms will provide, not later than one day before the due date of any payment of principal of (and premium, if any) and interest (including any Additional Interest), if any, on such Securities and any Coupons appertaining thereto, money in an amount, or (3) a combination thereof, in any case, in an amount, sufficient, without consideration of any reinvestment of such principal and interest, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge, (y) the principal of (and premium, if any) and interest (including any Additional Interest), if any, on such Outstanding Securities and any Coupons appertaining thereto at the Stated Maturity of such principal or installment of principal or premium or interest and (z) any mandatory sinking fund payments or analogous payments applicable to 45 such Outstanding Securities and any Coupons appertaining thereto on the days on which such payments are due and payable in accordance with the terms of this Indenture and of such Securities and any Coupons appertaining thereto. (b) Such defeasance or covenant defeasance shall not result in a breach or violation of, or constitute a default under, this Indenture or any other material agreement or instrument to which the Company or the Guarantor is a party or by which either of them is bound. (c) No Event of Default or event which with notice or lapse of time or both would become an Event of Default with respect to such Securities and any Coupons appertaining thereto shall have occurred and be continuing on the date of such deposit and, with respect to defeasance only, at any time during the period ending on the 123rd day after the date of such deposit (it being understood that this condition shall not be deemed satisfied until the expiration of such period). (d) In the case of an election under clause (2) of this Section 4.2, the Company or the Guarantor shall have delivered to the Trustee an Opinion of Counsel stating that (i) the Company or the Guarantor has received from the Internal Revenue Service a letter ruling, or there has been published by the Internal Revenue Service a Revenue Ruling, or (ii) since the date of execution of this Indenture, there has been a change in the applicable Federal income tax law, in either case to the effect that, and based thereon such opinion shall confirm that, the Holders of such Outstanding Securities and any Coupons appertaining thereto will not recognize income, gain or loss for Federal income tax purposes as a result of such defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such defeasance had not occurred. (e) In the case of an election under clause (3) of this Section 4.2, the Company or the Guarantor shall have delivered to the Trustee an Opinion of Counsel to the effect that the Holders of such Outstanding Securities and any Coupons appertaining thereto will not recognize income, gain or loss for Federal income tax purposes as a result of such covenant defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such covenant defeasance had not occurred. (f) The Company or the Guarantor shall have delivered to the Trustee an Opinion of Counsel to the effect that, after the 123rd day after the date of deposit, all money and Government Obligations (or other property as may be provided pursuant to Section 3.1) (including the proceeds thereof) deposited or caused to be deposited with the Trustee (or other qualifying trustee) pursuant to this clause (4) to be held in trust will not be subject to any case or proceeding (whether voluntary or involuntary) in respect of the Company or the Guarantor under any Federal or State bankruptcy, insolvency, reorganization or other similar 46 law, or any decree or order for relief in respect of the Company or the Guarantor issued in connection therewith . (g) The Company and the Guarantor shall have delivered to the Trustee an Officer's Certificate and a Guarantor's Officer's Certificate and the Company or the Guarantor shall have delivered to the Trustee an Opinion of Counsel, each stating that all conditions precedent to the defeasance or covenant defeasance under clause (2) or (3) of this Section 4.2 (as the case may be) have been complied with. (h) Notwithstanding any other provisions of this Section 4.2(4), such defeasance or covenant defeasance shall be effected in compliance with any additional or substitute terms, conditions or limitations which may be imposed on the Company or the Guarantor in connection therewith pursuant to Section 3.1. (5) Unless otherwise specified in or pursuant to this Indenture or any Security, if, after a deposit referred to in Section 4.2(4)(a) has been made, (a) the Holder of a Security in respect of which such deposit was made is entitled to, and does, elect pursuant to Section 3.1 or the terms of such Security to receive payment in a Currency other than that in which the deposit pursuant to Section 4.2(4)(a) has been made in respect of such Security, or (b) a Conversion Event occurs in respect of the Foreign Currency in which the deposit pursuant to Section 4.2(4)(a) has been made, the indebtedness represented by such Security and any Coupons appertaining thereto shall be deemed to have been, and will be, fully discharged and satisfied through the payment of the principal of (and premium, if any), and interest (including any Additional Interest), if any, on, and Additional Amounts, if any, with respect to, such Security as the same becomes due out of the proceeds yielded by converting (from time to time as specified below in the case of any such election) the amount or other property deposited in respect of such Security into the Currency in which such Security becomes payable as a result of such election or Conversion Event based on (x) in the case of payments made pursuant to clause (a) above, the applicable market exchange rate for such Currency in effect on the second Business Day prior to each payment date, or (y) with respect to a Conversion Event, the applicable market exchange rate for such Foreign Currency in effect (as nearly as feasible) at the time of the Conversion Event. The Company and the Guarantor (without duplication) shall pay and indemnify the Trustee (or other qualifying trustee, collectively for purposes of this Section 4.2(5) and Section 4.3, the "Trustee") against any tax, fee or other charge, imposed on or assessed against the Government Obligations deposited pursuant to this Section 4.2 or the principal or interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of such Outstanding Securities and any Coupons appertaining thereto. Anything in this Section 4.2 to the contrary notwithstanding, the Trustee shall deliver or pay to the Company from time to time upon Company Request, or the Guarantor upon Guarantor Request, as the case may be, any money or Government Obligations (or other property and any 47 proceeds therefrom) held by it as provided in clause (4) of this Section 4.2 which, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect a defeasance or covenant defeasance, as applicable, in accordance with this Section 4.2. Section 4.3. Application of Trust Money. Subject to the provisions of the last paragraph of Section 10.3, all money and Government Obligations (or other property as may be provided pursuant to Section 3.1) (including the proceeds thereof) deposited with the Trustee pursuant to Section 4.1 or 4.2 in respect of any Outstanding Securities of any series and any Coupons appertaining thereto shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and any Coupons appertaining thereto and this Indenture, to the payment, either directly or through any Paying Agent (including the Company acting as its own Paying Agent or the Guarantor acting as Paying Agent) as the Trustee may determine, to the Holders of such Securities and any Coupons appertaining thereto of all sums due and to become due thereon in respect of principal (and premium, if any) and interest (including any Additional Interest) and Additional Amounts, if any; but such money and Government Obligations need not be segregated from other funds except to the extent required by law. ARTICLE 5 Remedies Section 5.1. Events of Default. "Event of Default," wherever used herein with respect to Securities of any series, means any one of the following events (whatever the reason for such Event of Default and whether it shall be voluntary or involuntary or be effected by operation of law or pursuant to any judgment, decree or order of any court or any order, rule or regulation of any administrative or governmental body), unless such event is specifically deleted or modified in or pursuant to the supplemental indenture, Board Resolution or Officer's Certificate establishing the terms of such Series pursuant to this Indenture: (1) default in the payment of any interest on any Security of such series, including any Additional Interest in respect thereof, or any Additional Amounts payable with respect thereto, when such interest becomes or such Additional Amounts become due and payable, and continuance of such default for a period of 30 days (subject to any deferral of any due date in the case of an Extension Period); or (2) default in the payment of the principal of or any premium on any Security of such series, or any Additional Amounts payable with respect thereto, when such principal or premium becomes or such Additional Amounts become due and payable at their Maturity; or 48 (3) default in the deposit of any sinking fund payment when and as due by the terms of a Security of such series; or (4) default in the performance, or breach, of any covenant or warranty of the Company or the Guarantor in this Indenture or the Securities (other than a covenant or warranty a default in the performance or the breach of which is elsewhere in this Section specifically dealt with or which has been expressly included in this Indenture solely for the benefit of a series of Securities other than such series), and continuance of such default or breach for a period of 60 days after there has been given, by registered or certified mail, to the Company and the Guarantor by the Trustee or to the Company, the Guarantor and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities of such series or, if that series of Securities is held by an ACE Trust, the holders of at least 25% in liquidation amount of the Preferred Securities of that ACE Trust then outstanding, a written notice specifying such default or breach and requiring it to be remedied and stating that such notice is a "Notice of Default" hereunder; or (5) if any event of default as defined in any mortgage, indenture or instrument under which there may be issued, or by which there may be secured or evidenced, any Indebtedness of the Company or the Guarantor (including, in each case, an Event of Default under any other series of Securities), whether such Indebtedness now exists or shall hereafter be created or incurred, shall happen and shall consist of default in the payment of more than $50,000,000 in principal amount of such Indebtedness at the maturity thereof (after giving effect to any applicable grace period) or shall result in such Indebtedness in principal amount in excess of $50,000,000 becoming or being declared due and payable prior to the date on which it would otherwise become due and payable, and such default shall not be cured or such acceleration shall not be rescinded or annulled within a period of 30 days after there shall have been given, by registered or certified mail, to the Company and the Guarantor by the Trustee or to the Company, the Guarantor and the Trustee by the Holders of at least 25% in principal amount of the Outstanding Securities of such series or, if that series of Securities is held by an ACE Trust, the holders of at least 25% in liquidation amount of the Preferred Securities of that ACE Trust then outstanding, a written notice specifying such event of default and requiring the Company or the Guarantor to cause such acceleration to be rescinded or annulled or to cause such Indebtedness to be discharged and stating that such notice is a "Notice of Default" hereunder; or (6) the Company or the Guarantor shall fail within 60 days to pay, bond or otherwise discharge any uninsured judgment or court order for the payment of money in excess of $50,000,000, which is not stayed on appeal or is not otherwise being appropriately contested in good faith; or (7) the entry by a court having competent jurisdiction of: 49 (a) a decree or order for relief in respect of the Company or the Guarantor in an involuntary proceeding under any applicable bankruptcy, insolvency, reorganization (other than a reorganization under a foreign law that does not relate to insolvency) or other similar law and such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or (b) a decree or order adjudging the Company or the Guarantor to be insolvent, or approving a petition seeking reorganization (other than a reorganization under a foreign law that does not relate to insolvency), arrangement, adjustment or composition of the Company or the Guarantor and such decree or order shall remain unstayed and in effect for a period of 60 consecutive days; or (c) a final and non-appealable order appointing a custodian, receiver, liquidator, assignee, trustee or other similar official of the Company or the Guarantor of any substantial part of the property of the Company or the Guarantor or ordering the winding up or liquidation of the affairs of the Company or the Guarantor; or (8) the commencement by the Company or the Guarantor of a voluntary proceeding under any applicable bankruptcy, insolvency, reorganization (other than a reorganization under a foreign law that does not relate to insolvency) or other similar law or of a voluntary proceeding seeking to be adjudicated insolvent or the consent by the Company or the Guarantor to the entry of a decree or order for relief in an involuntary proceeding under any applicable bankruptcy, insolvency, reorganization or other similar law or to the commencement of any insolvency proceedings against it, or the filing by the Company or the Guarantor of a petition or answer or consent seeking reorganization, arrangement, adjustment or composition of the Company or relief under any applicable law, or the consent by the Company or the Guarantor to the filing of such petition or to the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee or similar official of the Company or the Guarantor or any substantial part of the property of the Company or the Guarantor or the making by the Company or the Guarantor of an assignment for the benefit of creditors, or the taking of corporate action by the Company or the Guarantor in furtherance of any such action; or (9) any other Event of Default provided in or pursuant to this Indenture with respect to Securities of such series. Section 5.2. Acceleration of Maturity; Rescission and Annulment. If an Event of Default with respect to Securities of any series at the time Outstanding (other than an Event of Default specified in clause (7) or (8) of Section 5.1) occurs and is continuing, then the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities of such series may declare the principal of all the Securities of such series, or such lesser amount as may be provided for in the Securities of such series, to be due 50 and payable immediately, by a notice in writing to the Company and the Guarantor (and to the Trustee if given by the Holders), and upon any such declaration such principal or such lesser amount shall become immediately due and payable; provided that, in the case of Securities of a series issued to a ACE Trust, if, upon an Event of Default, the Trustee or the Holders of not less than 25% in principal amount of the Outstanding Securities of such series fail to declare the principal of all the Securities of such series, or such lesser amount as may be provided for in the Securities of such series, to be immediately due and payable, the holders of at least 25% in liquidation amount of the Preferred Securities of such ACE Trust then outstanding shall have such right by a notice in writing to the Company, the Guarantor, the Trustee and the Property Trustee; and upon any such declaration such principal or such lesser amount and all accrued and unpaid interest (including any Additional Interest) thereon shall become immediately due and payable, provided that the payment of principal and interest and all other amounts due with respect to such Securities shall remain subordinated to the extent provided in Article 16. If an Event of Default specified in clause (7) or (8) of Section 5.1 occurs, all unpaid principal of and accrued interest (including any Additional Interest) on the Outstanding Securities of that series (or such lesser amount as may be provided for in the Securities of such series) shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Holder of any Security of that series. At any time after a declaration of acceleration with respect to the Securities of any series has been made and before a judgment or decree for payment of the money due has been obtained by the Trustee as hereinafter in this Article provided, the Holders of not less than a majority in principal amount of the Outstanding Securities of such series (subject to, in the case of any series of Securities held as assets of an ACE Trust, such consent of the holders of the Preferred Securities and the Common Securities of such ACE Trust as may be required under the Trust Agreement of such ACE Trust), by written notice to the Company, the Guarantor and the Trustee, may rescind and annul such declaration and its consequences if (1) the Company or the Guarantor has paid or deposited with the Trustee a sum of money sufficient to pay (a) all overdue installments of any interest (including any Additional Interest) on and Additional Amounts with respect to all Securities of such series and any Coupon appertaining thereto, (b) the principal of and any premium on any Securities of such series which have become due otherwise than by such declaration of acceleration and interest thereon and any Additional Amounts with respect thereto at the rate or rates borne by or provided for in such Securities, (c) to the extent that payment of such interest or Additional Amounts is lawful, interest upon overdue installments of any interest and Additional Amounts at the rate or rates borne by or provided for in such Securities, and 51 (d) all sums paid or advanced by the Trustee hereunder and the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and all other amounts due the Trustee under Section 6.6; and (2) all Events of Default with respect to Securities of such series, other than the non-payment of the principal of, any premium and interest on, and any Additional Amounts with respect to Securities of such series which shall have become due solely by such declaration of acceleration, shall have been cured or waived as provided in Section 5.13. In the case of Securities of a series issued to an ACE Trust, should the Holders of such Securities fail to rescind and annul such declaration and its consequences, the holders of a majority in liquidation amount of the Preferred Securities of such ACE Trust then outstanding shall have such right by written notice to the Company, the Guarantor, the Trustee and the Property Trustee, subject to satisfaction of the conditions set forth in clauses (1) and (2) above of this Section 5.2. No such rescission shall affect any subsequent default or impair any right consequent thereon. Section 5.3. Collection of Indebtedness and Suits for Enforcement by Trustee. The Company and the Guarantor each covenants, in each case, that if (1) default is made in the payment of any installment of interest (including any Additional Interest) on or any Additional Amounts with respect to any Security or any Coupon appertaining thereto when such interest or Additional Amounts shall have become due and payable and such default continues for a period of 30 days, or (2) default is made in the payment of the principal of or any premium on any Security or any Additional Amounts with respect thereto at their Maturity, the Company or the Guarantor, as the case may be, shall, upon demand of the Trustee, pay to the Trustee, for the benefit of the Holders of such Securities and any Coupons appertaining thereto, the whole amount of money then due and payable with respect to such Securities and any Coupons appertaining thereto, with interest (including any Additional Interest) upon the overdue principal, any premium and (to the extent that payment of such interest shall be legally enforceable and, if the Securities are held by an ACE Trust, without duplication of any other amounts paid to such ACE Trust in respect thereof) upon any overdue installments of interest and Additional Amounts at the rate or rates borne by or provided for in such Securities, and, in addition thereto, such further amount of money as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and all other amounts due to the Trustee under Section 6.6. 52 If the Company or the Guarantor fails to pay the money it is required to pay the Trustee pursuant to the preceding paragraph forthwith upon the demand of the Trustee, the Trustee, in its own name and as trustee of an express trust, may institute a judicial proceeding for the collection of the money so due and unpaid, and may prosecute such proceeding to judgment or final decree, and may enforce the same against the Company or the Guarantor or any other obligor upon such Securities and any Coupons appertaining thereto and collect the monies adjudged or decreed to be payable in the manner provided by law out of the property of the Company or the Guarantor or any other obligor upon such Securities and any Coupons appertaining thereto, wherever situated. If an Event of Default with respect to Securities of any series occurs and is continuing, the Trustee may in its discretion proceed to protect and enforce its rights and the rights of the Holders of Securities of such series and any Coupons appertaining thereto by such appropriate judicial proceedings as the Trustee shall deem most effectual to protect and enforce any such rights, whether for the specific enforcement of any covenant or agreement in this Indenture or such Securities or in aid of the exercise of any power granted herein or therein, or to enforce any other proper remedy. Section 5.4. Trustee May File Proofs of Claim. In case of the pendency of any receivership, insolvency, liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or other judicial proceeding relative to the Company, the Guarantor or any other obligor upon the Securities of any series or the property of the Company, the Guarantor or such other obligor or their creditors, the Trustee (irrespective of whether the principal of the Securities shall then be due and payable as therein expressed or by declaration or otherwise and irrespective of whether the Trustee shall have made any demand on the Company or the Guarantor for the payment of any overdue principal, premium, interest (including any Additional Interest) or Additional Amounts) shall be entitled and empowered, by intervention in such proceeding or otherwise, (1) to file and prove a claim for the whole amount, or such lesser amount as may be provided for in the Securities of any applicable series, of the principal and any premium, interest (including any Additional Interest) and Additional Amounts owing and unpaid in respect of the Securities and any Coupons appertaining thereto and to file such other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents or counsel) and of the Holders of Securities or any Coupons appertaining thereto allowed in such judicial proceeding, and (2) 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 Holder of Securities or any Coupons to make such payments to the Trustee and, in the event that the Trustee shall consent to the 53 making of such payments directly to the Holders of Securities or any Coupons, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel and any other amounts due the Trustee under Section 6.6. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder of a Security or any Coupon any plan of reorganization, arrangement, adjustment or composition affecting the Securities or Coupons or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Holder of a Security or any Coupon in any such proceeding. Section 5.5. Trustee May Enforce Claims without Possession of Securities or Coupons. All rights of action and claims under this Indenture or any of the Securities or Coupons may be prosecuted and enforced by the Trustee without the possession of any of the Securities or Coupons or the production thereof in any proceeding relating thereto, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery or judgment, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, shall be for the ratable benefit of each and every Holder of the Securities or Coupons in respect of which such judgment has been recovered. Section 5.6. Application of Money Collected. Any money collected by the Trustee pursuant to this Article shall be applied in the following order, at the date or dates fixed by the Trustee and, in case of the distribution of such money on account of principal, or any premium, interest (including any Additional Interest) or Additional Amounts, upon presentation of the Securities or Coupons, or both, as the case may be, and the notation thereon of the payment if only partially paid and upon surrender thereof if fully paid: FIRST: To the payment of all amounts due the Trustee and any predecessor Trustee under Section 6.6; SECOND: To the payment of the amounts then due and unpaid upon the Securities and any Coupons for principal and any premium, interest and Additional Amounts in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the aggregate amounts due and payable on such Securities and Coupons for principal and any premium, interest (including any Additional Interest) and Additional Amounts, respectively; THIRD: The balance, if any, to the Person or Persons entitled thereto. 54 Section 5.7. Limitations on Suits. No Holder of any Security of any series or any Coupons appertaining thereto shall have any right to institute any proceeding, judicial or otherwise, with respect to this Indenture, or for the appointment of a receiver or trustee, or for any other remedy hereunder, unless (1) such Holder has previously given written notice to the Trustee of a continuing Event of Default with respect to the Securities of such series; (2) the Holders of not less than 25% in principal amount of the Outstanding Securities of such series shall have made written request to the Trustee to institute proceedings in respect of such Event of Default in its own name as Trustee hereunder; (3) such Holder or Holders have offered to the Trustee such indemnity as is reasonably satisfactory to it against the costs, expenses and liabilities to be incurred in compliance with such request; (4) the Trustee for 60 days after its receipt of such notice, request and offer of indemnity has failed to institute any such proceeding; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Securities of such series; it being understood and intended that no one or more of such Holders shall have any right in any manner whatever by virtue of, or by availing of, any provision of this Indenture or any Security to affect, disturb or prejudice the rights of any other such Holders or Holders of Securities of any other series, or to obtain or to seek to obtain priority or preference over any other Holders or to enforce any right under this Indenture, except in the manner herein provided and for the equal and ratable benefit of all such Holders. Section 5.8. Unconditional Right of Holders to Receive Principal and any Premium, Interest and Additional Amounts. Notwithstanding any other provision in this Indenture, the Holder of any Security or Coupon shall have the right, which is absolute and unconditional, to receive payment of the principal of, any premium and (subject to Sections 3.5, 3.7 and 3.11) interest (including any Additional Interest) on, and any Additional Amounts with respect to such Security or payment of such Coupon, as the case may be, on the respective Stated Maturity or Maturities therefor specified in such Security or Coupon (or, in the case of redemption, on the Redemption Date or, in the case of repayment at the option of such Holder if provided in or pursuant to this Indenture, on the date such repayment is due) and to institute suit for the enforcement of any such payment, and such right shall not be impaired without the consent of such Holder. In the case of Securities of a series issued to an ACE Trust, any holder of Preferred Securities issued by such ACE Trust shall have the right, upon the occurrence of an Event of Default described in Section 5.1(1) or 55 5.1(2) hereof, to institute directly a proceeding against the Company or the Guarantor, as the case may be, for enforcement of payment to such holder of principal of, and any premium and (subject to Sections 3.5, 3.7 and 3.11) interest (including any Additional Interest) on, and Additional Amounts with respect to, such Securities having a principal amount equal to the liquidation amount of such Preferred Securities held by such holder (a "Direct Action"). Notwithstanding any payments made to a holder of Preferred Securities by the Company or the Guarantor in connection with a Direct Action, the Company and the Guarantor shall remain obligated to pay the principal of and premium, if any, or interest on and Additional Amounts, if any, with respect to the related Securities, and the Company or the Guarantor shall be subrogated to the rights of the holder of such Preferred Securities with respect to payments on the Preferred Securities to the extent of any payments made by the Company or the Guarantor, as the case may be, to such holder in any Direct Action. Section 5.9. Restoration of Rights and Remedies. If the Trustee or any Holder of a Security or a Coupon has, or the holders of Preferred Securities have, instituted any proceeding to enforce any right or remedy under this Indenture and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee, to such Holder or to the holders of such Preferred Securities, then and in every such case the Company, the Guarantor, the Trustee and each such Holder or the holders of such Preferred Securities shall, subject to any determination in such proceeding, be restored severally and respectively to their former positions hereunder, and thereafter all rights and remedies of the Trustee and each such Holder or the holders of such Preferred Securities shall continue as though no such proceeding had been instituted. Section 5.10. Rights and Remedies Cumulative. Except as otherwise provided with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities or Coupons in the last paragraph of Section 3.6, no right or remedy herein conferred upon or reserved to the Trustee, to each and every Holder of a Security or a Coupon or to the holders of Preferred Securities is intended to be exclusive of any other right or remedy, and every right and remedy, to the extent permitted by law, 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, to the extent permitted by law, prevent the concurrent assertion or employment of any other appropriate right or remedy. Section 5.11. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Security or Coupon or of the holders of Preferred Securities to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article or by law to the Trustee or to any Holder of a Security or a Coupon or to the holders of Preferred Securities may 56 be exercised from time to time, and as often as may be deemed expedient, by the Trustee, by such Holder or by such holders of Preferred Securities, as the case may be. Section 5.12. Control by Holders of Securities. The Holders of a majority in principal amount of the Outstanding Securities of any series shall have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee with respect to the Securities of such series and any Coupons appertaining thereto, provided that (1) such direction shall not be in conflict with any rule of law or with this Indenture or with the Securities of such series, (2) the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction, and (3) such direction is not unduly prejudicial to the rights of the other Holders of Securities of such series not joining in such action. Section 5.13. Waiver of Past Defaults. The Holders of not less than a majority in principal amount of the Outstanding Securities of any series on behalf of the Holders of all the Securities of such series and any Coupons appertaining thereto and, in the case of any Securities issued to an ACE Trust, the holders of not less than a majority in liquidation amount of the Preferred Securities issued by such ACE Trust then outstanding, may waive any past default hereunder with respect to such series and its consequences, except a default (1) in the payment of the principal of, any premium or interest (including any Additional Interest) on, or any Additional Amounts with respect to, any Security of such series or any Coupons appertaining thereto, or (2) in respect of a covenant or provision hereof which under Article 9 cannot be modified or amended without the consent of the Holder of each Outstanding Security of such series affected. Upon any such waiver, such default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other default or impair any right consequent thereon. Section 5.14. Waiver of Usury, Stay or Extension Laws. The Company and the Guarantor each covenants that (to the extent that it may lawfully do so) it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any usury, stay or extension law wherever enacted, now or at any time 57 hereafter in force, which may affect the covenants or the performance of this Indenture; and the Company and the Guarantor each expressly waives (to the extent that it may lawfully do so) all benefit or advantage of any such law and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. Section 5.15. Undertaking for Costs All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of any undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section 5.15 shall not apply to any suit instituted by the Trustee, to any suit instituted by any Holder, or group of Holders, holding in the aggregate more than 10% in principal amount of Outstanding Securities of any series or, if a series of Securities is held by an ACE Trust, the holders of more than 10% in liquidation amount of the Preferred Securities of that ACE Trust then outstanding, or to any suit instituted by any Holder or any holder of Preferred Securities for the enforcement of the payment of the principal of (or premium, if any) or interest (including any Additional Interest), if any, on or Additional Amounts, if any, with respect to any Security on or after the respective Stated Maturities expressed in such Security (or, in the case of redemption, on or after the Redemption Date, and, in the case of repayment, on or after the date for repayment) or for the enforcement of the right, if any, to convert or exchange any Security into other securities in accordance with its terms. ARTICLE 6 The Trustee Section 6.1. Certain Rights of Trustee. Subject to Sections 315(a) through 315(d) of the Trust Indenture Act: (1) the Trustee may conclusively rely and shall be fully protected in acting or refraining from acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, coupon or other paper or document reasonably believed by it to be genuine and to have been signed or presented by the proper party or parties; (2) any request or direction of the Company or of the Guarantor mentioned herein shall be sufficiently evidenced by a Company Request or a Company Order or by a Guarantor Request or Guarantor Order, as the case may be (in each case, other than delivery of any Security, together with any Coupons appertaining thereto, to the Trustee 58 for authentication and delivery pursuant to Section 3.3 which shall be sufficiently evidenced as provided therein) and any resolution of the Board of Directors or of the Guarantor's Board of Directors may be sufficiently evidenced by a Board Resolution or by a Guarantor's Board Resolution, as the case may be; (3) whenever in the administration of this Indenture the Trustee shall deem it desirable that a matter be proved or established prior to taking, suffering or omitting any action hereunder, the Trustee (unless other evidence shall be herein specifically prescribed) may, in the absence of bad faith on its part, rely upon an Officer's Certificate or, if such matter pertains to the Guarantor, a Guarantor's Officer's Certificate; (4) the Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon; (5) the Trustee shall be under no obligation to exercise any of the rights or powers vested in it by or pursuant to this Indenture at the request or direction of any of the Holders of Securities of any series or any Coupons appertaining thereto pursuant to this Indenture, unless such Holders shall have offered to the Trustee such security or indemnity as is reasonably satisfactory to it against the costs, expenses and liabilities which might be incurred by it in compliance with such request or direction; (6) the Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, coupon or other paper or document, but the Trustee, in its discretion, may, but shall not be obligated to make such further inquiry or investigation into such facts or matters as it may see fit, and, if the Trustee shall determine to make such further inquiry or investigation, it shall be entitled to examine, during business hours and upon reasonable notice, the books, records and premises of the Company and the Guarantor, personally or by agent or attorney; (7) the Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys and the Trustee shall not be responsible for any misconduct or negligence on the part of any agent or attorney appointed with due care by it hereunder; (8) the Trustee shall not be liable for any action taken or error of judgment made in good faith by a Responsible Officer or Responsible Officers of the Trustee, unless it shall be proved that the Trustee was negligent, acted in bad faith or engaged in willful misconduct; (9) the Authenticating Agent, Paying Agent, and Security Registrar shall have the same protections as the Trustee set forth hereunder; and 59 (10) the Trustee shall not be liable with respect to any action taken, suffered or omitted to be taken by it in good faith in accordance with an Act of the Holders hereunder, and, to the extent not so provided herein, with respect to any act requiring the Trustee to exercise its own discretion, relating to the time, method and place of conducting any proceeding for any remedy available to the Trustee, or exercising any trust or power conferred upon the Trustee, under this Indenture or any Securities, unless it shall be proved that, in connection with any such action taken, suffered or omitted or any such act, the Trustee was negligent, acted in bad faith or engaged in willful misconduct. Section 6.2. Notice of Defaults. Within 90 days after the occurrence of any default hereunder with respect to the Securities of any series, the Trustee shall transmit by mail to all Holders of Securities of such series entitled to receive reports pursuant to Section 7.3(3), notice of such default hereunder actually known to a Responsible Officer of the Trustee, unless such default shall have been cured or waived; provided, however, that, except in the case of a default in the payment of the principal of (or premium, if any), or interest (including any Additional Interest), if any, on, or Additional Amounts or any sinking fund or purchase fund installment with respect to, any Security of such series, the Trustee shall be protected in withholding such notice if and so long as the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Trustee in good faith determine that the withholding of such notice is in the best interest of the Holders of Securities and Coupons of such series; and provided, further, that in the case of any default of the character specified in Section 5.1(5) with respect to Securities of such series, no such notice to Holders shall be given until at least 30 days after the occurrence thereof. For the purpose of this Section, the term "default" means any event which is, or after notice or lapse of time or both would become, an Event of Default with respect to Securities of such series. Section 6.3. Not Responsible for Recitals or Issuance of Securities. The recitals contained herein and in the Securities, except the Trustee's certificate of authentication, and in any Coupons shall be taken as the statements of the Company or the Guarantor, as the case may be, and neither the Trustee nor any Authenticating Agent assumes any responsibility for their correctness. The Trustee makes no representations as to the validity or sufficiency of this Indenture or of the Securities or the Coupons, except that the Trustee represents that it is duly authorized to execute and deliver this Indenture, authenticate the Securities and perform its obligations hereunder and that the statements made by it in a Statement of Eligibility on Form T-1 supplied to the Company are true and accurate, subject to the qualifications set forth therein. Neither the Trustee nor any Authenticating Agent shall be accountable for the use or application by the Company of the Securities or the proceeds thereof. Section 6.4. May Hold Securities. The Trustee, any Authenticating Agent, any Paying Agent, any Security Registrar or any other Person that may be an agent of the Trustee or the Guarantor or the Company, in its individual or any other capacity, may become the owner or pledgee of Securities or Coupons 60 and, subject to Sections 310(b) and 311 of the Trust Indenture Act, may otherwise deal with the Company or the Guarantor with the same rights it would have if it were not the Trustee, Authenticating Agent, Paying Agent, Security Registrar or such other Person. Section 6.5. Money Held in Trust. Except as provided in Section 4.3 and Section 10.3, money held by the Trustee in trust hereunder need not be segregated from other funds except to the extent required by law and shall be held uninvested. The Trustee shall be under no liability for interest on any money received by it hereunder except as otherwise agreed to in writing with the Company or the Guarantor. Section 6.6. Compensation and Reimbursement. The Company and the Guarantor (without duplication) each agree: (1) to pay to the Trustee from time to time reasonable compensation for all services rendered by the Trustee hereunder (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust); (2) except as otherwise expressly provided herein, to reimburse the Trustee upon its request for all reasonable expenses, disbursements and advances incurred or made by the Trustee in accordance with any provision of this Indenture or arising out of or in connection with the acceptance or administration of the trust or trusts hereunder (including the reasonable compensation and the expenses and disbursements of its agents and counsel), except any such expense, disbursement or advance as may be attributable to the Trustee's negligence or bad faith; and (3) to indemnify the Trustee and its agents, officers, directors and employees for, and to hold them harmless against, any loss, liability or expense incurred without negligence or bad faith on their part, arising out of or in connection with the acceptance or administration of the trust or trusts hereunder, including the costs and expenses of defending themselves against any claim or liability in connection with the exercise or performance of any of their powers or duties hereunder, except to the extent that any such loss, liability or expense was due to the Trustee's negligence or bad faith. As security for the performance of the obligations of the Company and the Guarantor under this Section, the Trustee shall have a lien prior to the Securities of any series upon all property and funds held or collected by the Trustee as such, except funds held in trust for the payment of principal of, and premium or interest (including any Additional Interest) on or any Additional Amounts with respect to Securities or any Coupons appertaining thereto. To the extent permitted by law, any compensation or expense incurred by the Trustee after a default specified in or pursuant to Section 5.1 is intended to constitute an expense of administration under any then applicable bankruptcy or insolvency law. "Trustee" for purposes 61 of this Section 6.6 shall include any predecessor Trustee but the negligence or bad faith of any Trustee shall not affect the rights of any other Trustee under this Section 6.6. The provisions of this Section 6.6 shall survive the satisfaction and discharge of this Indenture or the earlier resignation or removal of the Trustee and shall apply with equal force and effect to the Trustee in its capacity as Authenticating Agent, Paying Agent or Security Registrar. Section 6.7. Corporate Trustee Required; Eligibility. There shall at all times be a Trustee hereunder that is a Corporation organized and doing business under the laws of the United States of America, any state thereof or the District of Columbia, that is eligible under Section 310(a)(1) of the Trust Indenture Act to act as trustee under an indenture qualified under the Trust Indenture Act and that has a combined capital and surplus (computed in accordance with Section 310(a)(2) of the Trust Indenture Act) of at least $50,000,000, and that is subject to supervision or examination by Federal or state authority. If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect hereinafter specified in this Article. Section 6.8. Resignation and Removal; Appointment of Successor. (1) No resignation or removal of the Trustee and no appointment of a successor Trustee pursuant to this Article shall become effective until the acceptance of appointment by the successor Trustee pursuant to Section 6.9. (2) The Trustee may resign at any time with respect to the Securities of one or more series by giving written notice thereof to the Company and the Guarantor. If the instrument of acceptance by a successor Trustee required by Section 6.9 shall not have been delivered to the Trustee within 30 days after the giving of such notice of resignation, the resigning Trustee may petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to such series. (3) The Trustee may be removed at any time with or without cause with respect to the Securities of any series by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series, delivered to the Trustee, the Company and the Guarantor. (4) If at any time: (a) the Trustee shall fail to comply with the obligations imposed upon it under Section 310(b) of the Trust Indenture Act with respect to Securities of any series after written request therefor by the Company, the Guarantor or any Holder of a Security of such series who has been a bona fide Holder of a Security of such series for at least six months, or 62 (b) the Trustee shall cease to be eligible under Section 6.7 and shall fail to resign after written request therefor by the Company, the Guarantor or any such Holder, or (c) the Trustee shall become incapable of acting or shall be adjudged a bankrupt or insolvent or a receiver of the Trustee or of its property shall be appointed or any public officer shall take charge or control of the Trustee or of its property or affairs for the purpose of rehabilitation, conservation or liquidation, then, in any such case, (i) the Company, by or pursuant to a Board Resolution, or the Guarantor, by or pursuant to a Guarantor's Board Resolution, may remove the Trustee with respect to all Securities or the Securities of such series, or (ii) subject to Section 315(e) of the Trust Indenture Act, any Holder of a Security who has been a bona fide Holder of a Security of such series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the removal of the Trustee with respect to all Securities of such series and the appointment of a successor Trustee or Trustees. (5) If the Trustee shall resign, be removed or become incapable of acting, or if a vacancy shall occur in the office of Trustee for any reason, with respect to the Securities of one or more series, the Company, by or pursuant to a Board Resolution, and the Guarantor, by or pursuant to a Guarantor's Board Resolution, shall promptly appoint a successor Trustee or Trustees with respect to the Securities of such series (it being understood that any such successor Trustee may be appointed with respect to the Securities of one or more or all of such series and that at any time there shall be only one Trustee with respect to the Securities of any particular series) and shall comply with the applicable requirements of Section 6.9. If, within one year after such resignation, removal or incapacity, or the occurrence of such vacancy, a successor Trustee with respect to the Securities of any series shall be appointed by Act of the Holders of a majority in principal amount of the Outstanding Securities of such series delivered to the Company, the Guarantor and the retiring Trustee, the successor Trustee so appointed shall, forthwith upon its acceptance of such appointment in accordance with the applicable requirements of Section 6.9, become the successor Trustee with respect to the Securities of such series and to that extent supersede the successor Trustee appointed by the Company and the Guarantor. If no successor Trustee with respect to the Securities of any series shall have been so appointed by the Company and the Guarantor or the Holders of Securities and accepted appointment in the manner required by Section 6.9, any Holder of a Security who has been a bona fide Holder of a Security of such series for at least six months may, on behalf of himself and all others similarly situated, petition any court of competent jurisdiction for the appointment of a successor Trustee with respect to the Securities of such series. (6) The Company shall give notice of each resignation and each removal of the Trustee with respect to the Securities of any series and each appointment of a successor Trustee with respect to the Securities of any series by mailing written notice of 63 such event by first-class mail, postage prepaid, to the Holders of Registered Securities, if any, of such series as their names and addresses appear in the Security Register and, if Securities of such series are issued as Bearer Securities, by publishing notice of such event once in an Authorized Newspaper in each Place of Payment located outside the United States. Each notice shall include the name of the successor Trustee with respect to the Securities of such series and the address of its Corporate Trust Office. (7) In no event shall any retiring Trustee be liable for the acts or omissions of any successor Trustee hereunder. Section 6.9. Acceptance of Appointment by Successor. (1) Upon the appointment hereunder of any successor Trustee with respect to all Securities, such successor Trustee so appointed shall execute, acknowledge and deliver to the Company, the Guarantor and the retiring Trustee an instrument accepting such appointment, and thereupon the resignation or removal of the retiring Trustee shall become effective and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties hereunder of the retiring Trustee; but, on the request of the Company, the Guarantor or such successor Trustee, such retiring Trustee, upon payment of its charges, shall execute and deliver an instrument transferring to such successor Trustee all the rights, powers and trusts of the retiring Trustee and, subject to Section 10.3, shall duly assign, transfer and deliver to such successor Trustee all property and money held by such retiring Trustee hereunder, subject nevertheless to its claim, if any, provided for in Section 6.6. (2) Upon the appointment hereunder of any successor Trustee with respect to the Securities of one or more (but not all) series, the Company, the Guarantor, the retiring Trustee and such successor Trustee shall execute and deliver an indenture supplemental hereto wherein each successor Trustee shall accept such appointment and which (1) shall contain such provisions as shall be necessary or desirable to transfer and confirm to, and to vest in, such successor Trustee all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, (2) if the retiring Trustee is not retiring with respect to all Securities, shall contain such provisions as shall be deemed necessary or desirable to confirm that all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series as to which the retiring Trustee is not retiring shall continue to be vested in the retiring Trustee, and (3) shall add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, it being understood that nothing herein or in such supplemental indenture shall constitute such Trustees co-trustees of the same trust, that each such Trustee shall be trustee of a trust or trusts hereunder separate and apart from any trust or trusts hereunder administered by any other such Trustee and that no Trustee shall be responsible for any notice given to, or received by, or any act or failure to act on the part of any other Trustee hereunder, and, upon 64 the execution and delivery of such supplemental indenture, the resignation or removal of the retiring Trustee shall become effective to the extent provided therein, such retiring Trustee shall have no further responsibility for the exercise of rights and powers or for the performance of the duties and obligations vested in the Trustee under this Indenture with respect to the Securities of that or those series to which the appointment of such successor Trustee relates other than as hereinafter expressly set forth, and such successor Trustee, without any further act, deed or conveyance, shall become vested with all the rights, powers, trusts and duties of the retiring Trustee with respect to the Securities of that or those series to which the appointment of such successor Trustee relates; but, on request of the Company, the Guarantor or such successor Trustee, such retiring Trustee, upon payment of its charges with respect to the Securities of that or those series to which the appointment of such successor Trustee relates and subject to Section 10.3 shall duly assign, transfer and deliver to such successor Trustee, to the extent contemplated by such supplemental indenture, the property and money held by such retiring Trustee hereunder with respect to the Securities of that or those series to which the appointment of such successor Trustee relates, subject to its claim, if any, provided for in Section 6.6. (3) Upon request of any Person appointed hereunder as a successor Trustee, the Company and the Guarantor shall execute any and all instruments for more fully and certainly vesting in and confirming to such successor Trustee all such rights, powers and trusts referred to in paragraph (1) or (2) of this Section, as the case may be. (4) No Person shall accept its appointment hereunder as a successor Trustee unless at the time of such acceptance such successor Person shall be qualified and eligible under this Article. Section 6.10. Merger, Conversion, Consolidation or Succession to Business. Any Corporation into which the Trustee may be merged or converted or with which it may be consolidated, or any Corporation resulting from any merger, conversion or consolidation to which the Trustee shall be a party, shall be the successor of the Trustee hereunder, without the execution or filing of any paper or any further act on the part of any of the parties hereto. In case any Securities shall have been authenticated but not delivered by the Trustee then in office, any successor by merger, conversion or consolidation to such authenticating Trustee may adopt such authentication and deliver the Securities so authenticated with the same effect as if such successor Trustee had itself authenticated such Securities. Section 6.11. Appointment of Authenticating Agent. The Trustee may appoint one or more Authenticating Agents acceptable to the Company with respect to one or more series of Securities which shall be authorized to act on behalf of the Trustee to authenticate Securities of that or those series issued upon original issue, exchange, registration of transfer, partial redemption or partial repayment or pursuant to Section 3.6, and Securities so authenticated shall be entitled to the benefits of this Indenture and shall be valid and obligatory for all purposes as if authenticated by the Trustee hereunder. Wherever reference is 65 made in this Indenture to the authentication and delivery of Securities by the Trustee or the Trustee's certificate of authentication, such reference shall be deemed to include authentication and delivery on behalf of the Trustee by an Authenticating Agent and a certificate of authentication executed on behalf of the Trustee by an Authenticating Agent. Each Authenticating Agent must be acceptable to the Company and the Guarantor and, except as provided in or pursuant to this Indenture, shall at all times be a corporation that would be permitted by the Trust Indenture Act to act as trustee under an indenture qualified under the Trust Indenture Act, is authorized under applicable law and by its charter to act as an Authenticating Agent and has a combined capital and surplus (computed in accordance with Section 310(a)(2) of the Trust Indenture Act) of at least $50,000,000. If at any time an Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, it shall resign immediately in the manner and with the effect specified in this Section. Any Corporation into which an Authenticating Agent may be merged or converted or with which it may be consolidated, or any Corporation resulting from any merger, conversion or consolidation to which such Authenticating Agent shall be a party, or any Corporation succeeding to all or substantially all of the corporate agency or corporate trust business of an Authenticating Agent, shall be the successor of such Authenticating Agent hereunder, provided such Corporation shall be otherwise eligible under this Section, without the execution or filing of any paper or any further act on the part of the Trustee or the Authenticating Agent. An Authenticating Agent may resign at any time by giving written notice thereof to the Trustee, the Company and the Guarantor. The Trustee may at any time terminate the agency of an Authenticating Agent by giving written notice thereof to such Authenticating Agent, the Company and the Guarantor. Upon receiving such a notice of resignation or upon such a termination, or in case at any time such Authenticating Agent shall cease to be eligible in accordance with the provisions of this Section, the Trustee may appoint a successor Authenticating Agent which shall be acceptable to the Company and the Guarantor and shall (i) mail written notice of such appointment by first-class mail, postage prepaid, to all Holders of Registered Securities, if any, of the series with respect to which such Authenticating Agent shall serve, as their names and addresses appear in the Security Register, and (ii) if Securities of the series are issued as Bearer Securities, publish notice of such appointment at least once in an Authorized Newspaper in the place where such successor Authenticating Agent has its principal office if such office is located outside the United States. Any successor Authenticating Agent, upon acceptance of its appointment hereunder, shall become vested with all the rights, powers and duties of its predecessor hereunder, with like effect as if originally named as an Authenticating Agent. No successor Authenticating Agent shall be appointed unless eligible under the provisions of this Section. The Company and the Guarantor (without duplication) each agree to pay each Authenticating Agent from time to time reasonable compensation for its services under this Section. If the Trustee makes such payments, it shall be entitled to be reimbursed for such payments, subject to the provisions of Section 6.6. 66 The provisions of Sections 3.8, 6.3 and 6.4 shall be applicable to each Authenticating Agent. If an Authenticating Agent is appointed with respect to one or more series of Securities pursuant to this Section, the Securities of such series may have endorsed thereon, in addition to or in lieu of the Trustee's certificate of authentication, an alternate certificate of authentication in substantially the following form: This is one of the Securities of the series designated herein referred to in the within-mentioned Indenture. BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, as Trustee By _____________________________________________ as Authenticating Agent By _____________________________________________ Authorized Officer If all of the Securities of any series may not be originally issued at one time, and if the Trustee does not have an office capable of authenticating Securities upon original issuance located in a Place of Payment where the Company wishes to have Securities of such series authenticated upon original issuance, the Trustee, if so requested in writing (which writing need not be accompanied by or contained in an Officer's Certificate by the Company), shall appoint in accordance with this Section an Authenticating Agent having an office in a Place of Payment designated by the Company with respect to such series of Securities. ARTICLE 7 Holders Lists and Reports by Trustee, Guarantor and Company Section 7.1. Company and Guarantor to Furnish Trustee Names and Addresses of Holders. In accordance with Section 312(a) of the Trust Indenture Act, the Company and the Guarantor shall furnish or cause to be furnished to the Trustee (1) semi-annually with respect to Securities of each series not later than May 1 and November 1 of the year or upon such other dates as are set forth in or pursuant to the Board Resolution or indenture supplemental hereto authorizing such series, a list, 67 in each case in such form as the Trustee may reasonably require, of the names and addresses of Holders as of the applicable date, and (2) at such other times as the Trustee may request in writing, within 30 days after the receipt by the Company or the Guarantor of any such request, a list of similar form and content as of a date not more than 15 days prior to the time such list is furnished, provided, however, that so long as the Trustee is the Security Registrar no such list shall be required to be furnished. Section 7.2. Preservation of Information; Communications to Holders. The Trustee shall comply with the obligations imposed upon it pursuant to Section 312 of the Trust Indenture Act. Every Holder of Securities or Coupons, by receiving and holding the same, agrees with the Company, the Guarantor and the Trustee that none of the Company, the Guarantor, the Trustee, any Paying Agent or any Security Registrar shall be held accountable by reason of the disclosure of any such information as to the names and addresses of the Holders of Securities in accordance with Section 312(c) of the Trust Indenture Act, regardless of the source from which such information was derived, and that the Trustee shall not be held accountable by reason of mailing any material pursuant to a request made under Section 312(b) of the Trust Indenture Act. Section 7.3. Reports by Trustee. (1) Within 60 days after September 15 of each year commencing with the first September 15 following the first issuance of Securities pursuant to Section 3.1, if required by Section 313(a) of the Trust Indenture Act, the Trustee shall transmit, pursuant to Section 313(c) of the Trust Indenture Act, a brief report dated as of such September 15 with respect to any of the events specified in said Section 313(a) which may have occurred since the later of the immediately preceding September 15 and the date of this Indenture. (2) The Trustee shall transmit the reports required by Section 313(a) of the Trust Indenture Act at the times specified therein. (3) Reports pursuant to this Section shall be transmitted in the manner and to the Persons required by Sections 313(c) and 313(d) of the Trust Indenture Act. Section 7.4. Reports by Company and Guarantor. The Company and the Guarantor, pursuant to Section 314(a) of the Trust Indenture Act, shall each: 68 (1) file with the Trustee, within 15 days after the Company or the Guarantor, as the case may be, is required to file the same with the Commission, copies of the annual reports and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may from time to time by rules and regulations prescribe) which the Company or the Guarantor, as the case may be, may be required to file with the Commission pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended; or, if the Company or the Guarantor, as the case may be, is not required to file information, documents or reports pursuant to either of said Sections, then it shall file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such of the supplementary and periodic information, documents and reports which may be required pursuant to Section 13 of the Securities Exchange Act of 1934, as amended, in respect of a security listed and registered on a national securities exchange as may be prescribed from time to time in such rules and regulations; (2) file with the Trustee and the Commission, in accordance with rules and regulations prescribed from time to time by the Commission, such additional information, documents and reports with respect to compliance by the Company or the Guarantor, as the case may be, with the conditions and covenants of this Indenture as may be required from time to time by such rules and regulations; and (3) transmit within 30 days after the filing thereof with the Trustee, in the manner and to the extent provided in Section 313(c) of the Trust Indenture Act, such summaries of any information, documents and reports required to be filed by the Company or the Guarantor, as the case may be, pursuant to paragraphs (1) and (2) of this Section as may be required by rules and regulations prescribed from time to time by the Commission. ARTICLE 8 Consolidation, Amalgamations, Merger and Sales Section 8.1. Company May Consolidate, Etc., Only on Certain Terms. The Company shall not consolidate or amalgamate with or merge into any other Person (whether or not affiliated with the Company), or convey, transfer or lease its properties and assets as an entirety or substantially as an entirety to any other Person (whether or not affiliated with the Company), and the Company shall not permit any other Person (whether or not affiliated with the Company) to consolidate or amalgamate with or merge into the Company or convey, transfer or lease its properties and assets as an entirety or substantially as an entirety to the Company; unless: (1) in case the Company shall consolidate or amalgamate with or merge into another Person or convey, transfer or lease its properties and assets as an entirety or substantially as an entirety to any Person, the Person formed by such consolidation or 69 amalgamation or into which the Company is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of the Company as an entirety or substantially as an entirety shall be a Corporation organized and existing under the laws of the United States of America or any state thereof or the District of Columbia and shall expressly assume, by an indenture (or indentures, if at such time there is more than one Trustee) supplemental hereto, executed by the successor Person and the Guarantor and delivered to the Trustee the due and punctual payment of the principal of, any premium and interest (including any Additional Interest) on and any Additional Amounts with respect to all the Securities and the performance of every obligation in this Indenture and the Outstanding Securities on the part of the Company to be performed or observed and shall provide for conversion or exchange rights in accordance with the provisions of the Securities of any series that are convertible or exchangeable into Common Stock or other securities; (2) immediately after giving effect to such transaction and treating any indebtedness which becomes an obligation of the Company or a Subsidiary as a result of such transaction as having been incurred by the Company or such Subsidiary at the time of such transaction, no Event of Default or event which, after notice or lapse of time, or both, would become an Event of Default, shall have occurred and be continuing; (3) in the case of the Securities of a series issued to an ACE Trust, such transaction is permitted under the related Trust Agreement and does not give rise to any breach or violation of such Trust Agreement; and (4) either the Company or the successor Person shall have delivered to the Trustee an Officer's Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with. Section 8.2. Successor Person Substituted for Company. Upon any consolidation or amalgamation by the Company with or merger of the Company into any other Person or any conveyance, transfer or lease of the properties and assets of the Company substantially as an entirety to any Person in accordance with Section 8.1, the successor Person formed by such consolidation or amalgamation or into which the Company is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor Person had been named as the Company herein; and thereafter, except in the case of a lease, the predecessor Person shall be released from all obligations and covenants under this Indenture, the Securities and the Coupons. 70 Section 8.3. Guarantor May Consolidate, Etc., Only on Certain Terms. The Guarantor shall not consolidate or amalgamate with or merge into any other Person (whether or not affiliated with the Guarantor), or convey, transfer or lease its properties and assets as an entirety or substantially as an entirety to any other Person (whether or not affiliated with the Guarantor), and the Guarantor shall not permit any other Person (whether or not affiliated with the Guarantor) to consolidate or amalgamate with or merge into the Guarantor or convey, transfer or lease its properties and assets as an entirety or substantially as an entirety to the Guarantor; unless: (1) in case the Guarantor shall consolidate or amalgamate with or merge into another Person or convey, transfer or lease its properties and assets as an entirety or substantially as an entirety to any Person, the Person formed by such consolidation or amalgamation or into which the Guarantor is merged or the Person which acquires by conveyance or transfer, or which leases, the properties and assets of the Guarantor as an entirety or substantially as an entirety shall be a Corporation organized and existing under the laws of the United States of America, any state thereof or the District of Columbia, Bermuda or the Cayman Islands, or any other country which is on the date of this Indenture a member of the Organization for Economic Cooperation and Development, and shall expressly assume, by an indenture (or indentures, if at such time there is more than one Trustee) supplemental hereto, executed by the successor Person and the Company and delivered to the Trustee the due and punctual payment of the principal of, any premium and interest (including any Additional Interest) on and any Additional Amounts with respect to all the Securities and the performance of every obligation in this Indenture and the Outstanding Securities on the part of the Guarantor to be performed or observed and shall provide for conversion or exchange rights in accordance with the provisions of the Securities of any series that are convertible or exchangeable into Common Stock or other securities; (2) immediately after giving effect to such transaction and treating any indebtedness which becomes an obligation of the Guarantor or a Subsidiary as a result of such transaction as having been incurred by the Guarantor or such Subsidiary at the time of such transaction, no Event of Default or event which, after notice or lapse of time, or both, would become an Event of Default, shall have occurred and be continuing; (3) in the case of Securities of a series issued to an ACE Trust, such transaction is permitted under the related Guarantee Agreement and does not give rise to any breach or violation of such Guarantee Agreement; and (4) either the Guarantor or the successor Person shall have delivered to the Trustee a Guarantor's Officer's Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture comply with this Article and that all conditions precedent herein provided for relating to such transaction have been complied with. 71 Section 8.4. Successor Person Substituted for Guarantor. Upon any consolidation or amalgamation by the Guarantor with or merger of the Guarantor into any other Person or any conveyance, transfer or lease of the properties and assets of the Guarantor substantially as an entirety to any Person in accordance with Section 8.3, the successor Person formed by such consolidation or amalgamation or into which the Guarantor is merged or to which such conveyance, transfer or lease is made shall succeed to, and be substituted for, and may exercise every right and power of, the Guarantor under this Indenture with the same effect as if such successor Person had been named as the Guarantor herein; and thereafter, except in the case of a lease, the predecessor Person shall be released from all obligations and covenants under this Indenture, the Securities and the Coupons. ARTICLE 9 Supplemental Indentures Section 9.1. Supplemental Indentures without Consent of Holders. Without the consent of any Holders of Securities or Coupons, the Company (when authorized by or pursuant to a Board Resolution), the Guarantor (when authorized by or pursuant to a Guarantor's Board Resolution) and the Trustee, at any time and from time to time, may enter into one or more indentures supplemental hereto, for any of the following purposes: (1) to evidence the succession of another Person to the Company or the Guarantor, and the assumption by any such successor of the covenants of the Company or the Guarantor, as the case may be, contained herein and in the Securities; or (2) to add to the covenants of the Company or the Guarantor, as the case may be, for the benefit of the Holders of all or any series of Securities (as shall be specified in such supplemental indenture or indentures) or to surrender any right or power herein conferred upon the Company or the Guarantor, as the case may be; or (3) to add to or change any of the provisions of this Indenture to provide that Bearer Securities may be registrable as to principal, to change or eliminate any restrictions on the payment of principal of, any premium or interest (including any Additional Interest) on or any Additional Amounts with respect to Securities, to permit Bearer Securities to be issued in exchange for Registered Securities, to permit Bearer Securities to be exchanged for Bearer Securities of other authorized denominations or to permit or facilitate the issuance of Securities in uncertificated form, provided any such action shall not adversely affect the interests of the Holders of Outstanding Securities of any series or any Coupons appertaining thereto in any material respect; or (4) to establish the form or terms of Securities of any series and any Coupons appertaining thereto as permitted by Sections 2.1 and 3.1; or 72 (5) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee, pursuant to the requirements of Section 6.9; or (6) to cure any ambiguity or to correct or supplement any provision herein which may be defective or inconsistent with any other provision herein, or to make any other provisions with respect to matters or questions arising under this Indenture which shall not adversely affect the interests of the Holders of Securities of any series then Outstanding or any Coupons appertaining thereto or, in the case of Securities of a series issued to an ACE Trust and for so long as any of the Preferred Securities issued by such ACE Trust shall remain outstanding, the holders of such Preferred Securities, in any material respect; or (7) to add to, delete from or revise the conditions, limitations and restrictions on the authorized amount, terms or purposes of issue, authentication and delivery of Securities, as herein set forth; or (8) to add any additional Events of Default with respect to all or any series of Securities (as shall be specified in such supplemental indenture); or (9) to supplement any of the provisions of this Indenture to such extent as shall be necessary to permit or facilitate the defeasance and discharge of any series of Securities pursuant to Article 4, provided that any such action shall not adversely affect the interests of any Holder of an Outstanding Security of such series and any Coupons appertaining thereto or any other Outstanding Security or Coupon or, in the case of Securities of a series issued to an ACE Trust and for so long as any of the Preferred Securities issued by such ACE Trust shall remain outstanding, the holders of such Preferred Securities, in any material respect; or (10) to secure the Securities; or (11) to make provisions with respect to conversion or exchange rights of Holders of Securities of any series; or (12) to amend or supplement any provision contained herein or in any supplemental indenture, provided that no such amendment or supplement shall materially adversely affect the interests of the Holders of any Securities then Outstanding. Section 9.2. Supplemental Indentures with Consent of Holders. With the consent of the Holders of not less than a majority in principal amount of the Outstanding Securities of each series affected by such supplemental indenture (and, in the case of any series of Securities held as assets of an ACE Trust, such consent of holders of 73 the Preferred Securities and the Common Securities of such ACE Trust as may be required under the Trust Agreement of such ACE Trust), by Act of said Holders delivered to the Company, the Guarantor and the Trustee, the Company (when authorized by or pursuant to a Company's Board Resolution), the Guarantor (when authorized by or pursuant to a Guarantor's Board Resolution) and the Trustee may enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of modifying in any manner the rights of the Holders of Securities of such series under this Indenture or of the Securities of such series; provided, however, that no such supplemental indenture, without the consent of the Holder of each Outstanding Security affected thereby, shall (1) change the Stated Maturity of the principal of, or any premium or installment of interest (including any Additional Interest) on or any Additional Amounts with respect to, any Security, or reduce the principal amount thereof or the rate (or modify the calculation of such rate) of interest (including any Additional Interest) thereon or any Additional Amounts with respect thereto, or any premium payable upon the redemption thereof or otherwise, or change the obligation of the Company and the Guarantor to pay Additional Amounts pursuant to the terms hereof (except as contemplated by Section 8.1(1) and permitted by Section 9.1(1)), or reduce the amount of the principal of an Original Issue Discount Security that would be due and payable upon a declaration of acceleration of the Maturity thereof pursuant to Section 5.2 or the amount thereof provable in bankruptcy pursuant to Section 5.4, change the redemption provisions or adversely affect the right of repayment at the option of any Holder as contemplated by Article 13, or change the Place of Payment, Currency in which the principal of, any premium or interest (including any Additional Interest) on, or any Additional Amounts with respect to any Security is payable, or impair the right to institute suit for the enforcement of any such payment on or after the Stated Maturity thereof (or, in the case of redemption, on or after the Redemption Date or, in the case of repayment at the option of the Holder, on or after the date for repayment), or (2) reduce the percentage in principal amount of the Outstanding Securities of any series, the consent of whose Holders is required for any such supplemental indenture, or the consent of whose Holders is required for any waiver (of compliance with certain provisions of this Indenture or certain defaults hereunder and their consequences) provided for in this Indenture, or reduce the requirements of Section 15.4 for quorum or voting, or (3) modify any of the provisions of this Indenture relating to the subordination of the Securities or the Guarantee in respect thereof in a manner adverse to Holders of Securities, or (4) modify or effect in any manner adverse to the Holders the terms and conditions of the obligations of the Guarantor in respect of the due and punctual payments of principal of, or any premium or interest (including any Additional Interest) 74 on, or any sinking fund requirements or Additional Amounts with respect to, the Securities, or (5) modify any of the provisions of this Section, Section 5.13 or Section 10.6, except to increase any such percentage or to provide that certain other provisions of this Indenture cannot be modified or waived without the consent of the Holder of each Outstanding Security affected thereby, or (6) make any change that adversely affects the right to convert or exchange any Security into or for securities of the Company or the Guarantor or other securities (whether or not issued by the Company or the Guarantor), cash or property in accordance with its terms, provided that, in the case of the Securities of a series issued to an ACE Trust, so long as any of the Preferred Securities of such ACE Trust remain outstanding, no such amendment shall be made that adversely affects the holders of such Preferred Securities, and no termination of this Indenture shall occur, and no waiver of any Event of Default or compliance with any covenant under this Indenture shall be effective, without the prior consent of the holders of at least a majority of the liquidation amount of such Preferred Securities then outstanding unless and until the principal of, any premium or, subject to Section 3.7, interest (including any Additional Interest) on, and any Additional Amounts with respect to, the Securities of such series have been paid in full; and provided further that in the case of the Securities of a series issued to an ACE Trust, so long as any of the Preferred Securities of such ACE Trust remain outstanding, no amendment shall be made to Section 5.8 of this Indenture without the prior consent of the holder of each Preferred Security then outstanding unless and until the principal of, any premium or, subject to Section 3.7, interest (including any Additional Interest) on, and any Additional Amounts with respect to, the Securities of such series have been paid in full. A supplemental indenture which changes or eliminates any covenant or other provision of this Indenture which shall have been included expressly and solely for the benefit of one or more particular series of Securities, or which modifies the rights of the Holders of Securities of such series with respect to such covenant or other provision, shall be deemed not to affect the rights under this Indenture of the Holders of Securities of any other series. It shall not be necessary for any Act of Holders of Securities or holders of Preferred Securities under this Section to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such Act shall approve the substance thereof. Section 9.3. Execution of Supplemental Indentures. As a condition to executing, or accepting the additional trusts created by, any supplemental indenture permitted by this Article or the modifications thereby of the trust created by this Indenture, the Trustee shall be entitled to receive, and (subject to Section 315 of the Trust Indenture Act) shall be fully protected in relying upon, an Opinion of Counsel stating that the execution of such supplemental indenture is authorized or permitted by this Indenture and an 75 Officer's Certificate and Guarantor's Officer's Certificate stating that all conditions precedent to the execution of such supplemental indenture have been fulfilled. The Trustee may, but shall not be obligated to, enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. Section 9.4. Effect of Supplemental Indentures. Upon the execution of any supplemental indenture under this Article, this Indenture shall be modified in accordance therewith, and such supplemental indenture shall form a part of this Indenture for all purposes; and every Holder of a Security theretofore or thereafter authenticated and delivered hereunder and of any Coupon appertaining thereto shall be bound thereby. Section 9.5. Reference in Securities to Supplemental Indentures. Securities of any series authenticated and delivered after the execution of any supplemental indenture pursuant to this Article may, and shall if required by the Trustee, bear a notation in form approved by the Trustee as to any matter provided for in such supplemental indenture. If the Company shall so determine, new Securities of any series so modified as to conform, in the opinion of the Trustee and the Company, to any such supplemental indenture may be prepared and executed by the Company and authenticated and delivered by the Trustee in exchange for Outstanding Securities of such series. Section 9.6. Conformity with Trust Indenture Act. Every supplemental indenture executed pursuant to this Article shall conform to the requirements of the Trust Indenture Act as then in effect. Section 9.7. Effect on Senior Indebtedness. No supplemental indenture shall directly or indirectly modify or eliminate the provisions of Article 16 or Article 18, as the case may be, in any manner which might terminate or impair the subordination of the Securities of any series to Company Senior Indebtedness with respect to such series or the subordination of the Guarantee in respect thereof to Guarantor Senior Indebtedness with respect to such series, respectively, without the prior written consent of the holders of such Company Senior Indebtedness or Guarantor Senior Indebtedness, respectively. Section 9.8. Notice of Supplemental Indenture. Promptly after the execution by the Company, the Guarantor and the Trustee of any supplemental indenture pursuant to Section 9.2, the Company shall transmit to the Holders of Outstanding Securities of any series affected thereby a notice setting forth the substance of such supplemental indenture. 76 ARTICLE 10 Covenants Section 10.1. Payment of Principal, any Premium, Interest and Additional Amounts. The Company covenants and agrees for the benefit of the Holders of the Securities of each series that it will duly and punctually pay the principal of, any premium and interest (including any Additional Interest) on and any Additional Amounts with respect to the Securities of such series in accordance with the terms thereof, any Coupons appertaining thereto and this Indenture. Any interest due on any Bearer Security on or before the Maturity thereof, and any Additional Amounts payable with respect to such interest, shall be payable only upon presentation and surrender of the Coupons appertaining thereto for such interest as they severally mature. Section 10.2. Maintenance of Office or Agency. The Company and the Guarantor shall maintain in each Place of Payment for any series of Securities an Office or Agency where Securities of such series (but not Bearer Securities, except as otherwise provided below, unless such Place of Payment is located outside the United States) may be presented or surrendered for payment, where Securities of such series may be surrendered for registration of transfer or exchange, where Securities of such series that are convertible or exchangeable may be surrendered for conversion or exchange, and where notices and demands to or upon the Company or the Guarantor in respect of the Securities of such series relating thereto and this Indenture may be served. If Securities of a series are issuable as Bearer Securities, the Company and the Guarantor shall maintain, subject to any laws or regulations applicable thereto, an Office or Agency in a Place of Payment for such series which is located outside the United States where Securities of such series and any Coupons appertaining thereto may be presented and surrendered for payment; provided, however, that if the Securities of such series are listed on The Stock Exchange of the United Kingdom and the Republic of Ireland or the Luxembourg Stock Exchange or any other stock exchange located outside the United States and such stock exchange shall so require, the Company and the Guarantor shall maintain a Paying Agent in London, Luxembourg or any other required city located outside the United States, as the case may be, so long as the Securities of such series are listed on such exchange. The Company and the Guarantor will give prompt written notice to the Trustee of the location, and any change in the location, of such Office or Agency. If at any time the Company or the Guarantor shall fail to maintain any such required Office or Agency or shall fail to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee, except that Bearer Securities of such series and any Coupons appertaining thereto may be presented and surrendered for payment at the place specified for the purpose with respect to such Securities as provided in or pursuant to this Indenture, and the Company and the Guarantor hereby appoint the Trustee as their agent to receive all such presentations, surrenders, notices and demands. 77 Except as otherwise provided in or pursuant to this Indenture, no payment of principal, premium, interest or Additional Amounts with respect to Bearer Securities shall be made at any Office or Agency in the United States or by check mailed to any address in the United States or by transfer to an account maintained with a bank located in the United States; provided, however, if amounts owing with respect to any Bearer Securities shall be payable in Dollars, payment of principal of, any premium or interest on and any Additional Amounts with respect to any such Security may be made at the Corporate Trust Office of the Trustee or any Office or Agency designated by the Company and the Guarantor in the Borough of Manhattan, The City of New York, if (but only if) payment of the full amount of such principal, premium, interest or Additional Amounts at all offices outside the United States maintained for such purpose by the Company and the Guarantor in accordance with this Indenture is illegal or effectively precluded by exchange controls or other similar restrictions. The Company and the Guarantor may also from time to time designate one or more other Offices or Agencies where the Securities of one or more series may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission shall in any manner relieve the Company or the Guarantor of its obligation to maintain an Office or Agency in each Place of Payment for Securities of any series for such purposes. The Company and the Guarantor shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other Office or Agency. Unless otherwise provided in or pursuant to this Indenture, the Company and the Guarantor hereby designate as the Place of Payment for each series of Securities the Borough of Manhattan, The City of New York, and initially appoint the Corporate Trust Office of the Trustee as the Office or Agency of the Company in the Borough of Manhattan, The City of New York for such purpose. The Company and the Guarantor may subsequently appoint a different Office or Agency in the Borough of Manhattan, The City of New York for the Securities of any series. Unless otherwise specified with respect to any Securities pursuant to Section 3.1, if and so long as the Securities of any series (i) are denominated in a Foreign Currency or (ii) may be payable in a Foreign Currency, or so long as it is required under any other provision of this Indenture, then the Company will maintain with respect to each such series of Securities, or as so required, at least one exchange rate agent. Section 10.3. Money for Securities Payments to Be Held in Trust. If the Company shall at any time act as its own Paying Agent, or if the Guarantor shall act as Paying Agent, with respect to any series of Securities, it shall, on or before each due date of the principal of, any premium or interest (including any Additional Interest) on or Additional Amounts with respect to any of the Securities of such series, segregate and hold in trust for the benefit of the Persons entitled thereto a sum in the currency or currencies, currency unit or units or composite currency or currencies in which the Securities of such series are payable (except as otherwise specified pursuant to Section 3.1 for the Securities of such series) sufficient to pay the principal or any premium, interest (including any Additional Interest) or Additional Amounts so 78 becoming due until such sums shall be paid to such Persons or otherwise disposed of as herein provided, and shall promptly notify the Trustee of its action or failure so to act. Whenever the Company shall have one or more Paying Agents for any series of Securities, it shall, on or prior to each due date of the principal of, any premium or interest (including any Additional Interest) on or any Additional Amounts with respect to any Securities of such series, deposit with any Paying Agent a sum (in the currency or currencies, currency unit or units or composite currency or currencies described in the preceding paragraph) sufficient to pay the principal or any premium, interest (including any Additional Interest) or Additional Amounts so becoming due, such sum to be held in trust for the benefit of the Persons entitled thereto, and (unless such Paying Agent is the Trustee) the Company will promptly notify the Trustee of its action or failure so to act. The Company shall cause each Paying Agent for any series of Securities other than the Trustee to execute and deliver to the Trustee an instrument in which such Paying Agent shall agree with the Trustee, subject to the provisions of this Section, that such Paying Agent shall: (1) hold all sums held by it for the payment of the principal of, any premium or interest (including any Additional Interest) on or any Additional Amounts with respect to Securities of such series in trust for the benefit of the Persons entitled thereto until such sums shall be paid to such Persons or otherwise disposed of as provided in or pursuant to this Indenture; (2) give the Trustee notice of any default by the Company or the Guarantor (or any other obligor upon the Securities of such series) in the making of any payment of principal, any premium or interest (including any Additional Interest) on or any Additional Amounts with respect to the Securities of such series; and (3) at any time during the continuance of any such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. The Company or the Guarantor may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay, or by Company Order or Guarantor Order direct any Paying Agent to pay, to the Trustee all sums held in trust by the Company, the Guarantor or such Paying Agent, such sums to be held by the Trustee upon the same terms as those upon which such sums were held by the Company, the Guarantor or such Paying Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying Agent shall be released from all further liability with respect to such sums. Except as otherwise provided herein or pursuant hereto, any money deposited with the Trustee or any Paying Agent, or then held by the Company or the Guarantor, in trust for the payment of the principal of, any premium or interest (including any Additional Interest) on or any Additional Amounts with respect to any Security of any series or any Coupon appertaining thereto and remaining unclaimed for two years after such principal or any such premium or 79 interest or any such Additional Amounts shall have become due and payable shall be paid to the Company on Company Request (or if deposited by the Guarantor, paid to the Guarantor on Guarantor Request), or (if then held by the Company or the Guarantor) shall be discharged from such trust; and the Holder of such Security or any Coupon appertaining thereto shall thereafter, as an unsecured general creditor, look only to the Company and the Guarantor for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Company as trustee thereof, shall thereupon cease; provided, however, that the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Company and the Guarantor cause to be published once, in an Authorized Newspaper in each Place of Payment for such series or to be mailed to Holders of Registered Securities of such series, or both, notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such publication or mailing nor shall it be later than two years after such principal and any premium or interest or Additional Amounts shall have become due and payable, any unclaimed balance of such money then remaining will be repaid to the Company or the Guarantor, as the case may be. Section 10.4. Additional Amounts. If any Securities of a series provide for the payment of Additional Amounts, the Company agrees to pay to the Holder of any such Security or any Coupon appertaining thereto Additional Amounts as provided in or pursuant to this Indenture or such Securities. Whenever in this Indenture there is mentioned, in any context, the payment of the principal of or any premium or interest on, or in respect of, any Security of any series or any Coupon or the net proceeds received on the sale or exchange of any Security of any series, such mention shall be deemed to include mention of the payment of Additional Amounts provided by the terms of such series established hereby or pursuant hereto to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof pursuant to such terms, and express mention of the payment of Additional Amounts (if applicable) in any provision hereof shall not be construed as excluding Additional Amounts in those provisions hereof where such express mention is not made. Except as otherwise provided in or pursuant to this Indenture or the Securities of the applicable series, if the Securities of a series provide for the payment of Additional Amounts, at least 10 days prior to the first Interest Payment Date with respect to such series of Securities (or if the Securities of such series shall not bear interest prior to Maturity, the first day on which a payment of principal is made), and at least 10 days prior to each date of payment of principal or interest if there has been any change with respect to the matters set forth in the below-mentioned Officer's Certificate, the Company shall furnish to the Trustee and the principal Paying Agent or Paying Agents, if other than the Trustee, an Officer's Certificate instructing the Trustee and such Paying Agent or Paying Agents whether such payment of principal of and premium, if any, or interest on the Securities of such series shall be made to Holders of Securities of such series or the Coupons appertaining thereto who are United States Aliens without withholding for or on account of any tax, assessment or other governmental charge described in the Securities of such series. If any such withholding shall be required, then such Officer's Certificate shall specify by 80 country the amount, if any, required to be withheld on such payments to such Holders of Securities or Coupons, and the Company agrees to pay to the Trustee or such Paying Agent the Additional Amounts required by the terms of such Securities. The Company covenants to indemnify the Trustee and any Paying Agent for, and to hold them harmless against, any loss, liability or expense reasonably incurred without negligence or bad faith on their part arising out of or in connection with actions taken or omitted by any of them in reliance on any Officer's Certificate furnished pursuant to this Section 10.4. Section 10.5. Corporate Existence. Subject to Article 8, the Company and the Guarantor shall do or cause to be done all things necessary to preserve and keep in full force and effect their respective corporate existences and that of each of their respective Subsidiaries and their respective rights (charter and statutory) and franchises; provided, however, that the foregoing shall not obligate the Company or the Guarantor or any of their respective Subsidiaries to preserve any such right or franchise if the Company, the Guarantor or any such Subsidiary shall determine that the preservation thereof is no longer desirable in the conduct of its business or the business of such Subsidiary and that the loss thereof is not disadvantageous in any material respect to any Holder. Section 10.6. Waiver of Certain Covenants. The Company or the Guarantor, as the case may be, may omit in any particular instance to comply with any term, provision or condition set forth in Section 10.5 with respect to the Securities of any series if before the time for such compliance the Holders of at least a majority in principal amount of the Outstanding Securities of such series, by Act of such Holders, either shall waive such compliance in such instance or generally shall have waived compliance with such term, provision or condition, but no such waiver shall extend to or affect such term, provision or condition except to the extent so expressly waived, and, until such waiver shall become effective, the obligations of the Company and the Guarantor and the duties of the Trustee in respect of any such term, provision or condition shall remain in full force and effect. Section 10.7. Company Statement as to Compliance; Notice of Certain Defaults. (1) The Company shall deliver to the Trustee, within 120 days after the end of each fiscal year, a written statement (which need not be contained in or accompanied by an Officer's Certificate) signed by the principal executive officer, the principal financial officer or the principal accounting officer of the Company, stating that (a) a review of the activities of the Company during such year and of its performance under this Indenture has been made under his or her supervision, and (b) to the best of his or her knowledge, based on such review, (a) the Company has complied with all the conditions and covenants imposed on it under this Indenture throughout such year, or, if there has been a default in the 81 fulfillment of any such condition or covenant, specifying each such default known to him or her and the nature and status thereof, and (b) no event has occurred and is continuing which is, or after notice or lapse of time or both would become, an Event of Default, or, if such an event has occurred and is continuing, specifying each such event known to him and the nature and status thereof. (2) The Company shall deliver to the Trustee, within five days after the occurrence thereof, written notice of any Event of Default or any event which after notice or lapse of time or both would become an Event of Default pursuant to clause (4) of Section 5.1. (3) The Trustee shall have no duty to monitor the Company's compliance with the covenants contained in this Article 10 other than as specifically set forth in this Section 10.7. Section 10.8. Guarantor Statement as to Compliance; Notice of Certain Defaults. (1) The Guarantor shall deliver to the Trustee, within 120 days after the end of each fiscal year, a written statement (which need not be contained in or accompanied by a Guarantor's Officer's Certificate) signed by the principal executive officer, the principal financial officer or the principal accounting officer of the Guarantor, stating that (a) a review of the activities of the Guarantor during such year and of performance under this Indenture has been made under his or her supervision, and (b) to the best of his or her knowledge, based on such review, (a) the Guarantor has complied with conditions and covenants imposed on it under this Indenture throughout such year, or, if there has been a default in the fulfillment of any such condition or covenant, specifying each such default known to him or her and the nature and status thereof, and (b) no event has occurred and is continuing which constitutes, or which after notice or lapse of time or both would become, an Event of Default, or, if such an event has occurred and is continuing, specifying each such event known to him and the nature and status thereof. (2) The Guarantor shall deliver to the Trustee, within five days after the occurrence thereof, written notice of any event which after notice or lapse of time or both would become an Event of Default pursuant to clause (4) of Section 5.1. (3) The Trustee shall have no duty to monitor the Guarantor's compliance with the covenants contained in this Article 10 other than as specifically set forth in this Section 10.8. 82 Section 10.9. Additional Sums. In the case of Securities of a series issued to an ACE Trust, except as otherwise specified as contemplated by Section 3.1, in the event that (i) such ACE Trust is the Holder of all of the Outstanding Securities of such series, (ii) a Tax Event in respect of such ACE Trust shall have occurred and be continuing and (iii) the Company shall not have (i) redeemed the Securities of such series pursuant to Section 11.8 or (ii) dissolved such ACE Trust pursuant to Section 9.2(b) of the related Trust Agreement, the Company shall pay to such ACE Trust (and its permitted successors or assigns under the related Trust Agreement), for so long as such ACE Trust (or its permitted successor or assignee) is the registered holder of any Securities of such series, such additional amounts as may be necessary in order that the amount of Distributions then due and payable by such ACE Trust on the related Preferred Securities and Common Securities that at any time remain outstanding in accordance with the terms thereof shall not be reduced as a result of any Additional Taxes (the "Additional Sums"). Whenever in this Indenture there is mentioned, in any context, the payment of the principal of or any premium or interest on, or in respect of, any Security of any series or any Coupon or the net proceeds received on the sale or exchange of any Security of any series, such mention shall be deemed to include mention of the payment of Additional Sums provided by the terms of such series established hereby or pursuant hereto to the extent that, in such context, Additional Sums are, were or would be payable in respect thereof pursuant to such terms, and express mention of the payment of Additional Sums (if applicable) in any provision hereof shall not be construed as excluding Additional Sums in those provisions hereof where such express mention is not made, provided, however, that the extension of an interest payment period pursuant to Section 3.11 or the terms of the applicable Securities shall not extend the payment of any Additional Sums that may be due and payable during such interest payment period. Section 10.10. Prohibition Against Dividends, etc. Except as otherwise specified as contemplated by Section 3.1, the Company and the Guarantor each covenant and agree with each Holder of Securities of a series issued to an ACE Trust that it will not, and will not permit any of its Subsidiaries to, (a) declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of the outstanding Capital Stock of the Company or the Guarantor, as the case may be, or (b) make any payment of principal of, interest or premium, if any, on or repay, repurchase or redeem any debt security of the Company or the Guarantor, as the case may be, that ranks junior in interest to the Securities of such series or the Guarantee in respect thereof, as the case may be, or make any guarantee payments with respect to any guarantee by the Company or the Guarantor, as the case may be, of the debt securities of any Subsidiary of the Company or the Guarantor, as the case may be, if such guarantee ranks junior in interest to the Securities of such series or the Guarantee in respect thereof, as the case may be (other than (i) dividends or distributions on the Capital Stock of the Company paid or made to the Guarantor and dividends or distributions in Common Stock of the Company or the Guarantor, as the case may be, (ii) redemptions or purchases of any rights outstanding under a shareholder rights plan of the Company or the Guarantor, as the case may be, or any successor to such rights plan, or the 83 declaration of a dividend of such rights or the issuance of stock under such plans in the future, (iii) payments under any Preferred Securities Guarantee, and (iv) purchases of Common Stock related to the issuance of Common Stock under any benefit plans of the Company, the Guarantor or its Subsidiaries, as the case may be, for their respective directors, officers or employees) if at such time (1) there shall have occurred any event of which the Company or the Guarantor, as the case may be, has actual knowledge that (A) with the giving of notice or the lapse of time or both, would constitute an Event of Default hereunder and (B) in respect of which the Company or the Guarantor, as the case may be, shall not have taken reasonable steps to cure, (2) the Guarantor shall be in default with respect to its payment of any obligations under the related Preferred Securities Guarantee or (3) the Company shall have given notice of its election to begin an Extension Period as provided herein with respect to the Securities of such series and shall not have rescinded such notice, or such Extension Period, or any extension thereof, shall be continuing. Section 10.11. Payment of Expenses of each ACE Trust. The Guarantor covenants for the benefit of the Holders of each series of Securities which is held by an ACE Trust to pay or cause to be paid all of the obligations, costs and expenses of each ACE Trust (other than payments in respect of Trust Securities) in accordance with the provisions of its Trust Agreement and to pay the taxes of such ACE Trust in accordance with the provisions of its Trust Agreement in order to permit such ACE Trust to make distributions on and redemptions of its Preferred Securities in accordance with such Trust Agreement. Section 10.12. Ownership of Common Securities. The Company covenants, as to each series of Securities issued to an ACE Trust in connection with the issuance of Preferred Securities and Common Securities by that ACE Trust, (a) to maintain directly or indirectly 100% ownership of the Common Securities of such ACE Trust; provided, however, that any permitted successor of the Company hereunder may succeed to the Company's ownership of such Common Securities, (b) not to voluntarily dissolve, wind-up or liquidate such ACE Trust, except in connection with (i) a distribution of the Securities of such series to the holders of Preferred Securities and Common Securities in liquidation of such ACE Trust, (ii) the redemption of all of the Preferred Securities and Common Securities of such ACE Trust or (iii) certain mergers, consolidations or amalgamations, each as permitted by the Trust Agreement of such ACE Trust and (c) to use its reasonable efforts, consistent with the terms and provisions of the related Trust Agreement, to cause such ACE Trust to remain classified as a grantor trust and not an association taxable as a corporation for United States federal income tax purposes. 84 ARTICLE 11 Redemption of Securities Section 11.1. Applicability of Article. Redemption of Securities of any series at the option of the Company as permitted or required by the terms of such Securities shall be made in accordance with the terms of such Securities and (except as otherwise provided herein or pursuant hereto) this Article. Section 11.2. Election to Redeem; Notice to Trustee. The election of the Company to redeem any Securities shall be evidenced by or pursuant to a Board Resolution. In case of any redemption at the election of the Company of (a) less than all of the Securities of any series or (b) all of the Securities of any series, with the same issue date, interest rate or formula, Stated Maturity and other terms, the Company shall, at least 60 days prior to the Redemption Date fixed by the Company (unless a shorter notice shall be satisfactory to the Trustee), notify the Trustee of such Redemption Date and of the principal amount of Securities of such series to be redeemed. If the Securities of a series are held by an ACE Trust, the Company shall also deliver a copy of such notice to the Property Trustee of such ACE Trust. Section 11.3. Selection by Trustee of Securities to be Redeemed. If less than all of the Securities of any series with the same issue date, interest rate or formula, Stated Maturity and other terms are to be redeemed, the particular Securities to be redeemed shall be selected not more than 60 days prior to the Redemption Date by the Trustee from the Outstanding Securities of such series not previously called for redemption, by such method as the Trustee shall deem fair and appropriate and which may provide for the selection for redemption of portions of the principal amount of Registered Securities of such series; provided, however, that no such partial redemption shall reduce the portion of the principal amount of a Registered Security of such series not redeemed to less than the minimum denomination for a Security of such series established herein or pursuant hereto. The Trustee shall promptly notify the Company and the Security Registrar (if other than itself) in writing of the Securities selected for redemption and, in the case of any Securities selected for partial redemption, the principal amount thereof to be redeemed. For all purposes of this Indenture, unless the context otherwise requires, all provisions relating to the redemption of Securities shall relate, in the case of any Securities redeemed or to be redeemed only in part, to the portion of the principal of such Securities which has been or is to be redeemed. Unless otherwise specified in or pursuant to this Indenture or the Securities of any series, if any Security selected for partial redemption is converted into other securities of the Company 85 or exchanged for securities of the Guarantor or another issuer in part before termination of the conversion or exchange right with respect to the portion of the Security so selected, the converted portion of such Security shall be deemed (so far as may be) to be the portion selected for redemption. Securities which have been converted or exchanged during a selection of Securities to be redeemed shall be treated by the Trustee as Outstanding for the purpose of such selection. Section 11.4. Notice of Redemption. Notice of redemption shall be given in the manner provided in Section 1.6, not less than 30 nor more than 60 days prior to the Redemption Date, unless a shorter period is specified in the Securities to be redeemed, to the Holders of Securities to be redeemed. Failure to give notice by mailing in the manner herein provided to the Holder of any Registered Securities designated for redemption as a whole or in part, or any defect in the notice to any such Holder, shall not affect the validity of the proceedings for the redemption of any other Securities or portion thereof. Any notice that is mailed to the Holder of any Registered Securities in the manner herein provided shall be conclusively presumed to have been duly given, whether or not such Holder receives the notice. All notices of redemption shall state: (1) the Redemption Date, (2) the Redemption Price, (3) if less than all Outstanding Securities of any series are to be redeemed, the identification (and, in the case of partial redemption, the principal amount) of the particular Security or Securities to be redeemed, (4) in case any Security is to be redeemed in part only, the notice which relates to such Security shall state that on and after the Redemption Date, upon surrender of such Security, the Holder of such Security will receive, without charge, a new Security or Securities of authorized denominations for the principal amount thereof remaining unredeemed, (5) that, on the Redemption Date, the Redemption Price shall become due and payable upon each such Security or portion thereof to be redeemed, and, if applicable, that interest thereon shall cease to accrue on and after said date, (6) the place or places where such Securities, together (in the case of Bearer Securities) with all Coupons appertaining thereto, if any, maturing after the Redemption Date, are to be surrendered for payment of the Redemption Price and any accrued interest and Additional Amounts pertaining thereto, 86 (7) that the redemption is for a sinking fund, if such is the case, (8) that, unless otherwise specified in such notice, Bearer Securities of any series, if any, surrendered for redemption must be accompanied by all Coupons maturing subsequent to the date fixed for redemption or the amount of any such missing Coupon or Coupons will be deducted from the Redemption Price, unless security or indemnity satisfactory to the Company, the Guarantor, the Trustee and any Paying Agent is furnished, (9) if Bearer Securities of any series are to be redeemed and no Registered Securities of such series are to be redeemed, and if such Bearer Securities may be exchanged for Registered Securities not subject to redemption on the Redemption Date pursuant to Section 3.5 or otherwise, the last date, as determined by the Company, on which such exchanges may be made, (10) in the case of Securities of any series that are convertible into Common Stock of the Company or exchangeable for other securities, the conversion or exchange price or rate, the date or dates on which the right to convert or exchange the principal of the Securities of such series to be redeemed will commence or terminate and the place or places where such Securities may be surrendered for conversion or exchange, and (11) the CUSIP number or the Euroclear or the Cedel reference numbers of such Securities, if any (or any other numbers used by a Depository to identify such Securities). A notice of redemption published as contemplated by Section 1.6 need not identify particular Registered Securities to be redeemed. Notice of redemption of Securities to be redeemed at the election of the Company shall be given by the Company or, at the Company's request, by the Trustee in the name and at the expense of the Company. Section 11.5. Deposit of Redemption Price. On or prior to any Redemption Date, the Company or the Guarantor shall deposit, with respect to the Securities of any series called for redemption pursuant to Section 11.4, with the Trustee or with a Paying Agent (or, if the Company is acting as its own Paying Agent or the Guarantor is acting as Paying Agent, segregate and hold in trust as provided in Section 10.3) an amount of money in the applicable Currency sufficient to pay the Redemption Price of, and (except if the Redemption Date shall be an Interest Payment Date, unless otherwise specified pursuant to Section 3.1 or in the Securities of such series) any accrued interest (including any Additional Interest) on and Additional Amounts with respect thereto, all such Securities or portions thereof which are to be redeemed on that date. 87 Section 11.6. Securities Payable on Redemption Date. Notice of redemption having been given as aforesaid, the Securities so to be redeemed shall, on the Redemption Date, become due and payable at the Redemption Price therein specified, and from and after such date (unless the Company and the Guarantor shall default in the payment of the Redemption Price and accrued interest) such Securities shall cease to bear interest and the Coupons for such interest appertaining to any Bearer Securities so to be redeemed, except to the extent provided below, shall be void. Upon surrender of any such Security for redemption in accordance with said notice, together with all Coupons, if any, appertaining thereto maturing after the Redemption Date, such Security shall be paid by the Company at the Redemption Price, together with any accrued interest and Additional Amounts to the Redemption Date; provided, however, that, except as otherwise provided in or pursuant to this Indenture or the Bearer Securities of such series, installments of interest on Bearer Securities whose Stated Maturity is on or prior to the Redemption Date shall be payable only upon presentation and surrender of Coupons for such interest (at an Office or Agency located outside the United States except as otherwise provided in Section 10.2), and provided, further, that, except as otherwise specified in or pursuant to this Indenture or the Registered Securities of such series, installments of interest on Registered Securities whose Stated Maturity is on or prior to the Redemption Date shall be payable to the Holders of such Securities, or one or more Predecessor Securities, registered as such at the close of business on the Regular Record Dates therefor according to their terms and the provisions of Section 3.7. If any Bearer Security surrendered for redemption shall not be accompanied by all appurtenant Coupons maturing after the Redemption Date, such Security may be paid after deducting from the Redemption Price an amount equal to the face amount of all such missing Coupons, or the surrender of such missing Coupon or Coupons may be waived by the Company and the Trustee if there be furnished to them such security or indemnity as they may require to save each of them and any Paying Agent harmless. If thereafter the Holder of such Security shall surrender to the Trustee or any Paying Agent any such missing Coupon in respect of which a deduction shall have been made from the Redemption Price, such Holder shall be entitled to receive the amount so deducted; provided, however, that any interest or Additional Amounts represented by Coupons shall be payable only upon presentation and surrender of those Coupons at an Office or Agency for such Security located outside of the United States except as otherwise provided in Section 10.2. If any Security called for redemption shall not be so paid upon surrender thereof for redemption, the principal and any premium, until paid, shall bear interest from the Redemption Date at the rate prescribed therefor in the Security. Section 11.7. Securities Redeemed in Part. Any Registered Security which is to be redeemed only in part shall be surrendered at any Office or Agency for such Security (with, if the Company or the Trustee so requires, due endorsement by, or a written instrument of transfer in form satisfactory to the Company and the Trustee duly executed by, the Holder thereof or his attorney duly authorized in writing) and the 88 Company shall execute and the Trustee shall authenticate and deliver to the Holder of such Security without service charge, a new Registered Security or Securities of the same series, containing identical terms and provisions, of any authorized denomination as requested by such Holder in aggregate principal amount equal to and in exchange for the unredeemed portion of the principal of the Security so surrendered. If a Security in global form is so surrendered, the Company shall execute, and the Trustee shall authenticate and deliver to the U.S. Depository or other Depository for such Security in global form as shall be specified in the Company Order with respect thereto to the Trustee, without service charge, a new Security in global form in a denomination equal to and in exchange for the unredeemed portion of the principal of the Security in global form so surrendered. Section 11.8. Right of Redemption of Securities Issued to an ACE Trust. In the case of the Securities of a series issued to an ACE Trust, except as otherwise specified as contemplated by Section 3.1, if a Special Event in respect of such ACE Trust shall occur and be continuing, the Company may, at its option, redeem the Securities of such series within 90 days of the occurrence of such Special Event, in whole but not in part, subject to the provisions of this Section 11.8 and the other provisions of this Article 11. Unless otherwise specified in or pursuant to this Indenture or the Securities of such series, the redemption price for any Security so redeemed pursuant to this Section 11.8 shall be equal to 100% of the principal amount of such Securities then Outstanding plus accrued and unpaid interest, including any Additional Interest, to the date fixed for redemption. ARTICLE 12 Sinking Funds Section 12.1. Applicability of Article. The provisions of this Article shall be applicable to any sinking fund for the retirement of Securities of a series, except as otherwise permitted or required in or pursuant to this Indenture or any Security of such series issued pursuant to this Indenture. The minimum amount of any sinking fund payment provided for by the terms of Securities of any series is herein referred to as a "mandatory sinking fund payment," and any payment in excess of such minimum amount provided for by the terms of Securities of such series is herein referred to as an "optional sinking fund payment". If provided for by the terms of Securities of any series, the cash amount of any sinking fund payment may be subject to reduction as provided in Section 12.2. Each sinking fund payment shall be applied to the redemption of Securities of any series as provided for by the terms of Securities of such series and this Indenture. 89 Section 12.2. Satisfaction of Sinking Fund Payments with Securities. The Company or the Guarantor may, in satisfaction of all or any part of any sinking fund payment with respect to the Securities of any series to be made pursuant to the terms of such Securities (1) deliver Outstanding Securities of such series (other than any of such Securities previously called for redemption or any of such Securities in respect of which cash shall have been released to the Company), together in the case of any Bearer Securities of such series with all unmatured Coupons appertaining thereto, and (2) apply as a credit Securities of such series which have been redeemed either at the election of the Company pursuant to the terms of such series of Securities or through the application of permitted optional sinking fund payments pursuant to the terms of such Securities, provided that such series of Securities have not been previously so credited. Such Securities shall be received and credited for such purpose by the Trustee at the Redemption Price specified in such Securities for redemption through operation of the sinking fund and the amount of such sinking fund payment shall be reduced accordingly. If, as a result of the delivery or credit of Securities of any series in lieu of cash payments pursuant to this Section 12.2, the principal amount of Securities of such series to be redeemed in order to satisfy the remaining sinking fund payment shall be less than $100,000, the Trustee need not call Securities of such series for redemption, except upon Company Request or Guarantor Request, and such cash payment shall be held by the Trustee or a Paying Agent and applied to the next succeeding sinking fund payment, provided, however, that the Trustee or such Paying Agent shall at the request of the Company or the Guarantor from time to time pay over and deliver to the Company or the Guarantor, as the case may be, any cash payment so being held by the Trustee or such Paying Agent upon delivery by the Company or the Guarantor to the Trustee of Securities of that series purchased by the Company or the Guarantor having an unpaid principal amount equal to the cash payment requested to be released to the Company or the Guarantor. Section 12.3. Redemption of Securities for Sinking Fund. Not less than 75 days prior to each sinking fund payment date for any series of Securities, the Company shall deliver to the Trustee an Officer's Certificate specifying the amount of the next ensuing mandatory sinking fund payment for that series pursuant to the terms of that series, the portion thereof, if any, which is to be satisfied by payment of cash and the portion thereof, if any, which is to be satisfied by delivering and crediting of Securities of that series pursuant to Section 12.2, and the optional amount, if any, to be added in cash to the next ensuing mandatory sinking fund payment, and will also deliver to the Trustee any Securities to be so credited and not theretofore delivered. If such Officer's Certificate shall specify an optional amount to be added in cash to the next ensuing mandatory sinking fund payment, the Company shall thereupon be obligated to pay the amount therein specified. Not less than 60 days before each such sinking fund payment date the Trustee shall select the Securities to be redeemed upon such sinking fund payment date in the manner specified in Section 11.3 and cause notice of the redemption thereof to be given in the name of and at the expense of the Company in the manner provided in Section 11.4. Such notice having been duly given, the redemption of such Securities shall be made upon the terms and in the manner stated in Sections 11.6 and 11.7. 90 ARTICLE 13 Repayment at the Option of Holders Section 13.1. Applicability of Article. Securities of any series which are repayable at the option of the Holders thereof before their Stated Maturity shall be repaid in accordance with the terms of the Securities of such series. The repayment of any principal amount of Securities pursuant to such option of the Holder to require repayment of Securities before their Stated Maturity, for purposes of Section 3.9, shall not operate as a payment, redemption or satisfaction of the Indebtedness represented by such Securities unless and until the Company, at its option, shall deliver or surrender the same to the Trustee with a directive that such Securities be cancelled. Notwithstanding anything to the contrary contained in this Section 13.1, in connection with any repayment of Securities, the Company may arrange for the purchase of any Securities by an agreement with one or more investment bankers or other purchasers to purchase such Securities by paying to the Holders of such Securities on or before the close of business on the repayment date an amount not less than the repayment price payable by the Company on repayment of such Securities, and the obligation of the Company to pay the repayment price of such Securities shall be satisfied and discharged to the extent such payment is so paid by such purchasers. ARTICLE 14 Securities in Foreign Currencies Section 14.1. Applicability of Article. Whenever this Indenture provides for (i) any action by, or the determination of any of the rights of, Holders of Securities of any series in which not all of such Securities are denominated in the same Currency, or (ii) any distribution to Holders of Securities, in the absence of any provision to the contrary in the form of Security of any particular series or pursuant to this Indenture or the Securities, any amount in respect of any Security denominated in a Currency other than Dollars shall be treated for any such action or distribution as that amount of Dollars that could be obtained for such amount on such reasonable basis of exchange and as of the record date with respect to Registered Securities of such series (if any) for such action, determination of rights or distribution (or, if there shall be no applicable record date, such other date reasonably proximate to the date of such action, determination of rights or distribution) as the Company or the Guarantor may specify in a written notice to the Trustee. 91 ARTICLE 15 Meetings of Holders of Securities Section 15.1. Purposes for Which Meetings May Be Called. A meeting of Holders of Securities of any series may be called at any time and from time to time pursuant to this Article to make, give or take any request, demand, authorization, direction, notice, consent, waiver or other Act provided by this Indenture to be made, given or taken by Holders of Securities of such series. Section 15.2. Call, Notice and Place of Meetings. (1) The Trustee may at any time call a meeting of Holders of Securities of any series for any purpose specified in Section 15.1, to be held at such time and at such place in the Borough of Manhattan, The City of New York, or, if Securities of such series have been issued in whole or in part as Bearer Securities, in London or in such place outside the United States as the Trustee shall determine. Notice of every meeting of Holders of Securities of any series, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting, shall be given, in the manner provided in Section 1.6, not less than 21 nor more than 180 days prior to the date fixed for the meeting. (2) In case at any time the Company (by or pursuant to a Board Resolution), the Guarantor (by or pursuant to a Guarantor's Board Resolution) or the Holders of at least 10% in principal amount of the Outstanding Securities of any series shall have requested the Trustee to call a meeting of the Holders of Securities of such series for any purpose specified in Section 15.1, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have mailed notice of or made the first publication of the notice of such meeting within 21 days after receipt of such request (whichever shall be required pursuant to Section 1.6) or shall not thereafter proceed to cause the meeting to be held as provided herein, then the Company, the Guarantor or the Holders of Securities of such series in the amount above specified, as the case may be, may determine the time and the place in the Borough of Manhattan, The City of New York, or, if Securities of such series are to be issued as Bearer Securities, in London for such meeting and may call such meeting for such purposes by giving notice thereof as provided in clause (1) of this Section. Section 15.3. Persons Entitled to Vote at Meetings. To be entitled to vote at any meeting of Holders of Securities of any series, a Person shall be (1) a Holder of one or more Outstanding Securities of such series, or (2) a Person appointed by an instrument in writing as proxy for a Holder or Holders of one or more Outstanding Securities of such series by such Holder or Holders. The only Persons who shall be entitled to be present or to speak at any meeting of Holders of Securities of any series shall be the Persons 92 entitled to vote at such meeting and their counsel, any representatives of the Trustee and its counsel, any representatives of the Guarantor and its counsel and any representatives of the Company and its counsel. Section 15.4. Quorum; Action. The Persons entitled to vote a majority in principal amount of the Outstanding Securities of a series shall constitute a quorum for any meeting of Holders of Securities of such series. In the absence of a quorum within 30 minutes after the time appointed for any such meeting, the meeting shall, if convened at the request of Holders of Securities of such series, be dissolved. In any other case the meeting may be adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such meeting. In the absence of a quorum at any reconvened meeting, such reconvened meeting may be further adjourned for a period of not less than 10 days as determined by the chairman of the meeting prior to the adjournment of such reconvened meeting. Notice of the reconvening of any adjourned meeting shall be given as provided in Section 15.2(1), except that such notice need be given only once not less than five days prior to the date on which the meeting is scheduled to be reconvened. Notice of the reconvening of an adjourned meeting shall state expressly the percentage, as provided above, of the principal amount of the Outstanding Securities of such series which shall constitute a quorum. Except as limited by the proviso to Section 9.2, any resolution presented to a meeting or adjourned meeting duly reconvened at which a quorum is present as aforesaid may be adopted only by the affirmative vote of the Holders of a majority in principal amount of the Outstanding Securities of that series; provided, however, that, except as limited by the proviso to Section 9.2, any resolution with respect to any request, demand, authorization, direction, notice, consent, waiver or other Act which this Indenture expressly provides may be made, given or taken by the Holders of a specified percentage, which is less than a majority, in principal amount of the Outstanding Securities of a series may be adopted at a meeting or an adjourned meeting duly reconvened and at which a quorum is present as aforesaid by the affirmative vote of the Holders of such specified percentage in principal amount of the Outstanding Securities of such series. Any resolution passed or decision taken at any meeting of Holders of Securities of any series duly held in accordance with this Section shall be binding on all the Holders of Securities of such series and the Coupons appertaining thereto, whether or not such Holders were present or represented at the meeting. Section 15.5. Determination of Voting Rights; Conduct and Adjournment of Meetings. (1) Notwithstanding any other provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Holders of Securities of such series in regard to proof of the holding of Securities of such series and of the appointment of proxies and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies, certificates and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall 93 deem appropriate. Except as otherwise permitted or required by any such regulations, the holding of Securities shall be proved in the manner specified in Section 1.4 and the appointment of any proxy shall be proved in the manner specified in Section 1.4 or by having the signature of the person executing the proxy witnessed or guaranteed by any trust company, bank or banker authorized by Section 1.4 to certify to the holding of Bearer Securities. Such regulations may provide that written instruments appointing proxies, regular on their face, may be presumed valid and genuine without the proof specified in Section 1.4 or other proof. (2) The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by Holders of Securities as provided in Section 15.2(2), in which case the Company, the Guarantor or the Holders of Securities of the series calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by vote of the Persons entitled to vote a majority in principal amount of the Outstanding Securities of such series represented at the meeting. (3) At any meeting, each Holder of a Security of such series or proxy shall be entitled to one vote for each $1,000 principal amount of Securities of such series held or represented by him; provided, however, that no vote shall be cast or counted at any meeting in respect of any Security challenged as not Outstanding and ruled by the chairman of the meeting to be not Outstanding. The chairman of the meeting shall have no right to vote, except as a Holder of a Security of such series or proxy. (4) Any meeting of Holders of Securities of any series duly called pursuant to Section 15.2 at which a quorum is present may be adjourned from time to time by Persons entitled to vote a majority in principal amount of the Outstanding Securities of such series represented at the meeting; and the meeting may be held as so adjourned without further notice. Section 15.6. Counting Votes and Recording Action of Meetings. The vote upon any resolution submitted to any meeting of Holders of Securities of any series shall be by written ballots on which shall be subscribed the signatures of the Holders of Securities of such series or of their representatives by proxy and the principal amounts and serial numbers of the Outstanding Securities of such series held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in triplicate of all votes cast at the meeting. A record, at least in triplicate, of the proceedings of each meeting of Holders of Securities of any series shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was given as provided in Section 15.2 and, if applicable, 94 Section 15.4. Each copy shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one such copy shall be delivered to the Company and the Guarantor, and another to the Trustee to be preserved by the Trustee, the latter to have attached thereto the ballots voted at the meeting. Any record so signed and verified shall be conclusive evidence of the matters therein stated. ARTICLE 16 Subordination Of Securities Section 16.1. Agreement to Subordinate. The Company covenants and agrees, and each Holder of Securities issued hereunder and under any indenture supplemental hereto or pursuant to a Board Resolution, Officer's Certificate and Guarantor's Officer's Certificate ("Additional Provisions") by such Holder's acceptance thereof likewise covenants and agrees, that all Securities shall be issued subject to the provisions of this Article 16; and each Holder of a Security, whether upon original issue or upon transfer or assignment thereof, accepts and agrees to be bound by such provisions. The payment by the Company of the principal of, any premium and interest (including any Additional Interest) on and any Additional Amounts with respect to all Securities of each series issued hereunder and under any Additional Provisions shall, to the extent and in the manner hereinafter set forth, be subordinate in right of payment to the prior payment in full of all Company Senior Indebtedness with respect to such series, whether outstanding at the date of this Indenture or thereafter incurred. No provision of this Article 16 shall prevent the occurrence of any default or Event of Default hereunder. Section 16.2. Default on Company Senior Indebtedness. In the event and during the continuation of any default by the Company in the payment of principal, premium, interest or any other amount due on any Company Senior Indebtedness with respect to the Securities of any series, or in the event that the maturity of any Company Senior Indebtedness with respect to the Securities of any series has been accelerated because of a default, then, in either case, no payment shall be made by the Company with respect to the principal (including redemption and sinking fund payments) of, any premium or interest (including any Additional Interest) on, or any Additional Amounts with respect to, the Securities of such series. In the event that, notwithstanding the foregoing, any payment shall be received by the Trustee when such payment is prohibited by the preceding paragraph of this Section 16.2, such payment shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of such Company Senior Indebtedness or their respective representatives, or to the trustee or trustees under any indenture pursuant to which any of such Company Senior 95 Indebtedness may have been issued, as their respective interests may appear, but only to the extent that the holders of such Company Senior Indebtedness (or their representative or representatives or a trustee) notify the Trustee in writing within 90 days of such payment of the amounts then due and owing on such Company Senior Indebtedness and only the amounts specified in such notice to the Trustee shall be paid to the holders of such Company Senior Indebtedness. Section 16.3. Liquidation; Dissolution; Bankruptcy. Upon any payment by the Company or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to creditors upon any dissolution, winding-up, liquidation or reorganization of the Company, whether voluntary or involuntary, or in bankruptcy, insolvency, receivership or other proceedings, all amounts due upon all Company Senior Indebtedness with respect to the Securities of any series shall first be paid in full, or payment thereof provided for in money in accordance with its terms, before any payment is made by the Company on account of the principal of, premium or interest (including any Additional Interest) on, or Additional Amounts with respect to, the Securities of such series; and upon any such dissolution, winding-up, liquidation or reorganization, or in any such bankruptcy, insolvency, receivership or other proceeding, any payment by the Company, or distribution of assets of the Company of any kind or character, whether in cash, property or securities, to which the Holders or the Trustee would be entitled to receive from the Company, except for the provisions of this Article 16, shall be paid by the Company or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the Holders or by the Trustee under this Indenture if received by them or it, directly to the holders of such Company Senior Indebtedness (pro rata to such holders on the basis of the respective amounts of such Company Senior Indebtedness held by such holders, as calculated by the Company) or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing such Company Senior Indebtedness may have been issued, as their respective interests may appear, to the extent necessary to pay such Company Senior Indebtedness in full, in money or money's worth, after giving effect to any concurrent payment or distribution to or for the holders of such Company Senior Indebtedness, before any payment or distribution is made to the Holders of the Securities of such series or to the Trustee. In the event that, notwithstanding the foregoing, any payment or distribution of assets of the Company of any kind or character, whether in cash, property or securities, prohibited by the foregoing shall be received by the Trustee before all such Company Senior Indebtedness is paid in full, or provision is made for such payment in money in accordance with its terms, such payment or distribution shall be held in trust for the benefit of and shall be paid over or delivered to the holders of such Company Senior Indebtedness or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing such Company Senior Indebtedness may have been issued, as their respective interests may appear, as calculated by the Company, for application to the payment of all such Company Senior Indebtedness remaining unpaid to the extent necessary to pay such Company Senior 96 Indebtedness in full in money in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the benefit of the holders of such Company Senior Indebtedness. For purposes of this Article 16, the words "cash, property or securities" shall not be deemed to include shares of stock of the Company as reorganized or readjusted, or securities of the Company or any other corporation provided for by a plan of reorganization or readjustment, the payment of which is subordinated at least to the extent provided in this Article 16 with respect to the Securities of the relevant series to the payment of all Company Senior Indebtedness with respect to the Securities of such series that may at the time be outstanding, provided that (i) such Company Senior Indebtedness is assumed by the new corporation, if any, resulting from any such reorganization or readjustment, and (ii) the rights of the holders of such Company Senior Indebtedness are not, without the consent of such holders, altered by such reorganization or readjustment. The consolidation of the Company with, or the merger of the Company into, another Person or the liquidation or dissolution of the Company following the conveyance, transfer or lease of its property as an entirety, or substantially as an entirety, to another Person upon the terms and conditions provided for in Sections 8.1 and 8.2 of this Indenture shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section 16.3 if such other Person shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions stated in Sections 8.1 and 8.2 of this Indenture. Nothing in Section 16.2 or in this Section 16.3 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 6.6 of this Indenture. Section 16.4. Subrogation. Subject to the payment in full of all Company Senior Indebtedness with respect to the Securities of any series, the rights of the Holders of the Securities of such series shall be subrogated to the rights of the holders of such Company Senior Indebtedness to receive payments or distributions of cash, property or securities of the Company applicable to such Company Senior Indebtedness until the principal of, any premium and interest (including any Additional Interest) on, and any Additional Amounts with respect to, the Securities of such series shall be paid in full; and, for the purposes of such subrogation, no payments or distributions to the holders of such Company Senior Indebtedness of any cash, property or securities to which the Holders or the Trustee would be entitled except for the provisions of this Article 16, and no payment over pursuant to the provisions of this Article 16 to or for the benefit of the holders of such Company Senior Indebtedness by Holders of the Securities of such series or the Trustee, shall, as between the Company, its creditors other than holders of such Company Senior Indebtedness, and the Holders of the Securities of such series, be deemed to be a payment by the Company to or on account of such Company Senior Indebtedness. It is understood that the provisions of this Article 16 are and are intended solely for the purposes of defining the relative rights of the Holders of the Securities of each series, on the one hand, and the holders of the Company Senior Indebtedness with respect to the Securities of such series on the other hand. 97 Nothing contained in this Article 16 or elsewhere in this Indenture, any Additional Provisions or in the Securities of any series is intended to or shall impair, as between the Company, its creditors other than the holders of Company Senior Indebtedness with respect to the Securities of such series, and the Holders of the Securities of such series, the obligation of the Company, which is absolute and unconditional, to pay to the Holders of the Securities of such series the principal of, any premium and interest (including any Additional Interest) on, and any Additional Amounts with respect to, the Securities of such series as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders of the Securities of such series and creditors of the Company, other than the holders of such Company Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or the Holder of any Security of such series from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article 16 of the holders of such Company Senior Indebtedness in respect of cash, property or securities of the Company, as the case may be, received upon the exercise of any such remedy. Upon any payment or distribution of assets of the Company referred to in this Article 16, the Trustee, subject to the provisions of Article 6 of this Indenture, and the Holders shall be entitled to conclusively rely upon any order or decree made by any court of competent jurisdiction in which such dissolution, winding-up, liquidation or reorganization proceedings are pending, or a certificate of the receiver, trustee in bankruptcy, liquidation trustee, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders of the Securities of any series, for the purposes of ascertaining the Persons entitled to participate in such distribution, the holders of Company Senior Indebtedness with respect to the Securities of such series and other indebtedness of the Company, as the case may be, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 16. Section 16.5. Trustee to Effectuate Subordination. Each Holder of Securities by such Holder's acceptance thereof authorizes and directs the Trustee on such Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article 16 and appoints the Trustee such Holder's attorney-in-fact for any and all such purposes. Section 16.6. Notice by the Company. The Company shall give prompt written notice to a Responsible Officer of the Trustee of any fact known to the Company that would prohibit the making of any payment of monies to or by the Trustee in respect of the Securities of any series pursuant to the provisions of this Article 16. Notwithstanding the provisions of this Article 16 or any other provision of this Indenture or any Additional Provisions, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment of monies to or by the Trustee in respect of the Securities of any series pursuant to the provisions of this Article 16, unless and until a Responsible Officer of the Trustee shall have received written notice thereof from the 98 Company or a holder or holders of Company Senior Indebtedness with respect to the Securities of such series or from any trustee therefor; and before the receipt of any such written notice, the Trustee, subject to the provisions of Article 6 of this Indenture, shall be entitled in all respects to assume that no such facts exist; provided, however, that if the Trustee shall not have received the notice provided for in this Section 16.6 at least two Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose (including, without limitation, the payment of the principal of, any premium or interest (including any Additional Interest) on, or any Additional Amounts with respect to, any Security of such series), then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such money and to apply the same to the purposes for which they were received, and shall not be affected by any notice to the contrary that may be received by it within two Business Days prior to such date. The Trustee, subject to the provisions of Article 6 of this Indenture, shall be entitled to conclusively rely on the delivery to it of a written notice by a Person representing himself to be a holder of Company Senior Indebtedness with respect to the Securities of any series (or a trustee on behalf of such holder), to establish that such notice has been given by a holder of such Company Senior Indebtedness or a trustee on behalf of any such holder or holders. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of such Company Senior Indebtedness to participate in any payment or distribution pursuant to this Article 16, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of such Company Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article 16, and, if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. Upon any payment or distribution of assets of the Company referred to in this Article 16, the Trustee and the Holders shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution, winding-up or similar case or proceeding is pending, or a certificate of the trustee in bankruptcy, liquidating trustee, custodian, receiver, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders of the Securities of any series, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of Company Senior Indebtedness with respect to the Securities of such series and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 16. Section 16.7. Rights of the Trustee; Holders of Company Senior Indebtedness. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article 16 in respect of any Company Senior Indebtedness with respect to the Securities of any series at any time held by it, to the same extent as any other holder of such Company Senior 99 Indebtedness, and nothing in this Indenture or any Additional Provisions shall deprive the Trustee of any of its rights as such holder. With respect to the holders of Company Senior Indebtedness with respect to the Securities of any series, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article 16, and no implied covenants or obligations with respect to the holders of such Company Senior Indebtedness shall be read into this Indenture or any Additional Provisions against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of such Company Senior Indebtedness and, subject to the provisions of Article 6 of this Indenture, the Trustee shall not be liable to any holder of such Company Senior Indebtedness if it shall pay over or deliver to Holders of the Securities of such series, the Company or any other Person money or assets to which any holder of such Company Senior Indebtedness shall be entitled by virtue of this Article 16 or otherwise. Nothing in this Article 16 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 6.6. Section 16.8. Subordination May Not Be Impaired No right of any present or future holder of any Company Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Company, or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Company with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof that any such holder may have or otherwise be charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Company Senior Indebtedness with respect to the Securities of any series may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of Securities of such series, without incurring responsibility to such Holders and without impairing or releasing the subordination provided in this Article 16 or the obligations hereunder of the Holders of the Securities of such series to the holders of such Company Senior Indebtedness, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, such Company Senior Indebtedness, or otherwise amend or supplement in any manner such Company Senior Indebtedness or any instrument evidencing the same or any agreement under which such Company Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing such Company Senior Indebtedness; (iii) release any Person liable in any manner for the collection of such Company Senior Indebtedness; and (iv) exercise or refrain from exercising any rights against the Company and any other Person. 100 ARTICLE 17 Guarantee And Indemnity Section 17.1. The Guarantee. The Guarantor hereby unconditionally guarantees to each Holder of a Security authenticated and delivered by the Trustee the due and punctual payment of the principal of, any premium and interest (including any Additional Interest) on, any Additional Amounts, and, if applicable, any Additional Sums with respect to such Security and the due and punctual payment of the sinking fund payments (if any) provided for pursuant to the terms of such Security, when and as the same shall become due and payable, whether at maturity, by acceleration, redemption, repayment or otherwise, in accordance with the terms of such Security and of this Indenture. In case of the failure of the Company punctually to pay any such principal, premium, interest (including any Additional Interest), Additional Amounts, Additional Sums or sinking fund payment, the Guarantor hereby agrees to cause any such payment to be made punctually when and as the same shall become due and payable, whether at maturity, upon acceleration, redemption, repayment or otherwise, and as if such payment were made by the Company. Section 17.2. Net Payments. All payments of principal of and premium, if any, interest (including any Additional Interest) and any other amounts on, or in respect of, the Securities of any series or any Coupon appertaining thereto shall be made by the Guarantor without withholding or deduction at source for, or on account of, any present or future taxes, fees, duties, assessments or governmental charges of whatever nature imposed or levied by or on behalf of the Cayman Islands or Bermuda (each, a "taxing jurisdiction") or any political subdivision or taxing authority thereof or therein, unless such taxes, fees, duties, assessments or governmental charges are required to be withheld or deducted by (i) the laws (or any regulations or ruling promulgated thereunder) of a taxing jurisdiction or any political subdivision or taxing authority thereof or therein or (ii) an official position regarding the application, administration, interpretation or enforcement of any such laws, regulations or rulings (including, without limitation, a holding by a court of competent jurisdiction or by a taxing authority in a taxing jurisdiction or any political subdivision thereof). If a withholding or deduction at source is required, the Guarantor shall, subject to certain limitations and exceptions set forth below, pay to the Holder of any such Security or any Coupon appertaining thereto such Additional Amounts as may be necessary so that every net payment of principal, premium, if any, interest or any other amount made to such Holder, after such withholding or deduction, shall not be less than the amount provided for in such Security, any Coupons appertaining thereto and this Indenture to be then due and payable; provided, however, that the Guarantor shall not be required to make payment of such Additional Amounts for or on account of: (1) any tax, fee, duty, assessment or governmental charge of whatever nature which would not have been imposed but for the fact that such Holder: (A) was a resident, domiciliary or national of, or engaged in business or maintained a permanent 101 establishment or was physically present in, the relevant taxing jurisdiction or any political subdivision thereof or otherwise had some connection with the relevant taxing jurisdiction other than by reason of the mere ownership of, or receipt of payment under, such Security; (B) presented such Security for payment in the relevant taxing jurisdiction or any political subdivision thereof, unless such Security could not have been presented for payment elsewhere; or (C) presented such Security more than thirty (30) days after the date on which the payment in respect of such Security first became due and payable or provided for, whichever is later, except to the extent that the Holder would have been entitled to such Additional Amounts if it had presented such Security for payment on any day within such period of thirty (30) days; (2) any estate, inheritance, gift, sale, transfer, personal property or similar tax, assessment or other governmental charge; (3) any tax, assessment or other governmental charge that is imposed or withheld by reason of the failure by the Holder or the beneficial owner of such Security to comply with any reasonable request by the Guarantor addressed to the Holder within 90 days of such request (A) to provide information concerning the nationality, residence or identity of the Holder or such beneficial owner or (B) to make any declaration or other similar claim or satisfy any information or reporting requirement, which, in the case of (A) or (B), is required or imposed by statute, treaty, regulation or administrative practice of the relevant taxing jurisdiction or any political subdivision thereof as a precondition to exemption from all or part of such tax, assessment or other governmental charge; or (4) any combination of items (1), (2) and (3); nor shall Additional Amounts be paid with respect to any payment of the principal of, or premium, if any, interest or any other amounts on, any such Security to any Holder who is a fiduciary or partnership or other than the sole beneficial owner of such Security to the extent such payment would be required by the laws of the relevant taxing jurisdiction (or any political subdivision or relevant taxing authority thereof or therein) to be included in the income for tax purposes of a beneficiary or partner or settlor with respect to such fiduciary or a member of such partnership or a beneficial owner who would not have been entitled to such Additional Amounts had it been the Holder of the Security. Whenever in this Indenture there is mentioned, in any context, the payment of the principal of or any premium, interest or any other amounts on, or in respect of, any Security of any series or any Coupon or the net proceeds received on the sale or exchange of any Security of any series, such mention shall be deemed to include mention of the payment of Additional Amounts provided by the terms of such series established hereby or pursuant hereto to the extent that, in such context, Additional Amounts are, were or would be payable in respect thereof pursuant to such terms, and express mention of the payment of Additional Amounts (if applicable) in any provision hereof shall not be construed as excluding the payment of Additional Amounts in those provisions hereof where such express mention is not made. 102 Except as otherwise provided in or pursuant to this Indenture or the Securities of the applicable series, at least 10 days prior to the first Interest Payment Date with respect to a series of Securities (or if the Securities of such series shall not bear interest prior to Maturity, the first day on which a payment of principal is made), and at least 10 days prior to each date of payment of principal or interest if there has been any change with respect to the matters set forth in the below-mentioned Guarantor's Officer's Certificate, the Guarantor shall furnish to the Trustee and the principal Paying Agent or Paying Agents, if other than the Trustee, a Guarantor's Officer's Certificate instructing the Trustee and such Paying Agent or Paying Agents whether such payment of principal of and premium, if any, interest or any other amounts on the Securities of such series shall be made to Holders of Securities of such series or the Coupons appertaining thereto without withholding for or on account of any tax, fee, duty, assessment or other governmental charge described in this Section 17.2. If any such withholding shall be required, then such Guarantor's Officer's Certificate shall specify by taxing jurisdiction the amount, if any, required to be withheld on such payments to such Holders of Securities or Coupons, and the Guarantor agrees to pay to the Trustee or such Paying Agent the Additional Amounts required by this Section 17.2. The Guarantor covenants to indemnify the Trustee and any Paying Agent for, and to hold them harmless against, any loss, liability or expense reasonably incurred without negligence or bad faith on their part arising out of or in connection with actions taken or omitted by any of them in reliance on any Guarantor's Officer's Certificate furnished pursuant to this Section 17.2. Section 17.3. Guarantee Unconditional, etc. The Guarantor hereby agrees that its obligations hereunder shall be as principal and not merely as surety, and shall be absolute, irrevocable and unconditional, irrespective of, and shall be unaffected by, any invalidity, irregularity or unenforceability of any Security or this Indenture, any failure to enforce the provisions of any Security or this Indenture, or any waiver, modification, consent or indulgence granted with respect thereto by the Holder of such Security or the Trustee, the recovery of any judgment against the Company or any action to enforce the same, or any other circumstances which may otherwise constitute a legal or equitable discharge of a surety or guarantor. The Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of merger, insolvency or bankruptcy of the Company, any right to require a proceeding first against the Company, protest or notice with respect to any such Security or the Indebtedness evidenced thereby and all demands whatsoever, and covenants that this Guarantee will not be discharged except by payment in full of the principal of, any premium and interest (including any Additional Interest) on, and any Additional Amounts, and, if applicable, any Additional Sums and sinking fund payments required with respect to, the Securities and the complete performance of all other obligations contained in the Securities. The Guarantor further agrees, to the fullest extent that it lawfully may do so, that, as between the Guarantor, on the one hand, and the Holders and the Trustee, on the other hand, the Maturity of the obligations guaranteed hereby may be accelerated as provided in Section 5.2 hereof for the purposes of this Guarantee, notwithstanding any stay, injunction or prohibition extant under any bankruptcy, insolvency, reorganization or other similar law of any jurisdiction preventing such acceleration in respect of the obligations guaranteed hereby. 103 Section 17.4. Reinstatement. This Guarantee shall continue to be effective or be reinstated, as the case may be, if at any time payment on any Security, in whole or in part, is rescinded or must otherwise be restored to the Company or the Guarantor upon the bankruptcy, liquidation or reorganization of the Company or otherwise. Section 17.5. Subrogation. The Guarantor shall be subrogated to all rights of the Holder of any Security against the Company in respect of any amounts paid to such Holder by the Guarantor pursuant to the provisions of this Guarantee; provided, however, that the Guarantor shall not be entitled to enforce, or to receive any payments arising out of or based upon, such right of subrogation until the principal of, any premium and interest (including any Additional Interest) on, and any Additional Amounts and, if applicable, any Additional Sums and sinking fund payments required with respect to, all Securities shall have been paid in full. Section 17.6. Indemnity. As a separate and alternative stipulation, the Guarantor unconditionally and irrevocably agrees that any sum expressed to be payable by the Company under this Indenture, the Securities or the Coupons but which is for any reason (whether or not now known or becoming known to the Company, the Guarantor, the Trustee or any Holder of any Security or Coupon) not recoverable from the Guarantor on the basis of a guarantee will nevertheless be recoverable from it as if it were the sole principal debtor and will be paid by it to the Trustee on demand. This indemnity constitutes a separate and independent obligation from the other obligations in this Indenture, gives rise to a separate and independent cause of action and will apply irrespective of any indulgence granted by the Trustee or any Holder of any Security or Coupon. ARTICLE 18 Subordination Of Guarantee Section 18.1. Agreement to Subordinate Guarantee. The Guarantor covenants and agrees, and each Holder of Securities issued hereunder and under any Additional Provisions, by such Holder's acceptance thereof likewise covenants and agrees, that all Securities shall be issued subject to the provisions of this Article 18; and each Holder of a Security, whether upon original issue or upon transfer or assignment thereof, accepts and agrees to be bound by such provisions. The payment by the Guarantor pursuant to the Guarantee of the principal of, any premium and interest (including any Additional Interest) on, any Additional Amounts and, if applicable, any Additional Sums with respect to all Securities of each series issued hereunder and under any Additional Provisions shall, to the extent and in the manner hereinafter set forth, 104 be subordinate in right of payment to the prior payment in full of all Guarantor Senior Indebtedness with respect to such series, whether outstanding at the date of this Indenture or thereafter incurred. No provision of this Article 18 shall prevent the occurrence of any default or Event of Default hereunder. Section 18.2. Default on Guarantor Senior Indebtedness. In the event and during the continuation of any default by the Guarantor in the payment of principal, premium, interest (including any Additional Interest) or any other amount due on any Guarantor Senior Indebtedness with respect to the Securities of any series, or in the event that the maturity of any Guarantor Senior Indebtedness with respect to the Securities of any series has been accelerated because of a default, then, in either case, no payment shall be made by the Guarantor pursuant to the Guarantee with respect to the principal (including redemption and sinking fund payments) of, any premium or interest (including any Additional Interest) on, or any Additional Amounts or, if applicable, Additional Sums with respect to, the Securities of such series. In the event that, notwithstanding the foregoing, any payment shall be received by the Trustee when such payment is prohibited by the preceding paragraph of this Section 18.2, such payment shall be held in trust for the benefit of, and shall be paid over or delivered to, the holders of such Guarantor Senior Indebtedness or their respective representatives, or to the trustee or trustees under any indenture pursuant to which any of such Guarantor Senior Indebtedness may have been issued, as their respective interests may appear, but only to the extent that the holders of such Guarantor Senior Indebtedness (or their representative or representatives or a trustee) notify the Trustee in writing within 90 days of such payment of the amounts then due and owing on such Guarantor Senior Indebtedness and only the amounts specified in such notice to the Trustee shall be paid to the holders of such Guarantor Senior Indebtedness. Section 18.3. Liquidation; Dissolution; Bankruptcy. Upon any payment by the Guarantor or distribution of assets of the Guarantor of any kind or character, whether in cash, property or securities, to creditors upon any dissolution, winding-up, liquidation or reorganization of the Guarantor, whether voluntary or involuntary, or in bankruptcy, insolvency, receivership or other proceedings, all amounts due upon all Guarantor Senior Indebtedness with respect to the Securities of any series shall first be paid in full, or payment thereof provided for in money in accordance with its terms, before any payment is made by the Guarantor pursuant to the Guarantee on account of the principal of, premium or interest (including any Additional Interest) on, or Additional Amounts or, if applicable, Additional Sums with respect to, the Securities of such series; and upon any such dissolution, winding-up, liquidation or reorganization, or in any such bankruptcy, insolvency, receivership or other proceeding, any payment by the Guarantor, or distribution of assets of the Guarantor of any kind or character, whether in cash, property or securities, to which the Holders or the Trustee would 105 be entitled to receive from the Guarantor, except for the provisions of this Article 18, shall be paid by the Guarantor or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other Person making such payment or distribution, or by the Holders or by the Trustee under this Indenture if received by them or it, directly to the holders of such Guarantor Senior Indebtedness (pro rata to such holders on the basis of the respective amounts of such Guarantor Senior Indebtedness held by such holders, as calculated by the Guarantor) or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing such Guarantor Senior Indebtedness may have been issued, as their respective interests may appear, to the extent necessary to pay such Guarantor Senior Indebtedness in full, in money or money's worth, after giving effect to any concurrent payment or distribution to or for the holders of such Guarantor Senior Indebtedness, before any payment or distribution is made pursuant to the Guarantee to the Holders of the Securities of such series or to the Trustee. In the event that, notwithstanding the foregoing, any payment or distribution of assets of the Guarantor pursuant to the Guarantee of any kind or character, whether in cash, property or securities, prohibited by the foregoing shall be received by the Trustee before all such Guarantor Senior Indebtedness is paid in full, or provision is made for such payment in money in accordance with its terms, such payment or distribution shall be held in trust for the benefit of and shall be paid over or delivered to the holders of such Guarantor Senior Indebtedness or their representative or representatives, or to the trustee or trustees under any indenture pursuant to which any instruments evidencing such Guarantor Senior Indebtedness may have been issued, as their respective interests may appear, as calculated by the Guarantor, for application to the payment of all such Guarantor Senior Indebtedness remaining unpaid to the extent necessary to pay such Guarantor Senior Indebtedness in full in money in accordance with its terms, after giving effect to any concurrent payment or distribution to or for the benefit of the holders of such Guarantor Senior Indebtedness. For purposes of this Article 18, the words "cash, property or securities" shall not be deemed to include shares of stock of the Guarantor as reorganized or readjusted, or securities of the Guarantor or any other corporation provided for by a plan of reorganization or readjustment, the payment of which is subordinated at least to the extent provided in this Article 18 with respect to the Guarantee in respect of any series of Securities to the payment of all Guarantor Senior Indebtedness with respect to the Securities of such series that may at the time be outstanding, provided that (i) such Guarantor Senior Indebtedness is assumed by the new corporation, if any, resulting from any such reorganization or readjustment, and (ii) the rights of the holders of such Guarantor Senior Indebtedness are not, without the consent of such holders, altered by such reorganization or readjustment. The consolidation of the Guarantor with, or the merger of the Guarantor into, another Person or the liquidation or dissolution of the Guarantor following the conveyance, transfer or lease of its property as an entirety, or substantially as an entirety, to another Person upon the terms and conditions provided for in Sections 8.3 and 8.4 of this Indenture shall not be deemed a dissolution, winding-up, liquidation or reorganization for the purposes of this Section 18.3 if such other Person shall, as a part of such consolidation, merger, conveyance or transfer, comply with the conditions stated in Sections 8.3 and 8.4 of this 106 Indenture. Nothing in Section 18.2 or in this Section 18.3 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 6.6 of this Indenture. Section 18.4. Subrogation. Subject to the payment in full of all Guarantor Senior Indebtedness with respect to the Securities of any series, the rights of the Holders of the Securities of such series shall be subrogated to the rights of the holders of such Guarantor Senior Indebtedness to receive payments or distributions of cash, property or securities of the Guarantor applicable to such Guarantor Senior Indebtedness until the principal of, any premium and interest (including any Additional Interest) on, and any Additional Amounts or, if applicable, Additional Sums with respect to, the Securities of such series shall be paid in full; and, for the purposes of such subrogation, no payments or distributions to the holders of such Guarantor Senior Indebtedness of any cash, property or securities to which the Holders or the Trustee would be entitled except for the provisions of this Article 18, and no payment over pursuant to the provisions of this Article 18 to or for the benefit of the holders of such Guarantor Senior Indebtedness by Holders of the Securities of such series or the Trustee, shall, as between the Guarantor, its creditors other than holders of such Guarantor Senior Indebtedness, and the Holders of the Securities of such series, be deemed to be a payment by the Guarantor to or on account of such Guarantor Senior Indebtedness. It is understood that the provisions of this Article 18 are and are intended solely for the purposes of defining the relative rights of the Holders of the Securities of each series, on the one hand, and the holders of such Guarantor Senior Indebtedness with respect to the Securities of such series on the other hand. Nothing contained in this Article 18 or elsewhere in this Indenture, any Additional Provisions or in the Securities of any series is intended to or shall impair, as between the Guarantor, its creditors other than the holders of Guarantor Senior Indebtedness with respect to the Securities of such series, and the Holders of the Securities of such series, the obligation of the Guarantor, which is absolute and unconditional, to pay to the Holders of the Securities of such series pursuant to the Guarantee the principal of, any premium and interest (including any Additional Interest) on, and any Additional Amounts or, if applicable, Additional Sums with respect to, the Securities of such series as and when the same shall become due and payable in accordance with their terms, or is intended to or shall affect the relative rights of the Holders of the Securities of such series and creditors of the Guarantor, other than the holders of such Guarantor Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or the Holder of any Security of such series from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the rights, if any, under this Article 18 of the holders of such Guarantor Senior Indebtedness in respect of cash, property or securities of the Guarantor, as the case may be, received upon the exercise of any such remedy. Upon any payment or distribution of assets of the Guarantor referred to in this Article 18, the Trustee, subject to the provisions of Article 6 of this Indenture, and the Holders shall be entitled to conclusively rely upon any order or decree made by any court of competent jurisdiction in which such dissolution, winding-up, liquidation or reorganization proceedings are 107 pending, or a certificate of the receiver, trustee in bankruptcy, liquidation trustee, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders of the Securities of any series, for the purposes of ascertaining the Persons entitled to participate in such distribution, the holders of Guarantor Senior Indebtedness with respect to the Securities of such series and other indebtedness of the Guarantor, as the case may be, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 18. Section 18.5. Trustee to Effectuate Subordination. Each Holder of Securities by such Holder's acceptance thereof authorizes and directs the Trustee on such Holder's behalf to take such action as may be necessary or appropriate to effectuate the subordination provided in this Article 18 and appoints the Trustee such Holder's attorney-in-fact for any and all such purposes. Section 18.6. Notice by the Guarantor. The Guarantor shall give prompt written notice to a Responsible Officer of the Trustee of any fact known to the Guarantor that would prohibit the making of any payment of monies to or by the Trustee in respect of the Securities of any series pursuant to the provisions of this Article 18. Notwithstanding the provisions of this Article 18 or any other provision of this Indenture or any Additional Provisions, the Trustee shall not be charged with knowledge of the existence of any facts that would prohibit the making of any payment of monies to or by the Trustee in respect of the Securities of any series pursuant to the provisions of this Article 18, unless and until a Responsible Officer of the Trustee shall have received written notice thereof from the Guarantor or a holder or holders of Guarantor Senior Indebtedness with respect to the Securities of such series or from any trustee therefor; and before the receipt of any such written notice, the Trustee, subject to the provisions of Article 6 of this Indenture, shall be entitled in all respects to assume that no such facts exist; provided, however, that if the Trustee shall not have received the notice provided for in this Section 18.6 at least two Business Days prior to the date upon which by the terms hereof any money may become payable for any purpose (including, without limitation, the payment pursuant to the Guarantee of the principal of, any premium or interest (including any Additional Interest) on, or any Additional Amounts or, if applicable, Additional Sums with respect to, any Security of such series), then, anything herein contained to the contrary notwithstanding, the Trustee shall have full power and authority to receive such money and to apply the same to the purposes for which they were received, and shall not be affected by any notice to the contrary that may be received by it within two Business Days prior to such date. The Trustee, subject to the provisions of Article 6 of this Indenture, shall be entitled to conclusively rely on the delivery to it of a written notice by a Person representing himself to be a holder of Guarantor Senior Indebtedness with respect to the Securities of any series (or a trustee on behalf of such holder), to establish that such notice has been given by a holder of such Guarantor Senior Indebtedness or a trustee on behalf of any such holder or holders. In the event that the Trustee determines in good faith that further evidence is required with respect to the right of any Person as a holder of such Guarantor Senior Indebtedness to participate in any payment or 108 distribution pursuant to this Article 18, the Trustee may request such Person to furnish evidence to the reasonable satisfaction of the Trustee as to the amount of such Guarantor Senior Indebtedness held by such Person, the extent to which such Person is entitled to participate in such payment or distribution and any other facts pertinent to the rights of such Person under this Article 18, and, if such evidence is not furnished, the Trustee may defer any payment to such Person pending judicial determination as to the right of such Person to receive such payment. Upon any payment or distribution of assets of the Guarantor referred to in this Article 18, the Trustee and the Holders shall be entitled to rely upon any order or decree entered by any court of competent jurisdiction in which such insolvency, bankruptcy, receivership, liquidation, reorganization, dissolution, winding-up or similar case or proceeding is pending, or a certificate of the trustee in bankruptcy, liquidating trustee, custodian, receiver, assignee for the benefit of creditors, agent or other Person making such payment or distribution, delivered to the Trustee or to the Holders of the Securities of any series, for the purpose of ascertaining the Persons entitled to participate in such payment or distribution, the holders of Guarantor Senior Indebtedness with respect to the Securities of such series and other indebtedness of the Guarantor, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article 18. Section 18.7. Rights of the Trustee; Holders of Guarantor Senior Indebtedness. The Trustee in its individual capacity shall be entitled to all the rights set forth in this Article 18 in respect of any Guarantor Senior Indebtedness with respect to the Securities of any series at any time held by it, to the same extent as any other holder of such Guarantor Senior Indebtedness, and nothing in this Indenture or any Additional Provisions shall deprive the Trustee of any of its rights as such holder. With respect to the holders of Guarantor Senior Indebtedness with respect to the Securities of any series, the Trustee undertakes to perform or to observe only such of its covenants and obligations as are specifically set forth in this Article 18, and no implied covenants or obligations with respect to the holders of such Guarantor Senior Indebtedness shall be read into this Indenture or any Additional Provisions against the Trustee. The Trustee shall not be deemed to owe any fiduciary duty to the holders of such Guarantor Senior Indebtedness and, subject to the provisions of Article 6 of this Indenture, the Trustee shall not be liable to any holder of such Guarantor Senior Indebtedness if it shall pay over or deliver to Holders of the Securities of such series, the Guarantor or any other Person money or assets to which any holder of such Guarantor Senior Indebtedness shall be entitled by virtue of this Article 18 or otherwise. Nothing in this Article 18 shall apply to claims of, or payments to, the Trustee under or pursuant to Section 6.6. Section 18.8. Subordination May Not Be Impaired. No right of any present or future holder of any Guarantor Senior Indebtedness to enforce subordination as herein provided shall at any time in any way be prejudiced or impaired by any 109 act or failure to act on the part of the Guarantor, or by any act or failure to act, in good faith, by any such holder, or by any noncompliance by the Guarantor with the terms, provisions and covenants of this Indenture, regardless of any knowledge thereof that any such holder may have or otherwise be charged with. Without in any way limiting the generality of the foregoing paragraph, the holders of Guarantor Senior Indebtedness with respect to the Securities of any series may, at any time and from time to time, without the consent of or notice to the Trustee or the Holders of Securities of such series, without incurring responsibility to such Holders and without impairing or releasing the subordination provided in this Article 18 or the obligations hereunder of the Holders of the Securities of such series to the holders of such Guarantor Senior Indebtedness, do any one or more of the following: (i) change the manner, place or terms of payment or extend the time of payment of, or renew or alter, such Guarantor Senior Indebtedness, or otherwise amend or supplement in any manner such Guarantor Senior Indebtedness or any instrument evidencing the same or any agreement under which such Guarantor Senior Indebtedness is outstanding; (ii) sell, exchange, release or otherwise deal with any property pledged, mortgaged or otherwise securing such Guarantor Senior Indebtedness; (iii) release any Person liable in any manner for the collection of such Guarantor Senior Indebtedness; and (iv) exercise or refrain from exercising any rights against the Guarantor and any other Person. * * * 110 IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed, all as of the day and year first above written. [SEAL] ACE INA HOLDINGS INC. Attest: By ______________________________________ Name: Title: [SEAL] ACE LIMITED, as Guarantor Attest: By ______________________________________ Name: Title: [SEAL] BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, as Trustee Attest: By ______________________________________ Name: Title: 111 EX-10.42 7 COMMON SECURITIES GUARANTEE AGREEMENT Exhibit 10.42 __________________________________________________________ COMMON SECURITIES GUARANTEE AGREEMENT ACE LIMITED, AS GUARANTOR Dated as of December 20, 1999 __________________________________________________________ TABLE OF CONTENTS Page ---- ARTICLE I DEFINITIONS AND INTERPRETATIONS SECTION 1.1 Definitions and Interpretations 2
ARTICLE II GUARANTEE SECTION 2.1 Guarantee 4 SECTION 2.2 Subordination in an Event of Default Under the Trust Agreement 5 SECTION 2.3 Waiver of Notice and Demand 5 SECTION 2.4 Obligations Not Affected 5 SECTION 2.5 Rights of Holders 6 SECTION 2.6 Guarantee of Payment 6 SECTION 2.7 Subrogation 6 SECTION 2.8 Independent Obligations 6
ARTICLE III LIMITATION OF TRANSACTIONS; RANKING SECTION 3.1 Limitation of Transactions 7 SECTION 3.2 Ranking 7 SECTION 3.3 Pari Passu Guarantees 8
ARTICLE IV TERMINATION SECTION 4.1 Termination 8
ARTICLE V MISCELLANEOUS SECTION 5.1 Successors and Assigns 8 SECTION 5.2 Amendments 9 SECTION 5.3 Notices 9 SECTION 5.4 Benefit 9 SECTION 5.5 Governing Law 10
2 GUARANTEE AGREEMENT This GUARANTEE AGREEMENT (the "Common Securities Guarantee"), dated as of December 20, 1999, is executed and delivered by ACE Limited, a Cayman Islands company (the "Guarantor"), having its principal executive offices at The ACE Building, 30 Woodbourne Avenue, Hamilton HM 08 Bermuda, for the benefit of the Holders (as defined herein) from time to time of the Common Securities (as defined herein) of ACE Capital Trust I, a Delaware statutory business trust (the "Issuer"). WHEREAS, pursuant to an Amended and Restated Trust Agreement, dated as of December 20, 1999, among the Trustees named therein, ACE INA Holdings Inc., a Delaware corporation and a wholly-owned subsidiary of the Guarantor ("ACE INA"), as depositor (in such capacity, the "Depositor"), and the Holders from time to time of undivided beneficial ownership interests in the assets of the Issuer (the "Trust Agreement"), the Issuer is issuing on the date hereof $3,092,800 ($3,556,725 if the Underwriters' over-allotment option pursuant to the Underwriting Agreement is exercised in full), aggregate liquidation preference of its 8.875% Common Securities (liquidation preference $25 per common security) (the "Common Securities") representing undivided beneficial interests in the assets of the Issuer and having the terms set forth in the Trust Agreement; WHEREAS, the Common Securities will be issued by the Issuer and the proceeds thereof, together with the proceeds from the issuance of the Issuer's Preferred Securities (as defined herein), will be used to purchase the Debentures (as defined herein) of ACE INA (in its capacity as issuer of the Debentures, the "Debenture Issuer"), which will be deposited with Bank One Trust Company, National Association, as Property Trustee under the Trust Agreement, as trust assets; and WHEREAS, as incentive for the Holders to purchase the Common Securities, the Guarantor desires irrevocably and unconditionally to agree, to the extent set forth in this Common Securities Guarantee, to pay to the Holders of the Common Securities the Guarantee Payments (as defined herein) and to make certain other payments on the terms and conditions set forth herein; WHEREAS, the Guarantor is also executing and delivering a guarantee agreement (the "Preferred Securities Guarantee") having substantially identical terms to this Common Securities Guarantee for the benefit of the holders of the Preferred Securities (as defined in the Trust Agreement) it being understood that if an Event of Default under the Trust Agreement has occurred and is continuing, the rights of Holders to receive Guarantee Payments under this Common Securities Guarantee are subordinated to the rights of holders of the Preferred Securities to receive guarantee payments under the Preferred Securities Guarantee ("Preferred Guarantee Payments"). NOW, THEREFORE, in consideration of the purchase by each Holder of Common Securities, which purchase the Guarantor hereby agrees shall benefit the Guarantor, the Guarantor executes and delivers this Common Securities Guarantee for the benefit of the Holders from time to time of the Common Securities. 3 ARTICLE I DEFINITIONS AND INTERPRETATIONS SECTION 1.1 Definitions and Interpretations In this Common Securities Guarantee, unless the context otherwise requires: (a) capitalized terms used in this Common Securities Guarantee, but not defined in the preamble hereto have the respective meanings assigned to them in this Section 1.1 or in the Trust Agreement, as the case may be; (b) a term defined anywhere in this Common Securities Guarantee has the same meaning throughout; (c) all references to "the Common Securities Guarantee" or "this Common Securities Guarantee" are to this Common Securities Guarantee as modified, supplemented or amended from time to time; (d) all references in this Common Securities Guarantee to Articles and Sections are to Articles and Sections of this Common Securities Guarantee, unless otherwise specified; (e) a reference to the singular includes the plural and vice versa; and (f) the masculine, feminine, or neuter genders used herein shall include the masculine, feminine and neuter genders. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person; provided, however, that an Affiliate of the Guarantor shall not be deemed to include the Issuer. For the purpose of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Capitalized Lease Obligations" means an obligation under a lease that is required to be capitalized for financial reporting purposes in accordance with generally accepted accounting principles, and the amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with such principles. "Debenture Guarantee" means the full and unconditional payment guarantee and indemnity of the Debenture Guarantor provided for in the Indenture with respect to the Debentures. "Debenture Guarantor" means ACE Limited, in its capacity as guarantor of the Debentures under the Indenture. 4 "Debentures" means the series of subordinated debt securities of the Debenture Issuer designated the 8.875% Junior Subordinated Deferrable Interest Debentures due 2029 held by the Property Trustee. "Event of Default" means a default by the Guarantor on any of its payment or other obligations under this Common Securities Guarantee; provided, however, that, except with respect to a default in payment of any Guarantee Payments, the Guarantor shall have received notice of default and shall not have cured such default within 60 days after receipt of such notice. "Guarantee Payments" means the following payments or distributions, without duplication, with respect to the Common Securities, to the extent not paid or made by or on behalf of the Issuer: (i) any accrued and unpaid Distributions (as defined in the Trust Agreement) that are required to be paid on such Common Securities, to the extent the Issuer shall have funds on hand available therefor at such time, (ii) the redemption price, including all accrued and unpaid Distributions to the date of redemption (the "Redemption Price") with respect to Common Securities called for redemption by the Issuer to the extent the Issuer shall have funds on hand available therefor at such time and (iii) upon a voluntary or involuntary dissolution, winding-up or liquidation of the Issuer, unless Debentures are distributed to the Holders, the lesser of (a) the aggregate of the liquidation preference of $25 per Common Security plus accrued and unpaid Distributions on the Common Securities to the date of payment, to the extent the Issuer shall have funds on hand available to make such payment at such time and (b) the amount of assets of the Issuer remaining available for distribution to Holders in liquidation of the Issuer (in either case, the "Liquidation Distribution"). "Holder" shall mean ACE INA Holdings Inc. or, if the Common Securities are transferred in accordance with the provisions of the Trust Agreement, any other holder, as registered on the books and records of the Issuer, of any Common Securities. "Indebtedness" means, with respect to any Person, (i) the principal of and any premium and interest on (a) indebtedness of such Person for money borrowed and (b) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable; (ii) all Capitalized Lease Obligations of such Person; (iii) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations and all obligations under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business); (iv) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction (other than obligations with respect to letters of credit securing obligations (other than obligations described in (i) through (iii) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the third Business Day following receipt by such Person of a demand for reimbursement following payment on the letter of credit); (v) all obligations of the type referred to in clauses (i) through (iv) of other Persons and all dividends of other Persons for the payment of which, in either case, such Person is responsible or liable as obligor, guarantor or otherwise; and (vi) all obligations of the type referred to in clauses (i) through (v) of other Persons secured by any Lien on any property or 5 asset of such Person (whether or not such obligation is assumed by such Person), the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured; and (vii) any amendments, modifications, refundings, renewals or extensions of any indebtedness or obligation described as Indebtedness in clauses (i) through (vi) above. "Indenture" means the Subordinated Indenture dated as of December 1, 1999 among the Debenture Issuer, the Debenture Guarantor and Bank One Trust Company, National Association, as trustee, and any indenture supplemental thereto pursuant to which the Debentures and the Debenture Guarantee are to be issued to the Property Trustee of the Issuer. "Majority in liquidation preference of the Common Securities" means a vote by Holder(s), voting separately as a class, of more than 50% of the liquidation preference of all then outstanding Common Securities issued by the Issuer. "Person" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association or government or any agency or political subdivision thereof, or any other entity of whatever nature. "Preferred Securities" means the securities representing preferred undivided beneficial interests in the assets of the Issuer. "Senior Indebtedness" means all Indebtedness of the Guarantor (including its Indebtedness, as Debenture Guarantor, under the Indenture) outstanding at any time, except (a) the Indebtedness under this Common Securities Guarantee and, subject to Sections 2.2 and 3.2 hereof, the Preferred Securities Guarantee, (b) Indebtedness as to which, by the terms of the instrument creating or evidencing the same, it is provided that such Indebtedness is subordinated to or pari passu with this Common Securities Guarantee or to other Indebtedness of the Guarantor which is subordinated to or pari passu with this Common Securities Guarantee, (c) Indebtedness of the Guarantor to an Affiliate of the Guarantor, (d) interest accruing after the filing of a petition initiating any proceeding referred to in Section 5.1(7) and 5.1(8) of the Indenture unless such interest is an allowed claim enforceable against the Guarantor in a proceeding under federal or state bankruptcy laws, (e) trade accounts payable and (f) similar guarantee agreements issued by the Guarantor on behalf of holders of common securities of any other ACE Capital Trust or any trust, partnership or other entity affiliated with the Guarantor which is a financing vehicle of the Guarantor or any Affiliate of the Guarantor in connection with the issuance by such entity of common securities or other securities which are similar to common securities that are guaranteed by the Guarantor pursuant to an instrument that ranks pari passu with or junior in right of payment to this Common Securities Guarantee. ARTICLE II GUARANTEE SECTION 2.1 Guarantee 6 The Guarantor irrevocably and unconditionally agrees to pay in full to the Holders the Guarantee Payments (without duplication of amounts theretofore paid by or on behalf of the Issuer), as and when due, regardless of any defense, right of set-off or counterclaim that the Issuer may have or assert. The Guarantor's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Guarantor to the Holders or by causing the Issuer, through the Debenture Issuer, to pay such amounts to the Holders. SECTION 2.2 Subordination in an Event of Default Under the Trust Agreement Notwithstanding anything to the contrary contained herein, if an event of default under the Trust Agreement has occurred and is continuing, the rights of the Holders of the Common Securities to receive the Guarantee Payments under this Common Securities Guarantee shall be subordinated to the rights of the holders of Preferred Securities to receive Preferred Guarantee Payments, and no Guarantee Payments shall be made to the Holders of Common Securities hereunder unless payment in full in cash of all accumulated and unpaid Preferred Guarantee Payments on all outstanding Preferred Securities shall have been made or provided for, and all funds immediately available to the Property Trustee shall be first applied to the payment in full in cash of all such Preferred Guarantee Payments then due and payable. The Guarantor's obligation to make Guarantee Payments will not be discharged except by payment of the Guarantee Payments in full. SECTION 2.3 Waiver of Notice and Demand The Guarantor hereby waives notice of acceptance of this Common Securities Guarantee and of any liability to which it applies or may apply, presentment, demand for payment, any right to require a proceeding first against the Issuer or any other Person before proceeding against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands. SECTION 2.4 Obligations Not Affected The obligations, covenants, agreements and duties of the Guarantor under this Common Securities Guarantee shall in no way be affected or impaired by reason of the happening from time to time of any of the following: (a) the release or waiver, by operation of law or otherwise, of the performance or observance by the Issuer of any express or implied agreement, covenant, term or condition relating to the Common Securities to be performed or observed by the Issuer; (b) the extension of time for the payment by the Issuer of all or any portion of the Distributions, Redemption Price, Liquidation Distribution or any other sums payable under the terms of the Common Securities or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Common Securities (other than an extension of time for payment of Distributions, Redemption Price, Liquidation Distribution or other sum payable that results from the extension of any interest payment period on the Debentures or so provided by the Indenture); 7 (c) any failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Common Securities, or any action on the part of the Issuer granting indulgence or extension of any kind; (d) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, the Issuer or any of the assets of the Issuer; (e) any invalidity of, or defect or deficiency in, the Common Securities; (f) the settlement or compromise of any obligation guaranteed hereby or hereby incurred; or (g) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a guarantor, it being the intent of this Section 2.4 that the obligations of the Guarantor hereunder shall be absolute and unconditional under any and all circumstances. There shall be no obligation of the Holders to give notice to, or obtain the consent of, the Guarantor with respect to the happening of any of the foregoing. SECTION 2.5 Rights of Holders Any Holder of the Common Securities may institute a legal proceeding directly against the Guarantor to enforce its rights under this Common Securities Guarantee. The Guarantor waives any right or remedy to require that any such action be brought first against the Issuer or any other Person before so proceeding directly against the Guarantor. SECTION 2.6 Guarantee of Payment This Common Securities Guarantee creates a guarantee of payment and not of collection. This Common Securities Guarantee will not be discharged except by payment of the Guarantee Payments in full (without duplication of amounts theretofore paid by the Issuer) or upon distribution of Debentures to Holders as provided in the Trust Agreement. SECTION 2.7 Subrogation The Guarantor shall be subrogated to all rights, if any, of the Holders against the Issuer in respect of any amounts paid to such Holders by the Guarantor under this Common Securities Guarantee; provided, however, that the Guarantor shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise any right that it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Common Securities Guarantee, if, at the time of any such payment, any amounts are due and unpaid under this Common Securities Guarantee. If any amount shall be paid to the Guarantor in violation of the preceding sentence, the Guarantor agrees to hold such amount in trust for the Holders and to pay over such amount to the Holders. 8 SECTION 2.8 Independent Obligations The Guarantor acknowledges that its obligations hereunder are independent of the obligations of the Issuer with respect to the Common Securities, and that the Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Common Securities Guarantee notwithstanding the occurrence of any event referred to in subsections (a) through (g), inclusive, of Section 2.4 hereof. ARTICLE III LIMITATION OF TRANSACTIONS; RANKING SECTION 3.1 Limitation of Transactions The Guarantor hereby covenants and agrees that, so long as any Common Securities remain outstanding, it will not, and will not permit any of its Subsidiaries (including the Debenture Issuer) to, (a) declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of the outstanding capital stock of the Debenture Issuer or the Guarantor, as the case may be, or (b) make any payment of principal of, interest or premium, if any, on or repay, repurchase or redeem any debt security of the Debenture Issuer or the Guarantor, as the case may be, that ranks junior in interest to the Debentures or the guarantee in respect thereof, as the case may be, or make any guarantee payments with respect to any guarantee by the Debenture Issuer or the Guarantor, as the case may be, of the debt securities of any Subsidiary of the Debenture Issuer or the Guarantor, as the case may be, if such guarantee ranks junior in interest to the Debentures or the guarantee in respect thereof, as the case may be (other than (i) dividends or distributions on the Capital Stock (as defined in the Indenture) of the Debenture Issuer paid or made to the Guarantor and dividends or distributions in Common Stock (as defined in the Indenture) of the Debenture Issuer or the Guarantor, as the case may be, (ii) redemptions or purchases of any rights outstanding under a shareholder rights plan of the Debenture Issuer or the Guarantor, as the case may be, or any successor to such rights plan, or the declaration of a dividend of such rights or the issuance of stock under such plans in the future, (iii) payments under any preferred securities guarantee issued by the Guarantor, and (iv) purchases of Common Stock related to the issuance of Common Stock under any benefit plans of the Debenture Issuer, the Guarantor or its Subsidiaries, as the case may be, for their respective directors, officers or employees) if at such time (1) there shall have occurred any event of which the Debenture Issuer or the Guarantor, as the case may be, has actual knowledge that (A) with the giving of notice or the lapse of time or both would constitute an Event of Default under the Indenture and (B) in respect of which the Debenture Issuer or the Guarantor, as the case may be, shall not have taken reasonable steps to cure, (2) the Guarantor shall be in default with respect to its payment of any obligations under this Common Securities Guarantee or (3) the Debenture Issuer shall have given notice of its election to begin an Extension Period (as defined in the Indenture) with respect to the Debentures as provided in the Indenture and shall not have rescinded such notice, or such Extension Period, or any extension thereof, shall be continuing. SECTION 3.2 Ranking 9 This Common Securities Guarantee will constitute an unsecured obligation of the Guarantor and will rank subordinate and junior in right of payment to all Senior Indebtedness of the Guarantor. Subject to Section 2.2 hereof and the immediately follwing paragraph, the Common Securities Guarantee will rank pari passu with the Guarantor's obligations under the Preferred Securities Guarantee. If an event of default under the Trust Agreement has occurred and is continuing, the rights of holders of the Common Securities of the Issuer to receive Guarantee Payments are subordinated to the rights of holders of the Preferred Securities to receive Preferred Guarantee Payments, with the result that no Guarantee Payments shall be made unless payment in full in cash of all accumulated and unpaid Preferred Guarantee Payments on all outstanding Preferred Securities shall have been made or provided for, and all funds immediately available to the Property Trustee shall first be applied to the payment in full in cash of all such Preferred Guarantee Payments then due and payable. SECTION 3.3 Pari Passu Guarantees This Common Securities Guarantee shall rank pari passu with any similar guarantee agreements issued by the Guarantor on behalf of holders of common securities of any other ACE Capital Trust or any trust, partnership or other entity affiliated with the Guarantor which is a financing vehicle of the Guarantor or any Affiliate of the Guarantor in connection with the issuance by such entity of common securities or other securities which are similar to common securities that are guaranteed by the Guarantor pursuant to an instrument that ranks pari passu with or junior in right of payment to this Common Securities Guarantee. ARTICLE IV TERMINATION SECTION 4.1 Termination This Common Securities Guarantee shall terminate and be of no further force and effect upon (i) full payment of the Redemption Price of all Common Securities, (ii) the distribution of the Debentures to all Holders in exchange for the Preferred Securities or (iii) full payment of the amounts payable in accordance with the Trust Agreement upon liquidation of the Issuer. Notwithstanding the foregoing, this Common Securities Guarantee will continue to be effective or will be reinstated, as the case may be, if at any time any Holder must restore payment of any sums paid with respect to the Common Securities or under this Common Securities Guarantee. ARTICLE V MISCELLANEOUS SECTION 5.1 Successors and Assigns 10 All guarantees and agreements contained in this Common Securities Guarantee shall bind the successors, assigns, receivers, trustees and representatives of the Guarantor and shall inure to the benefit of the Holders of the Common Securities then outstanding. Except in connection with a consolidation, merger, or sale involving the Guarantor that is permitted under Article 8 of the Indenture and pursuant to which the assignee agrees in writing to perform the Guarantor's obligations hereunder, the Guarantor shall not assign its obligations hereunder. SECTION 5.2 Amendments Except with respect to any changes that do not adversely affect the rights of Holders in any material respect (in which case no consent of Holders will be required), this Common Securities Guarantee may only be amended with the prior approval of the Holders of at least a Majority in liquidation preference of the Common Securities. The provisions of Article VI of the Trust Agreement concerning meetings of Holders apply to the giving of such approval. SECTION 5.3 Notices Any notice, request or other communication required or permitted to be given hereunder shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied or mailed by first class mail, as follows: (a) If given to the Guarantor, at the Guarantor's mailing address set forth below (or such other address as the Guarantor may give notice of to the Holders): ACE Limited The ACE Building 30 Woodbourne Avenue Hamilton, HM 08, Bermuda Attn: General Counsel and Secretary (b) If given to the Issuer, at the Issuer's address set forth below or such other address as the Issuer may give notice to the Holders: ACE Capital Trust I c/o ACE INA Holdings Inc. Two Liberty Place 1601 Chestnut Street Philadelphia, Pennsylvania 19101 Attn: General Counsel and Secretary (c) If given to any Holder, at the address set forth on the books and records of the Issuer. All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which 11 no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. SECTION 5.4 Benefit This Common Securities Guarantee is solely for the benefit of the Holders and is not separately transferable from the Common Securities. SECTION 5.5 Governing Law THIS COMMON SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND PERFORMED IN THAT STATE 12 THIS COMMON SECURITIES GUARANTEE is executed as of the day and year first above written. ACE LIMITED, as Guarantor By: Name: Title: 13 EX-10.43 8 PREFERRED SECURITIES GUARANTEE AGREEMENT Exhibit 10.43 ________________________________________________________________________________ PREFERRED SECURITIES GUARANTEE AGREEMENT BETWEEN ACE LIMITED, AS GUARANTOR AND BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, AS GUARANTEE TRUSTEE DATED AS OF DECEMBER 20, 1999 ________________________________________________________________________________ TABLE OF CONTENTS Page ---- ARTICLE I DEFINITIONS AND INTERPRETATIONS SECTION 1.1 Definitions and Interpretations 2
ARTICLE II TRUST INDENTURE ACT SECTION 2.1 Trust Indenture Act: Application 6 SECTION 2.2 List of Holders 6 SECTION 2.3 Reports by the Guarantee Trustee 6 SECTION 2.4 Periodic Reports to Guarantee Trustee 6 SECTION 2.5 Evidence of Compliance with Conditions Precedent 7 SECTION 2.6 Events of Default; Waiver 7 SECTION 2.7 Event of Default; Notice 7 SECTION 2.8 Conflicting Interests 7
ARTICLE III POWERS, DUTIES AND RIGHTS OF GUARANTEE TRUSTEE SECTION 3.1 Powers and Duties of the Guarantee Trustee 7 SECTION 3.2 Certain Rights of the Guarantee Trustee 9 SECTION 3.3 Indemnity 10
ARTICLE IV GUARANTEE TRUSTEE SECTION 4.1 Guarantee Trustee; Eligibility 11 SECTION 4.2 Appointment, Removal and Resignation of Guarantee Trustees 11
ARTICLE V GUARANTEE SECTION 5.1 Guarantee 12 SECTION 5.2 Waiver of Notice and Demand 12 SECTION 5.3 Obligations Not Affected 12 SECTION 5.4 Rights of Holders 13 SECTION 5.5 Guarantee of Payment 13 SECTION 5.6 Subrogation 14 SECTION 5.7 Independent Obligations 14 SECTION 5.8 Net Payments 14
2 ARTICLE VI LIMITATION OF TRANSACTIONS; RANKING SECTION 6.1 Limitation of Transactions 15 SECTION 6.2 Ranking 16 SECTION 6.3 Pari Passu Guarantees 16
ARTICLE VII TERMINATION SECTION 7.1 Termination 16
ARTICLE VIII MISCELLANEOUS SECTION 8.1 Successors and Assigns 17 SECTION 8.2 Amendments 17 SECTION 8.3 Notices 17 SECTION 8.4 Benefit 18 SECTION 8.5 Governing Law 18 SECTION 8.6 Submission to Jurisdiction 18 SECTION 8.7 Judgment Currency 19
3 PREFERRED SECURITIES GUARANTEE AGREEMENT This GUARANTEE AGREEMENT, dated as of December 20, 1999, is executed and delivered by ACE Limited, a Cayman Islands company (the "Guarantor"), having its principal executive offices at The ACE Building, 30 Woodbourne Avenue, Hamilton HM 08 Bermuda, and Bank One Trust Company, National Association, a national banking association, having a corporate trust office at Bank One Plaza, Suite IL1-0126, Chicago, Illinois 60670-0126, as trustee (the "Guarantee Trustee"), for the benefit of the Holders (as defined herein) from time to time of the Preferred Securities (as defined herein) of ACE Capital Trust I, a Delaware statutory business trust (the "Issuer"). WHEREAS, pursuant to an Amended and Restated Trust Agreement, dated as of December 20, 1999, among the Trustees named therein, ACE INA Holdings Inc., a Delaware corporation and a wholly-owned subsidiary of the Guarantor ("ACE INA"), as depositor (in such capacity, the "Depositor"), and the Holders from time to time of undivided beneficial interests in the assets of the Issuer (as amended from time to time, the "Trust Agreement"), the Issuer is issuing on the date hereof $100,000,000 ($115,000,000 if the Underwriters' over-allotment option pursuant to the Underwriting Agreement is exercised in full), aggregate liquidation preference of its 8.875% Trust Originated Preferred Securities (liquidation preference $25 per preferred security) (the "Preferred Securities") representing preferred undivided beneficial interests in the assets of the Issuer and having the terms set forth in the Trust Agreement; WHEREAS, the Preferred Securities will be issued by the Issuer and the proceeds thereof, together with the proceeds from the issuance of the Issuer's Common Securities (as defined herein), will be used to purchase the Debentures (as defined herein) of ACE INA (in its capacity as issuer of the Debentures, the "Debenture Issuer"), which will be deposited with Bank One Trust Company, National Association, as Property Trustee under the Trust Agreement, as trust assets; WHEREAS, as incentive for the Holders to purchase the Preferred Securities, the Guarantor desires irrevocably and unconditionally to agree, to the extent set forth in this Guarantee Agreement, to pay to the Holders of the Preferred Securities the Guarantee Payments (as defined herein) and to make certain other payments on the terms and conditions set forth herein; and WHEREAS, the Guarantor is also executing and delivering a guarantee agreement (the "Common Securities Guarantee Agreement") with substantially identical terms to this Guarantee Agreement, for the benefit of the holders of the Common Securities, except that if an Event of Default under the Trust Agreement has occurred and is continuing, the rights of holders of the Common Securities to receive guarantee payments under the Common Securities Guarantee Agreement are subordinated, to the extent and in the manner set forth in the Common Securities Guarantee Agreement, to the rights of Holders of Preferred Securities to receive Guarantee Payments under this Guarantee Agreement. NOW, THEREFORE, in consideration of the purchase by each Holder of Preferred 4 Securities, which purchase the Guarantor hereby agrees shall benefit the Guarantor, the Guarantor executes and delivers this Guarantee Agreement for the benefit of the Holders from time to time of the Preferred Securities. ARTICLE I DEFINITIONS AND INTERPRETATIONS SECTION 1.1 Definitions and Interpretations In this Guarantee Agreement, unless the context otherwise requires: (a) capitalized terms used in this Guarantee Agreement, but not defined in the preamble hereto have the respective meanings assigned to them in this Section 1.1 or in the Trust Agreement, as the case may be; (b) a term defined anywhere in this Guarantee Agreement has the same meaning throughout; (c) all references to "the Guarantee Agreement" or "this Guarantee Agreement" are to this Preferred Securities Guarantee Agreement as modified, supplemented or amended from time to time; (d) all references in this Guarantee Agreement to Articles and Sections are to Articles and Sections of this Guarantee Agreement, unless otherwise specified; (e) a term defined in the Trust Indenture Act has the same meaning when used in this Guarantee Agreement, unless otherwise defined in this Guarantee Agreement or unless the context otherwise requires; (f) a reference to the singular includes the plural and vice versa; and (g) the masculine, feminine, or neuter genders used herein shall include the masculine, feminine and neuter genders. "Additional Amounts" means any additional amounts which are required hereby or by the terms of the Preferred Securities, under circumstances specified herein or therein, to be paid by the Guarantor in respect of certain taxes, assessments or other governmental charges imposed on Holders specified therein and which are owing to such Holders. "Affiliate" of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person; provided, however, that an Affiliate of the Guarantor shall not be deemed to include the Issuer. For the purpose of this definition, "control" when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. 5 "Capitalized Lease Obligations" means an obligation under a lease that is required to be capitalized for financial reporting purposes in accordance with generally accepted accounting principles, and the amount of Indebtedness represented by such obligation shall be the capitalized amount of such obligation determined in accordance with such principles. "Common Securities" means the securities representing common undivided beneficial interests in the assets of the Issuer. "Debenture Guarantee" means the full and unconditional payment guarantee and indemnity of the Debenture Guarantor provided for in the Indenture with respect to the Debentures. "Debenture Guarantor" means ACE Limited, in its capacity as guarantor of the Debentures under the Indenture. "Debentures" means the series of subordinated debt securities of the Debenture Issuer designated the 8.875% Junior Subordinated Deferrable Interest Debentures due 2029 held by the Property Trustee. "Event of Default" means a default by the Guarantor on any of its payment or other obligations under this Guarantee Agreement; provided, however, that, except with respect to a default in payment of any Guarantee Payments, the Guarantor shall have received notice of default and shall not have cured such default within 60 days after receipt of such notice. "Guarantee Payments" means the following payments or distributions, without duplication, with respect to the Preferred Securities, to the extent not paid or made by or on behalf of the Issuer: (i) any accrued and unpaid Distributions (as defined in the Trust Agreement) that are required to be paid on such Preferred Securities, to the extent the Issuer shall have funds on hand available therefor at such time, (ii) the redemption price, including all accumulated and unpaid Distributions to the date of redemption (the "Redemption Price") with respect to Preferred Securities called for redemption by the Issuer, to the extent the Issuer shall have funds on hand available therefor at such time and (iii) upon a voluntary or involuntary dissolution, winding-up or liquidation of the Issuer, unless Debentures are distributed to the Holders, the lesser of (a) the aggregate of the liquidation preference of $25 per Preferred Security plus accumulated and unpaid Distributions on the Preferred Securities to the date of payment, to the extent the Issuer shall have funds on hand available to make such payment at such time and (b) the amount of assets of the Issuer remaining available for distribution to Holders in liquidation of the Issuer (in either case, the "Liquidation Distribution"). "Guarantee Trustee" means Bank One Trust Company, National Association, until a Successor Guarantee Trustee has been appointed and has accepted such appointment pursuant to the terms of this Guarantee Agreement and thereafter means each such Successor Guarantee Trustee. "Holder" shall mean any holder, as registered on the books and records of the Issuer, of any Preferred Securities; provided, however, that, in determining whether the holders of the 6 requisite percentage of Preferred Securities have given any request, notice, consent or waiver hereunder, "Holder" shall not include the Guarantor, the Depositor, the Guarantee Trustee or any Affiliate of the Guarantor, the Depositor, or the Guarantee Trustee. "Indebtedness" means, with respect to any Person, (i) the principal of and any premium and interest on (a) indebtedness of such Person for money borrowed and (b) indebtedness evidenced by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable; (ii) all Capitalized Lease Obligations of such Person; (iii) all obligations of such Person issued or assumed as the deferred purchase price of property, all conditional sale obligations and all obligations under any title retention agreement (but excluding trade accounts payable arising in the ordinary course of business); (iv) all obligations of such Person for the reimbursement of any obligor on any letter of credit, banker's acceptance or similar credit transaction (other than obligations with respect to letters of credit securing obligations (other than obligations described in (i) through (iii) above) entered into in the ordinary course of business of such Person to the extent such letters of credit are not drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no later than the third Business Day following receipt by such Person of a demand for reimbursement following payment on the letter of credit); (v) all obligations of the type referred to in clauses (i) through (iv) of other Persons and all dividends of other Persons for the payment of which, in either case, such Person is responsible or liable as obligor, guarantor or otherwise; (vi) all obligations of the type referred to in clauses (i) through (v) of other Persons secured by any Lien on any property or asset of such Person (whether or not such obligation is assumed by such Person), the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured; and (vii) any amendments, modifications, refundings, renewals or extensions of any indebtedness or obligation described as Indebtedness in clauses (i) through (vi) above. "Indenture" means the Subordinated Indenture dated as of December 1, 1999 among the Debenture Issuer, the Debenture Guarantor and Bank One Trust Company, National Association, as trustee, and any indenture supplemental thereto pursuant to which the Debentures and the Debenture Guarantee are to be issued to the Property Trustee of the Issuer. "List of Holders" has the meaning specified in Section 2.2(a). "Majority in liquidation preference of the Preferred Securities" means, except as provided by the Trust Indenture Act, a vote by Holder(s), voting separately as a class, of more than 50% of the liquidation preference of all then outstanding Preferred Securities issued by the Issuer. "Officer's Certificate" means, with respect to any Person, a certificate signed by the Chairman of the Board of Directors, a Vice Chairman, the President, any Vice President, the Treasurer, an Assistant Treasurer, the Secretary or an Assistant Secretary of such Person, and delivered to the Guarantee Trustee. Any Officer's Certificate delivered with respect to compliance with a condition or covenant provided for in this Guarantee Agreement shall include: (a) a statement that the officer signing the Officer's Certificate has read the covenant or condition and the definitions relating thereto; 7 (b) a brief statement of the nature and scope of the examination or investigation undertaken by such officer in rendering the Officer's Certificate; (c) a statement that such officer has made such examination or investigation as, in such officer's opinion, is necessary to enable such officer to express an informed opinion as to whether or not such covenant or condition has been complied with; and (d) a statement as to whether, in the opinion of such officer, such condition or covenant has been complied with. "Person" means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint stock company, limited liability company, trust, unincorporated association or government or any agency or political subdivision thereof, or any other entity of whatever nature. "Responsible Officer" means, with respect to the Guarantee Trustee, any Senior Vice President, any Vice President, any Assistant Vice President, the Secretary, any Assistant Secretary, the Treasurer, any Assistant Treasurer, any Trust Officer or Assistant Trust Officer or any other officer within the Corporate Trust Department of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of that officer's knowledge of and familiarity with the particular subject. "Senior Indebtedness" means all Indebtedness of the Guarantor (including its Indebtedness, as Debenture Guarantor, under the Indenture) outstanding at any time, except (a) the Indebtedness under this Guarantee Agreement, (b) Indebtedness as to which, by the terms of the instrument creating or evidencing the same, it is provided that such Indebtedness is subordinated to or pari passu with this Guarantee Agreement or to other Indebtedness of the Guarantor which is subordinated to or pari passu with this Guarantee Agreement, (c) Indebtedness of the Guarantor to an Affiliate of the Guarantor, (d) interest accruing after the filing of a petition initiating any proceeding referred to in Section 5.1(7) and 5.1(8) of the Indenture unless such interest is an allowed claim enforceable against the Guarantor in a proceeding under federal or state bankruptcy laws, (e) trade accounts payable and (f) similar guarantee agreements issued by the Guarantor on behalf of holders of preferred securities of any other ACE Capital Trust or any trust, partnership or other entity affiliated with the Guarantor which is a financing vehicle of the Guarantor or any Affiliate of the Guarantor in connection with the issuance by such entity of preferred securities or other securities which are similar to preferred securities that are guaranteed by the Guarantor pursuant to an instrument that ranks pari passu with or junior in right of payment to this Guarantee Agreement. "Successor Guarantee Trustee" means a successor Guarantee Trustee possessing the qualifications to act as Guarantee Trustee under Section 4.1. "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended. ARTICLE II 8 TRUST INDENTURE ACT SECTION 2.1 Trust Indenture Act: Application (a) This Guarantee Agreement is subject to the provisions of the Trust Indenture Act that are required to be part of this Guarantee Agreement and shall, to the extent applicable, be governed by such provisions. (b) If any provision of this Guarantee Agreement limits, qualifies or conflicts with any duties under any required provision of the Trust Indenture Act imposed hereon by Section 318(c) thereof, such required provision shall control. SECTION 2.2 List of Holders (a) The Guarantor shall furnish or cause to be furnished to the Guarantee Trustee (a) semiannually, not later than May 1 and November 1 of each year, a list, in such form as the Guarantee Trustee may reasonably require, of the names and addresses of the Holders ("List of Holders") as of the applicable date, and (ii) at such other times as the Guarantee Trustee may request in writing, within 30 days after the receipt by the Guarantor of any such request, a List of Holders as of a date not more than 15 days prior to the time such list is furnished, in each case to the extent such information is in the possession or control of the Guarantor and is not identical to a previously supplied list of Holders or has not otherwise been received by the Guarantee Trustee in its capacity as such or in its capacity as Security Registrar (as defined in the Indenture). The Guarantee Trustee may destroy any List of Holders previously given to it on receipt of a new List of Holders. (b) The Guarantee Trustee shall comply with its obligations under Section 311(a), Section 311(b) and Section 312(b) of the Trust Indenture Act. SECTION 2.3 Reports by the Guarantee Trustee Within 60 days after September 15 of each year commencing with September 15, 2000, the Guarantee Trustee shall provide to the Holders such reports as are required by Section 313 of the Trust Indenture Act, if any, in the form and in the manner provided by Section 313 of the Trust Indenture Act. The Guarantee Trustee shall also comply with the requirements of Section 313(d) of the Trust Indenture Act. SECTION 2.4 Periodic Reports to the Guarantee Trustee The Guarantor shall provide to the Guarantee Trustee, the Securities and Exchange Commission and the Holders, such documents, reports and information, if any, as required by Section 314 of the Trust Indenture Act and the compliance certificate required by Section 314 of the Trust Indenture Act, in the form, in the manner and at the times required by Section 314 of the Trust Indenture Act. 9 SECTION 2.5 Evidence of Compliance with Conditions Precedent The Guarantor shall provide to the Guarantee Trustee such evidence of compliance with such conditions precedent, if any, provided for in this Guarantee Agreement that relate to any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion required to be given by an officer pursuant to Section 314(c)(1) may be given in the form of an Officer's Certificate. SECTION 2.6 Events of Default; Waiver The Holders of a Majority in liquidation preference of the Preferred Securities may, by vote, on behalf of all Holders, waive any past Event of Default and its consequences. Upon such waiver, any such Event of Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured, for every purpose of this Guarantee Agreement, but no such waiver shall extend to any subsequent or other default or Event of Default or impair any right consequent thereon. SECTION 2.7 Event of Default; Notice (a) The Guarantee Trustee shall, within 90 days after the occurrence of an Event of Default known to the Guarantee Trustee, transmit by mail, first class postage prepaid, to the Holders, notices of all such Events of Default, unless such defaults have been cured or waived before the giving of such notice, provided, except in the case of a default in the payment of a Guarantee Payment, the Guarantee Trustee shall be protected in withholding such notice if and so long as a the board of directors, the executive committee or a trust committee of directors and/or Responsible Officers of the Guarantee Trustee in good faith determines that the withholding of such notice is in the interests of the Holders. (b) The Guarantee Trustee shall not be deemed to have knowledge of any Event of Default unless the Guarantee Trustee shall have received written notice, or a Responsible Officer of the Guarantee Trustee charged with the administration of the Trust Agreement shall have obtained written notice, of such Event of Default. SECTION 2.8 Conflicting Interests The Trust Agreement shall be deemed to be specifically described in this Guarantee Agreement for the purposes of clause (i) of the first proviso contained in Section 310(b) of the Trust Indenture Act. ARTICLE III POWERS, DUTIES AND RIGHTS OF GUARANTEE TRUSTEE SECTION 3.1 Powers and Duties of the Guarantee Trustee (a) This Guarantee Agreement shall be held by the Guarantee Trustee for the benefit of the 10 Holders, and the Guarantee Trustee shall not transfer this Guarantee Agreement to any Person except a Holder exercising his or her rights pursuant to Section 5.4(iv) or to a Successor Guarantee Trustee on acceptance by such Successor Guarantee Trustee of its appointment to act as Successor Guarantee Trustee. The right, title and interest of the Guarantee Trustee shall automatically vest in any Successor Guarantee Trustee, upon acceptance by such Successor Guarantee Trustee of its appointment hereunder, and such vesting and cessation of title shall be effective whether or not conveyancing documents have been executed and delivered pursuant to the appointment of such Successor Guarantee Trustee. (b) If an Event of Default has occurred and is continuing, the Guarantee Trustee shall enforce this Guarantee Agreement for the benefit of the Holders. (c) The Guarantee Trustee, before the occurrence of any Event of Default and after the curing or waiver of all Events of Default that may have occurred, shall undertake to perform only such duties as are specifically set forth in this Guarantee Agreement, and no implied covenants shall be read into this Guarantee Agreement against the Guarantee Trustee. In case an Event of Default has occurred (that has not been cured or waived pursuant to Section 2.6), the Guarantee Trustee shall exercise such of the rights and powers vested in it by this Guarantee Agreement, and use the same degree of care and skill in its exercise thereof, as a prudent person would exercise or use under the circumstances in the conduct of his or her own affairs. (d) No provision of this Guarantee Agreement shall be construed to relieve the Guarantee Trustee from liability for its own negligent action, its negligent failure to act or its own bad faith or willful misconduct, except that: (i) prior to the occurrence of any Event of Default and after the curing or waiving of such Events of Default that may have occurred: (A) the duties and obligations of the Guarantee Trustee shall be determined solely by the express provisions of this Guarantee Agreement, and the Guarantee Trustee shall not be liable except for the performance of such duties and obligations as are specifically set forth in this Guarantee Agreement, and (B) in the absence of bad faith on the part of the Guarantee Trustee, the Guarantee Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon any certificates or opinions furnished to the Guarantee Trustee and conforming to the requirements of this Guarantee Agreement; but in the case of any such certificates or opinions that by any provision hereof are specifically required to be furnished to the Guarantee Trustee, the Guarantee Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Guarantee Agreement; (ii) the Guarantee Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer of the Guarantee Trustee, unless it shall be proved that the Guarantee Trustee was negligent in ascertaining the pertinent facts upon which such 11 judgment was made; (iii) the Guarantee Trustee shall not be liable with respect to any action taken or omitted to be taken by it in good faith in accordance with the direction of the Holders of not less than a Majority in liquidation preference of the Preferred Securities relating to the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee, or exercising any trust or power conferred upon the Guarantee Trustee under this Guarantee Agreement; and (iv) no provision of this Guarantee Agreement shall require the Guarantee Trustee to expend or risk its own funds or otherwise incur personal financial liability in the performance of any of its duties or in the exercise of any of its rights or powers, if the Guarantee Trustee shall have reasonable grounds for believing that the repayment of such funds or liability is not reasonably assured to it under the terms of this Guarantee Agreement or adequate indemnity against such risk or liability is not reasonably assured to it. SECTION 3.2 Certain Rights of the Guarantee Trustee (a) Subject to the provisions of Section 3.1: (i) The Guarantee Trustee may rely upon, and shall be fully protected in acting or refraining from acting upon, any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document believed by it to be genuine and to have been signed, sent or presented by the proper party or parties. (ii) Any direction or act of the Guarantor contemplated by this Guarantee Agreement shall be sufficiently evidenced by an Officer's Certificate unless otherwise prescribed herein. (iii) Whenever, in the administration of this Guarantee Agreement, the Guarantee Trustee shall deem it desirable that a matter be proved or established before taking, suffering or omitting any action hereunder, the Guarantee Trustee (unless other evidence is herein specifically prescribed) may, in the absence of bad faith on its part, request and rely upon an Officer's Certificate which, upon receipt of such request, shall be promptly delivered by the Guarantor. (iv) The Guarantee Trustee may consult with competent legal counsel, and the written advice or opinion of such counsel with respect to legal matters shall be full and complete authorization and protection in respect of any action taken, suffered or omitted to be taken by it hereunder in good faith and in accordance with such advice or opinion. Such counsel may be counsel to the Guarantor or any of its Affiliates and may include any of its employees. The Guarantee Trustee shall have the right at any time to seek instructions concerning the administration of this Guarantee Agreement from any court of competent jurisdiction. 12 (v) The Guarantee Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Guarantee Agreement at the request or direction of any Holder, unless such Holder shall have provided to the Guarantee Trustee such security and indemnity as would satisfy a reasonable person in the position of the Guarantee Trustee, against the costs, expenses (including attorneys' fees and expenses) and liabilities that might be incurred by it in complying with such request or direction, including such reasonable advances as may be requested by the Guarantee Trustee; provided that, nothing contained in this Section 3.2(a)(v) shall be taken to relieve the Guarantee Trustee, upon the occurrence of an Event of Default, of its obligation to exercise the rights and powers vested in it by this Guarantee Agreement. (vi) The Guarantee Trustee shall not be bound to make any investigation into the facts or matters stated in any resolution, certificate, statement, instrument, opinion, report, notice, request, direction, consent, order, bond, debenture, note, other evidence of indebtedness or other paper or document, but the Guarantee Trustee, in its discretion, may make such further inquiry or investigation into such facts or matters as it may see fit. (vii) The Guarantee Trustee may execute any of the trusts or powers hereunder or perform any duties hereunder either directly or by or through agents or attorneys, and the Guarantee Trustee shall not be responsible for any misconduct or negligence on the part of any such agent or attorney appointed with due care by it hereunder. (viii) Any action taken by the Guarantee Trustee or its agents hereunder shall bind the Holders, and the signature of the Guarantee Trustee or its agents alone shall be sufficient and effective to perform any such action. No third party shall be required to inquire as to the authority of the Guarantee Trustee to so act or as to its compliance with any of the terms and provisions of this Guarantee Agreement, both of which shall be conclusively evidenced by the Guarantee Trustee's or its agent's taking such action. (ix) Whenever in the administration of this Guarantee Agreement the Guarantee Trustee shall deem it desirable to receive instructions with respect to enforcing any remedy or right or taking any other action hereunder, the Guarantee Trustee (A) may request instructions from the Holders of a Majority in liquidation preference of the Preferred Securities, (B) may refrain from enforcing such remedy or right or taking such other action until such instructions are received, and (C) shall be protected in acting in accordance with such instructions. (b) No provision of this Guarantee Agreement shall be deemed to impose any duty or obligation on the Guarantee Trustee to perform any act or acts or exercise any right, power, duty or obligation conferred or imposed on it in any jurisdiction in which it shall be illegal, or in which the Guarantee Trustee shall be unqualified or incompetent in accordance with applicable law, to perform any such act or acts or to exercise any such right, power, duty or obligation. No permissive power or authority available to the Guarantee Trustee shall be construed to be a duty to act in accordance with such power and authority. SECTION 3.3 Indemnity 13 The Guarantor agrees to indemnify the Guarantee Trustee for, and to hold it harmless against, any loss, liability or expense incurred without negligence, bad faith or willful misconduct on the part of the Guarantee Trustee, arising out of or in connection with the acceptance or administration of this Guarantee Agreement, including the costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The Guarantee Trustee will not claim or exact any lien or charge on any guarantee agreement as a result of any amount due to it under this Guarantee Agreement. The provisions of this Section 3.3 shall survive the termination of this Guarantee Agreement or the resignation or removal of the Guarantee Trustee. ARTICLE IV GUARANTEE TRUSTEE SECTION 4.1 Guarantee Trustee; Eligibility (a) There shall at all times be a Guarantee Trustee which shall: (i) not be an Affiliate of the Guarantor or the Depositor; and (ii) be a Person that is eligible pursuant to the Trust Indenture Act to act as such and has a combined capital of at least 50 million U.S. dollars ($50,000,000), and shall be a corporation meeting the requirements of Section 310(c) of the Trust Indenture Act. If such corporation publishes reports of condition at least annually, pursuant to law or to the requirements of the supervising or examining authority, then, for the purposes of this Section 4.1(a)(ii), the combined capital and surplus of such corporation shall be deemed to be its combined capital and surplus as set forth in its most recent report of condition so published. (b) If at any time the Guarantee Trustee shall cease to be eligible to so act under Section 4.1(a), the Guarantee Trustee shall immediately resign in the manner and with the effect set out in Section 4.2(c). (c) If the Guarantee Trustee has or shall acquire any "conflicting interest" within the meaning of Section 310(b) of the Trust Indenture Act, the Guarantee Trustee and Guarantor shall in all respects comply with the provisions of Section 310(b) of the Trust Indenture Act. SECTION 4.2 Appointment, Removal and Resignation of Guarantee Trustees (a) Subject to Section 4.2(b), the Guarantee Trustee may be appointed or removed with or without cause at any time by the Guarantor. (b) The Guarantee Trustee shall not be removed in accordance with Section 4.2(a) until a Successor Guarantee Trustee has been appointed and has accepted such appointment by written 14 instrument executed by such Successor Guarantee Trustee and delivered to the Guarantor. (c) The Guarantee Trustee appointed to office shall hold office until a Successor Guarantee Trustee shall have been appointed or until its removal or resignation. The Guarantee Trustee may resign from office (without need for prior or subsequent accounting) by an instrument in writing executed by the Guarantee Trustee and delivered to the Guarantor, which resignation shall not take effect until a Successor Guarantee Trustee has been appointed and has accepted such appointment by instrument in writing executed by such Successor Guarantee Trustee and delivered to the Guarantor and the resigning Guarantee Trustee. (d) If no Successor Guarantee Trustee shall have been appointed and accepted appointment as provided in this Section 4.2 within 60 days after delivery to the Guarantor of an instrument of resignation, the resigning Guarantee Trustee may petition any court of competent jurisdiction for appointment of a Successor Guarantee Trustee. Such court may thereupon, after prescribing such notice, if any, as it may deem proper, appoint a Successor Guarantee Trustee. ARTICLE V GUARANTEE SECTION 5.1 Guarantee The Guarantor irrevocably and unconditionally agrees to pay in full to the Holders the Guarantee Payments (without duplication of amounts theretofore paid by or on behalf of the Issuer), as and when due, regardless of any defense, right of set-off or counterclaim that the Issuer may have or assert, other then the defense of payment. The Guarantor's obligation to make a Guarantee Payment may be satisfied by direct payment of the required amounts by the Guarantor to the Holders or by causing the Issuer, through the Debenture Issuer, to pay such amounts to the Holders. SECTION 5.2 Waiver of Notice and Demand The Guarantor hereby waives notice of acceptance of this Guarantee Agreement and of any liability to which it applies or may apply, presentment, demand for payment, any right to require a proceeding first against the Guarantee Trustee, Issuer or any other Person before proceeding against the Guarantor, protest, notice of nonpayment, notice of dishonor, notice of redemption and all other notices and demands. SECTION 5.3 Obligations Not Affected The obligations, covenants, agreements and duties of the Guarantor under this Guarantee Agreement shall in no way be affected or impaired by reason of the happening from time to time of any of the following: (a) the release or waiver, by operation of law or otherwise, of the performance or observance by the Issuer of any express or implied agreement, covenant, term or condition relating to the 15 Preferred Securities to be performed or observed by the Issuer; (b) the extension of time for the payment by the Issuer of all or any portion of the Distributions, Redemption Price, Liquidation Distribution or any other sums payable under the terms of the Preferred Securities or the extension of time for the performance of any other obligation under, arising out of, or in connection with, the Preferred Securities (other than an extension of time for payment of Distributions, Redemption Price, Liquidation Distribution or other sum payable that results from the extension of any interest payment period on the Debentures or so provided by the Indenture); (c) any failure, omission, delay or lack of diligence on the part of the Holders to enforce, assert or exercise any right, privilege, power or remedy conferred on the Holders pursuant to the terms of the Preferred Securities, or any action on the part of the Issuer granting indulgence or extension of any kind; (d) the voluntary or involuntary liquidation, dissolution, sale of any collateral, receivership, insolvency, bankruptcy, assignment for the benefit of creditors, reorganization, arrangement, composition or readjustment of debt of, or other similar proceedings affecting, the Issuer or any of the assets of the Issuer; (e) any invalidity of, or defect or deficiency in, the Preferred Securities; (f) the settlement or compromise of any obligation guaranteed hereby or hereby incurred; or (g) any other circumstance whatsoever that might otherwise constitute a legal or equitable discharge or defense of a guarantor, it being the intent of this Section 5.3 that the obligations of the Guarantor hereunder shall be absolute and unconditional under any and all circumstances. There shall be no obligation of the Holders to give notice to, or obtain the consent of, the Guarantor with respect to the happening of any of the foregoing. SECTION 5.4 Rights of Holders The Guarantor expressly acknowledges that: (i) this Guarantee Agreement will be deposited with the Guarantee Trustee to be held for the benefit of the Holders; (ii) the Guarantee Trustee has the right to enforce this Guarantee Agreement on behalf of the Holders; (iii) the Holders of a Majority in liquidation preference of the Preferred Securities have the right to direct the time, method and place of conducting any proceeding for any remedy available to the Guarantee Trustee in respect of this Guarantee Agreement or to direct the exercise of any trust or power conferred upon the Guarantee Trustee under this Guarantee Agreement; and (iv) any Holder may, to the extent permitted by law, institute a legal proceeding directly against the Guarantor to enforce its rights under this Guarantee Agreement, without first instituting a legal proceeding against the Guarantee Trustee, the Issuer, the Debenture Issuer or any other Person. The Guarantor waives any right or remedy to require that any such action on this Guarantee Agreement be brought first against the Issuer or any other Person or entity before so proceeding directly against the Guarantor. 16 SECTION 5.5 Guarantee of Payment This Guarantee Agreement creates a guarantee of payment and not of collection. This Guarantee Agreement will not be discharged except by payment of the Guarantee Payments in full (without duplication of amounts theretofore paid by the Issuer) or upon distribution of Debentures to Holders as provided in the Trust Agreement. SECTION 5.6 Subrogation The Guarantor shall be subrogated to all rights, if any, of the Holders against the Issuer in respect of any amounts paid to such Holders by the Guarantor under this Guarantee Agreement; provided, however, that the Guarantor shall not (except to the extent required by mandatory provisions of law) be entitled to enforce or exercise any right that it may acquire by way of subrogation or any indemnity, reimbursement or other agreement, in all cases as a result of payment under this Guarantee Agreement, if, at the time of any such payment, any amounts are due and unpaid under this Guarantee Agreement. If any amount shall be paid to the Guarantor in violation of the preceding sentence, the Guarantor agrees to hold such amount in trust for the Holders and to pay over such amount to the Holders. SECTION 5.7 Independent Obligations The Guarantor acknowledges that its obligations hereunder are independent of the obligations of the Issuer with respect to the Preferred Securities, and that the Guarantor shall be liable as principal and as debtor hereunder to make Guarantee Payments pursuant to the terms of this Guarantee Agreement notwithstanding the occurrence of any event referred to in subsections (a) through (g), inclusive, of Section 5.3 hereof. SECTION 5.8 Net Payments All Guarantee Payments required to be made hereunder shall be made by the Guarantor without withholding or deduction at source for, or on account of, any present or future taxes, fees, duties, assessments or governmental charges of whatever nature imposed or levied by or on behalf of the Cayman Islands or Bermuda (each, a "taxing jurisdiction") or any political subdivision or taxing authority thereof or therein, unless such taxes, fees, duties, assessments or governmental charges are required to be withheld or deducted by (i) the laws (or any regulations or rulings promulgated thereunder) of a taxing jurisdiction or any political subdivision or taxing authority thereof or therein or (ii) an official position regarding the application, administration, interpretation or enforcement of any such laws, regulations or rulings (including, without limitation, a holding by a court of competent jurisdiction or by a taxing authority in a taxing jurisdiction or any political subdivision thereof). If a withholding or deduction at source is required, the Guarantor shall, subject to certain limitations and exceptions set forth below, pay to the Holder of any Preferred Security such Additional Amounts as may be necessary so that every Guarantee Payment made to such Holder, after such withholding or deduction, shall not be less than the amount provided for in this Guarantee Agreement to be then due and payable; provided, however, that the Guarantor shall not be required to make payment of such Additional Amounts for or on account of: 17 (1) any tax, fee, duty, assessment or governmental charge of whatever nature which would not have been imposed but for the fact that such Holder: (A) was a resident, domiciliary or national of, or engaged in business or maintained a permanent establishment or was physically present in, the relevant taxing jurisdiction or any political subdivision thereof or otherwise had some connection with the relevant taxing jurisdiction other than by reason of the mere ownership of, or receipt of payment under, such Preferred Security; (B) presented such Preferred Security for payment in the relevant taxing jurisdiction or any political subdivision thereof, unless such Preferred Security could not have been presented for payment elsewhere; or (C) presented such Preferred Security more than thirty (30) days after the date on which the payment in respect of such Preferred Security first became due and payable or provided for, whichever is later, except to the extent that the Holder would have been entitled to such Additional Amounts if it had presented such Preferred Security for payment on any day within such period of thirty (30) days; (2) any estate, inheritance, gift, sale, transfer, personal property or similar tax, assessment or other governmental charge; (3) any tax, assessment or other governmental charge that is imposed or withheld by reason of the failure by the Holder or the beneficial owner of such Preferred Security to comply with any reasonable request by the Guarantor or the Trust addressed to the Holder within 90 days of such request (A) to provide information concerning the nationality, residence or identity of the Holder or such beneficial owner or (B) to make any declaration or other similar claim or satisfy any information or reporting requirement, which, in the case of (A) or (B), is required or imposed by statute, treaty, regulation or administrative practice of the relevant taxing jurisdiction or any political subdivision thereof as a precondition to exemption from all or part of such tax, assessment or other governmental charge; or (4) any combination of items (1), (2) and (3); nor shall Additional Amounts be paid with respect to any Guarantee Payment to any Holder who is a fiduciary or partnership or other than the sole beneficial owner of the related Preferred Security to the extent such payment would be required by the laws of the relevant taxing jurisdiction (or any political subdivision or relevant taxing authority thereof or therein) to be included in the income for tax purposes of a beneficiary or partner or settlor with respect to such fiduciary or a member of such partnership or a beneficial owner who would not have been entitled to such Additional Amounts had it been the Holder of such Preferred Security. ARTICLE VI LIMITATION OF TRANSACTIONS; RANKING SECTION 6.1 Limitation of Transactions The Guarantor hereby covenants and agrees that, so long as any Preferred Securities remain outstanding, it will not, and will not permit any of its Subsidiaries (including the Debenture Issuer) to, (a) declare or pay any dividends or distributions on, or redeem, purchase, acquire or make a liquidation payment with respect to, any of the outstanding capital stock of the 18 Debenture Issuer or the Guarantor, as the case may be, or (b) make any payment of principal of, interest or premium, if any, on or repay, repurchase or redeem any debt security of the Debenture Issuer or the Guarantor, as the case may be, that ranks junior in interest to the Debentures or the guarantee in respect thereof, as the case may be, or make any guarantee payments with respect to any guarantee by the Debenture Issuer or the Guarantor, as the case may be, of the debt securities of any Subsidiary of the Debenture Issuer or the Guarantor, as the case may be, if such guarantee ranks junior in interest to the Debentures or the guarantee in respect thereof, as the case may be (other than (i) dividends or distributions on the Capital Stock (as defined in the Indenture) of the Debenture Issuer paid or made to the Guarantor and dividends or distributions in Common Stock (as defined in the Indenture) of the Debenture Issuer or the Guarantor, as the case may be, (ii) redemptions or purchases of any rights outstanding under a shareholder rights plan of the Debenture Issuer or the Guarantor, as the case may be, or any successor to such rights plan, or the declaration of a dividend of such rights or the issuance of stock under such plans in the future, (iii) payments under any preferred securities guarantee issued by the Guarantor, and (iv) purchases of Common Stock related to the issuance of Common Stock under any benefit plans of the Debenture Issuer, the Guarantor or its Subsidiaries, as the case may be, for their respective directors, officers or employees) if at such time (1) there shall have occurred any event of which the Debenture Issuer or the Guarantor, as the case may be, has actual knowledge that (A) with the giving of notice or the lapse of time or both would constitute an Event of Default under the Indenture and (B) in respect of which the Debenture Issuer or the Guarantor, as the case may be, shall not have taken reasonable steps to cure, (2) the Guarantor shall be in default with respect to its payment of any obligations under this Guarantee Agreement or (3) the Debenture Issuer shall have given notice of its election to begin an Extension Period (as defined in the Indenture) with respect to the Debentures as provided in the Indenture and shall not have rescinded such notice, or such Extension Period, or any extension thereof, shall be continuing. SECTION 6.2 Ranking This Guarantee Agreement will constitute an unsecured obligation of the Guarantor and will rank subordinate and junior in right of payment to all Senior Indebtedness of the Guarantor. SECTION 6.3 Pari Passu Guarantees This Guarantee Agreement shall rank pari passu with any similar guarantee agreements issued by the Guarantor on behalf of holders of preferred securities of any other ACE Capital Trust or any trust, partnership or other entity affiliated with the Guarantor which is a financing vehicle of the Guarantor or any Affiliate of the Guarantor in connection with the issuance by such entity of preferred securities or other securities which are similar to preferred securities that are guaranteed by the Guarantor pursuant to an instrument that ranks pari passu with or junior in right of payment to this Guarantee Agreement. ARTICLE VII TERMINATION SECTION 7.1 Termination 19 This Guarantee Agreement shall terminate and be of no further force and effect upon (i) full payment of the Redemption Price of all Preferred Securities, (ii) the distribution of the Debentures to all Holders in exchange for the Preferred Securities or (iii) full payment of the amounts payable in accordance with the Trust Agreement upon liquidation of the Issuer. Notwithstanding the foregoing, this Guarantee Agreement will continue to be effective or will be reinstated, as the case may be, if at any time any Holder must restore payment of any sums paid with respect to the Preferred Securities or under this Guarantee Agreement. ARTICLE VIII MISCELLANEOUS SECTION 8.1 Successors and Assigns All guarantees and agreements contained in this Guarantee Agreement shall bind the successors, assigns, receivers, trustees and representatives of the Guarantor and shall inure to the benefit of the Holders of the Preferred Securities then outstanding. Except in connection with a consolidation, amalgamation or merger or conveyance, transfer or lease involving the Guarantor that is permitted under Article 8 of the Indenture and pursuant to which the assignee agrees in writing to perform the Guarantor's obligations hereunder, the Guarantor shall not assign its obligations hereunder. SECTION 8.2 Amendments Except with respect to any changes that do not adversely affect the rights of Holders in any material respect (in which case no consent of Holders will be required), this Guarantee Agreement may only be amended with the prior approval of the Holders of at least a Majority in liquidation preference of the Preferred Securities. The provisions of Article VI of the Trust Agreement concerning meetings of Holders apply to the giving of such approval. SECTION 8.3 Notices Any notice, request or other communication required or permitted to be given hereunder shall be in writing, duly signed by the party giving such notice, and shall be delivered, telecopied or mailed by first class mail, as follows: (a) If given to the Guarantee Trustee, at the Guarantee Trustee's mailing address set forth below (or such other address as the Guarantee Trustee may give notice of to the Guarantor and the Holders): Bank One Trust Company, National Association Bank One Plaza Suite IL1-0126 Chicago, Illinois 60670-0126 Attention: Corporate Trust Services Division 20 (b) If given to the Guarantor, at the Guarantor's mailing address set forth below (or such other address as the Guarantor may give notice of to the Holders): ACE Limited The ACE Building 30 Woodbourne Avenue Hamilton, HM 08, Bermuda Attn: General Counsel and Secretary (c) If given to the Issuer, in care of the Guarantee Trustee, at the Issuer's (and the Guarantee Trustee's) address set forth below or such other address as the Guarantee Trustee on behalf of the Issuer may give notice to the Holders: ACE Capital Trust I c/o ACE INA Holdings Inc. Two Liberty Place 1601 Chestnut Street Philadelphia, Pennsylvania 19101 Attn: General Counsel and Secretary with a copy to: Bank One Trust Company, National Association Bank One Plaza Suite IL1-0126 Chicago, Illinois 60670-0126 Attention: Corporate Trust Services Division (d) If given to any Holder, at the address set forth on the books and records of the Issuer. All such notices shall be deemed to have been given when received in person, telecopied with receipt confirmed, or mailed by first class mail, postage prepaid except that if a notice or other document is refused delivery or cannot be delivered because of a changed address of which no notice was given, such notice or other document shall be deemed to have been delivered on the date of such refusal or inability to deliver. SECTION 8.4 Benefit This Guarantee Agreement is solely for the benefit of the Holders and is not separately transferable from the Preferred Securities. SECTION 8.5 Governing Law THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY, AND 21 CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND PERFORMED IN THAT STATE. SECTION 8.6 Submission to Jurisdiction The Guarantor agrees that any judicial proceedings instituted in relation to any matter arising under this Guarantee Agreement may be brought in any United States Federal or New York State court sitting in the Borough of Manhattan, The City of New York, New York to the extent that such court has subject matter jurisdiction over the controversy, and, by execution and delivery of this Guarantee Agreement, the Guarantor hereby irrevocably accepts, generally and unconditionally, the jurisdiction of the aforesaid courts, acknowledges their competence and irrevocably agrees to be bound by any judgement rendered in such proceeding. The Guarantor also irrevocably and unconditionally waives for the benefit of the Guarantee Trustee and the Holders any immunity from jurisdiction and any immunity from legal process (whether through service or notice, attachment prior to judgement, attachment in the aid of execution, execution or otherwise) in respect of this Guarantee Agreement. The Guarantor hereby irrevocably designates and appoints for the benefit of the Guarantee Trustee and the Holders for the term of this Guarantee Agreement ACE USA, Inc. 1133 Avenue of the Americas, 32nd Floor, New York, New York 10036, as its agent to receive on its behalf service of all process (with a copy of all such service of process to be delivered to Peter N. Mear, General Counsel and Secretary, ACE Limited, The ACE Building, 30 Woodbourne Avenue, Hamilton, HM 08, Bermuda) brought against it with respect to any such proceeding in any such court in The City of New York, such service being hereby acknowledged by the Guarantor to be effective and binding service on it in every respect whether or not the Guarantor shall then be doing or shall have at any time done business in New York. Such appointment shall be irrevocable so long as any of the Preferred Securities or the obligations of the Guarantor hereunder remain outstanding, or until the appointment of a successor by the Guarantor and such successor's acceptance of such appointment. Upon such acceptance, the Guarantor shall notify the Guarantee Trustee of the name and address of such successor. The Guarantor further agrees for the benefit of the Guarantee Trustee and the Holders to take any and all action, including the execution and filing of any and all such documents and instruments, as may be necessary to continue such designation and appointment of said ACE USA, Inc. in full force and effect so long as any of the Preferred Securities or the obligations of the Guarantor hereunder shall be outstanding. The Guarantee Trustee shall not be obligated and shall have no responsibility with respect to any failure by the Guarantor to take any such action. Nothing herein shall affect the right to serve process in any other manner permitted by any law or limit the right of the Guarantee Trustee or any Holder to institute proceedings against the Guarantor in the courts of any other jurisdiction or jurisdictions. SECTION 8.7 Judgment Currency The Guarantor agrees, to the fullest extent that it may effectively do so under applicable law, that (a) if for the purpose of obtaining judgment in any court it is necessary to convert the sum due in respect of any Guarantee Payment (the "Required Currency") into a currency in which a judgment will be rendered (the "Judgment Currency"), the rate of exchange used shall be 22 the rate at which in accordance with normal banking procedures the Guarantee Trustee could purchase in The City of New York the requisite amount of the Required Currency with the Judgment Currency on the New York Banking Day preceding the day on which a final unappealable judgment is given and (b) its obligations under this Guarantee Agreement to make payments in the Required Currency (i) shall not be discharged or satisfied by any tender, or any recovery pursuant to any judgment (whether or not entered in accordance with clause (a)), in any currency other than the Required Currency, except to the extent that such tender or recovery shall result in the actual receipt, by the payee, of the full amount of the Required Currency expressed to be payable in respect of such payments, (ii) shall be enforceable as an alternative or additional cause of action for the purpose of recovering in the Required Currency the amount, if any, by which such actual receipt shall fall short of the full amount of the Required Currency so expressed to be payable and (iii) shall not be affected by judgment being obtained for any other sum due under this Guarantee Agreement. For purposes of the foregoing, "New York Banking Day" means any day except a Saturday, Sunday or a legal holiday in The City of New York or a day on which banking institutions in The City of New York are authorized or obligated by law, regulation or executive order to be closed. 23 THIS PREFERRED SECURITIES GUARANTEE AGREEMENT is executed as of the day and year first above written. ACE LIMITED, as Guarantor By: Name: Title: BANK ONE TRUST COMPANY, NATIONAL ASSOCIATION, as Guarantee Trustee By: Name: Title: 24 EX-10.44 9 SERVICE AGREEMENT BTWN ACE LONDON & J.R. CHARMAN Exhibit 10.44 DATED 9 July 1998 ---------------------------------------- ACE LONDON SERVICES LIMITED(1) - and - JOHN ROBERT CHARMAN(2) ________________________________________ _____ SERVICE AGREEMENT ________________________________________ _____ CONFORMED COPY Lovell White Durrant 65 Holborn Viaduct London EC1A 2DY B2/NKA/NMF - -------------------------------------------------------------------------------- CONTENTS
Clause Page No. 1. Interpretation 1 2. Commencement and term 3 3. Obligations during employment 3 4. Further obligations of the Executive 5 5. Remuneration 6 6. Pension scheme 7 7. Insurances 7 8. Car allowance 8 9. Expenses 8 10. Holidays 8 11. Incapacity 9 12. Confidentiality 10 13. Termination of employment 10 14. Executive's covenants 12 15. Computer software 17 16. Disciplinary and grievance procedures 18 17. Directorship 18 18. Registration in accordance with the Lloyd's Individual Registration 18 19. Lloyds Model Code for dealing in securities 18 20. Dealing in Company securities 19 21. Health and safety 19 22. Collective agreements 19 23. No smoking policy 19 24. Notices 20 25. Miscellaneous 20
- -------------------------------------------------------------------------------- THIS AGREEMENT is made the 9 July 1998 BETWEEN: (1) ACE London Services Limited whose registered office is at Crosby Court 38 Bishopsgate London EC2N 4DL (the "Company"); and (2) John Robert Charman of Dell House, Wilderness Avenue, Sevenoaks, Kent TN15 0EA (the "Executive") WHEREAS: (A) It is agreed that the Company shall employ the Executive upon and subject to the following terms and conditions. (B) This agreement is conditional upon and will take effect upon the offer by ACE Limited for Tarquin Limited becoming or being declared unconditional in all respects. In the event that the offer does not become unconditional this agreement will be of no further force or effect and neither the Company nor the Executive will be bound by the terms of this agreement. IT IS AGREED I. Interpretation 1.1 In this agreement the following expressions have the following meanings: "Associated Company" (a) a holding company of the Company; or (b) any subsidiary of any such holding company or of the Company; or (c) a company over which the Company has control within the meaning of s.840 Income and Corporation Taxes Act 1988; "the Board" the Board of Directors for the time being of the -2- Company including any duly appointed committee thereof or the directors present at a meeting of the directors of the Company at which a quorum is present but excluding the Executive (as appropriate); "Commencement Date" the date of this agreement; "Group" means the Company and any Associated Company at the date of this agreement or from time to time and "Group Company" shall mean any of them; 1.2 The headings in this agreement are for convenience only and shall not affect its construction or interpretation. 1.3 References in this agreement to clauses and paragraphs are references to clauses and paragraphs to this agreement. 1.4 Any reference in this agreement to a person shall where the context permits include a reference to a body corporate and to any unincorporated body of persons. 1.5 Any word in this agreement which denotes the singular shall where the context permits include the plural and vice versa and any word in this agreement which denotes to the masculine gender shall where the context permits include the feminine and/or the neuter genders and vice versa. 1.6 Any reference in this agreement to a statutory provision shall be deemed to include a reference to any statutory amendment modification or re-enactment of it. 1.7 This agreement contains the entire understanding between the parties and supersedes all (if any) subsisting agreements arrangements and understandings (written or oral) relating to the employment of the Executive which such agreements arrangements and understandings shall be deemed to have been terminated by mutual consent. The Executive acknowledges that he has not entered into this agreement in reliance on any warranty representation or undertaking which is not -3- contained in or specifically incorporated in this agreement. 1.8 The various clauses and subclauses of this agreement are severable and if any clause or subclause or identifiable part thereof is held to be invalid or unenforceable by any court of competent jurisdiction then such invalidity or unenforceability shall not affect the validity or enforceability of the remaining clauses or subclauses or identifiable parts thereof in this agreement. 1.9 This agreement is governed by and shall be construed in accordance with English law and the parties to this agreement hereby submit to the exclusive jurisdiction of the English court 2. Commencement and term 2.1 The Executive's employment began on the Commencement Date and the Executive's period of continuous employment for statutory purposes began on 4 August 1986. 2.2 The Executive shall be employed from the Commencement Date and his employment shall (subject as hereinafter provided) be for an initial fixed period of five years and shall continue thereafter until terminated by either party giving to the other not less than 12 months written notice to expire no earlier than at the end of the initial five year fixed term. 2.3 The Company may at its absolute discretion elect to terminate the employment of the Executive with immediate effect by payment in lieu of notice at the rate set out in clause 5 below including the Executive's gross pension contributions for the notice period in accordance with clause 6 below. 2.4 In any event the Executive's employment will terminate automatically on his 60th birthday. -4- 3. Obligations during employment 3.1 The Executive shall during the continuance of his employment: (a) serve such Group Companies as required by the Board to the best of his ability in the capacity of Chief Executive Officer and Director or in such other capacity as may be agreed between the Executive and the Board; (b) faithfully and diligently perform such duties and exercise such powers consistent with them as the Board (or anyone authorised by the Board) may from time to time properly assign to or confer upon him; (c) if and so long as the Board so directs perform and exercise the said duties or powers on behalf of any Associated Company and act as a director or other officer of any Associated Company; (d) at all times and in all respects obey the lawful and reasonable directions of the Board; and (e) promptly give to the Board (in writing if so requested) all such information explanations and assistance as it may require in connection with the business and affairs of the Company and any Associated Company for which he is required to perform duties; (f) unless prevented by sickness injury or other incapacity or as otherwise agreed by the Board devote the whole of his time attention and abilities during his hours of work (which shall be normal business hours and such additional hours as may be reasonably necessary for the proper performance of his duties) to the business and affairs of the Company and any Associated Company for which he is required to perform duties; and (g) work at the Company's offices at 1 Minster Court, Mincing Lane, London EC3R 7AA or such other place of business of the Company or any Associated -5- Company within the United Kingdom which the Board may reasonably require. The Executive may be required to travel overseas from time to time, but unless otherwise agreed with the Board will not be required to live outside the United Kingdom; (h) at such times as the Board may reasonably request and at the expense of the Company undergo a medical examination by a medical practitioner of the Company's choice. The Executive authorises the medical practitioner to disclose to the Company any report or test results prepared or obtained as a result of that examination and to discuss with it any matters arising out of the examination which might prevent the Executive properly performing his duties. 3.2 The Executive accepts that with his consent (which he will not unreasonably withhold or delay); (a) the Company may require him to perform duties for any other Associated Company; and (b) the Company may appoint any other person to act jointly with him. 3.3 Notwithstanding the foregoing or any other provision of this agreement if either party to this agreement shall terminate the Executive's employment on notice in accordance with clause 2.2 above then the Company may exclude the Executive from any premises of the Company or any Associated Company during such notice period for a maximum period of six months ("the Garden Leave Period"). (a) During the Garden Leave Period the Company shall: (i) be under no obligation to vest in or assign to the Executive any powers or duties; or (ii) provide any work for the Executive. -6- (b) During the Garden Leave Period the Executive will continue to be an employee of the Company and will be entitled to receive his salary and all other financial and non-financial benefits of his employment. 4. Further obligations of the Executive 4.1 During the continuance of his employment the Executive shall not without the prior written consent of the Board (such consent not to be unreasonably withheld or delayed) directly or indirectly carry on or be engaged concerned or interested in any other business trade or occupation which is similar to or in competition with the business of the Company or any Associated Company otherwise than as a holder directly or through nominees of not more than three per cent in aggregate of any class of shares debentures or other securities in issue from time to time of any company which are for the time being quoted or dealt in on any recognised investment exchange (as defined by s 207(1) of the Financial Services Act 1986). 4.2 During the continuance of his employment and save as expressly elsewhere provided for in this agreement the Executive: (a) shall not directly or indirectly procure accept or obtain for his own benefit (or for the benefit of any other person) any payment rebate discount commission or other benefit ("Gratuities") from any third party in respect of any business transacted or proposed to be transacted (whether or not by him) by or on behalf of the Company or any Associated Company; (b) shall observe the terms of any policy issued by the Company in relation to Gratuities; (c) shall immediately disclose and account to the Company for any Gratuities received by him (or by any other person on his behalf or at his instruction). -7- 5. Remuneration 5.1 The Company shall pay to the Executive during the continuance of his employment a salary (which shall accrue from day to day) at the rate of (Pounds)363,000 per annum inclusive of any directors' fees payable to the Executive under the articles of association of the Company or any Associated Company (and any such fees as the Executive shall receive he shall pay to the Company). The salary shall be payable by equal monthly instalments in arrears by direct credit transfer to the Executive's bank account on or about the 27th of each calendar month. [The rate of salary from time to time payable shall be reviewed annually by the Remuneration Committee of ACE UK Limited, which shall, in its absolute discretion, determine whether or not such rate of salary shall be increased and, if so, the amount of any such increase. In addition the Executive shall be entitled to receive luncheon vouchers to the value of (Pounds)2.00 per working day. 5.2 Bonus/Profit Commission The Executive will be eligible to receive an annual bonus the payment terms and amount of which shall be in the absolute discretion of the Remuneration Committee of ACE UK Limited. The Executive confirms that he has received all bonus payments/profit commission due to him up to the date of this agreement. For the avoidance of doubt the Executive confirms that he waives all rights and entitlements which he may have to receive, or otherwise seek, any payment or benefit pursuant to any bonus/profit sharing arrangement that predates the date of this agreement (unless otherwise agreed in writing by the Company). -8- 5.3 Retention Bonus The Executive will be entitled to receive a non-pensionable bonus in sterling in the sum of US$2,219,591.94 at the exchange rate prevailing at the date of payment, such bonus to be made after such deductions as required by law in respect of income tax and employees' National Insurance Contributions. The bonus will be payable in two equal instalments with the Executive's salary payment immediately following the first year and the second year anniversary of the date of this agreement. For the avoidance of doubt the Executive will not be entitled to receive any instalment, or any unpaid instalments, of the bonus, if at the date the instalment is payable either the Executive has given notice to terminate employment with the Company or the Company have given notice to terminate the Executive's employment in accordance with clause 13.1 below. 6. Pension scheme 6.1 The Company shall pay for the benefit of the Executive the amount of 40 per cent per annum of his base salary from time to time payable into the Executive's JRC Pension Plan with Scottish Life Assurance. 6.2 A contracting-out certificate is in force in respect of the employment of the Executive. 7. Insurances 7.1 Subject to his complying with and satisfying any applicable requirements of the relevant insurers the Company shall during the continuance of his employment:- (a) provide for the Executive and if applicable his spouse and children under the age of 21 years membership of the BUPA or of such other private medical expenses insurance scheme as the Company may in its absolute discretion from time to time decide providing equivalent benefits; -9- (b) provide for the Executive membership of the Company's permanent health insurance scheme; (c) provide for the Executive death in service benefit of four times the Executive's basic salary. 7.2 The Company shall, at its absolute discretion, be entitled to cease to provide any or all of the insurances referred to in subclauses 71 -(c) if in the opinion of the Company's medical practitioner the medical condition of the Executive is or becomes such that the Company is unable to secure any such insurance under the rules of any applicable scheme or otherwise at reasonable rates or premiums. 8. Car allowance 8.1 The Executive shall receive an allowance in lieu of a company car in the sum of (Pounds)21,500 per annum. This sum is fully taxable and will be paid to the Executive monthly in arrears by direct credit transfer to the Executive's bank account at the same time as his salary payment. From 1 January 1999 the Executive shall revert to the Company's existing car allowance scales (or such future scales as from time to time may be in force). As compensation for any reduction in the Executive's car allowance the Company will pay to the Executive a one-off non-pensionable fully taxable bonus with his first salary payment following 1 January 1999 representing twice the difference between the new car allowance scale and the existing scale. 9. Expenses 9.1 The Company shall during the continuance of his employment reimburse the Executive in respect of all expenses reasonably incurred by the Executive in or about the performance of his duties under this agreement provided that the Executive, if so required by the Company, provides reasonable evidence of the expenditure in -10- respect of which he claims reimbursement. This clause shall be applied in line with Company policy from time to time in force. 10. Holidays 10.1 The Executive shall (in addition to the usual public and bank holidays) be entitled during the continuance of his employment to 25 working days' paid holiday in each holiday year of the Company which runs from 1 January to 31 December to be taken at such times as shall have been approved by the Chairman and Chief Executive of ACE UK Limited. With effect from 1 January 1999 the Executive's holiday entitlement will increase to 30 working days in each holiday year. 10.2 The Executive will be entitled to carry over a maximum of five days unused holiday entitlement from one holiday year to the next. Further unused holiday may be carried over at the absolute discretion and with the prior agreement of the Chairman and Chief Executive of ACE UK Limited. The Executive shall not be entitled to payment in lieu of unused holiday entitlement. 10.3 Upon the termination of his employment the Executive's entitlement to accrued holiday pay (which accrues at the rate of 2/1/12/ days per month) shall be calculated on a pro rata basis in respect of each completed month of service in the holiday year in which his employment terminates and the appropriate amount shall be paid to the Executive provided that if the Executive shall have taken more days' holiday than his accrued entitlement the Company is hereby authorised to make an appropriate deduction from the Executive's final salary payment. 11. Incapacity 11.1 Subject to his complying with the Company's procedures relating to the notification and certification of periods of absence from work details of which are set out in the Staff Handbook the Executive shall be entitled to be paid his salary (inclusive of any statutory sick pay or social security benefits to which he may be entitled) during any -11- periods of absence from work due to sickness injury or other incapacity up to a maximum of six months in aggregate in any 12 month period and thereafter to such pay as the Company shall, in its absolute discretion, deem appropriate. 11.2 If any incapacity of the Executive shall be caused by any alleged action or wrong of a third party and the Executive shall decide to claim damages in respect thereof, then the Executive shall use all reasonable endeavours to recover damages for loss of earnings over the period for which salary has been or will be paid to him by the Company under clause 11.1, and shall account to the Company for any such damages recovered (in an amount not exceeding the actual salary paid or payable to him by the Company under clause 11.1 in respect of the said period) less any costs borne by him in achieving such recovery. The Executive shall keep the Company informed of the commencement, progress and outcome of any such claim. 12. Confidentiality 12.1 The Executive shall not (other than in the proper performance of his duties or with the prior written consent of the Board or unless ordered by a court of competent jurisdiction or any regulatory authority) at any time either during the continuance of his employment or after its termination disclose or communicate to any person or use for his own benefit or the benefit of any person other than the Company or any Associated Company any confidential information which may come to his knowledge in the course of his employment and the Executive shall during the continuance of his employment with the Company use his best endeavours to prevent the unauthorised publication or misuse of any confidential information provided that such restrictions shall cease to apply to any confidential information which may enter the public domain other than through the default of the Executive. Without prejudice to the generality of the foregoing, confidential information shall include, but shall not be limited to, syndicate projections and forecasts, financial information or arrangements, client/customer lists, brokers lists and price sensitive information. 12.2 All notes and memoranda of any trade secret or confidential information concerning -12- the business of the Company and any Associated Company or any of its or their suppliers, agents, distributors, customers or others which shall have been acquired, received or made by the Executive during the course of his employment shall be the property of the Company and shall be surrendered by the Executive to someone duly authorised in that behalf on the termination of his employment or at the request of the Board at any time during the course of his employment. 13. Termination of employment 13.1 The employment of the Executive may be terminated by the Company forthwith without notice or payment in lieu of notice if the Executive: (a) commits any serious or persistent breach or non-observance of any of the terms, conditions or stipulations contained in this agreement or any of the rules of any self-regulating organisation (as defined in the Financial Services Act 1986) of which the Company is a member and the Executive fails to rectify such breach within 30 days after having received written notice from the Board containing details of the nature of the breach and requiring such breach to be rectified; or (b) is guilty of any serious negligence or gross misconduct in connection with or affecting the business or affairs of the Company or any Associated Company for which he is required to perform duties: or (c) is guilty of conduct which brings or is likely to bring himself or the Company or any Associated Company into serious disrepute; or (d) is convicted of an arrestable criminal offence (other than an offence under road traffic legislation in the United Kingdom or elsewhere for which a non-custodial penalty is imposed); or (e) is adjudged bankrupt or makes any arrangement or composition with his creditors or has an interim order made against him pursuant to s 252 of the -13 Insolvency Act 1986; or (f) in the opinion of a medical practitioner becomes incapable by reason of mental disorder of discharging his duties; or (g) is or becomes prohibited by law from being a director. 13.2 Upon the termination of his employment (for whatever reason and howsoever arising) the Executive: (a) shall not take away conceal or destroy but shall immediately deliver up to the Company all documents (which expression shall include, but without limitation, notes memoranda correspondence and any other material upon which data or information is recorded or stored) relating to the business or affairs of the Company or any Associated Company or any of their clients shareholders employees officers and agents (and the Executive shall not be entitled to retain any copies or reproductions of any such documents) together with any other property belonging to the Company or any Associated Company which may then be in his possession or under his control; (b) shall at the request of the Board immediately resign without claim for compensation as a director of the Company and any Associated Company and from any other office held by him in the Company or any Associated Company without prejudice to any claim he may have for damages for breach of this Agreement and in the event of his failure to do so the Company is hereby irrevocably authorised to appoint some person in his name and on his behalf to sign and deliver such resignations to the Board; and (c) shall sign stock transfer forms transferring all shares held by him as trustee or nominee for the Company or any Associated Company to the Company or its nominee and shall deliver to the Company the relevant share certificates; (d) shall not at any time thereafter make any untrue or misleading oral or written -14- statement concerning the business and affairs of the Company or any Associated Company nor represent himself or permit himself to be held out as being in any way connected with or interested in the business of the Company or any Associated Company (except as a former employee for the purpose of communicating with prospective employers or complying with any applicable statutory requirements); and (e) shall immediately repay all outstanding debts or loans due to the Company or any Associated Company and the Company is hereby authorised to deduct from any wages of the Executive a sum in repayment of all or any part of any such debts or loans. 13.3 If the employment of the Executive is terminated by reason of the liquidation of the Company for the purpose of reconstruction or amalgamation or as part of any arrangement for the amalgamation or reconstruction of the Company not involving insolvency and the Executive is offered employment with any concern or undertaking resulting from the reconstruction or amalgamation on terms and conditions and status not less favourable than the terms of this Agreement then the Executive shall have no claim against the Company in respect of such termination. 14. Executive's covenants 14.1 In this clause the following expressions shall have the following meanings: "Businesses" (a) the business of a managing agency at Lloyd's (being the business of the management of syndicates and their underwriting of international, national and local insurance business) (a "Managing Agency Business"); and (b) the business of a corporate member of Lloyd's being the underwriting of international, national and local insurance and the provision of funds or security in connection therewith (a "Corporate Member Business"); -15- in each case carried on by any Group Company as at the Termination Date and the period of 12 months prior thereto within the United Kingdom and the business of any Group Company at the Termination Date to which the Executive has rendered services or by which he has been engaged at any time during the period of 12 months prior to the Termination Date; "Council" the Council of Lloyd's which includes its delegates and persons by whom it acts; "directly or indirectly" (without prejudice to the generality of the expression) whether as principal or agent or in accordance with any delegated authority, either alone or jointly or in partnership with any other person firm company or (except as the holder of securities listed dealt in or traded on a recognised Stock Exchange, not exceeding three per cent in nominal value of the securities of that class) as a shareholder, director, partner, independent contractor, consultant, employee, manager or in any other way; "Information" information or knowledge of a confidential nature concerning and relating to the goodwill of the Business including (without prejudice to the generality of the foregoing) information and know-how as to proposed policy wordings or proposed insurance policies to be offered by any Group Company but which are not available at Lloyd's during the Restriction Period, and information and know-how as to suppliers, Lloyd's Brokers, Members' Agents, Lloyd's Advisers, business policy and expansion or forward planning programmes and reports, reviews or analyses derived (in whole or in part) from any such information or knowledge which the Executive shall have acquired before the Termination Date; "Lloyd's Adviser" a person who is listed on the register of Lloyd's Advisers maintained under the Lloyd's Advisers Byelaw (No. 19 of 1993); "Lloyd's Broker" a partnership or body corporate permitted by the Council to broke insurance business at Lloyd's; -16- "Members' Agent" an underwriting agent which is listed as a members' agent on the register of underwriting agents maintained under the Underwriting Agents Byelaw (No. 4 of 1984); "the Restriction Period" means in relation to the Executive twelve months after the Termination Date; "Senior Executive" a person who is or was at any time whilst the Executive was employed or engaged by any Group Company: (a) engaged or employed as an employee, director or consultant of that company; and (b) engaged in a capacity in which he obtained Information; and (c) entitled to emoluments (including commission if any) exceeding the annual rate of (Pounds)35,000; and (d) so engaged at any time during the period of 12 months prior to the Termination Date; and with whom the Executive had contact during that period; "Syndicate" shall have the same meaning as contained in the Underwriting Agents Byelaw (No. 4 of 1984); and "Tarquin Corporate Members" any corporate member being a Group Company; "Tarquin Syndicates" any syndicates managed by any Group Company as at the Termination Date; "Termination Date" the date of the termination of the Executive's employment. -17- 14.2 The Executive shall not without the prior written consent of the 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: (a) in relation to the provision of services of a kind with which the Covenantor was concerned during the 12 months prior to the Termination Date for any Group Company at any time during the Restriction Period: (i) be engaged or concerned or interested or participate in a Managing Agency Business which competes with any of the Tarquin Syndicates in the City of London with which he has been involved in the 12 months prior to the Termination Date PROVIDED ALWAYS THAT this shall not restrain him from being so engaged or concerned in so far as his duties relate to the provision of services of a kind with which he was not concerned during the 12 months prior to the Termination Date; (ii) be engaged or concerned or interested or participate in a Corporate Member Business which competes with any of the Tarquin Corporate Members in the City of London with which he has been involved in the 12 months prior to the Termination Date PROVIDED ALWAYS THAT this shall not restrain him from being so engaged or concerned in so far as his duties relate to the provision of services of a kind with which he was not concerned during the 12 months prior to the Termination Date; (iii) in relation to a business which may in any way be in competition with any of the Businesses, canvass, solicit or entice (or cause to be canvassed, solicited or enticed) the custom of: (aa) any person who at any time during the period of two years prior to the Termination Date has been a Members' Agent or Lloyd's Adviser providing as agent for and on behalf of its Names capacity of at least (Pounds)10 million to one or more of the Tarquin -18- Syndicates and with whom the Executive has had contact during such period; or (bb) any person who at any time during the period of two years prior to the Termination Date has been a Lloyd's Broker or other intermediary introducing material business to one or more of the Tarquin Syndicates and with whom the Executive has had contact during such period save that this clause 14.2(iii)(bb) shall not place any restriction on dealing with any such Broker or intermediary; and for the purposes of this clause "material business" shall mean business amounting to at least 5% of the business of any syndicate in any underwriting year during that period; (b) any time during the Restriction Period: (i) induce, solicit, entice or procure or endeavour to induce, solicit, entice or procure any Senior Executive to leave his employment with any Group Company; (ii) be personally involved to a material extent in (i) accepting into employment or (ii) otherwise engaging or using the services of any Senior Executive of any Group Company; (c) at any time: (i) disclose to any person (except as required by law or any regulatory body or to the Executive's legal advisors in their capacity as such) or use to the detriment of any Group Company any Information which he has acquired before the Termination Date; (ii) falsely represent himself as being connected with or interested in any -19- Group Company or in the Businesses; (iii) at any time carry on a business under the name "ACE" or "Tarquin" or any combination of those names or any similar or other name likely to confuse or mislead any part of the public (or any other name under which the Group carries out business); 14.3 The Executive hereby acknowledges and agrees with the Company that in all the circumstances as at the date hereof: (a) each of the subclauses in clause 14 above constitutes an entirely separate severable and independent covenant and restriction on him; (b) the duration, extent and application of each of the restrictions contained in clause 14 are reasonable and no greater than is necessary for the protection of the goodwill and trade connections of the Businesses; and (c) in the event that any restriction on him shall be found to be void as going beyond what is reasonable in all the circumstances for the protection of the interests of any Group Company but would be valid if some part thereof were deleted such restriction shall apply with any such deletion as may be necessary to make it valid and effective. 15. Computer software 15.1 The Company and its Associated Companies are licensees, and not the owners, of certain computer software programmes and are required to comply with the terms of the relevant licences. It is important that the Executive also comply with the terms of the licences (copies of which are available to the Executive) and failure to do so may constitute gross misconduct on the part of the Executive. 15.2 In particular the Executive must not: -20- (a) copy, reproduce, reverse, compile, adapt or modify any software programme or programme documentation (unless expressly authorised to do so by the Company); (b) use any software on any hardware or equipment other than that specified by the Company; (c) remove any software programme from the Company's premises (unless expressly authorised to do so by the Company); (d) use on the Company's hardware or equipment any software other than that which is owned by or licensed to the Company and approved by the Company as suitable for such use. 15.3 In the event that the Executive has any questions concerning the use of software or the provisions of this clause then the Executive should seek the advice of the Board. If the Executive becomes aware of any misuse of software or programme documentation he must immediately notify the Board. 15.4 Failure by the Executive to comply with the above provisions may be treated by the Company as gross misconduct and furthermore may constitute a criminal offence on the Executive's part and/or render the Executive liable to a claim for damages. 16. Disciplinary and grievance procedures 16.1 For statutory purposes there is no formal disciplinary procedure in relation to the Executive's employment. The Executive shall be expected to maintain the highest standards of integrity and behaviour. 16.2 If the Executive has any grievance in relation to his employment he may raise it in -21- writing with the Board whose decision shall be final. 17. Directorship 17.1 The Executive shall not during his employment voluntarily resign from his office as a director of the Company or any Associated Company and he shall not do or fail to do anything which causes or is likely to cause him to be prohibited by law from continuing to act as a director. 17.2 The removal of the Executive from the office of director of the Company or the failure of the Company in general meeting to re-elect the Executive as a director of the Company (if he shall be obliged to retire by rotation or otherwise pursuant to the articles of association of the Company) shall terminate the Executive's employment under this agreement and such termination shall be without prejudice to any claim which the Executive may have for damages for breach of this agreement provided that the Company was not entitled at the time of such removal or failure to re- elect to terminate the Executive's employment pursuant to clause 13.1. 18. Registration in accordance with the Lloyd's Individual Registration Bye-law Number 13 of 1996 18.1 The Executive confirms that he is registered in accordance with the requirements of the Lloyd's Individual Registration Bye-law Number 13 of 1996. 19. Lloyds Model Code for dealing in securities 19.1 The Executive shall at all times comply with the requirements of the Lloyds Model Code ("the Code") from time to time in force. 19.2 In the event that the Executive is charged with an offence under Part V of the -22- Criminal Justice Act 1993 or the Company has reasonable grounds for believing that the Executive has infringed the Code, the Executive will be liable to be suspended from employment until the outcome of proceedings are known or the investigation of the suspected infringement has been completed. In the event that the Executive is found to be guilty of an offence or an infringement of the Code he will be liable to dismissal without notice. 19.3 It is the Executive's responsibility to ensure that he complies fully with the Code, a copy of which will be given to the Executive on his first day of employment. If the Executive is in any doubt, he should seek guidance from the Company's Compliance Officer. 20. Dealing in Company securities 20.1 The Executive is subject to the Company's Code of Conduct on dealing in Company securities, details of which are set out in the Staff Handbook. Any breach of this Code will render the Executive subject to disciplinary action. 21. Health and safety 21.1 Details of the Company's policy in relation to health and safety at work are set out in the Staff Handbook. 22. Collective agreements 22.1 There are no collective agreements in force affecting the Executive's employment with the Company. 23. No smoking policy 23.1 The Company operates a no smoking policy. Any breach of this policy may render -23- the Executive liable to disciplinary action. 24. Notices 24.1 Any notice to be given under this agreement shall be given in writing and shall be deemed to be sufficiently served by one party on the other if it is delivered personally or is sent by registered or recorded delivery pre- paid post (air mail if overseas) addressed to either the Company's registered office for the time being or the Executive's last known address as the case may be. 24.2 Any notice sent by post shall be deemed (in the absence of evidence of earlier receipt) to be received 2 days after posting (6 days if sent air mail) and in proving the time such notice was sent it shall be sufficient to show that the envelope containing it was properly addressed stamped and posted. 25. Miscellaneous 25.1 The Executive hereby warrants that by virtue of entering into this Agreement he will not be in breach of any express or implied terms of any Court Order, contract or of any other obligation legally binding upon him. 25.2 The Company shall be entitled upon giving notice to the Executive at any time during the Executive's employment to set off and/or make deductions from the Executive's salary or from any other sums due to the Executive from the Company or any Associated Company in respect of any overpayment of any kind made to the Executive or in respect of any debt or other sum due from him to the Company or any Associated Company. 25.3 There is in place a profit sharing arrangement set out in a Trust Deed dated 16 February 1989 between Peter Richard Chandler and Others and Methuen (Lloyds Underwriting Agents) Limited and an Employee Remuneration Agreement of the -24- same date. The Executive will not qualify as a beneficiary of this employee trust and the Executive confirms that he waive all rights and entitlements which he may have to receive, or otherwise seek, any payment or benefit pursuant to the above mentioned trust. -25- IN WITNESS whereof this Agreement has been executed as a deed by the parties hereto and is intended to be and is hereby delivered on the date first written. EXECUTED as a deed by ACE ) London Services Limited ) in the presence of: ) Director Director/Secretary SIGNED as a deed by John Robert ) Charman in the presence of:- ) EX-10.45 10 DEED OF CONVENANT DATED 07/09/1998 Exhibit 10.45 THIS DEED OF COVENANT is made the 9 day of July 1998 BETWEEN: (1) John Robert Charman of Dell House, Wilderness Avenue, Sevenoaks, Kent, TN15 OEA (the "Covenantor") (2) Tarquin Limited a company registered in England under number 2983302 whose registered office is at 1 Minster Court, Mincing Lane, London EC3R 7AA (the "Company"); (3) The companies whose names and addresses are set out in Schedule I (individually a "Subsidiary Undertaking" and collectively the "Subsidiary Undertakings"); and WHEREAS: (A) Pursuant to the provisions of an Agreement of the same date between amongst others the Covenantor, the Company and ACE Limited, (the "Sale Agreement") ACE Limited has agreed to acquire the entire issued share capital of the Company and the Covenantor has agreed to enter into this Deed. (B) This Deed is conditional upon and will take effect upon the offer by ACE Limited for Tarquin Limited becoming unconditional in all respects. In the event that the offer does not become unconditional this agreement will be of no further force or effect and none of the parties to this Deed shall be bound by its terms. (C) The Covenantor is employed by ACE London Services Limited, a member of the Group, and performs services in the course of that employment for Group Companies. The covenants given in this Deed are given in connection with that employment. OPERATIVE TERMS: 1. Interpretation 1.1 In this Deed unless the context or subject matter otherwise requires, expressions defined in the Sale Agreement shall have the same meanings and in addition the following expressions shall have the following meanings: "Associated (a) a holding company of the Company; or Company" (b) any subsidiary of any such holding company or of the Company; or (c) a company over which the Company has control within the meaning of s.840 and Corporation Taxes Act 1998. "Businesses" (a) the business of a managing agency at Lloyd's (being the business of the management of syndicates and their underwriting of international, national and local insurance business) (a "Managing Agency Business"); and (b) the business of a corporate member of Lloyd's being the underwriting of international, national and local insurance and -2- the provision of funds or security in connection therewith (a "Corporate Member Business"); in each case carried on by any Group Company as at the Termination Date and the period of 12 months prior thereto within the United Kingdom and the business of any Group Company at the Termination Date to which the Covenantor has rendered services or by which he has been engaged at any time during the period of 12 months prior to the Termination Date; "Council" the Council of Lloyd's which includes its delegates and persons by whom it acts; "directly or indirectly" (without prejudice to the generality of the expression) whether as principal or agent or in accordance with any delegated authority, either alone or jointly or in partnership with any other person firm company or (except as the holder of securities listed dealt in or traded on a recognised Stock Exchange, not exceeding three per cent in nominal value of the securities of that class) as a shareholder, director, partner, independent contractor, consultant, employee, manager or in any other way; "Group" means the Company and any Associated Company at the date of this Agreement or from time to time and "Group Company" shall mean any of them; "Information" information or knowledge of a confidential nature concerning and relating to the goodwill of the Business including (without prejudice to the generality of the foregoing) information and know-how as to proposed policy wordings or proposed insurance policies to be offered by any Group Company but which are not available at Lloyd's during the Restriction Period, and information and know-how as to suppliers, Lloyd's Brokers, Members' Agents, Lloyd's Advisers, business policy and expansion or forward planning programmes and reports, reviews or analyses derived (in whole or in part) from any such information or knowledge which the Covenantor shall have acquired before the Termination Date; "Lloyd's Adviser" a person who is listed on the register of Lloyd's Advisers maintained under the Lloyd's Advisers Bylaw (No. 19 of 1993); "Lloyd's Broker" a partnership or body corporate permitted by the Council to broke insurance business at Lloyd's; "Members' Agent" an underwriting agent which is listed as a members' agent on the register of underwriting agents maintained under the Underwriting Agents Byelaw (No. 4 of 1984); "the Restriction Period" means in relation to the Covenantor the period beginning on the date of this Deed and ending on the later of: (a) 24 months from the date of this Deed; or (b) twelve months after the Termination Date; "Senior Executive" a person who is or was at any time whilst the Covenantor was employed or engaged by any Group Company: -3- (a) engaged or employed as an employee, director or consultant of that company; and (b) engaged in a capacity in which he obtained Information; and (c) entitled to emoluments (including commission/bonus if any) exceeding the annual rate of (Pounds)35,000; and (d) so engaged at any time during the period of 12 months prior to the Termination Date; and with whom the Covenantor had contact during that period; "Syndicate" shall have the same meaning as contained in the Underwriting Agents Byelaw (No. 4 of 1984); and "Tarquin Corporate Members" any corporate member being a Group Company; "Tarquin Syndicates" any syndicates managed by any Group Company as at the Termination Date; "Termination Date" the date of the termination of the Covenantor's employment. 1.2 The provisions of clauses 1.2 to 1.11 (inclusive) of the Sale Agreement shall apply in this Deed (mutatis mutandis) as if repeated in this Deed and set out in full herein. 2. Acknowledgement The parties hereto agree and acknowledge and it is accepted by the Covenantor upon entering into this Agreement that great harm would be caused to the goodwill and trade connections of the Businesses if the Covenantor were to compete with, canvass, solicit or entice away custom from the Businesses or solicit a Senior Executive and it is agreed that it is reasonable for the Businesses to be protected against such activity for the time set out in this Agreement. Each Covenantor confirms that he has taken advice on the contents of this Agreement and has been advised that the covenants set out below are reasonable and necessary for the Businesses to protect their business interests. 3. Consideration In consideration of the covenants given in clause 4 below and the agreement given in clause 5 below the Company agrees to pay to the Covenantor in sterling the amount of US$6,658,775.81 at the exchange rate prevailing at the date of payment such payment to be made after such deductions as are required by law in respect of income tax and employee's National Insurance Contributions. 4. Covenants -4- The Covenantor accordingly covenants with the Company and each of the Subsidiary Undertakings that in view of the circumstances referred to in paragraph 2 of this Deed, he will not without the prior written consent of the Company (such consent to be withheld only so far as may be reasonably necessary to protect the legitimate interests of any of the Group Companies) directly or indirectly: 4.1 in relation to the provision of services of a kind with which the Covenantor was concerned during the 12 months prior to the Termination Date for any Group Company at any time during the Restriction Period: (a) be engaged or concerned or interested or participate in a Managing Agency Business which competes with any of the Tarquin Syndicates in the City of London with which he has been involved in the 12 months prior to the Termination Date PROVIDED ALWAYS THAT this shall not restrain him from being so engaged or concerned in so far as his duties relate to the provision of services of a kind with which he was not concerned during the 12 months prior to the Termination Date; (b) be engaged or concerned or interested or participate in a Corporate Member Business which competes with any of the Tarquin Corporate Members in the City of London with which he has been involved in the 12 months prior to the Termination Date PROVIDED ALWAYS THAT this shall not restrain him from being so engaged or concerned in so far as his duties relate to the provision of services of a kind with which he was not concerned during the 12 months prior to the Termination Date; (c) in relation to a business which may in any way be in competition with any of the Businesses, canvass, solicit or entice (or cause to be canvassed, solicited or enticed) the custom of: (i) any person who at any time during the period of two years prior to the Termination Date has been a Members' Agent or Lloyd's Adviser providing as agent for and on behalf of its Names capacity of at least (Pounds)10 million to one or more of the Tarquin Syndicates and with whom the Covenantor has had contact during such period; or (ii) any person who at any time during the period of two years prior to the Termination Date has been a Lloyd's Broker or other intermediary introducing material business to one or more of the Tarquin Syndicates and with whom the Covenantor has had contact during such period save that this paragraph 4.1(c)(ii) shall not place any restriction on dealing with any such Broker or intermediary; and for the purposes of this clause "material business" shall mean business amounting to at least 5% of the business of any Syndicate in any underwriting year during that period. 4.2 at any time during the Restriction Period: -5- (a) induce, solicit, entice or procure or endeavour to induce, solicit, entice or procure any Senior Executive to leave his employment with any Group Company; (b) be personally involved to a material extent in (i) accepting into employment or (ii) otherwise engaging or using the services of any Senior Executive of any Group Company. 4.3 at any time: (a) disclose to any person (except as required by law or any regulatory body or to the Covenantor's legal advisors in their capacity as such) or use to the detriment of any Group Company any Information which he has acquired before the Termination Date; (b) falsely represent himself as being connected with or interested in any Group Company or in the Businesses; (c) at any time carry on a business under the name "ACE" or "Tarquin" or any combination of those names or any similar or other name likely to confuse or mislead any part of the public. 5. Agreement The Covenantor agrees to the insertion of the restriction set out in clause 14 of the Service Agreement annexed hereto. 6. Severability and applicability 6.1 The Covenantor hereby acknowledges and agrees with the Company that in all the circumstances as at the date hereof: (a) each of the subclauses contained in paragraph 3 of this Deed constitutes an entirely separate severable and independent covenant and restriction on him; (b) the duration, extent and application of each of the restrictions contained in paragraph 3 are reasonable and no greater than is necessary for the protection of the goodwill and trade connections of the Businesses; and (c) in the event that any restriction on him contained in paragraph 3 of this Deed shall be found void as going beyond what is reasonable in all the circumstances for the protection of the interests of any Group Company but would be valid if some part thereof were deleted such restriction shall apply with any such deletion as may be necessary to make it valid and effective. 7. Assignment and Variation 7.1 The benefit of any of the covenants contained in clause 4 shall only be assignable in -6- whole or in part by the Company to any Group Company provided that if any such assignee shall cease to be a member of the Group, the Company shall procure that the benefit of all rights hereunder shall be transferred to a company in the Group. 7.2 No variation of any of the Terms of this Deed shall be effective unless it is in writing and signed by or on behalf of each of the Covenantor and the Company. 7.3 The Company's rights under this Deed shall be capable of being enforced by any successor in title to the Company and by a liquidator on a distribution of the Company's assets and by any recipient of the Company's rights under this Deed on any such distribution by a liquidator. 8. General provisions 8.1 The following provisions of the Sale Agreement shall apply to this Deed as if the same had been set out herein in full save that references therein to the Vendor, his address and the Agreement respectively shall be construed as references to each Covenantor, his address specified in this Deed and this Deed: (a) clause 9.9 Notices (b) clause 4.5 Waiver (c) clause 9.13 Governing law (d) clause 9.11 Counterparts 8.2 For the avoidance of doubt, in the event of any conflict between the provisions of this Agreement and the provisions of an employment agreement entered into between the Covenantor and ACE London Services Limited the terms of this Agreement shall prevail. IN WITNESS whereof this Deed has been entered into the day and year first before written. -7- Schedule I The Subsidiary Undertakings Charman Group Limited 7th Floor, 1 Minster Court, Mincing Lane, London EC3R 7AA Tarquin Underwriters Limited 7th Floor, 1 Minster Court, Mincing Lane, London EC3R 7AA Charman Underwriting Agencies Limited 7th Floor, 1 Minster Court, Mincing Lane, London EC3R 7AA -8- EXECUTED as a deed by Tarquin Limited acting by Director Director/Secretary EXECUTED as a deed by Charman Underwriting Agencies Limited acting by Director Director/Secretary EXECUTED as a deed by Charman Group Limited acting by Director Director/Secretary EXECUTED as a deed by Tarquin Underwriters Limited acting by Director Director/Secretary -9- EXECUTED as a deed by J R Charman ) in the presence of: ) EX-10.46 11 CONSULTING AGREEMENT DATED 01/01/2000 Exhibit 10.46 CONSULTING AGREEMENT CONSULTING AGREEMENT dated as of 1/st/ January 2000 (the "Agreement) by and among ACE Limited, a Cayman company limited by shares ("ACE"), and Kramer Capital Corp., a Delaware corporation with its principal place of business in Connecticut ("Kramer Capital"). WHEREAS ACE desires to retain Kramer Capital and its employees for technical support, advice and consulting services; WHEREAS Kramer Capital is willing to provide such support and consulting services on the terms and conditions hereinafter set forth in this Agreement; NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein and for other good and valuable consideration, the parties agree as follows: 1. Term. Kramer Capital shall be retained to provide services to ACE for a term commencing on the date hereof and ending on the fifth anniversary of the date hereof unless earlier terminated pursuant to Section 5 (the"Term"). 2. Position and Responsibility. During the Term, Kramer Capital agrees to act as a non-exclusive insurance and financial advisor to ACE. In particular, Kramer Capital will undertake on behalf of ACE some or all of the following services as agreed from time to time with ACE: (a) Search for strategic opportunities in the insurance and financial services industry. (b) Engage in research on publicly held and privately owned companies in both the insurance and financial services sector. (c) Analyze trends in the insurance industry, monitor competition and evaluate new products, to advise ACE of any new developments that may affect the industry or ACE or its affiliates specifically. 1 (d) Maintain contact with investment bankers, business brokers and any other sources of new business opportunities. (e) Coordinate merger and acquisition activity between ACE, investment bankers, lawyers, accountants, actuaries and other due diligence specialists and with target companies. (f) Provide analysis of prospective transactions. (g) Find, develop, implement and monitor strategic investments and joint ventures in markets throughout the world. (h) Keep ACE's executive staff continually informed of late breaking and relevant events in the insurance and financial services industry. (i) Such other special projects as shall be mutually agreed upon by Kramer Capital and the Chairman of ACE. Kramer Capital will be expected to make available the services of Don Kramer and others, as may be agreed in performing its obligations hereunder. 3. Retainer. Upon signing this Agreement ACE agrees to pay Kramer Capital an up front retainer fee of $100,000. Additional fees for Kramer Capital's services shall be agreed in writing between the parties from time to time. 4. Reimbursement of Out-of-Pocket Expenses. Reasonable Out-of-pocket expenses incurred by Kramer Capital and its employees during the Term in the provision of its services hereunder shall be reimbursed by ACE, upon presentation of an itemized billing statement. 5. Termination. This Agreement and Kramer Capital's retention hereunder may be terminated at any time by either ACE or Kramer Capital upon 30 days' prior written notice to the other. 6. Status as Consultant. Neither Kramer Capital nor any of its shareholders, directors, officers, employees, agents or representatives shall have the authority to act as an agent of ACE, except an authority specifically delegated in writing by ACE, and shall not represent to 2 the contrary to any person. Kramer Capital and its employees shall only consult, render advice and perform such tasks as Kramer Capital determines are necessary to achieve the results specified by ACE and shall not direct the work of any employee of ACE, or make any management decisions, or undertake to commit ACE to any course of action in relation to third persons. Although ACE may specify the results to be achieved by Kramer Capital and may control Kramer Capital in that regard, ACE shall not control or direct Kramer Capital as to the details or means by which such results are accomplished. It is intended that the amounts payable hereunder during or after the Term shall constitute revenues to Kramer Capital. To the extent consistent with applicable law, ACE will not withhold any amounts therefrom as federal income tax withholding from wages or as employee contributions under the Federal Insurance Contributions Ace or any other state or federal laws. Kramer Capital shall be solely responsible for the withholding and/or payment of any federal, state or local income or payroll taxes. 7. Restrictive Covenants (a) Confidentiality. Kramer Capital shall not, and shall not permit its shareholders, directors, officers, employees, agents and representatives to, during the Term and thereafter, except in the performance of its obligations to ACE hereunder or as may otherwise be approved in advance by the Chairman of ACE, directly or indirectly, disclose or use (except for the direct benefit of ACE) any confidential information that it or they may learn or has learned by reason of its or their association with ACE, any client or any of their respective affiliate (b) Exclusive Property. Kramer Capital confirms that all confidential information with respect to ACE (or any of its affiliates) or any client, as the case may be, is and shall remain the exclusive property of ACE (or any such affiliate) or such client, as appropriate. All business records, papers and documents kept or made by Kramer Capital or any of its shareholders, directions, officers, employees, agents or representatives relating to the business of ACE (or any of its affiliates) or any client shall be and remain the property of ACE (or any such affiliate) or such client, as appropriate, except for such papers customarily deemed to be the personal copies of Kramer Capital. 3 (c) Intellectual Property. Kramer Capital confirms that all software and other intellectual property developed on behalf of ACE (or any of its affiliates) or any client, as the case may be, is and shall remain the exclusive property of ACE (or any such affiliate) or such client, as appropriate, and the copyright and/or patent shall belong to ACE (or any such affiliate) or such client, as appropriate, unless the ownership is transferred in writing by ACE. Any commercially licensed software used by Kramer Capital shall be identified as such and ACE shall assume all liability for copyright or patent infringement. 8. Arbitration. Any dispute or controversy arising under or in connection with this Agreement that cannot be mutually resolved by the parties hereto shall be settled exclusively by arbitration in New York, New York, United States of America, before one arbitrator of exemplary qualifications and stature, who shall be selected jointly by ACE and Kramer Capital, or, if ACE and Kramer Capital cannot agree on the selection of the arbitrator, shall be selected by the American Arbitration Association; provided that any arbitrator selected by the American Arbitration Association shall not, without the consent of the parties hereto, be affiliated with Kramer Capital or ACE or any of ACE's affiliates. Judgement may be entered on the arbitrator's award in any court having jurisdiction. The parties hereby agree that the arbitrator shall be empowered to enter an equitable decree mandating specific enforcement of the terms of this Agreement. ACE shall bear all expenses of the arbitrator incurred in any arbitration hereunder and shall reimburse Kramer Capital for any related reasonable legal fees and out-of-pocket expenses directly attributable to such arbitration; provided that such legal fees are calculated on an hourly, and not on a contingency fee, basis; and provided further that Kramer Capital shall bear all expenses of the arbitration and all his legal fees and out-of-pocket expenses (and reimburse ACE for its legal fees, out-of-pocket expenses and its portion of the expenses of the arbitrator) if the arbitrator or relevant trier- of-fact determines that Kramer Capital's claim or position was without reasonable foundation. 4 9. Miscellaneous. (a) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware. (b) Entire Agreement: Amendments. This Agreement contains the entire understanding of the parties with respect to the retention of Kramer Capital by ACE. There are no restrictions, agreement, promises, warranties, covenants or undertakings between the parties with respect to the subject matter herein other than those expressly set forth herein. This Agreement may not be altered, modified or amended except by written instrument signed by each of the parties hereto. (c) No Waiver. The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver of such party's rights or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement. (d) Severability. In the event that any one or more of the provisions of this Agreement shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provision of this Agreement shall not be affected thereby. (e) Assignment: Successors: Binding Agreement. This Agreement shall not be assignable by any of the parties. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, representatives, successors and permitted assigns. (f) Headings. The headings used in this Agreement are for convenience only and shall not affect the meaning of or be used to interpret any provisions herein. 5 IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the date and year first above written. ACE LIMITED ______________________________ Name: Title: KRAMER CAPITAL ______________________________ Name: Title: 6 EX-10.47 12 PROMISSORY NOTE FROM DOMINIC FREDERICO EXHIBIT 10.47 PROMISSORY NOTE $250,000.00 March 23, 1999 FOR VALUE RECEIVED, the undersigned, Dominic J. Frederico, an individual (the "Employee"), promises to pay to the order of ACE Limited, a Cayman Islands company (the "Company"), on the date on which the Employee's employment with the Company terminates (the "Maturity Date"), the principal sum of $250,000.00 and any accrued interest on this Note, subject to the provisions of this Note relating to forgiveness of such obligations. This Note evidences obligations in connection with a loan made by the Company to the Employee as part of the inducement to the Employee to assume additional responsibilities with the Company. The unpaid principal amount of this Note from time to time outstanding shall bear interest at a rate per annum (based upon a 365/366 day year) equal to the applicable Federal rate as of the March 23, 1999, as determined for purposes of section 1274(d) of the Internal Revenue Code of 1986, as amended, compounded annually. After the Maturity Date, any unpaid and unforgiven principal amount and accrued unforgiven interest on the unpaid principal amount of this Note shall be payable on demand. As of each of the first five one-year anniversaries of March 23, 1999 if the Employee (i) is employed by the Company on such anniversary, (ii) has died or resigned as a result of disability, or (iii) has been terminated by the Company without Cause, an amount equal to $50,000.00 of the principal amount due under this Note, together with the amount of interest that has accrued with respect to the entire unpaid principal and interest amount since the preceding March 23, shall be forgiven. If the Employee's employment with the Company is terminated (i) by the Company for Cause or (ii) by reason of the Employee's voluntary resignation (for reason other than death or disability), then any remaining principal and interest shall become due and payable on the date of such termination of employment. For purposes of this Note, the term "Cause" shall have the same meaning set forth in the Employment Agreement dated as of January 9, 1995 between the Company and the Employee. Disability shall mean being adjudged by the Compensation Committee of the Company to be disabled within the meaning of the Company's long-term disability plan. Subject to the other terms and conditions hereof, the Employee may voluntarily prepay all or any portion of the unpaid and unforgiven principal amount of this Note from time to time outstanding and any accrued and unforgiven interest thereon, without premium or penalty. All payments of principal of and interest on this Note shall be payable in lawful currency of the United States of America at Hamilton, Bermuda or such other place as the Company shall designate to the Employee in writing, in cash or by check. If payment hereunder falls due on a day which is either a Saturday, Sunday or any other day on which banks in Hamilton, Bermuda are not generally open for business to the public (i.e., not a "Business Day"), then such due date shall be extended to the immediately succeeding Business Day, and additional interest shall accrue and be payable for the period of any such extension. The Employee agrees that if any of the following events of default (each an "Event of Default") shall occur and be continuing: (i) default in the performance or observance of any other agreements of the Employee contained herein, or (ii) the institution of any bankruptcy, insolvency, receivership or similar proceeding relating to the Employee or his assets, and if such case or proceeding is not commenced by the Employee, it is consented to or acquiesced in by the Employee or remains for 60 days undismissed; then the Company may declare this Note and all unpaid and unforgiven principal of and interest on this Note and all accrued costs, expenses and other amounts under this Note to be due and payable, whereupon all unpaid and unforgiven principal of and interest on this Note and all such costs, expenses and other amounts shall immediately become due and payable following such declaration. The Employee hereby represents and warrants to the Company as of the date hereof (i) that this Note is the legally valid and binding obligation of the Employee, enforceable against the Employee in accordance with its terms, and (ii) that the execution, delivery and performance by the Employee of this Note does not conflict with or contravene (a) any law, rule or regulation binding upon the Employee or affecting any of the Employee's assets, (b) any provision of any contract, instrument or agreement binding upon the Employee or affecting any of the Employee's assets, or (c) any writ, order, judgment, decree or decision of any court or governmental instrumentality binding upon the Employee or affecting any of the Employee's assets. All notices, certificates and other communications hereunder shall be in writing and may be either delivered personally, by internationally recognized express courier for overnight delivery, or by facsimile (with request for assurance of receipt in a manner appropriate with respect to communications of that type, provided that a confirmation -2- copy is concurrently sent by a internationally recognized express courier for overnight delivery) or mailed, postage prepaid, by certified or registered mail, return receipt requested, addressed as follows: If to the Company: ACE Limited The ACE Building 30 Woodbourne Avenue Hamilton HM 08, Bermuda Attention: General Counsel Facsimile: (441) 296-0087 If to the Employee: Dominic J. Frederico ACE Limited The ACE Building 30 Woodbourne Avenue Hamilton HM 08, Bermuda Facsimile: (441) 296-0087 All Notices hereunder shall be in writing (including, without limitation, facsimile transmission) and shall be sent to the Employee or the Company, as appropriate, at such party's address shown above, or at such other address as such party may, by written notice received by the other party hereto, have designated as its or his address for such purpose. Notices sent by facsimile transmission shall be deemed to have been given when sent; notices sent by mail shall be deemed to have been given five days after the date mailed by registered or certified mail, postage prepaid; and notices sent by hand delivery shall be deemed to have been given when received. This Note has been made and delivered at Hamilton, Bermuda and shall be construed in accordance with and governed by the internal laws of the State of New York. Wherever possible, each provision of this Note shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Note shall be prohibited by or invalid under applicable law, such provision shall be ineffective to the least extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Note. IN WITNESS WHEREOF, the Employee has caused this Note to be executed as of the day and year first above written. -------------------------------- Dominic J. Frederico -3- EX-10.49 13 2.05 BILLION CREDIT AGMT. DATED AS OF 06/09/1999 EXHIBIT 10.49 EXECUTION COPY $2,050,000,000 CREDIT AGREEMENT Dated as of June 11, 1999 Among ACE INA HOLDINGS INC. as Borrower -- -------- and ACE LIMITED as Parent -- ------ and THE SUBSIDIARY GUARANTORS NAMED HEREIN as Subsidiary Guarantors -- ---------- ---------- and THE INITIAL LENDERS NAMED HEREIN as Initial Lenders -- ------- ------- and MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED as Lead Arranger and Syndication Agent -------------------------------------- and MORGAN GUARANTY TRUST COMPANY OF NEW YORK as Administrative Agent -- -------------- ----- and J.P. MORGAN SECURITIES INC. as Co-Arranger -- ----------- and BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION CHASE MANHATTAN BANK as Co-Documentation Agents -- ---------------- ------ T A B L E O F C O N T E N T S Section Page ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms......................................... 1 SECTION 1.02. Computation of Time Periods; Other Definitional Provisions.... 19 SECTION 1.03. Accounting Terms and Determinations........................... 19
ARTICLE II AMOUNTS AND TERMS OF THE COMMITTED ADVANCES SECTION 2.01. The Committed Advances........................................ 20 SECTION 2.02. Making the Committed Advances................................. 20 SECTION 2.03. The Competitive Bid Advances.................................. 22 SECTION 2.04. Repayment of Committed Advances............................... 25 SECTION 2.05. Termination or Reduction of the Commitments................... 25 SECTION 2.06. Prepayments................................................... 25 SECTION 2.07. Interest...................................................... 26 SECTION 2.08. Fees.......................................................... 27 SECTION 2.09. Conversion of Advances........................................ 28 SECTION 2.10. Increased Costs, Etc.......................................... 28 SECTION 2.11. Payments and Computations..................................... 30 SECTION 2.12. Taxes......................................................... 31 SECTION 2.13. Sharing of Payments, Etc...................................... 33 SECTION 2.14. Use of Proceeds............................................... 34 SECTION 2.15. Defaulting Lenders............................................ 34 SECTION 2.16. Extension of Final Maturity Date.............................. 36 SECTION 2.17. Replacement of Affected Lender................................ 36
ARTICLE III CONDITIONS OF LENDING SECTION 3.01. Conditions Precedent to All Committed Borrowings in Respect of the Acquisition................................. 37 SECTION 3.02. Conditions Precedent to Each Committed Borrowing.............. 41 SECTION 3.03. Conditions Precedent to Each Competitive Bid Borrowing........ 42 SECTION 3.04. Determinations Under Section 3.01............................. 42
ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Parent and the Borrower.. 42
ARTICLE V COVENANTS OF THE PARENT AND THE BORROWER SECTION 5.01. Affirmative Covenants.......................................... 47 SECTION 5.02. Negative Covenants............................................. 48 SECTION 5.03. Reporting Requirements......................................... 54 SECTION 5.04. Financial Covenants............................................ 56
ARTICLE VI EVENTS OF DEFAULT SECTION 6.01. Events of Default.............................................. 57
ARTICLE VII GUARANTY SECTION 7.01. The Guaranty................................................... 60 SECTION 7.02. Guaranty Unconditional......................................... 60 SECTION 7.03. Discharge Only Upon Payment In Full; Reinstatement In Certain Circumstances.............................................. 61 SECTION 7.04. Waiver by the Guarantors....................................... 61 SECTION 7.05. Subrogation.................................................... 61 SECTION 7.06. Stay of Acceleration........................................... 62 SECTION 7.07. Continuing Guaranty; Assignments............................... 62
ARTICLE VIII THE AGENTS SECTION 8.01. Authorization and Action....................................... 62 SECTION 8.02. Agents' Reliance, Etc.......................................... 63 SECTION 8.03. MGT and Affiliates............................................. 63 SECTION 8.04. Lender Credit Decision......................................... 63 SECTION 8.05. Indemnification................................................ 63 SECTION 8.06. Successor Agents............................................... 64
ARTICLE IX MISCELLANEOUS SECTION 9.01. Amendments, Etc................................................ 65 SECTION 9.02. Notices, Etc................................................... 65 SECTION 9.03. No Waiver; Remedies............................................ 66 SECTION 9.04. Costs and Expenses............................................. 66 SECTION 9.05. Right of Set-off............................................... 67 SECTION 9.06. Binding Effect................................................. 67 SECTION 9.07. Assignments and Participations................................. 68 SECTION 9.08. Execution in Counterparts...................................... 72
SECTION 9.09. Confidentiality............................................... 72 SECTION 9.10. Jurisdiction, Etc............................................. 72 SECTION 9.11. Governing Law................................................. 73 SECTION 9.12. Waiver of Jury Trial.......................................... 73
SCHEDULES Schedule I - Commitments and Applicable Lending Offices Schedule 4.01(b) - Subsidiaries Schedule 5.02 (a) - Liens Schedule 5.02 (b) - Surviving Debt EXHIBITS Exhibit A-1 - Form of Committed Note Exhibit A-2 - Form of Competitive Bid Note Exhibit B-1 - Form of Notice of Committed Borrowing Exhibit B-2 - Form of Notice of Competitive Bid Borrowing Exhibit C - Form of Assignment and Acceptance Exhibit D - Form of Solvency Certificate Exhibit E-1 - Form of Opinion of Cayman Islands Counsel to the Parent Exhibit E-2 - Form of Opinion of New York Counsel to the Loan Parties Exhibit E-3 - Form of Opinion of Bermuda Counsel to the Subsidiary Guarantors Exhibit F - Form of Designation Agreement CREDIT AGREEMENT CREDIT AGREEMENT dated as of June 11, 1999 among ACE INA Holdings Inc., a Delaware corporation (the "Borrower"), ACE Limited, a Cayman Islands company (the "Parent"), the Subsidiary Guarantors (as hereinafter defined), the banks, financial institutions and other institutional lenders listed on the signature pages hereof as the Initial Lenders (the "Initial Lenders"), Merrill Lynch, Pierce, Fenner & Smith Incorporated ("ML&Co."), as syndication agent (together with any successor syndication agent appointed pursuant to Article VIII, the "Syndication Agent") and lead arranger (the "Lead Arranger"), Morgan Guaranty Trust Company of New York ("MGT"), as administrative agent (together with any successor administrative agent appointed pursuant to Article VIII, the "Administrative Agent" and, together with the Syndication Agent, the "Agents") for the Lenders (as hereinafter defined), and J.P. Morgan Securities Inc. ("J.P. Morgan"), as co-arranger (the "Co-Arranger"). PRELIMINARY STATEMENTS: (1) The Parent or one of its Affiliates (as hereinafter defined) intends to acquire (the "Acquisition") the domestic and international property and casualty businesses ("CIGNAP&C") of Cigna Corporation (the "Seller"). Currently, CIGNAP&C is a division of the Seller. (2) The Borrower has requested that, concurrently with the consummation of the Acquisition (or any portion thereof), the Lenders lend to the Borrower up to $2,050,000,000 to pay to the Seller a portion of the cash consideration for the Acquisition and to pay transaction fees and expenses and for other general corporate purposes. The Lenders have indicated their willingness to agree to lend such amounts on the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Acquisition" has the meaning specified in the Preliminary Statements. "Adjusted Consolidated Debt" means, at any time, an amount equal to (i) the then outstanding Consolidated Debt of the Parent and its Subsidiaries plus (ii) 50% of the then issued and outstanding amount of Preferred Securities (other than any Mandatorily Convertible Preferred Securities). 2 "Administrative Agent" has the meaning specified in the recital of parties to this Agreement. "Administrative Agent's Account" means the account of the Administrative Agent maintained by the Administrative Agent with Morgan Guaranty Trust Company at its office at 60 Wall Street, New York, New York 10260, Account No 999-99-090, Attention: Bill Wood, or such other account as the Administrative Agent shall specify in writing to the Lenders. "Advance" means a Committed Advance or a Competitive Bid Advance. "Affected Lender" means any Lender that (i) has made, or notified the Borrower that an event or circumstance has occurred which may give rise to, a demand for compensation under Section 2.10 (a) or (b) or Section 2.12 (but only so long as the event or circumstance giving rise to such demand or notice is continuing) or (ii) has notified the Borrower (which notice has not been withdrawn) of any event or circumstance of a type described in Section 2.10 (c) or (d). "Affiliate" means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person or is a director or officer of such Person. For purposes of this definition, the term "control" (including the terms "controlling", "controlled by" and "under common control with") of a Person means the possession, direct or indirect, of the power to vote 5% or more of the Voting Interests of such Person or to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Interests, by contract or otherwise. "Agents" has the meaning specified in the recital of parties to this Agreement. "Applicable Facility Fee Percentage" means, as of any date, a percentage per annum determined by reference to the Public Debt Rating in effect on such date as set forth below:
- ---------------------------------------------- Public Debt Rating Applicable Facility Fee S&P/Moody's Percentage - ---------------------------------------------- Level 1 0.100% - ------- A-/A3 and above - ---------------------------------------------- Level 2 0.125% - ------- BBB+/Baa1 - ---------------------------------------------- Level 3 0.150% - ------- BBB/Baa2 - ---------------------------------------------- Level 4 0.200% - ------- BBB-/Baa3 - ---------------------------------------------- Level 5 0.300% - ------- Lower than Level 4 - ----------------------------------------------
3 "Applicable Lending Office" means, with respect to each Lender, such Lender's Domestic Lending Office in the case of a Base Rate Advance and such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate Advance and, in the case of a Competitive Bid Advance, the office of such Lender notified by such Lender to the Administrative Agent as its Applicable Lending Office with respect to such Competitive Bid Advance. "Applicable Margin" means, as of any date, a percentage per annum determined by reference to the Public Debt Rating in effect on such date as set forth below:
- ------------------------------------------------------------- Public Debt Rating Applicable Margin Applicable Margin S&P/Moody's for for Base Rate Advances Eurodollar Rate Advances - ------------------------------------------------------------- Level 1 0.00% 0.400% - ------- A-/A3 and above - ------------------------------------------------------------- Level 2 0.00% 0.500% - ------- BBB+/Baa1 - ------------------------------------------------------------- Level 3 0.00% 0.600% - ------- BBB/Baa2 - ------------------------------------------------------------- Level 4 0.00% 0.675% - ------- BBB-/Baa3 - ------------------------------------------------------------- Level 5 0.00% 1.325% - ------- Lower than Level 4 - -------------------------------------------------------------
provided, however, that, if as of any date of determination the aggregate outstanding principal amount of Committed Advances on such day exceeds 33% of the aggregate Commitments on such day, the Applicable Margin for such date shall be the percentage per annum determined above plus 0.125%; provided further that, if the Final Maturity Date is extended pursuant to the provisions of Section 2.16, the Applicable Margin for Eurodollar Rate Advances shall be increased by 0.250% and the Applicable Margin for Base Rate Advances shall be a percentage (not less than 0%) equal to Applicable Margin for Eurodollar Rate Loans less 1.00%. "Approved Fund" means, with respect to any Lender that is a fund that invests in bank loans, any other fund that invests in bank loans and is advised or managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor. "Approved Investment" means any Investment that was made by the Parent or any of its Subsidiaries pursuant to investment guidelines set forth by the board of directors of the Parent which are consistent with past practices. "Arrangers" means each of the Lead Arranger and the Co-Arranger. 4 "Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and an Eligible Assignee, and accepted by the Administrative Agent, in accordance with Section 9.07 and in substantially the form of Exhibit C hereto. "Bankruptcy Law" means any proceeding of the type referred to in Section 6.01(f) or Title 11, U.S. Code, or any similar foreign, federal or state law for the relief of debtors. "Base Rate" means a fluctuating interest rate per annum in effect from time to time, which rate per annum shall at all times be equal to the higher of: (a) the rate of interest announced publicly by MGT in New York, New York, from time to time, as MGT's prime rate; and (b) 1/2 of 1% per annum above the Federal Funds Rate. "Base Rate Advance" means a Committed Advance that bears interest as provided in Section 2.07(a)(i). "Borrower" has the meaning specified in the recital of parties to this Agreement. "Borrower's Account" means the account maintained by the Borrower with Mellon PSFS at its office at 701 Market Street, Philadelphia, Pennsylvania 19106 Account No. 2-959-286, Attention: Cindy Scully, or such other account as the Borrower shall specify in writing to the Administrative Agent. "Borrowing" means a Committed Borrowing or a Competitive Bid Borrowing. "Business Day" means a day of the year on which banks are not required or authorized by law to close in New York City and, if the applicable Business Day relates to any Eurodollar Rate Advances or LIBO Rate Advances, on which dealings are carried on in the London interbank market. "Capitalized Leases" means all leases that have been or should be, in accordance with GAAP, recorded as capitalized leases. "Change of Control" means the occurrence of any of the following: (a) any Person or two or more Persons acting in concert shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934), directly or indirectly, of Voting Interests of the Parent (or other securities convertible into such Voting Interests) representing 30% or more of the combined voting power of all Voting Interests of the Parent; or (b) a majority of the board of directors of the Parent shall not be Continuing Members; or (c) any Person or two or more Persons acting in concert shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that results in its or their acquisition of the power to exercise, directly or indirectly, a controlling influence over the management or policies of the Parent; or (d) the Parent shall 5 cease to own, directly or indirectly, 100% of the Equity Interests in the Borrower (other than any Preferred Securities); or (e) the Parent, or any other Person controlled by the Parent, shall create, incur, assume or suffer to exist any Lien on the Equity Interests in the Borrower owned by it. "CIGNAP&C" has the meaning specified in the Preliminary Statements. "Co-Arranger" has the meaning specified in the recital of parties to this Agreement. "Commitment" means, with respect to any Lender at any time, the amount set forth opposite such Lender's name on Schedule I hereto under the caption "Commitment" or, if such Lender has entered into one or more Assignment and Acceptances, set forth for such Lender in the Register maintained by the Administrative Agent pursuant to Section 9.07(d) as such Lender's "Commitment", as such amount may be reduced at or prior to such time pursuant to Section 2.05. "Committed Advance" has the meaning specified in Section 2.01. "Committed Borrowing" means a borrowing consisting of simultaneous Committed Advances of the same Type made by the Lenders. "Committed Facility" means, at any time, the aggregate amount of the Lenders' Commitments at such time. "Committed Note" means a promissory note of the Borrower payable to the order of any Lender, in substantially the form of Exhibit A-1 hereto, evidencing the aggregate indebtedness of the Borrower to such Lender resulting from the Committed Advances made by such Lender, as amended. "Competitive Bid Advance" means an advance by a Lender to the Borrower as part of a Competitive Bid Borrowing resulting from the competitive bidding procedure described in Section 2.03 and refers to a Fixed Rate Advance or a LIBO Rate Advance. "Competitive Bid Borrowing" means a borrowing consisting of simultaneous Competitive Bid Advances from each of the Lenders whose offer to make one or more Competitive Bid Advances as part of such borrowing has been accepted under the competitive bidding procedure described in Section 2.03. "Competitive Bid Note" means a promissory note of the Borrower payable to the order of any Lender, in substantially the form of Exhibit A-2 hereto, evidencing the indebtedness of the Borrower to such Lender resulting from Competitive Bid Advances made by such Lender. "Confidential Information" means information that any Loan Party furnishes to any Agent or any Lender but does not include any such information that is or becomes generally available to the public other than as a result of a breach by such Agent or any Lender of its obligations hereunder or that is or becomes available to such Agent or such Lender from a source 6 other than the Loan Parties that is not, to the best of such Agent's or such Lender's knowledge, acting in violation of a confidentiality agreement with a Loan Party. "Consolidated" refers to the consolidation of accounts in accordance with GAAP. "Consolidated Net Income" means, for any period, the net income of the Parent and its Consolidated Subsidiaries, determined on a Consolidated basis for such period. "Consolidated Tangible Net Worth" means at any date the Consolidated stockholder's equity of the Parent and its Consolidated Subsidiaries (plus, to the extent not included in such Consolidated stockholder's equity, the outstanding amount of all Mandatorily Convertible Preferred Securities) less their Consolidated Intangible Assets, all determined as of such date, provided that such determination for purposes of Section 5.04 shall be made without giving effect to adjustments pursuant to Statement No. 115 of the Financial Accounting Standards Board of the United States of America. For purposes of this definition, "Intangible Assets" means the amount (to the extent reflected in determining such Consolidated stockholder's equity) of (i) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of assets of a going concern business made within twelve months after the acquisition of such business) subsequent to March 31, 1999 in the book value of any asset owned by the Parent or a Consolidated Subsidiary and (ii) all unamortized debt discount and expense, unamortized deferred charges, deferred acquisition cost relating to the acquisition of the stock or assets of any other Person, goodwill, patents, trademarks, service marks, trade names, anticipated future benefit of tax loss carry-forwards, copyrights, organization or developmental expense and other intangible assets. "Contingent Obligation" means, with respect to any Person, any obligation or arrangement of such Person to guarantee or intended to guarantee any Debt, leases, dividends or other payment obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, (a) the direct or indirect guarantee, endorsement (other than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of a primary obligor, (b) the obligation to make take-or-pay or similar payments, if required, regardless of nonperformance by any other party or parties to an agreement or (c) 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 (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, assets, securities or services primarily for the purpose 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 holder of such primary obligation against loss in respect thereof; provided, however, that Contingent Obligations shall not include any obligations of any such Person arising under insurance contracts entered into in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made (or, if 7 less, the maximum amount of such primary obligation for which such Person may be liable pursuant to the terms of the instrument evidencing such Contingent Obligation) or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder), as determined by such Person in good faith. "Continuing Member" means a member of the Board of Directors of the Parent who either (i) was a member of the Parent's Board of Directors on the date of execution and delivery of this Agreement by the Parent and has been such continuously thereafter or (ii) became a member of such Board of Directors after such date and whose election or nomination for election was approved by a vote of the majority of the Continuing Members then members of the Parent's Board of Directors. "Conversion", "Convert" and "Converted" each refer to a conversion of Committed Advances of one Type into Committed Advances of the other Type pursuant to Section 2.09 or 2.10. "Debenture" means debt securities issued by the Parent or the Borrower to the Special Purpose Trust in exchange for proceeds of Preferred Securities. "Debt" of any Person means, without duplication for purposes of calculating financial ratios, (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person for the deferred purchase price of property or services (other than trade payables incurred in the ordinary course of such Person's business), (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all obligations of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all obligations of such Person as lessee under Capitalized Leases (excluding imputed interest), (f) all obligations of such Person under acceptance, letter of credit or similar facilities, (g) all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Equity Interests in such Person or any other Person or any warrants, rights or options to acquire such capital stock (excluding payments under a contract for the forward sale of ordinary shares of such Person issued in a public offering), valued, in the case of Redeemable Preferred Interests, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends, (h) all Contingent Obligations of such Person in respect of Debt (of the types described above) of any other Person and (i) all indebtedness and other payment obligations referred to in clauses (a) through (h) above of another Person 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 (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such indebtedness or other payment obligations; provided, however, that the amount of Debt of such Person under clause (i) above shall, if such Person has not assumed or otherwise become liable for any such Debt, be limited to the lesser of the principal amount of such Debt or the fair market value of all property of such Person securing such Debt; provided further that "Debt" shall not include obligations in respect of insurance or reinsurance contracts entered into in the ordinary 8 course of business; provided further that, solely for purposes of Section 5.04 and the definitions of "Adjusted Consolidated Debt" and "Total Capitalization", "Debt" shall not include (x) any contingent obligations of any Person under or in connection with acceptance, letter of credit or similar facilities or (y) obligations of the Parent or the Borrower under any Debentures or under any subordinated guaranty of any Preferred Securities or obligations of the Special Purpose Trust under any Preferred Securities. "Default" means any Event of Default or any event that would constitute an Event of Default but for the requirement that notice be given or time elapse or both. "Defaulted Advance" means, with respect to any Lender at any time, the portion of any Committed Advance required to be made by such Lender to the Borrower pursuant to Section 2.01 or 2.02 at or prior to such time that has not been made by such Lender or by the Administrative Agent for the account of such Lender pursuant to Section 2.02(d) as of such time. "Defaulted Amount" means, with respect to any Lender at any time, any amount required to be paid by such Lender to any Agent or any other Lender hereunder or under any other Loan Document at or prior to such time that has not been so paid as of such time, including, without limitation, any amount required to be paid by such Lender to (a) the Administrative Agent pursuant to Section 2.02(d) to reimburse the Administrative Agent for the amount of any Committed Advance made by the Administrative Agent for the account of such Lender, (b) any other Lender pursuant to Section 2.13 to purchase any participation in Committed Advances owing to such other Lender and (c) any Agent pursuant to Section 8.05 to reimburse such Agent for such Lender's ratable share of any amount required to be paid by the Lenders to such Agent as provided therein. "Defaulting Lender" means, at any time, any Lender that, at such time, (a) owes a Defaulted Advance or a Defaulted Amount or (b) shall take any action or be the subject of any action or proceeding of a type described in Section 6.01(f). "Designated Bidder" means (a) an Eligible Assignee or (b) a special purpose corporation that is engaged in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business and that issues (or the parent of which issues) commercial paper rated at least "Prime-1" (or the then equivalent grade) by Moody's or "A-1" (or the then equivalent grade) by S&P that, in the case of either clause (a) or (b), (i) is organized under the laws of the United States or any State thereof, (ii) shall have become a party hereto pursuant to Section 9.07(f), (g) and (h) and (iii) is not otherwise a Lender. "Designation Agreement" means a designation agreement entered into by a Lender (other than a Designated Bidder) and a Designated Bidder, and accepted by the Administrative Agent and the Borrower (such acceptance, in the case of the Borrower, not to be unreasonably withheld), in substantially the form of Exhibit I hereto. "Domestic Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Domestic Lending Office" opposite its name on Schedule I hereto or in the 9 Assignment and Acceptance pursuant to which it became a Lender, as the case may be, or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Administrative Agent. "Effective Date" means the first date on which the conditions set forth in Article III shall have been satisfied. "Eligible Assignee" means (i) a Lender, (ii) an Affiliate of a Lender, or (iii) a commercial bank, a savings bank or other financial institution that is approved by the Administrative Agent and, unless an Event of a Default has occurred and is continuing at the time any assignment is effected pursuant to Section 9.07, the Borrower (such approval of the Borrower not to be unreasonably withheld or delayed); provided, however, that neither any Loan Party nor any Affiliate of a Loan Party shall qualify as an Eligible Assignee under this definition. "Environmental Action" means any action, suit, demand, demand letter, claim, notice of non-compliance or violation, notice of liability or potential liability, investigation, proceeding, consent order or consent agreement relating in any way to any Environmental Law, any Environmental Permit or Hazardous Material or arising from alleged injury or threat to health, safety or the environment, including, without limitation, (a) by any governmental or regulatory authority for enforcement, cleanup, removal, response, remedial or other actions or damages and (b) by any governmental or regulatory authority or third party for damages, contribution, indemnification, cost recovery, compensation or injunctive relief. "Environmental Law" means any Federal, state, local or foreign statute, law, ordinance, rule, regulation, code, order, writ, judgment, injunction, decree or judicial or agency interpretation, policy or guidance relating to pollution or protection of the environment, health, safety or natural resources, including, without limitation, those relating to the use, handling, transportation, treatment, storage, disposal, release or discharge of Hazardous Materials. "Environmental Permit" means any permit, approval, identification number, license or other authorization required under any Environmental Law. "Equity Interests" means, with respect to any Person, shares of capital stock of (or other ownership or profit interests in) such Person, warrants, options or other rights for the purchase or other acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or other acquisition from such Person of such shares (or such other interests), and other ownership or profit interests in such Person (including, without limitation, partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are authorized or otherwise existing on any date of determination. 10 "Equity Issuance" means one or more issuances by the Parent and/or the Borrower of Equity Interests and/or equity-linked securities, the Net Cash Proceeds of which shall be at least $500,000,000. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" means any Person that for purposes of Title IV of ERISA is a member of the controlled group of any Loan Party, or under common control with any Loan Party, within the meaning of Section 414 of the Internal Revenue Code or Section 4001 of ERISA. "Eurocurrency Liabilities" has the meaning specified in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Eurodollar Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Eurodollar Lending Office" opposite its name on Schedule I hereto or in the Assignment and Acceptance pursuant to which it became a Lender (or, if no such office is specified, its Domestic Lending Office), or such other office of such Lender as such Lender may from time to time specify to the Borrower and the Administrative Agent. "Eurodollar Rate" means, for any Interest Period for all Eurodollar Rate Advances comprising part of the same Committed Borrowing, an interest rate per annum equal to the rate per annum (rounded upwards, if not an integral multiple of 1/32 or 1/100 of 1%, to the nearest 1/100 of 1%) appearing on Dow Jones Markets (Telerate) Page 3750 (or any successor page) as the London interbank offered rate for deposits in U.S. dollars at 11:00 A.M. (London time) two Business Days before the first day of such Interest Period for a period equal to such Interest Period (provided that, if for any reason such rate is not available, the term "Eurodollar Rate" shall mean, for any Interest Period for all Eurodollar Rate Advances comprising part of the same Committed Borrowing, the rate per annum (rounded upwards, if not an integral multiple of 1/32 or 1/100 of 1%, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; provided, however, if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates). "Eurodollar Rate Advance" means an Advance that bears interest as provided in Section 2.07(a)(ii). "Eurodollar Rate Reserve Percentage" for any Interest Period for all Eurodollar Rate Advances comprising part of the same Committed Borrowing means the reserve percentage applicable two Business Days before the first day of such Interest Period under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for a member bank of the Federal Reserve System in New York City with respect to liabilities or assets consisting of or 11 including Eurocurrency Liabilities (or with respect to any other category of liabilities that includes deposits by reference to which the interest rate on Eurodollar Rate Advances is determined) having a term equal to such Interest Period. "Events of Default" has the meaning specified in Section 6.01. "Existing Debt" means Debt of each Loan Party and its Subsidiaries outstanding immediately before giving effect to the Acquisition. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Fee Letter" means the fee letter dated January 11, 1999 among the Parent, the Arrangers, the Administrative Agent and Merrill Lynch, as amended. "Final Maturity Date" means (a) the Termination Date or (b) if extended pursuant to Section 2.16, the date requested by the Borrower pursuant to Section 2.16, but in no event shall such date be later than the first anniversary of the Termination Date. "Fiscal Year" means a fiscal year of the Parent and its Consolidated Subsidiaries ending on September 30 in any calendar year. "Fixed Rate Advances" has the meaning specified in Section 2.03(a)(i). "Foreign Government Scheme or Arrangement" has the meaning specified in Section 4.01(n) (iv). "Foreign Plan" has the meaning specified in Section 4.01 (n) (iv). "GAAP" has the meaning specified in Section 1.03. "Granting Lender" has the meaning specified in Section 9.07(l). "Guarantors" means the Parent and the Subsidiary Guarantors. "Guaranty" means the undertaking by each of the Guarantors under Article VII. "Hazardous Materials" means (a) petroleum or petroleum products, by- products or breakdown products, radioactive materials, asbestos-containing materials, polychlorinated 12 biphenyls and radon gas and (b) any other chemicals, materials or substances designated, classified or regulated as hazardous or toxic or as a pollutant or contaminant under any Environmental Law. "Hedge Agreements" means interest rate swap, cap or collar agreements, interest rate future or option contracts, currency swap agreements, currency future or option contracts and other hedging agreements. "Indemnified Party" has the meaning specified in Section 9.04(b). "Information Memorandum" means the information memorandum dated February 1999, used by the Arrangers in connection with the syndication of the Commitments. "Initial Extension of Credit" means the initial Committed Borrowing hereunder. "Initial Lenders" has the meaning specified in the recital of parties to this Agreement. "Interest Period" means, for each Eurodollar Rate Advance comprising part of the same Committed Borrowing and each LIBO Rate Advance comprising part of the same Competitive Bid Borrowing, the period commencing on the date of such Eurodollar Rate Advance or LIBO Rate Advance or the date of the Conversion of any Base Rate Advance into such Eurodollar Rate Advance, and ending on the last day of the period selected by the Borrower pursuant to the provisions below and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the Borrower pursuant to the provisions below. The duration of each such Interest Period shall be one or two weeks or one, two, three or six months, as the Borrower may, upon notice received by the Administrative Agent not later than 11:00 A.M. (New York City time) on the third Business Day prior to the first day of such Interest Period, select; provided, however, that: (a) the Borrower may not select any Interest Period with respect to any Eurodollar Rate Advance that ends after the Final Maturity Date; (b) Interest Periods commencing on the same date for Eurodollar Rate Advances comprising part of the same Committed Borrowing or for LIBO Rate Advances comprising part of the same Competitive Bid Borrowing shall be of the same duration; (c) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided, however, that, if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day; and 13 (d) whenever the first day of any Interest Period (other than a one or two week Interest Period) occurs on a day of an initial calendar month for which there is no numerically corresponding day in the calendar month that succeeds such initial calendar month by the number of months equal to the number of months in such Interest Period, such Interest Period shall end on the last Business Day of such succeeding calendar month. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "Investment" in any Person means any loan or advance to such Person, any purchase or other acquisition of any Equity Interests or Debt or the assets comprising a division or business unit or a substantial part or all of the business of such Person, any capital contribution to such Person or any other direct or indirect investment in such Person, including, without limitation, any acquisition by way of a merger or consolidation and any arrangement pursuant to which the investor incurs Debt of the types referred to in clause (h) or (i) of the definition of "Debt" in respect of such Person; provided, however, that any purchase by any Loan Party or any Subsidiary of any catastrophe-linked instruments which are (x) issued for the purpose of transferring traditional reinsurance risk to the capital markets and (y) purchased by such Loan Party or Subsidiary in accordance with its customary reinsurance underwriting procedures, or the entry by any Loan Party or any Subsidiary into swap transactions relating to such instruments in accordance with such procedures, shall be deemed to be the entry by such Person into a reinsurance contract and shall not be deemed to be an Investment by such Person. "J.P. Morgan" has the meaning specified in the recital of parties to this Agreement. "Lead Arranger" has the meaning specified in the recital of parties to this Agreement. "Lenders" means the Initial Lenders and each Person that shall become a Lender hereunder pursuant to Section 9.07(a), (b) and (c) for so long as such Initial Lender or Person, as the case may be, shall be a party to this Agreement and, solely when used in reference to a Competitive Bid Advance, a Competitive Bid Borrowing, a Competitive Bid Note, or a related term, each Designated Bidder. "LIBO Rate" means, for any Interest Period for all LIBO Rate Advances comprising part of the same Competitive Bid Borrowing, an interest rate per annum equal to the rate per annum (rounded upwards, if not an integral multiple of 1/32 or 1/100 of 1%, to the nearest 1/100 of 1%) appearing on Dow Jones Markets (Telerate) Page 3750 (or any successor page) as the London interbank offered rate for deposits in U.S. dollars at 11:00 A.M. (London time) two Business Days before the first day of such Interest Period for a period equal to such Interest Period (provided that, if for any reason such rate is not available, the term "LIBO Rate" shall mean for any Interest Period for all LIBO Rate Advances comprising part of the same Competitive Bid Borrowing, the rate per annum (rounded upwards, if not an integral multiple of 1/32 or 1/100 of 1%, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) two 14 Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; provided, however, if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates). "LIBO Rate Advances" has the meaning specified in Section 2.03(a)(i). "Lien" means any lien, security interest or other charge or encumbrance of any kind, or any other type of preferential arrangement, including, without limitation, the lien or retained security title of a conditional vendor and any easement, right of way or other encumbrance on title to real property. "Loan Documents" means (i) this Agreement, (ii) the Notes, and (iii) the Fee Letter, in each case as amended. "Loan Parties" means the Borrower and the Guarantors. "Mandatorily Convertible Preferred Securities" means units comprised of Preferred Securities and a contract for the sale of ordinary shares of the Parent (including "Feline Prides(TM)" or any substantially similar securities). "Margin Stock" has the meaning specified in Regulation U. "Material Adverse Change" means any material adverse change in the business, financial condition, operations or properties of the Parent and its Subsidiaries, taken as a whole. "Material Adverse Effect" means a material adverse effect on (a) the business, condition, operations or properties of (i) the Parent and its Subsidiaries, taken as a whole, or (ii) the Borrower and its Subsidiaries, taken as a whole, (b) the rights and remedies of any Agent or any Lender under any Transaction Document or (c) the ability of the Loan Parties, taken as a whole, to perform their obligations under the Transaction Documents. "Material Financial Obligation" means a principal amount of Debt and/or payment obligations in respect of any Hedge Agreement of the Parent and/or one or more of its Subsidiaries arising in one or more related or unrelated transactions exceeding in the aggregate $25,000,000. "Merrill Lynch" means Merrill Lynch Capital Corporation. "MGT" has the meaning specified in the recital of parties to this Agreement. "ML&Co." has the meaning specified in the recital of parties to this Agreement. "Moody's" means Moody's Investors Service, Inc. 15 "Multiemployer Plan" means a Multiemployer plan, as defined in Section 4001(a)(3) of ERISA, to which any Loan Party or any ERISA Affiliate is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions. "Net Cash Proceeds" means, with respect to any sale, lease, transfer or other disposition of any asset or the incurrence or issuance of any Debt or the sale or issuance of any Equity Interests or Preferred Securities by any Person, the aggregate amount of cash received from time to time (whether as initial consideration or through payment or disposition of deferred consideration) by or on behalf of such Person in connection with such transaction after deducting therefrom only (without duplication) (a) reasonable and customary brokerage commissions, underwriting fees and discounts, legal fees, finder's fees and other similar fees and commissions, (b) the amount of taxes payable in connection with or as a result of such transaction and (c) the amount of any Debt secured by a Lien on such asset that, by the terms of the agreement or instrument governing such Debt, is required to be repaid upon such disposition, in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid to a Person that is not an Affiliate of such Person or any Loan Party or any Affiliate of any Loan Party and are properly attributable to such transaction or to the asset that is the subject thereof; provided, however, that in the case of taxes that are deductible under clause (b) above but for the fact that, at the time of receipt of such cash, such taxes have not been actually paid or are not then payable, such Loan Party or such Subsidiary may deduct an amount (the "Reserved Amount") equal to the amount reserved in accordance with GAAP for such Loan Party's or such Subsidiary's reasonable estimate of such taxes, other than taxes for which such Loan Party or such Subsidiary is indemnified; provided further that, at the time such taxes are paid, an amount equal to the amount, if any, by which the Reserved Amount for such taxes exceeds the amount of such taxes actually paid shall constitute "Net Cash Proceeds" of the type for which such taxes were reserved for all purposes hereunder; provided further that, prior to the date on which the Public Debt Rating of the Parent falls to BBB/Baa2 or below, Net Cash Proceeds from the sale, lease, transfer or other disposition of any asset or Equity Interests shall not include any amount of cash proceeds received in connection with such transaction to the extent such cash proceeds are reinvested in the same or related line of business as the business of the Parent. "Note" means a Committed Note or a Competitive Bid Note. "Notice of Committed Borrowing" has the meaning specified in Section 2.02(a). "Notice of Competitive Bid Borrowing" has the meaning specified in Section 2.03(a). "OECD" means the Organization for Economic Cooperation and Development. "Other Taxes" has the meaning specified in Section 2.12(b). "Parent" has the meaning specified in the recital of parties to this Agreement. 16 "Parent Five-Year Revolving Credit Facility" means the Five-Year Revolving Credit Agreement dated as of the date hereof among the Parent, the subsidiary guarantors referred to therein, the lenders party thereto, ML&Co. as lead arranger and syndication agent, MGT as administrative agent and J.P. Morgan as co-arranger, as the same may be amended, modified or otherwise supplemented from time to time. "Parent 364-Day Revolving Credit Facility" means the 364-Day Revolving Credit Agreement dated as of the date hereof among the Parent, the subsidiary guarantors referred to therein, the lenders party thereto, ML&Co. as lead arranger and syndication agent, MGT as administrative agent and J.P. Morgan as co-arranger, as the same may be amended, modified or otherwise supplemented from time to time. "PBGC" means the Pension Benefit Guaranty Corporation (or any successor). "Pension Plan" means a "pension plan", as such term is defined in section 3(2) of ERISA, which is subject to title IV of ERISA (other than any "multiemployer plan" as such term is defined in section 4001(a)(3) of ERISA), and to which any Loan Party or any ERISA Affiliate may have any liability, including any liability by reason of having been a substantial employer within the meaning of section 4063 of ERISA at any time during the preceding five years, or by reason of being deemed to be a contributing sponsor under section 4069 of ERISA. "Permitted Liens" means such of the following as to which no enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced or which are being contested in good faith by appropriate proceedings: (a) Liens for taxes, assessments and governmental charges or levies not yet due and payable; (b) Liens imposed by law, such as materialmen's, mechanics', carriers', workmen's and repairmen's Liens and other similar Liens arising in the ordinary course of business securing obligations that are not overdue for a period of more than 90 days; (c) pledges or deposits to secure obligations under workers' compensation laws or similar legislation or to secure public or statutory obligations; and (d) easements, rights of way and other encumbrances on title to real property that do not render title to the property encumbered thereby unmarketable or materially adversely affect the use of such property for its present purposes. "Person" means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof. "Pre-Commitment Information" means all of the written information in the Information Memorandum provided by or on behalf of the Parent to the Administrative Agent and the Lenders (other than any information therein provided by ML&Co. and its Affiliates). "Preferred Interests" means, with respect to any Person, Equity Interests issued by such Person that are entitled to a preference or priority over any other Equity Interests issued by such Person upon any distribution of such Person's property and assets, whether by dividend or upon liquidation. 17 "Preferred Securities" means (i) preferred securities issued by the Special Purpose Trust which shall provide, among other things, that dividends shall be payable only out of proceeds of interest payments on the Debentures, or (ii) other instruments that may be treated in whole or in part as equity for rating agency purposes while being treated as debt for tax purposes. "Prepayment Percentage" mean (x) until such time as the Commitments hereunder are reduced to $750,000,000, 100% and (y) thereafter, 50%. "Pro Rata Share" of any amount means, with respect to any Lender at any time, the product of such amount times a fraction, the numerator of which is the amount of such Lender's Commitment at such time (or, if the Commitments shall have been terminated pursuant to Section 2.05 or 6.01, such Lender's Commitment as in effect immediately prior to such termination) and the denominator of which is the Committed Facility at such time (or, if the Commitments shall have been terminated pursuant to Section 2.05 or 6.01, the Committed Facility as in effect immediately prior to such termination). "Public Debt Rating" means, as of any date, the lower rating that has been most recently announced by either S&P or Moody's, as the case may be, for any class of non-credit enhanced long-term senior unsecured debt issued by the Parent. For purposes of the foregoing, (a) if only one of S&P and Moody's shall have in effect a Public Debt Rating, the Applicable Margin or the Applicable Facility Fee Percentage, as the case may be, shall be determined by reference to the available rating; (b) if (i) from and after January 11, 1999, the Parent and its Subsidiaries shall not have sold or issued Equity Interests and/or equity-linked securities or sold, leased, transferred or otherwise disposed of (including through liquidation) material assets generating, in the aggregate, $500,000,000 of Net Cash Proceeds which are used to permanently reduce the Parent 364-Day Revolving Credit Facility and the Committed Facility in accordance with their respective terms and (ii) neither S&P nor Moody's shall have in effect a Public Debt Rating, the Applicable Margin and the Applicable Facility Fee Percentage will be set in accordance with Level 3 under the definition of "Applicable Margin" and "Applicable Facility Fee Percentage" as the case may be; (c) if neither S&P nor Moody's shall have in effect a Public Debt Rating (other than under the circumstances described in clause (b) above), the Applicable Margin and the Applicable Facility Fee Percentage shall be set in accordance with the level which is three rating levels below the Parent's S&P financial strength rating at such time, provided that, in the event that the Parent's S&P financial strength rating is affirmed at (i) A+, the applicable Level will be Level 2 and (ii) A+ and on credit watch/review with negative implications, the applicable Level will be Level 3; (d) if any rating established by S&P or Moody's shall be changed, such change shall be effective as of the date on which such change is first announced publicly by the rating agency making such change; and (e) if S&P or Moody's shall change the basis on which ratings are established, each reference to the Public Debt Rating announced by S&P or Moody's, as the case may be, shall refer to the then equivalent rating by S&P or Moody's, as the case may be. "Purchase Agreement" means the Purchase Agreement dated as of January 11, 1999 among the Seller, Cigna Holdings, Inc. and the Parent. 18 "Redeemable" means, with respect to any Equity Interest, any Debt or any other right or obligation, any such Equity Interest, Debt, right or obligation that (a) the issuer has undertaken to redeem at a fixed or determinable date or dates, whether by operation of a sinking fund or otherwise, or upon the occurrence of a condition not solely within the control of the issuer or (b) is redeemable at the option of the holder. "Register" has the meaning specified in Section 9.07(d). "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Required Lenders" means, at any time, Lenders owed or holding at least a majority in interest of the aggregate principal amount of the Committed Advances outstanding at such time, or, if no such principal amount is outstanding at such time, Lenders holding at least a majority in interest of the aggregate of the Commitments; provided, however, that if any Lender shall be a Defaulting Lender at such time, there shall be excluded from the determination of Required Lenders at such time (A) the aggregate principal amount of the Committed Advances owing to such Lender (in its capacity as a Lender) and outstanding at such time and (B) the Unused Commitment of such Lender at such time. "Responsible Officer" means the Chairman, Chief Executive Officer, President, Chief Financial Officer, Treasurer or Chief Investment Officer of the Parent. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. "Seller" has the meaning specified in the Preliminary Statements to this Agreement. "Solvent" and "Solvency" mean, 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. "SPC" has the meaning specified in Section 9.07(l). "Special Purpose Trust" means a special purpose business trust established by the Parent or the Borrower of which the Parent or the Borrower will hold all the common interests, 19 which will be the issuer of the Preferred Securities, and which will loan to Parent or the Borrower (such loan being evidenced by the Debentures) the net proceeds of the issuance and sale of the Preferred Securities. "Subsidiary" of any Person means any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which) more than 50% of (a) the issued and outstanding capital stock having ordinary voting power to elect a majority of the Board of Directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency), (b) the interest in the capital or profits of such partnership, joint venture or limited liability company or (c) the beneficial interest in such trust or estate is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person's other Subsidiaries. "Subsidiary Guarantors" means ACE Bermuda Insurance Ltd. and Tempest Reinsurance Company Limited. "Surviving Debt" means Debt of each Loan Party and its Subsidiaries outstanding immediately before and after giving effect to the transactions contemplated by the Transaction Documents. "Syndication Agent" has the meaning specified in the recital of parties to this Agreement. "Taxes" has the meaning specified in Section 2.12(a). "Termination Date" means the earlier of June 9, 2000 and the date of termination in whole of the Commitments. "Total Capitalization" means, at any time, an amount (without duplication) equal to (i) the then outstanding Consolidated Debt of the Parent and its Subsidiaries plus (ii) Consolidated stockholders equity of the Parent and its Subsidiaries plus (iii) the then issued and outstanding amount of Preferred Securities and (without duplication) Debentures. "Transaction Documents" means, collectively, the Loan Documents and the Purchase Agreement. "Type" refers to the distinction between Committed Advances bearing interest at the Base Rate and Committed Advances bearing interest at the Eurodollar Rate. "Unused Commitment" means, with respect to any Lender at any time, (a) such Lender's Commitment at such time minus (b) the sum of (i) the aggregate principal amount of all Committed Advances made by such Lender (in its capacity as a Lender) hereunder plus (ii) such Lender's Pro Rata Share of the aggregate principal amount of all Competitive Bid Advances hereunder. 20 "Voting Interests" means shares of capital stock issued by a corporation, or equivalent Equity Interests in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even if the right so to vote has been suspended by the happening of such a contingency. "Welfare Plan" means a welfare plan, as defined in Section 3(1) of ERISA, that is maintained for employees of any Loan Party or in respect of which any Loan Party could have liability. "Withdrawal Liability" has the meaning specified in Part I of Subtitle E of Title IV of ERISA. SECTION 1.02. Computation of Time Periods; Other Definitional Provisions. In this Agreement and the other Loan Documents in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding". References in the Loan Documents to any agreement or contract "as amended" shall mean and be a reference to such agreement or contract as amended, amended and restated, supplemented or otherwise modified from time to time in accordance with its terms. SECTION 1.03. Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with generally accepted accounting principles as in effect from time to time ("GAAP"), applied on a basis consistent (except for changes concurred in by the Parent's independent public accountants) with the most recent audited consolidated financial statements of the Parent and its Subsidiaries delivered to the Lenders; provided that, if the Parent notifies the Administrative Agent that the Parent wishes to amend any covenant in Article V to eliminate the effect of any change in generally accepted accounting principles on the operation of such covenant (or if the Administrative Agent notifies the Parent that the Required Lenders wish to amend Article V for such purpose), then the Parent's compliance with such covenant shall be determined on the basis of generally accepted accounting principles in effect immediately before the relevant change in generally accepted accounting principles became effective (and, concurrently with the delivery of any financial statements required to be delivered hereunder, the Parent shall provide a statement of reconciliation conforming such financial information to such generally accepted accounting principles as previously in effect), until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Parent and the Required Lenders. ARTICLE II AMOUNTS AND TERMS OF THE COMMITTED ADVANCES SECTION 2.01. The Committed Advances. Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make advances (each a "Committed Advance") to the Borrower from time to time on any Business Day during the period from the date hereof until the Termination Date 21 in an amount for each such Committed Advance not to exceed such Lender's Unused Commitment at such time; provided, however, that at any time until the Acquisition has been fully consummated the sum of (i) the aggregate amount of Committed Advances outstanding at such time plus (ii) the aggregate amount of "Committed Advances" under the Parent 364-Day Revolving Credit Facility outstanding at such time shall not exceed a percentage of the sum of (i) the Commitments hereunder at the time immediately prior to the first Borrowing hereunder plus the "Commitments" under the Parent 364-Day Revolving Credit Facility at the time prior to the first Borrowing thereunder equal to the percentage that the portion of the purchase price allocable (in the reasonable judgment of the Administrative Agent) to the assets acquired at or prior to such time in connection with the Acquisition bears to the aggregate purchase price for all assets to be acquired in connection with the Acquisition. Each Committed Borrowing shall be in an aggregate amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof and shall consist of Committed Advances made simultaneously by the Lenders ratably according to their Commitments. Within the limits of each Lender's Unused Commitment in effect from time to time, the Borrower may borrow under this Section 2.01, prepay pursuant to Section 2.06(a) and reborrow under this Section 2.01. SECTION 2.02. Making the Committed Advances. (a) Except as otherwise provided in Section 2.03, each Committed Borrowing shall be made on notice, given not later than 11:00 A.M. (New York City time) on the third Business Day prior to the date of the proposed Committed Borrowing in the case of a Committed Borrowing consisting of Eurodollar Rate Advances, or the first Business Day prior to the date of the proposed Committed Borrowing in the case of a Committed Borrowing consisting of Base Rate Advances, by the Borrower to the Administrative Agent, which shall give to each Lender prompt notice thereof by telecopier. Each such notice of a Committed Borrowing (a "Notice of Committed Borrowing") shall be by telephone, confirmed immediately in writing, or telecopier, in substantially the form of Exhibit B-1 hereto, specifying therein the requested (i) date of such Committed Borrowing, (ii) Type of Advances comprising such Committed Borrowing, (iii) aggregate amount of such Committed Borrowing and (iv) in the case of a Committed Borrowing consisting of Eurodollar Rate Advances, initial Interest Period for such Committed Advances. Each Lender shall, before 11:00 A.M. (New York City time) on the date of such Committed Borrowing, make available for the account of its Applicable Lending Office to the Administrative Agent at the Administrative Agent's Account, in same day funds, such Lender's ratable portion of such Committed Borrowing in accordance with the respective Commitments of such Lender and the other Lenders. After the Administrative Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Administrative Agent will make such funds available to the Borrower by crediting the Borrower's Account. (b) Anything in subsection (a) above to the contrary notwithstanding, (i) the Borrower may not select Eurodollar Rate Advances if the obligation of the Lenders to make Eurodollar Rate Advances shall then be suspended pursuant to Section 2.09 or 2.10 and (ii) the Committed Advances may not be outstanding as part of more than ten (10) separate Committed Borrowings. (c) Each Notice of Committed Borrowing shall be irrevocable and binding on the Borrower. In the case of any Committed Borrowing that the related Notice of Committed Borrowing specifies is to be comprised of Eurodollar Rate Advances, the Borrower shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified in such Notice of Committed Borrowing for such Committed Borrowing the applicable 22 conditions set forth in Article III, including, without limitation, any loss (excluding loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Committed Advance to be made by such Lender as part of such Committed Borrowing when such Committed Advance, as a result of such failure, is not made on such date. (d) Unless the Administrative Agent shall have received notice from a Lender prior to the date of any Committed Borrowing that such Lender will not make available to the Administrative Agent such Lender's ratable portion of such Committed Borrowing, the Administrative Agent may assume that such Lender has made such portion available to the Administrative Agent on the date of such Committed Borrowing in accordance with subsection (a) of this Section 2.02 and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on such date a corresponding amount. If and to the extent that such Lender shall not have so made such ratable portion available to the Administrative Agent, such Lender and the Borrower severally agree to repay or pay to the Administrative Agent forthwith on demand such corresponding amount and to pay interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid or paid to the Administrative Agent, at (i) in the case of the Borrower, the interest rate applicable at such time under Section 2.07 to Advances comprising such Committed Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall pay to the Administrative Agent such corresponding amount, such amount so paid shall constitute such Lender's Committed Advance as part of such Committed Borrowing for all purposes. (e) The failure of any Lender to make the Committed Advance to be made by it as part of any Committed Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its Committed Advance on the date of such Committed Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Committed Advance to be made by such other Lender on the date of any Committed Borrowing. SECTION 2.03. The Competitive Bid Advances. (a) Each Lender severally agrees that the Borrower may make Competitive Bid Borrowings under this Section 2.03 from time to time on any Business Day during the period from the date hereof until the date occurring 7 days prior to the Termination Date in the manner set forth below; provided that, following the making of each Competitive Bid Borrowing, the aggregate amount of the Advances then outstanding shall not exceed the aggregate amount of the Commitments of the Lenders. (i) The Borrower may request a Competitive Bid Borrowing under this Section 2.03 by delivering to the Administrative Agent, by telecopier, a notice of a Competitive Bid Borrowing (a "Notice of Competitive Bid Borrowing"), in substantially the form of Exhibit B-2 hereto, specifying therein the requested (v) date of such proposed Competitive Bid Borrowing, (w) aggregate amount of such proposed Competitive Bid Borrowing, (x) in the case of a Competitive Bid Borrowing consisting of LIBO Rate Advances, Interest Period, or in the case of a Competitive Bid Borrowing consisting of Fixed Rate Advances, maturity date for repayment of each Fixed Rate Advance to be made as part of such Competitive Bid Borrowing (which maturity date may not be earlier than the date occurring 7 days after the date of such Competitive Bid Borrowing or later than the earlier of (I) 180 days after the date of such Competitive Bid 23 Borrowing and (II) the Termination Date), (y) interest payment date or dates relating thereto, and (z) other terms (if any) to be applicable to such Competitive Bid Borrowing, not later than 10:00 A.M. (New York City time) (A) at least one Business Day prior to the date of the proposed Competitive Bid Borrowing, if the Borrower shall specify in the Notice of Competitive Bid Borrowing that the rates of interest to be offered by the Lenders shall be fixed rates per annum (the Advances comprising any such Competitive Bid Borrowing being referred to herein as "Fixed Rate Advances") and (B) at least four Business Days prior to the date of the proposed Competitive Bid Borrowing, if the Borrower shall instead specify in the Notice of Competitive Bid Borrowing that the rates of interest to be offered by the Lenders are to be based on a margin above or below the LIBO Rate (the Advances comprising such Competitive Bid Borrowing being referred to herein as "LIBO Rate Advances"). Each Notice of Competitive Bid Borrowing shall be irrevocable and binding on the Borrower. The Administrative Agent shall in turn promptly notify each Lender of each request for a Competitive Bid Borrowing received by it from the Borrower by sending such Lender a copy of the related Notice of Competitive Bid Borrowing. (ii) Each Lender may, if, in its sole discretion, it elects to do so, irrevocably offer to make one or more Competitive Bid Advances to the Borrower as part of such proposed Competitive Bid Borrowing at a rate or rates of interest specified by such Lender in its sole discretion, by notifying the Administrative Agent (which shall give prompt notice thereof to the Borrower), before 9:30 A.M. (New York City time) on the date of such proposed Competitive Bid Borrowing, in the case of a Competitive Bid Borrowing consisting of Fixed Rate Advances and before 10:00 A.M. (New York City time) three Business Days before the date of such proposed Competitive Bid Borrowing, in the case of a Competitive Bid Borrowing consisting of LIBO Rate Advances, of the minimum amount and maximum amount of each Competitive Bid Advance which such Lender would be willing to make as part of such proposed Competitive Bid Borrowing (which amounts may, subject to the proviso to the first sentence of this Section 2.03(a), exceed such Lender's Commitment, if any), the rate or rates of interest therefor and such Lender's Applicable Lending Office with respect to such Competitive Bid Advance; provided that if the Administrative Agent in its capacity as a Lender shall, in its sole discretion, elect to make any such offer, it shall notify the Borrower of such offer at least 30 minutes before the time and on the date on which notice of such election is to be given to the Administrative Agent by the other Lenders. If any Lender shall elect not to make such an offer, such Lender shall so notify the Administrative Agent, before 10:00 A.M. (New York City time) on the date on which notice of such election is to be given to the Administrative Agent by the other Lenders, and such Lender shall not be obligated to, and shall not, make any Competitive Bid Advance as part of such Competitive Bid Borrowing; provided that the failure by any Lender to give such notice shall not cause such Lender to be obligated to make any Competitive Bid Advance as part of such proposed Competitive Bid Borrowing. (iii) The Borrower shall, in turn, before 10:30 A.M. (New York City time) on the date of such proposed Competitive Bid Borrowing, in the case of a Competitive Bid Borrowing consisting of Fixed Rate Advances, and before 11:00 A.M. (New York City time) three Business Days before the date of such proposed Competitive Bid Borrowing, in the case of a Competitive Bid Borrowing consisting of LIBO Rate Advances, either: 24 (x) cancel such Competitive Bid Borrowing by giving the Administrative Agent notice to that effect, or (y) accept one or more of the offers made by any Lender or Lenders pursuant to paragraph (ii) above, in its sole discretion, by giving notice to the Administrative Agent of the amount of each Competitive Bid Advance (which amount shall be equal to or greater than the minimum amount, and equal to or less than the maximum amount, notified to the Borrower by the Administrative Agent on behalf of such Lender for such Competitive Bid Advance pursuant to paragraph (ii) above) to be made by each such Lender as part of such Competitive Bid Borrowing, and reject any remaining offers made by Lenders pursuant to paragraph (ii) above by giving the Administrative Agent notice to that effect. The Borrower shall accept the offers made by any Lender or Lenders to make Competitive Bid Advances in order of the lowest to the highest rates of interest offered by such Lenders. If two or more Lenders have offered the same interest rate, the amount to be borrowed at such interest rate will be allocated among such Lenders in proportion to the amount that each such Lender offered at such interest rate. (iv) If the Borrower notifies the Administrative Agent that such Competitive Bid Borrowing is cancelled pursuant to paragraph (iii)(x) above, the Administrative Agent shall give prompt notice thereof to the Lenders and such Competitive Bid Borrowing shall not be made. (v) If the Borrower accepts one or more of the offers made by any Lender or Lenders pursuant to paragraph (iii)(y) above, the Administrative Agent shall in turn promptly notify (A) each Lender that has made an offer as described in paragraph (ii) above, of the date and aggregate amount of such Competitive Bid Borrowing and whether or not any offer or offers made by such Lender pursuant to paragraph (ii) above have been accepted by the Borrower, (B) each Lender that is to make a Competitive Bid Advance as part of such Competitive Bid Borrowing, of the amount of each Competitive Bid Advance to be made by such Lender as part of such Competitive Bid Borrowing, and (C) each Lender that is to make a Competitive Bid Advance as part of such Competitive Bid Borrowing, upon receipt, that the Administrative Agent has received forms of documents appearing to fulfill the applicable conditions set forth in Article III. Each Lender that is to make a Competitive Bid Advance as part of such Competitive Bid Borrowing shall, before 12:00 noon (New York City time) on the date of such Competitive Bid Borrowing specified in the notice received from the Administrative Agent pursuant to clause (A) of the preceding sentence or any later time when such Lender shall have received notice from the Administrative Agent pursuant to clause (C) of the preceding sentence, make available for the account of its Applicable Lending Office to the Administrative Agent at the Administrative Agent's Account, in same day funds, such Lender's portion of such Competitive Bid Borrowing. Upon fulfillment of the applicable conditions set forth in Article III and after receipt by the Administrative Agent of such funds, the Administrative Agent will make such funds available to the Borrower at the Administrative Agent's address referred to in Section 8.02. Promptly after each Competitive Bid Borrowing, the Administrative Agent will notify each Lender of the amount of the Competitive Bid Borrowing. 25 (vi) If the Borrower notifies the Administrative Agent that it accepts one or more of the offers made by any Lender or Lenders pursuant to paragraph (iii)(y) above, such notice of acceptance shall be irrevocable and binding on the Borrower. The Borrower shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified in the related Notice of Competitive Bid Borrowing for such Competitive Bid Borrowing the applicable conditions set forth in Article III, including, without limitation, any loss (excluding loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Competitive Bid Advance to be made by such Lender as part of such Competitive Bid Borrowing when such Competitive Bid Advance, as a result of such failure, is not made on such date. (b) Each Competitive Bid Borrowing shall be in an aggregate amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof and, following the making of each Competitive Bid Borrowing, the Borrower shall be in compliance with the limitation set forth in the proviso to the first sentence of subsection (a) above. (c) Within the limits and on the conditions set forth in this Section 2.03, the Borrower may from time to time borrow under this Section 2.03, repay or prepay pursuant to subsection (d) below, and reborrow under this Section 2.03, provided that a Competitive Bid Borrowing shall not be made within three Business Days of the date of any other Competitive Bid Borrowing. (d) The Borrower shall repay to the Administrative Agent for the account of each Lender that has made a Competitive Bid Advance, on the maturity date of each Competitive Bid Advance (such maturity date being that specified by the Borrower for repayment of such Competitive Bid Advance in the related Notice of Competitive Bid Borrowing delivered pursuant to subsection (a)(i) above), the then unpaid principal amount of such Competitive Bid Advance. The Borrower shall have no right to prepay any principal amount of any Competitive Bid Advance unless, and then only on the terms, specified by the Borrower for such Competitive Bid Advance in the related Notice of Competitive Bid Borrowing delivered pursuant to subsection (a)(i) above. (e) The Borrower shall pay interest on the unpaid principal amount of each Competitive Bid Advance from the date of such Competitive Bid Advance to the date the principal amount of such Competitive Bid Advance is repaid in full, at the rate of interest for such Competitive Bid Advance specified by the Lender making such Competitive Bid Advance in its notice with respect thereto delivered pursuant to subsection (a)(ii) above, payable on the interest payment date or dates specified by the Borrower for such Competitive Bid Advance in the related Notice of Competitive Bid Borrowing delivered pursuant to subsection (a)(i) above. Upon the occurrence and during the continuance of an Event of Default under Section 6.01(a) or 6.01(f) or at the request of the Required Lenders during the existence of any other Event of Default, the Borrower shall pay interest on the amount of unpaid principal of and interest on each Competitive Bid Advance owing to a Lender, payable in arrears on the date or dates interest is payable thereon, at a rate per annum equal at all times to 2% per annum above the rate per annum otherwise required to be paid on such Competitive Bid Advance. 26 (f) The indebtedness of the Borrower resulting from each Competitive Bid Advance made to the Borrower as part of a Competitive Bid Borrowing shall be evidenced by the Competitive Bid Note of the Borrower payable to the order of the Lender making such Competitive Bid Advance. (g) Upon delivery of each Notice of Competitive Bid Borrowing, the Borrower shall pay a non-refundable fee of $1,500 to the Administrative Agent for its own account. SECTION 2.04. Repayment of Committed Advances. The Borrower shall repay to the Administrative Agent for the ratable account of the Lenders on the Final Maturity Date the aggregate outstanding principal amount of the Committed Advances then outstanding. SECTION 2.05. Termination or Reduction of the Commitments. (a) Optional. The Borrower may, upon at least three Business Days' notice to the Administrative Agent, terminate in whole or reduce in part the Unused Commitments; provided, however, that each partial reduction (i) shall be in an aggregate amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof and (ii) shall be made ratably among the Lenders in accordance with their Commitments. (b) Mandatory. The Committed Facility shall be automatically and permanently reduced on each date on which prepayment thereof would be required to be made pursuant to Section 2.06(b) in an amount equal to the amount of such prepayment (irrespective of whether any Committed Advances are outstanding or not), provided that each such reduction of the Committed Facility shall be made ratably among the Lenders in accordance with their Commitments. SECTION 2.06. Prepayments. (a) Optional. The Borrower may, upon at least one Business Day's notice in the case of Base Rate Advances and three Business Days' notice in the case of Eurodollar Rate Advances, in each case to the Administrative Agent stating the proposed date and aggregate principal amount of the prepayment, and if such notice is given the Borrower shall, prepay the outstanding aggregate principal amount of the Committed Advances comprising part of the same Committed Borrowing in whole or ratably in part, together with accrued interest to the date of such prepayment on the aggregate principal amount prepaid; provided, however, that (x) each partial prepayment shall be in an aggregate principal amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof and (y) if any prepayment of a Eurodollar Rate Advance is made on a date other than the last day of an Interest Period for such Committed Advance, the Borrower shall also pay any amounts owing pursuant to Section 9.04(c). (b) Mandatory. (i) The Borrower shall, on the date of receipt of the Net Cash Proceeds by the Borrower or any of its Subsidiaries from (A) the sale, lease, transfer or other disposition of any assets of the Borrower or any of its Subsidiaries (other than any sale, lease, transfer or other disposition of assets pursuant to clause (i), (ii), (iii) or (v) of Section 5.02(e)), (B) the incurrence or issuance by the Borrower or any of its Subsidiaries of any Debt for borrowed money (other than under this Agreement or Debt issued pursuant to Section 5.02 (b) (vi)) and (C) the sale or issuance by the Borrower or any of its Subsidiaries of any Equity Interests (including Preferred Securities) to Persons that are not Affiliates of the Loan Parties, prepay an aggregate principal amount of the Committed Advances comprising part of the same Committed Borrowings in an amount equal to the Prepayment Percentage of the amount of such Net Cash Proceeds; provided that no prepayment shall be required to 27 the extent of the first $25,000,000 of Net Cash Proceeds generated by any of the events described under (A), (B) or (C) of this Section 2.06, provided that no more than an aggregate amount of Net Cash Proceeds equal to $75,000,000 shall be excluded from the requirements of this Section 2.06(b)(i)); provided further that any portion of such prepayment that would be applied to any Eurodollar Rate Advance and would be made on a date other than the last day of an Interest Period for such Committed Advance shall be so paid and applied, at the option of the Borrower, within two weeks upon receipt. (ii) All prepayments under this subsection (b) in respect of Eurodollar Rate Advances shall be made together with accrued interest to the date of such prepayment on the principal amount prepaid. SECTION 2.07. Interest. (a) Scheduled Interest. The Borrower shall pay interest on the unpaid principal amount of each Committed Advance owing to each Lender from the date of such Committed Advance until such principal amount shall be paid in full, at the following rates per annum: (i) Base Rate Advances. During such periods as such Committed Advance is a Base Rate Advance, a rate per annum equal at all times to the sum of (A) the Base Rate in effect from time to time plus (B) the Applicable Margin in effect from time to time, payable in arrears quarterly on the last day of each March, June, September and December during such periods and on the Final Maturity Date. (ii) Eurodollar Rate Advances. During such periods as such Committed Advance is a Eurodollar Rate Advance, a rate per annum equal at all times during each Interest Period for such Committed Advance to the sum of (A) the Eurodollar Rate for such Interest Period for such Committed Advance plus (B) the Applicable Margin in effect from time to time, payable in arrears on the last day of such Interest Period and, if such Interest Period has a duration of more than three months, on each day that occurs during such Interest Period every three months from the first day of such Interest Period and on the date such Eurodollar Rate Advance shall be Converted or paid in full. (iii) Regulation D Compensation. Each Lender that is subject to reserve requirements of the Board of Governors of the Federal Reserve System (or any successor) may require the Borrower to pay, contemporaneously with each payment of interest on Eurodollar Rate Advances, additional interest on the related Eurodollar Rate Advances of such Lender at the rate per annum equal to the excess of (i)(A) the applicable Eurodollar Rate, divided by (B) one minus the Eurodollar Rate Reserve Requirement over (ii) the rate specified in clause (i)(A). Any Lender wishing to require payment of such additional interest shall so notify the Borrower directly, in which case such additional interest on the Eurodollar Rate Advances of such Lender shall be payable to such Lender at the place indicated in such notice with respect to each Interest Period commencing after the giving of such notice. (b) Default Interest. Upon the occurrence and during the existence of an Event of Default under Section 6.01(a) or 6.01(f) or at the request of the Required Lenders during the existence of any other Event of Default, the Borrower shall pay interest on (i) the unpaid principal amount of each Committed Advance owing to each Lender, payable in arrears on the dates referred to in clause (a)(i) or (a)(ii) above, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid on such Committed Advance pursuant to clause (a)(i) or 28 (a)(ii) above and (ii) to the fullest extent permitted by law, the amount of any interest, fee or other amount payable under the Loan Documents that is not paid when due, from the date such amount shall be due until such amount shall be paid in full, payable in arrears on the date such amount shall be paid in full and on demand, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid, in the case of interest, on the Type of Committed Advance on which such interest has accrued pursuant to clause (a)(i) or (a)(ii) above and, in all other cases, on Base Rate Advances pursuant to clause (a)(i) above. (c) Notice of Interest Period and Interest Rate. Promptly after receipt of a Notice of Committed Borrowing pursuant to Section 2.02(a), a notice of Conversion pursuant to Section 2.09 or a notice of selection of an Interest Period pursuant to the terms of the definition of "Interest Period", the Administrative Agent shall give notice to the Borrower and each Lender of the applicable Interest Period and the applicable interest rate determined by the Administrative Agent for purposes of clause (a)(i) or (a)(ii) above. SECTION 2.08. Fees. (a) Ticking Fee. In respect of any portion of the Commitments, the Borrower shall pay to the Administrative Agent for the account of the Lenders a ticking fee, from April 6, 1999 in the case of each Initial Lender and from the effective date specified in the Assignment and Acceptance pursuant to which it became a Lender in the case of each other Lender until the date on which such portion of the Commitments is available to be borrowed pursuant to the provisions of Section 3.01, payable in arrears on the date of the initial Committed Borrowing hereunder, thereafter quarterly on the last day of each March, June, September and December, commencing June 30, 1999, and on the Termination Date, at the rate of 1/10 of 1% per annum on the average daily unavailable Commitment of each Lender during such quarter; provided, however, that no ticking fee shall accrue on the Commitment of a Defaulting Lender so long as such Lender shall be a Defaulting Lender; and provided further that no ticking fee shall accrue on the portion of the Commitments on which the facility fee is accruing pursuant to Section 2.08(b). (b) Facility Fee. The Borrower shall pay to the Administrative Agent for the account of the Lenders a facility fee, from the Effective Date in the case of each Initial Lender and from the effective date specified in the Assignment and Acceptance pursuant to which it became a Lender in the case of each other Lender until the Termination Date, payable in arrears quarterly on the last day of each March, June, September and December, commencing June 30, 1999, and on the Final Maturity Date, at the rate of the Applicable Facility Fee Percentage on the average daily available Commitment of each Lender during such quarter; provided, however, that no facility fee shall accrue on any of the Commitments of a Defaulting Lender so long as such Lender shall be a Defaulting Lender. (c) Agents' Fees. The Borrower shall pay to each Agent for its own account such fees as may from time to time be agreed between the Borrower and such Agent. SECTION 2.09. Conversion of Advances. (a) Optional. The Borrower may on any Business Day, upon notice given to the Administrative Agent not later than 11:00 A.M. (New York City time) on the third Business Day prior to the date of the proposed Conversion and subject to the provisions of Section 2.10, Convert all or any portion of the Committed Advances of one Type 29 comprising the same Committed Borrowing into Committed Advances of the other Type; provided, however, that any Conversion of Eurodollar Rate Advances into Base Rate Advances shall be made only on the last day of an Interest Period for such Eurodollar Rate Advances, any Conversion of Base Rate Advances into Eurodollar Rate Advances shall be in an amount not less than the minimum amount specified for a Committed Borrowing in Section 2.01, no Conversion of any Committed Advances shall result in more separate Committed Borrowings than permitted under Section 2.02(b) and each Conversion of Committed Advances comprising part of the same Committed Borrowing shall be made ratably among the Lenders in accordance with their Commitments. Each such notice of Conversion shall, within the restrictions specified above, specify (i) the date of such Conversion, (ii) the Advances to be Converted and (iii) if such Conversion is into Eurodollar Rate Advances, the duration of the initial Interest Period for such Committed Advances. Each notice of Conversion shall be irrevocable and binding on the Borrower. (b) Mandatory. (i) On the date on which the aggregate unpaid principal amount of Eurodollar Rate Advances comprising any Committed Borrowing shall be reduced, by payment or prepayment or otherwise, to less than $10,000,000, such Committed Advances shall automatically Convert into Base Rate Advances at the end of the applicable Interest Period. (ii) If the Borrower shall fail to select the duration of any Interest Period for any Eurodollar Rate Advances in accordance with the provisions contained in the definition of "Interest Period" in Section 1.01, the Administrative Agent will forthwith so notify the Borrower and the Lenders, whereupon each such Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance. (iii) Upon the occurrence and during the existence of an Event of Default under Section 6.01(a) or 6.01(f) or at the request of the Required Lenders during the existence of any other Event of Default, (x) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance and (y) the obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended. SECTION 2.10. Increased Costs, Etc. (a) If, due to either (i) the introduction of or any change in or in the interpretation of, in each case after the date hereof, any law or regulation or (ii) the compliance with any guideline or request issued after the date hereof from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost to any Lender of agreeing to make or of making, funding or maintaining Eurodollar Rate Advances or LIBO Rate Advances (excluding, for purposes of this Section 2.10, any such increased costs resulting from (x) Taxes or Other Taxes (as to which Section 2.12 shall govern) and (y) changes in the basis of taxation of overall net income or overall gross income by the United States or by the foreign jurisdiction or state under the laws of which such Lender is organized or has its Applicable Lending Office or any political subdivision thereof), then the Borrower shall from time to time, within 5 days after demand by such Lender (with a copy of such demand to the Administrative Agent), which demand shall include a statement of the basis for such demand and a calculation in reasonable detail of the amount demanded, pay to the Administrative Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost. A certificate as to the amount of such increased cost, 30 submitted to the Borrower by such Lender, shall be conclusive and binding for all purposes, absent manifest error. (b) If, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation, in each case after the date hereof, or (ii) the compliance with any guideline or request issued after the date hereof from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the amount of capital required or expected to be maintained by any Lender or any corporation controlling such Lender as a result of or based upon the existence of such Lender's commitment to lend hereunder and other commitments of such type, then, within 5 days after demand by such Lender or such corporation (with a copy of such demand to the Administrative Agent), which demand shall include a statement of the basis for such demand and a calculation in reasonable detail of the amount demanded, the Borrower shall pay to the Administrative Agent for the account of such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender in the light of such circumstances, to the extent that such Lender reasonably determines such increase in capital to be allocable to the existence of such Lender's commitment to lend hereunder. A certificate as to such amounts submitted to the Borrower by such Lender shall be conclusive and binding for all purposes, absent manifest error. (c) If, prior to the first day of any Interest Period with respect to any Eurodollar Rate Advances, the Required Lenders notify the Administrative Agent that the Eurodollar Rate for such Interest Period for such Committed Advances will not adequately reflect the cost to such Lenders of making, funding or maintaining their Eurodollar Rate Advances for such Interest Period, the Administrative Agent shall forthwith so notify the Borrower and the Lenders, whereupon each such Eurodollar Rate Advance will (i) in the case of requested new Eurodollar Rate Advances, be made as or remain Base Rate Advances or as a Eurodollar Rate Advance with a different Interest Period as to which the Required Lenders have not given such a notice and (ii) in the case of existing Eurodollar Rate Advances, automatically, on the last day of the then existing Interest Period therefor, Convert into Base Rate Advances or be continued as a Eurodollar Rate Advance with a different Interest Period as to which the Required Lenders have not given such a notice. (d) Notwithstanding any other provision of this Agreement, if the introduction of or any change in or in the interpretation of any law or regulation in each case after the date hereof, shall make it unlawful, or any central bank or other governmental authority shall assert that it is unlawful, for any Lender or its Eurodollar Lending Office to perform its obligations hereunder to make Eurodollar Rate Advances or LIBO Rate Advances or to continue to fund or maintain Eurodollar Rate Advances or LIBO Rate Advances hereunder, then, on notice thereof and demand therefor by such Lender to the Borrower through the Administrative Agent, (i) each Eurodollar Rate Advance or LIBO Rate Advance, as the case may be, of such Lender will automatically, upon such demand, Convert into a Base Rate Advance or an Advance that bears interest at the rate set forth in Section 2.07(a)(i), as the case may be, and (ii) the obligation of such Lender to make Eurodollar Rate Advances or LIBO Rate Advances or to Convert Committed Advances into Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrower that such Lender has determined that the circumstances causing such suspension no longer exist (it being understood that such Lender shall make and maintain Base Rate Advances in the amount that would otherwise be made and maintained by such Lender as Eurodollar Advances absent the circumstances described above). 31 (e) Each Lender shall promptly notify the Borrower and the Administrative Agent of any event of which it has actual knowledge which will result in, and will use reasonable commercial efforts available to it (and not, in such Lender's good faith judgment, otherwise disadvantageous to such Lender) to mitigate or avoid, (i) any obligation by the Borrower to pay any amount pursuant to subsection (a) or (b) above or pursuant to Section 2.12 or (ii) the occurrence of any circumstances of the nature described in subsection (c) or (d) above (and, if any Lender has given notice of any event described in clause (i) or (ii) above and thereafter such event ceases to exist, such Lender shall promptly so notify the Borrower and the Administrative Agent). Without limiting the foregoing, each Lender will designate a different Applicable Lending Office if such designation will avoid (or reduce the cost to the Borrower of) any event described in clause (i) or (ii) of the preceding sentence and such designation will not, in such Lender's good faith judgment, be otherwise disadvantageous to such Lender. (f) Notwithstanding the provisions of subsections (a) and (b) above or Section 2.12 (and without limiting subsection (e) above), if any Lender fails to notify the Borrower of any event or circumstance that will entitle such Lender to compensation pursuant subsection (a) or (b) above or Section 2.12 within 120 days after such Lender obtains actual knowledge of such event or circumstance, then such Lender shall not be entitled to compensation, from the Borrower for any amount arising prior to the date which is 120 days before the date on which such Lender notifies the Borrower of such event or circumstance. SECTION 2.11. Payments and Computations. (a) The Borrower shall make each payment hereunder and under the Notes, irrespective of any right of counterclaim or set-off (except as otherwise provided in Section 2.15), not later than 11:00 A.M. (New York City time) on the day when due in U.S. dollars to the Administrative Agent at the Administrative Agent's Account in same day funds, with payments being received by the Administrative Agent after such time being deemed to have been received on the next succeeding Business Day. The Administrative Agent will promptly thereafter cause like funds to be distributed (i) if such payment by the Borrower is in respect of principal, interest, ticking fees, facility fees or any other amount then payable hereunder and under the Notes to more than one Lender, to such Lenders for the account of their respective Applicable Lending Offices ratably in accordance with the amounts of such respective amount then payable to such Lenders and (ii) if such payment by the Borrower is in respect of any amount then payable hereunder to one Lender, to such Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. Upon its acceptance of an Assignment and Acceptance and recording of the information contained therein in the Register pursuant to Section 9.07(d), from and after the effective date of such Assignment and Acceptance, the Administrative Agent shall make all payments hereunder and under the Notes in respect of the interest assigned thereby to the Lender assignee thereunder, and the parties to such Assignment and Acceptance shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves. (b) The Borrower hereby authorizes each Lender, if an Event of Default under Section 6.01(a) has occurred and is continuing to charge from time to time against any or all of the Borrower's accounts with such Lender any amount that resulted in such Event of Default. (c) All computations of interest on Base Rate Advances (and any other amount payable by reference to the Base Rate) when the Base Rate is determined by reference to MGT's prime 32 rate shall be made by the Administrative Agent on the basis of a year of 365 or, if applicable, 366 days; all other computations of interest and fees shall be made by the Administrative Agent on the basis of a year of 360 days. All such computations shall be made for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or fees are payable. Each determination by the Administrative Agent of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error. (d) Whenever any payment hereunder or under the Notes shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or fee, as the case may be; provided, however, that, if such extension would cause payment of interest on or principal of Eurodollar Rate Advances or LIBO Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. (e) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to any Lender hereunder that the Borrower will not make such payment in full, the Administrative Agent may assume that the Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each such Lender on such due date an amount equal to the amount then due such Lender. If and to the extent the Borrower shall not have so made such payment in full to the Administrative Agent, each such Lender shall repay to the Administrative Agent forthwith on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent, at the Federal Funds Rate. SECTION 2.12. Taxes. (a) Any and all payments by any Loan Party hereunder or under the Notes shall be made, in accordance with Section 2.11, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and each Agent, taxes that are imposed on its overall net income by the United States and taxes that are imposed on its overall net income (and franchise taxes imposed in lieu thereof) by the state or foreign jurisdiction under the laws of which such Lender or such Agent, as the case may be, is organized or any political subdivision thereof and, in the case of each Lender, taxes that are imposed on its overall net income (and franchise taxes imposed in lieu thereof) by the state or foreign jurisdiction of such Lender's Applicable Lending Office or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities in respect of payments hereunder or under the Notes being herein referred to as "Taxes"). If any Loan Party shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any Note to any Lender or any Agent, (i) the sum payable by such Loan Party shall be increased as may be necessary so that after such Loan Party and the Administrative Agent have made all required deductions (including deductions applicable to additional sums payable under this Section 2.12) such Lender or such Agent, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Loan Party shall make all such deductions and (iii) such Loan Party shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. 33 (b) In addition, each Loan Party shall pay any present or future stamp, documentary, excise, property or similar taxes, charges or levies that arise from any payment made hereunder or under the Notes or from the execution, delivery or registration of, performance under, or otherwise with respect to, this Agreement or the Notes (herein referred to as "Other Taxes"). (c) Each Loan Party shall indemnify each Lender and each Agent for and hold them harmless against the full amount of Taxes and Other Taxes, and for the full amount of taxes of any kind imposed by any jurisdiction on amounts payable under this Section 2.12, imposed on or paid by such Lender or such Agent (as the case may be) and any liability (including penalties, additions to tax, interest and expenses) arising therefrom or with respect thereto. This indemnification payment shall be made within 30 days from the date such Lender or such Agent (as the case may be) makes written demand therefor. (d) Within 30 days after the date of any payment of Taxes, each Loan Party shall furnish to the Administrative Agent, at its address referred to in Section 9.02, the original or a certified copy of a receipt evidencing such payment. In the case of any payment hereunder or under the Notes by or on behalf of a Loan Party through an account or branch outside the United States or by or on behalf of a Loan Party by a payor that is not a United States person, if such Loan Party determines that no Taxes are payable in respect thereof, such Loan Party shall furnish, or shall cause such payor to furnish, to the Administrative Agent, at such address, an opinion of counsel acceptable to the Administrative Agent stating that such payment is exempt from Taxes. For purposes of subsections (d) and (e) of this Section 2.12, the terms "United States" and "United States person" shall have the meanings specified in Section 7701(a)(9) and 7701(a)(10) of the Internal Revenue Code, respectively. (e) Each Lender organized under the laws of a jurisdiction outside the United States shall, on or prior to the date of its execution and delivery of this Agreement in the case of each Initial Lender, and on the date of the Assignment and Acceptance pursuant to which it becomes a Lender in the case of each other Lender, and from time to time thereafter as requested in writing by the Borrower (but only so long thereafter as such Lender remains lawfully able to do so), provide each of the Administrative Agent and the Borrower with two original Internal Revenue Service forms W-8BEN (or, if delivered on or before December 31, 1999, form 1001) or W-8ECI (or, if delivered on or before December 31, 1999, form 4224) or (in the case of a Lender that has certified in writing to the Administrative Agent that it is not a "bank" as defined in Section 881(c)(3)(A) of the Internal Revenue Code) form W-8 (and, if such Lender delivers a form W-8, a certificate representing that such Lender is not a "bank" for purposes of Section 881(c)(3)(A) of the Internal Revenue Code, is not a 10- percent shareholder (within the meaning of Section 871(h)(3)(B) of the Internal Revenue Code) of the Borrower and is not a controlled foreign corporation related to the Borrower (within the meaning of Section 864(d)(4) of the Internal Revenue Code)), as appropriate, or any successor or other form prescribed by the Internal Revenue Service, certifying that such Lender is exempt from or entitled to a reduced rate of United States withholding tax on payments pursuant to this Agreement or the Notes or, in the case of a Lender providing a form W-8, certifying that such Lender is a foreign corporation, partnership, estate or trust. If the forms provided by a Lender at the time such Lender first becomes a party to this Agreement indicate a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from Taxes unless and until such Lender provides the appropriate forms certifying that a lesser rate applies, whereupon withholding tax at such lesser rate only shall be 34 considered excluded from Taxes for periods governed by such forms; provided, however, that if, at the effective date of the Assignment and Acceptance pursuant to which a Lender becomes a party to this Agreement, the Lender assignor was entitled to payments under subsection (a) of this Section 2.12 in respect of United States withholding tax with respect to interest paid at such date, then, to such extent, the term Taxes shall include (in addition to withholding taxes that may be imposed in the future or other amounts otherwise includable in Taxes) United States withholding tax, if any, applicable with respect to the Lender assignee on such date. If any form or document referred to in this subsection (e) requires the disclosure of information, other than information necessary to compute the tax payable and information required on the date hereof by Internal Revenue Service form W-8BEN, 1001, W-8ECI, 4224 or W-8 (and the related certificate described above), that the Lender reasonably considers to be confidential, the Lender shall give notice thereof to the Borrower and shall not be obligated to include in such form or document such confidential information. (f) For any period with respect to which a Lender which may lawfully do so has failed to provide the Borrower with the appropriate form described in subsection (e) above (other than if such failure is due to a change in law occurring after the date on which a form originally was required to be provided or if such form otherwise is not required under subsection (e) above), such Lender shall not be entitled to indemnification under subsection (a) or (c) of this Section 2.12 with respect to Taxes imposed by the United States by reason of such failure; provided, however, that should a Lender become subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Lender shall reasonably request to assist such Lender to recover such Taxes. (g) Each Lender represents and warrants to the Borrower and the Guarantors that, as of the date such Lender becomes a party to this Agreement, such Lender is entitled to receive payments hereunder from the Borrower and the Guarantors without deduction or withholding for or on account of any Taxes. SECTION 2.13. Sharing of Payments, Etc. If any Lender shall obtain at any time any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise, other than as a result of an assignment pursuant to Section 9.07) (a) on account of obligations due and payable to such Lender hereunder and under the Notes at such time in excess of its ratable share (according to the proportion of (i) the amount of such obligations due and payable to such Lender at such time to (ii) the aggregate amount of the obligations due and payable to all Lenders hereunder and under the Notes at such time) of payments on account of the obligations due and payable to all Lenders hereunder and under the Notes at such time obtained by all the Lenders at such time or (b) on account of obligations owing (but not due and payable) to such Lender hereunder and under the Notes at such time in excess of its ratable share (according to the proportion of (i) the amount of such obligations owing to such Lender at such time to (ii) the aggregate amount of the obligations owing (but not due and payable) to all Lenders hereunder and under the Notes at such time) of payments on account of the obligations owing (but not due and payable) to all Lenders hereunder and under the Notes at such time obtained by all of the Lenders at such time, such Lender shall forthwith purchase from the other Lenders such interests or participating interests in the obligations due and payable or owing to them, as the case may be, as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each other Lender shall be rescinded and such other Lender shall 35 repay to the purchasing Lender the purchase price to the extent of such Lender's ratable share (according to the proportion of (i) the purchase price paid to such Lender to (ii) the aggregate purchase price paid to all Lenders) of such recovery together with an amount equal to such Lender's ratable share (according to the proportion of (i) the amount of such other Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. The Borrower agrees that any Lender so purchasing an interest or participating interest from another Lender pursuant to this Section 2.13 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such interest or participating interest, as the case may be, as fully as if such Lender were the direct creditor of the Borrower in the amount of such interest or participating interest, as the case may be. SECTION 2.14. Use of Proceeds. The proceeds of the Committed Advances shall be available (and the Borrower agrees that it shall use such proceeds) solely to pay to the Seller a portion of the cash consideration in respect of the Acquisition, pay transaction fees and expenses, provide working capital for such Borrower and its Subsidiaries and for other general corporate purposes. SECTION 2.15. Defaulting Lenders. (a) In the event that, at any one time, (i) any Lender shall be a Defaulting Lender, (ii) such Defaulting Lender shall owe a Defaulted Advance to the Borrower and (iii) the Borrower shall be required to make any payment hereunder or under any other Loan Document to or for the account of such Defaulting Lender, then the Borrower may, to the fullest extent permitted by applicable law, set off and otherwise apply the obligation of the Borrower to make such payment to or for the account of such Defaulting Lender against the obligation of such Defaulting Lender to make such Defaulted Advance. In the event that, on any date, the Borrower shall so set off and otherwise apply its obligation to make any such payment against the obligation of such Defaulting Lender to make any such Defaulted Advance on or prior to such date, the amount so set off and otherwise applied by the Borrower shall constitute for all purposes of this Agreement and the other Loan Documents an Advance by such Defaulting Lender made on the date of such setoff. Such Committed Advance shall be considered, for all purposes of this Agreement, to comprise part of the Committed Borrowing in connection with which such Defaulted Advance was originally required to have been made pursuant to Section 2.01, even if the other Committed Advances comprising such Committed Borrowing shall be Eurodollar Rate Advances on the date such Committed Advance is deemed to be made pursuant to this subsection (a). The Borrower shall notify the Administrative Agent at any time the Borrower exercises its right of set-off pursuant to this subsection (a) and shall set forth in such notice (A) the name of the Defaulting Lender and the Defaulted Advance required to be made by such Defaulting Lender and (B) the amount set off and otherwise applied in respect of such Defaulted Advance pursuant to this subsection (a). Any portion of such payment otherwise required to be made by the Borrower to or for the account of such Defaulting Lender which is paid by the Borrower, after giving effect to the amount set off and otherwise applied by the Borrower pursuant to this subsection (a), shall be applied by the Administrative Agent as specified in subsection (b) or (c) of this Section 2.15. (b) In the event that, at any one time, (i) any Lender shall be a Defaulting Lender, (ii) such Defaulting Lender shall owe a Defaulted Amount to any Agent or any of the other Lenders and (iii) the Borrower shall make any payment hereunder or under any other Loan Document to the Administrative Agent for the account of such Defaulting Lender, then the Administrative Agent may, on its behalf or on behalf of such other Agents or such other Lenders and to the fullest extent permitted by 36 applicable law, apply at such time the amount so paid by the Borrower to or for the account of such Defaulting Lender to the payment of each such Defaulted Amount to the extent required to pay such Defaulted Amount. In the event that the Administrative Agent shall so apply any such amount to the payment of any such Defaulted Amount on any date, the amount so applied by the Administrative Agent shall constitute for all purposes of this Agreement and the other Loan Documents payment, to such extent, of such Defaulted Amount on such date. Any such amount so applied by the Administrative Agent shall be retained by the Administrative Agent or distributed by the Administrative Agent to such other Agents or such other Lenders, ratably in accordance with the respective portions of such Defaulted Amounts payable at such time to the Administrative Agent, such other Agents and such other Lenders and, if the amount of such payment made by the Borrower shall at such time be insufficient to pay all Defaulted Amounts owing at such time to the Administrative Agent, such other Agents and such other Lenders, in the following order of priority: (i) first, to the Agents for any Defaulted Amounts then owing to the Agents, ratably in accordance with such respective Defaulted Amounts then owing to the Agents; and (ii) second, to any other Lenders for any Defaulted Amounts then owing to such other Lenders, ratably in accordance with such respective Defaulted Amounts then owing to such other Lenders. Any portion of such amount paid by the Borrower for the account of such Defaulting Lender remaining, after giving effect to the amount applied by the Administrative Agent pursuant to this subsection (b), shall be applied by the Administrative Agent as specified in subsection (c) of this Section 2.15. (c) In the event that, at any one time, (i) any Lender shall be a Defaulting Lender, (ii) such Defaulting Lender shall not owe a Defaulted Advance or a Defaulted Amount and (iii) the Borrower, any Agent or any other Lender shall be required to pay or distribute any amount hereunder or under any other Loan Document to or for the account of such Defaulting Lender, then the Borrower or such Agent or such other Lender shall pay such amount to the Administrative Agent to be held by the Administrative Agent, to the fullest extent permitted by applicable law, in escrow or the Administrative Agent shall, to the fullest extent permitted by applicable law, hold in escrow such amount otherwise held by it. Any funds held by the Administrative Agent in escrow under this subsection (c) shall be deposited by the Administrative Agent in an account with MGT, in the name and under the control of the Administrative Agent, but subject to the provisions of this subsection (c). The terms applicable to such account, including the rate of interest payable with respect to the credit balance of such account from time to time, shall be MGT's standard terms applicable to escrow accounts maintained with it. Any interest credited to such account from time to time shall be held by the Administrative Agent in escrow under, and applied by the Administrative Agent from time to time in accordance with the provisions of, this subsection (c). The Administrative Agent shall, to the fullest extent permitted by applicable law, apply all funds so held in escrow from time to time to the extent necessary to make any Committed Advances required to be made by such Defaulting Lender and to pay any amount payable by such Defaulting Lender hereunder and under the other Loan Documents to the Administrative Agent or any other Lender, as and when such Committed Advances or amounts are required to be made or paid and, if the amount so held in escrow shall at any time be insufficient to make and pay all such Committed Advances and amounts required to be made or paid at such time, in the following order of priority: 37 (i) first, to the Agents for any amounts then due and payable by such Defaulting Lender to the Agents hereunder, ratably in accordance with such amounts then due and payable to the Agents; (ii) second, to any other Lenders for any amount then due and payable by such Defaulting Lender to such other Lenders hereunder, ratably in accordance with such respective amounts then due and payable to such other Lenders; and (iii) third, to the Borrower for any Committed Advance then required to be made by such Defaulting Lender pursuant to the Commitment of such Defaulting Lender. In the event that any Lender that is a Defaulting Lender shall, at any time, cease to be a Defaulting Lender, any funds held by the Administrative Agent in escrow at such time with respect to such Lender shall be distributed by the Administrative Agent to such Lender and applied by such Lender to the obligations owing to such Lender at such time under this Agreement and the other Loan Documents ratably in accordance with the respective amounts of such obligations outstanding at such time. (d) The rights and remedies against a Defaulting Lender under this Section 2.15 are in addition to other rights and remedies that the Borrower may have against such Defaulting Lender with respect to any Defaulted Advance and that any Agent or any Lender may have against such Defaulting Lender with respect to any Defaulted Amount. SECTION 2.16. Extension of Final Maturity Date. At least 30 days prior to the Termination Date but in no event earlier than 60 days prior to the Termination Date, the Borrower may, by written notice to the Administrative Agent, request that the Final Maturity Date be a date occurring up to the first anniversary of the then scheduled Termination Date. Such request shall be irrevocable and binding upon the Borrower. The Administrative Agent shall promptly notify each Lender of such request. Subject to the satisfaction of the applicable conditions set forth in Section 3.02 as of such Termination Date, the Final Maturity Date shall be, effective as of such Termination Date, such date as the Borrower shall request pursuant to this Section 2.16. Notwithstanding the foregoing, the Borrower may not request an extension of the Final Maturity Date unless the ratio of Adjusted Consolidated Debt to Total Capitalization was 0.40 to 1 or less as of the last day of the most recent fiscal quarter of the Parent. SECTION 2.17. Replacement of Affected Lender. At any time any Lender is an Affected Lender, the Borrower may replace such Affected Lender as a party to this Agreement with one or more other Lenders and/or, with the consent of the Administrative Agent (which shall not be unreasonably withheld) Eligible Assignees, and upon notice from the Borrower such Affected Lender shall assign pursuant to an Assignment and Acceptance, and without recourse or warranty, its Commitment, its Committed Advances, its Committed Note and all of its other rights and obligations hereunder to such other Lenders and/or Eligible Assignees for a purchase price equal to the sum of the principal amount of the Committed Advances so assigned, all accrued and unpaid interest thereon, such Affected Lender's ratable share of all accrued and unpaid fees payable pursuant to Section 2.08, any amounts payable pursuant to Section 9.04(c) as a result of such Affected Lender receiving payment of any Eurodollar Rate Advance prior to the end of an Interest Period therefor (assuming for such purpose 38 that receipt of payment pursuant to such Assignment and Acceptance constitutes payment of such Eurodollar Rate Advances) and all other obligations owed to such Affected Lender hereunder. ARTICLE III CONDITIONS OF LENDING SECTION 3.01. Conditions Precedent to All Committed Borrowings in Respect of the Acquisition. (a) Conditions Precedent to Initial Extension of Credit. The obligation of each Lender to make a Committed Advance on the occasion of the Initial Extension of Credit hereunder is subject to the satisfaction of the following conditions precedent before or concurrently with the Initial Extension of Credit: (i) The Administrative Agent shall have received on or before the day of the Initial Extension of Credit the following, each dated such day (unless otherwise specified), in form and substance reasonably satisfactory to the Administrative Agent (unless otherwise specified) and (except for the Committed Notes) in sufficient copies for each Lender: (A) The Committed Notes payable to the order of the Lenders. (B) Certified copies of the resolutions of the Board of Directors of each Loan Party approving the Acquisition and the other transactions contemplated by the Transaction Documents and each Transaction Document to which it is or is to be a party, and of all documents evidencing other necessary corporate action and governmental and other third party approvals and consents, if any, with respect to the Acquisition and the other transactions contemplated by the Transaction Documents and each Transaction Document to which it is or is to be a party. (C) A copy of a certificate or certificates of the Secretary of State or other appropriate official of the jurisdiction of incorporation of (x) the Borrower, dated reasonably near the date of the Initial Extension of Credit, certifying (A) as to a true and correct copy of the charter of the Borrower and each amendment thereto on file in such Secretary's office and (B) that (1) such amendments are the only amendments to the Borrower's charter on file in such Secretary's office, (2) the Borrower has paid all franchise taxes to the date of such certificate and (C) the Borrower is duly incorporated and in good standing or presently subsisting under the laws of the State of the jurisdiction of its incorporation and (y) each other Loan Party, dated reasonably near the Initial Extension of Credit, certifying as to the good standing (or existence) of such Loan Party. (D) A certificate of each Loan Party, signed on behalf of such Loan Party by its President or a Vice President and its Secretary or any Assistant Secretary, dated the date of the Initial Extension of Credit (the statements made in which certificate shall be true on and as of the date of the Initial Extension of Credit), certifying as to (1) in the 39 case of the Borrower, the absence of any amendments to the charter of such Loan Party since the date of the Secretary of State's certificate referred to in Section 3.01(a)(i)(C), (2) a true and correct copy of the bylaws (in the case of the Borrower) or the constitutional documents (in the case of each Guarantor) of such Loan Party as in effect on the date on which the resolutions referred to in Section 3.01(a)(i)(B) were adopted and on the date of the Initial Extension of Credit, (3) the due incorporation and good standing or valid existence of such Loan Party as a corporation organized under the laws of the jurisdiction of its incorporation, and the absence of any proceeding for the dissolution or liquidation of such Loan Party, (4) the truth of the representations and warranties contained in the Loan Documents as though made on and as of the date of the Initial Extension of Credit and (5) the absence of any event occurring and continuing, or resulting from the Initial Extension of Credit, that constitutes a Default. (E) A certificate of the Secretary or an Assistant Secretary of each Loan Party certifying the names and true signatures of the officers of such Loan Party authorized to sign each Transaction Document to which it is or is to be a party and the other documents to be delivered hereunder and thereunder. (F) Certified copy of the Purchase Agreement, duly executed by the parties thereto, together with all agreements, instruments and other documents delivered in connection therewith as the Administrative Agent shall reasonably request. (G) Certificates, in substantially the form of Exhibit D hereto, attesting to the Solvency of each Loan Party before and after giving effect to the Acquisition and the other transactions contemplated by the Transaction Documents, from its Chief Financial Officer. (H) A favorable opinion of (1) Maples and Calder, Cayman Islands counsel for the Parent, in substantially the form of Exhibit E-1 hereto and as to such other matters as any Lender through the Administrative Agent may reasonably request , (2) Mayer, Brown & Platt, New York counsel for the Loan Parties, in substantially the form of Exhibit E-2 hereto and as to such other matters as any Lender through the Administrative Agent may reasonably request and (3) Conyers Dill & Pearman, Bermuda counsel for the Subsidiary Guarantors, in substantially the form of Exhibit E-3 hereto and as to such other matters as any Lender through the Administrative Agent may reasonably request. (I) A certificate of the Parent, signed by its President or Chief Financial Officer, dated the date of the Initial Extension of Credit, certifying as to (1) a description (in reasonable detail) of the portion of the Acquisition occurring on the date of the Initial Extension of Credit and (2) the percentage that the portion of the purchase price allocable to the assets acquired at such time in connection with the Acquisition bears to the aggregate purchase price for all assets to be acquired in connection with the Acquisition.. 40 (ii) (x) No development or change occurring after January 11, 1999, and no information becoming known after such date, that results in a material change in the post-Acquisition corporate and capitalization structure of the Parent or in the capitalization structure of the Parent's subsidiaries contemplated in the Pre-Commitment Information and (y) the Lenders shall be reasonably satisfied with the corporate and legal structure and capitalization of the Borrower and each other Loan Party (other than the Parent), including the terms and conditions of the constitutional documents of each such Person and of each material agreement or instrument relating to such structure. (iii) The Lenders shall be reasonably satisfied that all Existing Debt, other than Surviving Debt, has been (or concurrently will be) prepaid, redeemed or defeased in full or otherwise satisfied and extinguished and that all Surviving Debt shall be on terms and conditions reasonably satisfactory to the Lenders. (iv) Before giving effect to the Acquisition and the other transactions contemplated by the Transaction Documents, there shall have occurred no material adverse change since September 30, 1998 in the business, financial condition, operations or properties of (i) CIGNAP&C or (ii) the Parent and its Subsidiaries, taken as a whole. (v) There shall exist no action, suit, investigation, litigation or proceeding affecting any Loan Party or any of its Subsidiaries pending or threatened before any court, governmental agency or arbitrator that (x) could be reasonably expected to have a Material Adverse Effect or a material adverse effect on the business, financial condition, operations or properties of CIGNAP&C or (y) would reasonably be expected to materially adversely affect the legality, validity or enforceability of any Transaction Document or the consummation of the Acquisition or the other transactions contemplated by the Transaction Documents. (vi) All governmental and third party consents and approvals necessary in connection with the portion of the Acquisition occurring on the date of the Initial Extension of Credit and the other transactions contemplated by the Transaction Documents to occur on such date shall have been obtained (without the imposition of any conditions that are not reasonably acceptable to the Lenders and that would reasonably be expected to have a Material Adverse Effect) and shall remain in effect, except for any such consents and approvals, the absence of which, either individually or in the aggregate, would not reasonably be likely to have a Material Adverse Effect; all applicable waiting periods in connection with the portion of the Acquisition occurring on the date of the Initial Extension of Credit and the other transactions contemplated by the Transaction Documents to occur on such date shall have expired without any negative action being taken by any competent authority; and no law or regulation shall be applicable in the reasonable judgment of the Lenders that restrains, prevents or imposes materially adverse conditions upon the portion of the Acquisition occurring on the date of the Initial Extension of Credit or the other transactions contemplated by the Transaction Documents to occur on such date. (vii) The Pre-Commitment Information shall be true and correct in all material aspects, and no additional information shall have come to the attention of the Administrative 41 Agent or the Lenders that is inconsistent in any material respect with the Pre-Commitment Information or that could reasonably be expected to have a Material Adverse Effect. (viii) No development or change occurring after January 11, 1999, and no information becoming known after such date, that (x) results in or could reasonably be expected to result in a material change in, or material deviation from, the Pre-Commitment Information that is or could reasonably be expected to be materially adverse to the Parent or any of its Subsidiaries or materially adverse to the Lenders or (y) has had or could reasonably be expected to have a Material Adverse Effect. (ix) The Borrower shall have paid all accrued fees of the Agents and the Lenders and all accrued expenses of the Agents (including the accrued fees and expenses of counsel to the Administrative Agent and local counsel on behalf of all of the Lenders), in each case to the extent then due and payable. (x) The portion of the Acquisition occurring on the date of the Initial Extension of Credit shall have been consummated (or shall be concurrently consummated) in accordance with the terms of the Purchase Agreement, without any waiver or amendment not consented to by the Lenders of any material term, provision or condition set forth therein that would reasonably be expected to have a Material Adverse Effect, and in compliance with all material applicable laws. (xi) The Purchase Agreement shall be in full force and effect. (b) Conditions Precedent to All Other Committed Borrowings in Respect of the Acquisition. The obligation of each Lender to make a Committed Advance on the occasion of each Committed Borrowing (other than in respect of the Initial Extension of Credit) the proceeds of which shall be used to fund a portion of the purchase price in respect of the Acquisition shall be subject to the reasonable satisfaction of the following conditions precedent before or concurrently with such Committed Borrowing: (i) The Administrative Agent shall have received on or before the day of such Committed Borrowing a certificate of the Parent, in form and substance reasonably satisfactory to the Administrative Agent (unless otherwise specified) and in sufficient copies for each Lender, signed by its President or Chief Financial Officer, dated the date of such Committed Borrowing, certifying as to (1) a description (in reasonable detail) of the portion of the Acquisition occurring on the date of such Committed Borrowing and (2) the percentage that the portion of the purchase price allocable to the assets acquired at such time in connection with the Acquisition bears to the aggregate purchase price for all assets to be acquired in connection with the Acquisition. (ii) All governmental and third party consents and approvals necessary in connection with the portion of the Acquisition occurring on the date of such Committed Borrowing and the other transactions contemplated by the Transaction Documents to occur on such date shall have been obtained (without the imposition of any conditions that are not reasonably acceptable to the Lenders and that would reasonably be expected to have a Material Adverse Effect) and shall 42 remain in effect, except for any such consents and approvals, the absence of which, either individually or in the aggregate, would not reasonably be likely to have a Material Adverse Effect; all applicable waiting periods in connection with the portion of the Acquisition occurring on the date of such Committed Borrowing and the other transactions contemplated by the Transaction Documents to occur on such date shall have expired without any negative action being taken by any competent authority, and no law or regulation shall be applicable in the reasonable judgment of the Lenders, that restrains, prevents or imposes materially adverse conditions upon the portion of the Acquisition occurring on the date of such Committed Borrowing or the other transactions contemplated by the Transaction Documents to occur on such date. (iii) The portion of the Acquisition occurring on the date of such Committed Borrowing shall have been consummated (or shall be concurrently consummated) in accordance with the terms of the Purchase Agreement, without any waiver or amendment not consented to by the Lenders of any material term, provision or condition set forth therein that would reasonably be expected to have a Material Adverse Effect and in compliance with all material applicable laws. (iv) The Purchase Agreement shall be in full force and effect. SECTION 3.02. Conditions Precedent to Each Committed Borrowing. The obligation of each Lender to make a Committed Advance on the occasion of each Committed Borrowing (including the initial Committed Borrowing) shall be subject to the further conditions precedent that on the date of such Committed Borrowing (a) the following statements shall be true (and each of the giving of the applicable Notice of Committed Borrowing and the acceptance by the Borrower of the proceeds of such Committed Borrowing shall constitute a representation and warranty by the Borrower that both on the date of such notice and on the date of such Committed Borrowing such statements are true): (i) the representations and warranties contained in each Loan Document are correct in all material respects on and as of such date, before and after giving effect to such Committed Borrowing and to the application of the proceeds therefrom, as though made on and as of such date, other than any such representations or warranties that, by their terms, refer to a specific date other than the date of such Committed Borrowing, in which case as of such specific date; and (ii) no Default has occurred and is continuing, or would result from such Committed Borrowing or from the application of the proceeds therefrom; and (b) the Administrative Agent shall have received such other approvals, opinions or documents as any Lender through the Administrative Agent may reasonably request. SECTION 3.03. Conditions Precedent to Each Competitive Bid Borrowing. The obligation of each Lender that is to make a Competitive Bid Advance on the occasion of a Competitive Bid Borrowing to make such Competitive Bid Advance as part of such Competitive Bid Borrowing is subject to the conditions precedent that (i) the Administrative Agent shall have received the written 43 confirmatory Notice of Competitive Bid Borrowing with respect thereto and (ii) on the date of such Competitive Bid Borrowing the following statements shall be true (and each of the giving of the applicable Notice of Competitive Bid Borrowing and the acceptance by the Borrower of the proceeds of such Competitive Bid Borrowing shall constitute a representation and warranty by the Borrower that on the date of such Competitive Bid Borrowing such statements are true): (a) the representations and warranties contained in Section 4.01 are correct in all material respects on and as of the date of such Competitive Bid Borrowing, before and after giving effect to such Competitive Bid Borrowing and to the application of the proceeds therefrom, as though made on and as of such date, other than any such representations or warranties that, by their terms, refer to a specific date other than the date of such Competitive Bid Borrowing, in which case as of such specific date, and (b) no Default has occurred and is continuing, or would result from such Competitive Bid Borrowing or from the application of the proceeds therefrom. SECTION 3.04. Determinations Under Section 3.01. For purposes of determining compliance with the conditions specified in Section 3.01, each Lender 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 the Lenders unless an officer of the Administrative Agent responsible for the transactions contemplated by the Loan Documents shall have received notice from such Lender prior to the Initial Extension of Credit specifying its objection thereto and such Lender shall not have made available to the Administrative Agent such Lender's ratable portion of such Committed Borrowing. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Parent and the Borrower. Each of the Parent and the Borrower represents and warrants as follows: (a) Each Loan Party and each of its Subsidiaries (i) is duly organized or formed, validly existing and, to the extent such concept applies, in good standing under the laws of the jurisdiction of its incorporation or formation, (ii) is duly qualified and in good standing as a foreign corporation or other entity in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed except where the failure to so qualify or be licensed would not be reasonably likely to have a Material Adverse Effect and (iii) has all requisite power and authority (including, without limitation, all governmental licenses, permits and other approvals) to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted, except where the failure to have any license, permit or other approval would not be reasonably likely to have a Material Adverse Effect. All of the outstanding Equity Interests in the Borrower have been validly issued, are fully paid and non-assessable and (except for any Preferred Securities issued 44 after the date of this Agreement) are owned, directly or indirectly, by the Parent free and clear of all Liens. (b) Set forth on Schedule 4.01(b) hereto is a complete and accurate list of all Subsidiaries of each Loan Party. (c) The execution, delivery and performance by each Loan Party of each Transaction Document to which it is or is to be a party, and the consummation of the Acquisition and the other transactions contemplated by the Transaction Documents (to the extent applicable), are within such Loan Party's corporate powers, have been duly authorized by all necessary corporate action, and do not (i) contravene such Loan Party's constitutional documents, (ii) violate any law, rule, regulation (including, without limitation, Regulation X of the Board of Governors of the Federal Reserve System), order, writ, judgment, injunction, decree, determination or award, (iii) conflict with or result in the breach of, or constitute a default under, any contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument binding on or affecting any Loan Party, any of its Subsidiaries or any of their properties or (iv) except for the Liens created under the Loan Documents, result in or require the creation or imposition of any Lien upon or with respect to any of the properties of any Loan Party or any of its Subsidiaries. No Loan Party or any of its Subsidiaries is in violation of any such law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or in breach of any such contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument, the violation or breach of which could be reasonably likely to have a Material Adverse Effect. (d) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for (i) the due execution, delivery, recordation, filing or performance by any Loan Party of any Transaction Document to which it is or is to be a party, or for the consummation of the Acquisition or the other transactions contemplated by the Transaction Documents, or (ii) the exercise by any Agent or any Lender of its rights under the Loan Documents, except for the authorizations, approvals, actions, notices and filings which have been duly obtained, taken, given or made and are in full force and effect. All applicable waiting periods in connection with the Acquisition and the other transactions contemplated by the Transaction Documents have expired without any action having been taken by any competent authority restraining, preventing or imposing materially adverse conditions upon the Acquisition or the rights of the Loan Parties or their Subsidiaries freely to transfer or otherwise dispose of, or to create any Lien on, any properties now owned or hereafter acquired by any of them. (e) This Agreement has been, and each other Transaction Document when delivered hereunder will have been, duly executed and delivered by each Loan Party party thereto. This Agreement is, and each other Transaction Document when delivered hereunder will be, the legal, valid and binding obligation of each Loan Party party thereto, enforceable against such Loan Party in accordance with its terms. (f) There is no action, suit, investigation, litigation or proceeding affecting any Loan Party or any of its Subsidiaries, including any Environmental Action, pending or threatened 45 before any court, governmental agency or arbitrator that (i) could be reasonably likely to have a Material Adverse Effect or (ii) would reasonably be expected to affect the legality, validity or enforceability of any Transaction Document or the consummation of the Acquisition or the other transactions contemplated by the Transaction Documents. (g) The Consolidated balance sheets of the Parent and its Subsidiaries as at September 30, 1998, and the related Consolidated statements of income and cash flows of the Parent and its Subsidiaries for the fiscal year then ended, accompanied by an unqualified opinion of PricewaterhouseCoopers LLP, independent public accountants, and the Consolidated balance sheets of the Parent and its Subsidiaries as at December 31, 1998, and the related Consolidated statements of income and cash flows of the Parent and its Subsidiaries for the three months then ended, duly certified by the Chief Financial Officer of the Parent, copies of which have been furnished to each Lender, fairly present, subject, in the case of said balance sheet as at December 31, 1998, and said statements of income and cash flows for the three months then ended, to year-end audit adjustments, the Consolidated financial condition of the Parent and its Subsidiaries as at such dates and the Consolidated results of operations of the Parent and its Subsidiaries for the periods ended on such dates, all in accordance with generally accepted accounting principles applied on a consistent basis (subject, in the case of the December 31, 1998 balance sheet and statements, to the absence of footnotes), and since December 31, 1998, there has been no Material Adverse Change. (h) The Consolidated forecasted balance sheet, statements of income and statements of cash flows of the Borrower and its Subsidiaries contained in the Information Memorandum were prepared in good faith on the basis of the assumptions stated therein, which assumptions were fair in light of the conditions existing at the time of delivery of such forecasts, and represented, at the time of delivery, the Borrower's best estimate of its future financial performance. (i) Neither the Information Memorandum nor any other written information, exhibit or report furnished by or on behalf of any Loan Party to any Agent or any Lender in connection with the negotiation and syndication of the Loan Documents or pursuant to the terms of the Loan Documents contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements made therein not misleading as at the date it was dated (or if not dated, so delivered). (j) The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying Margin Stock, and no proceeds of any Advance will be used to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock. (k) Neither any Loan Party nor any of its Subsidiaries is an "investment company", or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company", as such terms are defined in the Investment Company Act of 1940, as amended. Neither the making of any Advances nor the application of the proceeds or repayment thereof by the Borrower, nor the consummation of the other transactions contemplated by the Transaction 46 Documents, will violate any provision of such Act or any rule, regulation or order of the Securities and Exchange Commission thereunder. (l) Neither any Loan Party nor any of its Subsidiaries is a party to any indenture, loan or credit agreement or any lease or other agreement or instrument or subject to any charter or corporate restriction that is reasonably likely to have a Material Adverse Effect. (m) Each Loan Party is, individually and together with its Subsidiaries, Solvent. (n) Except to the extent that any and all events and conditions under clauses (i) through (vi) below of this paragraph (n) in the aggregate are not reasonably expected to have a Material Adverse Effect: (i) Schedule B (Actuarial Information) to the most recent annual report (Form 5500 Series) for each Pension Plan, copies of which have been filed with the Internal Revenue Service, is complete and accurate and fairly presents the funding status of such Pension Plan, and since the date of such Schedule B there has been no material adverse change in such funding status. (ii) Neither any Loan Party nor any ERISA Affiliate has incurred or is reasonably expected to incur any Withdrawal Liability to any Multiemployer Plan. (iii) Neither any Loan Party nor any ERISA Affiliate has been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or has been terminated, within the meaning of Title IV of ERISA, and no such Multiemployer Plan is reasonably expected to be in reorganization or to be terminated, within the meaning of Title IV of ERISA. (iv) With respect to each scheme or arrangement mandated by a government other than the United States (a "Foreign Government Scheme or Arrangement") and with respect to each employee benefit plan that is not subject to United States law maintained or contributed to by any Loan Party or with respect to which any Subsidiary of any Loan Party may have liability under applicable local law (a "Foreign Plan"): (x) Any employer and employee contributions required by law or by the terms of any Foreign Government Scheme or Arrangement or any Foreign Plan have been made, or, if applicable, accrued, in accordance with normal accounting practices. (y) The fair market value of the assets of each funded Foreign Plan, the liability of each insurer for any Foreign Plan funded through insurance or the book reserve established for any Foreign Plan, together with any accrued contributions, is sufficient to procure or provide for the accrued benefit obligations, as of the date hereof, with respect to all current and former participants in such Foreign Plan according to the actuarial assumptions and valuations most recently used to account for such obligations in accordance with applicable generally accepted accounting principles. 47 (z) Each Foreign Plan required to be registered has been registered and has been maintained in good standing with applicable regulatory authorities. (v) To the extent the assets of any Loan Party are or are deemed under applicable law to be "plan assets" within the meaning of Department of Labor Regulation (S) 2510.3-101, the execution, delivery and performance of the Loan Documents and the consummation of the transactions contemplated therein will not result in a non-exempt prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Internal Revenue Code. (vi) During the twelve-consecutive-month period to the date of the execution and delivery of this Agreement and prior to any Borrowing hereunder, no steps have been taken to terminate any Pension Plan, no contribution failure has occurred with respect to any Pension Plan sufficient to give rise to a lien under section 302(f) of ERISA and no minimum funding waiver has been applied for or is in effect with respect to any Pension Plan. No condition exists or event or transaction has occurred or is reasonably expected to occur with respect to any Pension Plan which could result in any Loan Party or any ERISA Affiliate incurring any liability, fine or penalty. (o) (i) In the ordinary course of its business, the Parent reviews the effect of Environmental Laws on the operations and properties of the Parent and its Subsidiaries, in the course of which it identifies and evaluates associated liabilities and costs (including, without limitation, any capital or operating expenditures required for clean-up or closure of properties presently or previously owned, any capital or operating expenditures required to achieve or maintain compliance with environmental protection standards imposed by law or as a condition of any license, permit or contract, any related constraints on operating activities, including any periodic or permanent shutdown of any facility or reduction in the level of or change in the nature of operations conducted thereat, and any actual or potential liabilities to third parties and any related costs and expenses). On the basis of this review, the Parent has reasonably concluded that such associated liabilities and costs, including the costs of compliance with Environmental Laws, are unlikely to have a Material Adverse Effect. (ii) The operations and properties of each Loan Party and each of its Subsidiaries comply in all material respects with all applicable Environmental Laws and Environmental Permits, except for non-compliances which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; Hazardous Materials have not been released, discharged or disposed of on any property currently or formerly owned or operated by any Loan Party or any of its Subsidiaries that would reasonably be expected to have a Material Adverse Effect; and there are no Environmental Actions pending or threatened against any Loan Party or its Subsidiaries, and no circumstances exist that could be reasonably likely to form the basis of any such Environmental Action, which (in either case), individually or in the aggregate with all other such pending or threatened actions and circumstances would reasonably be expected to have a Material Adverse Effect. (p) Each Loan Party and each of its Subsidiaries has filed, has caused to be filed or has been included in all material Federal tax returns and all other material tax returns required to 48 be filed and has paid all taxes shown thereon to be due, together with applicable interest and penalties, except to the extent contested in good faith and by appropriate proceedings (in which case adequate reserves have been established therefor in accordance with GAAP). (q) The Borrower has (i) initiated a review and assessment of all areas within its and each of its Subsidiaries' business and operations (including those affected by material suppliers, vendors and customers) that could be adversely affected by the risk that computer applications used by the Borrower or any of its Subsidiaries (or material suppliers, vendors and customers other than those affecting customers that may give rise to claims under insurance policies issued by the Borrower or a Subsidiary) may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999 (the "Year 2000 Problem"), (ii) developed a plan and timetable for addressing the Year 2000 Problem on a timely basis and (iii) to date, implemented that plan substantially in accordance with such timetable. Based on the foregoing, the Borrower believes that all computer applications of the Borrower and its Subsidiaries that are material to its or any of its Subsidiaries' business and operations are reasonably expected on a timely basis to be able to perform properly date-sensitive functions for all dates before and after January 1, 2000 ("Year 2000 Compliant"), except to the extent that a failure to do so could not reasonably be expected to have a Material Adverse Effect. ARTICLE V COVENANTS OF THE PARENT AND THE BORROWER SECTION 5.01. Affirmative Covenants. So long as any Advance or any other obligation of any Loan Party under any Loan Document shall remain unpaid or any Lender shall have any Commitment hereunder, each of the Parent and the Borrower will: (a) Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries to comply, in all material respects, with all applicable laws, rules, regulations and orders, such compliance to include, without limitation, compliance with Environmental Laws, Environmental Permits, ERISA and the Racketeer Influenced and Corrupt Organizations Chapter of the Organized Crime Control Act of 1970. (b) Payment of Taxes, Etc. Pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent, (i) all material taxes, assessments and governmental charges or levies imposed upon it or upon its property and (ii) all lawful material claims that, if unpaid, might by law become a Lien upon its property; provided, however, that neither the Borrower nor any of its Subsidiaries shall be required to pay or discharge any such tax, assessment, charge or claim that is being contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained. (c) Maintenance of Insurance. Maintain, and cause each of its Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged in similar 49 businesses and owning similar properties in the same general areas in which the Parent or such Subsidiary operates (it being understood that the foregoing shall not apply to maintenance of reinsurance or similar matters which shall be solely within the reasonable business judgment of the Parent and its Subsidiaries). (d) Preservation of Corporate Existence, Etc. Preserve and maintain, and cause each of its Subsidiaries to preserve and maintain, its existence, legal structure, legal name, rights (charter and statutory), permits, licenses, approvals, privileges and franchises; provided, however, that the Parent and its Subsidiaries may consummate any merger or consolidation permitted under Section 5.02(d); and provided further that neither the Parent nor any of its Subsidiaries shall be required to preserve any right, permit, license, approval, privilege or franchise if the Board of Directors of the Parent or such Subsidiary shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Parent or such Subsidiary, as the case may be, and that the loss thereof is not disadvantageous in any material respect to the Parent, such Subsidiary or the Lenders. (e) Visitation Rights. At any reasonable time and from time to time upon prior notice, permit the Agents (upon request made by any Agent or any Lender), or any agents or representatives thereof, at the expense (so long as no Default has occurred and is continuing) of such Agents (or such Lender, as the case may be), to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, the Parent and any of its Subsidiaries, and to discuss the affairs, finances and accounts of the Parent and any of its Subsidiaries with any of their officers or directors and with their, so long as a representative of Parent is present, independent certified public accountants. (f) Keeping of Books. Keep, and cause each of its Subsidiaries to keep, proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Parent and each such Subsidiary sufficient to permit the preparation of financial statements in accordance with GAAP. (g) Maintenance of Properties, Etc. Maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, all of its properties that are used or useful in the conduct of its business in good working order and condition, ordinary wear and tear excepted. (h) Transactions with Affiliates. Conduct, and cause each of its Subsidiaries to conduct, all transactions otherwise permitted under the Loan Documents with any of their Affiliates (other than any such transactions between Loan Parties) on terms that are fair and reasonable and no less favorable than it would obtain in a comparable arm's-length transaction with a Person not an Affiliate. (i) Pari Passu ranking. The Borrower shall procure that its obligations under the Loan Documents will rank at least pari passu with all its other present and future unsecured and unsubordinated obligations, except for obligations which are mandatorily preferred by law applying to companies generally. 50 SECTION 5.02. Negative Covenants. So long as any Advance or any other obligation of any Loan Party under any Loan Document shall remain unpaid, or any Lender shall have any Commitment hereunder, neither the Parent nor the Borrower will, at any time: (a) Liens, Etc. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Lien on or with respect to any of its properties of any character (including, without limitation, accounts) whether now owned or hereafter acquired, or assign, or permit any of its Subsidiaries to assign, any accounts or other right to receive income, except: (i) Liens created under the Loan Documents or in respect of the Parent Five-Year Revolving Credit Facility or the Parent 364-Day Revolving Credit Facility; (ii) Permitted Liens; (iii) Liens described on Schedule 5.02(a) hereto and other Liens arising in the ordinary course of business of CIGNAP&C; (iv) purchase money Liens upon or in real property or equipment acquired or held by the Parent or any of its Subsidiaries in the ordinary course of business to secure the purchase price of such property or equipment or to secure Debt incurred solely for the purpose of financing the acquisition, construction or improvement of any such property or equipment to be subject to such Liens, or Liens existing on any such property or equipment at the time of acquisition or within 180 days following such acquisition (other than any such Liens created in contemplation of such acquisition that do not secure the purchase price), or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount; provided, however, that no such Lien shall extend to or cover any property other than the property or equipment being acquired, constructed or improved, and no such extension, renewal or replacement shall extend to or cover any property not theretofore subject to the Lien being extended, renewed or replaced; and provided further that the aggregate principal amount of the Debt secured by Liens permitted by this clause (iv) shall not exceed the amount permitted under Section 5.02(b)(ii) at any time outstanding; (v) Liens arising in connection with Capitalized Leases permitted under Section 5.02(b)(iii); provided that no such Lien shall extend to or cover any assets other than the assets subject to such Capitalized Leases; (vi) (A) any Lien existing on any asset of any Person at the time such Person becomes a Subsidiary and not created in contemplation of such event, (B) any Lien on any asset of any Person existing at the time such Person is merged or consolidated with or into the Parent or any of it Subsidiaries in accordance with Section 5.02(d) and not created in contemplation of such event and (C) any Lien existing on any asset prior to the acquisition thereof by the Parent or any of its Subsidiaries and not created in contemplation of such acquisition; 51 (vii) Liens securing obligations under credit default swap transactions determined by reference to, or Contingent Obligations in respect of, Debt issued by the Parent or one of its Subsidiaries; such Debt not to exceed an aggregate principal amount of $550,000,000; (viii) Liens arising in the ordinary course of its business which (A) do not secure Debt and (B) do not in the aggregate materially detract from the value of its assets or materially impair the use thereof in the operation of its business; (ix) Liens on cash and Approved Investments securing Hedge Agreements arising in the ordinary course of business; (x) other Liens securing Debt or other obligations outstanding in an aggregate principal or face amount not to exceed at any time 10% of Consolidated Tangible Net Worth; (xi) Liens consisting of deposits made by the Parent or any insurance Subsidiary with any insurance regulatory authority or other statutory Liens or Liens or claims imposed or required by applicable insurance law or regulation against the assets of the Parent or any insurance Subsidiary, in each case in favor of policyholders of the Parent or such insurance Subsidiary or an insurance regulatory authority and in the ordinary course of the Parent's or such insurance Subsidiary's business; (xii) Liens on Investments and cash balances of the Parent or any insurance Subsidiary (other than capital stock of any Subsidiary) securing obligations of the Parent or any insurance Subsidiary in respect of (i) letters of credit obtained in the ordinary course of business and/or (ii) trust arrangements formed in the ordinary course of business for the benefit of cedents to secure reinsurance recoverables owed to them by the Parent or any insurance Subsidiary; (xiii) the replacement, extension or renewal of any Lien permitted by clause (iii) or (vi) above upon or in the same property theretofore subject thereto or the replacement, extension or renewal (without increase in the amount (other than in respect of fees, expenses and premiums, if any) or change in any direct or contingent obligor) of the Debt secured thereby; (xiv) Liens securing obligations owed by any Loan Party to any other Loan Party or owed by any Subsidiary of the Parent (other than a Loan Party) to the Parent or any other Subsidiary; (xv) Liens incurred in the ordinary course of business in favor of financial intermediaries and clearing agents pending clearance of payments for investment or in the nature of set-off, banker's lien or similar rights as to deposit accounts or other funds; and 52 (xvi) judgment or judicial attachment Liens, provided that the enforcement of such Liens is effectively stayed. (b) Debt. Until such time as the Commitments hereunder are reduced to $1,400,000,000, permit the Borrower or any of its Subsidiaries to create, incur, assume or suffer to exist, any Debt, except: (i) Debt under the Loan Documents, Debt under the Parent Five- Year Revolving Credit Facility and Debt under the Parent 364-Day Revolving Credit Facility; (ii) Debt secured by Liens permitted by Section 5.02(a)(iv) not to exceed in the aggregate $ 200,000,000 at any time outstanding, (iii) Capitalized Leases not to exceed in the aggregate $100,000,000 at any time outstanding, (iv) the Surviving Debt described on Schedule 5.02 (b) hereto, and any Debt extending the maturity of, or refunding or refinancing, in whole or in part, any Surviving Debt, provided that the terms of any such extending, refunding or refinancing Debt, and of any agreement entered into and of any instrument issued in connection therewith, are otherwise permitted by the Loan Documents, provided further that the principal amount of such Surviving Debt shall not be increased above the principal amount thereof outstanding immediately prior to such extension, refunding or refinancing, and the direct and contingent obligors therefor shall not be changed, as a result of or in connection with such extension, refunding or refinancing, provided still further that the terms relating to principal amount, amortization, maturity, collateral (if any) and subordination (if any), and other material terms taken as a whole, of any such extending, refunding or refinancing Debt, and of any agreement entered into and of any instrument issued in connection therewith, are no less favorable in any material respect to the Loan Parties or the Lenders than the terms of any agreement or instrument governing the Surviving Debt being extended, refunded or refinanced and the interest rate applicable to any such extending, refunding or refinancing Debt does not exceed the then applicable market interest rate, (v) unsecured Debt in respect of acceptance, letter of credit or similar facilities issued in the ordinary of credit in an aggregate amount not to exceed $250,000,000 at any time outstanding, (vi) unsecured Debt in the ordinary course of business for borrowed money, maturing within one year from the date incurred, evidenced by commercial paper, (vii) other Debt in an aggregate principal amount not to exceed $500,000,000 at any time outstanding, 53 (viii) Debt in respect of the exercise of overdraft privileges on a basis not more frequent than once each calendar month for not more than five Business Days in an aggregate amount not to exceed $50,000,000 at any time outstanding, (ix) Debt the Net Cash Proceeds of which are used solely to prepay Debt under this Agreement or to prepay commercial paper; and (x) in the case of any Subsidiary of the Parent, Debt owed to the Parent or to a wholly owned Subsidiary of the Parent, provided that, if the obligor under such Debt is a Loan Party, then such Debt shall be subordinated in right of payment to the obligations of such Loan Party under the Loan Documents upon terms acceptable to the Administrative Agent. (c) Change in Nature of Business. Make any material change in the nature of the business of the Parent and its Subsidiaries, taken as a whole, as carried on at the date hereof (and giving effect to the Acquisition). (d) Mergers, Etc. Merge into or consolidate with any Person or permit any Person to merge into it, or permit any of its Subsidiaries to do so, except that: (i) any Subsidiary of the Parent may merge into or consolidate with any other Subsidiary of the Parent, provided that, in the case of any such merger or consolidation, the Person formed by such merger or consolidation shall be a wholly owned Subsidiary of the Parent, provided further that, in the case of any such merger or consolidation to which (x) the Borrower is a party, the Person formed by such merger or consolidation shall be the Borrower or (y) a Subsidiary Guarantor is a party, the Person formed by such merger or consolidation shall be the Borrower or a Subsidiary Guarantor; (ii) any Subsidiary of the Borrower may merge into or consolidate with any other Person or permit any other Person to merge into or consolidate with it; provided that the Person surviving such merger shall be a wholly owned Subsidiary of the Borrower; (iii) in connection with any sale or other disposition permitted under Section 5.02(e) (other than clause (ii) thereof), any Subsidiary of the Parent may merge into or consolidate with any other Person or permit any other Person to merge into or consolidate with it; and (iv) the Parent or the Borrower may merge into or consolidate with any other Person ; provided that, in the case of any such merger or consolidation, the Person formed by such merger or consolidation shall be the Parent or the Borrower, as the case may be; 54 provided, however, that in each case, immediately after giving effect thereto, no event shall occur and be continuing that constitutes a Default. (e) Sales, Etc., of Assets. Sell, lease, transfer or otherwise dispose of, or permit any of its Subsidiaries to sell, lease, transfer or otherwise dispose of, any assets, or grant any option or other right to purchase, lease or otherwise acquire any assets, except: (i) sales of inventory in the ordinary course of its business; (ii) in a transaction authorized by Section 5.02(d); (iii) sales of Approved Investments in the ordinary course of business on a basis consistent with past practices; (iv) sales of assets for fair value; provided that, the Borrower shall, on the date of receipt by any Loan Party or any of its Subsidiaries of the Net Cash Proceeds from such sale, prepay the Committed Advances pursuant to, and in the amount and order of priority set forth in, Section 2.05(b)(ii), as specified therein; (v) sales, leases, transfers or other dispositions of any assets by the Parent or a Subsidiary to the Parent or another Subsidiary; and (vi) so long as no Default shall occur and be continuing, the grant of any option or other right to purchase any asset in a transaction that would be permitted under the provisions of clauses (i) through (iv) above; (f) Restricted Payments. In the case of the Parent, declare or pay any dividends, purchase, redeem, retire, defease or otherwise acquire for value any of its Equity Interests now or hereafter outstanding, return any capital to its stockholders, partners or members (or the equivalent Persons thereof) as such, make any distribution of assets, Equity Interests, obligations or securities to its stockholders, partners or members (or the equivalent Persons thereof) as such or issue or sell any Equity Interests or accept any capital contributions, or permit any of its Subsidiaries to do any of the foregoing, or permit any of its Subsidiaries to purchase, redeem, retire, defease or otherwise acquire for value any Equity Interests in the Parent or to issue or sell any Equity Interests therein, except that, so long as no Default shall have occurred and be continuing at the time of any action described in clause (i) or (ii) below or would result therefrom: (i) the Parent may (A) declare and pay dividends and distributions payable only in common stock of the Parent, (B) issue and sell shares of its capital stock so long as the Net Cash Proceeds thereof shall be applied in the manner set forth in Section 2.06(b)(i) of the Parent 364-Day Revolving Credit Facility, (C) purchase, redeem, retire, defease or otherwise acquire for value any of its Equity Interests in an aggregate amount during the term of this Agreement not exceeding $300,000,000 and (D) declare and pay cash dividends to its stockholders, 55 (ii) (A) any Loan Party (other than the Parent) may declare and pay cash dividends to another Loan Party and (B) any Subsidiary of the Parent (other than any Loan Party) may (x) declare and pay cash dividends to the Parent or any other wholly owned Subsidiary of the Parent of which it is a Subsidiary and (y) accept capital contributions from its parent, and (iii) the Special Purpose Trust may issue Preferred Securities and pay dividends thereon with the proceeds of payments of interest on the Debentures. (g) Accounting Changes. Make or permit, or permit any of its Subsidiaries to make or permit, any change in accounting policies or reporting practices, except as permitted by GAAP. (h) Prepayments, Etc., of Debt. Until such time as the Commitments hereunder are reduced to $1,400,000,000, permit the Borrower or any of its Subsidiaries to prepay, redeem, purchase, defease or otherwise satisfy prior to the scheduled maturity thereof in any manner, or make any payment in violation of any subordination terms of, any Debt, except (i) the prepayment of the Advances in accordance with the terms of this Agreement, (ii) the prepayment of Debt under the Parent Five-Year Revolving Credit Facility and under the Parent 364-Day Revolving Credit Facility and (iii) regularly scheduled or required repayments or redemptions of Surviving Debt, or amend, modify or change in any manner any term or condition of any Surviving Debt, or permit any of its Subsidiaries to do any of the foregoing other than to prepay any Debt payable to any Loan Party. (i) Amendment, Etc., of Purchase Agreement. (i) Cancel or terminate the Purchase Agreement or consent to or accept any cancellation or termination thereof or (ii) amend, modify or change in any manner any term or condition of the Purchase Agreement or give any consent, waiver or approval thereunder, waive any default under or any breach of any term or condition of the Purchase Agreement, agree in any manner to any other amendment, modification or change of any term or condition of the Purchase Agreement or take any other action in connection with the Purchase Agreement that, in any case described in this clause (ii), would reasonably be expected to have a Material Adverse Effect, or permit any of its Subsidiaries to do any of the foregoing. SECTION 5.03. Reporting Requirements. So long as any Advance or any other obligation of any Loan Party under any Loan Document shall remain unpaid or any Lender shall have any Commitment hereunder, the Parent will furnish to the Agents and the Lenders: (a) Default Notice. As soon as possible and in any event within two days after the occurrence of each Default or any event, development or occurrence reasonably likely to have a Material Adverse Effect continuing on the date of such statement, a statement of the chief financial officer of the Parent setting forth details of such Default, event, development or occurrence and the action that the Parent or the applicable Subsidiary has taken and proposes to take with respect thereto. 56 (b) Annual Financials. (i) As soon as available and in any event within 90 days after the end of each Fiscal Year, a copy of the annual Consolidated audit report for such year for the Parent and its Subsidiaries, including therein a Consolidated balance sheet of the Parent and its Subsidiaries as of the end of such Fiscal Year and Consolidated statements of income and cash flows of the Parent and its Subsidiaries for such Fiscal Year, all reported on in a manner reasonably acceptable to the Securities and Exchange Commission in each case and accompanied by an opinion of PricewaterhouseCoopers LLP or other independent public accountants of recognized standing reasonably acceptable to the Required Lenders, together with (i) a certificate of the Chief Financial Officer of the Parent stating that no Default has occurred and is continuing, or if a Default has occurred and is continuing, a statement as to the nature thereof and the action that the Parent has taken a proposes to take with respect thereto, and (ii) a schedule in form reasonably satisfactory to the Administrative Agent of the computations used by the Parent in determining, as of the end of such Fiscal Year, compliance with the covenants contained in Section 5.04. (ii) As soon as available and in any event within 120 days after the end of each Fiscal Year, a copy of the annual Consolidated audit report for such year for each Subsidiary Guarantor and its Subsidiaries, including therein a Consolidated balance sheet of such Subsidiary Guarantor and its Subsidiaries as of the end of such Fiscal Year and a Consolidated statement of income and a Consolidated statement of cash flows of such Subsidiary Guarantor and its Subsidiaries for such Fiscal Year, in each case accompanied by an opinion acceptable to the Required Lenders of PricewaterhouseCoopers LLP or other independent public accountants of recognized standing acceptable to the Required Lenders. (c) Quarterly Financials. As soon as available and in any event within 45 days after the end of each of the first three quarters of each Fiscal Year, Consolidated balance sheets of the Parent and its Subsidiaries as of the end of such quarter and Consolidated statements of income and a Consolidated statement of cash flows of the Parent and its Subsidiaries for the period commencing at the end of the previous fiscal quarter and ending with the end of such fiscal quarter and Consolidated statements of income and a Consolidated statement of cash flows of the Parent and its Subsidiaries for the period commencing at the end of the previous Fiscal Year and ending with the end of such quarter, setting forth in each case in comparative form the corresponding figures for the corresponding date or period of the preceding Fiscal Year, all in reasonable detail and duly certified (subject to the absence of footnotes and normal year-end audit adjustments) by the Chief Financial Officer of the Parent as having been prepared in accordance with GAAP, together with (i) a certificate of said officer stating that no Default has occurred and is continuing or, if a Default has occurred and is continuing, a statement as to the nature thereof and the action that the Parent has taken and proposes to take with respect thereto and (ii) a schedule in form reasonably satisfactory to the Administrative Agent of the computations used by the Parent in determining compliance with the covenants contained in Section 5.04. (d) Litigation. Promptly after the commencement thereof, notice of all actions, suits, investigations, litigation and proceedings before any court or governmental department, 57 commission, board, bureau, agency or instrumentality, domestic or foreign, affecting any Loan Party or any of its Subsidiaries of the type described in Section 4.01(f). (e) Securities Reports. Promptly after the sending or filing thereof, copies of all proxy statements, financial statements and reports that the Parent sends to its stockholders generally, and copies of all regular, periodic and special reports, and all registration statements, that any Loan Party or any of its Subsidiaries files with the Securities and Exchange Commission or any governmental authority that may be substituted therefor, or with any national securities exchange. (f) ERISA (i) ERISA Events. Promptly and in any event within 10 days after any Loan Party or any ERISA Affiliate institutes any steps to terminate any Pension Plan or becomes aware of the institution of any steps or any threat by the PBGC to terminate any Pension Plan, or the failure to make a required contribution to any Pension Plan if such failure is sufficient to give rise to a lien under section 302(f) of ERISA, or the taking of any action with respect to a Pension Plan which could result in the requirement that any Loan Party or any ERISA Affiliate furnish a bond or other security to the PBGC or such Pension Plan, or the occurrence of any event with respect to any Pension Plan which could result in any Loan Party or any ERISA Affiliate incurring any material liability, fine or penalty, or any material increase in the contingent liability of any Loan Party or any ERISA Affiliate with respect to any post-retirement Welfare Plan benefit, notice thereof and copies of all documentation relating thereto. (ii) Plan Annual Reports. Promptly upon request of any Agent or any Lender, copies of each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) with respect to each Pension Plan. (iii) Multiemployer Plan Notices. Promptly and in any event within 15 Business Days after receipt thereof by any Loan Party or any ERISA Affiliate from the sponsor of a Multiemployer Plan, copies of each notice concerning (A) the imposition of Withdrawal Liability by any such Multiemployer Plan, (B) the reorganization or termination, within the meaning of Title IV of ERISA, of any such Multiemployer Plan or (C) the amount of liability incurred, or that may be incurred, by such Loan Party or any ERISA Affiliate in connection with any event described in clause (A) or (B); provided, however, that such notice and documentation shall not be required to be provided (except at the specific request of any Agent or Lender, in which case such notice and documentation shall be promptly provided following such request) if such condition or event is not reasonably expected to result in any Loan Party or any ERISA Affiliate incurring any material liability, fine, or penalty. (g) Year 2000 Compliance. Promptly after the Parent's discovery or determination thereof, notice (in reasonable detail) that any computer application that is material to its or any of its Subsidiaries' business and operations will not be Year 2000 Compliant (as defined in Section 4.01(q)), except to the extent that such failure could not reasonably be expected to have a Material Adverse Effect. 58 (h) Statutory Statements. As soon as available and in any event within 20 days after submission, each statutory statement of the Loan Parties (or any of them) in the form submitted to The Insurance Division of the Office of Registrar of Companies of Bermuda. (i) Regulatory Notices, Etc. Promptly after any Responsible Officer of the Parent obtains knowledge thereof, (i) a copy of any notice from the Bermuda Minister of Finance or the Registrar of Companies or any other person of the revocation, the suspension or the placing of any restriction or condition on the registration as an insurer of any Subsidiary Guarantor under the Bermuda Insurance Act 1978 (and related regulations) or of the institution of any proceeding or investigation which could result in any such revocation, suspension or placing of such a restriction or condition, (ii) copies of any correspondence by, to or concerning any Loan Party relating to an investigation conducted by the Bermuda Minister of Finance, whether pursuant to Section 132 of the Bermuda Companies Act 1981 (and related regulations) or otherwise and (iii) a copy of any notice of or requesting or otherwise relating to the winding-up or any similar proceeding of or with respect to any Loan Party. (j) Other Information. Such other information respecting the business, condition (financial or otherwise), operations, performance, properties or prospects of any Loan Party or any of its Subsidiaries as any Agent, or any Lender through the Administrative Agent, may from time to time reasonably request. SECTION 5.04. Financial Covenants. So long as any Advance or any other obligation of any Loan Party under any Loan Document shall remain unpaid or any Lender shall have any Commitment hereunder, the Parent will: (a) Adjusted Consolidated Debt to Total Capitalization Ratio. Maintain at all times a ratio of Adjusted Consolidated Debt to Total Capitalization of not more than the lesser of (a) 0.50 to 1 or (b) the Specified Ratio. For purposes of the foregoing, the Specified Ratio shall be the greater of 0.35 to 1 or the ratio determined by multiplying 1.25 times the numerator of the lowest ratio of Adjusted Consolidated Debt to Total Capitalization as of the last day of any fiscal quarter of the Parent after completion of the Acquisition. (b) Tangible Net Worth. Maintain at all times Consolidated Tangible Net Worth in an amount equal to the sum of (i) $1,000,000,000 plus (ii) 25% of Consolidated Net Income for each fiscal quarter of the Parent ending on and after June 30, 1999 for which such Consolidated Net Income is positive plus (iii) 75% (or, after the Equity Issuance (so long as the Net Cash Proceeds received by the Parent and its Subsidiaries are at least $500,000,000), 50%) of the aggregate amount by which Consolidated Tangible Net Worth shall have been increased by reason of the issuance and sale of any Equity Interests or Mandatorily Convertible Preferred Securities or, without duplication, the conversion or exchange of any Debt of the Parent into or with Equity Interests of the Parent. 59 ARTICLE VI EVENTS OF DEFAULT SECTION 6.01. Events of Default. If any of the following events ("Events of Default") shall occur and be continuing: (a) (i) the Borrower shall fail to pay any principal of any Advance when the same shall become due and payable or (ii) the Borrower shall fail to pay any interest on any Advance, or any Loan Party shall fail to make any other payment under any Loan Document, in each case under this clause (ii) within five Business Days after the same becomes due and payable; or (b) any representation or warranty made by any Loan Party (or any of its officers) under or in connection with any Loan Document shall prove to have been incorrect in any material respect when made; or (c) the Borrower shall fail to perform or observe any term, covenant or agreement contained in Section 2.14, 5.01(d) (with respect to the Parent or the Borrower) or (e), 5.02 or 5.04; or (d) any Loan Party shall fail to perform or observe any other term, covenant or agreement contained in any Loan Document on its part to be performed or observed if such failure shall remain unremedied for 30 days after the earlier of the date on which (i) a Responsible Officer becomes aware of such failure or (ii) written notice thereof shall have been given to the Borrower by any Agent or any Lender; or (e) the Parent or any of its Subsidiaries shall fail to pay any Material Financial Obligation (but excluding Debt outstanding hereunder) of the Parent or such Subsidiary (as the case may be), when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Material Financial Obligation; or any other event shall occur or condition shall exist under any agreement or instrument relating to any Material Financial Obligation and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Material Financial Obligation or otherwise to cause, or to permit the holder thereof to cause, such Material Financial Obligation to mature; or any Material Financial Obligation shall be declared to be due and payable or required to be prepaid or redeemed (other than by a regularly scheduled required prepayment or redemption), purchased or defeased, or an offer to prepay, redeem, purchase or defease such Material Financial Obligation shall be required to be made, in each case prior to the stated maturity thereof; or (f) any Loan Party or any of its Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against 60 any Loan Party or any of its Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it) that is being diligently contested by it in good faith, either such proceeding shall remain undismissed or unstayed for a period of 60 days or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or any substantial part of its property) shall occur; or any Loan Party or any of its Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this subsection (f); or (g) any judgment or order for the payment of money in excess of $100,000,000 shall be rendered against any Loan Party or any of its Subsidiaries and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (h) any non-monetary judgment or order shall be rendered against any Loan Party or any of its Subsidiaries that could be reasonably likely to have a Material Adverse Effect, and there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (i) any provision of any Loan Document after delivery thereof pursuant to Section 3.01 shall for any reason cease to be valid and binding on or enforceable against any Loan Party party to it (other than as a result of a transaction permitted hereunder), or any such Loan Party shall so state in writing; or (j) a Change of Control shall occur; or (k) Any Loan Party or any ERISA Affiliate shall incur or shall be reasonably expected to incur liability in excess of $25,000,000 in the aggregate with respect to any Pension Plan or any Multiemployer Plan in connection with the occurrence of any of the following events or existence of any of the following conditions: (i) Institution of any steps by any Loan Party, any ERISA Affiliate or any other Person, including, without limitation, the PBGC to terminate a Pension Plan if as a result of such termination a Loan Party or any ERISA Affiliate could be required to make a contribution to such Pension Plan, or could incur a liability or obligation; (ii) A contribution failure occurs with respect to any Pension Plan sufficient to give rise to a lien under section 302(f) of ERISA; or 61 (iii) Any condition shall exist or event shall occur with respect to a Pension Plan that is reasonably expected to result in any Loan Party or any ERISA Affiliate being required to furnish a bond or security to the PBGC or such Pension Plan, or incurring a liability or obligation. (iv) any Loan Party or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability to such Multiemployer Plan; or (v) any Loan Party or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or is being terminated, within the meaning of Title IV of ERISA, and as a result of such reorganization or termination the aggregate annual contributions of the Loan Parties and the ERISA Affiliates to all Multiemployer Plans that are then in reorganization or being terminated have been or will be increased over the amounts contributed to such Multiemployer Plans for the plan years of such Multiemployer Plans immediately preceding the plan year in which such reorganization or termination occurs; then, and in any such event, the Administrative Agent (i) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrower, declare the Commitment of each Lender and the obligation of each Lender to make Advances to be terminated, whereupon the same shall forthwith terminate, and/or (ii) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrower, declare the Notes, all interest thereon and all other amounts payable under this Agreement and the other Loan Documents to be forthwith due and payable, whereupon the Notes, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrower; provided, however, that in the event of an actual or deemed entry of an order for relief with respect to the Borrower under the Federal Bankruptcy Code, (x) the Commitments of each Lender and the obligation of each Lender to make Advances shall automatically be terminated and (y) the Notes, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrower. ARTICLE VII GUARANTY SECTION 7.01. The Guaranty. (a) Each Guarantor jointly and severally, hereby unconditionally, absolutely and irrevocably guarantees the full and punctual payment (whether at stated maturity, upon acceleration or otherwise) of all amounts payable by the Borrower under the Loan Documents including, without limitation, the principal of and interest on each Note issued by the Borrower pursuant to this Agreement. Upon failure by the Borrower to pay punctually any such amount, each Guarantor agrees to pay forthwith on demand the amount not so paid at the place and in the manner specified in this Agreement. 62 (b) Each Guarantor (other than the Parent), and by its acceptance of this Guaranty, the Administrative Agent and each other Lender, hereby confirms that it is the intention of all such Persons that this Guaranty and the obligations of each Guarantor hereunder not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar foreign, federal or state law to the extent applicable to this Guaranty and the obligations of each Guarantor (other than the Parent) hereunder. To effectuate the foregoing intention, the Administrative Agent, the other Lenders and the Guarantors hereby irrevocably agree that the obligations of each Subsidiary Guarantor under this Article VII at any time shall be limited to the maximum amount as will result in the obligations of such Subsidiary Guarantor under this Guaranty not constituting a fraudulent transfer or conveyance. SECTION 7.02. Guaranty Unconditional. The obligations of each Guarantor hereunder 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 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 insolvency, bankruptcy, reorganization 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, 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 the principal of or interest on any Note or any other amount payable under any of the Loan Documents; or (vii) any other act or omission to act or delay of any kind by any obligor, the Administrative Agent, any Lender or any other corporation or person or any other circumstance whatsoever which might, but for the provisions of this paragraph, constitute a legal or equitable discharge of or defense to a Guarantor's obligations hereunder. 63 SECTION 7.03. Discharge Only Upon Payment In Full; Reinstatement In Certain Circumstances. Each Guarantor's obligations hereunder shall remain in full force and effect until the Commitments shall have terminated and the principal of and interest on the Notes and all other amounts payable by the Borrower under the Loan Documents shall have been paid in full. If at any time any payment of the principal of or interest on any Note or any other amount payable by the Borrower under the Loan Documents is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of the Borrower or otherwise, each Guarantor's obligations hereunder with respect to such payment shall be reinstated as though such payment had been due but not made at such time. SECTION 7.04. Waiver by the Guarantors. Each 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. SECTION 7.05. Subrogation. Each Guarantor hereby unconditionally and irrevocably agrees not to exercise any rights that it may now have or hereafter acquire against the Borrower, any other Loan Party or any other insider guarantor that arise from the existence, payment, performance or enforcement of such Guarantor's obligations under or in respect of this Guaranty or any other Loan Document, including, without limitation, any right of subrogation, reimbursement, exoneration, contribution or indemnification and any right to participate in any claim or remedy of any Lender against the Borrower, any other Loan Party or any other insider guarantor or any collateral, whether or not such claim, remedy or right arises in equity or under contract, statute or common law, including, without limitation, the right to take or receive from the Borrower, any other Loan 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 amounts payable under this Guaranty shall have been paid in full in cash, and the Commitments shall have expired or been terminated. If any amount shall be paid to any Guarantor in violation of the immediately preceding sentence at any time prior to the latest of (a) the payment in full in cash of all amounts payable under this Guaranty, and (b) the Termination 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) any Guarantor shall make payment to any Lender 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 Termination Date shall have occurred, the Lenders 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 7.06. Stay of Acceleration. If acceleration of the time for payment of any amount payable by the Borrower under any of the Loan Documents is stayed upon the insolvency, 64 bankruptcy or reorganization of the Borrower, all such amounts otherwise subject to acceleration under the terms of this Agreement shall nonetheless by payable by any Guarantor hereunder forthwith on demand by the Administrative Agent made at the request of the requisite proportion of the Lenders. SECTION 7.07. Continuing Guaranty; Assignments. This Guaranty is a continuing guaranty and shall (a) remain in full force and effect until the latest of (i) the payment in full in cash of all amounts payable under this Guaranty and (ii) the Termination Date, (b) be binding upon the Guarantor, its successors and assigns and (c) inure to the benefit of and be enforceable by the Lenders 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 (including, without limitation, all or any portion of its Commitments, the Advances owing to it and the Committed Note or Notes held by it) 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 9.07. No Guarantor shall have the right to assign its rights hereunder or any interest herein without the prior written consent of the Required Lenders. ARTICLE VIII THE AGENTS SECTION 8.01. Authorization and Action. Each Lender (in its capacity as a Lender) hereby appoints and authorizes each Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement and the other Loan Documents as are delegated to such Agent by the terms hereof and thereof, together with such powers and discretion as are reasonably incidental thereto. As to any matters not expressly provided for by the Loan Documents (including, without limitation, enforcement or collection of the Notes), no Agent shall be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders or all the Lenders where unanimity is required, and such instructions shall be binding upon all Lenders and all holders of Notes; provided, however, that no Agent shall be required to take any action that exposes such Agent to personal liability or that is contrary to this Agreement or applicable law. Each Agent agrees to give to each Lender prompt notice of each notice given to it by the Parent or the Borrower pursuant to the terms of this Agreement. SECTION 8.02. Agents' Reliance, Etc. Neither any Agent nor any of their respective directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with the Loan Documents, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, each Agent: (a) may treat the payee of any Note as the holder thereof until, in the case of the Administrative Agent, the Administrative Agent receives and accepts an Assignment and Acceptance entered into by the Lender that is the payee of such Note, as assignor, and an Eligible Assignee, as assignee, or, in the case of any other Agent, such Agent has received notice from the Administrative Agent that it has received and accepted such Assignment and Acceptance, in each case as provided in Section 9.07; (b) may consult with legal counsel 65 (including counsel for any Loan Party), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (c) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations (whether written or oral) made in or in connection with the Loan Documents; (d) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of any Loan Document on the part of any Loan Party or to inspect the property (including the books and records) of any Loan Party; (e) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of, or the perfection or priority of any lien or security interest created or purported to be created under or in connection with, any Loan Document or any other instrument or document furnished pursuant thereto; and (f) shall incur no liability under or in respect of any Loan Document by acting upon any notice, consent, certificate or other instrument or writing (which may be by telegram or telecopy) reasonably believed by it to be genuine and signed or sent by the proper party or parties. SECTION 8.03. MGT and Affiliates. With respect to its Commitments, the Committed Advances made by it and the Committed Notes issued to it, MGT shall have the same rights and powers under the Loan Documents as any other Lender and may exercise the same as though it were not an Agent; and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include MGT in its individual capacity. MGT and its affiliates may accept deposits from, lend money to, act as trustee under indentures of, accept investment banking engagements from and generally engage in any kind of business with, any Loan Party, any of its Subsidiaries and any Person that may do business with or own securities of any Loan Party or any such Subsidiary, all as if MGT were not Agent and without any duty to account therefor to the Lenders. SECTION 8.04. Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon any Agent or any other Lender and based on the financial statements referred to in Section 4.01 and such other 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 any 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 this Agreement. SECTION 8.05. Indemnification. (a) Each Lender severally agrees to indemnify each Agent (to the extent not promptly reimbursed by the Borrower) from and against such Lender's ratable share (determined as provided below) of any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against such Agent in any way relating to or arising out of the Loan Documents or any action taken or omitted by such Agent under the Loan Documents; provided, however, that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Agent's gross negligence or willful misconduct. Without limitation of the foregoing, each Lender agrees to reimburse each Agent promptly upon demand for its ratable share of any costs and expenses (including, without limitation, fees and expenses of counsel) payable by the Borrower under Section 9.04, to the extent that such Agent is not promptly reimbursed for such costs and expenses by the Borrower. 66 (b) For purposes of this Section 8.05, the Lenders' respective ratable shares of any amount shall be determined, at any time, according to the sum of (i) the aggregate principal amount of the Advances outstanding at such time and owing to the respective Lenders and (ii) their respective Unused Commitments at such time. The failure of any Lender to reimburse any Agent promptly upon demand for its ratable share of any amount required to be paid by the Lenders to such Agent as provided herein shall not relieve any other Lender of its obligation hereunder to reimburse such Agent for its ratable share of such amount, but no Lender shall be responsible for the failure of any other Lender to reimburse such Agent for such other Lender's ratable share of such amount. Without prejudice to the survival of any other agreement of any Lender hereunder, the agreement and obligations of each Lender contained in this Section 8.05 shall survive the payment in full of principal, interest and all other amounts payable hereunder and under the other Loan Documents. SECTION 8.06. Successor Agents. Any Agent may resign at any time by giving written notice thereof to the Lenders and the Borrower and may be removed at any time with or without cause by the Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right, subject (so long as no Event of Default exists) to the consent of the Parent (which consent shall not be unreasonably withheld), to appoint a successor Agent. If no successor Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Agent's giving of notice of resignation or the Required Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be a commercial bank organized under the laws of the United States or of any State thereof and having a combined capital and surplus of at least $250,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent such successor Agent shall succeed to and become vested with all the rights, powers, discretion, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under the Loan Documents. If within 45 days after written notice is given of the retiring Agent's resignation or removal under this Section 8.06 no successor Agent shall have been appointed and shall have accepted such appointment, then on such 45th day (i) the retiring Agent's resignation or removal shall become effective, (ii) the retiring Agent shall thereupon be discharged from its duties and obligations under the Loan Documents and (iii) the Required Lenders shall thereafter perform all duties of the retiring Agent under the Loan Documents until such time, if any, as the Required Lenders appoint a successor Agent as provided above. After any retiring Agent's resignation or removal hereunder as Agent shall have become effective, the provisions of this Article VIII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. ARTICLE IX MISCELLANEOUS SECTION 9.01. Amendments, Etc. No amendment or waiver of any provision of this Agreement or the Notes or any other Loan Document, nor consent to any departure by any Loan Party therefrom, shall in any event be effective unless the same shall be in writing and signed by the Required Lenders (and, in the case of an amendment, the Parent and the Borrower), and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; 67 provided, however, that no amendment, waiver or consent shall, unless in writing and signed by all of the Lenders (other than any Lender that is, at such time, a Defaulting Lender), do any of the following at any time: (i) waive any of the conditions specified in Section 3.01 or, in the case of the Initial Extension of Credit, Section 3.02, (ii) change the number of Lenders or the percentage of (x) the Commitments, or (y) the aggregate unpaid principal amount of the Advances that, in each case, shall be required for the Lenders or any of them to take any action hereunder, (iii) reduce or limit the obligations of any Guarantor under Section 7.01 or release such Guarantor or otherwise limit such Guarantor's liability with respect to the obligations owing to the Agents and the Lenders, (iv) amend this Section 9.01, (v) increase the Commitments of the Lenders or subject the Lenders to any additional obligations, (vi) reduce the principal of, or interest on, the Notes or any fees or other amounts payable hereunder (other than under Section 2.06(b)), (vii) postpone any date fixed for any payment of principal of, or interest on, the Notes or any fees or other amounts payable hereunder (other than under Section 2.06(b)), or (viii) limit the liability of any Loan Party under any of the Loan Documents; provided further that no amendment, waiver or consent shall, unless in writing and signed by an Agent in addition to the Lenders required above to take such action, affect the rights or duties of such Agent under this Agreement or the other Loan Documents. SECTION 9.02. Notices, Etc. All notices and other communications provided for hereunder shall be in writing (including telegraphic telecopy communication) and mailed, telegraphed, telecopied or delivered, if to the Parent, at its address at The Ace Building, 30 Woodbourne Avenue, Hamilton HM08, Bermuda, Attention: Stephen Kicinski; if to the Borrower, at its address at Six Concourse Parkway, Suite 2500, Atlanta, Georgia 30328 with a copy to The Ace Building, 30 Woodbourne Avenue, Hamilton HM08, Bermuda, Attention: Stephen Kicinski; if to any Initial Lender, at its Domestic Lending Office specified opposite its name on Schedule I hereto; if to any other Lender, at its Domestic Lending Office specified in the Assignment and Acceptance pursuant to which it became a Lender; if to the Syndication Agent, at its address at World Financial Center, North Tower, 250 Vesey Street, New York, New York 10281, Attention: Carol Feley; and if to the Administrative Agent, at its address at 500 Stanton Christiana Road, Newark, Delaware 19713, Attention: Bill Wood; or, as to any party, at such other address as shall be designated by such party in a written notice to the other parties. All such notices and communications shall, when mailed, telegraphed or telecopied, be effective when deposited in the mails, delivered to the telegraph company or transmitted by telecopier, respectively, except that notices and communications to any Agent pursuant to Article II, III or VIII shall not be effective until received by such Agent. Manual delivery by telecopier of an executed counterpart of any amendment or waiver of any provision of this Agreement or the Notes or of any Exhibit hereto to be executed and delivered hereunder shall be effective as delivery of an original executed counterpart thereof. SECTION 9.03. No Waiver; Remedies. No failure on the part of any Lender or any Agent to exercise, and no delay in exercising, any right hereunder or under any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 9.04. Costs and Expenses. (a) The Borrower agrees to pay on demand (i) all reasonable costs and expenses of the Agents in connection with the preparation, execution, delivery, 68 administration, modification and amendment of the Loan Documents (including, without limitation, (A) all due diligence, collateral review, syndication, transportation, computer, duplication, appraisal, audit, insurance, consultant, search, filing and recording fees and expenses and (B) the reasonable fees and expenses of a single counsel for the Agents with respect thereto, with respect to advising the Agents as to its rights and responsibilities, or the perfection, protection or preservation of rights or interests, under the Loan Documents, with respect to negotiations with any Loan Party or with other creditors of any Loan Party or any of its Subsidiaries arising out of any Default or any events or circumstances that may give rise to a Default and with respect to presenting claims in or otherwise participating in or monitoring any bankruptcy, insolvency or other similar proceeding involving creditors' rights generally and any proceeding ancillary thereto) and (ii) all reasonable costs and expenses of each Agent and each Lender in connection with the enforcement of the Loan Documents, whether in any action, suit or litigation, or any bankruptcy, insolvency or other similar proceeding affecting creditors' rights generally (including, without limitation, the reasonable fees and expenses of counsel for the Administrative Agent and each Lender with respect thereto). (b) The Borrower agrees to indemnify and hold harmless each Agent, each Lender and each of their Affiliates and their respective officers, directors, employees, agents and advisors (each, an "Indemnified Party") from and against any and all claims, damages, losses, liabilities and expenses (including, without limitation, reasonable fees and expenses of counsel) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of (including, without limitation, in connection with any investigation, litigation or proceeding or preparation of a defense in connection therewith) this Agreement, the actual or proposed use of the proceeds of the Advances, the Transaction Documents or any of the transactions contemplated thereby, including, without limitation, any acquisition or proposed acquisition (including, without limitation, the Acquisition and any of the other transactions contemplated by the Transaction Documents) by the Parent or any of its Subsidiaries or Affiliates of all or any portion of the Equity Interests in or Debt securities or substantially all of the assets of CIGNAP&C, except to the extent such claim, damage, loss, liability or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct. In the case of an investigation, litigation or other proceeding to which the indemnity in this Section 9.04(b) applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by any Loan Party, its directors, shareholders or creditors or an Indemnified Party or any Indemnified Party is otherwise a party thereto and whether or not the transactions contemplated by the Transaction Documents are consummated. The Borrower also agrees not to assert any claim against any Agent, any Lender or any of their Affiliates, or any of their respective officers, directors, employees, attorneys and agents, on any theory of liability, for special, indirect, consequential or punitive damages arising out of or otherwise relating to the credit facilities provided hereunder, the actual or proposed use of the proceeds of the Advances, the Transaction Documents or any of the transactions contemplated by the Transaction Documents. (c) If any payment of principal of, or Conversion of, any Eurodollar Rate Advance or LIBO Rate Advance is made by the Borrower to or for the account of a Lender other than on the last day of the Interest Period for such Advance, as a result of a payment or Conversion pursuant to Section 2.06, 2.09(b)(i) or 2.10(d), acceleration of the maturity of the Notes pursuant to Section 6.01 or for any other reason, or if the Borrower fails to make any payment or prepayment of an Advance for 69 which a notice of prepayment has been given or that is otherwise required to be made, whether pursuant to Section 2.04, 2.06 or 6.01 or otherwise, the Borrower shall, within 10 days after demand by such Lender (with a copy of such demand to the Administrative Agent), which demand shall include a calculation in reasonable detail of the amount demanded, to pay to the Administrative Agent for the account of such Lender any amounts required to compensate such Lender for any additional losses, costs or expenses that it may reasonably incur as a result of such payment or Conversion or such failure to pay or prepay, as the case may be, including, without limitation, any loss (excluding loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain such Advance. (d) Without prejudice to the survival of any other agreement of any Loan Party hereunder or under any other Loan Document, the agreements and obligations of the Borrower contained in Sections 2.10 and 2.12 and this Section 9.04 shall survive the payment in full of principal, interest and all other amounts payable hereunder and under any of the other Loan Documents. SECTION 9.05. Right of Set-off. Upon (a) the occurrence and during the continuance of any Event of Default and (b) the making of the request or the granting of the consent specified by Section 6.01 to authorize the Administrative Agent to declare the Notes due and payable pursuant to the provisions of Section 6.01, each Agent and 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 law, to set off and otherwise apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Agent, such Lender or such Affiliate to or for the credit or the account of the Borrower against any and all of the obligations of the Borrower now or hereafter existing under the Loan Documents, irrespective of whether such Agent or such Lender shall have made any demand under this Agreement or such Note or Notes and although such obligations may be unmatured. Each Agent and each Lender agrees promptly to notify the Borrower after any such set-off and application; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Agent and each Lender and their respective Affiliates under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) that such Agent, such Lender and their respective Affiliates may have. SECTION 9.06. Binding Effect. This Agreement shall become effective when it shall have been executed by the Parent, the Borrower, the Subsidiary Guarantors and each Agent and the Administrative Agent shall have been notified by each Initial Lender that such Initial Lender has executed it and thereafter shall be binding upon and inure to the benefit of the Borrower, each Agent and each Lender and their respective successors and assigns, except that no Loan Party shall have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lenders. SECTION 9.07. Assignments and Participations. (a) Each Lender may and, so long as no Default shall have occurred and be continuing, if demanded by the Borrower (following a demand by such Lender pursuant to Section 2.17), upon at least five Business Days' notice to such Lender and the Administrative Agent, will assign to one or more Eligible Assignee, all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment, the Committed Advances owing to it and the Note or Notes held by it); provided, however, that (i) each such assignment shall be of a uniform, and not a varying, percentage of all rights and obligations under and in 70 respect of the Committed Facility, the "Committed Facility" under the Parent Five-Year Revolving Credit Facility and the "Committed Facility" under the Parent 364-Day Revolving Credit Facility, except for any non-pro rata assignment by a "Downgraded Lender" under the Parent Five-Year Revolving Credit Facility of its commitment thereunder pursuant to Sections 2.17 and 2.19 thereof and any non-pro rata assignments to a SPC pursuant to Section 9.07(l) and any other non- pro rata assignment approved by the Administrative Agent and the Borrower, (ii) except in the case of an assignment to a Person that, immediately prior to such assignment, was a Lender, an Affiliate of any Lender or an Approved Fund of any Lender or an assignment of all of a Lender's rights and obligations under this Agreement, the aggregate amount of the Commitments being assigned to such Eligible Assignee pursuant to such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $10,000,000, (iii) each such assignment shall be to an Eligible Assignee, (iv) each assignment made as a result of a demand by the Borrower pursuant to Section 2.17 shall be arranged by the Borrower after consultation with the Administrative Agent and shall be either an assignment of all of the rights and obligations of the assigning Lender under this Agreement or an assignment of a portion of such rights and obligations made concurrently with another such assignment or other such assignments that together cover all of the rights and obligations of the assigning Lender under this Agreement, (v) no Lender shall be obligated to make any such assignment as a result of a demand by the Borrower pursuant to Section 2.17 unless and until such Lender shall have received one or more payments from either the Borrower or other Eligible Assignees in an aggregate amount at least equal to the aggregate outstanding principal amount of the Committed Advances owing to such Lender, together with accrued interest thereon to the date of payment of such principal amount and all other amounts payable to such Lender under this Agreement, (vi) as a result of such assignment, the Borrower shall not be subject to additional amounts under Section 2.10 or 2.12, (vii) no such assignment shall be permitted without the consent of the Administrative Agent and, so long as no Default shall have occurred and be continuing, the Borrower (which consents shall not be unreasonably withheld) and (viii) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with any Note or Notes subject to such assignment and a processing and recordation fee of $2,500.00. (b) Upon such execution, delivery, acceptance and recording, from and after the effective date specified in such Assignment and Acceptance, (i) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and (ii) the Lender or assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights (other than its rights under Sections 2.10, 2.12 and 9.04 to the extent any claim thereunder relates to an event arising prior to such assignment) and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto). (c) By executing and delivering an Assignment and Acceptance, each Lender assignor thereunder and each assignee thereunder confirm to and agree with each other and the other parties thereto and hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with any Loan Document or the 71 execution, legality, validity, enforceability, genuineness, sufficiency or value of, or the perfection or priority of any lien or security interest created or purported to be created under or in connection with, any Loan Document or any other instrument or document furnished pursuant thereto; (ii) such assigning Lender 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 its obligations under any Loan Document or any other instrument or document furnished pursuant thereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon any Agent, such assigning Lender 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 this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes each Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Loan Documents as are delegated to such Agent by the terms hereof and thereof, together with such powers and discretion as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations that by the terms of this Agreement are required to be performed by it as a Lender. (d) The Administrative Agent, acting for this purpose (but only for this purpose) as the agent of the Borrower, shall maintain at its address referred to in Section 9.02 a copy of each Assignment and Acceptance and each Designation Agreement delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and, with respect to Lenders other than Designated Bidders, the Commitment of, and principal amount of the Advances owing to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrower, the Agents and the Lenders shall treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by the Borrower or any Agent or any Lender at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee, together with any Note or Notes subject to such assignment, the Administrative Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit C hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrower and each other Agent. No Assignment and Acceptance shall be effective unless and until it shall have been recorded in the Register. In the case of any assignment by a Lender, within five Business Days after its receipt of such notice, the Borrower, at its own expense, shall execute and deliver to the Administrative Agent in exchange for the surrendered Note or Notes a new Note to the order of such Eligible Assignee in an amount equal to the Commitment assumed by it pursuant to such Assignment and Acceptance and, if any assigning Lender has retained a Commitment hereunder, a new Note to the order of such assigning Lender in an amount equal to the Commitment retained by it hereunder. Such new Note or Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note or Notes, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of Exhibit A-1 hereto. 72 (f) Each Lender (other than the Designated Bidders) may designate one or more banks or other entities to have a right to make Competitive Bid Advances as a Lender pursuant to Section 2.03; provided, however, that (i) no such Lender shall be entitled to make more than 3 such designations, (ii) each such Lender making one or more such designations shall retain the right to make Competitive Bid Advances as a Lender pursuant to Section 2.03, (iii) each such designation shall be to a Designated Bidder and (iv) the parties to each such designation shall execute and deliver to the Agent, for its acceptance and recording in the Register, a Designation Agreement. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Designation Agreement, the designee thereunder shall be a party hereto with a right to make Competitive Bid Advances as a Lender pursuant to Section 2.03 and the obligations related thereto. (g) By executing and delivering a Designation Agreement, the Lender making the designation thereunder and its designee thereunder confirm and agree with each other and the other parties hereto as follows: (i) such Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; (ii) such Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of the Borrower or the performance or observance by the Borrower of any of its obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such designee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Designation Agreement; (iv) such designee will, independently and without reliance upon the Agent, such designating Lender 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 this Agreement; (v) such designee confirms that it is a Designated Bidder; (vi) such designee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement as are delegated to the Agent by the terms hereof, together with such powers and discretion as are reasonably incidental thereto; and (vii) such designee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender. (h) Upon its receipt of a Designation Agreement executed by a designating Lender and a designee representing that it is a Designated Bidder, the Administrative Agent shall, if such Designation Agreement has been completed and is substantially in the form of Exhibit I hereto, (i) accept such Designation Agreement, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Borrower. (i) Each Lender may sell participations to one or more Persons (other than any Loan Party or any of its Affiliates) in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment, the Committed Advances owing to it and the Note or Notes (if any) held by it); provided, however, that (i) such Lender's obligations under this Agreement (including, without limitation, its Commitment) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of any such Committed Note for all purposes of this Agreement, 73 (iv) the Borrower, the Agents and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and (v) no participant under any such participation shall have any right to approve any amendment or waiver of any provision of any Loan Document, or any consent to any departure by any Loan Party therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, the Committed Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, postpone any date fixed for any payment of principal of, or interest on, the Committed Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation. Each Lender shall, as agent of the Borrower solely for the purposes of this Section, record in book entries maintained by such Lender, the name and amount of the participating interest of each Person entitled to receive payments in respect of any participating interests sold pursuant to this Section. (j) Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 9.07, disclose to the assignee or participant or proposed assignee or participant any information relating to the Borrower furnished to such Lender by or on behalf of the Borrower; provided, however, that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree to preserve the confidentiality of any Confidential Information received by it from such Lender. (k) Notwithstanding any other provision set forth in this Agreement, any Lender may at any time create a security interest in all or any portion of its rights under this Agreement (including, without limitation, the Advances owing to it and the Note or Notes held by it) in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System. (l) Notwithstanding anything to the contrary contained herein, any Lender (a "Granting Lender") may grant to a special purpose funding vehicle (an "SPC"), identified as such in writing from time to time by the Granting Lender to the Administrative Agent and the Borrower, the option to provide to the Borrower all or any part of any Committed Advance that such Granting Lender would otherwise be obligated to make to the Borrower pursuant to this Agreement; provided that (i) nothing herein shall constitute a commitment by any SPC to make any Committed Advance, (ii) if an SPC elects not to exercise such option or otherwise fails to provide all or any part of such Committed Advance, the Granting Lender shall be obligated to make such Committed Advance pursuant to the terms hereof. The making of a Committed Advance by an SPC hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Committed Advance were made by such Granting Lender. Each party hereto hereby agrees that no SPC shall be liable for any indemnity or similar payment obligation under this Agreement (all liability for which shall remain with the Granting Lender). In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior indebtedness of any SPC, it will not institute against, or join any other person in instituting against, such SPC any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the United States or any State thereof. In addition, notwithstanding anything to the contrary contained in this Section 9.07(l), any SPC may (i) with notice to, but without the prior written consent of, the Borrower and the Administrative Agent and without paying any processing fee therefor, assign all or a portion of its interests in any Committed Advances to the Granting Lender or to any financial institutions (consented to by the Borrower and Administrative Agent) providing liquidity and/or credit support to or for the account of 74 such SPC to support the funding or maintenance of Committed Advances and (ii) disclose on a confidential basis any non-public information relating to its Committed Advances to any rating agency, commercial paper dealer or provider of any surety, guarantee or credit or liquidity enhancement to such SPC. This section may not be amended without the written consent of each SPC. SECTION 9.08. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of an original executed counterpart of this Agreement. SECTION 9.09. Confidentiality. Neither any Agent nor any Lender shall disclose any Confidential Information to any Person without the consent of the Borrower, other than (a) to such Agent's or such Lender's Affiliates and their officers, directors, employees, agents and advisors and to actual or prospective Eligible Assignees and participants, and then only on a confidential basis, (b) as required by any law, rule or regulation or judicial process, (c) as requested or required by any state, Federal or foreign authority or examiner regulating such Lender and (d) to any rating agency when required by it, provided that, prior to any such disclosure, such rating agency shall undertake to preserve the confidentiality of any Confidential Information relating to the Loan Parties received by it from such Lender. SECTION 9.10. Jurisdiction, Etc. (a) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any of the other Loan Documents to which it is a party, 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 any such New York State court or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any party may otherwise have to bring any action or proceeding relating to this Agreement or any of the other Loan Documents in the courts of any jurisdiction. (b) Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any of the other Loan Documents to which it is a party in any New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. SECTION 9.11. Governing Law. This Agreement and the Notes shall be governed by, and construed in accordance with, the laws of the State of New York. SECTION 9.12. Waiver of Jury Trial. Each of the Borrower, the Parent, the Subsidiary Guarantors, the Agents and the Lenders irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to any 75 of the Loan Documents, the Advances or the actions of any Agent or any Lender in the negotiation, administration, performance or enforcement thereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. ACE INA HOLDINGS INC By: ------------------------------------ Title: ACE LIMITED The Common Seal of ACE Limited was hereunto affixed in the presence of: - ------------------------------ Director - ------------------------------ Secretary ACE BERMUDA INSURANCE LTD. The Common Seal of ACE Bermuda Insurance Ltd. was hereunto affixed in the presence of: - ------------------------------ Director - ------------------------------ Secretary TEMPEST REINSURANCE COMPANY LIMITED The Common Seal of Tempest Reinsurance Company Limited was hereunto affixed in the presence of: - ------------------------------ Director - ------------------------------ Secretary MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, as Lead Arranger and Syndication Agent By: ------------------------------------ Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent By: ------------------------------------ Title: BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION, as Documentation Agent By: ------------------------------------ Title: Initial Lenders MERRILL LYNCH CAPITAL CORPORATION By: ------------------------------------ Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: ------------------------------------ Title: BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION By: ------------------------------------ Title: CHASE MANHATTAN BANK By: ------------------------------------ Title: MELLON BANK, N.A. By: ------------------------------------ Title: ABN-AMRO BANK N.V. By: ------------------------------------ Title: BANCO SANTANDER CENTRAL HISPANO, S.A. By: ------------------------------------ Title: THE BANK OF NEW YORK By: ------------------------------------ Title: THE BANK OF NOVA SCOTIA By: ------------------------------------ Title: THE FIRST NATIONAL BANK OF CHICAGO By: ------------------------------------ Title: BARCLAYS BANK PLC By: ------------------------------------ Title: BANQUE NATIONALE DE PARIS By: ------------------------------------ Title: By: ------------------------------------ Title: THE BANK OF TOKYO-MITSUBISHI, LTD. By: ------------------------------------ Title: CIBC INC. By: ------------------------------------ Title: CITIBANK, N.A. By: ------------------------------------ Title: COMERICA BANK By: ------------------------------------ Title: COMMERZBANK AKTIENGESELLSCHAFT NEW YORK BRANCH By: ------------------------------------ Title: By: ------------------------------------ Title: CREDIT LYONNAIS NEW YORK BRANCH By: ------------------------------------ Title: CREDIT SUISSE FIRST BOSTON By: ------------------------------------ Title: By: ------------------------------------ Title: DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLANDS BRANCHES By: ------------------------------------ Title: By: ------------------------------------ Title: FIRST UNION NATIONAL BANK By: ------------------------------------ Title: FLEET NATIONAL BANK By: ------------------------------------ Title: ING BANK N.V., LONDON BRANCH By: ------------------------------------ Title: By: ------------------------------------ Title: KBC BANK By: ------------------------------------ Title: By: ------------------------------------ Title: LLOYDS BANK PLC By: ------------------------------------ Title: By: ------------------------------------ Title: ROYAL BANK OF CANADA By: ------------------------------------ Title: SOCIETE GENERALE By: ------------------------------------ Title: STATE STREET BANK AND TRUST COMPANY By: ------------------------------------ Title: STANDARD CHARTERED BANK By: ------------------------------------ Title: By: ------------------------------------ Title: EX-10.50 14 250 MILLION CREDIT AGMT. DATED AS OF 06/11/1999 EXHIBIT 10.50 EXECUTION COPY $250,000,000 CREDIT AGREEMENT Dated as of June 11, 1999 Among ACE LIMITED ACE BERMUDA INSURANCE LTD. TEMPEST REINSURANCE COMPANY LIMITED ACE INA HOLDINGS INC. as Borrowers -- -------- and THE INITIAL LENDERS NAMED HEREIN as Initial Lenders -- ------- ------- and MELLON BANK, N.A. as Issuing Bank -- ------- ---- and MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED as Lead Arranger and Syndication Agent -------------------------------------- and MORGAN GUARANTY TRUST COMPANY OF NEW YORK as Administrative Agent -- -------------------- and J.P. MORGAN SECURITIES INC. as Co-Arranger -- ----------- and BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION CHASE MANHATTAN BANK as Co-Documentation Agents -- ---------------- ------ T A B L E O F C O N T E N T S Section Page
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS 1.01. Certain Defined Terms 1 1.02. Computation of Time Periods; Other Definitional Provisions 21 1.03. Accounting Terms and Determinations 21
ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES AND THE LETTERS OF CREDIT SECTION 2.01. The Committed Advances and the Letters of Credit 21 SECTION 2.02. Making the Committed Advances 22 SECTION 2.03. The Competitive Bid Advances 23 SECTION 2.04. Issuance and Renewals and Drawings, Participations and Reimbursement with Respect to Letters of Credit 27 SECTION 2.05. Repayment of Advances 30 SECTION 2.06. Termination or Reduction of the WC Commitments. 31 SECTION 2.07. Prepayments 31 SECTION 2.08. Interest 32 SECTION 2.09. Fees 33 SECTION 2.10. Conversion of Advances 33 SECTION 2.11. Increased Costs, Etc. 34 SECTION 2.12. Payments and Computations 36 SECTION 2.13. Taxes 37 SECTION 2.14. Sharing of Payments, Etc. 39 SECTION 2.15. Use of Proceeds 40 SECTION 2.16. Defaulting Lenders 40 SECTION 2.17. Replacement of Affected Lender 42 SECTION 2.18. Certain Provisions Relating to the Issuing Bank and Letters of Credit 42 SECTION 2.19. Downgrade Event with Respect to a Lender 44 SECTION 2.20. Downgrade Event or Other Event with Respect to the Issuing Bank 46 SECTION 2.21. Non-Dollar Letters of Credit 46
ii Section Page
ARTICLE III CONDITIONS OF LENDING AND ISSUANCES OF LETTERS OF CREDIT SECTION 3.01. Conditions Precedent to Initial Extension of Credit 48 SECTION 3.02. Conditions Precedent to Each Committed Borrowing and Issuance, Extension or Increase of a Letter of Credit 50 SECTION 3.03. Conditions Precedent to Each Competitive Bid Borrowing 51 SECTION 3.04. Determinations Under Section 3.01 51
ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Borrowers 52
ARTICLE V COVENANTS OF THE BORROWERS SECTION 5.01. Affirmative Covenants 56 SECTION 5.02. Negative Covenants 58 SECTION 5.03. Reporting Requirements 62 SECTION 5.04. Financial Covenants 64
ARTICLE VI EVENTS OF DEFAULT SECTION 6.01. Events of Default 65 SECTION 6.02. Actions in Respect of the Letters of Credit upon Default 67
ARTICLE VII THE GUARANTY SECTION 7.01. The Guaranty 68 SECTION 7.02. Guaranty Unconditional 68 SECTION 7.03. Discharge Only upon Payment in Full; Reinstatement in Certain Circumstances 69
iii SECTION 7.04. Waiver by the Borrowers 69 SECTION 7.05. Subrogation 69 SECTION 7.06. Stay of Acceleration 70 SECTION 7.07. Continuing Guaranty; Assignments 70
ARTICLE VIII THE AGENTS SECTION 8.01. Authorization and Action 70 SECTION 8.02. Agents' Reliance, Etc 71 SECTION 8.03. MGT and Affiliates 71 SECTION 8.04. Lender Credit Decision 71 SECTION 8.05. Indemnification 72 SECTION 8.06. Successor Agents 72
ARTICLE IX MISCELLANEOUS SECTION 9.01. Amendments, Etc 73 SECTION 9.02. Notices, Etc 73 SECTION 9.03. No Waiver; Remedies 74 SECTION 9.04. Costs and Expenses 74 SECTION 9.05. Right of Set-off. 75 SECTION 9.06. Binding Effect 75 SECTION 9.07. Assignments and Participations 76 SECTION 9.08. Execution in Counterparts 80 SECTION 9.09. No Liability of the Issuing Bank 80 SECTION 9.10. Confidentiality 80 SECTION 9.11. Jurisdiction, Etc 81 SECTION 9.12. Governing Law 81 SECTION 9.14. Waiver of Jury Trial 81
iv Section Page SCHEDULES Schedule I - Commitments and Applicable Lending Offices Schedule 4.01(b) - Subsidiaries EXHIBITS Exhibit A-1 - Form of Committed Note Exhibit A-2 - Form of Competitive Bid Note Exhibit B-1 - Form of Notice of Committed Borrowing Exhibit B-2 - Form of Notice of Competitive Bid Borrowing Exhibit C - Form of Assignment and Acceptance Exhibit D-1 - Form of Opinion of Cayman Islands Counsel to the Parent Exhibit D-2 - Form of Opinion of New York Counsel to the Loan Parties Exhibit D-3 - Form of Opinion of Bermuda Counsel to the Ace Bermuda and Tempest Exhibit E - Form of Designation Agreement
CREDIT AGREEMENT CREDIT AGREEMENT dated as of June 11, 1999 among ACE Limited, a Cayman Islands company (the "Parent"), ACE Bermuda Insurance Ltd ( "ACE Bermuda"), Tempest Reinsurance Company Limited ("Tempest") and ACE INA Holdings Inc. ("ACE INA") (Ace Bermuda, Tempest, ACE INA together with the Parent, the "Borrowers"), the banks, financial institutions and other institutional lenders listed on the signature pages hereof as the Initial Lenders (the "Initial Lenders"), Mellon Bank, N.A. as issuing bank (the "Issuing Bank"), Merrill Lynch, Pierce, Fenner & Smith Incorporated ("ML&Co."), as syndication agent (together with any successor syndication agent appointed pursuant to Article VII, the "Syndication Agent") and as lead arranger (the "Lead Arranger"), Morgan Guaranty Trust Company of New York ("MGT"), as administrative agent (together with any successor administrative agent appointed pursuant to Article VII, the "Administrative Agent" and, together with the Syndication Agent, the "Agents") for the Lenders (as hereinafter defined), and J.P. Morgan Securities Inc. ("J.P. Morgan"), as co-arranger (the "Co-Arranger"). PRELIMINARY STATEMENTS: The Borrowers have requested that the Lenders make available to the Borrowers a credit facility in an amount up to $250,000,000 to provide working capital for the Borrowers and their Subsidiaries and for other general corporate purposes. The Lenders have indicated their willingness to agree to make such amount available on the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Account Party" with respect to any outstanding or proposed Letter of Credit means the Borrower for the account of which such Letter of Credit was or is proposed to be issued. "ACE Bermuda" has the meaning specified in the recital of parties to this Agreement. "ACE INA" has the meaning specified in the recital of parties to this Agreement. "ACE INA 364-Day Revolving Credit Facility" means the 364-Day Revolving Credit Agreement dated as of the date hereof among the Parent, ACE INA, as borrower, the subsidiary 2 guarantors referred to therein, the lenders party thereto, ML&Co. as syndication agent and lead arranger, MGT as administrative agent, and J.P. Morgan as co-arranger, as the same may be amended, modified or otherwise supplemented from time to time. "Acquisition" means the acquisition by the Parent or one of its Affiliates from the Seller of CIGNAP&C, which currently is a division of the Seller. "Adjusted Consolidated Debt" means, at any time, an amount equal to (i) the then outstanding Consolidated Debt of the Parent and its Subsidiaries plus (ii) 50% of the then issued and outstanding amount of Preferred Securities (other than any Mandatorily Convertible Securities). "Administrative Agent" has the meaning specified in the recital of parties to this Agreement. "Administrative Agent's Account" means the account of the Administrative Agent maintained by the Administrative Agent with Morgan Guaranty Trust Company of New York, at its office at 60 Wall Street, New York, New York 10260, Account No. 999 99 090, Attention: Bill Wood, or such other account as the Administrative Agent shall specify in writing to the Lenders. "Advance" means a Committed Advance, a Competitive Bid Advance or a Letter of Credit Advance. "Affected Lender" means any Lender that (i) has made, or notified any Borrower that an event or circumstance has occurred which may give rise to, a demand for compensation under Section 2.11(a) or (b) or Section 2.13 (but only so long as the event or circumstance giving rise to such demand or notice is continuing), (ii) has notified any Borrower (which notice has not been withdrawn) of any event or circumstance of a type described in Section 2.11(c) or (d) or (iii) is a Downgraded Lender. "Affiliate" means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person or is a director or officer of such Person. For purposes of this definition, the term "control" (including the terms "controlling", "controlled by" and "under common control with") of a Person means the possession, direct or indirect, of the power to vote 5% or more of the Voting Interests of such Person or to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Interests, by contract or otherwise. "Agents" has the meaning specified in the recital of parties to this Agreement. "Agreement Currency" has the meaning specified in Section 2.21(g). "Applicable Facility Fee Percentage" means, as of any date, a percentage per annum determined by reference to the Public Debt Rating in effect on such date as set forth below: 3
- ---------------------------------------------- Public Debt Rating Applicable Facility Fee S&P/Moody's Percentage - ---------------------------------------------- Level 1 0.125% - ------- A-/A3 and above - ---------------------------------------------- Level 2 0.150% - ------- BBB+/Baa1 - ---------------------------------------------- Level 3 0.175% - ------- BBB/Baa2 - ---------------------------------------------- Level 4 0.225% - ------- BBB-/Baa3 - ---------------------------------------------- Level 5 0.350% - ------- Lower than Level 4 - ----------------------------------------------
"Applicable Lending Office" means, with respect to each Lender, such Lender's Domestic Lending Office in the case of a Base Rate Advance and such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate Advance and, in the case of a Competitive Bid Advance, the office of such Lender notified by such Lender to the Administrative Agent as its Applicable Lending Office with respect to such Competitive Bid Advance. "Applicable Margin" means, as of any date, a percentage per annum determined by reference to the Public Debt Rating in effect on such date as set forth below:
- ------------------------------------------------------------- Public Debt Rating Applicable Margin Applicable Margin S&P/Moody's for for Base Rate Advances Eurodollar Rate Advances - ------------------------------------------------------------- Level 1 0.00% 0.375% - ------- A-/A3 and above - ------------------------------------------------------------- Level 2 0.00% 0.475% - ------- BBB+/Baa1 - ------------------------------------------------------------- Level 3 0.00% 0.575% - ------- BBB/Baa2 - ------------------------------------------------------------- Level 4 0.00% 0.650% - ------- BBB-/Baa3 - ------------------------------------------------------------- Level 5 0.00% 1.275% - ------- Lower than Level 4 - -------------------------------------------------------------
provided, however, that, if as of any date of determination the aggregate outstanding principal amount of Committed Advances on such day exceeds 33% of the aggregate WC Commitments on such day, the Applicable Margin for such date shall be the percentage per annum determined above plus 0.125%. 4 "Approved Fund" means, with respect to any Lender that is a fund that invests in bank loans, any other fund that invests in bank loans and is advised or managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor. "Approved Investment" means any Investment that was made by the Parent or any of its Subsidiaries pursuant to investment guidelines set forth by the board of directors of the Parent which are consistent with past practices. "Arrangers" means each of the Lead Arranger and the Co-Arranger. "Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and an Eligible Assignee, and accepted by the Administrative Agent, in accordance with Section 9.07 and in substantially the form of Exhibit C hereto. "Available Amount" of any Letter of Credit means, at any time, the maximum amount available to be drawn under such Letter of Credit at such time or at any future time (assuming compliance at such time or such future time with all conditions to drawing). "Bankruptcy Law" means any proceeding of the type referred to in Section 6.01(f) or Title 11, U.S. Code, or any similar foreign, federal or state law for the relief of debtors. "Base Rate" means a fluctuating interest rate per annum in effect from time to time, which rate per annum shall at all times be equal to the higher of: (a) the rate of interest announced publicly by MGT in New York, New York, from time to time, as MGT's prime rate; and (b) 1/2 of 1% per annum above the Federal Funds Rate. "Base Rate Advance" means an Advance that bears interest as provided in Section 2.08(a)(i). "Borrowers" has the meaning specified in the recital of parties to this Agreement. "Borrowers' 364-Day Revolving Credit Facility" means the 364-Day Revolving Credit Agreement dated as of the date hereof among the Borrowers, the lenders party thereto, ML&Co. as syndication agent and lead arranger, MGT as administrative agent and J.P. Morgan as co-arranger, as the same may be amended, modified or otherwise supplemented from time to time. "Borrowers' Account" means the account of one or more Borrowers maintained by such Borrower(s) with The Bank of Bermuda Limited at its office at 6 Front Street, Hamilton, Bermuda HM12 Account No.18000035, Attention: Maria Aguiar, or such other account as the Parent shall specify in writing to the Administrative Agent or such other account as the Borrowers (or any one of them) shall specify in writing to the Administrative Agent. 5 "Borrowing" means a Committed Borrowing or a Competitive Bid Borrowing. "Business Day" means a day of the year on which banks are not required or authorized by law to close in New York City and, if the applicable Business Day relates to any Eurodollar Rate Advances or LIBO Rate Advances, on which dealings are carried on in the London interbank market. "Capitalized Leases" means all leases that have been or should be, in accordance with GAAP, recorded as capitalized leases. "Change of Control" means the occurrence of any of the following: (a) any Person or two or more Persons acting in concert shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934), directly or indirectly, of Voting Interests of the Parent (or other securities convertible into such Voting Interests) representing 30% or more of the combined voting power of all Voting Interests of the Parent; or (b) a majority of the board of directors of the Parent shall not be Continuing Members; or (c) any Person or two or more Persons acting in concert shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that results in its or their acquisition of the power to exercise, directly or indirectly, a controlling influence over the management or policies of the Parent. "CIGNAP&C" means the domestic and international property and casualty business of the Seller. "Co-Arranger" has the meaning specified in the recital of parties to this Agreement. "Commitment" means a WC Commitment or the Letter of Credit Commitment. "Committed Advance" has the meaning specified in Section 2.01(a). "Committed Borrowing" means a borrowing consisting of simultaneous Committed Advances of the same Type made by the Lenders to the same Borrower. "Committed Facility" means, at any time, the aggregate amount of the Lenders' WC Commitments at such time. "Committed Note" means a promissory note of any Borrower payable to the order of any Lender, in substantially the form of Exhibit A-1 hereto, evidencing the aggregate indebtedness of such Borrower to such Lender resulting from the Committed Advances made by such Lender, as amended. "Competitive Bid Advance" means an advance by a Lender to any Borrower as part of a Competitive Bid Borrowing resulting from the competitive bidding procedure described in Section 2.03 and refers to a Fixed Rate Advance or a LIBO Rate Advance. 6 "Competitive Bid Borrowing" means a borrowing consisting of simultaneous Competitive Bid Advances from each of the Lenders whose offer to make one or more Competitive Bid Advances as part of such borrowing has been accepted under the competitive bidding procedure described in Section 2.03. "Competitive Bid Note" means a promissory note of any Borrower payable to the order of any Lender, in substantially the form of Exhibit A-2 hereto, evidencing the indebtedness of such Borrower to such Lender resulting from Competitive Bid Advances made by such Lender. "Confidential Information" means information that any Loan Party furnishes to any Agent or any Lender, but does not include any such information that is or becomes generally available to the public other than as a result of a breach by such Agent or any Lender of its obligations hereunder or that is or becomes available to such Agent or such Lender from a source other than the Loan Parties that is not, to the best of such Agent's or such Lender's knowledge, acting in violation of a confidentiality agreement with a Loan Party. "Consolidated" refers to the consolidation of accounts in accordance with GAAP. "Consolidated Net Income" means, for any period, the net income of the Parent and its Consolidated Subsidiaries, determined on a Consolidated basis for such period. "Consolidated Tangible Net Worth" means at any date the Consolidated stockholder's equity of the Parent and its Consolidated Subsidiaries (plus, to the extent not included in such Consolidated stockholder's equity, the outstanding amount of all Mandatorily Convertible Preferred Securities) less their Consolidated Intangible Assets, all determined as of such date, provided that such determination for purposes of Section 5.04 shall be made without giving effect to adjustments pursuant to Statement No. 115 of the Financial Accounting Standards Board of the United States of America. For purposes of this definition, "Intangible Assets" means the amount (to the extent reflected in determining such Consolidated stockholder's equity) of (i) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of assets of a going concern business made within twelve months after the acquisition of such business) subsequent to March 31, 1999 in the book value of any asset owned by the Parent or a Consolidated Subsidiary and (ii) all unamortized debt discount and expense, unamortized deferred charges, deferred acquisition cost relating to the acquisition of the stock or assets of any other Person, goodwill, patents, trademarks, service marks, trade names, anticipated future benefit of tax loss carry-forwards, copyrights, organization or developmental expense and other intangible assets. "Contingent Obligation" means, with respect to any Person, any obligation or arrangement of such Person to guarantee or intended to guarantee any Debt, leases, dividends or other payment obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, (a) the direct or indirect guarantee, endorsement (other than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of a primary obligor, (b) the obligation to make take-or-pay or similar payments, if 7 required, regardless of nonperformance by any other party or parties to an agreement or (c) 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 (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, assets, securities or services primarily for the purpose 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 holder of such primary obligation against loss in respect thereof; provided, however, that Contingent Obligations shall not include any obligations of any such Person arising under insurance contracts entered into in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made (or, if less, the maximum amount of such primary obligation for which such Person may be liable pursuant to the terms of the instrument evidencing such Contingent Obligation) or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder), as determined by such Person in good faith. "Continuing Member" means a member of the Board of Directors of the Parent who either (i) was a member of the Parent's Board of Directors on the date of execution and delivery of this Agreement by the Parent and has been such continuously thereafter or (ii) became a member of such Board of Directors after such date and whose election or nomination for election was approved by a vote of the majority of the Continuing Members then members of the Parent's Board of Directors. "Conversion", "Convert" and "Converted" each refer to a conversion of Advances of one Type into Advances of the other Type pursuant to Section 2.10 or 2.11. "Debenture" means debt securities issued by ACE INA or the Parent to the Special Purpose Trust in exchange for proceeds of Preferred Securities. "Debt" of any Person means, without duplication for purposes of calculating financial ratios, (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person for the deferred purchase price of property or services (other than trade payables incurred in the ordinary course of such Person's business), (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all obligations of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all obligations of such Person as lessee under Capitalized Leases (excluding imputed interest), (f) all obligations of such Person under acceptance, letter of credit or similar facilities, (g) all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Equity Interests in such Person or any other Person or any warrants, rights or options to acquire such capital stock (excluding payments under a contract for the forward sale of ordinary shares of such Person issued in a public offering), valued, in the case of Redeemable 8 Preferred Interests, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends, (h) all Contingent Obligations of such Person in respect of Debt (of the types described above) of any other Person and (i) all indebtedness and other payment obligations referred to in clauses (a) through (h) above of another Person 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 (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such indebtedness or other payment obligations; provided, however, that the amount of Debt of such Person under clause (i) above shall, if such Person has not assumed or otherwise become liable for any such Debt, be limited to the lesser of the principal amount of such Debt or the fair market value of all property of such Person securing such Debt; provided further that "Debt" shall not include obligations in respect of insurance or reinsurance contracts entered into in the ordinary course of business; provided further that, solely for purposes of Section 5.04 and the definitions of "Adjusted Consolidated Debt" and "Total Capitalization", __Debt__ shall not include (x) any contingent obligations of any Person under or in connection with acceptance, letter of credit or similar facilities or (y) obligations of the Parent or ACE INA under any Debentures or under any subordinated guaranty of any Preferred Securities or obligations of the Special Purpose Trust under any Preferred Securities. "Default" means any Event of Default or any event that would constitute an Event of Default but for the requirement that notice be given or time elapse or both. "Defaulted Advance" means, with respect to any Lender at any time, the portion of any Advance required to be made by such Lender to any Borrower pursuant to Section 2.01 or 2.02 at or prior to such time that has not been made by such Lender or by the Administrative Agent for the account of such Lender pursuant to Section 2.02(d) as of such time. "Defaulted Amount" means, with respect to any Lender at any time, any amount required to be paid by such Lender to any Agent or any other Lender hereunder or under any other Loan Document at or prior to such time that has not been so paid as of such time, including, without limitation, any amount required to be paid by such Lender to (a) the Administrative Agent pursuant to Section 2.02(d) to reimburse the Administrative Agent for the amount of any Committed Advance made by the Administrative Agent for the account of such Lender, (b) the Issuing Bank pursuant to Section 2.04(c) to purchase a portion of a Letter of Credit Advance made by the Issuing Bank, (c) any other Lender pursuant to Section 2.14 to purchase any participation in Committed Advances owing to such other Lender and (d) any Agent or the Issuing Bank pursuant to Section 8.05 to reimburse such Agent or the Issuing Bank for such Lender's ratable share of any amount required to be paid by the Lenders to such Agent or the Issuing Bank as provided therein. "Defaulting Lender" means, at any time, any Lender that, at such time, (a) owes a Defaulted Advance or a Defaulted Amount or (b) shall take any action or be the subject of any action or proceeding of a type described in Section 6.01(f). 9 "Designated Bidder" means (a) an Eligible Assignee or (b) a special purpose corporation that is engaged in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business and that issues (or the parent of which issues) commercial paper rated at least "Prime-1" (or the then equivalent grade) by Moody's or "A-1" (or the then equivalent grade) by S&P that, in the case of either clause (a) or (b), (i) is organized under the laws of the United States or any State thereof, (ii) shall have become a party hereto pursuant to Section 9.07(f), (g) and (h) and (iii) is not otherwise a Lender. "Designation Agreement" means a designation agreement entered into by a Lender (other than a Designated Bidder) and a Designated Bidder, and accepted by the Administrative Agent and the Parent (such acceptance, in the case of the Parent, not to be unreasonably withheld), in substantially the form of Exhibit E hereto. "Dollar Equivalent" has the meaning specified in Section 2.21(h). "Domestic Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Domestic Lending Office" opposite its name on Schedule I hereto or in the Assignment and Acceptance pursuant to which it became a Lender, as the case may be, or such other office of such Lender as such Lender may from time to time specify to any Borrower and the Administrative Agent. "Downgrade Account" has the meaning specified in Section 2.19(a). "Downgrade Event" means, with respect to any Lender, a reduction of the credit rating for the senior unsecured unsupported long-term debt of such Lender by S&P or Moody's. "Downgraded Lender" means any Lender which has a credit rating of less than A- (in the case of S&P) or A3 (in the case of Moody's) for its senior unsecured unsupported long-term debt or which does not have any credit rating on such debt from one of S&P or Moody's. "Downgrade Notice" has the meaning specified in Section 2.19(a). "Effective Date" means the first date on which the conditions set forth in Article III shall have been satisfied. "Eligible Assignee" means (i) a Lender, (ii) an Affiliate of a Lender, or (iii) a commercial bank, a savings bank or other financial institution that is approved by the Administrative Agent and the Issuing Bank and, unless an Event of a Default has occurred and is continuing at the time any assignment is effected pursuant to Section 9.07, the Borrower (such approval of the Borrower not to be unreasonably withheld or delayed); provided, however, that neither any Loan Party nor any Affiliate of a Loan Party shall qualify as an Eligible Assignee under this definition. "Environmental Action" means any action, suit, demand, demand letter, claim, notice of non-compliance or violation, notice of liability or potential liability, investigation, proceeding, 10 consent order or consent agreement relating in any way to any Environmental Law, any Environmental Permit or Hazardous Material or arising from alleged injury or threat to health, safety or the environment, including, without limitation, (a) by any governmental or regulatory authority for enforcement, cleanup, removal, response, remedial or other actions or damages and (b) by any governmental or regulatory authority or third party for damages, contribution, indemnification, cost recovery, compensation or injunctive relief. "Environmental Law" means any Federal, state, local or foreign statute, law, ordinance, rule, regulation, code, order, writ, judgment, injunction, decree or judicial or agency interpretation, policy or guidance relating to pollution or protection of the environment, health, safety or natural resources, including, without limitation, those relating to the use, handling, transportation, treatment, storage, disposal, release or discharge of Hazardous Materials. "Environmental Permit" means any permit, approval, identification number, license or other authorization required under any Environmental Law. "Equity Interests" means, with respect to any Person, shares of capital stock of (or other ownership or profit interests in) such Person, warrants, options or other rights for the purchase or other acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or other acquisition from such Person of such shares (or such other interests), and other ownership or profit interests in such Person (including, without limitation, partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are authorized or otherwise existing on any date of determination. "Equity Issuance" means one or more issuances by the Parent and/or ACE INA of Equity Interests and/or equity-linked securities, the Net Cash Proceeds of which shall be at least $500,000,000. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" means any Person that for purposes of Title IV of ERISA is a member of the controlled group of any Loan Party, or under common control with any Loan Party, within the meaning of Section 414 of the Internal Revenue Code or Section 4001 of ERISA. "Eurocurrency Liabilities" has the meaning specified in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Eurodollar Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Eurodollar Lending Office" opposite its name on Schedule I hereto or in the Assignment and Acceptance pursuant to which it became a Lender (or, if no such office is 11 specified, its Domestic Lending Office), or such other office of such Lender as such Lender may from time to time specify to the Parent and the Administrative Agent. "Eurodollar Rate" means, for any Interest Period for all Eurodollar Rate Advances comprising part of the same Committed Borrowing, an interest rate per annum equal to the rate per annum (rounded upwards, if not an integral multiple of 1/32 or 1/100 of 1%, to the nearest 1/100 of 1%) appearing on Dow Jones Markets (Telerate) Page 3750 (or any successor page) as the London interbank offered rate for deposits in U.S. dollars at 11:00 A.M. (London time) two Business Days before the first day of such Interest Period for a period equal to such Interest Period (provided that, if for any reason such rate is not available, the term "Eurodollar Rate" shall mean, for any Interest Period for all Eurodollar Rate Advances comprising part of the same Committed Borrowing, the rate per annum (rounded upwards, if not an integral multiple of 1/32 or 1/100 of 1% to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; provided, however, if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates). "Eurodollar Rate Advance" means an Advance that bears interest as provided in Section 2.08(a)(ii). "Eurodollar Rate Reserve Percentage" for any Interest Period for all Eurodollar Rate Advances comprising part of the same Committed Borrowing means the reserve percentage applicable two Business Days before the first day of such Interest Period under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for a member bank of the Federal Reserve System in New York City with respect to liabilities or assets consisting of or including Eurocurrency Liabilities (or with respect to any other category of liabilities that includes deposits by reference to which the interest rate on Eurodollar Rate Advances is determined) having a term equal to such Interest Period. "Events of Default" has the meaning specified in Section 6.01. "Existing Credit Agreement" means the Five-Year Credit Agreement dated as of December 11, 1997 among the Parent, the guarantors listed therein, the lenders party thereto, J.P. Morgan Securities Inc. and Mellon Bank, N.A., as co-syndication agents, MGT as administrative agent, as amended, modified or otherwise supplemented from time to time "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day 12 that is a Business Day, the average of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Fee Letter" means the fee letter dated January 11, 1999 among the Parent, the Arrangers, the Administrative Agent and Merrill Lynch, as amended. "Fiscal Year" means a fiscal year of the Parent and its Consolidated Subsidiaries ending on September 30 in any calendar year. "Fixed Rate Advances" has the meaning specified in Section 2.03(a)(i). "Foreign Government Scheme or Arrangement" has the meaning specified in Section 4.01 (n) (iv). "Foreign Plan" has the meaning specified in Section 4.01 (n) (iv). "GAAP" has the meaning specified in Section 1.03. "Granting Lender" has the meaning specified in Section 9.07(l). "Guaranty" means the undertaking by each of the Borrowers under Article VII. "Hazardous Materials" means (a) petroleum or petroleum products, by- products or breakdown products, radioactive materials, asbestos-containing materials, polychlorinated biphenyls and radon gas and (b) any other chemicals, materials or substances designated, classified or regulated as hazardous or toxic or as a pollutant or contaminant under any Environmental Law. "Hedge Agreements" means interest rate swap, cap or collar agreements, interest rate future or option contracts, currency swap agreements, currency future or option contracts and other hedging agreements. "Indemnified Party" has the meaning specified in Section 9.04(b). "Information Memorandum" means the information memorandum dated February, 1999 used by the Arrangers in connection with the syndication of the Commitments. "Initial Extension of Credit" means the earlier to occur of the initial Committed Borrowing and the initial issuance of a Letter of Credit hereunder. "Initial Lenders" has the meaning specified in the recital of parties to this Agreement. "Interest Period" means, for each Eurodollar Rate Advance comprising part of the same Committed Borrowing and each LIBO Rate Advance comprising part of the same Competitive 13 Bid Borrowing, the period commencing on the date of such Eurodollar Rate Advance or LIBO Rate Advance or the date of the Conversion of any Base Rate Advance into such Eurodollar Rate Advance, and ending on the last day of the period selected by the Borrower requesting such Borrowing or Conversion pursuant to the provisions below and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the applicable Borrower pursuant to the provisions below. The duration of each such Interest Period shall be one or two weeks or one, two, three or six months, as the Borrower requesting such Borrowing or Conversion may, upon notice received by the Administrative Agent not later than 11:00 A.M. (New York City time) on the third Business Day prior to the first day of such Interest Period, select; provided, however, that: (a) such Borrower may not select any Interest Period with respect to any Eurodollar Rate Advance that ends after the Termination Date; (b) Interest Periods commencing on the same date for Eurodollar Rate Advances comprising part of the same Committed Borrowing or for LIBO Rate Advances comprising part of the same Competitive Bid Borrowing shall be of the same duration; (c) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided, however, that, if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day; and (d) whenever the first day of any Interest Period (other than a one or two week Interest Period) occurs on a day of an initial calendar month for which there is no numerically corresponding day in the calendar month that succeeds such initial calendar month by the number of months equal to the number of months in such Interest Period, such Interest Period shall end on the last Business Day of such succeeding calendar month. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "Investment" in any Person means any loan or advance to such Person, any purchase or other acquisition of any Equity Interests or Debt or the assets comprising a division or business unit or a substantial part or all of the business of such Person, any capital contribution to such Person or any other direct or indirect investment in such Person, including, without limitation, any acquisition by way of a merger or consolidation and any arrangement pursuant to which the investor incurs Debt of the types referred to in clause (h) or (i) of the definition of "Debt" in respect of such Person; provided, however, that any purchase by any Loan Party or any Subsidiary of any catastrophe-linked instruments which are (x) issued for the purpose of transferring traditional reinsurance risk to the capital markets and (y) purchased by such Loan 14 Party or Subsidiary in accordance with its customary reinsurance underwriting procedures, or the entry by any Loan Party or any Subsidiary into swap instruments relating to such instruments in accordance with such procedures, shall be deemed to be the entry by such Person into a reinsurance contract and shall not be deemed to be an Investment by such Person. "Issuing Bank" means Mellon Bank, N.A. and any "New Issuing Bank" appointed in accordance with Section 2.20. "J.P. Morgan" has the meaning specified in the recital of parties to this Agreement. "Judgment Currency" has the meaning specified in Section 2.21(g). "LC Participation Obligations" has the meaning specified in Section 2.19(a). "L/C Related Documents" has the meaning specified in Section 2.05(b)(ii). "Lead Arranger" has the meaning specified in the recital of parties to this Agreement. "Lenders" means the Initial Lenders and each Person that shall become a Lender hereunder pursuant to Section 9.07(a), (b) and (c) for so long as such Initial Lender or Person, as the case may be, shall be a party to this Agreement and, solely when used in reference to a Competitive Bid Advance, a Competitive Bid Borrowing, a Competitive Bid Note, or a related term, each Designated Bidder. "Letter of Credit Advance" has the meaning specified in Section 2.04(f). "Letter of Credit Agreement" has the meaning specified in Section 2.04(a). "Letter of Credit Business Day" means a day of the year on which banks are not required or authorized by law to close in New York City and on which banks are not required or authorized by law to close in Pittsburgh, Pennsylvania (or, if Mellon Bank, N.A. is no longer the Issuing Bank, in the city in which the principal letter of credit operations of the Issuing Bank are located). "Letter of Credit Commitment" means at any time the lesser of (a) $250,000,000(or such other amount as may be agreed in writing among the Borrowers, the Agents and the Issuing Bank) and (b) the aggregate amount of the WC Commitments. "Letters of Credit" has the meaning specified in Section 2.01(b). "Letter of Credit Exposure" at any time means the sum at such time of (a) the aggregate outstanding amount of Letter of Credit Advances, (b) the aggregate Available Amounts of all outstanding Letters of Credit and (c) the aggregate Available Amounts of all Letters of Credit which have been requested by a Borrower to be issued hereunder but have not yet been so issued. 15 "Letter of Credit Participating Interest" has the meaning specified in Section 2.04(d). "Letter of Credit Participating Interest Commitment" has the meaning specified in Section 2.04(d). "LIBO Rate" means, for any Interest Period for all LIBO Rate Advances comprising part of the same Competitive Bid Borrowing, an interest rate per annum equal to the rate per annum (rounded upwards, if not an integral multiple of 1/32 or 1/100 of 1%, to the nearest 1/100 of 1%) appearing on Dow Jones Markets (Telerate) Page 3750 (or any successor page) as the London interbank offered rate for deposits in U.S. dollars at 11:00 A.M. (London time) two Business Days before the first day of such Interest Period for a period equal to such Interest Period (provided that, if for any reason such rate is not available, the term "LIBO Rate" shall mean for any Interest Period for all LIBO Rate Advances comprising part of the same Competitive Bid Borrowing, the rate per annum (rounded upwards, if not an integral multiple of 1/32 or 1/100 of 1%, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; provided, however, if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates). "LIBO Rate Advances" has the meaning specified in Section 2.03(a)(i). "Lien" means any lien, security interest or other charge or encumbrance of any kind, or any other type of preferential arrangement, including, without limitation, the lien or retained security title of a conditional vendor and any easement, right of way or other encumbrance on title to real property. "Loan Documents" means (i) this Agreement, (ii) the Notes, (iii) the Fee Letter and (iv) each Letter of Credit Agreement, in each case as amended. "Loan Parties" means the Borrowers. "Mandatorily Convertible Preferred Securities" means units comprised of Preferred Securities and a contract for the sale of ordinary shares of the Parent (including "Feline Prides" or any substantially similar securities). "Margin Stock" has the meaning specified in Regulation U. "Material Adverse Change" means any material adverse change in the business, financial condition, operations or properties of the Parent and its Subsidiaries, taken as a whole. "Material Adverse Effect" means a material adverse effect on (a) the business, condition, operations or properties of the Parent and its Subsidiaries, taken as a whole, (b) the 16 rights and remedies of any Agent or any Lender under any Loan Document or (c) the ability of the Loan Parties, taken as a whole, to perform their obligations under the Loan Documents. "Material Financial Obligation" means a principal amount of Debt and/or payment obligations in respect of any Hedge Agreement of the Parent and/or one or more of its Subsidiaries arising in one or more related or unrelated transactions exceeding in the aggregate $25,000,000. "Merrill Lynch" means Merrill Lynch Capital Corporation. "MGT" has the meaning specified in the recital of parties to this Agreement. "ML&Co." has the meaning specified in the recital of parties to this Agreement. "Moody's" means Moody's Investors Service, Inc. "Multiemployer Plan" means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, to which any Loan Party or any ERISA Affiliate is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions. "Net Cash Proceeds" means, with respect to any sale, lease, transfer or other disposition of any asset or the incurrence or issuance of any Debt or the sale or issuance of any Equity Interests or Preferred Securities by any Person, the aggregate amount of cash received from time to time (whether as initial consideration or through payment or disposition of deferred consideration) by or on behalf of such Person in connection with such transaction after deducting therefrom only (without duplication) (a) reasonable and customary brokerage commissions, underwriting fees and discounts, legal fees, finder's fees and other similar fees and commissions, (b) the amount of taxes payable in connection with or as a result of such transaction and (c) the amount of any Debt secured by a Lien on such asset that, by the terms of the agreement or instrument governing such Debt, is required to be repaid upon such disposition, in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid to a Person that is not an Affiliate of such Person or any Loan Party or any Affiliate of any Loan Party and are properly attributable to such transaction or to the asset that is the subject thereof; provided, however, that in the case of taxes that are deductible under clause (b) above but for the fact that, at the time of receipt of such cash, such taxes have not been actually paid or are not then payable, such Loan Party or such Subsidiary may deduct an amount (the "Reserved Amount") equal to the amount reserved in accordance with GAAP for such Loan Party's or such Subsidiary's reasonable estimate of such taxes, other than taxes for which such Loan Party or such Subsidiary is indemnified; provided further that, at the time such taxes are paid, an amount equal to the amount, if any, by which the Reserved Amount for such taxes exceeds the amount of such taxes actually paid shall constitute "Net Cash Proceeds" of the type for which such taxes were reserved for all purposes hereunder; provided further that, prior to the date on which the Public Debt Rating of the Parent falls to BBB/Baa2 or below, Net Cash Proceeds from the sale, lease, transfer or other disposition of any asset or Equity Interests shall 17 not include any amount of cash proceeds received in connection with such transaction to the extent such cash proceeds are reinvested in the same or related line of business as the business of the Parent. "Non-Dollar Letters of Credit" has the meaning specified in Section 2.21(a). "Note" means a Committed Note or a Competitive Bid Note. "Notice of Committed Borrowing" has the meaning specified in Section 2.02(a). "Notice of Competitive Bid Borrowing" has the meaning specified in Section 2.03(a). "OECD" means the Organization for Economic Cooperation and Development. "Other Taxes" has the meaning specified in Section 2.13(b). "Overnight Rate" has the meaning specified in Section 2.21(h). "Parent" has the meaning specified in the recital of parties to this Agreement. "PBGC" means the Pension Benefit Guaranty Corporation (or any successor). "Pension Plan" means a "pension plan", as such term is defined in section 3(2) of ERISA, which is subject to title IV of ERISA (other than any "multiemployer plan" as such term is defined in section 4001(a)(3) of ERISA), and to which any Loan Party or any ERISA Affiliate may have any liability, including any liability by reason of having been a substantial employer within the meaning of section 4063 of ERISA at any time during the preceding five years, or by reason of being deemed to be a contributing sponsor under section 4069 of ERISA. "Permitted Liens" means such of the following as to which no enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced or which are being contested in good faith by appropriate proceedings: (a) Liens for taxes, assessments and governmental charges or levies not yet due and payable; (b) Liens imposed by law, such as materialmen's, mechanics', carriers', workmen's and repairmen's Liens and other similar Liens arising in the ordinary course of business securing obligations that are not overdue for a period of more than 90 days; (c) pledges or deposits to secure obligations under workers' compensation laws or similar legislation or to secure public or statutory obligations; and (d) easements, rights of way and other encumbrances on title to real property that do not render title to the property encumbered thereby unmarketable or materially adversely affect the use of such property for its present purposes. "Person" means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof. 18 "Pre-Commitment Information" means all of the written information in the Information Memorandum provided by or on behalf of the Parent to the Administrative Agent and the Lenders (other than any information provided by ML&Co. and its Affiliates). "Preferred Interests" means, with respect to any Person, Equity Interests issued by such Person that are entitled to a preference or priority over any other Equity Interests issued by such Person upon any distribution of such Person's property and assets, whether by dividend or upon liquidation. "Preferred Securities" means (i) preferred securities issued by the Special Purpose Trust which shall provide, among other things, that dividends shall be payable only out of proceeds of interest payments on the Debentures, or (ii) other instruments that may be treated in whole or in part as equity for rating agency purposes while being treated as debt for tax purposes. "Pro Rata Share" of any amount means, with respect to any Lender at any time, the product of such amount times a fraction the numerator of which is the amount of such Lender's WC Commitment at such time (or, if the WC Commitments shall have been terminated pursuant to Section 2.06 or 6.01, such Lender's WC Commitment as in effect immediately prior to such termination) and the denominator of which is the Committed Facility at such time (or, if the WC Commitments shall have been terminated pursuant to Section 2.05 or 6.01, the Committed Facility as in effect immediately prior to such termination). "Public Debt Rating" means, as of any date, the lower rating that has been most recently announced by either S&P or Moody's, as the case may be, for any class of non-credit enhanced long-term senior unsecured debt issued by the Parent. For purposes of the foregoing, (a) if only one of S&P and Moody's shall have in effect a Public Debt Rating, the Applicable Margin or the Applicable Facility Fee Percentage, as the case may be, shall be determined by reference to the available rating; (b) if (i) from and after January 11, 1999, the Parent and its Subsidiaries shall not have sold or issued Equity Interests and/or equity linked securities or sold, leased, transferred or otherwise disposed of (including through liquidation) material assets generating, in the aggregate, $500,000,000 of Net Cash Proceeds which are used to permanently reduce the Borrowers' 364-Day Revolving Credit Facility and the ACE INA 364-Day Revolving Credit Facility in accordance with their respective terms and (ii) neither S&P nor Moody's shall have in effect a Public Debt Rating, the Applicable Margin and the Applicable Facility Fee Percentage will be set in accordance with Level 3 under the definition of "Applicable Margin" and "Applicable Facility Fee Percentage" as the case may be; (c) if neither S&P nor Moody's shall have in effect a Public Debt Rating (other than under the circumstances described in clause (b) above), the Applicable Margin and the Applicable Facility Fee Percentage shall be set in accordance with the level which is three rating levels below the Parent's S&P financial strength rating at such time, provided that, in the event that the Parent's S&P financial strength rating is affirmed at (i) A+, the applicable Level will be Level 2 and (ii) A+ and on credit watch/review with negative implications, the applicable Level will be Level 3; (d) if any rating established by S&P or Moody's shall be changed, such change shall be effective as of the date on which such change is first announced publicly by the rating agency making such change; and (e) if S&P or Moody's shall change the basis on which ratings are established, each reference to the Public 19 Debt Rating announced by S&P or Moody's, as the case may be, shall refer to the then equivalent rating by S&P or Moody's, as the case may be. "Purchase Agreement" means the Purchase Agreement dated as of January 11, 1999 among the Seller, Cigna Holdings, Inc. and the Parent. "Redeemable" means, with respect to any Equity Interest, any Debt or any other right or obligation, any such Equity Interest, Debt, right or obligation that (a) the issuer has undertaken to redeem at a fixed or determinable date or dates, whether by operation of a sinking fund or otherwise, or upon the occurrence of a condition not solely within the control of the issuer or (b) is redeemable at the option of the holder. "Register" has the meaning specified in Section 9.07(d). "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Required Lenders" means, at any time, Lenders owed or holding at least a majority in interest of the sum of (a) aggregate principal amount of the Committed Advances outstanding at such time and (b) the aggregate Available Amount of all Letters of Credit outstanding at such time, or, if no such principal amount and no Letters of Credit are outstanding at such time, Lenders holding at least a majority in interest of the aggregate of the WC Commitments; provided, however, that if any Lender shall be a Defaulting Lender at such time, there shall be excluded from the determination of Required Lenders at such time (A) the aggregate principal amount of the Committed Advances owing to such Lender (in its capacity as a Lender) and outstanding at such time, (B) such Lender's Pro Rata Share of the aggregate Available Amount of all Letters of Credit outstanding at such time and (C) the Unused WC Commitment of such Lender at such time. "Responsible Officer" means the Chairman, Chief Executive Officer, President, Chief Financial Officer, Treasurer or Chief Investment Officer of the Parent. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. "Seller" means Cigna Corporation. "Solvent" and "Solvency" mean, 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 20 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. "SPC" has the meaning specified in Section 9.07(l). "Special Purpose Trust" means a special purpose business trust established by the Parent or ACE INA of which the Parent or ACE INA will hold all the common securities, which will be the issuer of the Preferred Securities, and which will loan to the Parent or ACE INA (such loan being evidenced by the Debentures) the net proceeds of the issuance and sale of the Preferred Securities. "Subsidiary" of any Person means any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which) more than 50% of (a) the issued and outstanding capital stock having ordinary voting power to elect a majority of the Board of Directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency), (b) the interest in the capital or profits of such partnership, joint venture or limited liability company or (c) the beneficial interest in such trust or estate is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person's other Subsidiaries. "Syndication Agent" has the meaning specified in the recital of parties to this Agreement. "Taxes" has the meaning specified in Section 2.13(a). "Tempest" has the meaning specified in the recital of parties to this Agreement. "Termination Date" means the earlier of June 10, 2004 and the date of termination in whole of the WC Commitments and the Letter of Credit Commitment. "Total Capitalization" means, at any time, an amount (without duplication) equal to (i) the then outstanding Consolidated Debt of the Parent and its Subsidiaries plus (ii) Consolidated stockholders equity of the Parent and its Subsidiaries plus (without duplication) (iii) the then issued and outstanding amount of Preferred Securities and (without duplication) Debentures. "Type" refers to the distinction between Advances bearing interest at the Base Rate and Advances bearing interest at the Eurodollar Rate. "Unused WC Commitment" means, with respect to any Lender at any time, (a) such Lender's WC Commitment at such time minus (b) the sum of (i) the aggregate principal amount of all Committed Advances made by such Lender hereunder plus (ii) such Lender's Pro Rata Share of (A) the aggregate Available Amount of all Letters of Credit hereunder and (B) the 21 aggregate principal amount of all Letter of Credit Advances made by the Issuing Bank pursuant to Section 2.04(c) and outstanding at such time (whether held by the Issuing Bank or the Lenders) and (C) the aggregate principal amount of all Competitive Bid Advances hereunder. "Voting Interests" means shares of capital stock issued by a corporation, or equivalent Equity Interests in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even if the right so to vote has been suspended by the happening of such a contingency. "WC Commitment" means, with respect to any Lender at any time, the amount set forth opposite such Lender's name on Schedule I hereto under the caption "WC Commitment" or, if such Lender has entered into one or more Assignment and Acceptances, set forth for such Lender in the Register maintained by the Administrative Agent pursuant to Section 9.07(d) as such Lender's "WC Commitment", as such amount may be reduced at or prior to such time pursuant to Section 2.06. "Welfare Plan" means a welfare plan, as defined in Section 3(1) of ERISA, that is maintained for employees of any Loan Party or in respect of which any Loan Party could have liability. "Withdrawal Liability" has the meaning specified in Part I of Subtitle E of Title IV of ERISA. SECTION 1.02. Computation of Time Periods; Other Definitional Provisions. In this Agreement and the other Loan Documents in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding". References in the Loan Documents to any agreement or contract "as amended" shall mean and be a reference to such agreement or contract as amended, amended and restated, supplemented or otherwise modified from time to time in accordance with its terms. SECTION 1.03. Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with generally accepted accounting principles as in effect from time to time ("GAAP"), applied on a basis consistent (except for changes concurred in by the Parent's independent public accountants) with the most recent audited consolidated financial statements of the Parent and its Subsidiaries delivered to the Lenders; provided that, if the Parent notifies the Administrative Agent that the Parent wishes to amend any covenant in Article V to eliminate the effect of any change in generally accepted accounting principles on the operation of such covenant (or if the Administrative Agent notifies the Parent that the Required Lenders wish to amend Article V for such purpose), then the Parent's compliance with such covenant shall be determined on the basis of generally accepted accounting principles in effect immediately before the relevant change in generally accepted accounting principles became effective (and, concurrently with the delivery of any financial statements required to be delivered hereunder, the Parent shall provide a statement of reconciliation conforming such financial information 22 to such generally accepted accounting principles as previously in effect), until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Parent and the Required Lenders. ARTICLE II AMOUNTS AND TERMS OF THE ADVANCES AND THE LETTERS OF CREDIT SECTION 2.01. The Committed Advances and the Letters of Credit. (a) The Committed Advances. Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make advances (each a "Committed Advance") to any Borrower from time to time on any Business Day during the period from the date hereof until the Termination Date in an amount for each such Committed Advance not to exceed such Lender's Unused WC Commitment at such time. Each Committed Borrowing shall be in an aggregate amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof and shall consist of Committed Advances made simultaneously by the Lenders ratably according to their WC Commitments. Within the limits of each Lender's Unused WC Commitment in effect from time to time, the Borrower may borrow under this Section 2.01, prepay pursuant to Section 2.07 and reborrow under this Section 2.01. (b) Letters of Credit. The Issuing Bank agrees, on the terms and subject to the conditions herein set forth, to issue letters of credit (the "Letters of Credit") for the account of any Borrower on any Letter of Credit Business Day from time to time during the period from the date hereof until May 1, 2004. The Issuing Bank shall have no obligation to issue, and no Borrower will request the issuance of, any Letter of Credit hereunder if, at the time of issuance of such Letter of Credit and after giving effect thereto, the Letter of Credit Exposure would exceed the Issuing Bank's Letter of Credit Commitment. The Issuing Bank shall have no obligation to issue, and no Borrower shall request the issuance of, any Letter of Credit hereunder if the Available Amount of such Letter of Credit exceeds, immediately before the time of such issuance, an amount equal to the total Unused WC Commitments of the Lenders at such time (as such amount shall be advised by the Administrative Agent to the Issuing Bank as contemplated by Section 2.04). The Issuing Bank shall have no obligation to issue, and no Borrower shall request the issuance of, any Letter of Credit except within the following limitations: (i) each Letter of Credit shall be denominated in U.S. dollars, (ii) each Letter of Credit shall be payable only against sight drafts (and not time drafts) and (iii) no Letter of Credit shall have an expiration date (including all rights of the applicable Borrower or the beneficiary to require renewal) later than the earlier of June 1, 2004 and one year after the date of issuance thereof, but a Letter of Credit may by its terms be automatically renewable annually unless the Issuing Bank notifies the beneficiary thereof of its election not to renew such Letter of Credit; provided that the terms of each Letter of Credit that is automatically renewable annually shall not permit the expiration date (after giving effect to any renewal) of such Letter of Credit in any event to be extended to a date later than June 1, 2004. The Issuing Bank shall have no obligation to issue any letter of credit which is unsatisfactory in form, substance or beneficiary to the Issuing Bank in the exercise of its reasonable judgment consistent with its customary practice. 23 SECTION 2.02. Making the Committed Advances. (a) Except as otherwise provided in Section 2.03, each Committed Borrowing shall be made on notice, given not later than 11:00 A.M. (New York City time) on the third Business Day prior to the date of the proposed Committed Borrowing in the case of a Committed Borrowing consisting of Eurodollar Rate Advances, or the first Business Day prior to the date of the proposed Committed Borrowing in the case of a Committed Borrowing consisting of Base Rate Advances, by any Borrower to the Administrative Agent, which shall give to each Lender prompt notice thereof by telecopier. Each such notice of a Committed Borrowing (a "Notice of Committed Borrowing") shall be by telephone, confirmed immediately in writing, or telecopier, in substantially the form of Exhibit B-1 hereto, specifying therein the requested (i) date of such Committed Borrowing, (ii) Type of Advances comprising such Committed Borrowing, (iii) aggregate amount of such Committed Borrowing and (iv) in the case of a Committed Borrowing consisting of Eurodollar Rate Advances, initial Interest Period for such Committed Advances. Each Lender shall, before 11:00 A.M. (New York City time) on the date of such Committed Borrowing, make available for the account of its Applicable Lending Office to the Administrative Agent at the Administrative Agent's Account, in same day funds, such Lender's ratable portion of such Committed Borrowing in accordance with the respective WC Commitments of such Lender and the other Lenders. After the Administrative Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Administrative Agent will make such funds available to the Borrower requesting such Committed Borrowing by crediting the applicable Borrower's Account. (b) Anything in subsection (a) above to the contrary notwithstanding, (i) no Borrower may select Eurodollar Rate Advances if the obligation of the Lenders to make Eurodollar Rate Advances shall then be suspended pursuant to Section 2.10 or 2.11 and (ii) the Committed Advances may not be outstanding as part of more than ten(10) separate Committed Borrowings. (c) Each Notice of Committed Borrowing shall be irrevocable and binding on the Borrower that requested such Committed Borrowing. In the case of any Committed Borrowing that the related Notice of Committed Borrowing specifies is to be comprised of Eurodollar Rate Advances, the Borrower that requested such Committed Borrowing shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified in such Notice of Committed Borrowing for such Committed Borrowing the applicable conditions set forth in Article III, including, without limitation, any loss (excluding loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Committed Advance to be made by such Lender as part of such Committed Borrowing when such Committed Advance, as a result of such failure, is not made on such date. (d) Unless the Administrative Agent shall have received notice from a Lender prior to the date of any Committed Borrowing that such Lender will not make available to the Administrative Agent such Lender's ratable portion of such Committed Borrowing, the Administrative Agent may assume that such Lender has made such portion available to the Administrative Agent on the date of such Committed Borrowing in accordance with subsection (a) of this Section 2.02 and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower requesting such Committed Borrowing on such date a corresponding amount. If and to the extent that such Lender shall not have so made such ratable portion available to the Administrative Agent, such Lender and such Borrower severally agree to repay or pay to the Administrative Agent forthwith on demand such 24 corresponding amount and to pay interest thereon, for each day from the date such amount is made available to such Borrower until the date such amount is repaid or paid to the Administrative Agent, at (i) in the case of such Borrower, the interest rate applicable at such time under Section 2.08 to Advances comprising such Committed Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall pay to the Administrative Agent such corresponding amount, such amount so paid shall constitute such Lender's Committed Advance as part of such Borrowing for all purposes. (e) The failure of any Lender to make the Committed Advance to be made by it as part of any Committed Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its Committed Advance on the date of such Committed Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Committed Advance to be made by such other Lender on the date of any Committed Borrowing. SECTION 2.03. The Competitive Bid Advances. (a) Each Lender severally agrees that any Borrower may make Competitive Bid Borrowings under this Section 2.03 from time to time on any Business Day during the period from the date hereof until the date occurring 7 days prior to the Termination Date in the manner set forth below; provided that, following the making of each Competitive Bid Borrowing, the aggregate amount of the Advances then outstanding plus the then Available Amount of all Letters of Credit shall not exceed the aggregate amount of the WC Commitments of the Lenders. (i) Any Borrower may request a Competitive Bid Borrowing under this Section 2.03 by delivering to the Administrative Agent, by telecopier, a notice of a Competitive Bid Borrowing (a "Notice of Competitive Bid Borrowing"), in substantially the form of Exhibit B-2 hereto, specifying therein the requested (v) date of such proposed Competitive Bid Borrowing, (w) aggregate amount of such proposed Competitive Bid Borrowing, (x) in the case of a Competitive Bid Borrowing consisting of LIBO Rate Advances, Interest Period, or in the case of a Competitive Bid Borrowing consisting of Fixed Rate Advances, maturity date for repayment of each Fixed Rate Advance to be made as part of such Competitive Bid Borrowing (which maturity date may not be earlier than the date occurring 7 days after the date of such Competitive Bid Borrowing or later than the earlier of (I) 180 days after the date of such Competitive Bid Borrowing and (II) the Termination Date), (y) interest payment date or dates relating thereto, and (z) other terms (if any) to be applicable to such Competitive Bid Borrowing, not later than 10:00 A.M. (New York City time) (A) at least one Business Day prior to the date of the proposed Competitive Bid Borrowing, if such Borrower shall specify in the Notice of Competitive Bid Borrowing that the rates of interest to be offered by the Lenders shall be fixed rates per annum (the Advances comprising any such Competitive Bid Borrowing being referred to herein as "Fixed Rate Advances") and (B) at least four Business Days prior to the date of the proposed Competitive Bid Borrowing, if such Borrower shall instead specify in the Notice of Competitive Bid Borrowing that the rates of interest to be offered by the Lenders are to be based on a margin above or below the LIBO Rate (the Advances comprising such Competitive Bid Borrowing being referred to herein as "LIBO Rate Advances"). Each Notice of Competitive Bid Borrowing shall be irrevocable and binding on such Borrower. The Administrative Agent shall in turn promptly notify each Lender of each request for a Competitive Bid Borrowing received 25 by it from such Borrower by sending such Lender a copy of the related Notice of Competitive Bid Borrowing. (ii) Each Lender may, if, in its sole discretion, it elects to do so, irrevocably offer to make one or more Competitive Bid Advances to the Borrower requesting the Competitive Bid Advances as part of such proposed Competitive Bid Borrowing at a rate or rates of interest specified by such Lender in its sole discretion, by notifying the Administrative Agent (which shall give prompt notice thereof to the Borrower requesting the Competitive Bid Borrowing), before 9:30 A.M. (New York City time) on the date of such proposed Competitive Bid Borrowing, in the case of a Competitive Bid Borrowing consisting of Fixed Rate Advances and before 10:00 A.M. (New York City time) three Business Days before the date of such proposed Competitive Bid Borrowing, in the case of a Competitive Bid Borrowing consisting of LIBO Rate Advances, of the minimum amount and maximum amount of each Competitive Bid Advance which such Lender would be willing to make as part of such proposed Competitive Bid Borrowing (which amounts may, subject to the proviso to the first sentence of this Section 2.03(a), exceed such Lender's WC Commitment, if any), the rate or rates of interest therefor and such Lender's Applicable Lending Office with respect to such Competitive Bid Advance; provided that if the Administrative Agent in its capacity as a Lender shall, in its sole discretion, elect to make any such offer, it shall notify the Borrower requesting such Competitive Bid Borrowing of such offer at least 30 minutes before the time and on the date on which notice of such election is to be given to the Administrative Agent by the other Lenders. If any Lender shall elect not to make such an offer, such Lender shall so notify the Administrative Agent, before 10:00 A.M. (New York City time) on the date on which notice of such election is to be given to the Administrative Agent by the other Lenders, and such Lender shall not be obligated to, and shall not, make any Competitive Bid Advance as part of such Competitive Bid Borrowing; provided that the failure by any Lender to give such notice shall not cause such Lender to be obligated to make any Competitive Bid Advance as part of such proposed Competitive Bid Borrowing. (iii) The Borrower requesting any particular Competitive Bid Borrowing shall, in turn, before 10:30 A.M. (New York City time) on the date of such proposed Competitive Bid Borrowing, in the case of a Competitive Bid Borrowing consisting of Fixed Rate Advances and before 11:00 A.M. (New York City time) three Business Days before the date of such proposed Competitive Bid Borrowing, in the case of a Competitive Bid Borrowing consisting of LIBO Rate Advances, either: (x) cancel such Competitive Bid Borrowing by giving the Administrative Agent notice to that effect, or (y) accept one or more of the offers made by any Lender or Lenders pursuant to paragraph (ii) above, in its sole discretion, by giving notice to the Administrative Agent of the amount of each Competitive Bid Advance (which amount shall be equal to or greater than the minimum amount, and equal to or less than the maximum amount, notified to such Borrower by the Administrative Agent on behalf of such Lender for such Competitive Bid Advance pursuant to paragraph (ii) above) to be 26 made by each such Lender as part of such Competitive Bid Borrowing, and reject any remaining offers made by Lenders pursuant to paragraph (ii) above by giving the Administrative Agent notice to that effect. The Borrower that requested such Competitive Bid Borrowing shall accept the offers made by any Lender or Lenders to make Competitive Bid Advances in order of the lowest to the highest rates of interest offered by such Lenders. If two or more Lenders have offered the same interest rate, the amount to be borrowed at such interest rate will be allocated among such Lenders in proportion to the amount that each such Lender offered at such interest rate. (iv) If the Borrower that requested any particular Competitive Bid Borrowing notifies the Administrative Agent that such Competitive Bid Borrowing is canceled pursuant to paragraph (iii)(x) above, the Administrative Agent shall give prompt notice thereof to the Lenders and such Competitive Bid Borrowing shall not be made. (v) If the Borrower that requested any particular Competitive Bid Borrowing accepts one or more of the offers made by any Lender or Lenders pursuant to paragraph (iii)(y) above, the Administrative Agent shall in turn promptly notify (A) each Lender that has made an offer as described in paragraph (ii) above, of the date and aggregate amount of such Competitive Bid Borrowing and whether or not any offer or offers made by such Lender pursuant to paragraph (ii) above have been accepted by such Borrower, (B) each Lender that is to make a Competitive Bid Advance as part of such Competitive Bid Borrowing, of the amount of each Competitive Bid Advance to be made by such Lender as part of such Competitive Bid Borrowing, and (C) each Lender that is to make a Competitive Bid Advance as part of such Competitive Bid Borrowing, upon receipt, that the Administrative Agent has received forms of documents appearing to fulfill the applicable conditions set forth in Article III. Each Lender that is to make a Competitive Bid Advance as part of such Competitive Bid Borrowing shall, before 12:00 noon (New York City time) on the date of such Competitive Bid Borrowing specified in the notice received from the Administrative Agent pursuant to clause (A) of the preceding sentence or any later time when such Lender shall have received notice from the Administrative Agent pursuant to clause (C) of the preceding sentence, make available for the account of its Applicable Lending Office to the Administrative Agent at the Administrative Agent's Account, in same day funds, such Lender's portion of such Competitive Bid Borrowing. Upon fulfillment of the applicable conditions set forth in Article III and after receipt by the Administrative Agent of such funds, the Administrative Agent will make such funds available to the Borrower that requested such Borrowing at the Administrative Agent's address referred to in Section 8.02. Promptly after each Competitive Bid Borrowing the Administrative Agent will notify each Lender of the amount of the Competitive Bid Borrowing. (vi) If the Borrower that requested any particular Competitive Bid Borrowing notifies the Administrative Agent that it accepts one or more of the offers made by any Lender or Lenders pursuant to paragraph (iii)(y) above, such notice of acceptance shall be irrevocable and binding on such Borrower. Such Borrower shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified in the related Notice of Competitive Bid Borrowing for such Competitive Bid Borrowing the applicable conditions set forth in Article III, including, without limitation, any 27 loss (excluding loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Competitive Bid Advance to be made by such Lender as part of such Competitive Bid Borrowing when such Competitive Bid Advance, as a result of such failure, is not made on such date. (b) Each Competitive Bid Borrowing shall be in an aggregate amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof and, following the making of each Competitive Bid Borrowing, the Borrowers shall be in compliance with the limitations set forth in the proviso to the first sentence of subsection (a) above. (c) Within the limits and on the conditions set forth in this Section 2.03, any Borrower may from time to time borrow under this Section 2.03, repay or prepay pursuant to subsection (d) below, and reborrow under this Section 2.03, provided that a Competitive Bid Borrowing shall not be made within three Business Days of the date of any other Competitive Bid Borrowing. (d) The Borrower to which any particular Competitive Bid Borrowing is made shall repay to the Administrative Agent for the account of each Lender that has made a Competitive Bid Advance, on the maturity date of each Competitive Bid Advance (such maturity date being that specified by such Borrower for repayment of such Competitive Bid Advance in the related Notice of Competitive Bid Borrowing delivered pursuant to subsection (a)(i) above, the then unpaid principal amount of such Competitive Bid Advance. No Borrower shall have any right to prepay any principal amount of any Competitive Bid Advance unless, and then only on the terms, specified by such Borrower for such Competitive Bid Advance in the related Notice of Competitive Bid Borrowing delivered pursuant to subsection (a)(i) above. (e) The Borrower to which any particular Competitive Bid Borrowing is made shall pay interest on the unpaid principal amount of each Competitive Bid Advance from the date of such Competitive Bid Advance to the date the principal amount of such Competitive Bid Advance is repaid in full, at the rate of interest for such Competitive Bid Advance specified by the Lender making such Competitive Bid Advance in its notice with respect thereto delivered pursuant to subsection (a)(ii) above, payable on the interest payment date or dates specified by such Borrower for such Competitive Bid Advance in the related Notice of Competitive Bid Borrowing delivered pursuant to subsection (a)(i) above. Upon the occurrence and during the continuance of an Event of Default under Section 6.01(a) or 6.01(f) or at the request of the Required Lenders during the existence of any other Event of Default, such Borrower shall pay interest on the amount of unpaid principal of and interest on each Competitive Bid Advance owing to a Lender, payable in arrears on the date or dates interest is payable thereon, at a rate per annum equal at all times to 2% per annum above the rate per annum otherwise required to be paid on such Competitive Bid Advance. (f) The indebtedness of any Borrower resulting from any Competitive Bid Advance made to such Borrower as part of a Competitive Bid Borrowing shall be evidenced by the Competitive Bid Note of such Borrower payable to the order of the Lender making such Competitive Bid Advance. 28 (g) Upon delivery of each Notice of Competitive Bid Borrowing, the Borrower that requested the applicable Competitive Bid Borrowing shall pay a non-refundable fee of $1,500 to the Administrative Agent for its own account. SECTION 2.04. Issuance and Renewals and Drawings, Participations and Reimbursement with Respect to Letters of Credit. (a) Request for Issuance. A Borrower may from time to time request, upon at least three Letter of Credit Business Days' written notice (given not later than 11:00 A.M. New York City time on the last day permitted therefor), the Issuing Bank to issue or renew (other than any automatic renewal thereof) a Letter of Credit by: (i) delivering to the Issuing Bank and the Administrative Agent a written request to such effect, specifying the date on which such Letter of Credit is to be issued (which shall be a Letter of Credit Business Day), the expiration date thereof, the Available Amount thereof, the name and address of the beneficiary thereof and the form thereof, and (ii) in the case of the issuance of a Letter of Credit, delivering to the Issuing Bank a completed agreement and application with respect to such Letter of Credit as the Issuing Bank may specify for use in connection with such requested Letter of Credit (a "Letter of Credit Agreement"), together with such other certificates, documents and other papers as are specified in such Letter of Credit Agreement. The Administrative Agent shall, promptly upon receiving such notice, notify the Lenders of such proposed Letter of Credit (which notice shall specify the Available Amount and term of such proposed Letter of Credit) or such proposed renewal of a Letter of Credit (which notice shall specify the term of such renewal), and shall determine, as of 11:00 A.M. (New York City time) on the Business Day immediately preceding such proposed issuance, whether such proposed Letter of Credit complies with the limitations set forth in Section 2.01 hereof. If such limitations set forth in Section 2.01 are not satisfied or if the Required Lenders have given notice to the Administrative Agent to cease issuing or renewing Letters of Credit as contemplated by this Agreement, the Administrative Agent shall immediately notify the Issuing Bank (in writing or by telephone immediately confirmed in writing) that the Issuing Bank is not authorized to issue or renew, as the case may be, such Letter of Credit. If the Issuing Bank issues or renews a Letter of Credit, it shall deliver the original of such Letter of Credit to the beneficiary thereof or as the Account Party shall otherwise direct, and shall promptly notify the Administrative Agent thereof and furnish a copy thereof to the Administrative Agent. (b) Request for Extension or Increase. An Account Party may from time to time request the Issuing Bank to extend the expiration date of an outstanding Letter of Credit or increase (or, with the consent of the beneficiary, decrease) the Available Amount of or the amount available to be drawn on such Letter of Credit. Such extension or increase shall for all purposes hereunder be treated as though such Account Party had requested issuance of a replacement Letter of Credit (except only that the Issuing Bank may, if it elects, issue a notice of extension or increase in lieu of issuing a new Letter of Credit in substitution for the outstanding Letter of Credit). (c) Limitations on Issuance, Extension, Renewal and Amendment. As between the Issuing Bank, on the one hand, and the Agents and the Lenders, on the other hand, the Issuing Bank shall 29 be justified and fully protected in issuing or renewing a proposed Letter of Credit unless it shall have received notice from the Administrative Agent as provided in Section 2.04(a) hereof that it is not authorized to do so (and, in the case of automatic renewals, ten days shall have passed following the date of the Issuing Bank's receipt of such notice), notwithstanding any subsequent notices to the Issuing Bank, any knowledge of a Default, any knowledge of failure of any condition specified in Article III hereof to be satisfied, any other knowledge of the Issuing Bank, or any other event, condition or circumstance whatsoever. The Issuing Bank may amend, modify or supplement Letters of Credit or Letter of Credit Agreements, or waive compliance with any condition of issuance, renewal or payment, without the consent of, and without liability to, any Agent or any Lender, provided that any such amendment, modification or supplement that extends the expiration date or increases the Available Amount of or the amount available to be drawn on an outstanding Letter of Credit shall be subject to Section 2.01. (d) Letter of Credit Participating Interests. Concurrently with the issuance of each Letter of Credit, the Issuing Bank automatically shall be deemed, irrevocably and unconditionally, to have sold, assigned, transferred and conveyed to each other Lender, and each other Lender automatically shall be deemed, irrevocably and unconditionally, severally to have purchased, acquired, accepted and assumed from the Issuing Bank, without recourse to, or representation or warranty by, the Issuing Bank, an undivided interest, in a proportion equal to such Lender's Pro Rata Share, in all of the Issuing Bank's rights and obligations in, to or under such Letter of Credit, the related Letter of Credit Agreement, all reimbursement obligations with respect to such Letter of Credit, and all collateral, guarantees and other rights from time to time directly or indirectly securing the foregoing (such interest of each Lender being referred to herein as a "Letter of Credit Participating Interest", it being understood that the Letter of Credit Participating Interest of the Issuing Bank is the interest not otherwise attributable to the Letter of Credit Participating Interests of the other Lenders). Each Lender irrevocably and unconditionally agrees to the immediately preceding sentence, such agreement being herein referred to as such Bank's "Letter of Credit Participating Interest Commitment". Amounts, other than Letter of Credit Advances made by a Lender other than the Issuing Bank and other than Letter of Credit commissions under Section 2.09(d)(i), payable from time to time under or in connection with a Letter of Credit or Letter of Credit Agreement shall be for the sole account of the Issuing Bank. On the date that any assignee becomes a party to this Agreement in accordance with Section 9.07 hereof, Letter of Credit Participating Interests in all outstanding Letters of Credit held by the Lender from which such assignee acquired its interest hereunder shall be proportionately reallocated between such assignee and such assignor Lender (and, to the extent such assignor Lender is the Issuing Bank, the assignee Bank shall be deemed to have acquired a Letter of Credit Participating Interest from the Issuing Bank to such extent). Notwithstanding any other provision hereof, each Lender hereby agrees that its obligation to participate in each Letter of Credit, its obligation to make the payments specified in Section 2.04(e), and the right of the Issuing Bank to receive such payments in the manner specified therein, are each absolute, irrevocable and unconditional and shall not be affected by any event, condition or circumstance whatever. The failure of any Lender to make any such payment shall not relieve any other Lender of its funding obligation hereunder on the date due, but no Lender shall be responsible for the failure of any other Lender to meet its funding obligations hereunder. (e) Payment by Lenders on Account of Unreimbursed Draws. If the Issuing Bank makes a payment under any Letter of Credit and is not reimbursed in full therefor on such payment date 30 in accordance with Section 2.05(b), the Issuing Bank may notify the Administrative Agent thereof (which notice may be by telephone), and the Administrative Agent shall forthwith notify each Lender (which notice may be by telephone promptly confirmed in writing) thereof. No later than the Administrative Agent's close of business on the date such notice is given (if notice is given by 2:00 P.M. New York City time) or 10:00 A.M. New York City time the following day (if notice is given after 2:00 P.M. New York City time or in the case of any Lender whose Applicable Lending Office is located in Europe), each Lender will pay to the Administrative Agent, for the account of the Issuing Bank, in immediately available funds, an amount equal to such Lender's Pro Rata Share of the unreimbursed portion of such payment by the Issuing Bank. Amounts received by the Administrative Agent for the account of the Issuing Bank shall be forthwith transferred, in immediately available funds, to the Issuing Bank. If and to the extent that any Lender fails to make such payment to the Administrative Agent for the account of the Issuing Bank on such date, such Lender shall pay such amount on demand, together with interest, for the Issuing Bank's own account, for each day from and including the date of the Issuing Bank's payment to but not including the date of repayment to the Issuing Bank (before and after judgment) at a rate per annum for each day (i) from and including the date of such payment by the Issuing Bank to and including the second Business Day thereafter equal to the Federal Funds Rate and (ii) thereafter equal to the Base Rate. (f) Letter of Credit Advances. The term "Letter of Credit Advance" is used in this Agreement in accordance with the meanings set forth in this paragraph 2.04(f). The making of any payment by the Issuing Bank under a Letter of Credit is sometimes referred to herein as the making of a Letter of Credit Advance by the Issuing Bank in the amount of such payment. The making of any payment by a Lender for the account of the Issuing Bank under Section 2.04(e) on account of an unreimbursed drawing on a Letter of Credit is sometimes referred to herein as the making of a Letter of Credit Advance to the applicable Borrower by such Lender. The making of such a Letter of Credit Advance by a Lender with respect to an unreimbursed drawing on a Letter of Credit shall reduce, by a like amount, the outstanding Letter of Credit Advance of the Issuing Bank with respect to such unreimbursed drawing. (g) Letter of Credit Reports. The Issuing Bank will furnish to the Administrative Agent prompt written notice of each issuance of a Letter of Credit (including the Available Amount and expiration date thereof), amendment to a Letter of Credit, cancellation of a Letter of Credit and payment on a Letter of Credit. The Administrative Agent will furnish (A) to each Lender prior to the tenth Business Day of each month a written report summarizing issuance and expiration dates of Letters of Credit issued during the preceding month and payments and reductions in Available Amount during such month on all Letters of Credit and (B) to each Lender prior to the tenth Business Day of each calendar quarter a written report setting forth the average daily aggregate Available Amount during the preceding calendar quarter of all Letters of Credit. SECTION 2.05. Repayment of Advances. (a) Committed Advances. Each Borrower shall repay to the Administrative Agent for the ratable account of the Lenders on the Termination Date the aggregate outstanding principal amount of the Committed Advances then outstanding. (b) Account Party's Reimbursement Obligation. (i) Each Account Party hereby agrees to reimburse the Issuing Bank (by making payment to the Administrative Agent for the account of 31 the Issuing Bank in accordance with Section 2.12) in the amount of each payment made by the Issuing Bank under any Letter of Credit issued for such Account Party's account, such reimbursement to be made on the date such payment under such Letter of Credit is made by the Issuing Bank (but not earlier than the date which is one Business Day after notice of such payment under such Letter of Credit or of the drawing giving rise to such payment under such Letter of Credit is given to such Account Party). Such reimbursement obligation shall be payable without further notice, protest or demand, all of which are hereby waived, and an action therefor shall immediately accrue. To the extent such payment by such Account Party is not timely made, such Account Party hereby agrees to pay to the Administrative Agent, for the respective accounts of the Issuing Bank and the Lenders which have funded their respective shares of such amount remaining unpaid by such Account Party, on demand, interest thereon at the rate then applicable to Base Rate Advances under Section 2.08. Each Letter of Credit Advance shall be a Base Rate Advance. (ii) The obligation of each Account Party to reimburse the Issuing Bank for any payment made by the Issuing Bank under any Letter of Credit, and the obligation of each Lender under Section 2.04(e) with respect thereto, shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement, the applicable Letter of Credit Agreement and any other applicable agreement or instrument under all circumstances, including, without limitation, the following circumstances: (A) any lack of validity or enforceability of any Loan Document, any Letter of Credit Agreement, any Letter of Credit or any other agreement or instrument relating thereto (all of the foregoing being, collectively, the "L/C Related Documents"); (B) any change in the time, manner or place of payment of, or in any other term of, all or any of the obligations of any Borrower or any other Person in respect of any L/C Related Document or any other amendment or waiver of or any consent to departure from all or any of the L/C Related Documents; (C) the existence of any claim, set-off, defense or other right that any Borrower or any other Person 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), the Issuing Bank or any other Person, whether in connection with the transactions contemplated by the L/C Related Documents or any unrelated transaction; (D) 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; (E) payment by the Issuing Bank 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; (F) any exchange, release or non-perfection of any collateral, or any release or amendment or waiver of or consent to departure from the Guaranty or any other guarantee, for 32 all or any of the obligations of any Borrower or any other Person in respect of the L/C Related Documents; or (G) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including, without limitation, any other circumstance that might otherwise constitute a defense available to, or a discharge of, any Borrower or a guarantor. (c) Rescission. If any amount received by the Issuing Bank on account of any Letter of Credit Advance shall be avoided, rescinded or otherwise returned or paid over by the Issuing Bank for any reason at any time, whether before or after the termination of this Agreement (or the Issuing Bank believes in good faith that such avoidance, rescission, return or payment is required, whether or not such matter has been adjudicated), each Lender will (except to the extent a corresponding amount received by such Lender on account of its Letter of Credit Advance relating to the same payment on a Letter of Credit has been avoided, rescinded or otherwise returned or paid over by such Lender), promptly upon notice from the Administrative Agent or the Issuing Bank, pay over to the Administrative Agent for the account of the Issuing Bank its Pro Rata Share of such amount, together with its Pro Rata Share of any interest or penalties payable with respect thereto. SECTION 2.06. Termination or Reduction of the WC Commitments. The Parent may, upon at least three Business Days' notice to the Administrative Agent, terminate in whole or reduce in part the unused portion of the WC Commitments; provided, however, that each partial reduction (i) shall be in an aggregate amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof and (ii) shall be made ratably among the Lenders in accordance with their WC Commitments. SECTION 2.07. Prepayments. Each Borrower may, upon at least one Business Day's notice in the case of Base Rate Advances and three Business Days' notice in the case of Eurodollar Rate Advances, in each case to the Administrative Agent stating the proposed date and aggregate principal amount of the prepayment, and if such notice is given such Borrower shall, prepay the outstanding aggregate principal amount of the Committed Advances comprising part of the same Committed Borrowing in whole or ratably in part, together with accrued interest to the date of such prepayment on the aggregate principal amount prepaid; provided, however, that (x) each partial prepayment shall be in an aggregate principal amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof (except that prepayment of any Letter of Credit Advance may be made in any amount so long as such Letter of Credit Advance is paid in full or, after giving effect to such prepayment, the aggregate principal amount of all Letter of Credit Advances is an integral multiple of $1,000,000) and (y) if any prepayment of a Eurodollar Rate Advance is made on a date other than the last day of an Interest Period for such Committed Advance, such Borrower shall also pay any amounts owing pursuant to Section 9.04(c). All prepayments in respect of Eurodollar Rate Advances shall be made together with accrued interest to the date of such prepayment on the principal amount prepaid. SECTION 2.08. Interest. (a) Scheduled Interest. Each Borrower shall pay interest on the unpaid principal amount of each Advance owing to each Lender from the date of such Advance until such principal amount shall be paid in full, at the following rates per annum: 33 (i) Base Rate Advances. During such periods as such Advance is a Base Rate Advance, a rate per annum equal at all times to the sum of (A) the Base Rate in effect from time to time plus (B) the Applicable Margin in effect from time to time, payable in arrears quarterly on the last day of each March, June, September and December during such periods and on the Termination Date. (ii) Eurodollar Rate Advances. During such periods as such Advance is a Eurodollar Rate Advance, a rate per annum equal at all times during each Interest Period for such Advance to the sum of (A) the Eurodollar Rate for such Interest Period for such Advance plus (B) the Applicable Margin in effect from time to time, payable in arrears on the last day of such Interest Period and, if such Interest Period has a duration of more than three months, on each day that occurs during such Interest Period every three months from the first day of such Interest Period and on the date such Eurodollar Rate Advance shall be Converted or paid in full. (iii) Regulation D Compensation. Each Lender that is subject to reserve requirements of the Board of Governors of the Federal Reserve System (or any successor) may require any Borrower to pay, contemporaneously with each payment of interest on Eurodollar Rate Advances, additional interest on the related Eurodollar Rate Advances of such Lender at the rate per annum equal to the excess of (i)(A) the applicable Eurodollar Rate, divided by (B) one minus the Eurodollar Rate Reserve Requirement over (ii) the rate specified in clause (i)(A). Any Lender wishing to require payment of such additional interest shall so notify such Borrower directly, in which case such additional interest on the Eurodollar Rate Advances of such Lender shall be payable to such Lender at the place indicated in such notice with respect to each Interest Period commencing after the giving of such notice. (b) Default Interest. Upon the occurrence and during the existence of an Event of Default under Section 6.01(a) or 6.01(f) or at the request of the Required Lenders during the existence of any other Event of Default, each Borrower shall pay interest on (i) the unpaid principal amount of each Advance owing to each Lender, payable in arrears on the dates referred to in clause (a)(i) or (a)(ii) above and at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid on such Advance pursuant to clause (a)(i) or (a)(ii) above and (ii) to the fullest extent permitted by law, the amount of any interest, fee or other amount payable under the Loan Documents that is not paid when due, from the date such amount shall be due until such amount shall be paid in full, payable in arrears on the date such amount shall be paid in full and on demand, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid, in the case of interest, on the Type of Advance on which such interest has accrued pursuant to clause (a)(i) or (a)(ii) above and, in all other cases, on Base Rate Advances pursuant to clause (a)(i) above. (c) Notice of Interest Period and Interest Rate. Promptly after receipt of a Notice of Borrowing pursuant to Section 2.02(a), a notice of Conversion pursuant to Section 2.10 or a notice of selection of an Interest Period pursuant to the terms of the definition of "Interest Period", the Administrative Agent shall give notice to the Borrowers and each Lender of the applicable Interest Period and the applicable interest rate determined by the Administrative Agent for purposes of clause (a)(i) or (a)(ii) above. 34 SECTION 2.09. Fees. (a) Ticking Fee. In respect of any portion of the WC Commitments, each Borrower jointly and severally agrees that it shall pay to the Administrative Agent for the account of the Lenders a ticking fee, from April 6, 1999 in the case of each Initial Lender and from the effective date specified in the Assignment and Acceptance pursuant to which it became a Lender in the case of each other Lender until the date on which such portion of the WC Commitments is available to be borrowed pursuant to the provisions of Section 3.01, payable in arrears on the Effective Date, thereafter quarterly on the last day of each March, June, September and December, commencing June 30, 1999, and on the Termination Date, at the rate of 1/10 of 1% per annum on the average daily unavailable WC Commitment of each Lender during such quarter; provided, however, that no ticking fee shall accrue on the WC Commitment of a Defaulting Lender so long as such Lender shall be a Defaulting Lender and provided further that no ticking fee shall accrue on the portion of the WC Commitment on which the facility fee is accruing pursuant to Section 2.09(b). (b) Facility Fee. Each Borrower jointly and severally agrees to pay to the Administrative Agent for the account of the Lenders a facility fee, from the Effective Date in the case of each Initial Lender and from the effective date specified in the Assignment and Acceptance pursuant to which it became a Lender in the case of each other Lender until the Termination Date, payable in arrears quarterly on the last day of each March, June, September and December, commencing on June 30, 1999, and on the Termination Date, at the rate of the Applicable Facility Fee Percentage on the average daily available WC Commitment of each Lender during such quarter; provided, however, that no facility fee shall accrue on the WC Commitment of a Defaulting Lender so long as such Lender shall be a Defaulting Lender. (c) Agents' Fees. Each Borrower jointly and severally agrees that it shall pay to each Agent for its own account such fees as may from time to time be agreed between such Borrower and such Agent. (d) Letter of Credit Fees, Etc. (i) Each Borrower jointly and severally agrees that it shall pay to the Administrative Agent for the account of each Lender a commission, payable in arrears quarterly on the last day of each calendar quarter commencing June 30, 1999, and on the earliest to occur of the full drawing, expiration, termination or cancellation of any Letter of Credit and on the Termination Date, on such Lender's Pro Rata Share of the average daily aggregate Available Amount during such quarter of all Letters of Credit outstanding from time to time at the rate equal to the then Applicable Margin (ii) Each Borrower jointly and severally agrees that it shall pay to the Issuing Bank, for its own account, such commissions, issuance fees, fronting fees, transfer fees and other fees and charges in connection with the issuance or administration of each Letter of Credit as such Borrower and the Issuing Bank shall agree in a side letter. SECTION 2.10. Conversion of Advances. (a) Optional. Each Borrower may on any Business Day, upon notice given to the Administrative Agent not later than 11:00 A.M. (New York City time) on the third Business Day prior to the date of the proposed Conversion and subject to the provisions of Section 2.11, Convert all or any portion of the Committed Advances of one Type comprising the same Committed Borrowing into Committed Advances of the other Type; provided, 35 however, that any Conversion of Eurodollar Rate Advances into Base Rate Advances shall be made only on the last day of an Interest Period for such Eurodollar Rate Advances, any Conversion of Base Rate Advances into Eurodollar Rate Advances shall be in an amount not less than the minimum amount specified in Section 2.01, no Conversion of any Committed Advances shall result in more separate Committed Borrowings than permitted under Section 2.02(b) and each Conversion of Committed Advances comprising part of the same Borrowing shall be made ratably among the Lenders in accordance with their respective WC Commitments. Each such notice of Conversion shall, within the restrictions specified above, specify (i) the date of such Conversion, (ii) the Advances to be Converted and (iii) if such Conversion is into Eurodollar Rate Advances, the duration of the initial Interest Period for such Advances. Each notice of Conversion shall be irrevocable and binding on such Borrower. (b) Mandatory. (i) On the date on which the aggregate unpaid principal amount of Eurodollar Rate Advances comprising any Committed Borrowing shall be reduced, by payment or prepayment or otherwise, to less than $10,000,000, such Committed Advances shall automatically Convert into Base Rate Advances at the end of the applicable Interest Period. (ii) If the Borrowers shall fail to select the duration of any Interest Period for any Eurodollar Rate Advances in accordance with the provisions contained in the definition of "Interest Period" in Section 1.01, the Administrative Agent will forthwith so notify the Borrowers and the Lenders, whereupon each such Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance. (iii) Upon the occurrence and during the existence of an Event of Default under Section 6.01(a) or 6.01(f) or at the request of the Required Lenders during the existence of any other Event of Default, (x) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance and (y) the obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended. SECTION 2.11. Increased Costs, Etc. (a) If, due to either (i) the introduction of or any change in or in the interpretation of, in each case after the date hereof, any law or regulation or (ii) the compliance with any guideline or request issued after the date hereof from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost to any Lender of agreeing to make or of making, funding or maintaining Eurodollar Rate Advances or LIBO Rate Advances or of agreeing to issue or of issuing or maintaining or participating in Letters of Credit (excluding, for purposes of this Section 2.11, any such increased costs resulting from (x) Taxes or Other Taxes (as to which Section 2.13 shall govern) and (y) changes in the basis of taxation of overall net income or overall gross income by the United States or by the foreign jurisdiction or state under the laws of which such Lender is organized or has its Applicable Lending Office or any political subdivision thereof), then the Borrowers jointly and severally agree to pay, from time to time, within five days after demand by such Lender (with a copy of such demand to the Administrative Agent), which demand shall include a statement of the basis for such demand and a calculation in reasonable detail of the amount demanded, to the Administrative Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost. A certificate as to the amount of such increased cost, submitted to the Borrowers by such Lender, shall be conclusive and binding for all purposes, absent manifest error. 36 (b) If, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation, in each case after the date hereof, or (ii) the compliance with any guideline or request issued after the date hereof from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the amount of capital required or expected to be maintained by any Lender or any corporation controlling such Lender as a result of or based upon the existence of such Lender's commitment to lend hereunder and other commitments of such type, then, within five days after demand by such Lender or such corporation (with a copy of such demand to the Administrative Agent), which demand shall include a statement of the basis for such demand and a calculation in reasonable detail of the amount demanded, the Borrowers jointly and severally agree to pay to the Administrative Agent for the account of such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender in the light of such circumstances, to the extent that such Lender reasonably determines such increase in capital to be allocable to the existence of such Lender's commitment to lend or to issue or participate in Letters of Credit hereunder or to the issuance or maintenance of or participation in any Letters of Credit. A certificate as to such amounts submitted to the Borrowers by such Lender shall be conclusive and binding for all purposes, absent manifest error. (c) If, prior to the first day of any Interest Period with respect to any Eurodollar Rate Advances, the Required Lenders notify the Administrative Agent that the Eurodollar Rate for such Interest Period for such Committed Advances will not adequately reflect the cost to such Lenders of making, funding or maintaining their Eurodollar Rate Advances for such Interest Period, the Administrative Agent shall forthwith so notify the Borrower and the Lenders, whereupon each such Eurodollar Rate Advance will (i) in the case of requested new Eurodollar Rate Advances, be made as or remain Base Rate Advances or as a Eurodollar Rate Advance with a different Interest Period as to which the Required Lenders have not given such a notice and (ii) in the case of existing Eurodollar Rate Advances, automatically, on the last day of the then existing Interest Period therefor, Convert into Base Rate Advances or be continued as a Eurodollar Rate Advance with a different Interest Period as to which the Required Lenders have not given such notice. (d) Notwithstanding any other provision of this Agreement, if the introduction of or any change in or in the interpretation of any law or regulation, in each case after the date hereof, shall make it unlawful, or any central bank or other governmental authority shall assert that it is unlawful, for any Lender or its Eurodollar Lending Office to perform its obligations hereunder to make Eurodollar Rate Advances or LIBO Rate Advances or to continue to fund or maintain Eurodollar Rate Advances or LIBO Rate Advances hereunder, then, on notice thereof and demand therefor by such Lender to the Borrowers through the Administrative Agent, (i) each Eurodollar Rate Advance or LIBO Rate Advance, as the case may be, of such Lender will automatically, upon such demand, Convert into a Base Rate Advance or an Advance that bears interest at the rate set forth in Section 2.08(a)(i), as the case may be, and (ii) the obligation of such Lender to make Eurodollar Rate Advances or LIBO Rate Advances or to Convert Committed Advances into Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrowers that such Lender has determined that the circumstances causing such suspension no longer exist (it being understood that such Lender shall make and maintain Base Rate Advances in the amount that would otherwise be made and maintained by such Lender as Eurodollar Advances absent the circumstances described above). 37 (e) Each Lender shall promptly notify the Borrowers and the Administrative Agent of any event of which it has actual knowledge which will result in, and will use reasonable commercial efforts available to it (and not, in such Lender's good faith judgment, otherwise disadvantageous to such Lender) to mitigate or avoid, (i) any obligation by the Borrowers to pay any amount pursuant to subsection (a) or (b) above or pursuant to Section 2.13 or (ii) the occurrence of any circumstances of the nature described in subsection (c) or (d) above (and, if any Lender has given notice of any event described in clause (i) or (ii) above and thereafter such event ceases to exist, such Lender shall promptly so notify the Borrowers and the Administrative Agent). Without limiting the foregoing, each Lender will designate a different Applicable Lending Office if such designation will avoid (or reduce the cost to the Borrowers of) any event described in clause (i) or (ii) of the preceding sentence and such designation will not, in such Lender's good faith judgment, be otherwise disadvantageous to such Lender. (f) Notwithstanding the provisions of subsections (a) and (b) above or Section 2.13 (and without limiting subsection (e) above), if any Lender fails to notify the Borrowers of any event or circumstance that will entitle such Lender to compensation pursuant subsection (a) or (b) above or Section 2.13 within 120 days after such Lender obtains actual knowledge of such event or circumstance, then such Lender shall not be entitled to compensation, from the Borrowers for any amount arising prior to the date which is 120 days before the date on which such Lender notifies the Borrowers of such event or circumstance. SECTION 2.12. Payments and Computations. (a) The applicable Borrower shall make each payment hereunder and under the applicable Notes, irrespective of any right of counterclaim or set-off (except as otherwise provided in Section 2.16), not later than 11:00 A.M. (New York City time) on the day when due in U.S. dollars to the Administrative Agent at the Administrative Agent's Account in same day funds, with payments being received by the Administrative Agent after such time being deemed to have been received on the next succeeding Business Day. The Administrative Agent will promptly thereafter cause like funds to be distributed (i) if such payment by such Borrower is in respect of principal, interest, ticking fees, facility fees or any other amount then payable hereunder and under the Notes to more than one Lender, to such Lenders for the account of their respective Applicable Lending Offices ratably in accordance with the amounts of such respective amount then payable to such Lenders and (ii) if such payment by such Borrower is in respect of any amount then payable hereunder to one Lender, to such Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. Upon its acceptance of an Assignment and Acceptance and recording of the information contained therein in the Register pursuant to Section 9.07(d), from and after the effective date of such Assignment and Acceptance, the Administrative Agent shall make all payments hereunder and under the Notes in respect of the interest assigned thereby to the Lender assignee thereunder, and the parties to such Assignment and Acceptance shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves. (b) Each Borrower hereby authorizes each Lender, if an Event of Default under Section 6.01(a) has occurred and is continuing, to charge from time to time against any or all of such Borrower's accounts with such Lender any amount that resulted in such Event of Default. (c) All computations of interest on Base Rate Advances (and any other amount payable by reference to the Base Rate) when the Base Rate is determined by reference to MGT's prime 38 rate shall be made by the Administrative Agent on the basis of a year of 365 or, if applicable, 366 days; all other computations of interest, fees and Letter of Credit commissions shall be made by the Administrative Agent on the basis of a year of 360 days. All such computations shall be made for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest, fees or commissions are payable. Each determination by the Administrative Agent of an interest rate, fee or commission hereunder shall be conclusive and binding for all purposes, absent manifest error. (d) Whenever any payment hereunder or under the Notes shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or fee, as the case may be; provided, however, that, if such extension would cause payment of interest on or principal of Eurodollar Rate Advances or LIBO Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. (e) Unless the Administrative Agent shall have received notice from any Borrower required to make any payment prior to the date on which any payment is due to any Lender hereunder that such Borrower will not make such payment in full, the Administrative Agent may assume that such Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each such Lender on such due date an amount equal to the amount then due such Lender. If and to the extent such Borrower shall not have so made such payment in full to the Administrative Agent, each such Lender shall repay to the Administrative Agent forthwith on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent, at the Federal Funds Rate. SECTION 2.13. Taxes. (a) Any and all payments by any Loan Party hereunder or under the Notes shall be made, in accordance with Section 2.12, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and each Agent, taxes that are imposed on its overall net income by the United States and taxes that are imposed on its overall net income (and franchise taxes imposed in lieu thereof) by the state or foreign jurisdiction under the laws of which such Lender or such Agent, as the case may be, is organized or any political subdivision thereof and, in the case of each Lender, taxes that are imposed on its overall net income (and franchise taxes imposed in lieu thereof) by the state or foreign jurisdiction of such Lender's Applicable Lending Office or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities in respect of payments hereunder or under the Notes being herein referred to as "Taxes"). If any Loan Party shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any Note to any Lender or any Agent, (i) the sum payable by such Loan Party shall be increased as may be necessary so that after such Loan Party and the Administrative Agent have made all required deductions (including deductions applicable to additional sums payable under this Section 2.13) such Lender or such Agent, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Loan Party shall make all such deductions and (iii) such Loan Party shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. 39 (b) In addition, each Loan Party shall pay any present or future stamp, documentary, excise, property or similar taxes, charges or levies that arise from any payment made hereunder or under the Notes or from the execution, delivery or registration of, performance under, or otherwise with respect to, this Agreement or the Notes (herein referred to as "Other Taxes"). (c) Each Loan Party shall indemnify each Lender and each Agent for and hold them harmless against the full amount of Taxes and Other Taxes, and for the full amount of taxes of any kind imposed by any jurisdiction on amounts payable under this Section 2.13, imposed on or paid by such Lender or such Agent (as the case may be) and any liability (including penalties, additions to tax, interest and expenses) arising therefrom or with respect thereto. This indemnification payment shall be made within 30 days from the date such Lender or such Agent (as the case may be) makes written demand therefor. (d) Within 30 days after the date of any payment of Taxes, each Loan Party shall furnish to the Administrative Agent, at its address referred to in Section 9.02, the original or a certified copy of a receipt evidencing such payment. In the case of any payment hereunder or under the Notes by or on behalf of a Loan Party through an account or branch outside the United States or by or on behalf of a Loan Party by a payor that is not a United States person, if such Loan Party determines that no Taxes are payable in respect thereof, such Loan Party shall furnish, or shall cause such payor to furnish, to the Administrative Agent, at such address, an opinion of counsel acceptable to the Administrative Agent stating that such payment is exempt from Taxes. For purposes of subsections (d) and (e) of this Section 2.13, the terms "United States" and "United States person" shall have the meanings specified in Section 7701(a)(9) and 7701(a)(10) of the Internal Revenue Code, respectively. (e) Each Lender organized under the laws of a jurisdiction outside the United States shall, on or prior to the date of its execution and delivery of this Agreement in the case of each Initial Lender or the initial Issuing Bank, as the case may be, and on the date of the Assignment and Acceptance pursuant to which it becomes a Lender in the case of each other Lender, and from time to time thereafter as requested in writing by the Parent (but only so long thereafter as such Lender remains lawfully able to do so), provide each of the ]Administrative Agent and the Parent with two original Internal Revenue Service forms W-8BEN (or if delivered on or before December 31, 1999, form 1001) or W-8ECI (or if delivered on or before December 31, 1999, form 4224) or (in the case of a Lender that has certified in writing to the Administrative Agent that it is not a "bank" as defined in Section 881(c)(3)(A) of the Internal Revenue Code) form W-8 (and, if such Lender delivers a form W-8, a certificate representing that such Lender is not a "bank" for purposes of Section 881(c)(3)(A) of the Internal Revenue Code, is not a 10-percent shareholder (within the meaning of Section 871(h)(3)(B) of the Internal Revenue Code) of the Parent and is not a controlled foreign corporation related to the Parent (within the meaning of Section 864(d)(4) of the Internal Revenue Code)), as appropriate, or any successor or other form prescribed by the Internal Revenue Service, certifying that such Lender is exempt from or entitled to a reduced rate of United States withholding tax on payments pursuant to this Agreement or the Notes or, in the case of a Lender providing a form W-8, certifying that such Lender is a foreign corporation, partnership, estate or trust. If the forms provided by a Lender at the time such Lender first becomes a party to this Agreement indicate a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from Taxes unless and until such Lender provides the appropriate forms certifying that a lesser rate applies, whereupon withholding tax at such 40 lesser rate only shall be considered excluded from Taxes for periods governed by such forms; provided, however, that if, at the effective date of the Assignment and Acceptance pursuant to which a Lender becomes a party to this Agreement, the Lender assignor was entitled to payments under subsection (a) of this Section 2.13 in respect of United States withholding tax with respect to interest paid at such date, then, to such extent, the term Taxes shall include (in addition to withholding taxes that may be imposed in the future or other amounts otherwise includable in Taxes) United States withholding tax, if any, applicable with respect to the Lender assignee on such date. If any form or document referred to in this subsection (e) requires the disclosure of information, other than information necessary to compute the tax payable and information required on the date hereof by Internal Revenue Service form W-8BEN, 1001, W-8ECI, 4224 or W-8 (and the related certificate described above), that the Lender reasonably considers to be confidential, the Lender shall give notice thereof to the Parent and shall not be obligated to include in such form or document such confidential information. (f) For any period with respect to which a Lender which may lawfully do so has failed to provide the Parent with the appropriate form described in subsection (e) above (other than if such failure is due to a change in law occurring after the date on which a form originally was required to be provided or if such form otherwise is not required under subsection (e) above), such Lender shall not be entitled to indemnification under subsection (a) or (c) of this Section 2.13 with respect to Taxes imposed by the United States by reason of such failure; provided, however, that should a Lender become subject to Taxes because of its failure to deliver a form required hereunder, the Parent shall take such steps as such Lender shall reasonably request to assist such Lender to recover such Taxes. (g) Each Lender represents and warrants to the Borrowers that, as of the date such Lender becomes a party to this Agreement, such Lender is entitled to receive payments hereunder from the Borrowers without deduction or withholding for or on account of any Taxes. SECTION 2.14. Sharing of Payments, Etc. If any Lender shall obtain at any time any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise, other than as a result of an assignment pursuant to Section 9.07) (a) on account of obligations due and payable to such Lender hereunder and under the Notes at such time in excess of its ratable share (according to the proportion of (i) the amount of such obligations due and payable to such Lender at such time to (ii) the aggregate amount of the obligations due and payable to all Lenders hereunder and under the Notes at such time) of payments on account of the obligations due and payable to all Lenders hereunder and under the Notes at such time obtained by all the Lenders at such time or (b) on account of obligations owing (but not due and payable) to such Lender hereunder and under the Notes at such time in excess of its ratable share (according to the proportion of (i) the amount of such obligations owing to such Lender at such time to (ii) the aggregate amount of the obligations owing (but not due and payable) to all Lenders hereunder and under the Notes at such time) of payments on account of the obligations owing (but not due and payable) to all Lenders hereunder and under the Notes at such time obtained by all of the Lenders at such time, such Lender shall forthwith purchase from the other Lenders such interests or participating interests in the obligations due and payable or owing to them, as the case may be, as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each other Lender shall be rescinded and such other Lender shall repay to the purchasing Lender the purchase price to the extent of such Lender's ratable share (according 41 to the proportion of (i) the purchase price paid to such Lender to (ii) the aggregate purchase price paid to all Lenders) of such recovery together with an amount equal to such Lender's ratable share (according to the proportion of (i) the amount of such other Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. Each Borrower agrees that any Lender so purchasing an interest or participating interest from another Lender pursuant to this Section 2.14 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such interest or participating interest, as the case may be, as fully as if such Lender were the direct creditor of such Borrower in the amount of such interest or participating interest, as the case may be. SECTION 2.15. Use of Proceeds. The proceeds of the Advances shall be available (and each Borrower agrees that it shall use such proceeds) to provide working capital, and for other general corporate purposes of the Borrowers and their respective Subsidiaries. SECTION 2.16. Defaulting Lenders. (a) In the event that, at any one time, (i) any Lender shall be a Defaulting Lender, (ii) such Defaulting Lender shall owe a Defaulted Advance to any Borrower and (iii) such Borrower shall be required to make any payment hereunder or under any other Loan Document to or for the account of such Defaulting Lender, then such Borrower may, to the fullest extent permitted by applicable law, set off and otherwise apply the obligation of such Borrower to make such payment to or for the account of such Defaulting Lender against the obligation of such Defaulting Lender to make such Defaulted Advance. In the event that, on any date, any Borrower shall so set off and otherwise apply its obligation to make any such payment against the obligation of such Defaulting Lender to make any such Defaulted Advance on or prior to such date, the amount so set off and otherwise applied by such Borrower shall constitute for all purposes of this Agreement and the other Loan Documents an Advance by such Defaulting Lender made on the date of such setoff. Such Committed Advance shall be considered, for all purposes of this Agreement, to comprise part of the Committed Borrowing in connection with which such Defaulted Advance was originally required to have been made pursuant to Section 2.01, even if the other Committed Advances comprising such Borrowing shall be Eurodollar Rate Advances on the date such Committed Advance is deemed to be made pursuant to this subsection (a). Each Borrower shall notify the Administrative Agent at any time such Borrower exercises its right of set-off pursuant to this subsection (a) and shall set forth in such notice (A) the name of the Defaulting Lender and the Defaulted Advance required to be made by such Defaulting Lender and (B) the amount set off and otherwise applied in respect of such Defaulted Advance pursuant to this subsection (a). Any portion of such payment otherwise required to be made by such Borrower to or for the account of such Defaulting Lender which is paid by such Borrower, after giving effect to the amount set off and otherwise applied by such Borrower pursuant to this subsection (a), shall be applied by the Administrative Agent as specified in subsection (b) or (c) of this Section 2.16. (b) In the event that, at any one time, (i) any Lender shall be a Defaulting Lender, (ii) such Defaulting Lender shall owe a Defaulted Amount to any Agent or any of the other Lenders and (iii) any Borrower shall make any payment hereunder or under any other Loan Document to the Administrative Agent for the account of such Defaulting Lender, then the Administrative Agent may, on its behalf or on behalf of such other Agents or such other Lenders and to the fullest extent permitted by applicable law, apply at such time the amount so paid by such Borrower to or for the account of such Defaulting Lender to the payment of each such Defaulted Amount to the extent required to pay such 42 Defaulted Amount. In the event that the Administrative Agent shall so apply any such amount to the payment of any such Defaulted Amount on any date, the amount so applied by the Administrative Agent shall constitute for all purposes of this Agreement and the other Loan Documents payment, to such extent, of such Defaulted Amount on such date. Any such amount so applied by the Administrative Agent shall be retained by the Administrative Agent or distributed by the Administrative Agent to such other Agents or such other Lenders, ratably in accordance with the respective portions of such Defaulted Amounts payable at such time to the Administrative Agent, such other Agents and such other Lenders and, if the amount of such payment made by such Borrower shall at such time be insufficient to pay all Defaulted Amounts owing at such time to the Administrative Agent, such other Agents and such other Lenders, in the following order of priority: (i) first, to the Agents for any Defaulted Amounts then owing to the Agents, ratably in accordance with such respective Defaulted Amounts then owing to the Agents; (ii) second, to the Issuing Bank for any amount then due and payable to it, in its capacity as such, by such Defaulting Lender, ratably in accordance with such amounts then due and payable to such Issuing Bank; and (iii) third, to any other Lenders for any Defaulted Amounts then owing to such other Lenders, ratably in accordance with such respective Defaulted Amounts then owing to such other Lenders. Any portion of such amount paid by such Borrower for the account of such Defaulting Lender remaining, after giving effect to the amount applied by the Administrative Agent pursuant to this subsection (b), shall be applied by the Administrative Agent as specified in subsection (c) of this Section 2.16. (c) In the event that, at any one time, (i) any Lender shall be a Defaulting Lender, (ii) such Defaulting Lender shall not owe a Defaulted Advance or a Defaulted Amount and (iii) any Borrower, any Agent or any other Lender shall be required to pay or distribute any amount hereunder or under any other Loan Document to or for the account of such Defaulting Lender, then such Borrower or such Agent or such other Lender shall pay such amount to the Administrative Agent to be held by the Administrative Agent, to the fullest extent permitted by applicable law, in escrow or the Administrative Agent shall, to the fullest extent permitted by applicable law, hold in escrow such amount otherwise held by it. Any funds held by the Administrative Agent in escrow under this subsection (c) shall be deposited by the Administrative Agent in an account with MGT, in the name and under the control of the Administrative Agent, but subject to the provisions of this subsection (c). The terms applicable to such account, including the rate of interest payable with respect to the credit balance of such account from time to time, shall be MGT's standard terms applicable to escrow accounts maintained with it. Any interest credited to such account from time to time shall be held by the Administrative Agent in escrow under, and applied by the Administrative Agent from time to time in accordance with the provisions of, this subsection (c). The Administrative Agent shall, to the fullest extent permitted by applicable law, apply all funds so held in escrow from time to time to the extent necessary to make any Advances required to be made by such Defaulting Lender and to pay any amount payable by such Defaulting Lender hereunder and under the other Loan Documents to the Administrative Agent or any other Lender, as and when such Advances or amounts are required to be made or paid and, if the amount so held in 43 escrow shall at any time be insufficient to make and pay all such Advances and amounts required to be made or paid at such time, in the following order of priority: (i) first, to the Agents for any amounts then due and payable by such Defaulting Lender to the Agents hereunder, ratably in accordance with such amounts then due and payable to the Agents; (ii) second, to the Issuing Bank for any amount then due and payable to it, in its capacity as such, by such Defaulting Lender, ratably in accordance with such amounts then due and payable to such Issuing Bank; (iii) third, to any other Lenders for any amount then due and payable by such Defaulting Lender to such other Lenders hereunder, ratably in accordance with such respective amounts then due and payable to such other Lenders; and (iv) fourth, to such Borrower for any Advance then required to be made by such Defaulting Lender pursuant to the Commitment of such Defaulting Lender. In the event that any Lender that is a Defaulting Lender shall, at any time, cease to be a Defaulting Lender, any funds held by the Administrative Agent in escrow at such time with respect to such Lender shall be distributed by the Administrative Agent to such Lender and applied by such Lender to the obligations owing to such Lender at such time under this Agreement and the other Loan Documents ratably in accordance with the respective amounts of such obligations outstanding at such time. (d) The rights and remedies against a Defaulting Lender under this Section 2.16 are in addition to other rights and remedies that such Borrower may have against such Defaulting Lender with respect to any Defaulted Advance and that any Agent or any Lender may have against such Defaulting Lender with respect to any Defaulted Amount. SECTION 2.17. Replacement of Affected Lender. At any time any Lender is an Affected Lender, the Borrowers may replace such Affected Lender as a party to this Agreement with one or more other Lenders and/or Eligible Assignees, and upon notice from the Borrowers such Affected Lender shall assign pursuant to an Assignment and Acceptance, and without recourse or warranty, its WC Commitment, its Committed Advances, its Committed Note, its Letter of Credit Advances, its obligations to fund Letter of Credit payments, its participation in, and its rights and obligations with respect to, Letters of Credit, and all of its other rights and obligations hereunder to such other Lenders and/or Eligible Assignees for a purchase price equal to the sum of the principal amount of the Committed Advances so assigned, all accrued and unpaid interest thereon, such Affected Lender's ratable share of all accrued and unpaid fees payable pursuant to Section 2.09, any amounts payable pursuant to Section 9.04(c) as a result of such Affected Lender receiving payment of any Eurodollar Rate Advance prior to the end of an Interest Period therefor (assuming for such purpose that receipt of payment pursuant to such Assignment and Acceptance constitutes payment of such Eurodollar Rate Advances) and all other obligations owed to such Affected Lender hereunder. SECTION 2.18. Certain Provisions Relating to the Issuing Bank and Letters of Credit. 44 (a) Letter of Credit Agreements. The representations, warranties and covenants by the Borrowers under, and the rights and remedies of the Issuing Bank under, any Letter of Credit Agreement relating to any Letter of Credit are in addition to, and not in limitation or derogation of, representations, warranties and covenants by the Borrowers under, and rights and remedies of the Issuing Bank and the Lenders under, this Agreement and applicable law. Each Account Party acknowledges and agrees that all rights of the Issuing Bank under any Letter of Credit Agreement shall inure to the benefit of each Lender to the extent of its Letter of Credit Participating Interest Commitment as fully as if such Lender was a party to such Letter of Credit Agreement. In the event of any inconsistency between the terms of this Agreement and any Letter of Credit Agreement, this Agreement shall prevail. (b) Certain Provisions. The Issuing Bank shall have no duties or responsibilities to any Agent or any Lender except those expressly set forth in this Agreement, and no implied duties or responsibilities on the part of the Issuing Bank shall be read into this Agreement or shall otherwise exist. The duties and responsibilities of the Issuing Bank to the Lenders and the Agents under this Agreement and the other Loan Documents shall be mechanical and administrative in nature, and the Issuing Bank shall not have a fiduciary relationship in respect of any Agent, any Lender or any other Person. The Issuing Bank shall not be liable for any action taken or omitted to be taken by it under or in connection with this Agreement or any Loan Document or Letter of Credit, except as specifically set forth in Section 9.09. The Issuing Bank shall not be under any obligation to ascertain, inquire or give any notice to any Agent or any Lender relating to (i) the performance or observance of any of the terms or conditions of this Agreement or any other Loan Document on the part of any Borrower, (ii) the business, operations, condition (financial or otherwise) or prospects of the Borrowers or any other Person, or (iii) the existence of any Default. The Issuing Bank shall not be under any obligation, either initially or on a continuing basis, to provide any Agent or any Lender with any notices, reports or information of any nature, whether in its possession presently or hereafter, except for such notices, reports and other information expressly required by this Agreement to be so furnished. The Issuing Bank shall not be responsible for the execution, delivery, effectiveness, enforceability, genuineness, validity or adequacy of this Agreement or any Loan Document. (c) Administration. The Issuing Bank may rely upon any notice or other communication of any nature (written or oral, including but not limited to telephone conversations, whether or not such notice or other communication is made in a manner permitted or required by this Agreement or any other Loan Document) purportedly made by or on behalf of the proper party or parties, and the Issuing Bank shall not have any duty to verify the identity or authority of any Person giving such notice or other communication. The Issuing Bank may consult with legal counsel (including, without limitation, in-house counsel for the Issuing Bank or in-house or other counsel for the Borrowers), independent public accountants and any other experts selected by it from time to time, and the Issuing Bank shall not be liable for any action taken or omitted to be taken in good faith in accordance with the advice of such counsel, accountants or experts. Whenever the Issuing Bank shall deem it necessary or desirable that a matter be proved or established with respect to any Borrower, Agent or Lender, such matter may be established by a certificate of such Borrower, Agent or Lender, as the case may be, and the Issuing Bank may conclusively rely upon such certificate. The Issuing Bank shall not be deemed to have any knowledge or notice of the occurrence of any Default unless the Issuing Bank has received 45 notice from a Lender, an Agent or a Borrower referring to this Agreement, describing such Default, and stating that such notice is a "notice of default". (d) Indemnification of Issuing Bank by Lenders. Each Lender hereby agrees to reimburse and indemnify the Issuing Bank and each of its directors, officers, employees and agents (to the extent not reimbursed by the Borrowers and without limitation of the obligations of the Borrowers to do so), in accordance with its Pro Rata Share, from and against any and all amounts, losses, liabilities, claims, damages, expenses, obligations, penalties, actions, judgments, suits, costs or disbursements of any kind or nature (including, without limitation, the reasonable fees and disbursements of counsel (other than in-house counsel) for the Issuing Bank or such other Person in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not the Issuing Bank or such other Person shall be designated a party thereto) that may at any time be imposed on, incurred by or asserted against the Issuing Bank, in its capacity as such, or such other Person, as a result of, or arising out of, or in any way related to or by reason of, this Agreement, any other Loan Document or any Letter of Credit, any transaction from time to time contemplated hereby or thereby, or any transaction financed in whole or in part or directly or indirectly with the proceeds of any Letter of Credit, provided, that no Lender shall be liable for any portion of such amounts, losses, liabilities, claims, damages, expenses, obligations, penalties, actions, judgments, suits, costs or disbursements to the extent resulting from the gross negligence or willful misconduct of the Issuing Bank or such other Person, as finally determined by a court of competent jurisdiction. (e) Issuing Bank in its Individual Capacity. With respect to its Commitments and the obligations owing to it, the Issuing Bank shall have the same rights and powers under this Agreement and each other Loan Document as any other Lender and may exercise the same as though it were not the Issuing Bank, and the term "Lenders" and like terms shall include the Issuing Bank in its individual capacity as such. The Issuing Bank and its affiliates may, without liability to account to any Person, make loans to, accept deposits from, acquire debt or equity interests in, act as trustee under indentures of, act as agent under other credit facilities for, and engage in any other business with, any Borrower and any stockholder, subsidiary or affiliate of any Borrower, as though the Issuing Bank were not the Issuing Bank hereunder. SECTION 2.19. Downgrade Event with Respect to a Lender. (a) If a Downgrade Event shall occur with respect to (i) any Downgraded Lender or (ii) any other Lender and, as a result thereof, such other Lender becomes a Downgraded Lender, then the Issuing Bank may, by notice to such Downgraded Lender, the Administrative Agent and the Parent within 45 days after such Downgrade Event (any such notice, a "Downgrade Notice"), request that the Borrowers use reasonable efforts to replace such Lender as a party to this Agreement pursuant to Section 2.17. If such Lender is not so replaced within 45 days after receipt by the Borrowers of such Downgrade Notice, then: (x) if no Default exists and such Downgraded Lender has not exercised its right to remain a Lender hereunder pursuant to clause (y) below, the following shall occur concurrently: (A) the Committed Facility shall be reduced by the amount of the WC Commitment of such Downgraded Lender, 46 (B) the Borrowers shall prepay all amounts owed to such Downgraded Lender hereunder or in connection herewith (including any amount payable pursuant to Section 9.04(c) as a result of such Downgraded Lender receiving payment of any Eurodollar Rate Advance prior to the end of an Interest Period therefor), (C) if, upon the reduction of the Committed Facility under clause (A) above and the payment under clause (B) above, the sum of the principal amount of all Advances plus the Available Amount of all Letters of Credit (valuing the Available Amount of, and Letter of Credit Advances of the Issuing Bank in respect of, any Non-Dollar Letter of Credit at the Dollar Equivalent thereof as of the time of such calculation) would exceed the amount of the Committed Facility, then the Borrowers will immediately eliminate such excess by prepaying Committed Advances and/or causing the Available Amount of one or more Letters of Credit to be reduced, and (D) upon completion of the events described in clauses (A), (B) and (C) above, such Downgraded Lender shall cease to be a party to this Agreement; or (y) if a Default exists or, not later than 30 days after receipt of such Downgrade Notice, such Downgraded Lender notifies the Borrowers, the Issuing Bank and the Administrative Agent that such Downgraded Lender elects to provide (in a manner reasonably satisfactory to the Issuing Bank) cash collateral to the Issuing Bank for (or if such Downgraded Lender is unable, without regulatory approval, to provide cash collateral, a letter of credit reasonably satisfactory to the Issuing Bank covering) its contingent obligations to reimburse the Issuing Bank for any payment under any Letter of Credit as provided in Section 2.04(e) (its "LC Participation Obligations"), such Downgraded Lender shall be obligated to (and each Lender agrees that in such circumstances it will) deliver to the Issuing Bank (I) immediately, cash collateral (or, as aforesaid, a letter of credit) in an amount equal to its LC Participation Obligations and (II) from time to time thereafter (so long as it is a Downgraded Lender), cash collateral (or, as aforesaid, a letter of credit) sufficient to cover any increase in its LC Participation Obligations as a result of any proposed issuance of or increase in a Letter of Credit. Any funds provided by a Downgraded Lender for such purpose shall be maintained in a segregated deposit account in the name of the Issuing Bank at the Issuing Bank's principal office in the United States (a "Downgrade Account"). The funds so deposited in any Downgrade Account shall be used only in accordance with the following provisions of this Section 2.19. (b) If any Downgraded Lender shall be required to fund its participation in a payment under a Letter of Credit pursuant to Section 2.04(e), then the Issuing Bank shall apply the funds deposited in the applicable Downgrade Account by such Downgraded Lender to fund such participation. The deposit of funds in a Downgrade Account by any Downgraded Lender shall not constitute a Letter of Credit Advance (and the Downgraded Lender shall not be entitled to interest on such funds except as provided in clause (c) below) unless and until (and then only to the extent that) such funds are used by the Issuing Bank to fund the participation of such Downgraded Lender pursuant to the first sentence of this clause (b). (c) Funds in a Downgrade Account shall be invested in such investments as may be agreed between the Issuing Bank and the applicable Downgraded Lender, and the income from such 47 investments shall be distributed to such Downgraded Lender from time to time (but not less often than monthly) as agreed between the Issuing Bank and such Downgraded Lender. The Issuing Bank will (i) from time to time, upon request by a Downgraded Lender, release to such Downgraded Lender any amount on deposit in the applicable Downgrade Account in excess of the LC Participation Obligations of such Downgraded Lender and (ii) upon the earliest to occur of (A) the effective date of any replacement of such Downgraded Lender as a party hereto pursuant to an Assignment and Acceptance, (B) the termination of such Downgraded Lender's WC Commitment pursuant to clause (a) or (C) the first Letter of Credit Business Day after receipt by the Issuing Bank of evidence (reasonably satisfactory to the Issuing Bank) that such Lender is no longer a Downgraded Lender, release to such Lender all amounts on deposit in the applicable Downgrade Account. (d) At any time any Downgraded Lender is required to maintain cash collateral with the Issuing Bank pursuant to this Section 2.19, the Issuing Bank shall have no obligation to issue or increase any Letter of Credit unless such Downgraded Lender has provided sufficient funds as cash collateral to the Issuing Bank to cover all LC Participation Obligations of such Downgraded Lender (including in respect of the Letter of Credit to be issued or increased). SECTION 2.20. Downgrade Event or Other Event with Respect to the Issuing Bank. At any time that the Issuing Bank is a Downgraded Lender or at such other times as the Issuing Bank and the Borrowers may agree, the Borrowers may, upon not less than three Letter of Credit Business Days' notice to the Issuing Bank (in this Section sometimes referred to as the "Old Issuing Bank") and the Administrative Agent, designate any Lender (so long as such Lender has agreed to such designation) as an additional "Issuing Bank" hereunder (in this Section sometimes referred to as the "New Issuing Bank"). Such notice shall specify the date (which shall be a Letter of Credit Business Day) on which the New Issuing Bank is to become an additional "Issuing Bank" hereunder. From and after such date, all new Letters of Credit requested to be issued hereunder shall be issued by the New Issuing Bank. From and after such date (and until the first date on which no Letters of Credit issued by the Old Issuing Bank are outstanding and no reimbursement obligations are owed to the Old Issuing Bank, on which date the Old Issuing Bank shall cease to be an Issuing Bank hereunder), references in this Agreement to the "Issuing Bank" shall be deemed to refer (a) to the Old Issuing Bank, with respect to Letters of Credit issued by it, (b) to the New Issuing Bank, with respect to Letters of Credit issued or to be issued by it, and (c) to each of the Old Issuing Bank and the New Issuing Bank, with respect to other matters. Notwithstanding the fact that an Old Issuing Bank shall cease to be an "Issuing Bank" hereunder, all of the exculpatory, indemnification and similar provisions hereof in favor of the "Issuing Bank" shall inure to such Old Issuing Bank's benefit as to any actions taken or omitted by it while it was an "Issuing Bank" under this Agreement. The Borrowers agree that after any appointment of a New Issuing Bank hereunder, the Borrowers shall use reasonable commercial efforts to promptly replace (or otherwise cause the applicable beneficiary to return to the Old Issuing Bank for cancellation) each letter of credit issued by the Old Issuing Bank. SECTION 2.21. Non-Dollar Letters of Credit. (a) The Borrowers, the Administrative Agent, the Issuing Bank and the Lenders (i) agree that the Issuing Bank may (in its sole discretion) issue Letters of Credit ("Non-Dollar Letters of Credit") in currencies other than U.S. dollars and (ii) further agree as follows with respect to such Non-Dollar Letters of Credit: 48 (b) The Borrowers agree that their reimbursement obligations under Section 2.05(b) and any resulting Letter of Credit Advance, in each case in respect of a drawing under any Non-Dollar Letter of Credit, (i) shall be payable in Dollars at the Dollar Equivalent of such obligation in the currency in which such Non-Dollar Letter of Credit was issued (determined on the date of payment) and (ii) shall bear interest at a rate per annum equal to (A) in the case of amounts owed to the Issuing Bank, the sum of the Overnight Rate plus the Applicable Margin for Eurodollar Rate Advances plus 2% and (B) in the case of amounts owing to any other Lender, the Base Rate plus 2%, in each case for each day from and including the date on which the applicable Account Party is to reimburse the Issuing Bank pursuant to Section 2.05(b) to but excluding the date such obligation is paid in full. (c) Each Lender agrees that its obligation to pay the Issuing Bank such Lender's Pro Rata Share of the unreimbursed portion of any payment by the Issuing Bank under Section 2.04(e) in respect of a drawing under any Non-Dollar Letter of Credit shall be payable in Dollars at the Dollar Equivalent of such obligation in the currency in which such Non-Dollar Letter of Credit was issued (calculated on the date of payment) (and any such amount which is not paid when due shall bear interest at a rate per annum equal to the Overnight Rate plus, beginning on the third Business Day after such amount was due, the Applicable Margin for Eurodollar Rate Advances). (d) For purposes of determining whether there is availability for the Borrowers to request any Advance or to request the issuance or extension of, or any increase in, any Letter of Credit, the Dollar Equivalent amount of the Available Amount of each Non-Dollar Letter of Credit shall be calculated as of the date such Advance is to be made or such Letter of Credit is to be issued, extended or increased. (e) For purposes of determining the letter of credit fee under Section 2.09(d), the Dollar Equivalent amount of the Available Amount of any Non- Dollar Letter of Credit shall be determined on each of (1) the date of an issuance, extension or change in the Available Amount of such Non-Dollar Letter of Credit, (2) the date of any payment by the Issuing Bank in respect of a drawing under such Non-Dollar Letter of Credit, (3) the last day of each calendar month and (4) each day on which the WC Commitments are to be reduced pursuant to Section 2.06 (it being understood that no requested reduction shall be permitted to the extent that, after making a calculation pursuant this clause (e), such reduction would be greater than the unused portion of the WC Commitments). (f) If, on the last day of any calendar month, the sum of the principal amount of all Advances plus the Available Amount of all Letters of Credit (valuing the Available Amount of, and Letter of Credit Advances in respect of, any Non-Dollar Letter of Credit at the Dollar Equivalent thereof as of such day) would exceed the amount of the Committed Facility, then the Borrowers will immediately eliminate such excess by prepaying Committed Advances and/or causing the Available Amount of one or more Letters of Credit to be reduced. (g) If, for the purposes of obtaining judgment in any court, it is necessary to convert a sum due in respect of any Non-Dollar Letter of Credit in one currency into another currency, 49 the rate of exchange used shall be that at which in accordance with its normal banking procedures the Issuing Bank could purchase the first currency with such other currency on the Letter of Credit Business Day preceding that on which final judgment is given. The obligation of any Account Party in respect of any such sum due from it to the Issuing Bank or any Lender 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 and the applicable Non-Dollar Letter of Credit (the "Agreement Currency"), be discharged only to the extent that on the Letter of Credit Business Day following receipt by the Issuing Bank or such Lender of any sum adjudged to be so due in the Judgment Currency, the Issuing Bank or such Lender 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 the Issuing Bank or such Lender in the Agreement Currency, the applicable Account Party agrees, as a separate obligation and notwithstanding any such judgment, to indemnify the Issuing Bank or such Lender, as applicable, against such loss. If the amount of the Agreement Currency so purchased is greater than the sum originally due to the Issuing Bank or such Lender in such currency, the Issuing Bank and each Lender agrees to return the amount of any excess to the applicable Account Party (or to any other Person who may be entitled thereto under applicable law). (h) For purposes of this Section, "Dollar Equivalent" means, in relation to an amount denominated in a currency other than U.S. dollars, the amount of U.S. dollars which could be purchased with such amount by the Issuing Bank in accordance with its customary procedures (and giving effect to any transaction costs) at the quoted foreign exchange spot rate of the Issuing Bank at the time of determination; and "Overnight Rate" means, for any day, the rate of interest per annum at which overnight deposits in the applicable currency, in an amount approximately equal to the amount with respect to which such rate is being determined, would be offered for such day by the Issuing Bank to major banks in the London or other applicable offshore interbank market. The Overnight Rate for any day which is not a Letter of Credit Business Day (or on which dealings are not carried on in the applicable offshore interbank market) shall be the Overnight Rate for the immediately preceding Letter of Credit Business Day. ARTICLE III CONDITIONS OF LENDING AND ISSUANCES OF LETTERS OF CREDIT SECTION 3.01. Conditions Precedent to Initial Extension of Credit. The obligation of each Lender to make a Committed Advance or of the Issuing Bank to issue a Letter of Credit on the occasion of the Initial Extension of Credit hereunder is subject to the satisfaction of the following conditions precedent before or concurrently with the Initial Extension of Credit: (i) The Administrative Agent shall have received on or before the day of the Initial Extension of Credit the following, each dated such day (unless otherwise specified), in form and 50 substance reasonably satisfactory to the Administrative Agent (unless otherwise specified) and (except for the Committed Notes) in sufficient copies for each Lender: (A) The Committed Notes payable to the order of the Lenders. (B) Certified copies of the resolutions of the Board of Directors of each Loan Party approving the transactions contemplated by the Loan Documents and each Loan Document to which it is or is to be a party, and of all documents evidencing other necessary corporate action and governmental and other third party approvals and consents, if any, with transactions contemplated by the Loan Documents and each Loan Document to which it is or is to be a party. (C) A copy of a certificate of the Secretary of State or other appropriate official of the jurisdiction of incorporation of (x) ACE INA, dated reasonably near the date of the Initial Extension of Credit, certifying (A) as to a true and correct copy of the charter of ACE INA and each amendment thereto on file in such Secretary's office and (B) that (1) such amendments are the only amendments to ACE INA's charter on file in such Secretary's office, (2) ACE INA has paid all franchise taxes to the date of such certificate and (C) ACE INA is duly incorporated and in good standing or presently subsisting under the laws of the State of the jurisdiction of its incorporation and (y) each other Loan Party, dated reasonably near the Initial Extension of Credit, certifying as to the good standing (or existence) of such Loan Party. (D) A certificate of each Loan Party, signed on behalf of such Loan Party by its President or a Vice President and its Secretary or any Assistant Secretary, dated the date of the Initial Extension of Credit (the statements made in which certificate shall be true on and as of the date of the Initial Extension of Credit), certifying as to (1) in the case of ACE INA, the absence of any amendments to the charter of such Loan Party since the date of the Secretary of State's certificate referred to in Section 3.01(a)(i)(C), (2) a true and correct copy of the bylaws (in the case of ACE INA) or the constitutional documents (in the case of each Loan Party) of such Loan Party as in effect on the date on which the resolutions referred to in Section 3.01(a)(i)(B) were adopted and on the date of the Initial Extension of Credit, (3) the due incorporation and good standing or valid existence of such Loan Party as a corporation organized under the laws of the jurisdiction of its incorporation, and the absence of any proceeding for the dissolution or liquidation of such Loan Party, (4) the truth of the representations and warranties contained in the Loan Documents as though made on and as of the date of the Initial Extension of Credit and (5) the absence of any event occurring and continuing, or resulting from the Initial Extension of Credit, that constitutes a Default. (E) A certificate of the Secretary or an Assistant Secretary of each Loan Party certifying the names and true signatures of the officers of such Loan Party authorized to sign each Loan Document to which it is or is to be a party and the other documents to be delivered hereunder and thereunder. 51 (F) A favorable opinion of (1) Maples and Calder, Cayman Islands counsel for the Parent, in substantially the form of Exhibit D-1 hereto and as to such other matters as any Lender through the Administrative Agent may reasonably request, (2) Mayer, Brown & Platt, New York counsel for the Loan Parties, in substantially the form of Exhibit D-2 hereto and as to such other matters as any Lender through the Administrative Agent may reasonably request, and (3) Conyers Dill & Pearman, Bermuda counsel for ACE Bermuda and Tempest, in substantially the form of Exhibit D-3 hereto and as to such other matters as any Lender through the Administrative Agent may reasonably request. (ii) (x) No development or change occurring after January 11, 1999, and no information becoming known after such date, that results in a material change in the planned post-Acquisition corporate and capitalization structure of the Parent or in the capitalization structure of the Parent's subsidiaries contemplated in the Pre-Commitment Information and (y) the Lenders shall be reasonably satisfied with the corporate and legal structure and capitalization of each Loan Party (other than the Parent), including the terms and conditions of the constitutional documents of each such Person and of each material agreement or instrument relating to such structure. (iii) There shall have occurred no material adverse change since September 30, 1998 in the business, financial condition, operations or properties of (i) CIGNAP&C or (ii) the Parent and its Subsidiaries, taken as a whole. (iv) There shall exist no action, suit, investigation, litigation or proceeding affecting any Loan Party or any of its Subsidiaries pending or threatened before any court, governmental agency or arbitrator that (x) could be reasonably expected to have a Material Adverse Effect or (y) would reasonably be expected to materially adversely affect the legality, validity or enforceability of any Loan Document or the other transactions contemplated by the Loan Documents. (v) The Pre-Commitment Information shall be true and correct in all material aspects, and no additional information shall have come to the attention of the Administrative Agent or the Lenders that is inconsistent in any material respect with the Pre-Commitment Information or that could reasonably be expected to have a Material Adverse Effect. (vi) No development or change occurring after January 11, 1999, and no information becoming known after such date, that (x) results in or could reasonably be expected to result in a material change in, or material deviation from, the Pre-Commitment Information that is or could reasonably be expected to be materially adverse to any Borrower or any of its Subsidiaries or materially adverse to the Lenders or (y) has had or could reasonably be expected to have a Material Adverse Effect. (vii) The Borrowers shall have paid all accrued fees of the Agents and the Lenders and all accrued expenses of the Agents (including the accrued fees and expenses of counsel to 52 the Administrative Agent and local counsel on behalf of all of the Lenders), in each case to the extent then due and payable. SECTION 3.02. Conditions Precedent to Each Committed Borrowing and Issuance, Extension or Increase of a Letter of Credit. The obligation of each Lender to make a Committed Advance on the occasion of each Committed Borrowing (including the initial Committed Borrowing), and the obligation of the Issuing Bank to issue, extend or increase a Letter of Credit (including the initial issuance), shall be subject to the further conditions precedent that on the date of such Committed Borrowing or issuance, extension or increase (a) the following statements shall be true (and each of the giving of the applicable Notice of Committed Borrowing or request for issuance, extension, or increase, and the acceptance by the Borrower that requested such Committed Borrowing of the proceeds of such Committed Borrowing or of such issuance, extension or increase shall constitute a representation and warranty by such Borrower that both on the date of such notice and on the date of such Committed Borrowing or such issuance, extension or increase such statements are true): (i) the representations and warranties contained in each Loan Document are correct in all material respects on and as of such date, before and after giving effect to such Committed Borrowing and to the application of the proceeds therefrom or such issuance, extension or increase, as though made on and as of such date, other than any such representations or warranties that, by their terms, refer to a specific date other than the date of such Committed Borrowing or the date of such issuance, extension or increase, in which case as of such specific date; and (ii) no Default has occurred and is continuing, or would result from such Committed Borrowing or the application of the proceeds therefrom or from such issuance, extension or increase; and (b) the Administrative Agent shall have received such other approvals, opinions or documents as any Lender or the Issuing Bank through the Administrative Agent may reasonably request. SECTION 3.03. Conditions Precedent to Each Competitive Bid Borrowing. The obligation of each Lender that is to make a Competitive Bid Advance on the occasion of a Competitive Bid Borrowing to make such Competitive Bid Advance as part of such Competitive Bid Borrowing is subject to the conditions precedent that (i) the Administrative Agent shall have received the written confirmatory Notice of Competitive Bid Borrowing with respect thereto, and (ii) on the date of such Competitive Bid Borrowing the following statements shall be true (and each of the giving of the applicable Notice of Competitive Bid Borrowing and the acceptance by the Borrower that requested such Competitive Bid Borrowing of the proceeds of such Competitive Bid Borrowing shall constitute a representation and warranty by such Borrower that on the date of such Competitive Bid Borrowing such statements are true): 53 (a) the representations and warranties contained in Section 4.01 are correct in all material respects on and as of the date of such Competitive Bid Borrowing, before and after giving effect to such Competitive Bid Borrowing and to the application of the proceeds therefrom, as though made on and as of such date, other than any such representations or warranties that, by their terms, refer to a specific date other than the date of such Competitive Bid Borrowing, in which case as of such specific date, and (b) no Default has occurred and is continuing, or would result from such Competitive Bid Borrowing or from the application of the proceeds therefrom. SECTION 3.04. Determinations Under Section 3.01. For purposes of determining compliance with the conditions specified in Section 3.01, each Lender 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 the Lenders unless an officer of the Administrative Agent responsible for the transactions contemplated by the Loan Documents shall have received notice from such Lender prior to the Initial Extension of Credit specifying its objection thereto and, if the Initial Extension of Credit consists of a Borrowing, such Lender shall not have made available to the Administrative Agent such Lender's ratable portion of such Committed Borrowing. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Borrowers. Each Borrower represents and warrants as follows: (a) Each Loan Party and each of its Subsidiaries (i) is duly organized or formed, validly existing and, to the extent such concept applies, in good standing under the laws of the jurisdiction of its incorporation or formation, (ii) is duly qualified and in good standing as a foreign corporation or other entity in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed except where the failure to so qualify or be licensed would not be reasonably likely to have a Material Adverse Effect and (iii) has all requisite power and authority (including, without limitation, all governmental licenses, permits and other approvals) to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted, except where the failure to have any license, permit or other approval would not be reasonably likely to have a Material Adverse Effect. All of the outstanding Equity Interests in each Borrower (other than the Parent) have been validly issued, are fully paid and non-assessable and (except for any Preferred Securities issued after the date of this Agreement) are owned, directly or indirectly, by the Parent free and clear of all Liens. (b) Set forth on Schedule 4.01(b) hereto is a complete and accurate list of all Subsidiaries of each Loan Party. 54 (c) The execution, delivery and performance by each Loan Party of each Loan Document to which it is or is to be a party and the consummation of the transactions contemplated by the Loan Documents, are within such Loan Party's corporate powers, have been duly authorized by all necessary corporate action, and do not (i) contravene such Loan Party's constitutional documents, (ii) violate any law, rule, regulation (including, without limitation, Regulation X of the Board of Governors of the Federal Reserve System), order, writ, judgment, injunction, decree, determination or award, (iii) conflict with or result in the breach of, or constitute a default under, any contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument binding on or affecting any Loan Party, any of its Subsidiaries or any of their properties or (iv) except for the Liens created under the Loan Documents, result in or require the creation or imposition of any Lien upon or with respect to any of the properties of any Loan Party or any of its Subsidiaries. No Loan Party or any of its Subsidiaries is in violation of any such law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or in breach of any such contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument, the violation or breach of which could be reasonably likely to have a Material Adverse Effect. (d) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for (i) the due execution, delivery, recordation, filing or performance by any Loan Party of any Loan Document to which it is or is to be a party or the other transactions contemplated by the Loan Documents (other than the Acquisition), or (ii) the exercise by any Agent or any Lender of its rights under the Loan Documents, except for the authorizations, approvals, actions, notices and filings which have been duly obtained, taken, given or made and are in full force and effect. (e) This Agreement has been, and each other Loan Document when delivered hereunder will have been, duly executed and delivered by each Loan Party party thereto. This Agreement is, and each other Loan Document when delivered hereunder will be, the legal, valid and binding obligation of each Loan Party party thereto, enforceable against such Loan Party in accordance with its terms. (f) There is no action, suit, investigation, litigation or proceeding affecting any Loan Party or any of its Subsidiaries, including any Environmental Action, pending or threatened before any court, governmental agency or arbitrator that (i) could be reasonably likely to have a Material Adverse Effect or (ii) would reasonably be expected to affect the legality, validity or enforceability of any Loan Document or the transactions contemplated by the Loan Documents. (g) The Consolidated balance sheets of the Parent and its Subsidiaries as at September 30, 1998, and the related Consolidated statements of income and of cash flows of the Parent and its Subsidiaries for the fiscal year then ended, accompanied by an unqualified opinion of PricewaterhouseCoopers LLP, independent public accountants, and the Consolidated balance sheets of the Parent and its Subsidiaries as at December 31, 1998, and the related Consolidated statements of income and cash flows of the Parent and its Subsidiaries for the three months then ended, duly certified by the Chief Financial Officer of the Parent, copies of which have been furnished to each Lender, fairly present, subject, in the case of said balance sheet as at 55 December 31, 1998, and said statements of income and cash flows for the three months then ended, to year-end audit adjustments, the Consolidated financial condition of the Parent and its Subsidiaries as at such dates and the Consolidated results of operations of the Parent and its Subsidiaries for the periods ended on such dates, all in accordance with generally accepted accounting principles applied on a consistent basis (subject, in the case of the December 31, 1998 balance sheet and statements, to the absence of footnotes), and since December 31, 1998, there has been no Material Adverse Change. (h) The Consolidated forecasted balance sheet, statements of income and statements of cash flows of the Parent and its Subsidiaries contained in the Information Memorandum were prepared in good faith on the basis of the assumptions stated therein, which assumptions were fair in light of the conditions existing at the time of delivery of such forecasts, and represented, at the time of delivery, the Parent's best estimate of its future financial performance. (i) Neither the Information Memorandum nor any other written information, exhibit or report furnished by or on behalf of any Loan Party to any Agent or any Lender in connection with the negotiation and syndication of the Loan Documents or pursuant to the terms of the Loan Documents contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements made therein not misleading as at the date it was dated (or if not dated, so delivered). (j) None of the Borrowers is engaged in the business of extending credit for the purpose of purchasing or carrying Margin Stock, and no proceeds of any Advance or drawings under any Letter of Credit will be used to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock. (k) Neither any Loan Party nor any of its Subsidiaries is an "investment company", or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company", as such terms are defined in the Investment Company Act of 1940, as amended. Neither the making of any Advances, nor the issuance of any Letters of Credit, nor the application of the proceeds or repayment thereof by any Borrower, nor the consummation of the other transactions contemplated by the Loan Documents, will violate any provision of such Act or any rule, regulation or order of the Securities and Exchange Commission thereunder. (l) Neither any Loan Party nor any of its Subsidiaries is a party to any indenture, loan or credit agreement or any lease or other agreement or instrument or subject to any charter or corporate restriction that is reasonably likely to have a Material Adverse Effect. (m) Each Loan Party is, individually and together with its Subsidiaries, Solvent. (n) Except to the extent that any and all events and conditions under clauses (i) through (vi) below of this paragraph (n) in the aggregate are not reasonably expected to have a Material Adverse Effect, (i) Schedule B (Actuarial Information) to the most recent annual report (Form 5500 Series) for each Pension Plan, copies of which have been filed with the Internal Revenue Service, is 56 complete and accurate and fairly presents the funding status of such Pension Plan, and since the date of such Schedule B there has been no material adverse change in such funding status. (ii) Neither any Loan Party nor any ERISA Affiliate has incurred or is reasonably expected to incur any Withdrawal Liability to any Multiemployer Plan. (iii) Neither any Loan Party nor any ERISA Affiliate has been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or has been terminated, within the meaning of Title IV of ERISA, and no such Multiemployer Plan is reasonably expected to be in reorganization or to be terminated, within the meaning of Title IV of ERISA. (iv) With respect to each scheme or arrangement mandated by a government other than the United States (a "Foreign Government Scheme or Arrangement") and with respect to each employee benefit plan that is not subject to United States law maintained or contributed to by any Loan Party or with respect to which any Subsidiary of any Loan Party may have liability under applicable local law (a "Foreign Plan"): (x) Any employer and employee contributions required by law or by the terms of any Foreign Government Scheme or Arrangement or any Foreign Plan have been made, or, if applicable, accrued, in accordance with normal accounting practices. (y) The fair market value of the assets of each funded Foreign Plan, the liability of each insurer for any Foreign Plan funded through insurance or the book reserve established for any Foreign Plan, together with any accrued contributions, is sufficient to procure or provide for the accrued benefit obligations, as of the date hereof, with respect to all current and former participants in such Foreign Plan according to the actuarial assumptions and valuations most recently used to account for such obligations in accordance with applicable generally accepted accounting principles. (z) Each Foreign Plan required to be registered has been registered and has been maintained in good standing with applicable regulatory authorities. (v) To the extent the assets of any Loan Party are or are deemed under applicable law to be "plan assets" within the meaning of Department of Labor Regulation (S) 2510.3-101, the execution, delivery and performance of the Loan Documents and the consummation of the transactions contemplated therein will not result in a non-exempt prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Internal Revenue Code. (vi) During the twelve-consecutive-month period to the date of the execution and delivery of this Agreement and prior to any Borrowing hereunder, no steps have been taken to terminate any Pension Plan, no contribution failure has occurred with respect to any Pension Plan sufficient to give rise to a lien under section 302(f) of ERISA and no minimum funding waiver has been applied for or is in effect with respect to any Pension Plan. No condition exists or event or transaction has occurred or is reasonably expected to occur with respect to any Pension Plan 57 which could result in any Loan Party or any ERISA Affiliate incurring any material liability, fine or penalty. (o) (i) In the ordinary course of its business, each Borrower reviews the effect of Environmental Laws on the operations and properties of such Borrower and its Subsidiaries, in the course of which it identifies and evaluates associated liabilities and costs (including, without limitation, any capital or operating expenditures required for clean-up or closure of properties presently or previously owned, any capital or operating expenditures required to achieve or maintain compliance with environmental protection standards imposed by law or as a condition of any license, permit or contract, any related constraints on operating activities, including any periodic or permanent shutdown of any facility or reduction in the level of or change in the nature of operations conducted thereat, and any actual or potential liabilities to third parties and any related costs and expenses). On the basis of this review, each Borrower has reasonably concluded that such associated liabilities and costs, including the costs of compliance with Environmental Laws, are unlikely to have a Material Adverse Effect. (ii) The operations and properties of each Loan Party and each of its Subsidiaries comply in all material respects with all applicable Environmental Laws and Environmental Permits, except for non-compliances which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; Hazardous Materials have not been released, discharged or disposed of on any property currently or formerly owned or operated by any Loan Party or any of its Subsidiaries that would reasonably be expected to have a Material Adverse Effect; and there are no Environmental Actions pending or threatened against any Loan Party or its Subsidiaries, and no circumstances exist that could be reasonably likely to form the basis of any such Environmental Action, which (in either case), individually or in the aggregate with all other such pending or threatened actions and circumstances would reasonably be expected to have a Material Adverse Effect. (p) Each Loan Party and each of its Subsidiaries has filed, has caused to be filed or has been included in all material federal tax returns and all other material tax returns required to be filed and has paid all taxes shown thereon to be due, together with applicable interest and penalties, except to the extent contested in good faith and by appropriate proceedings (in which case adequate reserves have been established therefor in accordance with GAAP). (q) Each Borrower has (i) initiated a review and assessment of all areas within its and each of its Subsidiaries' business and operations (including those affected by suppliers, vendors and customers) that could be adversely affected by the risk that computer applications used by such Borrower or any of its Subsidiaries (or material suppliers, vendors and customers other than those affecting customers that may give rise to claims under insurance policies issued by any Borrower or a Subsidiary) may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999 (the "Year 2000 Problem"), (ii) developed a plan and timetable for addressing the Year 2000 Problem on a timely basis and (iii) to date, implemented that plan substantially in accordance with such timetable. Based on the foregoing, each Borrower believes that all computer applications of such Borrower and its Subsidiaries that are material to its or any of its 58 Subsidiaries' business and operations are reasonably expected on a timely basis to be able to perform properly date-sensitive functions for all dates before and after January 1, 2000 ("Year 2000 Compliant"), except to the extent that a failure to do so could not reasonably be expected to have a Material Adverse Effect. ARTICLE V COVENANTS OF THE BORROWERS SECTION 5.01. Affirmative Covenants. So long as any Advance or any other obligation of any Loan Party under any Loan Document shall remain unpaid, any Letter of Credit shall be outstanding or any Lender shall have any Commitment hereunder, each Borrower will: (a) Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries to comply, in all material respects, with all applicable laws, rules, regulations and orders, such compliance to include, without limitation, compliance with Environmental Laws, Environmental Permits, ERISA and the Racketeer Influenced and Corrupt Organizations Chapter of the Organized Crime Control Act of 1970. (b) Payment of Taxes, Etc. Pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent, (i) all material taxes, assessments and governmental charges or levies imposed upon it or upon its property and (ii) all lawful material claims that, if unpaid, might by law become a Lien upon its property; provided, however, that neither any Borrower nor any of its Subsidiaries shall be required to pay or discharge any such tax, assessment, charge or claim that is being contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained. (c) Maintenance of Insurance. Maintain, and cause each of its Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Parent or such Subsidiary operates (it being understood that the foregoing shall not apply to maintenance of reinsurance or similar matters which shall be solely within the reasonable business judgment of the Parent and its Subsidiaries). (d) Preservation of Corporate Existence, Etc. Preserve and maintain, and cause each of its Subsidiaries to preserve and maintain, its existence, legal structure, legal name, rights (charter and statutory), permits, licenses, approvals, privileges and franchises; provided, however, that the Parent and its Subsidiaries may consummate any merger or consolidation permitted under Section 5.02(c) and provided further that neither the Parent nor any of its Subsidiaries shall be required to preserve any right, permit, license, approval, privilege or franchise if the Board of Directors of the Parent or such Subsidiary shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Parent or such 59 Subsidiary, as the case may be, and that the loss thereof is not disadvantageous in any material respect to the Parent, such Subsidiary or the Lenders. (e) Visitation Rights. At any reasonable time and from time to time upon prior notice, permit the Agents (upon request made by any Agent or any Lender), or any agents or representatives thereof, at the expense (so long as no Default has occurred and is continuing) of such Agents (or such Lender, as the case may be), to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, the Parent and any of its Subsidiaries, and to discuss the affairs, finances and accounts of the Parent and any of its Subsidiaries with any of their officers or directors and with, so long as a representative of the Parent is present, their independent certified public accountants. (f) Keeping of Books. Keep, and cause each of its Subsidiaries to keep, proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Parent and each such Subsidiary sufficient to permit the preparation of financial statements in accordance with GAAP. (g) Maintenance of Properties, Etc. Maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, all of its properties that are used or useful in the conduct of its business in good working order and condition, ordinary wear and tear excepted. (h) Transactions with Affiliates. Conduct, and cause each of its Subsidiaries to conduct, all transactions otherwise permitted under the Loan Documents with any of their Affiliates (other than any transaction between Loan Parties) on terms that are fair and reasonable and no less favorable than it would obtain in a comparable arm's-length transaction with a Person not an Affiliate. (i) Pari Passu ranking. Each Borrower shall procure that its obligations under the Loan Documents will rank at least pari passu with all its other present and future unsecured and unsubordinated obligations, except for obligations which are mandatorily preferred by law applying to companies generally. SECTION 5.02. Negative Covenants. So long as any Advance or any other obligation of any Loan Party under any Loan Document shall remain unpaid, any Letter of Credit shall be outstanding or any Lender shall have any Commitment hereunder, each of the Borrowers will not, at any time: (a) Liens, Etc. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Lien on or with respect to any of its properties of any character (including, without limitation, accounts) whether now owned or hereafter acquired, or assign or permit any of its Subsidiaries to assign, any accounts or other right to receive income, except: (i) Liens created under the Loan Documents or in respect of the Borrowers' 364-Day Revolving Credit Facility or the ACE INA 364-Day Revolving Credit Facility 60 (provided that all obligations of the Loan Parties under all of the foregoing shall be ratably secured); (ii) Permitted Liens; (iii) Liens described on Schedule 5.02(a) hereto and other Liens arising in the ordinary course of business of CIGNAP&C; (iv) purchase money Liens upon or in real property or equipment acquired or held by the Parent or any of its Subsidiaries in the ordinary course of business to secure the purchase price of such property or equipment or to secure Debt incurred solely for the purpose of financing the acquisition, construction or improvement of any such property or equipment to be subject to such Liens, or Liens existing on any such property or equipment at the time of acquisition or within 180 days following such acquisition (other than any such Liens created in contemplation of such acquisition that do not secure the purchase price), or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount; provided, however, that no such Lien shall extend to or cover any property other than the property or equipment being acquired, constructed or improved, and no such extension, renewal or replacement shall extend to or cover any property not theretofore subject to the Lien being extended, renewed or replaced; (v) Liens arising in connection with Capitalized Leases; provided that no such Lien shall extend to or cover any assets other than the assets subject to such Capitalized Leases; (vi) (A) any Lien existing on any asset of any Person at the time such Person becomes a Subsidiary and not created in contemplation of such event, (B) any Lien on any asset of any Person existing at the time such Person is merged or consolidated with or into the Parent or any of it Subsidiaries in accordance with Section 5.02(c) and not created in contemplation of such event and (C) any Lien existing on any asset prior to the acquisition thereof by the Parent or any of its Subsidiaries and not created in contemplation of such acquisition; (vii) Liens securing obligations under credit default swap transactions determined by reference to, or Contingent Obligations in respect of, Debt issued by the Parent or one of its Subsidiaries; such Debt not to exceed an aggregate principal amount of $550,000,000; (viii) Liens arising in the ordinary course of its business which (A) do not secure Debt and (B) do not in the aggregate materially detract from the value of its assets or materially impair the use thereof in the operation of its business; 61 (ix) Liens on cash and Approved Investments securing Hedge Agreements arising in the ordinary course of business; (x) other Liens securing Debt or other obligations outstanding in an aggregate principal or face amount not to exceed at any time 10% of Consolidated Tangible Net Worth; (xi) Liens consisting of deposits made by the Parent or any insurance Subsidiary with any insurance regulatory authority or other statutory Liens or Liens or claims imposed or required by applicable insurance law or regulation against the assets of the Parent or any insurance Subsidiary, in each case in favor of policyholders of the Parent or such insurance Subsidiary or an insurance regulatory authority and in the ordinary course of the Parent's or such insurance Subsidiary's business; (xii) Liens on Investments and cash balances of the Parent or any insurance Subsidiary (other than capital stock of any Subsidiary) securing obligations of the Parent or any insurance Subsidiary in respect of (i) letters of credit obtained in the ordinary course of business and/or (ii) trust arrangements formed in the ordinary course of business for the benefit of cedents to secure reinsurance recoverables owed to them by the Parent or any insurance Subsidiary; (xiii) the replacement, extension or renewal of any Lien permitted by clause (iii) or (vi) above upon or in the same property theretofore subject thereto or the replacement, extension or renewal (without increase in the amount (other than in respect of fees, expenses and premiums, if any) or change in any direct or contingent obligor) of the Debt secured thereby; (xiv) Liens securing obligations owed by any Loan Party to any other Loan Party or owed by any Subsidiary of the Parent (other than a Loan Party) to the Parent or any other Subsidiary; (xv) Liens incurred in the ordinary course of business in favor of financial intermediaries and clearing agents pending clearance of payments for investment or in the nature of set-off, banker's lien or similar rights as to deposit accounts or other funds; and (xvi) judgment or judicial attachment Liens, provided that the enforcement of such Liens is effectively stayed. (b) Change in Nature of Business. Make any material change in the nature of the business of the Parent and its Subsidiaries, taken as a whole, as carried on at the date hereof but assuming that the Acquisition had occurred. (c) Mergers, Etc. Merge into or consolidate with any Person or permit any Person to merge into it, or permit any of its Subsidiaries to do so, except that: 62 (i) any Subsidiary of the Parent may merge into or consolidate with any other Subsidiary of the Parent, provided that, in the case of any such merger or consolidation, the Person formed by such merger or consolidation shall be a wholly owned Subsidiary of the Parent, provided further that, in the case of any such merger or consolidation to which a Borrower is a party, the Person formed by such merger or consolidation shall be such Borrower; (ii) any Subsidiary of any Borrower may merge into or consolidate with any other Person or permit any other Person to merge into or consolidate with it; provided that the Person surviving such merger shall be a wholly owned Subsidiary of the Borrower; (iii) in connection with any sale or other disposition permitted under Section 5.02(d) (other than clause (ii) thereof), any Subsidiary of the Parent may merge into or consolidate with any other Person or permit any other Person to merge into or consolidate with it; and (iv) the Parent or any Borrower may merge into or consolidate with any other Person; provided that, in the case of any such merger or consolidation, the Person formed by such merger or consolidation shall be the Parent or such Borrower, as the case may be; provided, however, that in each case, immediately after giving effect thereto, no event shall occur and be continuing that constitutes a Default. (d) Sales, Etc., of Assets. Sell, lease, transfer or otherwise dispose of, or permit any of its Subsidiaries to sell, lease, transfer or otherwise dispose of, any assets, or grant any option or other right to purchase, lease or otherwise acquire any, assets except: (i) sales of inventory in the ordinary course of its business; (ii) in a transaction authorized by Section 5.02(c); (iii) sales of Approved Investments in the ordinary course of business on a basis consistent with past practices; (iv) sales of assets for fair value; (v) sales, leases, transfers or other dispositions of any assets by the Parent or a Subsidiary to the Parent or another Subsidiary; and (vi) so long as no Default shall occur and be continuing, the grant of any option or other right to purchase any asset in a transaction that would be permitted under the provisions of clauses (i) through (iv) above. 63 (e) Restricted Payments. In the case of the Parent, declare or pay any dividends, purchase, redeem, retire, defease or otherwise acquire for value any of its Equity Interests now or hereafter outstanding, return any capital to its stockholders, partners or members (or the equivalent Persons thereof) as such, make any distribution of assets, Equity Interests, obligations or securities to its stockholders, partners or members (or the equivalent Persons thereof) as such or issue or sell any Equity Interests or accept any capital contributions, or permit any of its Subsidiaries to do any of the foregoing, or permit any of its Subsidiaries to purchase, redeem, retire, defease or otherwise acquire for value any Equity Interests in the Parent or to issue or sell any Equity Interests therein, except that, so long as no Default shall have occurred and be continuing at the time of any action described in clause (i) or (ii) below or would result therefrom: (i) the Parent may (A) declare and pay dividends and distributions payable only in common stock of the Parent, (B) issue and sell shares of its capital stock, (C) purchase, redeem, retire, defease or otherwise acquire for value any of its Equity Interests in an aggregate amount during the term of this Agreement not exceeding $300,000,000 and (D) declare and pay cash dividends to its stockholders, (ii) (A) any Loan Party (other than the Parent) may declare and pay cash dividends to another Loan Party and (B) any Subsidiary of the Parent (other than any Loan Party) may (x) declare and pay cash dividends to the Parent or any other wholly owned Subsidiary of the Parent of which it is a Subsidiary and (y) accept capital contributions from its parent, and (iii) the Special Purpose Trust may issue Preferred Securities and pay dividends thereon with the proceeds of payments of interest on the Debentures. (f) Accounting Changes. Make or permit, or permit any of its Subsidiaries to make or permit, any change in accounting policies or reporting practices, except as permitted by GAAP. SECTION 5.03. Reporting Requirements. So long as any Advance or any other obligation of any Loan Party under any Loan Document shall remain unpaid, any Letter of Credit shall be outstanding or any Lender shall have any Commitment hereunder, the Parent will furnish to the Agents and the Lenders: (a) Default Notice. As soon as possible and in any event within two days after the occurrence of each Default or any event, development or occurrence reasonably likely to have a Material Adverse Effect continuing on the date of such statement, a statement of the chief financial officer of the Parent setting forth details of such Default, event, development or occurrence and the action that the Parent or the applicable Subsidiary has taken and proposes to take with respect thereto. (b) Annual Financials. (i) As soon as available and in any event within 90 days after the end of each Fiscal Year, a copy of the annual Consolidated audit report for such year for 64 the Parent and its Subsidiaries, including therein a Consolidated balance sheet of the Parent and its Subsidiaries as of the end of such Fiscal Year and Consolidated statements of income and cash flows of the Parent and its Subsidiaries for such Fiscal Year, all reported on in a manner reasonably acceptable to the Securities and Exchange Commission in each case and accompanied by an opinion of PricewaterhouseCoopers LLP or other independent public accountants of recognized standing reasonably acceptable to the Required Lenders, together with (i) a certificate of the Chief Financial Officer of the Parent stating that no Default has occurred and is continuing, or if a Default has occurred and is continuing, a statement as to the nature thereof and the action that the Parent has taken a proposes to take with respect thereto, and (ii) a schedule in form reasonably satisfactory to the Administrative Agent of the computations used by the Parent in determining, as of the end of such Fiscal Year, compliance with the covenants contained in Section 5.04. (ii) As soon as available and in any event within 120 days after the end of each Fiscal Year, a copy of the annual Consolidated audit report for such year for each Subsidiary Guarantor and its Subsidiaries, including therein a Consolidated balance sheet of such Subsidiary Guarantor and its Subsidiaries as of the end of such Fiscal Year and a Consolidated statement of income and a Consolidated statement of cash flows of such Subsidiary Guarantor and its Subsidiaries for such Fiscal Year, in each case accompanied by an opinion acceptable to the Required Lenders of PricewaterhouseCoopers LLP or other independent public accountants of recognized standing acceptable to the Required Lenders. (c) Quarterly Financials. As soon as available and in any event within 45 days after the end of each of the first three quarters of each Fiscal Year, Consolidated balance sheets of the Parent and its Subsidiaries as of the end of such quarter and Consolidated statements of income and a Consolidated statement of cash flows of the Parent and its Subsidiaries for the period commencing at the end of the previous fiscal quarter and ending with the end of such fiscal quarter and Consolidated statements of income and a Consolidated statement of cash flows of the Parent and its Subsidiaries for the period commencing at the end of the previous Fiscal Year and ending with the end of such quarter, setting forth in each case in comparative form the corresponding figures for the corresponding date or period of the preceding Fiscal Year, all in reasonable detail and duly certified (subject to the absence of footnotes and normal year-end audit adjustments) by the Chief Financial Officer of the Parent as having been prepared in accordance with GAAP, together with (i) a certificate of said officer stating that no Default has occurred and is continuing or, if a Default has occurred and is continuing, a statement as to the nature thereof and the action that the Parent has taken and proposes to take with respect thereto and (ii) a schedule in form reasonably satisfactory to the Administrative Agent of the computations used by the Parent in determining compliance with the covenants contained in Section 5.04. (d) Litigation. Promptly after the commencement thereof, notice of all actions, suits, investigations, litigation and proceedings before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, affecting any Loan Party or any of its Subsidiaries of the type described in Section 4.01(f). 65 (e) Securities Reports. Promptly after the sending or filing thereof, copies of all proxy statements, financial statements and reports that the Parent sends to its stockholders generally, and copies of all regular, periodic and special reports, and all registration statements, that any Loan Party or any of its Subsidiaries files with the Securities and Exchange Commission or any governmental authority that may be substituted therefor, or with any national securities exchange. (f) ERISA. (i) ERISA Events. Promptly and in any event within 10 days after any Loan Party or any ERISA Affiliate institutes any steps to terminate any Pension Plan or becomes aware of the institution of any steps or any threat by the PBGC to terminate any Pension Plan, or the failure to make a required contribution to any Pension Plan if such failure is sufficient to give rise to a lien under section 302(f) of ERISA, or the taking of any action with respect to a Pension Plan which could result in the requirement that any Loan Party or any ERISA Affiliate furnish a bond or other security to the PBGC or such Pension Plan, or the occurrence of any event with respect to any Pension Plan which could result in any Loan Party or any ERISA Affiliate incurring any material liability, fine or penalty, or any material increase in the contingent liability of any Loan Party or any ERISA Affiliate with respect to any post-retirement Welfare Plan benefit, notice thereof and copies of all documentation relating thereto. (ii) Plan Annual Reports. Promptly upon request of any Agent or any Lender, copies of each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) with respect to each Pension Plan. (iii) Multiemployer Plan Notices. Promptly and in any event within 15 Business Days after receipt thereof by any Loan Party or any ERISA Affiliate from the sponsor of a Multiemployer Plan, copies of each notice concerning (A) the imposition of Withdrawal Liability by any such Multiemployer Plan, (B) the reorganization or termination, within the meaning of Title IV of ERISA, of any such Multiemployer Plan or (C) the amount of liability incurred, or that may be incurred, by such Loan Party or any ERISA Affiliate in connection with any event described in clause (A) or (B); provided, however, that such notice and documentation shall not be required to be provided (except at the specific request of any Agent or Lender, in which case such notice and documentation shall be promptly provided following such request) if such condition or event is not reasonably expected to result in any Loan Party or any ERISA Affiliate incurring any material liability, fine, or penalty.. (g) Year 2000 Compliance. Promptly after the Parent's discovery or determination thereof, notice (in reasonable detail) that any computer application that is material to its or any of its Subsidiaries' business and operations will not be Year 2000 Compliant (as defined in Section 4.01(q)), except to the extent that such failure could not reasonably be expected to have a Material Adverse Effect. (h) Statutory Statements. As soon as available and in any event within 20 days after submission, each statutory statement of the Loan Parties (or any of them) in the form submitted to The Insurance Division of the Office of Registrar of Companies of Bermuda. 66 (i) Regulatory Notices, Etc. Promptly after any Responsible Officer of the Parent obtains knowledge thereof, (i) a copy of any notice from the Bermuda Minister of Finance or the Registrar of Companies or any other person of the revocation, the suspension or the placing of any restriction or condition on the registration as an insurer of any Borrower under the Bermuda Insurance Act 1978 (and related regulations) or of the institution of any proceeding or investigation which could result in any such revocation, suspension or placing of such a restriction or condition, (ii) copies of any correspondence by, to or concerning any Loan Party relating to an investigation conducted by the Bermuda Minister of Finance, whether pursuant to Section 132 of the Bermuda Companies Act 1981 (and related regulations) or otherwise and (iii) a copy of any notice of or requesting or otherwise relating to the winding-up or any similar proceeding of or with respect to any Loan Party. (j) Other Information. Such other information respecting the business, condition (financial or otherwise), operations, performance, properties or prospects of any Loan Party or any of its Subsidiaries as any Agent, or any Lender through the Administrative Agent, may from time to time reasonably request. SECTION 5.04. Financial Covenants. So long as any Advance or any other obligation of any Loan Party under any Loan Document shall remain unpaid, any Letter of Credit shall be outstanding or any Lender shall have any Commitment hereunder, the Parent will: (a) Adjusted Consolidated Debt to Total Capitalization Ratio. Maintain at all times a ratio of Adjusted Consolidated Debt to Total Capitalization of not more than the lesser of (a) 0.50 to 1 or (b) the Specified Ratio. For purposes of the foregoing, the Specified Ratio shall be the greater of 0.35 to 1 or the ratio determined by multiplying 1.25 times the numerator of the lowest ratio of Adjusted Consolidated Debt to Total Capitalization as of the last day of any fiscal quarter of the Parent after completion of the Acquisition. (b) Tangible Net Worth. Maintain at all times Consolidated Tangible Net Worth in an amount equal to the sum of (i) $1,000,000,000 plus (ii) 25% of Consolidated Net Income for each fiscal quarter of the Parent ending on and after June 30, 1999 for which such Consolidated Net Income is positive plus (iii) 75% (or, after the Equity Issuance (so long as the Net Cash Proceeds received by the Parent and its Subsidiaries are at least $500,000,000) 50%) of the aggregate amount by which Consolidated Tangible Net Worth shall have been increased by reason of the issuance and sale of any Equity Interests or Mandatorily Convertible Preferred Securities or, without duplication, the conversion or exchange of any Debt of the Parent into or with Equity Interests of the Parent. 67 ARTICLE VI EVENTS OF DEFAULT SECTION 6.01. Events of Default. If any of the following events ("Events of Default") shall occur and be continuing: (a) (i) any Borrower shall fail to pay any principal of any Advance when the same shall become due and payable or (ii) any Borrower shall fail to pay any interest on any Advance, or any Loan Party shall fail to make any other payment under any Loan Document, in each case under this clause (ii) within five Business Days after the same becomes due and payable; or (b) any representation or warranty made by any Loan Party (or any of its officers) under or in connection with any Loan Document shall prove to have been incorrect in any material respect when made; or (c) any Borrower shall fail to perform or observe any term, covenant or agreement contained in Section 2.15, 5.01(d) (with respect to the Parent) or (e), 5.02 or 5.04; or (d) any Loan Party shall fail to perform or observe any other term, covenant or agreement contained in any Loan Document on its part to be performed or observed if such failure shall remain unremedied for 30 days after the earlier of the date on which (i) a Responsible Officer becomes aware of such failure or (ii) written notice thereof shall have been given to such Loan Party by any Agent or any Lender; or (e) the Parent or any of its Subsidiaries shall fail to pay any Material Financial Obligation (but excluding Debt outstanding hereunder) of the Parent or such Subsidiary (as the case may be), when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Material Financial Obligation; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Material Financial Obligation and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Material Financial Obligation or otherwise to cause, or to permit the holder thereof to cause, such Material Financial Obligation to mature; or any such Material Financial Obligation shall be declared to be due and payable or required to be prepaid or redeemed (other than by a regularly scheduled required prepayment or redemption), purchased or defeased, or an offer to prepay, redeem, purchase or defease such Material Financial Obligation shall be required to be made, in each case prior to the stated maturity thereof; or (f) any Loan Party or any of its Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against any Loan Party or any of its Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or 68 seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it) that is being diligently contested by it in good faith, either such proceeding shall remain undismissed or unstayed for a period of 30 days or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or any substantial part of its property) shall occur; or any Loan Party or any of its Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this subsection (f); or (g) any judgment or order for the payment of money in excess of $100,000,000 shall be rendered against any Loan Party or any of its Subsidiaries and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (h) any non-monetary judgment or order shall be rendered against any Loan Party or any of its Subsidiaries that could be reasonably likely to have a Material Adverse Effect, and there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (i) any provision of any Loan Document after delivery thereof pursuant to Section 3.01 shall for any reason cease to be valid and binding on or enforceable against any Loan Party party to it (other than as a result of a transaction permitted hereunder), or any such Loan Party shall so state in writing; or (j) a Change of Control shall occur; or (k) Any Loan Party or any ERISA Affiliate shall incur or shall be reasonably expected to incur liability in excess of $25,000,000 in the aggregate with respect to any Pension Plan or any Multiemployer Plan in connection with the occurrence of any of the following events or existence of any of the following conditions: (i) Institution of any steps by any Loan Party, any ERISA Affiliate or any other Person, including, without limitation, the PBGC to terminate a Pension Plan if as a result of such termination a Loan Party or any ERISA Affiliate could be required to make a contribution to such Pension Plan, or could incur a liability or obligation; (ii) A contribution failure occurs with respect to any Pension Plan sufficient to give rise to a lien under section 302(f) of ERISA; or (iii) Any condition shall exist or event shall occur with respect to a Pension Plan that is reasonably expected to result in any Loan Party or any ERISA Affiliate being 69 required to furnish a bond or security to the PBGC or such Pension Plan, or incurring a liability or obligation. (l) any Loan Party or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability to such Multiemployer Plan; or (m) any Loan Party or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or is being terminated, within the meaning of Title IV of ERISA, and as a result of such reorganization or termination the aggregate annual contributions of the Loan Parties and the ERISA Affiliates to all Multiemployer Plans that are then in reorganization or being terminated have been or will be increased over the amounts contributed to such Multiemployer Plans for the plan years of such Multiemployer Plans immediately preceding the plan year in which such reorganization or termination occurs; then, and in any such event, the Administrative Agent (i) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrowers, declare the Commitments of each Lender and the obligation of each Lender to make Advances (other than Letter of Credit Advances by the Issuing Bank or a Lender pursuant to Section 2.04(c)) and of the Issuing Bank to issue Letters of Credit to be terminated, whereupon the same shall forthwith terminate, and/or (ii) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrowers, declare the Notes, all interest thereon and all other amounts payable under this Agreement and the other Loan Documents to be forthwith due and payable, whereupon the Notes, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrowers; provided, however, that in the event of an actual or deemed entry of an order for relief with respect to any Borrower under the Federal Bankruptcy Code, (x) the Commitments of each Lender and the obligation of each Lender to make Advances (other than Letter of Credit Advances by the Issuing Bank or a Lender pursuant to Section 2.04(c)) and of the Issuing Bank to issue Letters of Credit shall automatically be terminated and (y) the Notes, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrowers. SECTION 6.02. Actions in Respect of the Letters of Credit upon Default. If any Event of Default shall have occurred and be continuing, the Administrative Agent may, or shall at the request of the Required Lenders, after having taken any of the actions described in Section 6.01(ii) or otherwise, make demand upon the Borrower to, and forthwith upon such demand the Borrower will, pay to the Administrative Agent on behalf of the Lenders in same day funds at the Administrative Agent's office designated in such demand, an amount equal to the aggregate Available Amount of all Letters of Credit then outstanding as cash collateral. If at any time during the continuance of an Event of Default the Administrative Agent determines that such funds are subject to any right or claim of any Person other than the Administrative Agent and the Lenders or that the total amount of such funds is less than the aggregate Available Amount of all Letters of Credit, the Borrower will, forthwith upon demand by the Administrative Agent, pay to the Administrative Agent, as additional cash collateral, an amount equal to the excess of (a) such aggregate Available Amount over (b) the total amount of funds, if any, that the Administrative Agent determines to be free and clear of any such right and claim. Upon the drawing of 70 any Letter of Credit, such funds shall be applied to reimburse the Issuing Bank or Lenders, as applicable, to the extent permitted by applicable law.] ARTICLE VII THE GUARANTY SECTION 7.01. The Guaranty. (a) Each Borrower hereby jointly and severally, unconditionally, absolutely and irrevocably guarantees the full and punctual payment (whether at stated maturity, upon acceleration or otherwise) of all amounts payable by each of the other Borrowers under the Loan Documents including, without limitation, the principal of and interest on each Note issued by such other Borrowers pursuant to this Agreement and for reimbursement obligations with respect to Letters of Credit. Upon failure by a Borrower to pay punctually any such amount, each other Borrower agrees to pay forthwith on demand the amount not so paid at the place and in the manner specified in this Agreement. (b) Each Borrower (other than the Parent), and by its acceptance of this Guaranty, the Administrative Agent and each other Lender, hereby confirms that it is the intention of all such Persons that this Guaranty and the obligations of each Borrower hereunder not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar foreign, federal or state law to the extent applicable to this Guaranty and the obligations of each Borrower (other than the Parent) hereunder. To effectuate the foregoing intention, the Administrative Agent, the other Lenders and the Borrowers hereby irrevocably agree that the obligations of each Borrower (other than the Parent) under this Article VII at any time shall be limited to the maximum amount as will result in the obligations of such Borrower under this Guaranty not constituting a fraudulent transfer or conveyance. SECTION 7.02. Guaranty Unconditional. The obligations of each Borrower under this Article VII 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 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 insolvency, bankruptcy, reorganization 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; 71 (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, 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 the principal of or interest on any Note or any other amount payable under any of the Loan Documents; or (vii) any other act or omission to act or delay of any kind by any obligor, the Administrative Agent, any Lender or any other corporation or person or any other circumstance whatsoever which might, but for the provisions of this paragraph, constitute a legal or equitable discharge of or defense to a Borrower's obligations under this Article VII. SECTION 7.03. Discharge Only upon Payment in Full; Reinstatement in Certain Circumstances. Each Borrower's obligations under this Article VII shall remain in full force and effect until the Commitments shall have terminated and the principal of and interest on the Notes and all other amounts payable by the other Borrowers under the Loan Documents shall have been paid in full. If at any time any payment of the principal of or interest on any Note or any other amount payable by a Borrower under the Loan Documents is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of such Borrower or otherwise, each other Borrower's obligations under this Article VII with respect to such payment shall be reinstated as though such payment had been due but not made at such time. SECTION 7.04. Waiver by the Borrowers. Each Borrower 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. SECTION 7.05. Subrogation. Each Borrower hereby unconditionally and irrevocably agrees not to exercise any rights that it may now have or hereafter acquire against any other Borrower, any other Loan Party or any other insider guarantor that arise from the existence, payment, performance or enforcement of such Borrower's obligations under or in respect of this Guaranty or any other Loan Document, including, without limitation, any right of subrogation, reimbursement, exoneration, contribution or indemnification and any right to participate in any claim or remedy of any Lender against any other Borrower, any other Loan Party or any other insider guarantor or any collateral, whether or not such claim, remedy or right arises in equity or under contract, statute or common law, including, without limitation, the right to take or receive from any other Borrower, any other Loan 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 amounts payable under this Guaranty shall have been paid in full in cash, and the Commitments shall have expired or been terminated. If any amount shall be paid to any Borrower in violation of the immediately preceding sentence at any time prior to the latest of (a) the payment in full in cash of all amounts payable under this 72 Guaranty, and (b) the Termination 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 Borrower 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) any Borrower shall make payment to any Lender 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 Termination Date shall have occurred, the Lenders will, at such Borrower's request and expense, execute and deliver to such Borrower appropriate documents, without recourse and without representation or warranty, necessary to evidence the transfer by subrogation to such Borrower of an interest in the obligations resulting from such payment made by such Borrower pursuant to this Guaranty. SECTION 7.06. Stay of Acceleration. If acceleration of the time for payment of any amount payable by any Borrower under any of the Loan Documents is stayed upon the insolvency, bankruptcy or reorganization of such Borrower, all such amounts otherwise subject to acceleration under the terms of this Agreement shall nonetheless by payable by the other Borrowers under this Article VII forthwith on demand by the Administrative Agent made at the request of the requisite proportion of the Lenders. SECTION 7.07. Continuing Guaranty; Assignments. This Guaranty is a continuing guaranty and shall (a) remain in full force and effect until the latest of (i) the payment in full in cash of all amounts payable under this Guaranty and (ii) the Termination Date, (b) be binding upon each Borrower, its successors and assigns and (c) inure to the benefit of and be enforceable by the Lenders 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 (including, without limitation, all or any portion of its Commitments, the Advances owing to it and the Note or Notes held by it) 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 9.07. No Borrower shall have the right to assign its rights hereunder or any interest herein without the prior written consent of the Required Lenders. ARTICLE VIII THE AGENTS SECTION 8.01. Authorization and Action. Each Lender (in its capacity as a Lender) hereby appoints and authorizes each Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement and the other Loan Documents as are delegated to such Agent by the terms hereof and thereof, together with such powers and discretion as are reasonably incidental thereto. As to any matters not expressly provided for by the Loan Documents (including, without limitation, enforcement or collection of the Notes), no Agent shall be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully 73 protected in so acting or refraining from acting) upon the instructions of the Required Lenders or all the Lenders where unanimity is required, and such instructions shall be binding upon all Lenders and all holders of Notes; provided, however, that no Agent shall be required to take any action that exposes such Agent to personal liability or that is contrary to this Agreement or applicable law. Each Agent agrees to give to each Lender prompt notice of each notice given to it by any Borrower pursuant to the terms of this Agreement. SECTION 8.02. Agents' Reliance, Etc. Neither any Agent nor any of their respective directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with the Loan Documents, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, each Agent: (a) may treat the payee of any Note as the holder thereof until, in the case of the Administrative Agent, the Administrative Agent receives and accepts an Assignment and Acceptance entered into by the Lender that is the payee of such Note, as assignor, and an Eligible Assignee, as assignee, or, in the case of any other Agent, such Agent has received notice from the Administrative Agent that it has received and accepted such Assignment and Acceptance, in each case as provided in Section 9.07; (b) may consult with legal counsel (including counsel for any Loan Party), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (c) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations (whether written or oral) made in or in connection with the Loan Documents; (d) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of any Loan Document on the part of any Loan Party or to inspect the property (including the books and records) of any Loan Party; (e) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of, or the perfection or priority of any lien or security interest created or purported to be created under or in connection with, any Loan Document or any other instrument or document furnished pursuant thereto; and (f) shall incur no liability under or in respect of any Loan Document by acting upon any notice, consent, certificate or other instrument or writing (which may be by telegram or telecopy) reasonably believed by it to be genuine and signed or sent by the proper party or parties. SECTION 8.03. MGT and Affiliates. With respect to its WC Commitments, the Committed Advances made by it and the Committed Notes issued to it, MGT shall have the same rights and powers under the Loan Documents as any other Lender and may exercise the same as though it were not an Agent; and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include MGT in its individual capacity. MGT and its affiliates may accept deposits from, lend money to, act as trustee under indentures of, accept investment banking engagements from and generally engage in any kind of business with, any Loan Party, any of its Subsidiaries and any Person that may do business with or own securities of any Loan Party or any such Subsidiary, all as if MGT were not Agent and without any duty to account therefor to the Lenders. SECTION 8.04. Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon any Agent or any other Lender and based on the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also 74 acknowledges that it will, independently and without reliance upon any 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 this Agreement. SECTION 8.05. Indemnification. (a) Each Lender severally agrees to indemnify each Agent (to the extent not promptly reimbursed by the Borrowers) from and against such Lender's ratable share (determined as provided below) of any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against such Agent in any way relating to or arising out of the Loan Documents or any action taken or omitted by such Agent under the Loan Documents; provided, however, that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Agent's gross negligence or willful misconduct. Without limitation of the foregoing, each Lender agrees to reimburse each Agent promptly upon demand for its ratable share of any costs and expenses (including, without limitation, fees and expenses of counsel) payable by the Borrowers under Section 9.04, to the extent that such Agent is not promptly reimbursed for such costs and expenses by the Borrowers. (b) For purposes of this Section 8.05, the Lenders' respective ratable shares of any amount shall be determined, at any time, according to the sum of (i) the aggregate principal amount of the Advances outstanding at such time and owing to the respective Lenders, (ii) their respective Pro Rata Shares of the aggregate Available Amounts of all Letters of Credit outstanding at such time and (iii) their respective Unused WC Commitments at such time. The failure of any Lender to reimburse any Agent promptly upon demand for its ratable share of any amount required to be paid by the Lenders to such Agent as provided herein shall not relieve any other Lender of its obligation hereunder to reimburse such Agent for its ratable share of such amount, but no Lender shall be responsible for the failure of any other Lender to reimburse such Agent for such other Lender's ratable share of such amount. Without prejudice to the survival of any other agreement of any Lender hereunder, the agreement and obligations of each Lender contained in this Section 8.05 shall survive the payment in full of principal, interest and all other amounts payable hereunder and under the other Loan Documents. SECTION 8.06. Successor Agents. Any Agent may resign at any time by giving written notice thereof to the Lenders and the Parent and may be removed at any time with or without cause by the Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right to appoint a successor Agent, subject (so long as no Event of Default exists) to the consent of the Parent (which consent shall not be unreasonably withheld). If no successor Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Agent's giving of notice of resignation or the Required Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be a commercial bank organized under the laws of the United States or of any State thereof and having a combined capital and surplus of at least $250,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent such successor Agent shall succeed to and become vested with all the rights, powers, discretion, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under the Loan Documents. If within 45 days after written notice is given of the retiring Agent's resignation or removal under this Section 8.06 no successor Agent shall have been appointed and shall have accepted such appointment, then on such 45th day (i) the retiring Agent's 75 resignation or removal shall become effective, (ii) the retiring Agent shall thereupon be discharged from its duties and obligations under the Loan Documents and (iii) the Required Lenders shall thereafter perform all duties of the retiring Agent under the Loan Documents until such time, if any, as the Required Lenders appoint a successor Agent as provided above. After any retiring Agent's resignation or removal hereunder as Agent shall have become effective, the provisions of this Article VIII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. ARTICLE IX MISCELLANEOUS SECTION 9.01. Amendments, Etc. No amendment or waiver of any provision of this Agreement or the Notes or any other Loan Document, nor consent to any departure by any Loan Party therefrom, shall in any event be effective unless the same shall be in writing and signed by the Required Lenders (and, in the case of an amendment, the Parent), and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall, unless in writing and signed by all of the Lenders (other than any Lender that is, at such time, a Defaulting Lender), do any of the following at any time: (i) waive any of the conditions specified in Section 3.01 or, in the case of the Initial Extension of Credit, Section 3.02, (ii) change the number of Lenders or the percentage of (x) the WC Commitments, (y) the aggregate unpaid principal amount of the Advances or (z) the aggregate Available Amount of outstanding Letters of Credit that, in each case, shall be required for the Lenders or any of them to take any action hereunder, (iii) reduce or limit the obligations of any Borrower under Section 7.01 or release such Borrower or otherwise limit such Borrower's liability with respect to the obligations owing to the Agents and the Lenders, (iv) amend this Section 9.01, (v) increase the WC Commitments of the Lenders or subject the Lenders to any additional obligations, (vi) reduce the principal of, or interest on, the Notes or any fees or other amounts payable hereunder (other than under Section 2.07), (vii) postpone any date fixed for any payment of principal of, or interest on, the Notes or any fees or other amounts payable hereunder (other than under Section 2.07), or (viii) limit the liability of any Loan Party under any of the Loan Documents; provided further that no amendment, waiver or consent shall, unless in writing and signed by an Agent in addition to the Lenders required above to take such action, affect the rights or duties of such Agent under this Agreement or the other Loan Documents and no amendment, waiver or consent shall, unless in writing and signed by the Issuing Bank in addition to the Lenders above required to take such action, affect the rights or duties of the Issuing Bank under this Agreement or the other Loan Documents (including, without limitation, any change in Section 2.01(b), 2.04, 2.05(b), 2.05(c), 2.09(d), 2.18, 2.19, 2.20, 2.21 or 9.09). SECTION 9.02. Notices, Etc. All notices and other communications provided for hereunder shall be in writing (including telegraphic or telecopy communication) and mailed, telegraphed, telecopied or delivered, if to any Borrower, at its address set forth below on the signature pages hereof; if to any Initial Lender, at its Domestic Lending Office specified opposite its name on Schedule I hereto; if to any other Lender, at its Domestic Lending Office specified in the Assignment and Acceptance pursuant to which it became a Lender; if to the Syndication Agent, at its address at World Financial Center, North Tower, 250 Vesey Street, New York, New York 10281, Attention: Carol Feley; and if to 76 the Administrative Agent, at its address at 500 Stanton Christiana Road, Newark, Delaware 19713, Attention: Bill Wood; or, as to any party, at such other address as shall be designated by such party in a written notice to the other parties. All such notices and communications shall, when mailed, telegraphed or telecopied, be effective when deposited in the mails, delivered to the telegraph company or transmitted by telecopier, respectively, except that notices and communications to any Agent pursuant to Article II, III or VIII shall not be effective until received by such Agent. Manual delivery by telecopier of an executed counterpart of any amendment or waiver of any provision of this Agreement or the Notes or of any Exhibit hereto to be executed and delivered hereunder shall be effective as delivery of an original executed counterpart thereof. SECTION 9.03. No Waiver; Remedies. No failure on the part of any Lender or any Agent to exercise, and no delay in exercising, any right hereunder or under any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 9.04. Costs and Expenses. (a) Each of the Borrowers agrees to pay on demand (i) all reasonable costs and expenses of the Agents and of the Issuing Bank in connection with the preparation, execution, delivery, administration, modification and amendment of the Loan Documents (including, without limitation, (A) all due diligence, collateral review, syndication, transportation, computer, duplication, appraisal, audit, insurance, consultant, search, filing and recording fees and expenses and (B) the reasonable fees and expenses of a single counsel for the Agents and a single counsel for the Issuing Bank with respect thereto, with respect to advising the Agents as to its rights and responsibilities, or the perfection, protection or preservation of rights or interests, under the Loan Documents, with respect to negotiations with any Loan Party or with other creditors of any Loan Party or any of its Subsidiaries arising out of any Default or any events or circumstances that may give rise to a Default and with respect to presenting claims in or otherwise participating in or monitoring any bankruptcy, insolvency or other similar proceeding involving creditors' rights generally and any proceeding ancillary thereto) and (ii) all reasonable costs and expenses of each Agent, the Issuing Bank and each Lender in connection with the enforcement of the Loan Documents, whether in any action, suit or litigation, or any bankruptcy, insolvency or other similar proceeding affecting creditors' rights generally (including, without limitation, the reasonable fees and expenses of counsel for the Administrative Agent, the Issuing Bank and each Lender with respect thereto). (b) Each of the Borrowers jointly and severally agrees to indemnify and hold harmless each Agent, the Issuing Bank, each Lender and each of their Affiliates and their respective officers, directors, employees, agents and advisors (each, an "Indemnified Party") from and against any and all claims, damages, losses, liabilities and expenses (including, without limitation, reasonable fees and expenses of counsel) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of (including, without limitation, in connection with any investigation, litigation or proceeding or preparation of a defense in connection therewith) this Agreement, the actual or proposed use of the proceeds of the Advances, the Loan Documents or any of the transactions contemplated thereby, including, without limitation, any acquisition or proposed acquisition (including, without limitation, the Acquisition and any of the other transactions contemplated by the Loan Documents) by any Borrower or any of its Subsidiaries or 77 Affiliates of all or any portion of the Equity Interests in or Debt securities or substantially all of the assets of CIGNAP&C, except to the extent such claim, damage, loss, liability or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct. In the case of an investigation, litigation or other proceeding to which the indemnity in this Section 9.04(b) applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by any Loan Party, its directors, shareholders or creditors or an Indemnified Party or any Indemnified Party is otherwise a party thereto and whether or not the transactions contemplated by the Loan Documents are consummated. Each of the Borrowers also agrees not to assert any claim against any Agent, any Lender or any of their Affiliates, or any of their respective officers, directors, employees, attorneys and agents, on any theory of liability, for special, indirect, consequential or punitive damages arising out of or otherwise relating to the credit facilities provided hereunder, the actual or proposed use of the proceeds of the Advances or the Letters of Credit, the Loan Documents or any of the transactions contemplated by the Loan Documents. (c) If any payment of principal of, or Conversion of, any Eurodollar Rate Advance or LIBO Rate Advance is made by any Borrower to or for the account of a Lender other than on the last day of the Interest Period for such Advance, as a result of a payment or Conversion pursuant to Section 2.07, 2.10(b)(i) or 2.11(d), acceleration of the maturity of the Notes pursuant to Section 6.01 or for any other reason, or if any Borrower fails to make any payment or prepayment of an Advance for which a notice of prepayment has been given or that is otherwise required to be made, whether pursuant to Section 2.05, 2.07 or 6.01 or otherwise, the Borrowers jointly and severally agree, within 10 days after demand by such Lender (with a copy of such demand to the Administrative Agent), which demand shall include a calculation in reasonable detail of the amount demanded, to pay to the Administrative Agent for the account of such Lender any amounts required to compensate such Lender for any additional losses, costs or expenses that it may reasonably incur as a result of such payment or Conversion or such failure to pay or prepay, as the case may be, including, without limitation, any loss (excluding loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain such Advance. (d) Without prejudice to the survival of any other agreement of any Loan Party hereunder or under any other Loan Document, the agreements and obligations of the Borrowers contained in Sections 2.10 and 2.12 and this Section 9.04 shall survive the payment in full of principal, interest and all other amounts payable hereunder and under any of the other Loan Documents. SECTION 9.05. Right of Set-off. Upon (a) the occurrence and during the continuance of any Event of Default and (b) the making of the request or the granting of the consent specified by Section 6.01 to authorize the Administrative Agent to declare the Notes due and payable pursuant to the provisions of Section 6.01, each Agent and 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 law, to set off and otherwise apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Agent, such Lender or such Affiliate to or for the credit or the account of any Borrower against any and all of the obligations of such Borrower now or hereafter existing under the Loan Documents, irrespective of whether such Agent or such Lender shall have made any demand under this Agreement or such Note or Notes and although such obligations may be unmatured. Each Agent and each Lender agrees promptly to notify each Borrower after any such 78 set-off and application; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Agent and each Lender and their respective Affiliates under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) that such Agent, such Lender and their respective Affiliates may have. SECTION 9.06. Binding Effect. This Agreement shall become effective when it shall have been executed by each Borrower and each Agent and the Administrative Agent shall have been notified by each Initial Lender that such Initial Lender and has executed it and thereafter shall be binding upon and inure to the benefit of each Borrower, each Agent and each Lender and their respective successors and assigns, except that no Borrower shall have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lenders. SECTION 9.07. Assignments and Participations. (a) Each Lender may, and so long as no Default shall have occurred and be continuing, if demanded by any Borrower (following a demand by such Lender pursuant to Section 2.17) upon at least five Business Days' notice to such Lender and the Administrative Agent, will, assign to one or more Eligible Assignee all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its WC Commitment, the Committed Advances owing to it and the Committed Note or Notes held by it); provided, however, that (i) each such assignment shall be of a uniform, and not a varying, percentage of all rights and obligations under and in respect of the Committed Facility, the "Committed Facility" under the ACE INA 364-Day Revolving Credit Facility and the "Committed Facility" under the Borrowers' 364-Day Revolving Credit Facility, except for any non-pro rata assignments to a SPC pursuant to Section 9.07(l), any non-pro rata assignment made by a Downgraded Lender after a request by the Issuing Bank pursuant to Section 2.19 (and any subsequent non-pro rata assignment of the interest so assigned or by the Downgraded Lender) and any other non-pro rata assignment approved by the Administrative Agent and any Borrower, (ii) except in the case of an assignment to a Person that, immediately prior to such assignment, was a Lender, an Affiliate of any Lender or an Approved Fund of any Lender or an assignment of all of a Lender's rights and obligations under this Agreement, the aggregate amount of the WC Commitments being assigned to such Eligible Assignee pursuant to such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $10,000,000, (iii) each such assignment shall be to an Eligible Assignee, (iv) each assignment made as a result of a demand by any Borrower pursuant to Section 2.17 shall be arranged by such Borrower after consultation with the Administrative Agent and shall be either an assignment of all of the rights and obligations of the assigning Lender under this Agreement or an assignment of a portion of such rights and obligations made concurrently with another such assignment or other such assignments that together cover all of the rights and obligations of the assigning Lender under this Agreement, (v) no Lender shall be obligated to make any such assignment as a result of a demand by any Borrower pursuant to Section 2.17 unless and until such Lender shall have received one or more payments from either such Borrower or other Eligible Assignees in an aggregate amount at least equal to the aggregate outstanding principal amount of the Committed Advances owing to such Lender, together with accrued interest thereon to the date of payment of such principal amount and all other amounts payable to such Lender under this Agreement, (vi) as a result of such assignment, no Borrower shall be subject to additional amounts under Section 2.11 or 2.13, (vii) no such assignment shall be permitted without the consent of the Administrative Agent and, so long as no Default shall have occurred and be continuing, the Parent (which consents shall not be unreasonably withheld) and (viii) the parties to each such assignment shall 79 execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with any Note or Notes subject to such assignment and a processing and recordation fee of $2,500.00. (b) Upon such execution, delivery, acceptance and recording, from and after the effective date specified in such Assignment and Acceptance, (i) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender, hereunder and (ii) the Lender assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights (other than its rights under Sections 2.11, 2.13 and 9.04 to the extent any claim thereunder relates to an event arising prior to such assignment) and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto). (c) By executing and delivering an Assignment and Acceptance, each Lender assignor thereunder and each assignee thereunder confirm to and agree with each other and the other parties thereto and hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with any Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of, or the perfection or priority of any lien or security interest created or purported to be created under or in connection with, any Loan Document or any other instrument or document furnished pursuant thereto; (ii) such assigning Lender 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 its obligations under any Loan Document or any other instrument or document furnished pursuant thereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon any Agent, such assigning Lender 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 this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes each Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Loan Documents as are delegated to such Agent by the terms hereof and thereof, together with such powers and discretion as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations that by the terms of this Agreement are required to be performed by it as a Lender. (d) The Administrative Agent, acting for this purpose (but only for this purpose) as the agent of the Borrowers, shall maintain at its address referred to in Section 9.02 a copy of each Assignment and Acceptance and each Designation Agreement delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and, with respect to Lenders other than Designated Bidders, the WC Commitment of, and principal amount of the Advances owing to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding 80 for all purposes, absent manifest error, and the Borrowers, the Agents and the Lenders shall treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by any Borrower or any Agent or any Lender at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee, together with any Note or Notes subject to such assignment, the Administrative Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit C hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Parent and each other Agent. In the case of any assignment by a Lender, within five Business Days after its receipt of such notice, each Borrower, at its own expense, shall execute and deliver to the Administrative Agent in exchange for the surrendered Note or Notes a new Note to the order of such Eligible Assignee in an amount equal to the WC Commitment assumed by it pursuant to such Assignment and Acceptance and, if any assigning Lender has retained a WC Commitment hereunder, a new Note to the order of such assigning Lender in an amount equal to the WC Commitment retained by it hereunder. Such new Note or Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note or Notes, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of Exhibit A-1 hereto. (f) Each Lender (other than the Designated Bidders) may designate one or more banks or other entities to have a right to make Competitive Bid Advances as a Lender pursuant to Section 2.03; provided, however, that (i) no such Lender shall be entitled to make more than 3 such designations, (ii) each such Lender making one or more such designations shall retain the right to make Competitive Bid Advances as a Lender pursuant to Section 2.03, (iii) each such designation shall be to a Designated Bidder and (iv) the parties to each such designation shall execute and deliver to the Agent, for its acceptance and recording in the Register, a Designation Agreement. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Designation Agreement, the designee thereunder shall be a party hereto with a right to make Competitive Bid Advances as a Lender pursuant to Section 2.03 and the obligations related thereto. (g) By executing and delivering a Designation Agreement, the Lender making the designation thereunder and its designee thereunder confirm and agree with each other and the other parties hereto as follows: (i) such Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; (ii) such Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Borrower or the performance or observance by any Borrower of any of its obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such designee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Designation Agreement; (iv) such designee will, independently and without reliance upon the Agent, such designating Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its 81 own credit decisions in taking or not taking action under this Agreement; (v) such designee confirms that it is a Designated Bidder; (vi) such designee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement as are delegated to the Agent by the terms hereof, together with such powers and discretion as are reasonably incidental thereto; and (vii) such designee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender. (h) Upon its receipt of a Designation Agreement executed by a designating Lender and a designee representing that it is a Designated Bidder, the Administrative Agent shall, if such Designation Agreement has been completed and is substantially in the form of Exhibit F hereto, (i) accept such Designation Agreement, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Parent. (i) Each Lender may sell participations to one or more Persons (other than any Loan Party or any of its Affiliates) in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its WC Commitment, the Committed Advances owing to it and the Committed Note or Notes (if any) held by it); provided, however, that (i) such Lender's obligations under this Agreement (including, without limitation, its WC Commitment) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of any such Committed Note for all purposes of this Agreement, (iv) the Borrowers, the Agents and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under this Agreement and (v) no participant under any such participation shall have any right to approve any amendment or waiver of any provision of any Loan Document, or any consent to any departure by any Loan Party therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, the Committed Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, postpone any date fixed for any payment of principal of, or interest on, the Committed Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation. Each Lender shall, as agent of the Borrowers solely for the purposes of this Section, record in book entries maintained by such Lender, the name and amount of the participating interest of each Person entitled to receive payments in respect of any participating interests sold pursuant to this Section. (j) Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 9.07, disclose to the assignee or participant or proposed assignee or participant any information relating to any Borrower furnished to such Lender by or on behalf of any Borrower; provided, however, that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree to preserve the confidentiality of any Confidential Information received by it from such Lender. (k) Notwithstanding any other provision set forth in this Agreement, any Lender may at any time create a security interest in all or any portion of its rights under this Agreement (including, without limitation, the Advances owing to it and the Note or Notes held by it) in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System. 82 (l) Notwithstanding anything to the contrary contained herein, any Lender (a "Granting Lender") may grant to a special purpose funding vehicle (a "SPC"), identified as such in writing from time to time by the Granting Lender to the Administrative Agent and the Borrowers, the option to provide to the Borrowers all or any part of any Committed Advance that such Granting Lender would otherwise be obligated to make to the Borrowers pursuant to this Agreement; provided that (i) nothing herein shall constitute a commitment by any SPC to make any Committed Advance, (ii) if an SPC elects not to exercise such option or otherwise fails to provide all or any part of such Committed Advance, the Granting Lender shall be obligated to make such Committed Advance pursuant to the terms hereof. The making of a Committed Advance by an SPC hereunder shall utilize the WC Commitment of the Granting Lender to the same extent, and as if, such Committed Advance were made by such Granting Lender. Each party hereto hereby agrees that no SPC shall be liable for any indemnity or similar payment obligation under this Agreement (all liability for which shall remain with the Granting Lender). In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior indebtedness of any SPC, it will not institute against, or join any other person in instituting against, such SPC any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the United States or any State thereof. In addition, notwithstanding anything to the contrary contained in this Section 9.07(l), any SPC may (i) with notice to, but without the prior written consent of, the Parent and the Administrative Agent and without paying any processing fee therefor, assign all or a portion of its interests in any Committed Advances to the Granting Lender or to any financial institutions (consented to by the Parent and Administrative Agent) providing liquidity and/or credit support to or for the account of such SPC to support the funding or maintenance of Committed Advances and (ii) disclose on a confidential basis any non-public information relating to its Committed Advances to any rating agency, commercial paper dealer or provider of any surety, guarantee or credit or liquidity enhancement to such SPC. This section may not be amended without the written consent of each SPC. SECTION 9.08. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of an original executed counterpart of this Agreement. SECTION 9.09. No Liability of the Issuing Bank. Each Borrower assumes all risks of the acts or omissions of any beneficiary or transferee of any Letter of Credit with respect to its use of such Letter of Credit. Neither the Issuing Bank nor any of its officers, directors, employees or agents shall be liable or responsible for: (a) the use that may be made of any Letter of Credit or any acts or omissions of any beneficiary or transferee in connection therewith; (b) the validity, sufficiency or genuineness of documents, or of any endorsement thereon, even if such documents should prove to be in any or all respects invalid, insufficient, fraudulent or forged; (c) payment by the Issuing Bank against presentation of documents that do not strictly comply with the terms of a Letter of Credit, including failure of any documents to bear any reference or adequate reference to the Letter of Credit; or (d) any other circumstances whatsoever in making or failing to make payment under any Letter of Credit, except that such Borrower shall have a claim against the Issuing Bank, and the Issuing Bank shall be liable to such Borrower, to the extent of any direct, but not consequential, damages suffered by such Borrower 83 that such Borrower proves were caused by (i) the Issuing Bank's willful misconduct or gross negligence as determined in a final, non-appealable judgment by a court of competent jurisdiction in determining whether documents presented under any Letter of Credit comply with the terms of the Letter of Credit or (ii) the Issuing Bank's willful failure to make lawful payment under a Letter of Credit after the presentation to it of a draft and certificates strictly complying with the terms and conditions of the Letter of Credit. In furtherance and not in limitation of the foregoing, the Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary. SECTION 9.10. Confidentiality. Neither any Agent nor any Lender shall disclose any Confidential Information to any Person without the consent of the Parent, other than (a) to such Agent's or such Lender's Affiliates and their officers, directors, employees, agents and advisors and to actual or prospective Eligible Assignees and participants, and then only on a confidential basis, (b) as required by any law, rule or regulation or judicial process, (c) as requested or required by any state, Federal or foreign authority or examiner regulating such Lender and (d) to any rating agency when required by it, provided that, prior to any such disclosure, such rating agency shall undertake to preserve the confidentiality of any Confidential Information relating to the Loan Parties received by it from such Lender. SECTION 9.11. Jurisdiction, Etc. (a) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any of the other Loan Documents to which it is a party, 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 any such New York State court or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any party may otherwise have to bring any action or proceeding relating to this Agreement or any of the other Loan Documents in the courts of any jurisdiction. (b) Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any of the other Loan Documents to which it is a party in any New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. SECTION 9.12. Governing Law. This Agreement and the Notes shall be governed by, and construed in accordance with, the laws of the State of New York. SECTION 9.13. Termination of the Existing Credit Agreement. The "Required Banks" under the Existing Credit Agreement, by executing this Agreement, hereby agree to terminate the Existing Credit Agreement, as of the Effective Date. 84 SECTION 9.14. Waiver of Jury Trial. Each of the Borrowers, the Agents and the Lenders irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to any of the Loan Documents, the Advances or the actions of any Agent or any Lender in the negotiation, administration, performance or enforcement thereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. ACE LIMITED The Common Seal of ACE Limited was hereunto affixed in the presence of: ______________________________ Director ______________________________ Secretary ACE BERMUDA INSURANCE LTD. The Common Seal of ACE Bermuda Insurance Ltd. was hereunto affixed in the presence of: ______________________________ Director ______________________________ Secretary TEMPEST REINSURANCE COMPANY LIMITED The Common Seal of Tempest Reinsurance Company Limited was hereunto affixed in the presence of: ______________________________ Director ______________________________ Secretary ACE INA HOLDINGS INC. By:________________________________ Title: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, as Lead Arranger and Syndication Agent By: -------------------------------- Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent By: -------------------------------- Title: MELLON BANK, N.A., as Issuing Bank By: -------------------------------- BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION, as Documentation Agent By: -------------------------------- Title: Initial Lenders MERRILL LYNCH CAPITAL CORPORATION By: -------------------------------- Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: -------------------------------- Title: BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION By: -------------------------------- Title: CHASE MANHATTAN BANK By: -------------------------------- Title: MELLON BANK, N.A. By: -------------------------------- Title: ABN-AMRO BANK N.V. By: -------------------------------- Title: BANCO SANTANDER CENTRAL HISPANO, S.A. By: -------------------------------- Title: THE BANK OF NEW YORK By: -------------------------------- Title: THE BANK OF NOVA SCOTIA By: -------------------------------- Title: THE FIRST NATIONAL BANK OF CHICAGO By: -------------------------------- Title: BARCLAYS BANK PLC By: -------------------------------- Title: BANQUE NATIONALE DE PARIS By: -------------------------------- Title: By: -------------------------------- Title: THE BANK OF TOKYO-MITSUBISHI, LTD. By:_______________________________ Title: CIBC INC. By:_______________________________ Title: CITIBANK, N.A. By:_______________________________ Title: COMERICA BANK By:_______________________________ Title: COMMERZBANK AKTIENGESELLSCHAFT NEW YORK BRANCH By:_______________________________ Title: By:_______________________________ Title: CREDIT LYONNAIS NEW YORK BRANCH By:_______________________________ Title: CREDIT SUISSE FIRST BOSTON By:_______________________________ Title: By:_______________________________ Title: DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLANDS BRANCHES By:_______________________________ Title: By:_______________________________ Title: FIRST UNION NATIONAL BANK By:_______________________________ Title: FLEET NATIONAL BANK By:_______________________________ Title: ING BANK N.V., LONDON BRANCH By:_______________________________ Title: By:_______________________________ Title: KBC BANK By:_______________________________ Title: By:_______________________________ Title: LLOYDS BANK PLC By:_______________________________ Title: By:_______________________________ Title: ROYAL BANK OF CANADA By:_______________________________ Title: SOCIETE GENERALE By:_______________________________ Title: STATE STREET BANK AND TRUST COMPANY By:_______________________________ Title: STANDARD CHARTERED BANK By:_______________________________ Title: By:_______________________________ Title: EX-10.51 15 750 MILLION CREDIT AGMT. DATED AS OF 06/11/1999 EXHIBIT 10.51 EXECUTION COPY $750,000,000 CREDIT AGREEMENT Dated as of June 11, 1999 Among ACE LIMITED ACE BERMUDA INSURANCE LTD. TEMPEST REINSURANCE COMPANY LIMITED ACE INA HOLDINGS INC. as Borrowers -- --------- and THE INITIAL LENDERS NAMED HEREIN as Initial Lenders -- ------- ------- and MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED as Lead Arranger and Syndication Agent -------------------------------------- and MORGAN GUARANTY TRUST COMPANY OF NEW YORK as Administrative Agent -- -------------- ----- and J.P. MORGAN SECURITIES INC. as Co-Arranger -- ----------- and BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION CHASE MANHATTAN BANK as Co-Documentation Agents -- ---------------- ------ T A B L E O F C O N T E N T S Section Page ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms 1 SECTION 1.02. Computation of Time Periods; Other Definitional Provisions 19 SECTION 1.03. Accounting Terms and Determinations 19
ARTICLE II AMOUNTS AND TERMS OF THE COMMITTED ADVANCES SECTION 2.01. The Committed Advances 20 SECTION 2.02. Making the Committed Advances 20 SECTION 2.03. The Competitive Bid Advances 22 SECTION 2.04. Repayment of Committed Advances 25 SECTION 2.05. Termination or Reduction of the Commitments 25 SECTION 2.06. Prepayments 26 SECTION 2.07. Interest 26 SECTION 2.08. Fees 28 SECTION 2.09. Conversion of Advances 28 SECTION 2.10. Increased Costs, Etc. 29 SECTION 2.11. Payments and Computations 31 SECTION 2.12. Taxes 32 SECTION 2.13. Sharing of Payments, Etc. 34 SECTION 2.14. Use of Proceeds 34 SECTION 2.15. Defaulting Lenders 34 SECTION 2.16. Replacement of Affected Lender 37
ARTICLE III CONDITIONS OF LENDING SECTION 3.01. Conditions Precedent to All Committed Borrowings in Respect of the Acquisition 37 SECTION 3.02. Conditions Precedent to Each Committed Borrowing in Respect of the Acquisition 41 SECTION 3.03. Conditions Precedent to Each Competitive Bid Borrowing 42 SECTION 3.04. Determinations Under Section 3.01 42
ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Borrowers 43
ii Section Page ARTICLE V COVENANTS OF THE BORROWERS SECTION 5.01. Affirmative Covenants 47 SECTION 5.02. Negative Covenants 49 SECTION 5.03. Reporting Requirements 53 SECTION 5.04. Financial Covenants 56
ARTICLE VI EVENTS OF DEFAULT SECTION 6.01. Events of Default 56
ARTICLE VII THE GUARANTY SECTION 7.01. The Guaranty 59 SECTION 7.02. Guaranty Unconditional 59 SECTION 7.03. Discharge Only upon Payment in Full; Reinstatement in Certain Circumstances 60 SECTION 7.04. Waiver by the Borrowers 60 SECTION 7.05. Subrogation 60 SECTION 7.06. Stay of Acceleration 61 SECTION 7.07. Continuing Guaranty; Assignments 61
THE AGENTS SECTION 8.01. Authorization and Action 61 SECTION 8.02. Agents' Reliance, Etc. 62 SECTION 8.03. MGT and Affiliates 62 SECTION 8.04. Lender Credit Decision 62 SECTION 8.05. Indemnification 63 SECTION 8.06. Successor Agents 63
ARTICLE IX MISCELLANEOUS SECTION 9.01. Amendments, Etc. 64 SECTION 9.02. Notices, Etc. 64 SECTION 9.03. No Waiver; Remedies 64 SECTION 9.04. Costs and Expenses 65 SECTION 9.05. Right of Set-off 66
iii Section Page SECTION 9.06. Binding Effect 66 SECTION 9.07. Assignments and Participations 66 SECTION 9.08. Execution in Counterparts 71 SECTION 9.09. Confidentiality 71 SECTION 9.10. Jurisdiction, Etc. 71 SECTION 9.11. Governing Law 72 SECTION 9.12. Waiver of Jury Trial 72
SCHEDULES Schedule I - Commitments and Applicable Lending Offices Schedule 4.01(b) - Subsidiaries Schedule 5.02(a) - Lien EXHIBITS Exhibit A-1 - Form of Committed Note Exhibit A-2 - Form of Competitive Bid Note Exhibit B-1 - Form of Notice of Committed Borrowing Exhibit B-2 - Form of Notice of Competitive Bid Borrowing Exhibit C - Form of Assignment and Acceptance Exhibit D - Form of Solvency Certificate Exhibit E-1 - Form of Opinion of Cayman Islands Counsel to the Parent Exhibit E-2 - Form of Opinion of New York Counsel to the Loan Parties Exhibit E-3 - Form of Opinion of Bermuda Counsel to Ace Bermuda and Tempest Exhibit G - Form of Designation Agreement CREDIT AGREEMENT CREDIT AGREEMENT dated as of June 11, 1999 among ACE Limited, a Cayman Islands company (the "Parent") , ACE Bermuda Insurance Ltd ("ACE Bermuda"), Tempest Reinsurance Company Limited ("Tempest"), ACE INA Holdings Inc. ("ACE INA") (Ace Bermuda, Tempest and ACE INA together with the Parent, the "Borrowers"), the banks, financial institutions and other institutional lenders listed on the signature pages hereof as the Initial Lenders (the "Initial Lenders") Merrill Lynch, Pierce, Fenner & Smith Incorporated ("ML&Co."), as syndication agent (together with any successor syndication agent appointed pursuant to Article VIII, the "Syndication Agent") and as lead arranger (the "Lead Arranger"), Morgan Guaranty Trust Company of New York ("MGT"), as administrative agent (together with any successor administrative agent appointed pursuant to Article VIII, the "Administrative Agent" and, together with the Syndication Agent, the "Agents") for the Lenders (as hereinafter defined), and J.P. Morgan Securities Inc. ("J.P. Morgan"), as co-arranger (the "Co-Arranger"). PRELIMINARY STATEMENTS: (1) The Parent or one of its Affiliates (as hereinafter defined) intends to acquire (the "Acquisition") the domestic and international property and casualty businesses ("CIGNAP&C") of Cigna Corporation (the "Seller"). Currently, CIGNAP&C is a division of the Seller. (2) The Borrowers have requested that, immediately upon the consummation of the Acquisition (or any portion thereof), the Lenders lend to the Borrowers up to $750,000,000 to pay transaction fees and expenses, and that, from time to time, the Lenders lend to the Borrowers to provide working capital for the Borrowers and their Subsidiaries and for other general corporate purposes. The Lenders have indicated their willingness to agree to lend such amounts on the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "ACE Bermuda" has the meaning specified in the recital of parties to this Agreement. "ACE INA" has the meaning specified in the recital of parties to this Agreement. 2 "ACE INA 364-Day Revolving Credit Facility" means the 364-Day Revolving Credit Agreement dated as of the date hereof among the Parent, ACE INA, as borrower, the subsidiary guarantors referred to therein, the lenders party thereto, ML&Co. as syndication agent and lead arranger, MGT as administrative agent, and J.P. Morgan as co-arranger, as the same may be amended, modified or otherwise supplemented from time to time. "Acquisition" has the meaning specified in the Preliminary Statements. "Adjusted Consolidated Debt" means, at any time, an amount equal to (i) the then outstanding Consolidated Debt of the Parent and its Subsidiaries plus (ii) 50% of the then issued and outstanding amount of Preferred Securities (other than any Mandatorily Convertible Preferred Securities). "Administrative Agent" has the meaning specified in the recital of parties to this Agreement. "Administrative Agent's Account" means the account of the Administrative Agent maintained by the Administrative Agent with Morgan Guaranty Trust Company of New York, at its office at 60 Wall Street, New York, New York 10260, Account No. 999 99 090, Attention: Bill Wood, or such other account as the Administrative Agent shall specify in writing to the Lenders. "Advance" means a Committed Advance or a Competitive Bid Advance. "Affected Lender" means any Lender that (i) has made, or notified any Borrower that an event or circumstance has occurred which may give rise to, a demand for compensation under Section 2.10(a) or (b) or Section 2.12 (but only so long as the event or circumstance giving rise to such demand or notice is continuing) or (ii) has notified any Borrower (which notice has not been withdrawn) of any event or circumstance of a type described in Section 2.10(c) or (d). "Affiliate" means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person or is a director or officer of such Person. For purposes of this definition, the term "control" (including the terms "controlling", "controlled by" and "under common control with") of a Person means the possession, direct or indirect, of the power to vote 5% or more of the Voting Interests of such Person or to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Interests, by contract or otherwise. "Agents" has the meaning specified in the recital of parties to this Agreement. "Applicable Facility Fee Percentage" means, as of any date, a percentage per annum determined by reference to the Public Debt Rating in effect on such date as set forth below: 3
Public Debt Rating Applicable Facility Fee S&P/Moody's Percentage - --------------------------------------------- Level 1 0.100% - -------------------- A-/A3 and above - --------------------------------------------- Level 2 0.125% - -------------------- BBB+/Baa1 - --------------------------------------------- Level 3 0.150% - -------------------- BBB/Baa2 - --------------------------------------------- Level 4 0.200% - -------------------- BBB-/Baa3 - --------------------------------------------- Level 5 0.300% - -------------------- Lower than Level 4 - ---------------------------------------------
"Applicable Lending Office" means, with respect to each Lender, such Lender's Domestic Lending Office in the case of a Base Rate Advance and such Lender's Eurodollar Lending Office in the case of a Eurodollar Rate Advance and, in the case of a Competitive Bid Advance, the office of such Lender notified by such Lender to the Administrative Agent as its Applicable Lending Office with respect to such Competitive Bid Advance. "Applicable Margin" means, as of any date, a percentage per annum determined by reference to the Public Debt Rating in effect on such date as set forth below:
Applicable Margin Applicable Margin for Public Debt Rating for Eurodollar Rate S&P/Moody's Base Rate Advances Advances - ------------------------------------------------------------ Level 1 0.00% 0.400% - -------------------- A-/A3 and above - ------------------------------------------------------------ Level 2 0.00% 0.500% - -------------------- BBB+/Baa1 - ------------------------------------------------------------ Level 3 0.00% 0.600% - -------------------- BBB/Baa2 - ------------------------------------------------------------ Level 4 0.00% 0.675% - -------------------- BBB-/Baa3 - ------------------------------------------------------------ Level 5 0.00% 1.325% - -------------------- Lower than Level 4 - ------------------------------------------------------------
provided, however, that, if as of any date of determination the aggregate outstanding principal amount of Committed Advances on such day exceeds 33% of the aggregate Commitments on such day, the Applicable Margin for such date shall be the percentage per annum determined above plus 0.125%. 4 "Approved Fund" means, with respect to any Lender that is a fund that invests in bank loans, any other fund that invests in bank loans and is advised or managed by the same investment advisor as such Lender or by an Affiliate of such investment advisor. "Approved Investment" means any Investment that was made by the Parent or any of its Subsidiaries pursuant to investment guidelines set forth by the board of directors of the Parent which are consistent with past practices. "Arrangers" means each of the Lead Arranger and the Co-Arranger. "Assignment and Acceptance" means an assignment and acceptance entered into by a Lender and an Eligible Assignee, and accepted by the Administrative Agent, in accordance with Section 9.07 and in substantially the form of Exhibit C hereto. "Bankruptcy Law" means any proceeding of the type referred to in Section 6.01(f) or Title 11, U.S. Code, or any similar foreign, federal or state law for the relief of debtors. "Base Rate" means a fluctuating interest rate per annum in effect from time to time, which rate per annum shall at all times be equal to the higher of: (a) the rate of interest announced publicly by MGT in New York, New York, from time to time, as MGT s prime rate; and (b) 1/2 of 1% per annum above the Federal Funds Rate. "Base Rate Advance" means a Committed Advance that bears interest as provided in Section 2.07(a)(i). "Borrowers" has the meaning specified in the recital of parties to this Agreement. "Borrowers' Five-Year Revolving Credit Facility" means the Five-Year Revolving Credit Agreement dated as of the date hereof among the Borrowers, the lenders party thereto, ML&Co. as syndication agent and lead arranger, MGT as administrative agent and J.P. Morgan as co-arranger, as the same may be amended, modified or otherwise supplemented from time to time. "Borrowers' Account" means the account of one or more Borrowers maintained by such Borrower(s) with The Bank of Bermuda Limited at its office at 6 Front Street, Hamilton, Bermuda HM12 Account No.18000035, Attention: Maria Aguiar, or such other account as the Parent shall specify in writing to the Administrative Agent or such other account as the Borrowers (or any one of them) shall specify in writing to the Administrative Agent. "Borrowing" means a Committed Borrowing or a Competitive Bid Borrowing. 5 "Business Day" means a day of the year on which banks are not required or authorized by law to close in New York City and, if the applicable Business Day relates to any Eurodollar Rate Advances or LIBO Rate Advances, on which dealings are carried on in the London interbank market. "Capitalized Leases" means all leases that have been or should be, in accordance with GAAP, recorded as capitalized leases. "Change of Control" means the occurrence of any of the following: (a) any Person or two or more Persons acting in concert shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934), directly or indirectly, of Voting Interests of the Parent (or other securities convertible into such Voting Interests) representing 30% or more of the combined voting power of all Voting Interests of the Parent; or (b) a majority of the board of directors of the Parent shall not be Continuing Members; or (c) any Person or two or more Persons acting in concert shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that results in its or their acquisition of the power to exercise, directly or indirectly, a controlling influence over the management or policies of the Parent. "CIGNAP&C" has the meaning specified in the Preliminary Statements. "Co-Arranger" has the meaning specified in the recital of parties to this Agreement. "Commitment" means, with respect to any Lender at any time, the amount set forth opposite such Lender's name on Schedule I hereto under the caption "Commitment" or, if such Lender has entered into one or more Assignment and Acceptances, set forth for such Lender in the Register maintained by the Administrative Agent pursuant to Section 9.07(d) as such Lender's "Commitment", as such amount may be reduced at or prior to such time pursuant to Section 2.05. "Committed Advance" has the meaning specified in Section 2.01(a). "Committed Borrowing" means a borrowing consisting of simultaneous Committed Advances of the same Type made by the Lenders to the same Borrower. "Committed Facility" means, at any time, the aggregate amount of the Lenders' Commitments at such time. "Committed Note" means a promissory note of any Borrower payable to the order of any Lender, in substantially the form of Exhibit A hereto, evidencing the aggregate indebtedness of such Borrower to such Lender resulting from the Committed Advances made by such Lender, as amended. 6 "Competitive Bid Advance" means an advance by a Lender to any Borrower as part of a Competitive Bid Borrowing resulting from the competitive bidding procedure described in Section 2.03 and refers to a Fixed Rate Advance or a LIBO Rate Advance. "Competitive Bid Borrowing" means a borrowing consisting of simultaneous Competitive Bid Advances from each of the Lenders whose offer to make one or more Competitive Bid Advances as part of such borrowing has been accepted under the competitive bidding procedure described in Section 2.03. "Competitive Bid Note" means a promissory note of any Borrower payable to the order of any Lender, in substantially the form of Exhibit A-2 hereto, evidencing the indebtedness of such Borrower to such Lender resulting from Competitive Bid Advances made by such Lender. "Confidential Information" means information that any Loan Party furnishes to any Agent or any Lender, but does not include any such information that is or becomes generally available to the public other than as a result of a breach by such Agent or any Lender of its obligations hereunder or that is or becomes available to such Agent or such Lender from a source other than the Loan Parties that is not, to the best of such Agent's or such Lender's knowledge, acting in violation of a confidentiality agreement with a Loan Party. "Consolidated" refers to the consolidation of accounts in accordance with GAAP. "Consolidated Net Income" means, for any period, the net income of the Parent and its Consolidated Subsidiaries, determined on a Consolidated basis for such period. "Consolidated Tangible Net Worth" means at any date the Consolidated stockholder's equity of the Parent and its Consolidated Subsidiaries (plus, to the extent not included in such Consolidated stockholder's equity, the outstanding amount of all Mandatorily Convertible Preferred Securities) less their Consolidated Intangible Assets, all determined as of such date, provided that such determination for purposes of Section 5.04 shall be made without giving effect to adjustments pursuant to Statement No. 115 of the Financial Accounting Standards Board of the United States of America. For purposes of this definition, "Intangible Assets" means the amount (to the extent reflected in determining such Consolidated stockholder's equity) of (i) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of assets of a going concern business made within twelve months after the acquisition of such business) subsequent to March 31, 1999 in the book value of any asset owned by the Parent or a Consolidated Subsidiary and (ii) all unamortized debt discount and expense, unamortized deferred charges, deferred acquisition cost relating to the acquisition of the stock or assets of any other Person, goodwill, patents, trademarks, service marks, trade names, anticipated future benefit of tax loss carry-forwards, copyrights, organization or developmental expense and other intangible assets. 7 "Contingent Obligation" means, with respect to any Person, any obligation or arrangement of such Person to guarantee or intended to guarantee any Debt, leases, dividends or other payment obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, (a) the direct or indirect guarantee, endorsement (other than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of a primary obligor, (b) the obligation to make take-or-pay or similar payments, if required, regardless of nonperformance by any other party or parties to an agreement or (c) 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 (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, assets, securities or services primarily for the purpose 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 holder of such primary obligation against loss in respect thereof; provided, however, that Contingent Obligations shall not include any obligations of any such Person arising under insurance contracts entered into in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made (or, if less, the maximum amount of such primary obligation for which such Person may be liable pursuant to the terms of the instrument evidencing such Contingent Obligation) or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder), as determined by such Person in good faith. "Continuing Member" means a member of the Board of Directors of the Parent who either (i) was a member of the Parent's Board of Directors on the date of execution and delivery of this Agreement by the Parent and has been such continuously thereafter or (ii) became a member of such Board of Directors after such date and whose election or nomination for election was approved by a vote of the majority of the Continuing Members then members of the Parent's Board of Directors. "Conversion", "Convert" and "Converted" each refer to a conversion of Committed Advances of one Type into Committed Advances of the other Type pursuant to Section 2.09 or 2.10. "Debenture" means debt securities issued by ACE INA or the Parent to the Special Purpose Trust in exchange for proceeds of Preferred Securities. "Debt" of any Person means, without duplication for purposes of calculating financial ratios, (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person for the deferred purchase price of property or services (other than trade payables incurred in the ordinary course of such Person's business), (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all obligations of such Person created or arising under any conditional sale or other title retention agreement with respect to property 8 acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all obligations of such Person as lessee under Capitalized Leases (excluding imputed interest), (f) all obligations of such Person under acceptance, letter of credit or similar facilities, (g) all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Equity Interests in such Person or any other Person or any warrants, rights or options to acquire such capital stock (excluding payments under a contract for the forward sale of ordinary shares of such Person issued in a public offering), valued, in the case of Redeemable Preferred Interests, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends, (h) all Contingent Obligations of such Person in respect of Debt (of the types described above) of any other Person and (i) all indebtedness and other payment obligations referred to in clauses (a) through (h) above of another Person 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 (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such indebtedness or other payment obligations; provided, however, that the amount of Debt of such Person under clause (i) above shall, if such Person has not assumed or otherwise become liable for any such Debt, be limited to the lesser of the principal amount of such Debt or the fair market value of all property of such Person securing such Debt; provided further that "Debt" shall not include obligations in respect of insurance or reinsurance contracts entered into in the ordinary course of business; provided further that, solely for purposes of Section 5.04 and the definitions of "Adjusted Consolidated Debt" and "Total Capitalization", "Debt" shall not include (x) any contingent obligations of any Person under or in connection with acceptance, letter of credit or similar facilities or (y) obligations of the Parent or ACE INA under any Debentures or under any subordinated guaranty of any Preferred Securities or obligations of the Special Purpose Trust under any Preferred Securities. "Default" means any Event of Default or any event that would constitute an Event of Default but for the requirement that notice be given or time elapse or both. "Defaulted Advance" means, with respect to any Lender at any time, the portion of any Committed Advance required to be made by such Lender to any Borrower pursuant to Section 2.01 or 2.02 at or prior to such time that has not been made by such Lender or by the Administrative Agent for the account of such Lender pursuant to Section 2.02(d) as of such time. "Defaulted Amount" means, with respect to any Lender at any time, any amount required to be paid by such Lender to any Agent or any other Lender hereunder or under any other Loan Document at or prior to such time that has not been so paid as of such time, including, without limitation, any amount required to be paid by such Lender to (a) the Administrative Agent pursuant to Section 2.02(d) to reimburse the Administrative Agent for the amount of any Committed Advance made by the Administrative Agent for the account of such Lender, (b) any other Lender pursuant to Section 2.13 to purchase any participation in Committed Advances owing to such other Lender and (c) any Agent pursuant to Section 8.05 to reimburse such Agent for such Lender's ratable share of any amount required to be paid by the Lenders to such Agent as provided therein. 9 "Defaulting Lender" means, at any time, any Lender that, at such time, (a) owes a Defaulted Advance or a Defaulted Amount or (b) shall take any action or be the subject of any action or proceeding of a type described in Section 6.01(f). "Designated Bidder" means (a) an Eligible Assignee or (b) a special purpose corporation that is engaged in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business and that issues (or the parent of which issues) commercial paper rated at least "Prime-1" (or the then equivalent grade) by Moody's or "A-1" (or the then equivalent grade) by S&P that, in the case of either clause (a) or (b), (i) is organized under the laws of the United States or any State thereof, (ii) shall have become a party hereto pursuant to Section 9.07(f), (g) and (h) and (iii) is not otherwise a Lender. "Designation Agreement" means a designation agreement entered into by a Lender (other than a Designated Bidder) and a Designated Bidder, and accepted by the Administrative Agent and the Parent (such acceptance, in the case of the Parent, not to be unreasonably withheld), in substantially the form of Exhibit I hereto. "Domestic Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Domestic Lending Office" opposite its name on Schedule I hereto or in the Assignment and Acceptance pursuant to which it became a Lender, as the case may be, or such other office of such Lender as such Lender may from time to time specify to any Borrower and the Administrative Agent. "Effective Date" means the first date on which the conditions set forth in Article III shall have been satisfied. "Eligible Assignee" means (i) a Lender, (ii) an Affiliate of a Lender, or (iii) a commercial bank, a savings bank or other financial institution that is approved by the Administrative Agent and, unless an Event of a Default has occurred and is continuing at the time any assignment is effected pursuant to Section 9.07, the Parent (such approval of the Parent not to be unreasonably withheld or delayed); provided, however, that neither any Loan Party nor any Affiliate of a Loan Party shall qualify as an Eligible Assignee under this definition. "Environmental Action" means any action, suit, demand, demand letter, claim, notice of non-compliance or violation, notice of liability or potential liability, investigation, proceeding, consent order or consent agreement relating in any way to any Environmental Law, any Environmental Permit or Hazardous Material or arising from alleged injury or threat to health, safety or the environment, including, without limitation, (a) by any governmental or regulatory authority for enforcement, cleanup, removal, response, remedial or other actions or damages and (b) by any governmental or regulatory authority or third party for damages, contribution, indemnification, cost recovery, compensation or injunctive relief. "Environmental Law" means any Federal, state, local or foreign statute, law, ordinance, rule, regulation, code, order, writ, judgment, injunction, decree or judicial or agency interpretation, policy or guidance relating to pollution or protection of the environment, health, 10 safety or natural resources, including, without limitation, those relating to the use, handling, transportation, treatment, storage, disposal, release or discharge of Hazardous Materials. "Environmental Permit" means any permit, approval, identification number, license or other authorization required under any Environmental Law. "Equity Interests" means, with respect to any Person, shares of capital stock of (or other ownership or profit interests in) such Person, warrants, options or other rights for the purchase or other acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or other acquisition from such Person of such shares (or such other interests), and other ownership or profit interests in such Person (including, without limitation, partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are authorized or otherwise existing on any date of determination. "Equity Issuance" means one or more issuances by the Parent and/or ACE INA of Equity Interests and/or equity-linked securities, the Net Cash Proceeds of which shall be at least $500,000,000. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" means any Person that for purposes of Title IV of ERISA is a member of the controlled group of any Loan Party, or under common control with any Loan Party, within the meaning of Section 414 of the Internal Revenue Code or Section 4001 of ERISA. "Eurocurrency Liabilities" has the meaning specified in Regulation D of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Eurodollar Lending Office" means, with respect to any Lender, the office of such Lender specified as its "Eurodollar Lending Office" opposite its name on Schedule I hereto or in the Assignment and Acceptance pursuant to which it became a Lender (or, if no such office is specified, its Domestic Lending Office), or such other office of such Lender as such Lender may from time to time specify to the Parent and the Administrative Agent. "Eurodollar Rate" means, for any Interest Period for all Eurodollar Rate Advances comprising part of the same Committed Borrowing, an interest rate per annum equal to the rate per annum (rounded upwards, if not an integral multiple of 1/32 or 1/100 of 1%, to the nearest 1/100 of 1%) appearing on Dow Jones Markets (Telerate) Page 3750 (or any successor page) as the London interbank offered rate for deposits in U.S. dollars at 11:00 A.M. (London time) two Business Days before the first day of such Interest Period for a period equal to such Interest Period (provided that, if for any reason such rate is not available, the term "Eurodollar Rate" shall mean, for any Interest Period for all Eurodollar Rate Advances comprising part of the same 11 Committed Borrowing, the rate per annum (rounded upwards, if not an integral multiple of 1/32 or 1/100 of 1% to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; provided, however, if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates). "Eurodollar Rate Advance" means an Advance that bears interest as provided in Section 2.07(a)(ii). "Eurodollar Rate Reserve Percentage" for any Interest Period for all Eurodollar Rate Advances comprising part of the same Committed Borrowing means the reserve percentage applicable two Business Days before the first day of such Interest Period under regulations issued from time to time by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including, without limitation, any emergency, supplemental or other marginal reserve requirement) for a member bank of the Federal Reserve System in New York City with respect to liabilities or assets consisting of or including Eurocurrency Liabilities (or with respect to any other category of liabilities that includes deposits by reference to which the interest rate on Eurodollar Rate Advances is determined) having a term equal to such Interest Period. "Events of Default" has the meaning specified in Section 6.01. "Existing Debt" means Debt of each Loan Party and its Subsidiaries outstanding immediately before giving effect to the Acquisition. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Fee Letter" means the fee letter dated January 11, 1999 among the Parent, the Arrangers, the Administrative Agent and Merrill Lynch, as amended. "Fiscal Year" means a fiscal year of the Parent and its Consolidated Subsidiaries ending on September 30 in any calendar year. "Foreign Government Scheme or Arrangement" has the meaning specified in Section 4.01(n) (iv). "Foreign Plan" has the meaning specified in Section 4.01 (n) (iv). 12 "Fixed Rate Advances" has the meaning specified in Section 2.03(a)(i). "GAAP" has the meaning specified in Section 1.03. "Granting Lender" has the meaning specified in Section 9.07(l). "Guaranty" means the undertaking by each of the Borrowers under Article VII. "Hazardous Materials" means (a) petroleum or petroleum products, by- products or breakdown products, radioactive materials, asbestos-containing materials, polychlorinated biphenyls and radon gas and (b) any other chemicals, materials or substances designated, classified or regulated as hazardous or toxic or as a pollutant or contaminant under any Environmental Law. "Hedge Agreements" means interest rate swap, cap or collar agreements, interest rate future or option contracts, currency swap agreements, currency future or option contracts and other hedging agreements. "Indemnified Party" has the meaning specified in Section 9.04(b). "Information Memorandum" means the information memorandum dated February, 1999 used by the Arrangers in connection with the syndication of the Commitments. "Initial Extension of Credit" means the initial Committed Borrowing hereunder. "Initial Lenders" has the meaning specified in the recital of parties to this Agreement. "Interest Period" means, for each Eurodollar Rate Advance comprising part of the same Committed Borrowing and each LIBO Rate Advance comprising part of the same Competitive Bid Borrowing, the period commencing on the date of such Eurodollar Rate Advance or LIBO Rate Advance or the date of the Conversion of any Base Rate Advance into such Eurodollar Rate Advance, and ending on the last day of the period selected by the Borrower requesting such Borrowing or Conversion pursuant to the provisions below and, thereafter, each subsequent period commencing on the last day of the immediately preceding Interest Period and ending on the last day of the period selected by the applicable Borrower pursuant to the provisions below. The duration of each such Interest Period shall be one or two weeks or one, two, three or six months, as the Borrower requesting such Borrowing or Conversion may, upon notice received by the Administrative Agent not later than 11:00 A.M. (New York City time) on the third Business Day prior to the first day of such Interest Period, select; provided, however, that: (a) such Borrower may not select any Interest Period with respect to any Eurodollar Rate Advance that ends after the Termination Date; (b) Interest Periods commencing on the same date for Eurodollar Rate Advances comprising part of the same Committed Borrowing or for LIBO Rate 13 Advances comprising part of the same Competitive Bid Borrowing shall be of the same duration; (c) whenever the last day of any Interest Period would otherwise occur on a day other than a Business Day, the last day of such Interest Period shall be extended to occur on the next succeeding Business Day, provided, however, that, if such extension would cause the last day of such Interest Period to occur in the next following calendar month, the last day of such Interest Period shall occur on the next preceding Business Day; and (d) whenever the first day of any Interest Period (other than a one or two week Interest Period) occurs on a day of an initial calendar month for which there is no numerically corresponding day in the calendar month that succeeds such initial calendar month by the number of months equal to the number of months in such Interest Period, such Interest Period shall end on the last Business Day of such succeeding calendar month. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "Investment" in any Person means any loan or advance to such Person, any purchase or other acquisition of any Equity Interests or Debt or the assets comprising a division or business unit or a substantial part or all of the business of such Person, any capital contribution to such Person or any other direct or indirect investment in such Person, including, without limitation, any acquisition by way of a merger or consolidation and any arrangement pursuant to which the investor incurs Debt of the types referred to in clause (h) or (i) of the definition of "Debt" in respect of such Person; provided, however, that any purchase by any Loan Party or any Subsidiary of any catastrophe-linked instruments which are (x) issued for the purpose of transferring traditional reinsurance risk to the capital markets and (y) purchased by such Loan Party or Subsidiary in accordance with its customary reinsurance underwriting procedures, or the entry by any Loan Party or any Subsidiary into swap transactions relating to such instruments in accordance with such procedures, shall be deemed to be the entry by such Person into a reinsurance contract and shall not be deemed to be an Investment by such Person. "J.P. Morgan" has the meaning specified in the recital of parties to this Agreement. "Lead Arranger" has the meaning specified in the recital of parties to this Agreement. "Lenders" means the Initial Lenders and each Person that shall become a Lender hereunder pursuant to Section 9.07(a), (b) and (c) for so long as such Initial Lender or Person, as the case may be, shall be a party to this Agreement and, solely when used in reference to a Competitive Bid Advance, a Competitive Bid Borrowing, a Competitive Bid Note, or a related term, each Designated Bidder. 14 "LIBO Rate" means, for any Interest Period for all LIBO Rate Advances comprising part of the same Competitive Bid Borrowing, an interest rate per annum equal to the rate per annum (rounded upwards, if not an integral multiple of 1/32 or 1/100 of 1%, to the nearest 1/100 of 1%) appearing on Dow Jones Markets (Telerate) Page 3750 (or any successor page) as the London interbank offered rate for deposits in U.S. dollars at 11:00 A.M. (London time) two Business Days before the first day of such Interest Period for a period equal to such Interest Period (provided that, if for any reason such rate is not available, the term "LIBO Rate" shall mean for any Interest Period for all LIBO Rate Advances comprising part of the same Competitive Bid Borrowing, the rate per annum (rounded upwards, if not an integral multiple of 1/32 or 1/100 of 1%, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page as the London interbank offered rate for deposits in Dollars at approximately 11:00 A.M. (London time) two Business Days prior to the first day of such Interest Period for a term comparable to such Interest Period; provided, however, if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates). "LIBO Rate Advances" has the meaning specified in Section 2.03(a)(i). "Lien" means any lien, security interest or other charge or encumbrance of any kind, or any other type of preferential arrangement, including, without limitation, the lien or retained security title of a conditional vendor and any easement, right of way or other encumbrance on title to real property. "Loan Documents" means (i) this Agreement, (ii) the Notes and (iii) the Fee Letter, in each case as amended. "Loan Parties" means the Borrowers. "Mandatorily Convertible Preferred Securities" means units comprised of Preferred Securities and a contract for the sale of ordinary shares of the Parent (including "Feline Prides" or any substantially similar securities). "Margin Stock" has the meaning specified in Regulation U. "Material Adverse Change" means any material adverse change in the business, financial condition, operations or properties of the Parent and its Subsidiaries, taken as a whole. "Material Adverse Effect" means a material adverse effect on (a) the business, condition, operations or properties of the Parent and its Subsidiaries, taken as a whole, (b) the rights and remedies of any Agent or any Lender under any Transaction Document or (c) the ability of the Loan Parties, taken as a whole, to perform their obligations under the Transaction Documents. "Material Financial Obligation" means a principal amount of Debt and/or payment obligations in respect of any Hedge Agreement of the Parent and/or one or more of its 15 Subsidiaries arising in one or more related or unrelated transactions exceeding in the aggregate $25,000,000. "Merrill Lynch" means Merrill Lynch Capital Corporation. "MGT " has the meaning specified in the recital of parties to this Agreement. "ML&Co." has the meaning specified in the recital of parties to this Agreement. "Moody's" means Moody's Investors Service, Inc. "Multiemployer Plan" means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, to which any Loan Party or any ERISA Affiliate is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions. "Net Cash Proceeds" means, with respect to any sale, lease, transfer or other disposition of any asset or the incurrence or issuance of any Debt or the sale or issuance of any Equity Interests or Preferred Securities by any Person, the aggregate amount of cash received from time to time (whether as initial consideration or through payment or disposition of deferred consideration) by or on behalf of such Person in connection with such transaction after deducting therefrom only (without duplication) (a) reasonable and customary brokerage commissions, underwriting fees and discounts, legal fees, finder's fees and other similar fees and commissions, (b) the amount of taxes payable in connection with or as a result of such transaction and (c) the amount of any Debt secured by a Lien on such asset that, by the terms of the agreement or instrument governing such Debt, is required to be repaid upon such disposition, in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid to a Person that is not an Affiliate of such Person or any Loan Party or any Affiliate of any Loan Party and are properly attributable to such transaction or to the asset that is the subject thereof; provided, however, that in the case of taxes that are deductible under clause (b) above but for the fact that, at the time of receipt of such cash, such taxes have not been actually paid or are not then payable, such Loan Party or such Subsidiary may deduct an amount (the "Reserved Amount") equal to the amount reserved in accordance with GAAP for such Loan Party's or such Subsidiary's reasonable estimate of such taxes, other than taxes for which such Loan Party or such Subsidiary is indemnified; provided further that, at the time such taxes are paid, an amount equal to the amount, if any, by which the Reserved Amount for such taxes exceeds the amount of such taxes actually paid shall constitute "Net Cash Proceeds" of the type for which such taxes were reserved for all purposes hereunder; provided further that, prior to the date on which the Public Debt Rating of the Parent falls to BBB/Baa2 or below, Net Cash Proceeds from the sale, lease, transfer or other disposition of any asset or Equity Interests shall not include any amount of cash proceeds received in connection with such transaction to the extent such cash proceeds are reinvested in the same or related line of business as the business of the Parent. "Note" means a Committed Note or a Competitive Bid Note. 16 "Notice of Committed Borrowing" has the meaning specified in Section 2.02(a). "Notice of Competitive Bid Borrowing" has the meaning specified in Section 2.03(a). "OECD" means the Organization for Economic Cooperation and Development. "Other Taxes" has the meaning specified in Section 2.12(b). "Parent" has the meaning specified in the recital of parties to this Agreement. "PBGC" means the Pension Benefit Guaranty Corporation (or any successor). "Pension Plan" means a "pension plan", as such term is defined in section 3(2) of ERISA, which is subject to title IV of ERISA (other than any "multiemployer plan" as such term is defined in section 4001(a)(3) of ERISA), and to which any Loan Party or any ERISA Affiliate may have any liability, including any liability by reason of having been a substantial employer within the meaning of section 4063 of ERISA at any time during the preceding five years, or by reason of being deemed to be a contributing sponsor under section 4069 of ERISA. "Permitted Liens" means such of the following as to which no enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced or which are being contested in good faith by appropriate proceedings: (a) Liens for taxes, assessments and governmental charges or levies not yet due and payable; (b) Liens imposed by law, such as materialmen's, mechanics', carriers', workmen's and repairmen's Liens and other similar Liens arising in the ordinary course of business securing obligations that are not overdue for a period of more than 90 days; (c) pledges or deposits to secure obligations under workers compensation laws or similar legislation or to secure public or statutory obligations; and (d) easements, rights of way and other encumbrances on title to real property that do not render title to the property encumbered thereby unmarketable or materially adversely affect the use of such property for its present purposes. "Person" means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof. "Pre-Commitment Information" means all of the written information in the Information Memorandum provided by or on behalf of the Parent to the Administrative Agent and the Lenders (other than any information therein provided by ML&Co. and its Affiliates). "Preferred Interests" means, with respect to any Person, Equity Interests issued by such Person that are entitled to a preference or priority over any other Equity Interests issued by such Person upon any distribution of such Person's property and assets, whether by dividend or upon liquidation. 17 "Preferred Securities" means (i) preferred securities issued by the Special Purpose Trust which shall provide, among other things, that dividends shall be payable only out of proceeds of interest payments on the Debentures, or (ii) other instruments that may be treated in whole or in part as equity for rating agency purposes while being treated as debt for tax purposes. "Pro Rata Share" of any amount means, with respect to any Lender at any time, the product of such amount times a fraction the numerator of which is the amount of such Lender's Commitment at such time (or, if the Commitments shall have been terminated pursuant to Section 2.05 or 6.01, such Lender's Commitment as in effect immediately prior to such termination) and the denominator of which is the Committed Facility at such time (or, if the Commitments shall have been terminated pursuant to Section 2.05 or 6.01, the Committed Facility as in effect immediately prior to such termination). "Public Debt Rating" means, as of any date, the lower rating that has been most recently announced by either S&P or Moody's, as the case may be, for any class of non-credit enhanced long-term senior unsecured debt issued by the Parent. For purposes of the foregoing, (a) if only one of S&P and Moody's shall have in effect a Public Debt Rating, the Applicable Margin or the Applicable Facility Fee Percentage, as the case may be, shall be determined by reference to the available rating; (b) if (i) from and after January 11, 1999, the Parent and its Subsidiaries shall not have sold or issued Equity Interests and/or equity-linked securities or sold, leased, transferred or otherwise disposed of (including through liquidation) material assets generating, in the aggregate, $500,000,000 of Net Cash Proceeds which are used to permanently reduce the Committed Facility and the ACE INA 364-Day Revolving Credit Facility in accordance with their respective terms and (ii) neither S&P nor Moody's shall have in effect a Public Debt Rating, the Applicable Margin and the Applicable Facility Fee Percentage will be set in accordance with Level 3 under the definition of "Applicable Margin" and "Applicable Facility Fee Percentage" as the case may be; (c) if neither S&P nor Moody's shall have in effect a Public Debt Rating (other than under the circumstances described in clause (b) above), the Applicable Margin and the Applicable Facility Fee Percentage shall be set in accordance with the level which is three rating levels below the Parent's S&P financial strength rating at such time, provided that, in the event that the Parent's S&P financial strength rating is affirmed at (i) A+, the applicable Level will be Level 2 and (ii) A+ and on credit watch/review with negative implications, the applicable Level will be Level 3; (d) if any rating established by S&P or Moody's shall be changed, such change shall be effective as of the date on which such change is first announced publicly by the rating agency making such change; and (e) if S&P or Moody's shall change the basis on which ratings are established, each reference to the Public Debt Rating announced by S&P or Moody's, as the case may be, shall refer to the then equivalent rating by S&P or Moody's, as the case may be. "Purchase Agreement" means the Purchase Agreement dated as of January 11, 1999 among the Seller, Cigna Holdings, Inc. and the Parent. "Redeemable" means, with respect to any Equity Interest, any Debt or any other right or obligation, any such Equity Interest, Debt, right or obligation that (a) the issuer has undertaken to redeem at a fixed or determinable date or dates, whether by operation of a sinking fund or 18 otherwise, or upon the occurrence of a condition not solely within the control of the issuer or (b) is redeemable at the option of the holder. "Register" has the meaning specified in Section 9.07(d). "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Required Lenders" means, at any time, Lenders owed or holding at least a majority in interest of aggregate principal amount of the Committed Advances outstanding at such time, or, if no such principal amount is outstanding at such time, Lenders holding at least a majority in interest of the aggregate of the Commitments; provided, however, that if any Lender shall be a Defaulting Lender at such time, there shall be excluded from the determination of Required Lenders at such time (A) the aggregate principal amount of the Committed Advances owing to such Lender (in its capacity as a Lender) and outstanding at such time, and (B) the Unused Commitment of such Lender at such time. "Responsible Officer" means the Chairman, Chief Executive Officer, President, Chief Financial Officer, Treasurer or Chief Investment Officer of the Parent. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. "Seller" has the meaning specified in the Preliminary Statements to this Agreement. "Solvent" and "Solvency" mean, 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. "SPC" has the meaning specified in Section 9.07(l). "Special Purpose Trust" means a special purpose business trust established by the Parent or ACE INA of which the Parent or ACE INA will hold all the common interests, which will be the issuer of the Preferred Securities, and which will loan to the Parent or ACE INA (such loan being evidenced by the Debentures) the net proceeds of the issuance and sale of the Preferred Securities. 19 "Subsidiary" of any Person means any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which) more than 50% of (a) the issued and outstanding capital stock having ordinary voting power to elect a majority of the Board of Directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency), (b) the interest in the capital or profits of such partnership, joint venture or limited liability company or (c) the beneficial interest in such trust or estate is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person's other Subsidiaries. "Surviving Debt" means Debt of each Loan Party and its Subsidiaries outstanding immediately before and after giving effect to the transactions contemplated by the Transaction Documents. "Syndication Agent" has the meaning specified in the recital of parties to this Agreement. "Taxes" has the meaning specified in Section 2.12(a). "Tempest" has the meaning specified in the recital of parties to this Agreement "Termination Date" means the earlier of June 9, 2000 and the date of termination in whole of the Commitments. "Total Capitalization" means, at any time, an amount (without duplication) equal to (i) the then outstanding Consolidated Debt of the Parent and its Subsidiaries plus (ii) Consolidated stockholders equity of the Parent and its Subsidiaries plus (iii) the then issued and outstanding amount of Preferred Securities and (without duplication) Debentures. "Transaction Documents" means, collectively, the Loan Documents and the Purchase Agreement. "Type" refers to the distinction between Committed Advances bearing interest at the Base Rate and Committed Advances bearing interest at the Eurodollar Rate. "Unused Commitment" means, with respect to any Lender at any time, (a) such Lender's Commitment at such time minus (b) the sum of (i) the aggregate principal amount of all Committed Advances made by such Lender (in its capacity as a Lender) hereunder plus (ii) such Lender's Pro Rata Share of the aggregate principal amount of all Competitive Bid Advances hereunder. "Voting Interests" means shares of capital stock issued by a corporation, or equivalent Equity Interests in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar 20 functions) of such Person, even if the right so to vote has been suspended by the happening of such a contingency. "Welfare Plan" means a welfare plan, as defined in Section 3(1) of ERISA, that is maintained for employees of any Loan Party or in respect of which any Loan Party could have liability. "Withdrawal Liability" has the meaning specified in Part I of Subtitle E of Title IV of ERISA. SECTION 1.02. Computation of Time Periods; Other Definitional Provisions. In this Agreement and the other Loan Documents in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding". References in the Loan Documents to any agreement or contract "as amended" shall mean and be a reference to such agreement or contract as amended, amended and restated, supplemented or otherwise modified from time to time in accordance with its terms. SECTION 1.03. Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with generally accepted accounting principles as in effect from time to time ("GAAP"), applied on a basis consistent (except for changes concurred in by the Parent's independent public accountants) with the most recent audited consolidated financial statements of the Parent and its Subsidiaries delivered to the Lenders; provided that, if the Parent notifies the Administrative Agent that the Parent wishes to amend any covenant in Article V to eliminate the effect of any change in generally accepted accounting principles on the operation of such covenant (or if the Administrative Agent notifies the Parent that the Required Lenders wish to amend Article V for such purpose), then the Parent's compliance with such covenant shall be determined on the basis of generally accepted accounting principles in effect immediately before the relevant change in generally accepted accounting principles became effective (and, concurrently with the delivery of any financial statements required to be delivered hereunder, the Parent shall provide a statement of reconciliation conforming such financial information to such generally accepted accounting principles as previously in effect), until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Parent and the Required Lenders. ARTICLE II AMOUNTS AND TERMS OF THE COMMITTED ADVANCES SECTION 2.01. The Committed Advances. Each Lender severally agrees, on the terms and conditions hereinafter set forth, to make advances (each, a "Committed Advance") to any Borrower from time to time on any Business Day during the period from the date hereof until the Termination Date in an amount for each such Committed Advance not to exceed such Lender's Unused Commitment at such time; provided, however, that at any time until the Acquisition has been fully consummated the sum of (i) the aggregate amount of Committed Advances outstanding at such time plus (ii) the aggregate 21 amount of "Committed Advances"under the ACE INA 364-Day Revolving Credit Facility outstanding at such time shall not exceed a percentage of the sum of (i) the Commitments hereunder at the time immediately prior to the first Borrowing hereunder plus the "Commitments" under the ACE INA 364-Day Revolving Credit Facility at the time prior to the first Borrowing thereunder equal to the percentage that the portion of the purchase price allocable (in the reasonable judgment of the Administrative Agent) to the assets acquired at or prior to such time in connection with the Acquisition bears to the aggregate purchase price for all assets to be acquired in connection with the Acquisition. Each Committed Borrowing shall be in an aggregate amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof and shall consist of Committed Advances made simultaneously by the Lenders ratably according to their Commitments. Within the limits of each Lender's Unused Commitment in effect from time to time, the Borrowers may borrow under this Section 2.01, prepay pursuant to Section 2.06(a) and reborrow under this Section 2.01; provided that on and after the date of the first reduction of the Commitments pursuant to Section 2.05(b), no Borrowing may be made hereunder (other than a Borrowing which is necessary to repay maturing commercial paper or a Borrowing to repay a Competitive Bid Advance) until the date on which the "Commitments" under the ACE INA 364-Day Revolving Credit Facility do not exceed $1,400,000,000 and the Commitments do not exceed $500,000,000. SECTION 2.02. Making the Committed Advances. (a) Except as otherwise provided in Section 2.03, each Committed Borrowing shall be made on notice, given not later than 11:00 A.M. (New York City time) on the third Business Day prior to the date of the proposed Committed Borrowing in the case of a Committed Borrowing consisting of Eurodollar Rate Advances, or the first Business Day prior to the date of the proposed Committed Borrowing in the case of a Committed Borrowing consisting of Base Rate Advances, by any Borrower to the Administrative Agent, which shall give to each Lender prompt notice thereof by telecopier. Each such notice of a Committed Borrowing (a "Notice of Committed Borrowing") shall be by telephone, confirmed immediately in writing or telecopier, in substantially the form of Exhibit B-1 hereto, specifying therein the requested (i) date of such Committed Borrowing, (ii) Type of Advances comprising such Committed Borrowing, (iii) aggregate amount of such Committed Borrowing and (iv) in the case of a Committed Borrowing consisting of Eurodollar Rate Advances, initial Interest Period for such Committed Advances. Each Lender shall, before 11:00 A.M. (New York City time) on the date of such Committed Borrowing, make available for the account of its Applicable Lending Office to the Administrative Agent at the Administrative Agent's Account, in same day funds, such Lender's ratable portion of such Committed Borrowing in accordance with the respective Commitments of such Lender and the other Lenders. After the Administrative Agent's receipt of such funds and upon fulfillment of the applicable conditions set forth in Article III, the Administrative Agent will make such funds available to the Borrower requesting such Committed Borrowing by crediting the applicable Borrower's Account. (b) Anything in subsection (a) above to the contrary notwithstanding, (i) no Borrower may select Eurodollar Rate Advances if the obligation of the Lenders to make Eurodollar Rate Advances shall then be suspended pursuant to Section 2.09 or 2.10 and (ii) the Committed Advances may not be outstanding as part of more than ten (10) separate Committed Borrowings. (c) Each Notice of Committed Borrowing shall be irrevocable and binding on the Borrower that requested such Committed Borrowing. In the case of any Committed Borrowing that the 22 related Notice of Committed Borrowing specifies is to be comprised of Eurodollar Rate Advances, the Borrower that requested such Committed Borrowing shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified in such Notice of Committed Borrowing for such Committed Borrowing the applicable conditions set forth in Article III, including, without limitation, any loss (excluding loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Committed Advance to be made by such Lender as part of such Committed Borrowing when such Committed Advance, as a result of such failure, is not made on such date. (d) Unless the Administrative Agent shall have received notice from a Lender prior to the date of any Committed Borrowing that such Lender will not make available to the Administrative Agent such Lender's ratable portion of such Committed Borrowing, the Administrative Agent may assume that such Lender has made such portion available to the Administrative Agent on the date of such Committed Borrowing in accordance with subsection (a) of this Section 2.02 and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower requesting such Committed Borrowing on such date a corresponding amount. If and to the extent that such Lender shall not have so made such ratable portion available to the Administrative Agent, such Lender and such Borrower severally agree to repay or pay to the Administrative Agent forthwith on demand such corresponding amount and to pay interest thereon, for each day from the date such amount is made available to such Borrower until the date such amount is repaid or paid to the Administrative Agent, at (i) in the case of such Borrower, the interest rate applicable at such time under Section 2.07 to Advances comprising such Committed Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If such Lender shall pay to the Administrative Agent such corresponding amount, such amount so paid shall constitute such Lender's Committed Advance as part of such Committed Borrowing for all purposes. (e) The failure of any Lender to make the Committed Advance to be made by it as part of any Committed Borrowing shall not relieve any other Lender of its obligation, if any, hereunder to make its Committed Advance on the date of such Committed Borrowing, but no Lender shall be responsible for the failure of any other Lender to make the Committed Advance to be made by such other Lender on the date of any Committed Borrowing. SECTION 2.03. The Competitive Bid Advances. (a) Each Lender severally agrees that any Borrower may make Competitive Bid Borrowings under this Section 2.03 from time to time on any Business Day during the period from the date hereof until the date occurring 7 days prior to the Termination Date in the manner set forth below; provided that, following the making of each Competitive Bid Borrowing, the aggregate amount of the Advances then outstanding shall not exceed the aggregate amount of the Commitments of the Lenders. (i) Any Borrower may request a Competitive Bid Borrowing under this Section 2.03 by delivering to the Administrative Agent, by telecopier, a notice of a Competitive Bid Borrowing (a "Notice of Competitive Bid Borrowing"), in substantially the form of Exhibit B-2 hereto, specifying therein the requested (v) date of such proposed Competitive Bid Borrowing, (w) aggregate amount of such proposed Competitive Bid Borrowing, (x) in the case of a Competitive Bid Borrowing consisting of LIBO Rate Advances, Interest Period, or in the 23 case of a Competitive Bid Borrowing consisting of Fixed Rate Advances, maturity date for repayment of each Fixed Rate Advance to be made as part of such Competitive Bid Borrowing (which maturity date may not be earlier than the date occurring 7 days after the date of such Competitive Bid Borrowing or later than the earlier of (I) 180 days after the date of such Competitive Bid Borrowing and (II) the Termination Date), (y) interest payment date or dates relating thereto, and (z) other terms (if any) to be applicable to such Competitive Bid Borrowing, not later than 10:00 A.M. (New York City time) (A) at least one Business Day prior to the date of the proposed Competitive Bid Borrowing, if such Borrower shall specify in the Notice of Competitive Bid Borrowing that the rates of interest to be offered by the Lenders shall be fixed rates per annum (the Advances comprising any such Competitive Bid Borrowing being referred to herein as "Fixed Rate Advances") and (B) at least four Business Days prior to the date of the proposed Competitive Bid Borrowing, if such Borrower shall instead specify in the Notice of Competitive Bid Borrowing that the rates of interest to be offered by the Lenders are to be based on a margin above or below the LIBO Rate (the Advances comprising such Competitive Bid Borrowing being referred to herein as "LIBO Rate Advances"). Each Notice of Competitive Bid Borrowing shall be irrevocable and binding on such Borrower. The Administrative Agent shall in turn promptly notify each Lender of each request for a Competitive Bid Borrowing received by it from such Borrower by sending such Lender a copy of the related Notice of Competitive Bid Borrowing. (ii) Each Lender may, if, in its sole discretion, it elects to do so, irrevocably offer to make one or more Competitive Bid Advances to the Borrower requesting the Competitive Bid Advances as part of such proposed Competitive Bid Borrowing at a rate or rates of interest specified by such Lender in its sole discretion, by notifying the Administrative Agent (which shall give prompt notice thereof to the Borrower requesting the Competitive Bid Borrowing), before 9:30 A.M. (New York City time) on the date of such proposed Competitive Bid Borrowing, in the case of a Competitive Bid Borrowing consisting of Fixed Rate Advances and before 10:00 A.M. (New York City time) three Business Days before the date of such proposed Competitive Bid Borrowing, in the case of a Competitive Bid Borrowing consisting of LIBO Rate Advances, of the minimum amount and maximum amount of each Competitive Bid Advance which such Lender would be willing to make as part of such proposed Competitive Bid Borrowing (which amounts may, subject to the proviso to the first sentence of this Section 2.03(a), exceed such Lender's Commitment, if any), the rate or rates of interest therefor and such Lender's Applicable Lending Office with respect to such Competitive Bid Advance; provided that if the Administrative Agent in its capacity as a Lender shall, in its sole discretion, elect to make any such offer, it shall notify the Borrower requesting such Competitive Bid Borrowing of such offer at least 30 minutes before the time and on the date on which notice of such election is to be given to the Administrative Agent by the other Lenders. If any Lender shall elect not to make such an offer, such Lender shall so notify the Administrative Agent, before 10:00 A.M. (New York City time) on the date on which notice of such election is to be given to the Administrative Agent by the other Lenders, and such Lender shall not be obligated to, and shall not, make any Competitive Bid Advance as part of such Competitive Bid Borrowing; provided that the failure by any Lender to give such notice shall not cause such Lender to be obligated to make any Competitive Bid Advance as part of such proposed Competitive Bid Borrowing. 24 (iii) The Borrower requesting any particular Competitive Bid Borrowing shall, in turn, before 10:30 A.M. (New York City time) on the date of such proposed Competitive Bid Borrowing, in the case of a Competitive Bid Borrowing consisting of Fixed Rate Advances and before 11:00 A.M. (New York City time) three Business Days before the date of such proposed Competitive Bid Borrowing, in the case of a Competitive Bid Borrowing consisting of LIBO Rate Advances, either: (x) cancel such Competitive Bid Borrowing by giving the Administrative Agent notice to that effect, or (y) accept one or more of the offers made by any Lender or Lenders pursuant to paragraph (ii) above, in its sole discretion, by giving notice to the Administrative Agent of the amount of each Competitive Bid Advance (which amount shall be equal to or greater than the minimum amount, and equal to or less than the maximum amount, notified to such Borrower by the Administrative Agent on behalf of such Lender for such Competitive Bid Advance pursuant to paragraph (ii) above) to be made by each such Lender as part of such Competitive Bid Borrowing, and reject any remaining offers made by Lenders pursuant to paragraph (ii) above by giving the Administrative Agent notice to that effect. The Borrower that requested such Competitive Bid Borrowing shall accept the offers made by any Lender or Lenders to make Competitive Bid Advances in order of the lowest to the highest rates of interest offered by such Lenders. If two or more Lenders have offered the same interest rate, the amount to be borrowed at such interest rate will be allocated among such Lenders in proportion to the amount that each such Lender offered at such interest rate. (iv) If the Borrower that requested any particular Competitive Bid Borrowing notifies the Administrative Agent that such Competitive Bid Borrowing is cancelled pursuant to paragraph (iii)(x) above, the Administrative Agent shall give prompt notice thereof to the Lenders and such Competitive Bid Borrowing shall not be made. (v) If the Borrower that requested any particular Competitive Bid Borrowing accepts one or more of the offers made by any Lender or Lenders pursuant to paragraph (iii)(y) above, the Administrative Agent shall in turn promptly notify (A) each Lender that has made an offer as described in paragraph (ii) above, of the date and aggregate amount of such Competitive Bid Borrowing and whether or not any offer or offers made by such Lender pursuant to paragraph (ii) above have been accepted by such Borrower, (B) each Lender that is to make a Competitive Bid Advance as part of such Competitive Bid Borrowing, of the amount of each Competitive Bid Advance to be made by such Lender as part of such Competitive Bid Borrowing, and (C) each Lender that is to make a Competitive Bid Advance as part of such Competitive Bid Borrowing, upon receipt, that the Administrative Agent has received forms of documents appearing to fulfill the applicable conditions set forth in Article III. Each Lender that is to make a Competitive Bid Advance as part of such Competitive Bid Borrowing shall, before 12:00 noon (New York City time) on the date of such Competitive Bid Borrowing specified in the notice received from the Administrative Agent pursuant to clause (A) of the preceding sentence or any later time when such Lender shall have received notice from the Administrative Agent pursuant to clause (C) of 25 the preceding sentence, make available for the account of its Applicable Lending Office to the Administrative Agent at the Administrative Agent's Account, in same day funds, such Lender's portion of such Competitive Bid Borrowing. Upon fulfillment of the applicable conditions set forth in Article III and after receipt by the Administrative Agent of such funds, the Administrative Agent will make such funds available to the Borrower that requested such Borrowing at the Administrative Agent's address referred to in Section 8.02. Promptly after each Competitive Bid Borrowing the Administrative Agent will notify each Lender of the amount of the Competitive Bid Borrowing. (vi) If the Borrower that requested any particular Competitive Bid Borrowing notifies the Administrative Agent that it accepts one or more of the offers made by any Lender or Lenders pursuant to paragraph (iii)(y) above, such notice of acceptance shall be irrevocable and binding on such Borrower. Such Borrower shall indemnify each Lender against any loss, cost or expense incurred by such Lender as a result of any failure to fulfill on or before the date specified in the related Notice of Competitive Bid Borrowing for such Competitive Bid Borrowing the applicable conditions set forth in Article III, including, without limitation, any loss (excluding loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by such Lender to fund the Competitive Bid Advance to be made by such Lender as part of such Competitive Bid Borrowing when such Competitive Bid Advance, as a result of such failure, is not made on such date. (b) Each Competitive Bid Borrowing shall be in an aggregate amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof and, following the making of each Competitive Bid Borrowing, the Borrowers shall be in compliance with the limitation set forth in the proviso to the first sentence of subsection (a) above. (c) Within the limits and on the conditions set forth in this Section 2.03, any Borrower may from time to time borrow under this Section 2.03, repay or prepay pursuant to subsection (d) below, and reborrow under this Section 2.03, provided that a Competitive Bid Borrowing shall not be made within three Business Days of the date of any other Competitive Bid Borrowing. (d) The Borrower to which any particular Competitive Bid Borrowing is made shall repay to the Administrative Agent for the account of each Lender that has made a Competitive Bid Advance, on the maturity date of each Competitive Bid Advance (such maturity date being that specified by such Borrower for repayment of such Competitive Bid Advance in the related Notice of Competitive Bid Borrowing delivered pursuant to subsection (a)(i) above, the then unpaid principal amount of such Competitive Bid Advance. No Borrower shall have any right to prepay any principal amount of any Competitive Bid Advance unless, and then only on the terms, specified by such Borrower for such Competitive Bid Advance in the related Notice of Competitive Bid Borrowing delivered pursuant to subsection (a)(i) above. (e) The Borrower to which any particular Competitive Bid Borrowing is made shall pay interest on the unpaid principal amount of each Competitive Bid Advance from the date of such Competitive Bid Advance to the date the principal amount of such Competitive Bid Advance is repaid in full, at the rate of interest for such Competitive Bid Advance specified by the Lender making such 26 Competitive Bid Advance in its notice with respect thereto delivered pursuant to subsection (a)(ii) above, payable on the interest payment date or dates specified by such Borrower for such Competitive Bid Advance in the related Notice of Competitive Bid Borrowing delivered pursuant to subsection (a)(i) above. Upon the occurrence and during the continuance of an Event of Default under Section 6.01(a) or 6.01(f) or at the request of the Required Lenders during the existence of any other Event of Default, such Borrower shall pay interest on the amount of unpaid principal of and interest on each Competitive Bid Advance owing to a Lender, payable in arrears on the date or dates interest is payable thereon, at a rate per annum equal at all times to 2% per annum above the rate per annum otherwise required to be paid on such Competitive Bid Advance. (f) The indebtedness of any Borrower resulting from any Competitive Bid Advance made to such Borrower as part of a Competitive Bid Borrowing shall be evidenced by the Competitive Bid Note of such Borrower payable to the order of the Lender making such Competitive Bid Advance. (g) Upon delivery of each Notice of Competitive Bid Borrowing, the Borrower that requested the applicable Competitive Bid Borrowing shall pay a non-refundable fee of $1,500 to the Administrative Agent for its own account. SECTION 2.04. Repayment of Committed Advances. Each Borrower shall repay to the Administrative Agent for the ratable account of the Lenders on the Termination Date the aggregate outstanding principal amount of the Committed Advances then outstanding. SECTION 2.05. Termination or Reduction of the Commitments. (a) Optional. The Parent may, upon at least three Business Days' notice to the Administrative Agent, terminate in whole or reduce in part the Unused Commitments; provided, however, that each partial reduction (i) shall be in an aggregate amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof and (ii) shall be made ratably among the Lenders in accordance with their Commitments. (b) Mandatory. The Committed Facility shall be automatically and permanently reduced on each date on which prepayment thereof would be required to be made pursuant to Section 2.06(b) in an amount equal to the amount of such prepayment (irrespective of whether any Committed Advances are outstanding or not); provided, however, that each such reduction of the Committed Facility shall be made ratably among the Lenders in accordance with their Commitments; provided further that the Committed Facility shall in no event be reduced pursuant to this Section 2.05(b) below $500,000,000. SECTION 2.06. Prepayments. (a) Optional. Each Borrower may, upon at least one Business Day's notice in the case of Base Rate Advances and three Business Days' notice in the case of Eurodollar Rate Advances, in each case to the Administrative Agent stating the proposed date and aggregate principal amount of the prepayment, and if such notice is given such Borrower shall, prepay the outstanding aggregate principal amount of the Committed Advances comprising part of the same Committed Borrowing in whole or ratably in part, together with accrued interest to the date of such prepayment on the aggregate principal amount prepaid; provided, however, that (x) each partial prepayment shall be in an aggregate principal amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof and (y) if any prepayment of a Eurodollar Rate Advance is made on a date 27 other than the last day of an Interest Period for such Committed Advance, such Borrower shall also pay any amounts owing pursuant to Section 9.04(c). (b) Mandatory. (i) On and prior to the later of the date on which the aggregate amount of the "Commitments" under the ACE INA 364-Day Revolving Credit Facility is reduced to $1,400,000,000 and the date on which the aggregate amount of Commitments is reduced to $500,000,000, the Parent shall, on the date of receipt of the Net Cash Proceeds by the Parent or any of its Subsidiaries (other than ACE INA and its Subsidiaries) from (A) the sale, lease, transfer or other disposition of any assets of the Parent or any of such Subsidiaries (other than any sale, lease, transfer or other disposition of assets pursuant to clause (i), (ii), (iii) or (v) of Section 5.02(d)), (B) the incurrence or issuance by the Parent or any of such Subsidiaries of any Debt for borrowed money (other than under this Agreement) and (C) the sale or issuance by the Parent or any of such Subsidiaries of any Equity Interests (including Preferred Securities) to Persons that are not Affiliates of the Loan Parties, prepay an aggregate principal amount of the Committed Advances comprising part of the same Committed Borrowings in an amount equal to 100% of the amount of such Net Cash Proceeds; provided that no prepayment shall be required to the extent of the first $25,000,000 of Net Cash Proceeds generated by any of the events described under (A), (B) or (C) of this Section 2.06, provided that no more than an aggregate amount of Net Cash Proceeds equal to $75,000,000 shall be excluded from the requirements of this Section 2.06(b)(i); provided further that any portion of such prepayment that would be applied to any Eurodollar Rate Advance and would be made on a date other than the last day of an Interest Period for such Committed Advance shall be so paid and applied, at the option of the Parent, within two weeks upon receipt. (ii) All prepayments under this subsection (b) in respect of Eurodollar Rate Advances shall be made together with accrued interest to the date of such prepayment on the principal amount prepaid. SECTION 2.07. Interest. (a) Scheduled Interest. Each Borrower shall pay interest on the unpaid principal amount of each Committed Advance owing by such Borrower to each Lender from the date of such Committed Advance until such principal amount shall be paid in full, at the following rates per annum: (i) Base Rate Advances. During such periods as such Committed Advance is a Base Rate Advance, a rate per annum equal at all times to the sum of (A) the Base Rate in effect from time to time plus (B) the Applicable Margin in effect from time to time, payable in arrears quarterly on the last day of each March, June, September and December during such periods and on the Termination Date. (ii) Eurodollar Rate Advances. During such periods as such Committed Advance is a Eurodollar Rate Advance, a rate per annum equal at all times during each Interest Period for such Committed Advance to the sum of (A) the Eurodollar Rate for such Interest Period for such Committed Advance plus (B) the Applicable Margin in effect from time to time, payable in arrears on the last day of such Interest Period and, if such Interest Period has a duration of more than three months, on each day that occurs during such Interest Period every three months from 28 the first day of such Interest Period and on the date such Eurodollar Rate Advance shall be Converted or paid in full. (iii) Regulation D Compensation. Each Lender that is subject to reserve requirements of the Board of Governors of the Federal Reserve System (or any successor) may require the applicable Borrower to pay, contemporaneously with each payment of interest on Eurodollar Rate Advances, additional interest on the related Eurodollar Rate Advances of such Lender at the rate per annum equal to the excess of (i)(A) the applicable Eurodollar Rate, divided by (B) one minus the Eurodollar Rate Reserve Requirement over (ii) the rate specified in clause (i)(A). Any Lender wishing to require payment of such additional interest shall so notify such Borrower directly, in which case such additional interest on the Eurodollar Rate Advances of such Lender shall be payable to such Lender at the place indicated in such notice with respect to each Interest Period commencing after the giving of such notice. (b) Default Interest. Upon the occurrence and during the existence of an Event of Default under Section 6.01(a) or 6.01(f) or at the request of the Required Lenders during the existence of any other Event of Default, each Borrower shall pay interest on (i) the unpaid principal amount of each Committed Advance owing to each Lender, payable in arrears on the dates referred to in clause (a)(i) or (a)(ii) above, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid on such Committed Advance pursuant to clause (a)(i) or (a)(ii) above and (ii) to the fullest extent permitted by law, the amount of any interest, fee or other amount payable under the Loan Documents that is not paid when due, from the date such amount shall be due until such amount shall be paid in full, payable in arrears on the date such amount shall be paid in full and on demand, at a rate per annum equal at all times to 2% per annum above the rate per annum required to be paid, in the case of interest, on the Type of Committed Advance on which such interest has accrued pursuant to clause (a)(i) or (a)(ii) above and, in all other cases, on Base Rate Advances pursuant to clause (a)(i) above. (c) Notice of Interest Period and Interest Rate. Promptly after receipt of a Notice of Committed Borrowing pursuant to Section 2.02(a), a notice of Conversion pursuant to Section 2.09 or a notice of selection of an Interest Period pursuant to the terms of the definition of "Interest Period", the Administrative Agent shall give notice to the Borrowers and each Lender of the applicable Interest Period and the applicable interest rate determined by the Administrative Agent for purposes of clause (a)(i) or (a)(ii) above. SECTION 2.08. Fees. (a) Ticking Fee. In respect of any portion of the Commitments, each Borrower jointly and severally agrees that it shall pay to the Administrative Agent for the account of the Lenders a ticking fee, from April 6, 1999 in the case of each Initial Lender and from the effective date specified in the Assignment and Acceptance pursuant to which it became a Lender in the case of each other Lender until the date on which such portion of the Commitments is available to be borrowed pursuant to the provisions of Section 3.01, payable in arrears on the date of the initial Committed Borrowing hereunder, thereafter quarterly on the last day of each March, June, September and December, commencing on June 30, 1999, and on the Termination Date, at the rate of 1/10 of 1% per annum on the average daily unavailable Commitment of each Lender during such quarter; provided, however, that no ticking fee shall accrue on the Commitment of a Defaulting Lender so long as such 29 Lender shall be a Defaulting Lender; and provided further that no ticking fee shall accrue on the portion of the Commitments on which the facility fee is accruing pursuant to Section 2.08(b). (b) Facility Fee. Each Borrower jointly and severally agrees to pay to the Administrative Agent for the account of the Lenders a facility fee, from the Effective Date in the case of each Initial Lender and from the effective date specified in the Assignment and Acceptance pursuant to which it became a Lender in the case of each other Lender until the Termination Date, payable in arrears quarterly on the last day of each March, June, September and December, commencing on June 30, 1999, and on the Termination Date, at the rate of the Applicable Facility Fee Percentage on the average daily available Commitment of each Lender during such quarter; provided, however, that no facility fee shall accrue on any of the Commitments of a Defaulting Lender so long as such Lender shall be a Defaulting Lender. (c) Agents' Fees. Each Borrower jointly and severally agrees that it shall pay to each Agent for its own account such fees as may from time to time be agreed between such Borrower and such Agent. SECTION 2.09. Conversion of Advances. (a) Optional. Each Borrower may on any Business Day, upon notice given to the Administrative Agent not later than 11:00 A.M. (New York City time) on the third Business Day prior to the date of the proposed Conversion and subject to the provisions of Section 2.10, Convert all or any portion of the Committed Advances of one Type comprising the same Committed Borrowing into Committed Advances of the other Type; provided, however, that any Conversion of Eurodollar Rate Advances into Base Rate Advances shall be made only on the last day of an Interest Period for such Eurodollar Rate Advances, any Conversion of Base Rate Advances into Eurodollar Rate Advances shall be in an amount not less than the minimum amount specified in Section 2.01 for a Committed Borrowing, no Conversion of any Committed Advances shall result in more separate Committed Borrowings than permitted under Section 2.02(b) and each Conversion of Committed Advances comprising part of the same Committed Borrowing shall be made ratably among the Lenders in accordance with their Commitments. Each such notice of Conversion shall, within the restrictions specified above, specify (i) the date of such Conversion, (ii) the Committed Advances to be Converted and (iii) if such Conversion is into Eurodollar Rate Advances, the duration of the initial Interest Period for such Committed Advances. Each notice of Conversion shall be irrevocable and binding on such Borrower. (b) Mandatory. (i) On the date on which the aggregate unpaid principal amount of Eurodollar Rate Advances comprising any Committed Borrowing shall be reduced, by payment or prepayment or otherwise, to less than $10,000,000, such Committed Advances shall automatically Convert into Base Rate Advances at the end of the applicable Interest Period. (ii) If the Borrowers shall fail to select the duration of any Interest Period for any Eurodollar Rate Advances in accordance with the provisions contained in the definition of "Interest Period" in Section 1.01, the Administrative Agent will forthwith so notify the Borrowers and the Lenders, whereupon each such Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance. 30 (iii) Upon the occurrence and during the existence of an Event of Default under Section 6.01(a) or 6.01(f) or at the request of the Required Lenders during the existence of any other Event of Default, (x) each Eurodollar Rate Advance will automatically, on the last day of the then existing Interest Period therefor, Convert into a Base Rate Advance and (y) the obligation of the Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be suspended. SECTION 2.10. Increased Costs, Etc. (a) If, due to either (i) the introduction of or any change in or in the interpretation of, in each case after the date hereof, any law or regulation or (ii) the compliance with any guideline or request issued after the date hereof from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost to any Lender of agreeing to make or of making, funding or maintaining Eurodollar Rate Advances or LIBO Rate Advances (excluding, for purposes of this Section 2.10, any such increased costs resulting from (x) Taxes or Other Taxes (as to which Section 2.12 shall govern) and (y) changes in the basis of taxation of overall net income or overall gross income by the United States or by the foreign jurisdiction or state under the laws of which such Lender is organized or has its Applicable Lending Office or any political subdivision thereof), then the Borrowers jointly and severally agree to pay, from time to time, within five days after demand by such Lender (with a copy of such demand to the Administrative Agent), which demand shall include a statement of the basis for such demand and a calculation in reasonable detail of the amount demanded, to the Administrative Agent for the account of such Lender additional amounts sufficient to compensate such Lender for such increased cost. A certificate as to the amount of such increased cost, submitted to the Borrowers by such Lender, shall be conclusive and binding for all purposes, absent manifest error. (b) If, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation, in each case after the date hereof, or (ii) the compliance with any guideline or request issued after the date hereof from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the amount of capital required or expected to be maintained by any Lender or any corporation controlling such Lender as a result of or based upon the existence of such Lender's commitment to lend hereunder and other commitments of such type, then, within five days after demand by such Lender or such corporation (with a copy of such demand to the Administrative Agent), which demand shall include a statement of the basis for such demand and a calculation in reasonable detail of the amount demanded, the Borrowers jointly and severally agree to pay to the Administrative Agent for the account of such Lender, from time to time as specified by such Lender, additional amounts sufficient to compensate such Lender in the light of such circumstances, to the extent that such Lender reasonably determines such increase in capital to be allocable to the existence of such Lender's commitment to lend hereunder. A certificate as to such amounts submitted to the Borrowers by such Lender shall be conclusive and binding for all purposes, absent manifest error. (c) If, prior to the first day of any Interest Period with respect to any Eurodollar Rate Advances, the Required Lenders notify the Administrative Agent that the Eurodollar Rate for such Interest Period for such Committed Advances will not adequately reflect the cost to such Lenders of making, funding or maintaining their Eurodollar Rate Advances for such Interest Period, the Administrative Agent shall forthwith so notify the Borrower and the Lenders, whereupon each such Eurodollar Rate Advance will (i) in the case of requested new Eurodollar Rate Advances, be made as or remain Base Rate Advances or as a Eurodollar Rate Advance with a different Interest Period as to which 31 the Required Lenders have not given such a notice and (ii) in the case of existing Eurodollar Rate Advances, automatically, on the last day of the then existing Interest Period therefor, Convert into Base Rate Advances or be continued as a Eurodollar Rate Advance with a different Interest Period as to which the Required Lenders have not given such notice. (d) Notwithstanding any other provision of this Agreement, if the introduction of or any change in or in the interpretation of any law or regulation, in each case after the date hereof, shall make it unlawful, or any central bank or other governmental authority shall assert that it is unlawful, for any Lender or its Eurodollar Lending Office to perform its obligations hereunder to make Eurodollar Rate Advances or LIBO Rate Advances or to continue to fund or maintain Eurodollar Rate Advances or LIBO Rate Advances hereunder, then, on notice thereof and demand therefor by such Lender to the Borrowers through the Administrative Agent, (i) each Eurodollar Rate Advance or LIBO Rate Advance, as the case may be, of such Lender will automatically, upon such demand, Convert into a Base Rate Advance or an Advance that bears interest at the rate set forth in Section 2.07(a)(i), as the case may be, and (ii) the obligation of such Lender to make Eurodollar Rate Advances or LIBO Rate Advances or to Convert Committed Advances into Eurodollar Rate Advances shall be suspended until the Administrative Agent shall notify the Borrowers that such Lender has determined that the circumstances causing such suspension no longer exist (it being understood that such Lender shall make and maintain Base Rate Advances in the amount that would otherwise be made and maintained by such Lender as Eurodollar Advances absent the circumstances described above). (e) Each Lender shall promptly notify the Borrowers and the Administrative Agent of any event of which it has actual knowledge which will result in, and will use reasonable commercial efforts available to it (and not, in such Lender's good faith judgment, otherwise disadvantageous to such Lender) to mitigate or avoid, (i) any obligation by the Borrowers to pay any amount pursuant to subsection (a) or (b) above or pursuant to Section 2.12 or (ii) the occurrence of any circumstances of the nature described in subsection (c) or (d) above (and, if any Lender has given notice of any event described in clause (i) or (ii) above and thereafter such event ceases to exist, such Lender shall promptly so notify the Borrowers and the Administrative Agent). Without limiting the foregoing, each Lender will designate a different Applicable Lending Office if such designation will avoid (or reduce the cost to the Borrowers of) any event described in clause (i) or (ii) of the preceding sentence and such designation will not, in such Lender's good faith judgment, be otherwise disadvantageous to such Lender. (f) Notwithstanding the provisions of subsections (a) and (b) above or Section 2.12 (and without limiting subsection (e) above), if any Lender fails to notify the Borrowers of any event or circumstance that will entitle such Lender to compensation pursuant subsection (a) or (b) above or Section 2.12 within 120 days after such Lender obtains actual knowledge of such event or circumstance, then such Lender shall not be entitled to compensation, from the Borrowers for any amount arising prior to the date which is 120 days before the date on which such Lender notifies the Borrowers of such event or circumstance. SECTION 2.11. Payments and Computations. (a) The applicable Borrower shall make each payment hereunder and under the applicable Notes, irrespective of any right of counterclaim or set-off (except as otherwise provided in Section 2.15), not later than 11:00 A.M. (New York City time) on the day when due in U.S. dollars to the Administrative Agent at the Administrative Agent's Account in 32 same day funds, with payments being received by the Administrative Agent after such time being deemed to have been received on the next succeeding Business Day. The Administrative Agent will promptly thereafter cause like funds to be distributed (i) if such payment by such Borrower is in respect of principal, interest, ticking fees, facility fees or any other amount then payable hereunder and under the Notes to more than one Lender, to such Lenders for the account of their respective Applicable Lending Offices ratably in accordance with the amounts of such respective amounts then payable to such Lenders and (ii) if such payment by such Borrower is in respect of any amount then payable hereunder to one Lender, to such Lender for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. Upon its acceptance of an Assignment and Acceptance and recording of the information contained therein in the Register pursuant to Section 9.07(d), from and after the effective date of such Assignment and Acceptance, the Administrative Agent shall make all payments hereunder and under the Notes in respect of the interest assigned thereby to the Lender assignee thereunder, and the parties to such Assignment and Acceptance shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves. (b) Each Borrower hereby authorizes each Lender, if an Event of Default under Section 6.01(a) has occurred and is continuing, to charge from time to time against any or all of such Borrower s accounts with such Lender any amount that resulted in such Event of Default. (c) All computations of interest on Base Rate Advances (and any other amount payable by reference to the Base Rate) when the Base Rate is determined by reference to MGT's prime rate shall be made by the Administrative Agent on the basis of a year of 365 or, if applicable, 366 days; all other computations of interest and fees shall be made by the Administrative Agent on the basis of a year of 360 days. All such computations shall be made for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest or fees are payable. Each determination by the Administrative Agent of an interest rate or fees hereunder shall be conclusive and binding for all purposes, absent manifest error. (d) Whenever any payment hereunder or under the Notes shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or fee, as the case may be; provided, however, that, if such extension would cause payment of interest on or principal of Eurodollar Rate Advances or LIBO Rate Advances to be made in the next following calendar month, such payment shall be made on the next preceding Business Day. (e) Unless the Administrative Agent shall have received notice from any Borrower required to make any payment prior to the date on which any payment is due to any Lender hereunder that such Borrower will not make such payment in full, the Administrative Agent may assume that such Borrower has made such payment in full to the Administrative Agent on such date and the Administrative Agent may, in reliance upon such assumption, cause to be distributed to each such Lender on such due date an amount equal to the amount then due such Lender. If and to the extent such Borrower shall not have so made such payment in full to the Administrative Agent, each such Lender shall repay to the Administrative Agent forthwith on demand such amount distributed to such Lender together with interest thereon, for each day from the date such amount is distributed to such Lender until the date such Lender repays such amount to the Administrative Agent, at the Federal Funds Rate. 33 SECTION 2.12. Taxes. (a) Any and all payments by any Loan Party hereunder or under the Notes shall be made, in accordance with Section 2.11, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Lender and each Agent, taxes that are imposed on its overall net income by the United States and taxes that are imposed on its overall net income (and franchise taxes imposed in lieu thereof) by the state or foreign jurisdiction under the laws of which such Lender or such Agent, as the case may be, is organized or any political subdivision thereof and, in the case of each Lender, taxes that are imposed on its overall net income (and franchise taxes imposed in lieu thereof) by the state or foreign jurisdiction of such Lender's Applicable Lending Office or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities in respect of payments hereunder or under the Notes being herein referred to as "Taxes"). If any Loan Party shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or under any Note to any Lender or any Agent, (i) the sum payable by such Loan Party shall be increased as may be necessary so that after such Loan Party and the Administrative Agent have made all required deductions (including deductions applicable to additional sums payable under this Section 2.12) such Lender or such Agent, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Loan Party shall make all such deductions and (iii) such Loan Party shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) In addition, each Loan Party shall pay any present or future stamp, documentary, excise, property or similar taxes, charges or levies that arise from any payment made hereunder or under the Notes or from the execution, delivery or registration of, performance under, or otherwise with respect to, this Agreement or the Notes (herein referred to as "Other Taxes"). (c) Each Loan Party shall indemnify each Lender and each Agent for and hold them harmless against the full amount of Taxes and Other Taxes, and for the full amount of taxes of any kind imposed by any jurisdiction on amounts payable under this Section 2.12, imposed on or paid by such Lender or such Agent (as the case may be) and any liability (including penalties, additions to tax, interest and expenses) arising therefrom or with respect thereto. This indemnification payment shall be made within 30 days from the date such Lender or such Agent (as the case may be) makes written demand therefor. (d) Within 30 days after the date of any payment of Taxes, each Loan Party shall furnish to the Administrative Agent, at its address referred to in Section 9.02, the original or a certified copy of a receipt evidencing such payment. In the case of any payment hereunder or under the Notes by or on behalf of a Loan Party through an account or branch outside the United States or by or on behalf of a Loan Party by a payor that is not a United States person, if such Loan Party determines that no Taxes are payable in respect thereof, such Loan Party shall furnish, or shall cause such payor to furnish, to the Administrative Agent, at such address, an opinion of counsel acceptable to the Administrative Agent stating that such payment is exempt from Taxes. For purposes of subsections (d) and (e) of this Section 2.12, the terms "United States" and "United States person" shall have the meanings specified in Section 7701(a)9 and 7701(a)10 of the Internal Revenue Code, respectively. 34 (e) Each Lender organized under the laws of a jurisdiction outside the United States shall, on or prior to the date of its execution and delivery of this Agreement in the case of each Initial Lender, and on the date of the Assignment and Acceptance pursuant to which it becomes a Lender in the case of each other Lender, and from time to time thereafter as requested in writing by the Parent (but only so long thereafter as such Lender remains lawfully able to do so), provide each of the Administrative Agent and the Parent with two original Internal Revenue Service forms W-8BEN (or if delivered on or before December 31, 1999, form 1001) or W-8ECI (or if delivered on or before December 31, 1999, form 4224) or (in the case of a Lender that has certified in writing to the Administrative Agent that it is not a "bank" as defined in Section 881(c)(3)(A) of the Internal Revenue Code) form W-8 (and, if such Lender delivers a form W-8, a certificate representing that such Lender is not a "bank" for purposes of Section 881(c)(3)(A) of the Internal Revenue Code, is not a 10- percent shareholder (within the meaning of Section 871(h)(3)(B) of the Internal Revenue Code) of the Parent and is not a controlled foreign corporation related to the Parent (within the meaning of Section 864(d)(4) of the Internal Revenue Code)), as appropriate, or any successor or other form prescribed by the Internal Revenue Service, certifying that such Lender is exempt from or entitled to a reduced rate of United States withholding tax on payments pursuant to this Agreement or the Notes or, in the case of a Lender providing a form W-8, certifying that such Lender is a foreign corporation, partnership, estate or trust. If the forms provided by a Lender at the time such Lender first becomes a party to this Agreement indicate a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from Taxes unless and until such Lender provides the appropriate forms certifying that a lesser rate applies, whereupon withholding tax at such lesser rate only shall be considered excluded from Taxes for periods governed by such forms; provided, however, that if, at the effective date of the Assignment and Acceptance pursuant to which a Lender becomes a party to this Agreement, the Lender assignor was entitled to payments under subsection (a) of this Section 2.12 in respect of United States withholding tax with respect to interest paid at such date, then, to such extent, the term Taxes shall include (in addition to withholding taxes that may be imposed in the future or other amounts otherwise includable in Taxes) United States withholding tax, if any, applicable with respect to the Lender assignee on such date. If any form or document referred to in this subsection (e) requires the disclosure of information, other than information necessary to compute the tax payable and information required on the date hereof by Internal Revenue Service form W-8BEN, 1001, W-8ECI, 4224 or W-8 (and the related certificate described above), that the Lender reasonably considers to be confidential, the Lender shall give notice thereof to the Parent and shall not be obligated to include in such form or document such confidential information. (f) For any period with respect to which a Lender which may lawfully do so has failed to provide the Parent with the appropriate form described in subsection (e) above (other than if such failure is due to a change in law occurring after the date on which a form originally was required to be provided or if such form otherwise is not required under subsection (e) above), such Lender shall not be entitled to indemnification under subsection (a) or (c) of this Section 2.12 with respect to Taxes imposed by the United States by reason of such failure; provided, however, that should a Lender become subject to Taxes because of its failure to deliver a form required hereunder, the Parent shall take such steps as such Lender shall reasonably request to assist such Lender to recover such Taxes. 35 (g) Each Lender represents and warrants to the Borrowers that, as of the date such Lender becomes a party to this Agreement, such Lender is entitled to receive payments hereunder from the Borrowers without deduction or withholding for or on account of any Taxes. SECTION 2.13. Sharing of Payments, Etc. If any Lender shall obtain at any time any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise, other than as a result of an assignment pursuant to Section 9.07) (a) on account of obligations due and payable to such Lender hereunder and under the Notes at such time in excess of its ratable share (according to the proportion of (i) the amount of such obligations due and payable to such Lender at such time to (ii) the aggregate amount of the obligations due and payable to all Lenders hereunder and under the Notes at such time) of payments on account of the obligations due and payable to all Lenders hereunder and under the Notes at such time obtained by all the Lenders at such time or (b) on account of obligations owing (but not due and payable) to such Lender hereunder and under the Notes at such time in excess of its ratable share (according to the proportion of (i) the amount of such obligations owing to such Lender at such time to (ii) the aggregate amount of the obligations owing (but not due and payable) to all Lenders hereunder and under the Notes at such time) of payments on account of the obligations owing (but not due and payable) to all Lenders hereunder and under the Notes at such time obtained by all of the Lenders at such time, such Lender shall forthwith purchase from the other Lenders such interests or participating interests in the obligations due and payable or owing to them, as the case may be, as shall be necessary to cause such purchasing Lender to share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Lender, such purchase from each other Lender shall be rescinded and such other Lender shall repay to the purchasing Lender the purchase price to the extent of such Lender's ratable share (according to the proportion of (i) the purchase price paid to such Lender to (ii) the aggregate purchase price paid to all Lenders) of such recovery together with an amount equal to such Lender's ratable share (according to the proportion of (i) the amount of such other Lender's required repayment to (ii) the total amount so recovered from the purchasing Lender) of any interest or other amount paid or payable by the purchasing Lender in respect of the total amount so recovered. Each Borrower agrees that any Lender so purchasing an interest or participating interest from another Lender pursuant to this Section 2.13 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such interest or participating interest, as the case may be, as fully as if such Lender were the direct creditor of such Borrower in the amount of such interest or participating interest, as the case may be. SECTION 2.14. Use of Proceeds. The proceeds of the Committed Advances shall be available (and each Borrower agrees that it shall use such proceeds) solely to pay to the Seller a portion of the cash consideration in respect of the Acquisition, pay transaction fees and expenses, provide working capital for such Borrower and its Subsidiaries and for other general corporate purposes. SECTION 2.15. Defaulting Lenders. (a) In the event that, at any one time, (i) any Lender shall be a Defaulting Lender, (ii) such Defaulting Lender shall owe a Defaulted Advance to any Borrower and (iii) such Borrower shall be required to make any payment hereunder or under any other Loan Document to or for the account of such Defaulting Lender, then such Borrower may, to the fullest extent permitted by applicable law, set off and otherwise apply the obligation of such Borrower to make such payment to or for the account of such Defaulting Lender against the obligation of such Defaulting Lender to make such Defaulted Advance. In the event that, on any date, any Borrower shall so set off 36 and otherwise apply its obligation to make any such payment against the obligation of such Defaulting Lender to make any such Defaulted Advance on or prior to such date, the amount so set off and otherwise applied by such Borrower shall constitute for all purposes of this Agreement and the other Loan Documents a Committed Advance by such Defaulting Lender made on the date of such setoff. Such Committed Advance shall be considered, for all purposes of this Agreement, to comprise part of the Committed Borrowing in connection with which such Defaulted Advance was originally required to have been made pursuant to Section 2.01, even if the other Committed Advances comprising such Committed Borrowing shall be Eurodollar Rate Advances on the date such Advance is deemed to be made pursuant to this subsection (a). Each Borrower shall notify the Administrative Agent at any time such Borrower exercises its right of set-off pursuant to this subsection (a) and shall set forth in such notice (A) the name of the Defaulting Lender and the Defaulted Advance required to be made by such Defaulting Lender and (B) the amount set off and otherwise applied in respect of such Defaulted Advance pursuant to this subsection (a). Any portion of such payment otherwise required to be made by such Borrower to or for the account of such Defaulting Lender which is paid by such Borrower, after giving effect to the amount set off and otherwise applied by such Borrower pursuant to this subsection (a), shall be applied by the Administrative Agent as specified in subsection (b) or (c) of this Section 2.15. (b) In the event that, at any one time, (i) any Lender shall be a Defaulting Lender, (ii) such Defaulting Lender shall owe a Defaulted Amount to any Agent or any of the other Lenders and (iii) any Borrower shall make any payment hereunder or under any other Loan Document to the Administrative Agent for the account of such Defaulting Lender, then the Administrative Agent may, on its behalf or on behalf of such other Agents or such other Lenders and to the fullest extent permitted by applicable law, apply at such time the amount so paid by such Borrower to or for the account of such Defaulting Lender to the payment of each such Defaulted Amount to the extent required to pay such Defaulted Amount. In the event that the Administrative Agent shall so apply any such amount to the payment of any such Defaulted Amount on any date, the amount so applied by the Administrative Agent shall constitute for all purposes of this Agreement and the other Loan Documents payment, to such extent, of such Defaulted Amount on such date. Any such amount so applied by the Administrative Agent shall be retained by the Administrative Agent or distributed by the Administrative Agent to such other Agents or such other Lenders, ratably in accordance with the respective portions of such Defaulted Amounts payable at such time to the Administrative Agent, such other Agents and such other Lenders and, if the amount of such payment made by such Borrower shall at such time be insufficient to pay all Defaulted Amounts owing at such time to the Administrative Agent, such other Agents and such other Lenders, in the following order of priority: (i) first, to the Agents for any Defaulted Amounts then owing to the Agents, ratably in accordance with such respective Defaulted Amounts then owing to the Agents; and (ii) second, to any other Lenders for any Defaulted Amounts then owing to such other Lenders, ratably in accordance with such respective Defaulted Amounts then owing to such other Lenders. Any portion of such amount paid by such Borrower for the account of such Defaulting Lender remaining, after giving effect to the amount applied by the Administrative Agent pursuant to this subsection (b), shall be applied by the Administrative Agent as specified in subsection (c) of this Section 2.15. 37 (c) In the event that, at any one time, (i) any Lender shall be a Defaulting Lender, (ii) such Defaulting Lender shall not owe a Defaulted Advance or a Defaulted Amount and (iii) any Borrower, any Agent or any other Lender shall be required to pay or distribute any amount hereunder or under any other Loan Document to or for the account of such Defaulting Lender, then such Borrower or such Agent or such other Lender shall pay such amount to the Administrative Agent to be held by the Administrative Agent, to the fullest extent permitted by applicable law, in escrow or the Administrative Agent shall, to the fullest extent permitted by applicable law, hold in escrow such amount otherwise held by it. Any funds held by the Administrative Agent in escrow under this subsection (c) shall be deposited by the Administrative Agent in an account with MGT, in the name and under the control of the Administrative Agent, but subject to the provisions of this subsection (c). The terms applicable to such account, including the rate of interest payable with respect to the credit balance of such account from time to time, shall be MGT s standard terms applicable to escrow accounts maintained with it. Any interest credited to such account from time to time shall be held by the Administrative Agent in escrow under, and applied by the Administrative Agent from time to time in accordance with the provisions of, this subsection (c). The Administrative Agent shall, to the fullest extent permitted by applicable law, apply all funds so held in escrow from time to time to the extent necessary to make any Committed Advances required to be made by such Defaulting Lender and to pay any amount payable by such Defaulting Lender hereunder and under the other Loan Documents to the Administrative Agent or any other Lender, as and when such Committed Advances or amounts are required to be made or paid and, if the amount so held in escrow shall at any time be insufficient to make and pay all such Committed Advances and amounts required to be made or paid at such time, in the following order of priority: (i) first, to the Agents for any amounts then due and payable by such Defaulting Lender to the Agents hereunder, ratably in accordance with such amounts then due and payable to the Agents; (ii) second, to any other Lenders for any amount then due and payable by such Defaulting Lender to such other Lenders hereunder, ratably in accordance with such respective amounts then due and payable to such other Lenders; and (iii) third, to such Borrower for any Advance then required to be made by such Defaulting Lender pursuant to the Commitment of such Defaulting Lender. In the event that any Lender that is a Defaulting Lender shall, at any time, cease to be a Defaulting Lender, any funds held by the Administrative Agent in escrow at such time with respect to such Lender shall be distributed by the Administrative Agent to such Lender and applied by such Lender to the obligations owing to such Lender at such time under this Agreement and the other Loan Documents ratably in accordance with the respective amounts of such obligations outstanding at such time. (d) The rights and remedies against a Defaulting Lender under this Section 2.15 are in addition to other rights and remedies any such Borrower may have against such Defaulting Lender with respect to any Defaulted Advance and that any Agent or any Lender may have against such Defaulting Lender with respect to any Defaulted Amount. 38 SECTION 2.16. Replacement of Affected Lender. At any time any Lender is an Affected Lender, the Borrowers may replace such Affected Lender as a party to this Agreement with one or more other Lenders and/or, with the consent of the Administrative Agent (which shall not be unreasonably withheld) Eligible Assignees, and upon notice from the Borrowers such Affected Lender shall assign pursuant to an Assignment and Acceptance, and without recourse or warranty, its Commitment, its Committed Advances, its Committed Note and all of its other rights and obligations hereunder to such other Lenders and/or Eligible Assignees for a purchase price equal to the sum of the principal amount of the Committed Advances so assigned, all accrued and unpaid interest thereon, such Affected Lender's ratable share of all accrued and unpaid fees payable pursuant to Section 2.08, any amounts payable pursuant to Section 9.04(c) as a result of such Affected Lender receiving payment of any Eurodollar Rate Advance prior to the end of an Interest Period therefor (assuming for such purpose that receipt of payment pursuant to such Assignment and Acceptance constitutes payment of such Eurodollar Rate Advances) and all other obligations owed to such Affected Lender hereunder. ARTICLE III CONDITIONS OF LENDING SECTION 3.01. Conditions Precedent to All Committed Borrowings in Respect of the Acquisition. (a) Conditions Precedent to Initial Extension of Credit. The obligation of each Lender to make a Committed Advance on the occasion of the Initial Extension of Credit hereunder is subject to the satisfaction of the following conditions precedent before or concurrently with the Initial Extension of Credit: (i) The Administrative Agent shall have received on or before the day of the Initial Extension of Credit the following, each dated such day (unless otherwise specified), in form and substance reasonably satisfactory to the Administrative Agent (unless otherwise specified) and (except for the Committed Notes) in sufficient copies for each Lender: (A) The Committed Notes payable to the order of the Lenders. (B) Certified copies of the resolutions of the Board of Directors of each Loan Party approving the Acquisition and the other transactions contemplated by the Transaction Documents and each Transaction Document to which it is or is to be a party, and of all documents evidencing other necessary corporate action and governmental and other third party approvals and consents, if any, with respect to the Acquisition and the other transactions contemplated by the Transaction Documents and each Transaction Document to which it is or is to be a party. (C) A copy of a certificate of the Secretary of State or other appropriate official of the jurisdiction of incorporation of (x) ACE INA dated reasonably near the date of the Initial Extension of Credit, certifying (A) as to a true and correct copy of the charter of ACE INA and each amendment thereto on file in such Secretary s office and (B) that (1) such amendments are the only amendments to ACE INA's charter on file in 39 such Secretary's office, (2) ACE INA has paid all franchise taxes to the date of such certificate and (C) ACE INA is duly incorporated and in good standing or presently subsisting under the laws of the State of the jurisdiction of its incorporation and (y) each other Loan Party, dated reasonably near the Initial Extension of Credit, certifying as to the good standing (or existence) of such Loan Party. (D) A certificate of each Loan Party, signed on behalf of such Loan Party by its President or a Vice President and its Secretary or any Assistant Secretary, dated the date of the Initial Extension of Credit (the statements made in which certificate shall be true on and as of the date of the Initial Extension of Credit), certifying as to (1) in the case of ACE INA, the absence of any amendments to the charter of such Loan Party since the date of the Secretary of State's certificate referred to in Section 3.01(a)(i)(C), (2) a true and correct copy of the bylaws (in the case of ACE INA) or the constitutional documents (in the case of each other Loan Party) of such Loan Party as in effect on the date on which the resolutions referred to in Section 3.01(a)(i)(B) were adopted and on the date of the Initial Extension of Credit, (3) the due incorporation and good standing or valid existence of such Loan Party as a corporation organized under the laws of the jurisdiction of its incorporation, and the absence of any proceeding for the dissolution or liquidation of such Loan Party, (4) the truth of the representations and warranties contained in the Loan Documents as though made on and as of the date of the Initial Extension of Credit and (5) the absence of any event occurring and continuing, or resulting from the Initial Extension of Credit, that constitutes a Default. (E) A certificate of the Secretary or an Assistant Secretary of each Loan Party certifying the names and true signatures of the officers of such Loan Party authorized to sign each Transaction Document to which it is or is to be a party and the other documents to be delivered hereunder and thereunder. (F) Certified copy of the Purchase Agreement, duly executed by the parties thereto, together with all agreements, instruments and other documents delivered in connection therewith as the Administrative Agent shall reasonably request. (G) Certificates, in substantially the form of Exhibit D hereto, attesting to the Solvency of each Loan Party before and after giving effect to the Acquisition and the other transactions contemplated by the Transaction Documents, from its Chief Financial Officer. (H) A favorable opinion of (1) Maples and Calder, Cayman Islands counsel for the Parent, in substantially the form of Exhibit E-1 hereto and as to such other matters as any Lender through the Administrative Agent may reasonably request, (2) Mayer, Brown & Platt, New York counsel for the Loan Parties, in substantially the form of Exhibit E-2 hereto and as to such other matters as any Lender through the Administrative Agent may reasonably request, and (3) Conyers Dill & Pearman, Bermuda counsel for ACE Bermuda and Tempest, in substantially the form of Exhibit E- 40 3 hereto and as to such other matters as any Lender through the Administrative Agent may reasonably request. (I) A certificate of the Parent, signed by its President or Chief Financial Officer, dated the date of the Initial Extension of Credit, certifying as to (1) a description (in reasonable detail) of the portion of the Acquisition occurring on the date of the Initial Extension of Credit and (2) the percentage that the portion of the purchase price allocable to the assets acquired at such time in connection with the Acquisition bears to the aggregate purchase price for all assets to be acquired in connection with the Acquisition. (ii) (x) No development or change occurring after January 11, 1999, and no information becoming known after such date, that results in a material change in the post-Acquisition corporate and capitalization structure of the Parent or in the capitalization structure of the Parent's subsidiaries contemplated in the Pre-Commitment Information and (y) the Lenders shall be reasonably satisfied with the corporate and legal structure and capitalization of each Loan Party (other than the Parent), including the terms and conditions of the constitutional documents of each such Person and of each material agreement or instrument relating to such structure. (iii) The Lenders shall be reasonably satisfied that all Existing Debt, other than Surviving Debt, has been (or concurrently will be) prepaid, redeemed or defeased in full or otherwise satisfied and extinguished and that all Surviving Debt shall be on terms and conditions reasonably satisfactory to the Lenders. (iv) Before giving effect to the Acquisition and the other transactions contemplated by the Transaction Documents, there shall have occurred no material adverse change since September 30, 1998 in the business, financial condition, operations or properties of (i) CIGNAP&C or (ii) the Parent and its Subsidiaries, taken as a whole. (v) There shall exist no action, suit, investigation, litigation or proceeding affecting any Loan Party or any of its Subsidiaries pending or threatened before any court, governmental agency or arbitrator that (x) could be reasonably expected to have a Material Adverse Effect or material adverse effect on the business, financial condition, operations or properties of CIGNAP&C or (y) would reasonably be expected to materially adversely affect the legality, validity or enforceability of any Transaction Document or the consummation of the Acquisition or the other transactions contemplated by the Transaction Documents. (vi) All governmental and third party consents and approvals necessary in connection with the portion of the Acquisition occurring on the date of the Initial Extension of Credit and the other transactions contemplated by the Transaction Documents to occur on such date shall have been obtained (without the imposition of any conditions that are not reasonably acceptable to the Lenders and that would reasonably be expected to have a Material Adverse Effect) and shall remain in effect, except for any such consents and approvals, the absence of which, either individually or in the aggregate, would not reasonably be likely to have a Material Adverse 41 Effect; all applicable waiting periods in connection with the portion of the Acquisition occurring on the date of the Initial Extension of Credit and the other transactions contemplated by the Transaction Documents to occur on such date shall have expired without any negative action being taken by any competent authority; and no law or regulation shall be applicable in the reasonable judgment of the Lenders that restrains, prevents or imposes materially adverse conditions upon the portion of the Acquisition occurring on the date of the Initial Extension of Credit or the other transactions contemplated by the Transaction Documents to occur on such date. (vii) The Pre-Commitment Information shall be true and correct in all material aspects, and no additional information shall have come to the attention of the Administrative Agent or the Lenders that is inconsistent in any material respect with the Pre-Commitment Information or that could reasonably be expected to have a Material Adverse Effect. (viii) No development or change occurring after January 11, 1999, and no information becoming known after such date, that (x) results in or could reasonably be expected to result in a material change in, or material deviation from, the Pre-Commitment Information that is or could reasonably be expected to be materially adverse to any Borrower or any of its Subsidiaries or materially adverse to the Lenders or (y) has had or could reasonably be expected to have a Material Adverse Effect. (ix) The Borrowers shall have paid all accrued fees of the Agents and the Lenders and all accrued expenses of the Agents (including the accrued fees and expenses of counsel to the Administrative Agent and local counsel on behalf of all of the Lenders), in each case to the extent then due and payable. (x) The portion of the Acquisition occurring on the date of the Initial Extension of Credit shall have been consummated (or shall be concurrently consummated) in accordance with the terms of the Purchase Agreement, without any waiver or amendment not consented to by the Lenders of any material term, provision or condition set forth therein that would reasonably be expected to have a Material Adverse Effect, and in compliance with all material applicable laws. (xi) The Purchase Agreement shall be in full force and effect. (b) Conditions Precedent to All Other Committed Borrowings in Respect of the Acquisition. The obligation of each Lender to make a Committed Advance on the occasion of each Committed Borrowing (other than in respect of the Initial Extension of Credit) the proceeds of which shall be used to fund a portion of the purchase price in respect of the Acquisition shall be subject to the reasonable satisfaction of the following conditions precedent before or concurrently with such Committed Borrowing: (i) The Administrative Agent shall have received on or before the day of such Committed Borrowing a certificate of the Parent, in form and substance reasonably satisfactory to the Administrative Agent (unless otherwise specified) and in sufficient copies for each Lender, signed by its President or Chief Financial Officer, dated the date of such Committed 42 Borrowing, certifying as to (1) a description (in reasonable detail) of the portion of the Acquisition occurring on the date of such Committed Borrowing and (2) the percentage that the portion of the purchase price allocable to the assets acquired at such time in connection with the Acquisition bears to the aggregate purchase price for all assets to be acquired in connection with the Acquisition. (ii) All governmental and third party consents and approvals necessary in connection with the portion of the Acquisition occurring on the date of such Committed Borrowing and the other transactions contemplated by the Transaction Documents to occur on such date shall have been obtained (without the imposition of any conditions that are not reasonably acceptable to the Lenders and that would reasonably be expected to have a Material Adverse Effect) and shall remain in effect, except for any such consents and approvals, the absence of which, either individually or in the aggregate, would not reasonably be likely to have a Material Adverse Effect; all applicable waiting periods in connection with the portion of the Acquisition occurring on the date of such Committed Borrowing and the other transactions contemplated by the Transaction Documents to occur on such date shall have expired without any negative action being taken by any competent authority, and no law or regulation shall be applicable in the reasonable judgment of the Lenders, that restrains, prevents or imposes materially adverse conditions upon the portion of the Acquisition occurring on the date of such Committed Borrowing or the other transactions contemplated by the Transaction Documents to occur on such date. (iii) The portion of the Acquisition occurring on the date of such Committed Borrowing shall have been consummated (or shall be concurrently consummated) in accordance with the terms of the Purchase Agreement, without any waiver or amendment not consented to by the Lenders of any material term, provision or condition set forth therein that would reasonably be expected to have a Material Adverse Effect and in compliance with all material applicable laws. (iv) The Purchase Agreement shall be in full force and effect. SECTION 3.02. Conditions Precedent to Each Committed Borrowing in Respect of the Acquisition. The obligation of each Lender to make a Committed Advance on the occasion of each Committed Borrowing (including the initial Committed Borrowing) shall be subject to the further conditions precedent that on the date of such Committed Borrowing (a) the following statements shall be true (and each of the giving of the applicable Notice of Committed Borrowing, and the acceptance by the Borrower that requested such Committed Borrowing of the proceeds of such Committed Borrowing shall constitute a representation and warranty by such Borrower that both on the date of such notice and on the date of such Committed Borrowing such statements are true): (i) the representations and warranties contained in each Loan Document are correct in all material respects on and as of such date, before and after giving effect to such Committed Borrowing and to the application of the proceeds therefrom, as though made on and as of such date, other than any such representations or warranties that, by their terms, refer to a specific 43 date other than the date of such Committed Borrowing, in which case as of such specific date; and (ii) no Default has occurred and is continuing, or would result from such Committed Borrowing or from the application of the proceeds therefrom; and (b) the Administrative Agent shall have received such other approvals, opinions or documents as any Lender through the Administrative Agent may reasonably request. SECTION 3.03. Conditions Precedent to Each Competitive Bid Borrowing. The obligation of each Lender that is to make a Competitive Bid Advance on the occasion of a Competitive Bid Borrowing to make such Competitive Bid Advance as part of such Competitive Bid Borrowing is subject to the conditions precedent that (i) the Administrative Agent shall have received the written confirmatory Notice of Competitive Bid Borrowing with respect thereto, and (ii) on the date of such Competitive Bid Borrowing the following statements shall be true (and each of the giving of the applicable Notice of Competitive Bid Borrowing and the acceptance by the Borrower that requested such Competitive Bid Borrowing of the proceeds of such Competitive Bid Borrowing shall constitute a representation and warranty by such Borrower that on the date of such Competitive Bid Borrowing such statements are true): (a) the representations and warranties contained in Section 4.01 are correct in all material respects on and as of the date of such Competitive Bid Borrowing, before and after giving effect to such Competitive Bid Borrowing and to the application of the proceeds therefrom, as though made on and as of such date, other than any such representations or warranties that, by their terms, refer to a specific date other than the date of such Competitive Bid Borrowing, in which case as of such specific date, and (b) no Default has occurred and is continuing, or would result from such Competitive Bid Borrowing or from the application of the proceeds therefrom. SECTION 3.04. Determinations Under Section 3.01. For purposes of determining compliance with the conditions specified in Section 3.01, each Lender 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 the Lenders unless an officer of the Administrative Agent responsible for the transactions contemplated by the Loan Documents shall have received notice from such Lender prior to the Initial Extension of Credit specifying its objection thereto and such Lender shall not have made available to the Administrative Agent such Lender's ratable portion of such Committed Borrowing. 44 ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Borrowers. Each Borrower represents and warrants as follows: (a) Each Loan Party and each of its Subsidiaries (i) is duly organized or formed, validly existing and, to the extent such concept applies, in good standing under the laws of the jurisdiction of its incorporation or formation, (ii) is duly qualified and in good standing as a foreign corporation or other entity in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed except where the failure to so qualify or be licensed would not be reasonably likely to have a Material Adverse Effect and (iii) has all requisite power and authority (including, without limitation, all governmental licenses, permits and other approvals) to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted, except where the failure to have any license, permit or other approval would not be reasonably likely to have a Material Adverse Effect. All of the outstanding Equity Interests in each Borrower (other than the Parent) have been validly issued, are fully paid and non-assessable and (except for any Preferred Securities issued after the date of this Agreement) are owned, directly or indirectly, by the Parent free and clear of all Liens. (b) Set forth on Schedule 4.01(b) hereto is a complete and accurate list of all Subsidiaries of each Loan Party. (c) The execution, delivery and performance by each Loan Party of each Transaction Document to which it is or is to be a party and the consummation of the Acquisition and the other transactions contemplated by the Transaction Documents (to the extent applicable), are within such Loan Party's corporate powers, have been duly authorized by all necessary corporate action, and do not (i) contravene such Loan Party's constitutional documents, (ii) violate any law, rule, regulation (including, without limitation, Regulation X of the Board of Governors of the Federal Reserve System), order, writ, judgment, injunction, decree, determination or award, (iii) conflict with or result in the breach of, or constitute a default under, any contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument binding on or affecting any Loan Party, any of its Subsidiaries or any of their properties or (iv) except for the Liens created under the Loan Documents, result in or require the creation or imposition of any Lien upon or with respect to any of the properties of any Loan Party or any of its Subsidiaries. No Loan Party or any of its Subsidiaries is in violation of any such law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or in breach of any such contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument, the violation or breach of which could be reasonably likely to have a Material Adverse Effect. (d) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for (i) the due execution, delivery, recordation, filing or performance by any Loan Party of any Transaction 45 Document to which it is or is to be a party, or for the consummation of the Acquisition or the other transactions contemplated by the Transaction Documents, or (ii) the exercise by any Agent or any Lender of its rights under the Loan Documents, except for the authorizations, approvals, actions, notices and filings which have been duly obtained, taken, given or made and are in full force and effect. All applicable waiting periods in connection with the Acquisition and the other transactions contemplated by the Transaction Documents have expired without any action having been taken by any competent authority restraining, preventing or imposing materially adverse conditions upon the Acquisition or the rights of the Loan Parties or their Subsidiaries freely to transfer or otherwise dispose of, or to create any Lien on, any properties now owned or hereafter acquired by any of them. (e) This Agreement has been, and each other Transaction Document when delivered hereunder will have been, duly executed and delivered by each Loan Party party thereto. This Agreement is, and each other Transaction Document when delivered hereunder will be, the legal, valid and binding obligation of each Loan Party party thereto, enforceable against such Loan Party in accordance with its terms. (f) There is no action, suit, investigation, litigation or proceeding affecting any Loan Party or any of its Subsidiaries, including any Environmental Action, pending or threatened before any court, governmental agency or arbitrator that (i) could be reasonably likely to have a Material Adverse Effect or (ii) would reasonably be expected to affect the legality, validity or enforceability of any Transaction Document or the consummation of the Acquisition or the other transactions contemplated by the Transaction Documents. (g) The Consolidated balance sheets of the Parent and its Subsidiaries as at September 30, 1998, and the related Consolidated statements of income and of cash flows of the Parent and its Subsidiaries for the fiscal year then ended, accompanied by an unqualified opinion of PricewaterhouseCoopers LLP, independent public accountants, and the Consolidated balance sheets of the Parent and its Subsidiaries as at December 31, 1998, and the related Consolidated statements of income and cash flows of the Parent and its Subsidiaries for the three months then ended, duly certified by the Chief Financial Officer of the Parent, copies of which have been furnished to each Lender, fairly present, subject, in the case of said balance sheet as at December 31, 1998, and said statements of income and cash flows for the three months then ended, to year-end audit adjustments, the Consolidated financial condition of the Parent and its Subsidiaries as at such dates and the Consolidated results of operations of the Parent and its Subsidiaries for the periods ended on such dates, all in accordance with generally accepted accounting principles applied on a consistent basis (subject, in the case of the December 31, 1998 balance sheet and statements, to the absence of footnotes), and since December 31, 1998, there has been no Material Adverse Change. (h) The Consolidated forecasted balance sheet, statements of income and statements of cash flows of the Parent and its Subsidiaries contained in the Information Memorandum were prepared in good faith on the basis of the assumptions stated therein, which assumptions were fair in light of the conditions existing at the time of delivery of such forecasts, and represented, at the time of delivery, the Parent's best estimate of its future financial performance. 46 (i) Neither the Information Memorandum nor any other written information, exhibit or report furnished by or on behalf of any Loan Party to any Agent or any Lender in connection with the negotiation and syndication of the Loan Documents or pursuant to the terms of the Loan Documents contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements made therein not misleading as at the date it was dated (or if not dated, so delivered). (j) None of the Borrowers is engaged in the business of extending credit for the purpose of purchasing or carrying Margin Stock, and no proceeds of any Advance will be used to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock. (k) Neither any Loan Party nor any of its Subsidiaries is an "investment company", or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company", as such terms are defined in the Investment Company Act of 1940, as amended. Neither the making of any Advances nor the application of the proceeds or repayment thereof by any Borrower, nor the consummation of the other transactions contemplated by the Transaction Documents, will violate any provision of such Act or any rule, regulation or order of the Securities and Exchange Commission thereunder. (l) Neither any Loan Party nor any of its Subsidiaries is a party to any indenture, loan or credit agreement or any lease or other agreement or instrument or subject to any charter or corporate restriction that is reasonably likely to have a Material Adverse Effect. (m) Each Loan Party is, individually and together with its Subsidiaries, Solvent. (n) Except to the extent that any and all events and conditions under clauses (i) through (vi) below of this paragraph (n) in the aggregate are not reasonably expected to have a Material Adverse Effect: (i) Schedule B (Actuarial Information) to the most recent annual report (Form 5500 Series) for each Pension Plan, copies of which have been filed with the Internal Revenue Service, is complete and accurate and fairly presents the funding status of such Pension Plan, and since the date of such Schedule B there has been no material adverse change in such funding status. (ii) Neither any Loan Party nor any ERISA Affiliate has incurred or is reasonably expected to incur any Withdrawal Liability to any Multiemployer Plan. (iii) Neither any Loan Party nor any ERISA Affiliate has been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or has been terminated, within the meaning of Title IV of ERISA, and no such Multiemployer Plan is reasonably expected to be in reorganization or to be terminated, within the meaning of Title IV of ERISA. (iv) With respect to each scheme or arrangement mandated by a government other than the United States (a "Foreign Government Scheme or Arrangement") and with respect to 47 each employee benefit plan that is not subject to United States law maintained or contributed to by any Loan Party or with respect to which any Subsidiary of any Loan Party may have liability under applicable local law (a "Foreign Plan"): (x) Any employer and employee contributions required by law or by the terms of any Foreign Government Scheme or Arrangement or any Foreign Plan have been made, or, if applicable, accrued, in accordance with normal accounting practices. (y) The fair market value of the assets of each funded Foreign Plan, the liability of each insurer for any Foreign Plan funded through insurance or the book reserve established for any Foreign Plan, together with any accrued contributions, is sufficient to procure or provide for the accrued benefit obligations, as of the date hereof, with respect to all current and former participants in such Foreign Plan according to the actuarial assumptions and valuations most recently used to account for such obligations in accordance with applicable generally accepted accounting principles. (z) Each Foreign Plan required to be registered has been registered and has been maintained in good standing with applicable regulatory authorities. (v) To the extent the assets of any Loan Party are or are deemed under applicable law to be "plan assets" within the meaning of Department of Labor Regulation (S) 2510.3-101, the execution, delivery and performance of the Loan Documents and the consummation of the transactions contemplated therein will not result in a non-exempt prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Internal Revenue Code. (vi) During the twelve-consecutive-month period to the date of the execution and delivery of this Agreement and prior to any Borrowing hereunder, no steps have been taken to terminate any Pension Plan, no contribution failure has occurred with respect to any Pension Plan sufficient to give rise to a lien under section 302(f) of ERISA and no minimum funding waiver has been applied for or is in effect with respect to any Pension Plan. No condition exists or event or transaction has occurred or is reasonably expected to occur with respect to any Pension Plan which could result in any Loan Party or any ERISA Affiliate incurring any liability, fine or penalty. (o) (i) In the ordinary course of its business, the Parent reviews the effect of Environmental Laws on the operations and properties of the Parent and its Subsidiaries, in the course of which it identifies and evaluates associated liabilities and costs (including, without limitation, any capital or operating expenditures required for clean-up or closure of properties presently or previously owned, any capital or operating expenditures required to achieve or maintain compliance with environmental protection standards imposed by law or as a condition of any license, permit or contract, any related constraints on operating activities, including any periodic or permanent shutdown of any facility or reduction in the level of or change in the nature of operations conducted thereat, and any actual or potential liabilities to third parties and any related costs and expenses). On the basis of this review, the Parent has reasonably 48 concluded that such associated liabilities and costs, including the costs of compliance with Environmental Laws, are unlikely to have a Material Adverse Effect. (ii) The operations and properties of each Loan Party and each of its Subsidiaries comply in all material respects with all applicable Environmental Laws and Environmental Permits, except for non-compliances which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; Hazardous Materials have not been released, discharged or disposed of on any property currently or formerly owned or operated by any Loan Party or any of its Subsidiaries that would reasonably be expected to have a Material Adverse Effect; and there are no Environmental Actions pending or threatened against any Loan Party or its Subsidiaries, and no circumstances exist that could be reasonably likely to form the basis of any such Environmental Action, which (in either case), individually or in the aggregate with all other such pending or threatened actions and circumstances would reasonably be expected to have a Material Adverse Effect. (p) Each Loan Party and each of its Subsidiaries has filed, has caused to be filed or has been included in all material Federal tax returns and all other material tax returns required to be filed and has paid all taxes shown thereon to be due, together with applicable interest and penalties, except to the extent contested in good faith and by appropriate proceedings (in which case adequate reserves have been established therefor in accordance with GAAP). (q) Each Borrower has (i) initiated a review and assessment of all areas within its and each of its Subsidiaries' business and operations (including those affected by material suppliers, vendors and customers) that could be adversely affected by the risk that computer applications used by such Borrower or any of its Subsidiaries (or material suppliers, vendors and customers other than those affecting customers that may give rise to claims under insurance policies issued by any Borrower or a Subsidiary) may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999 (the "Year 2000 Problem"), (ii) developed a plan and timetable for addressing the Year 2000 Problem on a timely basis and (iii) to date, implemented that plan substantially in accordance with such timetable. Based on the foregoing, each Borrower believes that all computer applications of such Borrower and its Subsidiaries that are material to its or any of its Subsidiaries' business and operations are reasonably expected on a timely basis to be able to perform properly date-sensitive functions for all dates before and after January 1, 2000 ("Year 2000 Compliant"), except to the extent that a failure to do so could not reasonably be expected to have a Material Adverse Effect. 49 ARTICLE V COVENANTS OF THE BORROWERS SECTION 5.01. Affirmative Covenants. So long as any Advance or any other obligation of any Loan Party under any Loan Document shall remain unpaid or any Lender shall have any Commitment hereunder, each Borrower will: (a) Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries to comply, in all material respects, with all applicable laws, rules, regulations and orders, such compliance to include, without limitation, compliance with Environmental Laws, Environmental Permits, ERISA and the Racketeer Influenced and Corrupt Organizations Chapter of the Organized Crime Control Act of 1970. (b) Payment of Taxes, Etc. Pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent, (i) all material taxes, assessments and governmental charges or levies imposed upon it or upon its property and (ii) all lawful material claims that, if unpaid, might by law become a Lien upon its property; provided, however, that neither any Borrower nor any of its Subsidiaries shall be required to pay or discharge any such tax, assessment, charge or claim that is being contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained. (c) Maintenance of Insurance. Maintain, and cause each of its Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which such Borrower or such Subsidiary operates (it being understood that the foregoing shall not apply to maintenance of reinsurance or similar matters which shall be solely within the reasonable business judgment of the Parent and its Subsidiaries). (d) Preservation of Corporate Existence, Etc. Preserve and maintain, and cause each of its Subsidiaries to preserve and maintain, its existence, legal structure, legal name, rights (charter and statutory), permits, licenses, approvals, privileges and franchises; provided, however, that the Parent and its Subsidiaries may consummate any merger or consolidation permitted under Section 5.02(c) and provided further that neither the Parent nor its Subsidiaries shall be required to preserve any right, permit, license, approval, privilege or franchise if the Board of Directors of the Parent or such Subsidiary shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Parent or such Subsidiary, as the case may be, and that the loss thereof is not disadvantageous in any material respect to such Borrower, such Subsidiary or the Lenders. (e) Visitation Rights. At any reasonable time and from time to time upon prior notice, permit the Agents (upon request made by any Agent or any Lender), or any agents or representatives thereof, at the expense (so long as no Default has occurred and is continuing) of such Agents (or such Lender, as the case may be), to examine and make copies of and abstracts 50 from the records and books of account of, and visit the properties of, the Parent and its Subsidiaries, and to discuss the affairs, finances and accounts of the Parent and any of its Subsidiaries with any of their officers or directors and with, so long as a representative of the Parent is present, their independent certified public accountants. (f) Keeping of Books. Keep, and cause each of its Subsidiaries to keep, proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Parent and each such Subsidiary sufficient to permit the preparation of financial statements in accordance with GAAP. (g) Maintenance of Properties, Etc. Maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, all of its properties that are used or useful in the conduct of its business in good working order and condition, ordinary wear and tear excepted. (h) Transactions with Affiliates. Conduct, and cause each of its Subsidiaries to conduct, all transactions otherwise permitted under the Loan Documents with any of their Affiliates (other than such transactions between Loan Parties) on terms that are fair and reasonable and no less favorable than it would obtain in a comparable arm's length transaction with a Person not an Affiliate. (i) Pari Passu ranking. Each Borrower shall procure that its obligations under the Loan Documents will rank at least pari passu with all its other present and future unsecured and unsubordinated obligations, except for obligations which are mandatorily preferred by law applying to companies generally. SECTION 5.02. Negative Covenants. So long as any Advance or any other obligation of any Loan Party under any Loan Document shall remain unpaid or any Lender shall have any Commitment hereunder, each of the Borrowers will not, at any time: (a) Liens, Etc. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Lien on or with respect to any of its properties of any character (including, without limitation, accounts) whether now owned or hereafter acquired, or assign or permit any of its Subsidiaries to assign, any accounts or other right to receive income, except: (i) Liens created under the Loan Documents or in respect of the Borrowers' Five-Year Revolving Credit Facility or the ACE INA 364-Day Revolving Credit Facility; (ii) Permitted Liens; (iii) Liens described on Schedule 5.02(a) hereto and other Liens arising in the ordinary course of business of CIGNAP&C; 51 (iv) purchase money Liens upon or in real property or equipment acquired or held by the Parent or any of its Subsidiaries in the ordinary course of business to secure the purchase price of such property or equipment or to secure Debt incurred solely for the purpose of financing the acquisition, construction or improvement of any such property or equipment to be subject to such Liens, or Liens existing on any such property or equipment at the time of acquisition or within 180 days following such acquisition (other than any such Liens created in contemplation of such acquisition that do not secure the purchase price), or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount; provided, however, that no such Lien shall extend to or cover any property other than the property or equipment being acquired, constructed or improved, and no such extension, renewal or replacement shall extend to or cover any property not theretofore subject to the Lien being extended, renewed or replaced; (v) Liens arising in connection with Capitalized Leases; provided that no such Lien shall extend to or cover any assets other than the assets subject to such Capitalized Leases; (vi) (A) any Lien existing on any asset of any Person at the time such Person becomes a Subsidiary and not created in contemplation of such event, (B) any Lien on any asset of any Person existing at the time such Person is merged or consolidated with or into the Parent or any of it Subsidiaries in accordance with Section 5.02(c) and not created in contemplation of such event and (C) any Lien existing on any asset prior to the acquisition thereof by the Parent or any of its Subsidiaries and not created in contemplation of such acquisition; (vii) Liens securing obligations under credit default swap transactions determined by reference to, or Contingent Obligations in respect of, Debt issued by the Parent or one of its Subsidiaries; such Debt not to exceed an aggregate principal amount of $550,000,000; (viii) Liens arising in the ordinary course of its business which (A) do not secure Debt and (B) do not in the aggregate materially detract from the value of its assets or materially impair the use thereof in the operation of its business; (ix) Liens on cash and Approved Investments securing Hedge Agreements arising in the ordinary course of business; (x) other Liens securing Debt or other obligations outstanding in an aggregate principal or face amount not to exceed at any time 10% of Consolidated Tangible Net Worth; (xi) Liens consisting of deposits made by the Parent or any insurance Subsidiary with any insurance regulatory authority or other statutory Liens or Liens or claims imposed or required by applicable insurance law or regulation against the assets 52 of the Parent or any insurance Subsidiary, in each case in favor of policyholders of the Parent or such insurance Subsidiary or an insurance regulatory authority and in the ordinary course of the Parent's or such insurance Subsidiary's business; (xii) Liens on Investments and cash balances of the Parent or any insurance Subsidiary (other than capital stock of any Subsidiary) securing obligations of the Parent or any insurance Subsidiary in respect of (i) letters of credit obtained in the ordinary course of business and/or (ii) trust arrangements formed in the ordinary course of business for the benefit of cedents to secure reinsurance recoverables owed to them by the Parent or any insurance Subsidiary; (xiii) the replacement, extension or renewal of any Lien permitted by clause (iii) or (vi) above upon or in the same property theretofore subject thereto or the replacement, extension or renewal (without increase in the amount (other than in respect of fees, expenses and premiums, if any) or change in any direct or contingent obligor) of the Debt secured thereby; (xiv) Liens securing obligations owed by any Loan Party to any other Loan Party or owed by any Subsidiary of the Parent (other than a Loan Party) to the Parent or any other Subsidiary; (xv) Liens incurred in the ordinary course of business in favor of financial intermediaries and clearing agents pending clearance of payments for investment or in the nature of set-off, banker's lien or similar rights as to deposit accounts or other funds; and (xvi) judgment or judicial attachment Liens, provided that the enforcement of such Liens is effectively stayed. (b) Change in Nature of Business. Make any material change in the nature of the business of the Parent and its Subsidiaries taken as a whole as carried on at the date hereof (and giving effect to the Acquisition). (c) Mergers, Etc. Merge into or consolidate with any Person or permit any Person to merge into it, or permit any of its Subsidiaries to do so, except that: (i) any Subsidiary of the Parent may merge into or consolidate with any other Subsidiary of the Parent, provided that, in the case of any such merger or consolidation, the Person formed by such merger or consolidation shall be a wholly owned Subsidiary of the Parent, provided further that, in the case of any such merger or consolidation to which a Borrower is a party, the Person formed by such merger or consolidation shall be such Borrower; (ii) any Subsidiary of any Borrower may merge into or consolidate with any other Person or permit any other Person to merge into or consolidate with it; provided 53 that the Person surviving such merger shall be a wholly owned Subsidiary of such Borrower; and (iii) in connection with any sale or other disposition permitted under Section 5.02(d) (other than clause (ii) thereof), any Subsidiary of the Parent may merge into or consolidate with any other Person or permit any other Person to merge into or consolidate with it; and (iv) the Parent or any other Borrower may merge into or consolidate with any other Person; provided that, in the case of any such merger or consolidation, the Person formed by such merger or consolidation shall be the Parent or such Borrower, as the case may be; provided, however, that in each case, immediately after giving effect thereto, no event shall occur and be continuing that constitutes a Default. (d) Sales, Etc., of Assets. Sell, lease, transfer or otherwise dispose of, or permit any of its Subsidiaries to sell, lease, transfer or otherwise dispose of, any assets, or grant any option or other right to purchase, lease or otherwise acquire any, assets except: (i) sales of inventory in the ordinary course of its business; (ii) in a transaction authorized by Section 5.02(c); (iii) sales of Approved Investments in the ordinary course of business on a basis consistent with past practices; (iv) sales of assets for fair value; (v) sales, leases, transfers or other dispositions of any assets by the Parent or a Subsidiary to the Parent or another Subsidiary; and (vi) so long as no Default shall occur and be continuing, the grant of any option or other right to purchase any asset in a transaction that would be permitted under the provisions of clauses (i) through (iv) above. (e) Restricted Payments. In the case of the Parent, declare or pay any dividends, purchase, redeem, retire, defease or otherwise acquire for value any of its Equity Interests now or hereafter outstanding, return any capital to its stockholders, partners or members (or the equivalent Persons thereof) as such, make any distribution of assets, Equity Interests, obligations or securities to its stockholders, partners or members (or the equivalent Persons thereof) as such or issue or sell any Equity Interests or accept any capital contributions, or permit any of its Subsidiaries to do any of the foregoing, or permit any of its Subsidiaries to purchase, redeem, retire, defease or otherwise acquire for value any Equity Interests in the Parent or to issue or sell any Equity Interests therein, except that, so long as no Default shall have occurred and be 54 continuing at the time of any action described in clause (i) or (ii) below or would result therefrom: (i) the Parent may (A) declare and pay dividends and distributions payable only in common stock of the Parent, (B) issue and sell shares of its capital stock so long as the Net Cash Proceeds thereof shall be applied in the manner set forth in Section 2.06(b)(i), (C) purchase, redeem, retire, defease or otherwise acquire for value any of its Equity Interests in an aggregate amount during the term of this Agreement not exceeding $300,000,000 and (D) declare and pay cash dividends to its stockholders, (ii) (A) any Loan Party (other than the Parent) may declare and pay cash dividends to another Loan Party and (B) any Subsidiary of the Parent (other than any Loan Party) may (x) declare and pay cash dividends to the Parent or any other wholly owned Subsidiary of the Parent of which it is a Subsidiary and (y) accept capital contributions from its parent, and (iii) the Special Purpose Trust may issue Preferred Securities and pay dividends thereon with the proceeds of payments of interest on the Debentures. (f) Accounting Changes. Make or permit, or permit any of its Subsidiaries to make or permit, any change in accounting policies or reporting practices, except as permitted by GAAP. (g) Amendment, Etc., of Purchase Agreement. (i) Cancel or terminate the Purchase Agreement or consent to or accept any cancellation or termination thereof, or (ii) amend, modify or change in any manner any term or condition of the Purchase Agreement or give any consent, waiver or approval thereunder, waive any default under or any breach of any term or condition of the Purchase Agreement, agree in any manner to any other amendment, modification or change of any term or condition of the Purchase Agreement or take any other action in connection with the Purchase Agreement that, in any case described in this clause (ii), would reasonably be expected to have a Material Adverse Effect, or permit any of its Subsidiaries to do any of the foregoing. SECTION 5.03. Reporting Requirements. So long as any Advance or any other obligation of any Loan Party under any Loan Document shall remain unpaid or any Lender shall have any Commitment hereunder, the Parent will furnish to the Agents and the Lenders: (a) Default Notice. As soon as possible and in any event within two days after the occurrence of each Default or any event, development or occurrence reasonably likely to have a Material Adverse Effect continuing on the date of such statement, a statement of the chief financial officer of the Parent setting forth details of such Default, event, development or occurrence and the action that the Parent or the applicable Subsidiary has taken and proposes to take with respect thereto. 55 (b) Annual Financials. (i) As soon as available and in any event within 90 days after the end of each Fiscal Year, a copy of the annual Consolidated audit report for such year for the Parent and its Subsidiaries, including therein a Consolidated balance sheet of the Parent and its Subsidiaries as of the end of such Fiscal Year and Consolidated statements of income and cash flows of the Parent and its Subsidiaries for such Fiscal Year, all reported on in a manner reasonably acceptable to the Securities and Exchange Commission in each case and accompanied by an opinion of PricewaterhouseCoopers LLP or other independent public accountants of recognized standing reasonably acceptable to the Required Lenders, together with (i) a certificate of the Chief Financial Officer of the Parent stating that no Default has occurred and is continuing, or if a Default has occurred and is continuing, a statement as to the nature thereof and the action that the Parent has taken a proposes to take with respect thereto, and (ii) a schedule in form reasonably satisfactory to the Administrative Agent of the computations used by the Parent in determining, as of the end of such Fiscal Year, compliance with the covenants contained in Section 5.04. (ii) As soon as available and in any event within 120 days after the end of each Fiscal Year, a copy of the annual Consolidated audit report for such year for each Subsidiary Guarantor and its Subsidiaries, including therein a Consolidated balance sheet of such Subsidiary Guarantor and its Subsidiaries as of the end of such Fiscal Year and a Consolidated statement of income and a Consolidated statement of cash flows of such Subsidiary Guarantor and its Subsidiaries for such Fiscal Year, in each case accompanied by an opinion acceptable to the Required Lenders of PricewaterhouseCoopers LLP or other independent public accountants of recognized standing acceptable to the Required Lenders. (c) Quarterly Financials. As soon as available and in any event within 45 days after the end of each of the first three quarters of each Fiscal Year, Consolidated balance sheets of the Parent and its Subsidiaries as of the end of such quarter and Consolidated statements of income and a Consolidated statement of cash flows of the Parent and its Subsidiaries for the period commencing at the end of the previous fiscal quarter and ending with the end of such fiscal quarter and Consolidated statements of income and a Consolidated statement of cash flows of the Parent and its Subsidiaries for the period commencing at the end of the previous Fiscal Year and ending with the end of such quarter, setting forth in each case in comparative form the corresponding figures for the corresponding date or period of the preceding Fiscal Year, all in reasonable detail and duly certified (subject to the absence of footnotes and normal year-end audit adjustments) by the Chief Financial Officer of the Parent as having been prepared in accordance with GAAP, together with (i) a certificate of said officer stating that no Default has occurred and is continuing or, if a Default has occurred and is continuing, a statement as to the nature thereof and the action that the Parent has taken and proposes to take with respect thereto and (ii) a schedule in form reasonably satisfactory to the Administrative Agent of the computations used by the Parent in determining compliance with the covenants contained in Section 5.04. (d) Litigation. Promptly after the commencement thereof, notice of all actions, suits, investigations, litigation and proceedings before any court or governmental department, 56 commission, board, bureau, agency or instrumentality, domestic or foreign, affecting any Loan Party or any of its Subsidiaries of the type described in Section 4.01(f). (e) Securities Reports. Promptly after the sending or filing thereof, copies of all proxy statements, financial statements and reports that the Parent sends to its stockholders generally, and copies of all regular, periodic and special reports, and all registration statements, that any Loan Party or any of its Subsidiaries files with the Securities and Exchange Commission or any governmental authority that may be substituted therefor, or with any national securities exchange. (f) ERISA. (i) ERISA Events. Promptly and in any event within 10 days after any Loan Party or any ERISA Affiliate institutes any steps to terminate any Pension Plan or becomes aware of the institution of any steps or any threat by the PBGC to terminate any Pension Plan, or the failure to make a required contribution to any Pension Plan if such failure is sufficient to give rise to a lien under section 302(f) of ERISA, or the taking of any action with respect to a Pension Plan which could result in the requirement that any Loan Party or any ERISA Affiliate furnish a bond or other security to the PBGC or such Pension Plan, or the occurrence of any event with respect to any Pension Plan which could result in any Loan Party or any ERISA Affiliate incurring any material liability, fine or penalty, or any material increase in the contingent liability of any Loan Party or any ERISA Affiliate with respect to any post-retirement Welfare Plan benefit, notice thereof and copies of all documentation relating thereto. (ii) Plan Annual Reports. Promptly upon request of any Agent or any Lender, copies of each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) with respect to each Pension Plan. (iii) Multiemployer Plan Notices. Promptly and in any event within 15 Business Days after receipt thereof by any Loan Party or any ERISA Affiliate from the sponsor of a Multiemployer Plan, copies of each notice concerning (A) the imposition of Withdrawal Liability by any such Multiemployer Plan, (B) the reorganization or termination, within the meaning of Title IV of ERISA, of any such Multiemployer Plan or (C) the amount of liability incurred, or that may be incurred, by such Loan Party or any ERISA Affiliate in connection with any event described in clause (A) or (B); provided, however, that such notice and documentation shall not be required to be provided (except at the specific request of any Agent or Lender, in which case such notice and documentation shall be promptly provided following such request) if such condition or event is not reasonably expected to result in any Loan Party or any ERISA Affiliate incurring any material liability, fine or penalty. (g) Year 2000 Compliance. Promptly after the Parent's discovery or determination thereof, notice (in reasonable detail) that any computer application that is material to its or any of its Subsidiaries' business and operations will not be Year 2000 Compliant (as defined in Section 4.01(q)), except to the extent that such failure could not reasonably be expected to have a Material Adverse Effect. 57 (h) Statutory Statements. As soon as available and in any event within 20 days after submission, each statutory statement of the Loan Parties (or any of them) in the form submitted to The Insurance Division of the Office of Registrar of Companies of Bermuda. (i) Regulatory Notices, Etc. Promptly after any Responsible Officer of the Parent obtains knowledge thereof, (i) a copy of any notice from the Bermuda Minister of Finance or the Registrar of Companies or any other person of the revocation, the suspension or the placing of any restriction or condition on the registration as an insurer of any Borrower under the Bermuda Insurance Act 1978 (and related regulations) or of the institution of any proceeding or investigation which could result in any such revocation, suspension or placing of such a restriction or condition, (ii) copies of any correspondence by, to or concerning any Loan Party relating to an investigation conducted by the Bermuda Minister of Finance, whether pursuant to Section 132 of the Bermuda Companies Act 1981 (and related regulations) or otherwise and (iii) a copy of any notice of or requesting or otherwise relating to the winding-up or any similar proceeding of or with respect to any Loan Party. (j) Other Information. Such other information respecting the business, condition (financial or otherwise), operations, performance, properties or prospects of any Loan Party or any of its Subsidiaries as any Agent, or any Lender through the Administrative Agent, may from time to time reasonably request. SECTION 5.04. Financial Covenants. So long as any Advance or any other obligation of any Loan Party under any Loan Document shall remain unpaid or any Lender shall have any Commitment hereunder, the Parent will: (a) Adjusted Consolidated Debt to Total Capitalization Ratio. Maintain at all times a ratio of Adjusted Consolidated Debt to Total Capitalization of not more than the lesser of (a) 0.50 to 1 or (b) the Specified Ratio. For purposes of the foregoing, the Specified Ratio shall be the greater of 0.35 to 1 or the ratio determined by multiplying 1.25 times the numerator of the lowest ratio of Adjusted Consolidated Debt to Total Capitalization as of the last day of any fiscal quarter of the Parent after completion of the Acquisition. (b) Tangible Net Worth. Maintain at all times Consolidated Tangible Net Worth in an amount equal to the sum of (i) $1,000,000,000 plus (ii) 25% of Consolidated Net Income for each fiscal quarter of the Parent ending on and after June 30, 1999 for which such Consolidated Net Income is positive plus (iii) 75% (or, after the Equity Issuance (so long as the Net Cash Proceeds received by the Parent and its Subsidiaries are at least $500,000,000), 50%) of the aggregate amount by which Consolidated Tangible Net Worth shall have been increased by reason of the issuance and sale of any Equity Interests or Mandatorily Convertible Preferred Securities or, without duplication, the conversion or exchange of any Debt of the Parent into or with Equity Interests of the Parent. 58 ARTICLE VI EVENTS OF DEFAULT SECTION 6.01. Events of Default. If any of the following events ("Events of Default") shall occur and be continuing: (a) (i) any Borrower shall fail to pay any principal of any Advance when the same shall become due and payable or (ii) any Borrower shall fail to pay any interest on any Advance, or any Loan Party shall fail to make any other payment under any Loan Document, in each case under this clause (ii) within five Business Days after the same becomes due and payable; or (b) any representation or warranty made by any Loan Party (or any of its officers) under or in connection with any Loan Document shall prove to have been incorrect in any material respect when made; or (c) any Borrower shall fail to perform or observe any term, covenant or agreement contained in Section 2.14, 5.01(d) (with respect to the Parent) or (e), 5.02 or 5.04; or (d) any Loan Party shall fail to perform or observe any other term, covenant or agreement contained in any Loan Document on its part to be performed or observed if such failure shall remain unremedied for 30 days after the earlier of the date on which (i) a Responsible Officer becomes aware of such failure or (ii) written notice thereof shall have been given to such Loan Party by any Agent or any Lender; or (e) the Parent or any of its Subsidiaries shall fail to pay any Material Financial Obligation (but excluding Debt outstanding hereunder) of the Parent or such Subsidiary (as the case may be), when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Material Financial Obligation; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Material Financial Obligation and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Material Financial Obligation or otherwise to cause, or to permit the holder thereof to cause, such Material Financial Obligation to mature; or any such Material Financial Obligation shall be declared to be due and payable or required to be prepaid or redeemed (other than by a regularly scheduled required prepayment or redemption), purchased or defeased, or an offer to prepay, redeem, purchase or defease such Material Financial Obligation shall be required to be made, in each case prior to the stated maturity thereof; or (f) any Loan Party or any of its Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against any Loan Party or any of its Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or 59 seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it) that is being diligently contested by it in good faith, either such proceeding shall remain undismissed or unstayed for a period of 60 days or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or any substantial part of its property) shall occur; or any Loan Party or any of its Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this subsection (f); or (g) any judgment or order for the payment of money in excess of $100,000,000 shall be rendered against any Loan Party or any of its Subsidiaries and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (h) any non-monetary judgment or order shall be rendered against any Loan Party or any of its Subsidiaries that could be reasonably likely to have a Material Adverse Effect, and there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (i) any provision of any Loan Document after delivery thereof pursuant to Section 3.01 shall for any reason cease to be valid and binding on or enforceable against any Loan Party party to it (other than as a result of a transaction permitted hereunder), or any such Loan Party shall so state in writing; or (j) a Change of Control shall occur; or (k) Any Loan Party or any ERISA Affiliate shall incur or shall be reasonably expected to incur liability in excess of $25,000,000 in the aggregate with respect to any Pension Plan or any Multiemployer Plan in connection with the occurrence of any of the following events or existence of any of the following conditions: (i) Institution of any steps by any Loan Party, any ERISA Affiliate or any other Person, including, without limitation, the PBGC to terminate a Pension Plan if as a result of such termination a Loan Party or any ERISA Affiliate could be required to make a contribution to such Pension Plan, or could incur a liability or obligation; (ii) A contribution failure occurs with respect to any Pension Plan sufficient to give rise to a lien under section 302(f) of ERISA; or (iii) Any condition shall exist or event shall occur with respect to a Pension Plan that is reasonably expected to result in any Loan Party or any ERISA Affiliate being 60 required to furnish a bond or security to the PBGC or such Pension Plan, or incurring a liability or obligation. (iv) any Loan Party or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability to such Multiemployer Plan; or (v) any Loan Party or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or is being terminated, within the meaning of Title IV of ERISA, and as a result of such reorganization or termination the aggregate annual contributions of the Loan Parties and the ERISA Affiliates to all Multiemployer Plans that are then in reorganization or being terminated have been or will be increased over the amounts contributed to such Multiemployer Plans for the plan years of such Multiemployer Plans immediately preceding the plan year in which such reorganization or termination occurs; then, and in any such event, the Administrative Agent (i) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrowers, declare the Commitment of each Lender and the obligation of each Lender to make Advances to be terminated, whereupon the same shall forthwith terminate, and/or (ii) shall at the request, or may with the consent, of the Required Lenders, by notice to the Borrowers, declare the Notes, all interest thereon and all other amounts payable under this Agreement and the other Loan Documents to be forthwith due and payable, whereupon the Notes, all such interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Borrowers; provided, however, that in the event of an actual or deemed entry of an order for relief with respect to any Borrower under the Federal Bankruptcy Code, (x) the Commitments of each Lender and the obligation of each Lender to make Advances shall automatically be terminated and (y) the Notes, all such interest and all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Borrowers. ARTICLE VII THE GUARANTY SECTION 7.01. The Guaranty. (a) Each Borrower jointly and severally, hereby unconditionally, absolutely and irrevocably guarantees the full and punctual payment (whether at stated maturity, upon acceleration or otherwise) of all amounts payable by each of the other Borrowers under the Loan Documents including, without limitation, the principal of and interest on each Note issued by such other Borrowers pursuant to this Agreement. Upon failure by a Borrower to pay punctually any such amount, each other Borrower agrees to pay forthwith on demand the amount not so paid at the place and in the manner specified in this Agreement. 61 (b) Each Borrower (other than the Parent), and by its acceptance of this Guaranty, the Administrative Agent and each other Lender, hereby confirms that it is the intention of all such Persons that this Guaranty and the obligations of each Borrower hereunder not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar foreign, federal or state law to the extent applicable to this Guaranty and the obligations of each Borrower (other than the Parent) hereunder. To effectuate the foregoing intention, the Administrative Agent, the other Lenders and the Borrowers hereby irrevocably agree that the obligations of each Borrower (other than the Parent) under this Article VII at any time shall be limited to the maximum amount as will result in the obligations of such Borrower under this Guaranty not constituting a fraudulent transfer or conveyance. SECTION 7.02. Guaranty Unconditional. The obligations of each Borrower under this Article VII 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 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 insolvency, bankruptcy, reorganization 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, 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 the principal of or interest on any Note or any other amount payable under any of the Loan Documents; or (vii) any other act or omission to act or delay of any kind by any obligor, the Administrative Agent, any Lender or any other corporation or person or any other circumstance whatsoever which might, but for the provisions of this paragraph, constitute a legal or equitable discharge of or defense to a Borrower's obligations under this Article VII. 62 SECTION 7.03. Discharge Only upon Payment in Full; Reinstatement in Certain Circumstances. Each Borrower's obligations under this Article VII shall remain in full force and effect until the Commitments shall have terminated and the principal of and interest on the Notes and all other amounts payable by the other Borrowers under the Loan Documents shall have been paid in full. If at any time any payment of the principal of or interest on any Note or any other amount payable by a Borrower under the Loan Documents is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of such Borrower or otherwise, each other Borrower's obligations under this Article VII with respect to such payment shall be reinstated as though such payment had been due but not made at such time. SECTION 7.04. Waiver by the Borrowers. Each Borrower 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. SECTION 7.05. Subrogation. Each Borrower hereby unconditionally and irrevocably agrees not to exercise any rights that it may now have or hereafter acquire against any other Borrower, any other Loan Party or any other insider guarantor that arise from the existence, payment, performance or enforcement of such Borrower's obligations under or in respect of this Guaranty or any other Loan Document, including, without limitation, any right of subrogation, reimbursement, exoneration, contribution or indemnification and any right to participate in any claim or remedy of any Lender against any other Borrower, any other Loan Party or any other insider guarantor or any collateral, whether or not such claim, remedy or right arises in equity or under contract, statute or common law, including, without limitation, the right to take or receive from any other Borrower, any other Loan 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 amounts payable under this Guaranty shall have been paid in full in cash, and the Commitments shall have expired or been terminated. If any amount shall be paid to any Borrower in violation of the immediately preceding sentence at any time prior to the latest of (a) the payment in full in cash of all amounts payable under this Guaranty, and (b) the Termination 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 Borrower 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) any Borrower shall make payment to any Lender 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 Termination Date shall have occurred, the Lenders will, at such Borrower's request and expense, execute and deliver to such Borrower appropriate documents, without recourse and without representation or warranty, necessary to evidence the transfer by subrogation to such Borrower of an interest in the obligations resulting from such payment made by such Borrower pursuant to this Guaranty. SECTION 7.06. Stay of Acceleration. If acceleration of the time for payment of any amount payable by any Borrower under any of the Loan Documents is stayed upon the insolvency, bankruptcy or reorganization of such Borrower, all such amounts otherwise subject to acceleration under 63 the terms of this Agreement shall nonetheless by payable by the other Borrowers under this Article VII forthwith on demand by the Administrative Agent made at the request of the requisite proportion of the Lenders. SECTION 7.07. Continuing Guaranty; Assignments. This Guaranty is a continuing guaranty and shall (a) remain in full force and effect until the latest of (i) the payment in full in cash of all amounts payable under this Guaranty and (ii) the Termination Date, (b) be binding upon each Borrower, its successors and assigns and (c) inure to the benefit of and be enforceable by the Lenders 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 (including, without limitation, all or any portion of its Commitments, the Advances owing to it and the Note or Notes held by it) 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 9.07. No Borrower shall have the right to assign its rights hereunder or any interest herein without the prior written consent of the Required Lenders. ARTICLE VIII THE AGENTS SECTION 8.01. Authorization and Action. Each Lender (in its capacity as a Lender) hereby appoints and authorizes each Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement and the other Loan Documents as are delegated to such Agent by the terms hereof and thereof, together with such powers and discretion as are reasonably incidental thereto. As to any matters not expressly provided for by the Loan Documents (including, without limitation, enforcement or collection of the Notes), no Agent shall be required to exercise any discretion or take any action, but shall be required to act or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Lenders, or all the Lenders where unanimity is required and such instructions shall be binding upon all Lenders and all holders of Notes; provided, however, that no Agent shall be required to take any action that exposes such Agent to personal liability or that is contrary to this Agreement or applicable law. Each Agent agrees to give to each Lender prompt notice of each notice given to it by any Borrower pursuant to the terms of this Agreement. SECTION 8.02. Agents' Reliance, Etc. Neither any Agent nor any of their respective directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with the Loan Documents, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, each Agent: (a) may treat the payee of any Note as the holder thereof until, in the case of the Administrative Agent, the Administrative Agent receives and accepts an Assignment and Acceptance entered into by the Lender that is the payee of such Note, as assignor, and an Eligible Assignee, as assignee, or, in the case of any other Agent, such Agent has received notice from the Administrative Agent that it has received and accepted such Assignment and Acceptance, in each case as provided in Section 9.07; (b) may consult with legal counsel 64 (including counsel for any Loan Party), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (c) makes no warranty or representation to any Lender and shall not be responsible to any Lender for any statements, warranties or representations (whether written or oral) made in or in connection with the Loan Documents; (d) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of any Loan Document on the part of any Loan Party or to inspect the property (including the books and records) of any Loan Party; (e) shall not be responsible to any Lender for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of, or the perfection or priority of any lien or security interest created or purported to be created under or in connection with, any Loan Document or any other instrument or document furnished pursuant thereto; and (f) shall incur no liability under or in respect of any Loan Document by acting upon any notice, consent, certificate or other instrument or writing (which may be by telegram or telecopy) reasonably believed by it to be genuine and signed or sent by the proper party or parties. SECTION 8.03. MGT and Affiliates. With respect to its Commitments, the Committed Advances made by it and the Committed Notes issued to it, MGT shall have the same rights and powers under the Loan Documents as any other Lender and may exercise the same as though it were not an Agent; and the term "Lender" or "Lenders" shall, unless otherwise expressly indicated, include MGT in its individual capacity. MGT and its affiliates may accept deposits from, lend money to, act as trustee under indentures of, accept investment banking engagements from and generally engage in any kind of business with, any Loan Party, any of its Subsidiaries and any Person that may do business with or own securities of any Loan Party or any such Subsidiary, all as if MGT were not Agent and without any duty to account therefor to the Lenders. SECTION 8.04. Lender Credit Decision. Each Lender acknowledges that it has, independently and without reliance upon any Agent or any other Lender and based on the financial statements referred to in Section 4.01 and such other 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 any 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 this Agreement. SECTION 8.05. Indemnification. (a) Each Lender severally agrees to indemnify each Agent (to the extent not promptly reimbursed by the Borrowers) from and against such Lender's ratable share (determined as provided below) of any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against such Agent in any way relating to or arising out of the Loan Documents or any action taken or omitted by such Agent under the Loan Documents; provided, however, that no Lender shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Agent's gross negligence or willful misconduct. Without limitation of the foregoing, each Lender agrees to reimburse each Agent promptly upon demand for its ratable share of any costs and expenses (including, without limitation, fees and expenses of counsel) payable by the Borrowers under Section 9.04, to the extent that such Agent is not promptly reimbursed for such costs and expenses by the Borrowers. 65 (b) For purposes of this Section 8.05, the Lenders' respective ratable shares of any amount shall be determined, at any time, according to the sum of (i) the aggregate principal amount of the Advances outstanding at such time and owing to the respective Lenders and (ii) their respective Unused Commitments at such time. The failure of any Lender to reimburse any Agent promptly upon demand for its ratable share of any amount required to be paid by the Lenders to such Agent as provided herein shall not relieve any other Lender of its obligation hereunder to reimburse such Agent for its ratable share of such amount, but no Lender shall be responsible for the failure of any other Lender to reimburse such Agent for such other Lender's ratable share of such amount. Without prejudice to the survival of any other agreement of any Lender hereunder, the agreement and obligations of each Lender contained in this Section 8.05 shall survive the payment in full of principal, interest and all other amounts payable hereunder and under the other Loan Documents. SECTION 8.06. Successor Agents. Any Agent may resign at any time by giving written notice thereof to the Lenders and the Parent and may be removed at any time with or without cause by the Required Lenders. Upon any such resignation or removal, the Required Lenders shall have the right to appoint a successor Agent, subject (so long as no Event of Default exists) to the consent of the Parent (which consent shall not be unreasonably withheld). If no successor Agent shall have been so appointed by the Required Lenders, and shall have accepted such appointment, within 30 days after the retiring Agent's giving of notice of resignation or the Required Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf of the Lenders, appoint a successor Agent, which shall be a commercial bank organized under the laws of the United States or of any State thereof and having a combined capital and surplus of at least $250,000,000. Upon the acceptance of any appointment as Agent hereunder by a successor Agent such successor Agent shall succeed to and become vested with all the rights, powers, discretion, privileges and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations under the Loan Documents. If within 45 days after written notice is given of the retiring Agent's resignation or removal under this Section 8.06 no successor Agent shall have been appointed and shall have accepted such appointment, then on such 45th day (i) the retiring Agent's resignation or removal shall become effective, (ii) the retiring Agent shall thereupon be discharged from its duties and obligations under the Loan Documents and (iii) the Required Lenders shall thereafter perform all duties of the retiring Agent under the Loan Documents until such time, if any, as the Required Lenders appoint a successor Agent as provided above. After any retiring Agent's resignation or removal hereunder as Agent shall have become effective, the provisions of this Article VIII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. ARTICLE IX MISCELLANEOUS SECTION 9.01. Amendments, Etc. No amendment or waiver of any provision of this Agreement or the Notes or any other Loan Document, nor consent to any departure by any Loan Party therefrom, shall in any event be effective unless the same shall be in writing and signed by the Required Lenders (and, in the case of an amendment, the Parent), and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall, unless in writing and signed by all of the Lenders (other 66 than any Lender that is, at such time, a Defaulting Lender), do any of the following at any time: (i) waive any of the conditions specified in Section 3.01 or, in the case of the Initial Extension of Credit, Section 3.02, (ii) change the number of Lenders or the percentage of (x) the Commitments or (y) the aggregate unpaid principal amount of the Advances that, in each case, shall be required for the Lenders or any of them to take any action hereunder, (iii) reduce or limit the obligations of any Borrower under Section 7.01 or release such Borrower or otherwise limit such Borrower's liability with respect to the obligations owing to the Agents and the Lenders (iv) amend this Section 9.01, (v) increase the Commitments of the Lenders or subject the Lenders to any additional obligations, (vi) reduce the principal of, or interest on, the Notes or any fees or other amounts payable hereunder (other than under Section 2.06(b)), (vii) postpone any date fixed for any payment of principal of, or interest on, the Notes or any fees or other amounts payable hereunder (other than under Section 2.06(b)), or (viii) limit the liability of any Loan Party under any of the Loan Documents; provided further that no amendment, waiver or consent shall, unless in writing and signed by an Agent in addition to the Lenders required above to take such action, affect the rights or duties of such Agent under this Agreement or the other Loan Documents. SECTION 9.02. Notices, Etc. All notices and other communications provided for hereunder shall be in writing (including telegraphic or telecopy communication) and mailed, telegraphed, telecopied or delivered, if to any Borrower, at its address set forth below on the signature pages hereof; if to any Initial Lender, at its Domestic Lending Office specified opposite its name on Schedule I hereto; if to any other Lender, at its Domestic Lending Office specified in the Assignment and Acceptance pursuant to which it became a Lender; if to the Syndication Agent, at its address at World Financial Center, North Tower, 250 Vesey Street, New York, New York 10281, Attention: Carol Feley; and if to the Administrative Agent, at its address at 500 Stanton Christiana Road, Newark, DE 19713, Attention: Bill Wood; or, as to any party, at such other address as shall be designated by such party in a written notice to the other parties. All such notices and communications shall, when mailed, telegraphed or telecopied, be effective when deposited in the mails, delivered to the telegraph company or transmitted by telecopier, respectively, except that notices and communications to any Agent pursuant to Article II, III or VIII shall not be effective until received by such Agent. Manual delivery by telecopier of an executed counterpart of any amendment or waiver of any provision of this Agreement or the Notes or of any Exhibit hereto to be executed and delivered hereunder shall be effective as delivery of an original executed counterpart thereof. SECTION 9.03. No Waiver; Remedies. No failure on the part of any Lender or any Agent to exercise, and no delay in exercising, any right hereunder or under any Note shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 9.04. Costs and Expenses. (a) Each of the Borrowers jointly and severally agrees to pay on demand (i) all reasonable costs and expenses of the Agents in connection with the preparation, execution, delivery, administration, modification and amendment of the Loan Documents (including, without limitation, (A) all due diligence, collateral review, syndication, transportation, computer, duplication, appraisal, audit, insurance, consultant, search, filing and recording fees and expenses and (B) the reasonable fees and expenses of a single counsel for the Agents with respect 67 thereto, with respect to advising the Agents as to its rights and responsibilities, or the perfection, protection or preservation of rights or interests, under the Loan Documents, with respect to negotiations with any Loan Party or with other creditors of any Loan Party or any of its Subsidiaries arising out of any Default or any events or circumstances that may give rise to a Default and with respect to presenting claims in or otherwise participating in or monitoring any bankruptcy, insolvency or other similar proceeding involving creditors' rights generally and any proceeding ancillary thereto) and (ii) all reasonable costs and expenses of each Agent and each Lender in connection with the enforcement of the Loan Documents, whether in any action, suit or litigation, or any bankruptcy, insolvency or other similar proceeding affecting creditors' rights generally (including, without limitation, the reasonable fees and expenses of counsel for the Administrative Agent and each Lender with respect thereto). (b) Each of the Borrowers jointly and severally agrees to indemnify and hold harmless each Agent, each Lender and each of their Affiliates and their respective officers, directors, employees, agents and advisors (each, an "Indemnified Party") from and against any and all claims, damages, losses, liabilities and expenses (including, without limitation, reasonable fees and expenses of counsel) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of (including, without limitation, in connection with any investigation, litigation or proceeding or preparation of a defense in connection therewith) this Agreement, the actual or proposed use of the proceeds of the Advances, the Transaction Documents or any of the transactions contemplated thereby, including, without limitation, any acquisition or proposed acquisition (including, without limitation, the Acquisition and any of the other transactions contemplated by the Transaction Documents) by any Borrower or any of its Subsidiaries or Affiliates of all or any portion of the Equity Interests in or Debt securities or substantially all of the assets of CIGNAP&C, except to the extent such claim, damage, loss, liability or expense is found in a final, non-appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct. In the case of an investigation, litigation or other proceeding to which the indemnity in this Section 9.04(b) applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by any Loan Party, its directors, shareholders or creditors or an Indemnified Party or any Indemnified Party is otherwise a party thereto and whether or not the transactions contemplated by the Transaction Documents are consummated. Each of the Borrowers also agrees not to assert any claim against any Agent, any Lender or any of their Affiliates, or any of their respective officers, directors, employees, attorneys and agents, on any theory of liability, for special, indirect, consequential or punitive damages arising out of or otherwise relating to the credit facilities provided hereunder, the actual or proposed use of the proceeds of the Advances or the Letters of Credit, the Transaction Documents or any of the transactions contemplated by the Transaction Documents. (c) If any payment of principal of, or Conversion of, any Eurodollar Rate Advance or LIBO Rate Advance is made by any Borrower to or for the account of a Lender other than on the last day of the Interest Period for such Advance, as a result of a payment or Conversion pursuant to Section 2.06, 2.09(b)(i) or 2.10(d), acceleration of the maturity of the Notes pursuant to Section 6.01 or for any other reason, or if any Borrower fails to make any payment or prepayment of an Advance for which a notice of prepayment has been given or that is otherwise required to be made, whether pursuant to Section 2.04, 2.06 or 6.01 or otherwise, the Borrowers jointly and severally agree, within 10 days after demand by such Lender (with a copy of such demand to the Administrative Agent), which demand shall 68 include a calculation in reasonable detail of the amount demanded, to pay to the Administrative Agent for the account of such Lender any amounts required to compensate such Lender for any additional losses, costs or expenses that it may reasonably incur as a result of such payment or Conversion or such failure to pay or prepay, as the case may be, including, without limitation, any loss (excluding loss of anticipated profits), cost or expense incurred by reason of the liquidation or reemployment of deposits or other funds acquired by any Lender to fund or maintain such Advance. (d) Without prejudice to the survival of any other agreement of any Loan Party hereunder or under any other Loan Document, the agreements and obligations of the Borrowers contained in Sections 2.10 and 2.12 and this Section 9.04 shall survive the payment in full of principal, interest and all other amounts payable hereunder and under any of the other Loan Documents. SECTION 9.05. Right of Set-off. Upon (a) the occurrence and during the continuance of any Event of Default and (b) the making of the request or the granting of the consent specified by Section 6.01 to authorize the Administrative Agent to declare the Notes due and payable pursuant to the provisions of Section 6.01, each Agent and 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 law, to set off and otherwise apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Agent, such Lender or such Affiliate to or for the credit or the account of any Borrower against any and all of the obligations of such Borrower now or hereafter existing under the Loan Documents, irrespective of whether such Agent or such Lender shall have made any demand under this Agreement or such Note or Notes and although such obligations may be unmatured. Each Agent and each Lender agrees promptly to notify each Borrower after any such set-off and application; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Agent and each Lender and their respective Affiliates under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) that such Agent, such Lender and their respective Affiliates may have. SECTION 9.06. Binding Effect. This Agreement shall become effective when it shall have been executed by each Borrower and each Agent and the Administrative Agent shall have been notified by each Initial Lender that such Initial Lender and has executed it and thereafter shall be binding upon and inure to the benefit of each Borrower, each Agent and each Lender and their respective successors and assigns, except that no Borrower shall have the right to assign its rights hereunder or any interest herein without the prior written consent of the Lenders. SECTION 9.07. Assignments and Participations. (a) Each Lender may and, so long as no Default shall have occurred and be continuing, if demanded by any Borrower (following a demand by such Lender pursuant to Section 2.16), (i) upon at least five Business Days' notice to such Lender and the Administrative Agent, will assign to one or more Eligible Assignee, all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment, the Committed Advances owing to it and the Note or Notes held by it); provided, however, that (i) each such assignment shall be of a uniform, and not a varying, percentage of all rights and obligations under and in respect of the Committed Facility, the "Committed Facility" under the ACE INA 364-Day Revolving Credit Facility and the "Committed Facility" under the Borrowers' Five-Year Revolving Credit Facility, except for any non-pro rata assignment by a "Downgraded Lender" under the Borrowers' Five-Year 69 Revolving Credit Facility of its commitment thereunder pursuant to Sections 2.17 and 2.19 and any non-pro rata assignments to a SPC pursuant to Section 9.07(l) and any other non-pro rata assignment approved by the Administrative Agent and any Borrower, (ii) except in the case of an assignment to a Person that, immediately prior to such assignment, was a Lender, an Affiliate of any Lender or an Approved Fund of any Lender or an assignment of all of a Lender's rights and obligations under this Agreement, the aggregate amount of the Commitments being assigned to such Eligible Assignee pursuant to such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $10,000,000, (iii) each such assignment shall be to an Eligible Assignee, (iv) each assignment made as a result of a demand by any Borrower pursuant to Section 2.16 shall be arranged by such Borrower after consultation with the Administrative Agent and shall be either an assignment of all of the rights and obligations of the assigning Lender under this Agreement or an assignment of a portion of such rights and obligations made concurrently with another such assignment or other such assignments that together cover all of the rights and obligations of the assigning Lender under this Agreement, (v) no Lender shall be obligated to make any such assignment as a result of a demand by any Borrower pursuant to Section 2.16 unless and until such Lender shall have received one or more payments from either such Borrower or other Eligible Assignees in an aggregate amount at least equal to the aggregate outstanding principal amount of the Committed Advances owing to such Lender, together with accrued interest thereon to the date of payment of such principal amount and all other amounts payable to such Lender under this Agreement, (vi) as a result of such assignment, no Borrower shall be subject to additional amounts under Section 2.10 or 2.12, (vii) no such assignment shall be permitted without the consent of the Administrative Agent and, so long as no Default shall have occurred and be continuing, the Parent (which consents shall not be unreasonably withheld) and (viii) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with any Note or Notes subject to such assignment and a processing and recordation fee of $2,500.00. (b) Upon such execution, delivery, acceptance and recording, from and after the effective date specified in such Assignment and Acceptance, (i) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Lender hereunder and (ii) the Lender or assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights (other than its rights under Sections 2.10, 2.12 and 9.04 to the extent any claim thereunder relates to an event arising prior to such assignment) and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto). (c) By executing and delivering an Assignment and Acceptance, each Lender assignor thereunder and each assignee thereunder confirm to and agree with each other and the other parties thereto and hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with any Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of, or the perfection or priority of any lien or security interest created or purported to be created under or in connection with, any Loan Document or any other instrument or document furnished pursuant thereto; (ii) such assigning 70 Lender 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 its obligations under any Loan Document or any other instrument or document furnished pursuant thereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon any Agent, such assigning Lender 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 this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes each Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Loan Documents as are delegated to such Agent by the terms hereof and thereof, together with such powers and discretion as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations that by the terms of this Agreement are required to be performed by it as a Lender. (d) The Administrative Agent, acting for this purpose (but only for this purpose) as the agent of the Borrowers, shall maintain at its address referred to in Section 9.02 a copy of each Assignment and Acceptance and each Designation Agreement delivered to and accepted by it and a register for the recordation of the names and addresses of the Lenders and, with respect to Lenders other than Designated Bidders, the Commitment of, and principal amount of the Advances owing to, each Lender from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Borrowers, the Agents and the Lenders shall treat each Person whose name is recorded in the Register as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by any Borrower or any Agent or any Lender at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of an Assignment and Acceptance executed by an assigning Lender and an assignee, together with any Note or Notes subject to such assignment, the Administrative Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit C hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Parent and each other Agent. No Assignment and Acceptance shall be effective unless and until it shall have been recorded in the Register. In the case of any assignment by a Lender, within five Business Days after its receipt of such notice, each Borrower, at its own expense, shall execute and deliver to the Administrative Agent in exchange for the surrendered Note or Notes a new Note to the order of such Eligible Assignee in an amount equal to the Commitment assumed by it pursuant to such Assignment and Acceptance and, if any assigning Lender has retained a Commitment hereunder, a new Note to the order of such assigning Lender in an amount equal to the Commitment retained by it hereunder. Such new Note or Notes shall be in an aggregate principal amount equal to the aggregate principal amount of such surrendered Note or Notes, shall be dated the effective date of such Assignment and Acceptance and shall otherwise be in substantially the form of Exhibit A-1 hereto. (f) Each Lender (other than the Designated Bidders) may designate one or more banks or other entities to have a right to make Competitive Bid Advances as a Lender pursuant to Section 71 2.03; provided, however, that (i) no such Lender shall be entitled to make more than 3 such designations, (ii) each such Lender making one or more such designations shall retain the right to make Competitive Bid Advances as a Lender pursuant to Section 2.03, (iii) each such designation shall be to a Designated Bidder and (iv) the parties to each such designation shall execute and deliver to the Agent, for its acceptance and recording in the Register, a Designation Agreement. Upon such execution, delivery, acceptance and recording, from and after the effective date specified in each Designation Agreement, the designee thereunder shall be a party hereto with a right to make Competitive Bid Advances as a Lender pursuant to Section 2.03 and the obligations related thereto. (g) By executing and delivering a Designation Agreement, the Lender making the designation thereunder and its designee thereunder confirm and agree with each other and the other parties hereto as follows: (i) such Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto; (ii) such Lender makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Borrower or the performance or observance by any Borrower of any of its obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such designee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Designation Agreement; (iv) such designee will, independently and without reliance upon the Agent, such designating Lender 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 this Agreement; (v) such designee confirms that it is a Designated Bidder; (vi) such designee appoints and authorizes the Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement as are delegated to the Agent by the terms hereof, together with such powers and discretion as are reasonably incidental thereto; and (vii) such designee agrees that it will perform in accordance with their terms all of the obligations which by the terms of this Agreement are required to be performed by it as a Lender. (h) Upon its receipt of a Designation Agreement executed by a designating Lender and a designee representing that it is a Designated Bidder, the Administrative Agent shall, if such Designation Agreement has been completed and is substantially in the form of Exhibit I hereto, (i) accept such Designation Agreement, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Parent. (i) Each Lender may sell participations to one or more Persons (other than any Loan Party or any of its Affiliates) in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its Commitment, the Committed Advances owing to it and the Committed Note or Notes (if any) held by it); provided, however, that (i) such Lender's obligations under this Agreement (including, without limitation, its Commitment) shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) such Lender shall remain the holder of any such Committed Note for all purposes of this Agreement, (iv) the Borrowers, the Agents and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under 72 this Agreement and (v) no participant under any such participation shall have any right to approve any amendment or waiver of any provision of any Loan Document, or any consent to any departure by any Loan Party therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, the Committed Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, postpone any date fixed for any payment of principal of, or interest on, the Committed Notes or any fees or other amounts payable hereunder, in each case to the extent subject to such participation. Each Lender shall, as agent of the Borrowers solely for the purposes of this Section, record in book entries maintained by such Lender, the name and amount of the participating interest of each Person entitled to receive payments in respect of any participating interests sold pursuant to this Section. (j) Any Lender may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 9.07, disclose to the assignee or participant or proposed assignee or participant any information relating to any Borrower furnished to such Lender by or on behalf of any Borrower; provided, however, that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree to preserve the confidentiality of any Confidential Information received by it from such Lender. (k) Notwithstanding any other provision set forth in this Agreement, any Lender may at any time create a security interest in all or any portion of its rights under this Agreement (including, without limitation, the Advances owing to it and the Note or Notes held by it) in favor of any Federal Reserve Bank in accordance with Regulation A of the Board of Governors of the Federal Reserve System. (l) Notwithstanding anything to the contrary contained herein, any Lender (a "Granting Lender") may grant to a special purpose funding vehicle (an "SPC"), identified as such in writing from time to time by the Granting Lender to the Administrative Agent and the Parent, the option to provide to the Borrowers all or any part of any Committed Advance that such Granting Lender would otherwise be obligated to make to the Borrowers pursuant to this Agreement; provided that (i) nothing herein shall constitute a commitment by any SPC to make any Committed Advance, (ii) if an SPC elects not to exercise such option or otherwise fails to provide all or any part of such Committed Advance, the Granting Lender shall be obligated to make such Committed Advance pursuant to the terms hereof. The making of a Committed Advance by an SPC hereunder shall utilize the Commitment of the Granting Lender to the same extent, and as if, such Committed Advance were made by such Granting Lender. Each party hereto hereby agrees that no SPC shall be liable for any indemnity or similar payment obligation under this Agreement (all liability for which shall remain with the Granting Lender). In furtherance of the foregoing, each party hereto hereby agrees (which agreement shall survive the termination of this Agreement) that, prior to the date that is one year and one day after the payment in full of all outstanding commercial paper or other senior indebtedness of any SPC, it will not institute against, or join any other person in instituting against, such SPC any bankruptcy, reorganization, arrangement, insolvency or liquidation proceedings under the laws of the United States or any State thereof. In addition, notwithstanding anything to the contrary contained in this Section 9.07(l), any SPC may (i) with notice to, but without the prior written consent of, the Parent and the Administrative Agent and without paying any processing fee therefor, assign all or a portion of its interests in any Committed Advances to the Granting Lender or to any financial institutions (consented to by the Parent and 73 Administrative Agent) providing liquidity and/or credit support to or for the account of such SPC to support the funding or maintenance of Committed Advances and (ii) disclose on a confidential basis any non-public information relating to its Committed Advances to any rating agency, commercial paper dealer or provider of any surety, guarantee or credit or liquidity enhancement to such SPC. This section may not be amended without the written consent of each SPC. SECTION 9.08. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of an original executed counterpart of this Agreement. SECTION 9.09. Confidentiality. Neither any Agent nor any Lender shall disclose any Confidential Information to any Person without the consent of the Parent, other than (a) to such Agent's or such Lender's Affiliates and their officers, directors, employees, agents and advisors and to actual or prospective Eligible Assignees and participants, and then only on a confidential basis, (b) as required by any law, rule or regulation or judicial process, (c) as requested or required by any state, Federal or foreign authority or examiner regulating such Lender and (d) to any rating agency when required by it, provided that, prior to any such disclosure, such rating agency shall undertake to preserve the confidentiality of any Confidential Information relating to the Loan Parties received by it from such Lender. SECTION 9.10. Jurisdiction, Etc. (a) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any of the other Loan Documents to which it is a party, 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 any such New York State court or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that any party may otherwise have to bring any action or proceeding relating to this Agreement or any of the other Loan Documents in the courts of any jurisdiction. (b) Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any of the other Loan Documents to which it is a party in any New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. SECTION 9.11. Governing Law. This Agreement and the Notes shall be governed by, and construed in accordance with, the laws of the State of New York. 74 SECTION 9.12. Waiver of Jury Trial. Each of the Borrowers, the Agents and the Lenders irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to any of the Loan Documents, the Advances or the actions of any Agent or any Lender in the negotiation, administration, performance or enforcement thereof. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. ACE LIMITED The Common Seal of ACE Limited was hereunto affixed in the presence of: - ------------------------------ Director - ------------------------------ Secretary ACE BERMUDA INSURANCE LTD. The Common Seal of ACE Bermuda Insurance Ltd. was hereunto affixed in the presence of: - ------------------------------ Director - ------------------------------ Secretary TEMPEST REINSURANCE COMPANY LIMITED The Common Seal of Tempest Reinsurance Company Limited was hereunto affixed in the presence of: - ------------------------------ Director - ------------------------------ Secretary ACE INA HOLDINGS INC By: ------------------------------------ Title: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, as Lead Arranger and Syndication Agent By: ------------------------------------ Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent By: ------------------------------------ Title: BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION, as Documentation Agent By: ------------------------------------ Title: Initial Lenders MERRILL LYNCH CAPITAL CORPORATION By: ------------------------------------ Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK By: ------------------------------------ Title: BANK OF AMERICA NATIONAL TRUST & SAVINGS ASSOCIATION By: ------------------------------------ Title: CHASE MANHATTAN BANK By: ------------------------------------ Title: MELLON BANK, N.A. By: ------------------------------------ Title: ABN-AMRO BANK N.V. By: ------------------------------------ Title: BANCO SANTANDER CENTRAL HISPANO, S.A. By: ------------------------------------ Title: THE BANK OF NEW YORK By: ------------------------------------ Title: THE BANK OF NOVA SCOTIA By: ------------------------------------ Title: THE FIRST NATIONAL BANK OF CHICAGO By: ------------------------------------ Title: BARCLAYS BANK PLC By: ------------------------------------ Title: BANQUE NATIONALE DE PARIS By: ------------------------------------ Title: By: ------------------------------------ Title: THE BANK OF TOKYO-MITSUBISHI, LTD. By: ------------------------------------ Title: CIBC INC. By: ------------------------------------ Title: CITIBANK, N.A. By: ------------------------------------ Title: COMERICA BANK By: ------------------------------------ Title: COMMERZBANK AKTIENGESELLSCHAFT NEW YORK BRANCH By: ------------------------------------ Title: By: ------------------------------------ Title: CREDIT LYONNAIS NEW YORK BRANCH By: ------------------------------------ Title: CREDIT SUISSE FIRST BOSTON By: ------------------------------------ Title: By: ------------------------------------ Title: DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLANDS BRANCHES By: ------------------------------------ Title: By: ------------------------------------ Title: FIRST UNION NATIONAL BANK By: ------------------------------------ Title: FLEET NATIONAL BANK By: ------------------------------------ Title: ING BANK N.V., LONDON BRANCH By: ------------------------------------ Title: By: ------------------------------------ Title: KBC BANK By: ------------------------------------ Title: By: ------------------------------------ Title: LLOYDS BANK PLC By: ------------------------------------ Title: By: ------------------------------------ Title: ROYAL BANK OF CANADA By: ------------------------------------ Title: SOCIETE GENERALE By: ------------------------------------ Title: STATE STREET BANK AND TRUST COMPANY By: ------------------------------------ Title: STANDARD CHARTERED BANK By: ------------------------------------ Title: By: ------------------------------------ Title: EX-10.52 16 REIMBURSEMENT AGREEMENT DATED 09/08/1999 9.8.99 EXHIBIT 10.52 REIMBURSEMENT AGREEMENT REIMBURSEMENT AGREEMENT dated as of September 8, 1999 among ACE Limited, a Cayman Islands company (the "Parent"), ACE Bermuda Insurance Ltd ("ACE Bermuda") and Tempest Reinsurance Company Limited ("Tempest") (ACE Bermuda and Tempest, together with the Parent, the "Account Parties" and individually an "Account Party"), the banks, financial institutions and other institutional lenders listed on the signature pages hereof as the Initial Banks (the "Initial Banks"), Mellon Bank, N.A., as issuing bank (the "Issuing Bank"), Deutsche Bank AG, New York and/or Cayman Islands Branches ("Deutsche") and Fleet National Bank ("Fleet") as documentation agents (Deutsche and Fleet, together with any successor documentation agent appointed pursuant to Article VIII, the "Documentation Agents" and individually a "Documentation Agent") and Mellon Bank, N.A., as administrative agent (together with any successor administrative agent appointed pursuant to Article VIII, the "Administrative Agent" and, together with the Documentation Agents, the "Agents") for the Banks. PRELIMINARY STATEMENTS: The Account Parties have requested that the Issuing Bank and the Banks make available to the Account Parties a credit facility in an amount up to $430,000,000 to provide for the issuance of letters of credit for the account of one or more of the Account Parties. The Issuing Bank and the Banks have indicated their willingness to agree to make such letters of credit available on the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements contained herein, the parties hereto hereby agree as follows: ARTICLE I DEFINITIONS AND ACCOUNTING TERMS SECTION 1.01. Certain Defined Terms. As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Account Parties" has the meaning specified in the recital of parties to this Agreement. "ACE Bermuda" has the meaning specified in the recital of parties to this Agreement. -1- "ACE INA" means ACE INA Holdings Inc., a Delaware corporation. "Acquisition" means the acquisition by the Parent or one of its Affiliates from the Seller of CIGNAP&C, which was a division of the Seller. "Adjusted Consolidated Debt" means, at any time, an amount equal to (i) the then outstanding Consolidated Debt of the Parent and its Subsidiaries plus (ii) 50% of the then issued and outstanding amount of Preferred Securities (other than any Mandatorily Convertible Securities). "Administrative Agent" has the meaning specified in the recital of parties to this Agreement. "Administrative Agent's Account" means the account of the Administrative Agent maintained by the Administrative Agent at Mellon Bank, N.A., One Mellon Bank Center, Pittsburgh, PA 15258, Account No. 990867201 attn: Mary K. Jones or such other account as the Administrative Agent shall specify in writing to the Banks. "Advance" means a Letter of Credit Advance. "Affected Bank" means any Bank that (i) has made, or notified any Account Party that an event or circumstance has occurred which may give rise to, a demand for compensation under Section 2.06(a) or (b) or Section 2.08 (but only so long as the event or circumstance giving rise to such demand or notice is continuing) or (ii) is a Downgraded Bank. "Affiliate" means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person or is a director or officer of such Person. For purposes of this definition, the term "control" (including the terms "controlling", "controlled by" and "under common control with") of a Person means the possession, direct or indirect, of the power to vote 5% or more of the Voting Interests of such Person or to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Interests, by contract or otherwise. "Agent" has the meaning specified in the recital of parties to this Agreement. "Agreement Currency" has the meaning specified in Section 2.16(g). "Applicable Account Party" with respect to any outstanding or proposed Letter of Credit means the Account Party for the account of which such Letter of Credit was or is proposed to be issued. "Applicable Commitment Fee Percentage" means, as of any date, a percentage per annum determined by reference to the Public Debt Rating in effect on such date as set forth below: -2-
- -------------------------------------------------------------------- Public Debt Rating Applicable Commitment Fee S&P/Moody's Percentage - -------------------------------------------------------------------- Level 1 0.100% - ------- A-/A3 and above Level 2 0.125% - ------- BBB+/Baa1 Level 3 0.150% - ------- BBB/Baa2 Level 4 0.175% - ------- BBB-/Baa3 Level 5 0.250% - ------- Lower than Level 4 - --------------------------------------------------------------------
"Applicable Lending Office" means, with respect to each Bank, such Bank's Domestic Lending Office. "Applicable Margin" means, as of any date, a percentage per annum determined by reference to the Public Debt Rating in effect on such date as set forth below:
Public Debt Rating Applicable Margin Applicable Margin S&P/Moody's for for Case 1 days Case 2 days - -------------------------------------------------------------------------------- Level 1 0.425% 0.500% - ------- A-/A3 and above Level 2 0.500% 0.575% - ------- BBB+/Baa1 Level 3 0.600% 0.725% - ------- BBB/Baa2 Level 4 0.700% 0.875% - ------- BBB-/Baa3 Level 5 1.000% 1.250% - ------- Lower than Level 4 - --------------------------------------------------------------------------------
it being understood that Case 1 shall be applicable to each day on which (x) the sum of the aggregate Available Amount of all Letters of Credit plus the aggregate principal amount of all outstanding Letter of Credit Advances made by the Issuing Bank pursuant to Section 2.02(f) (whether held by the Issuing Bank or the Banks) is equal to or less than (y) 33.0% of the aggregate LC Commitment Amounts of the Banks and Case 2 shall be applicable to each other day. "Approved Fund" means, with respect to any Bank that is a fund that invests in bank loans, any other fund that invests in bank loans and is advised or managed by the same investment advisor as such Bank or by an Affiliate of such investment advisor. "Approved Investment" means any Investment that was made by the Parent or any of its Subsidiaries pursuant to investment guidelines set forth by the board of directors of the Parent which are consistent with past practices. -3- "Assignment and Acceptance" means an assignment and acceptance entered into by a Bank and an Eligible Assignee, and accepted by the Administrative Agent, in accordance with Section 9.07 and in substantially the form of Exhibit C hereto. "Available Amount" of any Letter of Credit means, at any time, the maximum amount available to be drawn under such Letter of Credit at such time or at any future time (assuming compliance at such time or such future time with all conditions to drawing) (including without limitation amounts which have been the subject of drawings by the applicable beneficiary but which have not yet been paid by the Issuing Bank). "Bankruptcy Law" means any proceeding of the type referred to in Section 6.01(f) or Title 11, U.S. Code, or any similar foreign, federal or state law for the relief of debtors. "Banks" means the Initial Banks and each Person that shall become a Bank hereunder pursuant to Section 9.07(a), (b) and (c) for so long as such Initial Bank or Person, as the case may be, shall be a party to this Agreement. "Base Rate" means a fluctuating interest rate per annum in effect from time to time, which rate per annum shall at all times be equal to the rate of interest announced publicly by Mellon in Pittsburgh, Pennsylvania from time to time, as Mellon's prime rate. "Business Day" means a day of the year on which banks are not required or authorized by law to close in Pittsburgh, Pennsylvania. "Capitalized Leases" means all leases that have been or should be, in accordance with GAAP, recorded as capitalized leases. "Change of Control" means the occurrence of any of the following: (a) any Person or two or more Persons acting in concert shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934), directly or indirectly, of Voting Interests of the Parent (or other securities convertible into such Voting Interests) representing 30% or more of the combined voting power of all Voting Interests of the Parent; or (b) a majority of the board of directors of the Parent shall not be Continuing Members; or (c) any Person or two or more Persons acting in concert shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that results in its or their acquisition of the power to exercise, directly or indirectly, a controlling influence over the management or policies of the Parent. "CIGNAP&C" means the domestic and international property and casualty business of the Seller. "Commitment Amount" means an LC Commitment Amount or the Letter of Credit Issuance Commitment Amount. "Commitment Banks" has the meaning specified in Section 2.18. "Committed Facility" means, at any time, the aggregate amount of the Banks' LC Commitment Amounts at such time. -4- "Confidential Information" means information that any Loan Party furnishes to any Agent or any Bank, but does not include any such information that is or becomes generally available to the public other than as a result of a breach by any Agent or any Bank of its obligations hereunder or that is or becomes available to such Agent or such Bank from a source other than the Loan Parties that is not, to the best of such Agent's or such Bank's knowledge, acting in violation of a confidentiality agreement with a Loan Party. "Consolidated" refers to the consolidation of accounts in accordance with GAAP. "Consolidated Net Income" means, for any period, the net income of the Parent and its Consolidated Subsidiaries, determined on a Consolidated basis for such period. "Consolidated Tangible Net Worth" means at any date the Consolidated stockholder's equity of the Parent and its Consolidated Subsidiaries (plus, to the extent not included in such Consolidated stockholder's equity, the outstanding amount of all Mandatorily Convertible Preferred Securities) less their Consolidated Intangible Assets, all determined as of such date, provided that such determination for purposes of Section 5.04 shall be made without giving effect to adjustments pursuant to Statement No. 115 of the Financial Accounting Standards Board of the United States of America. For purposes of this definition, "Intangible Assets" means the amount (to the extent reflected in determining such Consolidated stockholder's equity) of (i) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of assets of a going concern business made within twelve months after the acquisition of such business) subsequent to March 31, 1999 in the book value of any asset owned by the Parent or a Consolidated Subsidiary and (ii) all unamortized debt discount and expense, unamortized deferred charges, deferred acquisition cost relating to the acquisition of the stock or assets of any other Person, goodwill, patents, trademarks, service marks, trade names, anticipated future benefit of tax loss carry-forwards, copyrights, organization or developmental expense and other intangible assets. "Conversion to Tranche System" has the meaning specified in Section 2.18. "Contingent Obligation" means, with respect to any Person, any obligation or arrangement of such Person to guarantee or intended to guarantee any Debt, leases, dividends or other payment obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, (a) the direct or indirect guarantee, endorsement (other than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of a primary obligor, (b) the obligation to make take-or-pay or similar payments, if required, regardless of nonperformance by any other party or parties to an agreement or (c) 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 (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, assets, securities or services primarily for the purpose 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 holder of such primary obligation against loss in respect thereof; provided, however, that Contingent Obligations shall not include any obligations of any such Person arising under -5- insurance contracts entered into in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made (or, if less, the maximum amount of such primary obligation for which such Person may be liable pursuant to the terms of the instrument evidencing such Contingent Obligation) or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such Person is required to perform thereunder), as determined by such Person in good faith. "Continuing Member" means a member of the Board of Directors of the Parent who either (i) was a member of the Parent's Board of Directors on the date of execution and delivery of this Agreement by the Parent and has been such continuously thereafter or (ii) became a member of such Board of Directors after such date and whose election or nomination for election was approved by a vote of the majority of the Continuing Members then members of the Parent's Board of Directors. "Current Expiration Date" has the meaning specified in Section 2.17. "Debenture" means debt securities issued by ACE INA or the Parent to the Special Purpose Trust in exchange for proceeds of Preferred Securities. "Debt" of any Person means, without duplication for purposes of calculating financial ratios, (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person for the deferred purchase price of property or services (other than trade payables incurred in the ordinary course of such Person's business), (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all obligations of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all obligations of such Person as lessee under Capitalized Leases (excluding imputed interest), (f) all obligations of such Person under acceptance, letter of credit or similar facilities, (g) all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Equity Interests in such Person or any other Person or any warrants, rights or options to acquire such capital stock (excluding payments under a contract for the forward sale of ordinary shares of such Person issued in a public offering), valued, in the case of Redeemable Preferred Interests, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends, (h) all Contingent Obligations of such Person in respect of Debt (of the types described above) of any other Person and (i) all indebtedness and other payment obligations referred to in clauses (a) through (h) above of another Person 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 (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such indebtedness or other payment obligations; provided, however, that the amount of Debt of such Person under clause (i) above shall, if such Person has not assumed or otherwise become liable for any such Debt, be limited to the lesser of the principal amount of such Debt or the fair market value of all property of such Person securing such Debt; provided further that "Debt" shall not include obligations in respect of insurance or reinsurance contracts entered into in the ordinary course of business; provided further that, solely for purposes of Section 5.04 and the definitions of "Adjusted Consolidated Debt" and "Total Capitalization", "Debt" shall not include (x) any contingent obligations of any Person under or in connection with acceptance, letter of credit or -6- similar facilities or (y) obligations of the Parent or ACE INA under any Debentures or under any subordinated guaranty of any Preferred Securities or obligations of the Special Purpose Trust under any Preferred Securities. "Default" means any Event of Default or any event that would constitute an Event of Default but for the requirement that notice be given or time elapse or both. "Defaulted Amount" means, with respect to any Bank at any time, any amount required to be paid by such Bank to any Agent or any other Bank hereunder or under any other Loan Document at or prior to such time that has not been so paid as of such time, including, without limitation, any amount required to be paid by such Bank to (a) the Issuing Bank pursuant to Section 2.02(e) to purchase a portion of a Letter of Credit Advance made by the Issuing Bank and (b) any Agent or the Issuing Bank pursuant to Section 8.05 to reimburse such Agent or the Issuing Bank for such Bank's ratable share of any amount required to be paid by the Banks to such Agent or the Issuing Bank as provided therein. "Defaulting Bank" means, at any time, any Bank that, at such time, (a) owes a Defaulted Amount or (b) shall take any action or be the subject of any action or proceeding of a type described in Section 6.01(f). "Deutsche" has the meaning specified in the recital of parties to this Agreement. "Documentation Agent" has the meaning specified in the recital of parties to this Agreement. "Dollar Equivalent" has the meaning specified in Section 2.16(h). "Domestic Lending Office" means, with respect to any Bank, the office of such Bank specified as its "Domestic Lending Office" opposite its name on Schedule I hereto or in the Assignment and Acceptance pursuant to which it became a Bank, as the case may be, or such other office of such Bank as such Bank may from time to time specify to any Account Party and the Administrative Agent. "Downgrade Account" has the meaning specified in Section 2.14(a). "Downgrade Event" means, with respect to any Bank, a reduction of the credit rating for the senior unsecured unsupported long-term debt of such Bank by S&P or Moody's. "Downgraded Bank" means any Bank which has a credit rating of less than A- (in the case of S&P) or A3 (in the case of Moody's) for its senior unsecured unsupported long-term debt or which does not have any credit rating on such debt from one of S&P or Moody's. "Downgrade Notice" has the meaning specified in Section 2.14(a). "Effective Date" means the first date on which the conditions set forth in Article III shall have been satisfied. "Eligible Assignee" means (i) a Bank, (ii) an Affiliate of a Bank, or (iii) a commercial bank, a savings bank or other financial institution that is approved by the Administrative Agent -7- and the Issuing Bank and, unless an Event of a Default has occurred and is continuing at the time any assignment is effected pursuant to Section 9.07, the Parent (such approval of the Parent not to be unreasonably withheld or delayed); provided, however, that neither any Loan Party nor any Affiliate of a Loan Party shall qualify as an Eligible Assignee under this definition. "Environmental Action" means any action, suit, demand, demand letter, claim, notice of non-compliance or violation, notice of liability or potential liability, investigation, proceeding, consent order or consent agreement relating in any way to any Environmental Law, any Environmental Permit or Hazardous Material or arising from alleged injury or threat to health, safety or the environment, including, without limitation, (a) by any governmental or regulatory authority for enforcement, cleanup, removal, response, remedial or other actions or damages and (b) by any governmental or regulatory authority or third party for damages, contribution, indemnification, cost recovery, compensation or injunctive relief. "Environmental Law" means any Federal, state, local or foreign statute, law, ordinance, rule, regulation, code, order, writ, judgment, injunction, decree or judicial or agency interpretation, policy or guidance relating to pollution or protection of the environment, health, safety or natural resources, including, without limitation, those relating to the use, handling, transportation, treatment, storage, disposal, release or discharge of Hazardous Materials. "Environmental Permit" means any permit, approval, identification number, license or other authorization required under any Environmental Law. "Equity Interests" means, with respect to any Person, shares of capital stock of (or other ownership or profit interests in) such Person, warrants, options or other rights for the purchase or other acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or other acquisition from such Person of such shares (or such other interests), and other ownership or profit interests in such Person (including, without limitation, partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are authorized or otherwise existing on any date of determination. "Equity Issuance" means one or more issuances by the Parent and/or ACE INA of Equity Interests and/or equity-linked securities, the Net Cash Proceeds of which shall be at least $500,000,000. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "ERISA Affiliate" means any Person that for purposes of Title IV of ERISA is a member of the controlled group of any Loan Party, or under common control with any Loan Party, within the meaning of Section 414 of the Internal Revenue Code or Section 4001 of ERISA. "Events of Default" has the meaning specified in Section 6.01. "Existing Letters of Credit" means the letters of credit issued by the Issuing Bank prior to the date hereof listed on Schedule II hereto. -8- "Expiration Date" shall mean September 6, 2000, as such date may be extended in accordance with Section 2.17 hereof. "Extension Request" has the meaning specified in Section 2.17. "Federal Funds Rate" means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average of the quotations for such day for such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. "Fee Letter" means the fee letter dated on or about the date hereof among the Parent and the Issuing Bank, as amended. "Fiscal Year" means a fiscal year of the Parent and its Consolidated Subsidiaries ending on September 30 in any calendar year. "Fleet" has the meaning specified in the recital of parties to this Agreement. "Foreign Government Scheme or Arrangement" has the meaning specified in Section 4.01 (n) (iv). "Foreign Plan" has the meaning specified in Section 4.01 (n) (iv). "GAAP" has the meaning specified in Section 1.03. "Granting Bank" has the meaning specified in Section 9.07(l). "Guaranty" means the undertaking by each of the Account Parties under Article VII. "Hazardous Materials" means (a) petroleum or petroleum products, by- products or breakdown products, radioactive materials, asbestos-containing materials, polychlorinated biphenyls and radon gas and (b) any other chemicals, materials or substances designated, classified or regulated as hazardous or toxic or as a pollutant or contaminant under any Environmental Law. "Hedge Agreements" means interest rate swap, cap or collar agreements, interest rate future or option contracts, currency swap agreements, currency future or option contracts and other hedging agreements. "Indemnified Party" has the meaning specified in Section 9.04(b). "Information Memorandum" means the information memorandum dated February 1999 which may be used in connection with the syndication of the commitments hereunder. -9- "Initial Banks" has the meaning specified in the recital of parties to this Agreement. "Initial Extension of Credit" means the agreement of the Issuing Bank to maintain the Existing Letters of Credit outstanding as Letters of Credit hereunder, which agreement shall be deemed to be an issuance of Letters of Credit hereunder. "Internal Revenue Code" means the Internal Revenue Code of 1986, as amended from time to time, and the regulations promulgated and rulings issued thereunder. "Investment" in any Person means any loan or advance to such Person, any purchase or other acquisition of any Equity Interests or Debt or the assets comprising a division or business unit or a substantial part or all of the business of such Person, any capital contribution to such Person or any other direct or indirect investment in such Person, including, without limitation, any acquisition by way of a merger or consolidation and any arrangement pursuant to which the investor incurs Debt of the types referred to in clause (h) or (i) of the definition of "Debt" in respect of such Person; provided, however, that any purchase by any Loan Party or any Subsidiary of any catastrophe-linked instruments which are (x) issued for the purpose of transferring traditional reinsurance risk to the capital markets and (y) purchased by such Loan Party or Subsidiary in accordance with its customary reinsurance underwriting procedures, or the entry by any Loan Party or any Subsidiary into swap instruments relating to such instruments in accordance with such procedures, shall be deemed to be the entry by such Person into a reinsurance contract and shall not be deemed to be an Investment by such Person. "Issuing Bank" means Mellon Bank, N.A. and any "New Issuing Bank" appointed in accordance with Section 2.15. "Judgment Currency" has the meaning specified in Section 2.16(g). "LC Commitment Amount" means, with respect to any Bank at any time, the amount set forth opposite such Bank's name on Schedule I hereto under the caption "LC Commitment Amount" or, if such Bank has entered into one or more Assignment and Acceptances, set forth for such Bank in the Register maintained by the Administrative Agent pursuant to Section 9.07(d) as such Bank's "LC Commitment Amount", as such amount may be reduced at or prior to such time pursuant to Section 2.04. If the Conversion to Tranche System shall have occurred, the LC Commitment Amount of a Bank which is not a Commitment Bank will also be reduced, in the event of a reduction of the Available Amount under (except, for so long as a drawing is not reimbursed, as a result of a drawing under) any Letter of Credit (including upon expiration or termination thereof) with respect to which such Bank has a funding obligation (or with respect to which such Bank would have had a funding obligation if a drawing had occurred prior to such expiration or termination), by an amount equal to such reduction. "LC Participation Obligations" has the meaning specified in Section 2.14(a). "L/C Related Documents" has the meaning specified in Section 2.03(a)(ii). "L/C Termination Date" has the meaning specified in Section 2.18. "Letter of Credit Advance" has the meaning specified in Section 2.02(f). -10- "Letter of Credit Agreement" has the meaning specified in Section 2.02(a). "Letter of Credit Business Day" means a Business Day. "Letter of Credit Exposure" at any time means the sum at such time of (a) the aggregate outstanding amount of Letter of Credit Advances, (b) the aggregate Available Amounts of all outstanding Letters of Credit and (c) the aggregate Available Amounts of all Letters of Credit which have been requested by an Account Party to be issued hereunder but have not yet been so issued. "Letter of Credit Issuance Commitment Amount" means at any time the lesser of (a) $430,000,000 (or such lesser amount as may be agreed in writing among the Account Parties, the Administrative Agent and the Issuing Bank) and (b) the aggregate amount of the LC Commitment Amounts then in effect. "Letter of Credit Participating Interest" has the meaning specified in Section 2.02(d). "Letter of Credit Participating Interest Commitment" has the meaning specified in Section 2.02(d). "Letter of Credit Participating Interest Percentage" means, for any Bank, a fraction, expressed as a percentage, the numerator of which is such Bank's LC Commitment Amount and the denominator of which is the aggregate LC Commitment Amounts of all the Banks. "Letters of Credit" has the meaning specified in Section 2.01. "Lien" means any lien, security interest or other charge or encumbrance of any kind, or any other type of preferential arrangement, including, without limitation, the lien or retained security title of a conditional vendor and any easement, right of way or other encumbrance on title to real property. "Loan Documents" means (i) this Agreement, (ii) the Fee Letter and (iii) each Letter of Credit Agreement, in each case as amended. "Loan Parties" means the Account Parties. "Mandatorily Convertible Preferred Securities" means units comprised of Preferred Securities and a contract for the sale of ordinary shares of the Parent (including "Feline Prides(TM)" or any substantially similar securities). "Margin Stock" has the meaning specified in Regulation U. "Material Adverse Change" means any material adverse change in the business, financial condition, operations or properties of the Parent and its Subsidiaries, taken as a whole. "Material Adverse Effect" means a material adverse effect on (a) the business, condition, operations or properties of the Parent and its Subsidiaries, taken as a whole, (b) the rights and remedies of the Administrative Agent or any Bank under any Loan Document or (c) the ability of the Loan Parties, taken as a whole, to perform their obligations under the Loan -11- Documents. "Material Financial Obligation" means a principal amount of Debt and/or payment obligations in respect of any Hedge Agreement of the Parent and/or one or more of its Subsidiaries arising in one or more related or unrelated transactions exceeding in the aggregate $25,000,000. "Mellon" means Mellon Bank, N.A. "Moody's" means Moody's Investors Service, Inc. "Multiemployer Plan" means a multiemployer plan, as defined in Section 4001(a)(3) of ERISA, to which any Loan Party or any ERISA Affiliate is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions. "Net Cash Proceeds" means, with respect to any sale, lease, transfer or other disposition of any asset or the incurrence or issuance of any Debt or the sale or issuance of any Equity Interests or Preferred Securities by any Person, the aggregate amount of cash received from time to time (whether as initial consideration or through payment or disposition of deferred consideration) by or on behalf of such Person in connection with such transaction after deducting therefrom only (without duplication) (a) reasonable and customary brokerage commissions, underwriting fees and discounts, legal fees, finder's fees and other similar fees and commissions, (b) the amount of taxes payable in connection with or as a result of such transaction and (c) the amount of any Debt secured by a Lien on such asset that, by the terms of the agreement or instrument governing such Debt, is required to be repaid upon such disposition, in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid to a Person that is not an Affiliate of such Person or any Loan Party or any Affiliate of any Loan Party and are properly attributable to such transaction or to the asset that is the subject thereof; provided, however, that in the case of taxes that are deductible under clause (b) above but for the fact that, at the time of receipt of such cash, such taxes have not been actually paid or are not then payable, such Loan Party or such Subsidiary may deduct an amount (the "Reserved Amount") equal to the amount reserved in accordance with GAAP for such Loan Party's or such Subsidiary's reasonable estimate of such taxes, other than taxes for which such Loan Party or such Subsidiary is indemnified; provided further that, at the time such taxes are paid, an amount equal to the amount, if any, by which the Reserved Amount for such taxes exceeds the amount of such taxes actually paid shall constitute "Net Cash Proceeds" of the type for which such taxes were reserved for all purposes hereunder; provided further that, prior to the date on which the Public Debt Rating of the Parent falls to BBB/Baa2 or below, Net Cash Proceeds from the sale, lease, transfer or other disposition of any asset or Equity Interests shall not include any amount of cash proceeds received in connection with such transaction to the extent such cash proceeds are reinvested in the same or related line of business as the business of the Parent. "Non-Dollar Letters of Credit" has the meaning specified in Section 2.16(a). "OECD" means the Organization for Economic Cooperation and Development. "Other Taxes" has the meaning specified in Section 2.08(b). -12- "Overnight Rate" has the meaning specified in Section 2.16(h). "Parent" has the meaning specified in the recital of parties to this Agreement. "PBGC" means the Pension Benefit Guaranty Corporation (or any successor). "Pension Plan" means a "pension plan", as such term is defined in section 3(2) of ERISA, which is subject to title IV of ERISA (other than any "multiemployer plan" as such term is defined in section 4001(a)(3) of ERISA), and to which any Loan Party or any ERISA Affiliate may have any liability, including any liability by reason of having been a substantial employer within the meaning of section 4063 of ERISA at any time during the preceding five years, or by reason of being deemed to be a contributing sponsor under section 4069 of ERISA. "Permitted Liens" means such of the following as to which no enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced or which are being contested in good faith by appropriate proceedings: (a) Liens for taxes, assessments and governmental charges or levies not yet due and payable; (b) Liens imposed by law, such as materialmen's, mechanics', carriers', workmen's and repairmen's Liens and other similar Liens arising in the ordinary course of business securing obligations that are not overdue for a period of more than 90 days; (c) pledges or deposits to secure obligations under workers' compensation laws or similar legislation or to secure public or statutory obligations; and (d) easements, rights of way and other encumbrances on title to real property that do not render title to the property encumbered thereby unmarketable or materially adversely affect the use of such property for its present purposes. "Person" means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, joint venture or other entity, or a government or any political subdivision or agency thereof. "Pre-Commitment Information" means all of the written information in the Information Memorandum provided by or on behalf of the Parent to the Administrative Agent and the Banks. "Preferred Interests" means, with respect to any Person, Equity Interests issued by such Person that are entitled to a preference or priority over any other Equity Interests issued by such Person upon any distribution of such Person's property and assets, whether by dividend or upon liquidation. "Preferred Securities" means (i) preferred securities issued by the Special Purpose Trust which shall provide, among other things, that dividends shall be payable only out of proceeds of interest payments on the Debentures, or (ii) other instruments that may be treated in whole or in part as equity for rating agency purposes while being treated as debt for tax purposes. "Pro Rata" has the meaning specified in Section 2.18. "Pro Rata Share" means, for any Bank, its share determined Pro Rata, in accordance with the definition of the term "Pro Rata" in Section 2.18 hereof. "Public Debt Rating" means, as of any date, the lower rating that has been most recently -13- announced by either S&P or Moody's, as the case may be, for any class of non-credit enhanced long-term senior unsecured debt issued by the Parent. For purposes of the foregoing, (a) if only one of S&P and Moody's shall have in effect a Public Debt Rating, the Applicable Margin or the Applicable Commitment Fee Percentage, as the case may be, shall be determined by reference to the available rating; (b) if neither S&P nor Moody's shall have in effect a Public Debt Rating the Applicable Margin and the Applicable Commitment Fee Percentage shall be set in accordance with the level which is three rating levels below the Parent's S&P financial strength rating at such time, provided that, in the event that the Parent's S&P financial strength rating is affirmed at (i) A+, the applicable Level will be Level 2 and (ii) A+ and on credit watch/review with negative implications, the applicable Level will be Level 3; (c) if any rating established by S&P or Moody's shall be changed, such change shall be effective as of the date on which such change is first announced publicly by the rating agency making such change; and (d) if S&P or Moody's shall change the basis on which ratings are established, each reference to the Public Debt Rating announced by S&P or Moody's, as the case may be, shall refer to the then equivalent rating by S&P or Moody's, as the case may be. "Purchase Agreement" means the Purchase Agreement dated as of January 11, 1999 among the Seller, Cigna Holdings, Inc. and the Parent. "Redeemable" means, with respect to any Equity Interest, any Debt or any other right or obligation, any such Equity Interest, Debt, right or obligation that (a) the issuer has undertaken to redeem at a fixed or determinable date or dates, whether by operation of a sinking fund or otherwise, or upon the occurrence of a condition not solely within the control of the issuer or (b) is redeemable at the option of the holder. "Register" has the meaning specified in Section 9.07(d). "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. "Required Commitment Banks" has the meaning specified in Section 2.18. "Required Banks" means, at any time, Banks owed or holding at least a majority in interest of the sum of (a) aggregate principal amount of the Letter of Credit Advances outstanding at such time and (b) the aggregate Available Amount of all Letters of Credit outstanding at such time, or, if no such principal amount and no Letters of Credit are outstanding at such time, Banks having LC Commitment Amounts constituting at least a majority in interest of the aggregate of the LC Commitment Amounts; provided, however, that if any Bank shall be a Defaulting Bank at such time, there shall be excluded from the determination of Required Banks at such time (A) the aggregate principal amount of the interest of such Bank in Letter of Credit Advances and outstanding at such time, (B) such Bank's Pro Rata Share of the aggregate Available Amount of all Letters of Credit outstanding at such time and (C) the Unused LC Commitment Amount of such Bank at such time. "Responsible Officer" means the Chairman, Chief Executive Officer, President, Chief Financial Officer, Treasurer or Chief Investment Officer of the Parent. "S&P" means Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. -14- "Seller" means Cigna Corporation. "Solvent" and "Solvency" mean, 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. "Special Expiration Date" has the meaning specified in Section 2.18. "Special Purpose Trust" means a special purpose business trust established by the Parent or ACE INA of which the Parent or ACE INA will hold all the common securities, which will be the issuer of the Preferred Securities, and which will loan to the Parent or ACE INA (such loan being evidenced by the Debentures) the net proceeds of the issuance and sale of the Preferred Securities. "Subsidiary" of any Person means any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which) more than 50% of (a) the issued and outstanding capital stock having ordinary voting power to elect a majority of the Board of Directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency), (b) the interest in the capital or profits of such partnership, joint venture or limited liability company or (c) the beneficial interest in such trust or estate is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person's other Subsidiaries. "Supplement to Tranche System" has the meaning specified in Section 2.18. "Taxes" has the meaning specified in Section 2.08(a). "Tempest" has the meaning specified in the recital of parties to this Agreement. "Total Capitalization" means, at any time, an amount (without duplication) equal to (i) the then outstanding Consolidated Debt of the Parent and its Subsidiaries plus (ii) Consolidated stockholders equity of the Parent and its Subsidiaries plus (without duplication) (iii) the then issued and outstanding amount of Preferred Securities and (without duplication) Debentures. "Tranche 1 Bank" and other defined terms beginning with the word "Tranche" have the respective meanings specified in Section 2.18. "Unused LC Commitment Amount" means, with respect to any Bank at any time, -15- (a) such Bank's LC Commitment Amount at such time minus (b) such Bank's Pro Rata Share of (i) the aggregate Available Amount of all Letters of Credit hereunder and (ii) the aggregate principal amount of all Letter of Credit Advances made by the Issuing Bank pursuant to Section 2.02(f) and outstanding at such time (whether held by the Issuing Bank or the Banks). If the Conversion to Tranche System shall have occurred, the Unused LC Commitment Amount of any Bank which is not a Commitment Bank shall be zero. "Voting Interests" means shares of capital stock issued by a corporation, or equivalent Equity Interests in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even if the right so to vote has been suspended by the happening of such a contingency. "Welfare Plan" means a welfare plan, as defined in Section 3(1) of ERISA, that is maintained for employees of any Loan Party or in respect of which any Loan Party could have liability. "Withdrawal Liability" has the meaning specified in Part I of Subtitle E of Title IV of ERISA. SECTION 1.02. Computation of Time Periods; Other Definitional Provisions. In this Agreement and the other Loan Documents in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each mean "to but excluding". References in the Loan Documents to any agreement or contract "as amended" shall mean and be a reference to such agreement or contract as amended, amended and restated, supplemented or otherwise modified from time to time in accordance with its terms. SECTION 1.03. Accounting Terms and Determinations. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with generally accepted accounting principles as in effect from time to time ("GAAP"), applied on a basis consistent (except for changes concurred in by the Parent's independent public accountants) with the most recent audited consolidated financial statements of the Parent and its Subsidiaries delivered to the Banks; provided that, if the Parent notifies the Administrative Agent that the Parent wishes to amend any covenant in Article V to eliminate the effect of any change in generally accepted accounting principles on the operation of such covenant (or if the Administrative Agent notifies the Parent that the Required Banks wish to amend Article V for such purpose), then the Parent's compliance with such covenant shall be determined on the basis of generally accepted accounting principles in effect immediately before the relevant change in generally accepted accounting principles became effective (and, concurrently with the delivery of any financial statements required to be delivered hereunder, the Parent shall provide a statement of reconciliation conforming such financial information to such generally accepted accounting principles as previously in effect), until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Parent and the Required Banks. ARTICLE II AMOUNTS AND TERMS OF THE LETTERS OF CREDIT -16- SECTION 2.01. The Letters of Credit. The Issuing Bank agrees, on the terms and subject to the conditions herein set forth, to issue letters of credit (the "Letters of Credit") for the account of any Account Party on any Letter of Credit Business Day from time to time during the period from the date hereof to the Expiration Date, including by agreeing to maintain the Existing Letters of Credit as Letters of Credit hereunder. From and after the Initial Extension of Credit, the Existing Letters of Credit shall be Letters of Credit hereunder. The Issuing Bank shall have no obligation to issue, and no Account Party will request the issuance of, any Letter of Credit hereunder if, at the time of issuance of such Letter of Credit and after giving effect thereto, the Letter of Credit Exposure would exceed the Issuing Bank's Letter of Credit Issuance Commitment Amount. The Issuing Bank shall have no obligation to issue, and no Account Party shall request the issuance of, any Letter of Credit hereunder if the Available Amount of such Letter of Credit exceeds, immediately before the time of such issuance, an amount equal to the total Unused LC Commitment Amounts of the Banks at such time (as such amount shall be advised by the Administrative Agent to the Issuing Bank as contemplated by Section 2.02). The Issuing Bank shall have no obligation to issue, and no Account Party shall request the issuance of, any Letter of Credit except within the following limitations: (i) each Letter of Credit shall be denominated in U.S. dollars, (ii) each Letter of Credit shall be payable only against sight drafts (and not time drafts) and (iii) no Letter of Credit shall have an expiration date (including all rights of the Applicable Account Party or the beneficiary to require renewal) later than one year after the date of issuance thereof, but a Letter of Credit may by its terms be automatically renewable annually unless the Issuing Bank notifies the beneficiary thereof of its election not to renew such Letter of Credit. The Issuing Bank shall have no obligation to issue any letter of credit which is unsatisfactory in form, substance or beneficiary to the Issuing Bank in the exercise of its reasonable judgment consistent with its customary practice. SECTION 2.02. Issuance and Renewals and Drawings, Participations and Reimbursement with Respect to Letters of Credit. (a) Request for Issuance. An Account Party may from time to time request, upon at least three Letter of Credit Business Days' written notice (given not later than 11:00 A.M. New York City time on the last day permitted therefor), the Issuing Bank to issue or renew (other than any automatic renewal thereof) a Letter of Credit by: (i) delivering to the Issuing Bank and the Administrative Agent a written request to such effect, specifying the date on which such Letter of Credit is to be issued (which shall be a Letter of Credit Business Day), the expiration date thereof, the Available Amount thereof, the name and address of the beneficiary thereof and the form thereof, and (ii) in the case of the issuance of a Letter of Credit, delivering to the Issuing Bank a completed agreement and application with respect to such Letter of Credit as the Issuing Bank may specify for use in connection with such requested Letter of Credit (a "Letter of Credit Agreement"), together with such other certificates, documents and other papers as are specified in such Letter of Credit Agreement. The Administrative Agent shall, promptly upon receiving such notice, notify the Banks of such proposed Letter of Credit (which notice shall specify the Available Amount and term of such proposed Letter of Credit) or such proposed renewal of a Letter of Credit (which notice shall specify the term of such renewal), and shall determine, as of 11:00 A.M. (Pittsburgh time) on the Business Day immediately preceding such proposed issuance, whether such proposed Letter of Credit complies with the limitations set forth in Section 2.01 hereof. If such limitations set forth in Section 2.01 are not satisfied or if the Required Banks have given notice to the Administrative Agent to cease issuing or renewing Letters of Credit as contemplated by this Agreement, the Administrative Agent shall immediately notify the Issuing -17- Bank (in writing or by telephone immediately confirmed in writing) that the Issuing Bank is not authorized to issue or renew, as the case may be, such Letter of Credit. If the Issuing Bank issues or renews a Letter of Credit, it shall deliver the original of such Letter of Credit to the beneficiary thereof or as the Applicable Account Party shall otherwise direct, and shall promptly notify the Administrative Agent thereof and furnish a copy thereof to the Administrative Agent. (b) Request for Extension or Increase. An Account Party may from time to time request the Issuing Bank to extend the expiration date of an outstanding Letter of Credit issued for its account or increase (or, with the consent of the beneficiary, decrease) the Available Amount of or the amount available to be drawn on such Letter of Credit. Such extension or increase shall for all purposes hereunder be treated as though such Account Party had requested issuance of a replacement Letter of Credit (except only that the Issuing Bank may, if it elects, issue a notice of extension or increase in lieu of issuing a new Letter of Credit in substitution for the outstanding Letter of Credit). (c) Limitations on Issuance, Extension, Renewal and Amendment. As between the Issuing Bank, on the one hand, and the Agents and the Banks, on the other hand, the Issuing Bank shall be justified and fully protected in issuing or renewing a proposed Letter of Credit unless it shall have received notice from the Administrative Agent as provided in Section 2.02(a) hereof that it is not authorized to do so (and, in the case of automatic renewals, ten days shall have passed following the date of the Issuing Bank's receipt of such notice), notwithstanding any subsequent notices to the Issuing Bank, any knowledge of a Default, any knowledge of failure of any condition specified in Article III hereof to be satisfied, any other knowledge of the Issuing Bank, or any other event, condition or circumstance whatsoever. The Issuing Bank may amend, modify or supplement Letters of Credit or Letter of Credit Agreements, or waive compliance with any condition of issuance, renewal or payment, without the consent of, and without liability to, any Agent or any Bank, provided that any such amendment, modification or supplement that extends the expiration date or increases the Available Amount of or the amount available to be drawn on an outstanding Letter of Credit shall be subject to Section 2.01. (d) Letter of Credit Participating Interests. Concurrently with the issuance of each Letter of Credit, the Issuing Bank automatically shall be deemed, irrevocably and unconditionally, to have sold, assigned, transferred and conveyed to each other Bank, and each other Bank automatically shall be deemed, irrevocably and unconditionally, severally to have purchased, acquired, accepted and assumed from the Issuing Bank, without recourse to, or representation or warranty by, the Issuing Bank, an undivided interest, in a proportion equal to such Bank's Pro Rata Share, in all of the Issuing Bank's rights and obligations in, to or under such Letter of Credit, the related Letter of Credit Agreement, all reimbursement obligations with respect to such Letter of Credit, and all collateral, guarantees and other rights from time to time directly or indirectly securing the foregoing (such interest of each Bank being referred to herein as a "Letter of Credit Participating Interest", it being understood that the Letter of Credit Participating Interest of the Issuing Bank is the interest not otherwise attributable to the Letter of Credit Participating Interests of the other Banks). Each Bank irrevocably and unconditionally agrees to the immediately preceding sentence, such agreement being herein referred to as such Bank's "Letter of Credit Participating Interest Commitment". Amounts, other than Letter of Credit Advances made by a Bank other than the Issuing Bank and other than Letter of Credit commissions under Section 2.05(c)(i), payable from time to time under or in connection with a Letter of Credit or Letter of Credit Agreement shall be for the sole account of the Issuing Bank. On the date that any assignee becomes a party to this Agreement in accordance with Section 9.07 hereof, Letter of Credit Participating Interests in all outstanding Letters of Credit held by the Bank from which such assignee acquired its interest hereunder shall be proportionately reallocated between such assignee and such assignor Bank (and, to the extent -18- such assignor Bank is the Issuing Bank, the assignee Bank shall be deemed to have acquired a Letter of Credit Participating Interest from the Issuing Bank to such extent). Notwithstanding any other provision hereof, each Bank hereby agrees that its obligation to participate in each Letter of Credit, its obligation to make the payments specified in Section 2.02(e), and the right of the Issuing Bank to receive such payments in the manner specified therein, are each absolute, irrevocable and unconditional and shall not be affected by any event, condition or circumstance whatever. The failure of any Bank to make any such payment shall not relieve any other Bank of its funding obligation hereunder on the date due, but no Bank shall be responsible for the failure of any other Bank to meet its funding obligations hereunder. (e) Payment by Banks on Account of Unreimbursed Draws. If the Issuing Bank makes a payment under any Letter of Credit and is not reimbursed in full therefor on such payment date in accordance with Section 2.03(a), the Issuing Bank may notify the Administrative Agent thereof (which notice may be by telephone), and the Administrative Agent shall forthwith notify each Bank (which notice may be by telephone promptly confirmed in writing) thereof. No later than the Administrative Agent's close of business on the date such notice is given (if notice is given by 2:00 P.M. Pittsburgh time) or 10:00 A.M. Pittsburgh time the following day (if notice is given after 2:00 P.M. Pittsburgh time or in the case of any Bank whose Applicable Lending Office is located in Europe), each Bank will pay to the Administrative Agent, for the account of the Issuing Bank, in immediately available funds, an amount equal to such Bank's Pro Rata Share of the unreimbursed portion of such payment by the Issuing Bank. Amounts received by the Administrative Agent for the account of the Issuing Bank shall be forthwith transferred, in immediately available funds, to the Issuing Bank. If and to the extent that any Bank fails to make such payment to the Administrative Agent for the account of the Issuing Bank on such date, such Bank shall pay such amount on demand, together with interest, for the Issuing Bank's own account, for each day from and including the date of the Issuing Bank's payment to but not including the date of repayment to the Issuing Bank (before and after judgment) at a rate per annum for each day (i) from and including the date of such payment by the Issuing Bank to and including the second Business Day thereafter equal to the Federal Funds Rate and (ii) thereafter equal to the Base Rate. (f) Letter of Credit Advances. The term "Letter of Credit Advance" is used in this Agreement in accordance with the meanings set forth in this paragraph 2.02(f). The making of any payment by the Issuing Bank under a Letter of Credit is sometimes referred to herein as the making of a Letter of Credit Advance by the Issuing Bank in the amount of such payment. The making of any payment by a Bank for the account of the Issuing Bank under Section 2.02(e) on account of an unreimbursed drawing on a Letter of Credit is sometimes referred to herein as the making of a Letter of Credit Advance to the Applicable Account Party by such Bank. The making of such a Letter of Credit Advance by a Bank with respect to an unreimbursed drawing on a Letter of Credit shall reduce, by a like amount, the outstanding Letter of Credit Advance of the Issuing Bank with respect to such unreimbursed drawing. (g) Letter of Credit Reports. The Issuing Bank will furnish to the Administrative Agent prompt written notice of each issuance of a Letter of Credit (including the Available Amount and expiration date thereof), amendment to a Letter of Credit, cancellation of a Letter of Credit and payment on a Letter of Credit. The Administrative Agent will furnish (A) to each Bank prior to the tenth Business Day of each month a written report summarizing issuance and expiration dates of Letters of Credit issued during the preceding month and payments and reductions in Available Amount during such month on all Letters of Credit and (B) to each Bank prior to the tenth Business Day of each calendar quarter a written report setting forth the average daily aggregate Available Amount during the preceding calendar quarter of all Letters of Credit. -19- SECTION 2.03 Repayment of Advances. (a) Account Party's Reimbursement Obligation. (i) Each Account Party hereby agrees to reimburse the Issuing Bank (by making payment to the Administrative Agent for the account of the Issuing Bank in accordance with Section 2.07) in the amount of each payment made by the Issuing Bank under any Letter of Credit issued for such Account Party's account, such reimbursement to be made on the date such payment under such Letter of Credit is made by the Issuing Bank (but not earlier than the date which is one Business Day after notice of such payment under such Letter of Credit or of the drawing giving rise to such payment under such Letter of Credit is given to such Account Party). Such reimbursement obligation shall be payable without further notice, protest or demand, all of which are hereby waived, and an action therefor shall immediately accrue. To the extent such payment by such Account Party is not timely made, such Account Party hereby agrees to pay to the Administrative Agent, for the respective accounts of the Issuing Bank and the Banks which have funded their respective shares of such amount remaining unpaid by such Account Party, on demand, interest thereon at a rate per annum for each day equal to 2% plus the Base Rate in effect on such day. (ii) The obligation of each Account Party to reimburse the Issuing Bank for any payment made by the Issuing Bank under any Letter of Credit, and the obligation of each Bank under Section 2.02(e) with respect thereto, shall be unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement, the applicable Letter of Credit Agreement and any other applicable agreement or instrument under all circumstances, including, without limitation, the following circumstances: (A) any lack of validity or enforceability of any Loan Document, any Letter of Credit Agreement, any Letter of Credit or any other agreement or instrument relating thereto (all of the foregoing being, collectively, the "L/C Related Documents"); (B) any change in the time, manner or place of payment of, or in any other term of, all or any of the obligations of any Account Party or any other Person in respect of any L/C Related Document or any other amendment or waiver of or any consent to departure from all or any of the L/C Related Documents; (C) the existence of any claim, set-off, defense or other right that any Account Party or any other Person 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), the Issuing Bank or any other Person, whether in connection with the transactions contemplated by the L/C Related Documents or any unrelated transaction; (D) 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; (E) payment by the Issuing Bank 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; (F) any exchange, release or non-perfection of any collateral, or any release or amendment or waiver of or consent to departure from the Guaranty or any other guarantee, for all or any of the obligations of any Account Party or any other Person in respect of the L/C Related Documents; or -20- (G) any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including, without limitation, any other circumstance that might otherwise constitute a defense available to, or a discharge of, any Account Party or a guarantor. (b) Rescission. If any amount received by the Issuing Bank on account of any Letter of Credit Advance shall be avoided, rescinded or otherwise returned or paid over by the Issuing Bank for any reason at any time, whether before or after the termination of this Agreement (or the Issuing Bank believes in good faith that such avoidance, rescission, return or payment is required, whether or not such matter has been adjudicated), each Bank will (except to the extent a corresponding amount received by such Bank on account of its Letter of Credit Advance relating to the same payment on a Letter of Credit has been avoided, rescinded or otherwise returned or paid over by such Bank), promptly upon notice from the Administrative Agent or the Issuing Bank, pay over to the Administrative Agent for the account of the Issuing Bank its Pro Rata Share of such amount, together with its Pro Rata Share of any interest or penalties payable with respect thereto. SECTION 2.04. Termination or Reduction of the LC Commitment Amounts. The Parent may, upon at least three Business Days' notice to the Administrative Agent, terminate in whole or reduce in part the unused portion of the LC Commitment Amounts; provided, however, that each partial reduction (i) shall be in an aggregate amount of $10,000,000 or an integral multiple of $1,000,000 in excess thereof, (ii) shall be made ratably among the Banks in accordance with their LC Commitment Amounts and (iii) shall automatically reduce the Issuing Bank's Letter of Credit Issuance Commitment Amount, as contemplated by the definition of that term. SECTION 2.05 Fees. (a) Commitment Fee. The Account Parties jointly and severally agree to pay to the Administrative Agent for the account of the Banks a commitment fee, from the Effective Date in the case of each Initial Bank and from the effective date specified in the Assignment and Acceptance pursuant to which it became a Bank in the case of each other Bank until the Expiration Date, payable in arrears quarterly on the last day of each March, June, September and December and on the Expiration Date, at the rate of the Applicable Commitment Fee Percentage on the average daily Unused LC Commitment Amount of each Bank during such quarter (or shorter period); provided, however, that no commitment fee shall accrue on the LC Commitment Amount of a Defaulting Bank so long as such Bank shall be a Defaulting Bank. (b) Administrative Agent's Fees. The Account Parties jointly and severally agree to pay to the Administrative Agent for its own account such fees as may from time to time be agreed between the Parent and the Administrative Agent. (c) Letter of Credit Fees, Etc. (i) The Account Parties jointly and severally agree to pay to the Administrative Agent for the account of each Bank a commission, payable in arrears quarterly on the last day of each calendar quarter commencing September 30, 1999, on the date of the earliest to occur of the full drawing, expiration, termination or cancellation of any Letter of Credit, and on the Expiration Date, on such Bank's Pro Rata Share of the average daily aggregate Available Amount during such quarter (or shorter period) of all Letters of Credit outstanding from time to time at the rate equal to the then Applicable Margin. (ii) Each Account Party agrees that it shall pay to the Issuing Bank, for its own -21- account, such commissions, issuance fees, fronting fees, transfer fees and other fees and charges in connection with the issuance or administration of each Letter of Credit as such Account Party and the Issuing Bank shall agree in the Fee Letter. SECTION 2.06. Increased Costs, Etc. (a) If, due to either (i) the introduction of or any change in or in the interpretation of, in each case after the date hereof, any law or regulation or (ii) the compliance with any guideline or request issued after the date hereof from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the cost to any Bank of agreeing to issue or of issuing or maintaining or participating in Letters of Credit (excluding, for purposes of this Section 2.06, any such increased costs resulting from (x) Taxes or Other Taxes (as to which Section 2.08 shall govern) and (y) changes in the basis of taxation of overall net income or overall gross income by the United States or by the foreign jurisdiction or state under the laws of which such Bank is organized or has its Applicable Lending Office or any political subdivision thereof), then the Account Parties jointly and severally agree to pay, from time to time, within five days after demand by such Bank (with a copy of such demand to the Administrative Agent), which demand shall include a statement of the basis for such demand and a calculation in reasonable detail of the amount demanded, to the Administrative Agent for the account of such Bank additional amounts sufficient to compensate such Bank for such increased cost. A certificate as to the amount of such increased cost, submitted to the Account Parties by such Bank, shall be conclusive and binding for all purposes, absent manifest error. (b) If, due to either (i) the introduction of or any change in or in the interpretation of any law or regulation, in each case after the date hereof, or (ii) the compliance with any guideline or request issued after the date hereof from any central bank or other governmental authority (whether or not having the force of law), there shall be any increase in the amount of capital required or expected to be maintained by any Bank or any corporation controlling such Bank as a result of or based upon the existence of such Bank's commitment to lend hereunder and other commitments of such type, then, within five days after demand by such Bank or such corporation (with a copy of such demand to the Administrative Agent), which demand shall include a statement of the basis for such demand and a calculation in reasonable detail of the amount demanded, the Account Parties jointly and severally agree to pay to the Administrative Agent for the account of such Bank, from time to time as specified by such Bank, additional amounts sufficient to compensate such Bank in the light of such circumstances, to the extent that such Bank reasonably determines such increase in capital to be allocable to the existence of such Bank's commitment to issue or participate in Letters of Credit hereunder or to the issuance or maintenance of or participation in any Letters of Credit. A certificate as to such amounts submitted to the Account Parties by such Bank shall be conclusive and binding for all purposes, absent manifest error. (c) Each Bank shall promptly notify the Account Parties and the Administrative Agent of any event of which it has actual knowledge which will result in, and will use reasonable commercial efforts available to it (and not, in such Bank's good faith judgment, otherwise disadvantageous to such Bank) to mitigate or avoid any obligation by the Account Parties to pay any amount pursuant to subsection (a) or (b) above or pursuant to Section 2.08 (and, if any Bank has given notice of any such event and thereafter such event ceases to exist, such Bank shall promptly so notify the Account Parties and the Administrative Agent). Without limiting the foregoing, each Bank will designate a different Applicable Lending Office if such designation will avoid (or reduce the cost to the Account Parties of) any event described in the preceding sentence and such designation will not, in such Bank's good faith judgment, be otherwise disadvantageous to such Bank. (d) Notwithstanding the provisions of subsections (a) and (b) above or Section 2.08 -22- (and without limiting subsection (c) above), if any Bank fails to notify the Account Parties of any event or circumstance that will entitle such Bank to compensation pursuant subsection (a) or (b) above or Section 2.08 within 120 days after such Bank obtains actual knowledge of such event or circumstance, then such Bank shall not be entitled to compensation from the Account Parties for any amount arising prior to the date which is 120 days before the date on which such Bank notifies the Account Parties of such event or circumstance. For avoidance of doubt, it is noted that the term "Bank" as used in this Section 2.06 and in other Sections of this Agreement includes the Issuing Bank in its capacity as such. SECTION 2.07. Payments and Computations. (a) The Account Parties shall make each payment hereunder irrespective of any right of counterclaim or set-off (except as otherwise provided in Section 2.11), not later than 11:00 A.M. (Pittsburgh time) on the day when due in U.S. dollars to the Administrative Agent at the Administrative Agent's Account in same day funds, with payments being received by the Administrative Agent after such time being deemed to have been received on the next succeeding Business Day. The Administrative Agent will promptly thereafter cause like funds to be distributed (i) if such payment by such Account Party is in respect of principal, interest, commitment fees or any other amount then payable hereunder to more than one Bank, to such Banks for the account of their respective Applicable Lending Offices ratably in accordance with the amounts of such respective amount then payable to such Banks and (ii) if such payment by such Account Party is in respect of any amount then payable hereunder to one Bank, to such Bank for the account of its Applicable Lending Office, in each case to be applied in accordance with the terms of this Agreement. Upon its acceptance of an Assignment and Acceptance and recording of the information contained therein in the Register pursuant to Section 9.07(d), from and after the effective date of such Assignment and Acceptance, the Administrative Agent shall make all payments hereunder in respect of the interest assigned thereby to the Bank assignee thereunder, and the parties to such Assignment and Acceptance shall make all appropriate adjustments in such payments for periods prior to such effective date directly between themselves. (b) Each Account Party hereby authorizes each Bank, if an Event of Default under Section 6.01(a) has occurred and is continuing, to charge from time to time against any or all of such Account Party's accounts with such Bank any amount that resulted in such Event of Default. (c) All computations of interest on Letter of Credit Advances (and any other amount payable by reference to the Base Rate) when the Base Rate is determined by reference to Mellon's prime rate shall be made by the Administrative Agent on the basis of a year of 365 or, if applicable, 366 days; all other computations of interest, fees and Letter of Credit commissions shall be made by the Administrative Agent on the basis of a year of 360 days. All such computations shall be made for the actual number of days (including the first day but excluding the last day) occurring in the period for which such interest, fees or commissions are payable. Each determination by the Administrative Agent of an interest rate, fee or commission hereunder shall be conclusive and binding for all purposes, absent manifest error. (d) Whenever any payment hereunder shall be stated to be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest or fee, as the case may be. SECTION 2.08. Taxes. (a) Any and all payments by any Loan Party hereunder shall be made, in accordance with Section 2.07, free and clear of and without deduction for any and all present or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding, in the case of each Bank and each Agent, taxes that are imposed on its overall net income by the United States and taxes that are imposed on its overall net income (and franchise taxes imposed in -23- lieu thereof) by the state or foreign jurisdiction under the laws of which such Bank or such Agent, as the case may be, is organized or any political subdivision thereof and, in the case of each Bank, taxes that are imposed on its overall net income (and franchise taxes imposed in lieu thereof) by the state or foreign jurisdiction of such Bank's Applicable Lending Office or any political subdivision thereof (all such non-excluded taxes, levies, imposts, deductions, charges, withholdings and liabilities in respect of payments hereunder being herein referred to as "Taxes"). If any Loan Party shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder or to any Bank or any Agent, (i) the sum payable by such Loan Party shall be increased as may be necessary so that after such Loan Party and the Administrative Agent have made all required deductions (including deductions applicable to additional sums payable under this Section 2.08) such Bank or such Agent, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Loan Party shall make all such deductions and (iii) such Loan Party shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law. (b) In addition, each Loan Party shall pay any present or future stamp, documentary, excise, property or similar taxes, charges or levies that arise from any payment made hereunder or from the execution, delivery or registration of, performance under, or otherwise with respect to, this Agreement or any other Loan Document (herein referred to as "Other Taxes"). (c) Each Loan Party shall indemnify each Bank and each Agent for and hold them harmless against the full amount of Taxes and Other Taxes, and for the full amount of taxes of any kind imposed by any jurisdiction on amounts payable under this Section 2.08, imposed on or paid by such Bank or such Agent (as the case may be) and any liability (including penalties, additions to tax, interest and expenses) arising therefrom or with respect thereto. This indemnification payment shall be made within 30 days from the date such Bank or such Agent (as the case may be) makes written demand therefor. (d) Within 30 days after the date of any payment of Taxes, each Loan Party shall furnish to the Administrative Agent, at its address referred to in Section 9.02, the original or a certified copy of a receipt evidencing such payment. In the case of any payment hereunder by or on behalf of a Loan Party through an account or branch outside the United States or by or on behalf of a Loan Party by a payor that is not a United States person, if such Loan Party determines that no Taxes are payable in respect thereof, such Loan Party shall furnish, or shall cause such payor to furnish, to the Administrative Agent, at such address, an opinion of counsel acceptable to the Administrative Agent stating that such payment is exempt from Taxes. For purposes of subsections (d) and (e) of this Section 2.08, the terms "United States" and "United States person" shall have the meanings specified in Section 7701(a)(9) and 7701(a)(10) of the Internal Revenue Code, respectively. (e) Each Bank organized under the laws of a jurisdiction outside the United States shall, on or prior to the date of its execution and delivery of this Agreement in the case of each Initial Bank or the Issuing Bank, as the case may be, and on the date of the Assignment and Acceptance pursuant to which it becomes a Bank in the case of each other Bank, and from time to time thereafter as requested in writing by the Parent (but only so long thereafter as such Bank remains lawfully able to do so), provide each of the Administrative Agent and the Parent with two original Internal Revenue Service forms W-8BEN (or if delivered on or before December 31, 1999, form 1001) or W-8ECI (or if delivered on or before December 31, 1999, form 4224) or (in the case of a Bank that has certified in writing to the Administrative Agent that it is not a "bank" as defined in Section 881(c)(3)(A) of the Internal Revenue Code) form W-8 (and, if such Bank delivers a form W-8, a certificate representing that such Bank is not a "bank" for purposes of Section 881(c)(3)(A) of the Internal Revenue Code, is not a 10-percent -24- shareholder (within the meaning of Section 871(h)(3)(B) of the Internal Revenue Code) of the Parent and is not a controlled foreign corporation related to the Parent (within the meaning of Section 864(d)(4) of the Internal Revenue Code)), as appropriate, or any successor or other form prescribed by the Internal Revenue Service, certifying that such Bank is exempt from or entitled to a reduced rate of United States withholding tax on payments pursuant to this Agreement or, in the case of a Bank providing a form W-8, certifying that such Bank is a foreign corporation, partnership, estate or trust. If the forms provided by a Bank at the time such Bank first becomes a party to this Agreement indicate a United States interest withholding tax rate in excess of zero, withholding tax at such rate shall be considered excluded from Taxes unless and until such Bank provides the appropriate forms certifying that a lesser rate applies, whereupon withholding tax at such lesser rate only shall be considered excluded from Taxes for periods governed by such forms; provided, however, that if, at the effective date of the Assignment and Acceptance pursuant to which a Bank becomes a party to this Agreement, the Bank assignor was entitled to payments under subsection (a) of this Section 2.08 in respect of United States withholding tax with respect to interest paid at such date, then, to such extent, the term Taxes shall include (in addition to withholding taxes that may be imposed in the future or other amounts otherwise includable in Taxes) United States withholding tax, if any, applicable with respect to the Bank assignee on such date. If any form or document referred to in this subsection (e) requires the disclosure of information, other than information necessary to compute the tax payable and information required on the date hereof by Internal Revenue Service form W-8BEN, 1001, W-8ECI, 4224 or W-8 (and the related certificate described above), that the Bank reasonably considers to be confidential, the Bank shall give notice thereof to the Parent and shall not be obligated to include in such form or document such confidential information. (f) For any period with respect to which a Bank which may lawfully do so has failed to provide the Parent with the appropriate form described in subsection (e) above (other than if such failure is due to a change in law occurring after the date on which a form originally was required to be provided or if such form otherwise is not required under subsection (e) above), such Bank shall not be entitled to indemnification under subsection (a) or (c) of this Section 2.08 with respect to Taxes imposed by the United States by reason of such failure; provided, however, that should a Bank become subject to Taxes because of its failure to deliver a form required hereunder, the Parent shall take such steps as such Bank shall reasonably request to assist such Bank to recover such Taxes. (g) Each Bank represents and warrants to the Account Parties that, as of the date such Bank becomes a party to this Agreement, such Bank is entitled to receive payments hereunder from the Account Parties without deduction or withholding for or on account of any Taxes. SECTION 2.09. Sharing of Payments, Etc. If any Bank shall obtain at any time any payment (whether voluntary, involuntary, through the exercise of any right of set-off, or otherwise, other than as a result of an assignment pursuant to Section 9.07) (a) on account of obligations due and payable to such Bank hereunder at such time in excess of its ratable share (according to the proportion of (i) the amount of such obligations due and payable to such Bank at such time to (ii) the aggregate amount of the obligations due and payable to all Banks hereunder at such time) of payments on account of the obligations due and payable to all Banks hereunder at such time obtained by all the Banks at such time or (b) on account of obligations owing (but not due and payable) to such Bank hereunder at such time in excess of its ratable share (according to the proportion of (i) the amount of such obligations owing to such Bank at such time to (ii) the aggregate amount of the obligations owing (but not due and payable) to all Banks hereunder at such time) of payments on account of the obligations owing (but not due and payable) to all Banks hereunder at such time obtained by all of the Banks at such time, such Bank shall forthwith purchase from the other Banks such interests or participating interests in the obligations due and payable or owing to them, as the case may be, as shall be necessary to cause such purchasing Bank to -25- share the excess payment ratably with each of them; provided, however, that if all or any portion of such excess payment is thereafter recovered from such purchasing Bank, such purchase from each other Bank shall be rescinded and such other Bank shall repay to the purchasing Bank the purchase price to the extent of such Bank's ratable share (according to the proportion of (i) the purchase price paid to such Bank to (ii) the aggregate purchase price paid to all Banks) of such recovery together with an amount equal to such Bank's ratable share (according to the proportion of (i) the amount of such other Bank's required repayment to (ii) the total amount so recovered from the purchasing Bank) of any interest or other amount paid or payable by the purchasing Bank in respect of the total amount so recovered. Each Account Party agrees that any Bank so purchasing an interest or participating interest from another Bank pursuant to this Section 2.09 may, to the fullest extent permitted by law, exercise all its rights of payment (including the right of set-off) with respect to such interest or participating interest, as the case may be, as fully as if such Bank were the direct creditor of such Account Party in the amount of such interest or participating interest, as the case may be. SECTION 2.10. Use of Letters of Credit. The Letters of Credit shall be used for the general corporate purposes of the Account Parties and their respective Subsidiaries. SECTION 2.11. Defaulting Banks. (a) In the event that, at any one time, (i) any Bank shall be a Defaulting Bank, (ii) such Defaulting Bank shall owe a Defaulted Amount to any Agent or any of the other Banks and (iii) any Account Party shall make any payment hereunder or under any other Loan Document to the Administrative Agent for the account of such Defaulting Bank, then the Administrative Agent may, on its behalf or on behalf of such other Banks and to the fullest extent permitted by applicable law, apply at such time the amount so paid by such Account Party to or for the account of such Defaulting Bank to the payment of each such Defaulted Amount to the extent required to pay such Defaulted Amount. In the event that the Administrative Agent shall so apply any such amount to the payment of any such Defaulted Amount on any date, the amount so applied by the Administrative Agent shall constitute for all purposes of this Agreement and the other Loan Documents payment, to such extent, of such Defaulted Amount on such date. Any such amount so applied by the Administrative Agent shall be retained by the Administrative Agent or distributed by the Administrative Agent to such other Banks, ratably in accordance with the respective portions of such Defaulted Amounts payable at such time to the Administrative Agent and such other Banks and, if the amount of such payment made by such Account Party shall at such time be insufficient to pay all Defaulted Amounts owing at such time to the Administrative Agent, such other Agents and such other Banks, in the following order of priority: (i) first, to the Agents for any Defaulted Amounts then owing to the Agents; (ii) second, to the Issuing Bank for any amount then due and payable to it, in its capacity as such, by such Defaulting Bank, ratably in accordance with such amounts then due and payable to the Issuing Bank; and (iii) third, to any other Banks for any Defaulted Amounts then owing to such other Banks, ratably in accordance with such respective Defaulted Amounts then owing to such other Banks. Any portion of such amount paid by such Account Party for the account of such Defaulting Bank remaining, after giving effect to the amount applied by the Administrative Agent pursuant to this subsection (b), shall be applied by the Administrative Agent as specified in subsection (c) of this Section 2.11. -26- (b) In the event that, at any one time, (i) any Bank shall be a Defaulting Bank, (ii) such Defaulting Bank shall not owe a Defaulted Amount and (iii) any Account Party, any Agent or other Bank shall be required to pay or distribute any amount hereunder or under any other Loan Document to or for the account of such Defaulting Bank, then such Account Party or such Agent or such other Bank shall pay such amount to the Administrative Agent to be held by the Administrative Agent, to the fullest extent permitted by applicable law, in escrow or the Administrative Agent shall, to the fullest extent permitted by applicable law, hold in escrow such amount otherwise held by it. Any funds held by the Administrative Agent in escrow under this subsection (b) shall be deposited by the Administrative Agent in an account with Mellon in the name and under the control of the Administrative Agent, but subject to the provisions of this subsection (b). The terms applicable to such account, including the rate of interest payable with respect to the credit balance of such account from time to time, shall be Mellon's standard terms applicable to escrow accounts maintained with it. Any interest credited to such account from time to time shall be held by the Administrative Agent in escrow under, and applied by the Administrative Agent from time to time in accordance with the provisions of, this subsection (b). The Administrative Agent shall, to the fullest extent permitted by applicable law, apply all funds so held in escrow from time to time to the extent necessary to make any Advances required to be made by such Defaulting Bank and to pay any amount payable by such Defaulting Bank hereunder and under the other Loan Documents to the Administrative Agent or any other Bank, as and when such Advances or amounts are required to be made or paid and, if the amount so held in escrow shall at any time be insufficient to make and pay all such Advances and amounts required to be made or paid at such time, in the following order of priority: (i) first, to the Agents for any amounts then due and payable by such Defaulting Bank to the Agents hereunder; (ii) second, to the Issuing Bank for any amount then due and payable to it, in its capacity as such, by such Defaulting Bank, ratably in accordance with such amounts then due and payable to such Issuing Bank; and (iii) third, to any other Banks for any amount then due and payable by such Defaulting Bank to such other Banks hereunder, ratably in accordance with such respective amounts then due and payable to such other Banks. In the event that any Bank that is a Defaulting Bank shall, at any time, cease to be a Defaulting Bank, any funds held by the Administrative Agent in escrow at such time with respect to such Bank shall be distributed by the Administrative Agent to such Bank and applied by such Bank to the obligations owing to such Bank at such time under this Agreement and the other Loan Documents ratably in accordance with the respective amounts of such obligations outstanding at such time. (c) The rights and remedies against a Defaulting Bank under this Section 2.11 are in addition to other rights and remedies that any Agent or any Bank may have against such Defaulting Bank with respect to any Defaulted Amount. SECTION 2.12. Replacement of Affected Bank. At any time any Bank is an Affected Bank, the Account Parties may replace such Affected Bank as a party to this Agreement with one or more other Banks and/or Eligible Assignees, and upon notice from the Account Parties such Affected Bank shall assign pursuant to an Assignment and Acceptance, and without recourse or warranty, its LC Commitment Amount, its Letter of Credit Advances, its obligations to fund Letter of Credit payments, its participation in, and its rights and obligations with respect to, Letters of Credit, and all of its other rights -27- and obligations hereunder to such other Banks and/or Eligible Assignees for a purchase price equal to the sum of the principal amount of the Letter of Credit Advances so assigned, all accrued and unpaid interest thereon, such Affected Bank's ratable share of all accrued and unpaid fees payable pursuant to Section 2.05 and all other obligations owed to such Affected Bank hereunder. SECTION 2.13. Certain Provisions Relating to the Issuing Bank and Letters of Credit. (a) Letter of Credit Agreements. The representations, warranties and covenants by the Account Parties under, and the rights and remedies of the Issuing Bank under, any Letter of Credit Agreement relating to any Letter of Credit are in addition to, and not in limitation or derogation of, representations, warranties and covenants by the Account Parties under, and rights and remedies of the Issuing Bank and the Banks under, this Agreement and applicable law. Each Account Party acknowledges and agrees that all rights of the Issuing Bank under any Letter of Credit Agreement shall inure to the benefit of each Bank to the extent of its Letter of Credit Participating Interest Commitment as fully as if such Bank was a party to such Letter of Credit Agreement. In the event of any inconsistency between the terms of this Agreement and any Letter of Credit Agreement, this Agreement shall prevail. (b) Certain Provisions. The Issuing Bank shall have no duties or responsibilities to any Agent or any Bank except those expressly set forth in this Agreement, and no implied duties or responsibilities on the part of the Issuing Bank shall be read into this Agreement or shall otherwise exist. The duties and responsibilities of the Issuing Bank to the Banks and the Agents under this Agreement and the other Loan Documents shall be mechanical and administrative in nature, and the Issuing Bank shall not have a fiduciary relationship in respect of any Agent, any Bank or any other Person. The Issuing Bank shall not be liable for any action taken or omitted to be taken by it under or in connection with this Agreement or any Loan Document or Letter of Credit, except as specifically set forth in Section 9.09. The Issuing Bank shall not be under any obligation to ascertain, inquire or give any notice to any Agent or any Bank relating to (i) the performance or observance of any of the terms or conditions of this Agreement or any other Loan Document on the part of any Account Party, (ii) the business, operations, condition (financial or otherwise) or prospects of the Account Parties or any other Person, or (iii) the existence of any Default. The Issuing Bank shall not be under any obligation, either initially or on a continuing basis, to provide any Agent or any Bank with any notices, reports or information of any nature, whether in its possession presently or hereafter, except for such notices, reports and other information expressly required by this Agreement to be so furnished. The Issuing Bank shall not be responsible for the execution, delivery, effectiveness, enforceability, genuineness, validity or adequacy of this Agreement or any Loan Document. (c) Administration. The Issuing Bank may rely upon any notice or other communication of any nature (written or oral, including but not limited to telephone conversations, whether or not such notice or other communication is made in a manner permitted or required by this Agreement or any other Loan Document) purportedly made by or on behalf of the proper party or parties, and the Issuing Bank shall not have any duty to verify the identity or authority of any Person giving such notice or other communication. The Issuing Bank may consult with legal counsel (including, without limitation, in-house counsel for the Issuing Bank or in-house or other counsel for the Account Parties), independent public accountants and any other experts selected by it from time to time, and the Issuing Bank shall not be liable for any action taken or omitted to be taken in good faith in accordance with the advice of such counsel, accountants or experts. Whenever the Issuing Bank shall deem it necessary or desirable that a matter be proved or established with respect to any Account Party, any Agent or any Bank, such matter may be established by a certificate of such Account Party, such Agent or such Bank, -28- as the case may be, and the Issuing Bank may conclusively rely upon such certificate. The Issuing Bank shall not be deemed to have any knowledge or notice of the occurrence of any Default unless the Issuing Bank has received notice from a Bank, an Agent or an Account Party referring to this Agreement, describing such Default, and stating that such notice is a "notice of default". (d) Indemnification of Issuing Bank by Banks. Each Bank hereby agrees to reimburse and indemnify the Issuing Bank and each of its directors, officers, employees and agents (to the extent not reimbursed by the Account Parties and without limitation of the obligations of the Account Parties to do so), in accordance with its Pro Rata Share, from and against any and all amounts, losses, liabilities, claims, damages, expenses, obligations, penalties, actions, judgments, suits, costs or disbursements of any kind or nature (including, without limitation, the reasonable fees and disbursements of counsel (other than in-house counsel) for the Issuing Bank or such other Person in connection with any investigative, administrative or judicial proceeding commenced or threatened, whether or not the Issuing Bank or such other Person shall be designated a party thereto) that may at any time be imposed on, incurred by or asserted against the Issuing Bank, in its capacity as such, or such other Person, as a result of, or arising out of, or in any way related to or by reason of, this Agreement, any other Loan Document or any Letter of Credit, any transaction from time to time contemplated hereby or thereby, or any transaction financed in whole or in part or directly or indirectly with the proceeds of any Letter of Credit, provided, that no Bank shall be liable for any portion of such amounts, losses, liabilities, claims, damages, expenses, obligations, penalties, actions, judgments, suits, costs or disbursements to the extent resulting from the gross negligence or willful misconduct of the Issuing Bank or such other Person, as finally determined by a court of competent jurisdiction. (e) Issuing Bank in its Individual Capacity. With respect to its commitments and the obligations owing to it, the Issuing Bank shall have the same rights and powers under this Agreement and each other Loan Document as any other Bank and may exercise the same as though it were not the Issuing Bank, and the term "Banks" and like terms shall include the Issuing Bank in its individual capacity as such. The Issuing Bank and its affiliates may, without liability to account to any Person, make loans to, accept deposits from, acquire debt or equity interests in, act as trustee under indentures of, act as agent under other credit facilities for, and engage in any other business with, any Account Party and any stockholder, subsidiary or affiliate of any Account Party, as though the Issuing Bank were not the Issuing Bank hereunder. SECTION 2.14. Downgrade Event with Respect to a Bank. (a) If a Downgrade Event shall occur with respect to (i) any Downgraded Bank or (ii) any other Bank and, as a result thereof, such other Bank becomes a Downgraded Bank, then the Issuing Bank may, by notice to such Downgraded Bank, the Administrative Agent and the Parent within 45 days after such Downgrade Event (any such notice, a "Downgrade Notice"), request that the Account Parties use reasonable efforts to replace such Bank as a party to this Agreement pursuant to Section 2.12. If such Bank is not so replaced within 45 days after receipt by the Account Parties of such Downgrade Notice, then (x) if no Default exists and such Downgraded Bank has not exercised its right to remain a Bank hereunder pursuant to clause (y) below, the following shall occur concurrently: (A) the Committed Facility shall be reduced by the amount of the LC Commitment Amount of such Downgraded Bank, (B) the Account Parties shall prepay all amounts owed to such Downgraded Bank hereunder or in connection herewith -29- (C) if, upon the reduction of the Committed Facility under clause (A) above and the payment under clause (B) above, the sum of the principal amount of all Advances plus the Available Amount of all Letters of Credit (valuing the Available Amount of, and Letter of Credit Advances of the Issuing Bank in respect of, any Non-Dollar Letter of Credit at the Dollar Equivalent thereof as of the time of such calculation) would exceed the amount of the Committed Facility, then the Account Parties will immediately eliminate such excess by paying Advances and/or causing the Available Amount of one or more Letters of Credit to be reduced, and (D) upon completion of the events described in clauses (A), (B) and (C) above, such Downgraded Bank shall cease to be a party to this Agreement; or (y) if a Default exists or, not later than 30 days after receipt of such Downgrade Notice, such Downgraded Bank notifies the Account Parties, the Issuing Bank and the Administrative Agent that such Downgraded Bank elects to provide (in a manner reasonably satisfactory to the Issuing Bank) cash collateral to the Issuing Bank for (or if such Downgraded Bank is unable, without regulatory approval, to provide cash collateral, a letter of credit reasonably satisfactory to the Issuing Bank covering) its contingent obligations to reimburse the Issuing Bank for any payment under any Letter of Credit as provided in Section 2.02(e) (its "LC Participation Obligations"), such Downgraded Bank shall be obligated to (and each Bank agrees that in such circumstances it will) deliver to the Issuing Bank (I) immediately, cash collateral (or, as aforesaid, a letter of credit) in an amount equal to its LC Participation Obligations and (II) from time to time thereafter (so long as it is a Downgraded Bank), cash collateral (or, as aforesaid, a letter of credit) sufficient to cover any increase in its LC Participation Obligations as a result of any proposed issuance of or increase in a Letter of Credit. Any funds provided by a Downgraded Bank for such purpose shall be maintained in a segregated deposit account in the name of the Issuing Bank at the Issuing Bank's principal office in the United States (a "Downgrade Account"). The funds so deposited in any Downgrade Account shall be used only in accordance with the following provisions of this Section 2.14. (b) If any Downgraded Bank shall be required to fund its participation in a payment under a Letter of Credit pursuant to Section 2.02(e), then the Issuing Bank shall apply the funds deposited in the applicable Downgrade Account by such Downgraded Bank to fund such participation. The deposit of funds in a Downgrade Account by any Downgraded Bank shall not constitute a Letter of Credit Advance (and the Downgraded Bank shall not be entitled to interest on such funds except as provided in clause (c) below) unless and until (and then only to the extent that) such funds are used by the Issuing Bank to fund the participation of such Downgraded Bank pursuant to the first sentence of this clause (b). (c) Funds in a Downgrade Account shall be invested in such investments as may be agreed between the Issuing Bank and the applicable Downgraded Bank, and the income from such investments shall be distributed to such Downgraded Bank from time to time (but not less often than monthly) as agreed between the Issuing Bank and such Downgraded Bank. The Issuing Bank will (i) from time to time, upon request by a Downgraded Bank, release to such Downgraded Bank any amount on deposit in the applicable Downgrade Account in excess of the LC Participation Obligations of such Downgraded Bank and (ii) upon the earliest to occur of (A) the effective date of any replacement of such Downgraded Bank as a party hereto pursuant to an Assignment and Acceptance, (B) the termination of such Downgraded Bank's LC Commitment Amount pursuant to clause (a) or (C) the first Letter of Credit Business Day after receipt by the Issuing Bank of evidence (reasonably satisfactory to the Issuing Bank) -30- that such Bank is no longer a Downgraded Bank, release to such Bank all amounts on deposit in the applicable Downgrade Account. (d) At any time any Downgraded Bank is required to maintain cash collateral with the Issuing Bank pursuant to this Section 2.14, the Issuing Bank shall have no obligation to issue or increase any Letter of Credit unless such Downgraded Bank has provided sufficient funds as cash collateral to the Issuing Bank to cover all LC Participation Obligations of such Downgraded Bank (including in respect of the Letter of Credit to be issued or increased). SECTION 2.15. Downgrade Event or Other Event with Respect to the Issuing Bank. At any time that the Issuing Bank is a Downgraded Bank or at such other times as the Issuing Bank and the Account Parties may agree, the Account Parties may, upon not less than three Letter of Credit Business Days' notice to the Issuing Bank (in this Section sometimes referred to as the "Old Issuing Bank") and the Administrative Agent, designate any Bank (so long as such Bank has agreed to such designation) as an additional "Issuing Bank" hereunder (in this Section sometimes referred to as the "New Issuing Bank"). Such notice shall specify the date (which shall be a Letter of Credit Business Day) on which the New Issuing Bank is to become an additional "Issuing Bank" hereunder. From and after such date, all new Letters of Credit requested to be issued hereunder shall be issued by the New Issuing Bank. From and after such date (and until the first date on which no Letters of Credit issued by the Old Issuing Bank are outstanding and no reimbursement obligations are owed to the Old Issuing Bank, on which date the Old Issuing Bank shall cease to be an Issuing Bank hereunder), references in this Agreement to the "Issuing Bank" shall be deemed to refer (a) to the Old Issuing Bank, with respect to Letters of Credit issued by it, (b) to the New Issuing Bank, with respect to Letters of Credit issued or to be issued by it, and (c) to each of the Old Issuing Bank and the New Issuing Bank, with respect to other matters. Notwithstanding the fact that an Old Issuing Bank shall cease to be an "Issuing Bank" hereunder, all of the exculpatory, indemnification and similar provisions hereof in favor of the "Issuing Bank" shall inure to such Old Issuing Bank's benefit as to any actions taken or omitted by it while it was an "Issuing Bank" under this Agreement. The Account Parties agree that after any appointment of a New Issuing Bank hereunder, the Account Parties shall use reasonable commercial efforts to promptly replace (or otherwise cause the applicable beneficiary to return to the Old Issuing Bank for cancellation) each letter of credit issued by the Old Issuing Bank. SECTION 2.16. Non-Dollar Letters of Credit. (a) The Account Parties, the Administrative Agent, the Issuing Bank and the Banks (i) agree that the Issuing Bank may (in its sole discretion) issue Letters of Credit ("Non- Dollar Letters of Credit") in currencies other than U.S. dollars and (ii) further agree as set forth in the following paragraphs of this Section with respect to such Non-Dollar Letters of Credit. (b) The Account Parties agree that their reimbursement obligations under Section 2.03(a) and any resulting Letter of Credit Advance, in each case in respect of a drawing under any Non-Dollar Letter of Credit, (i) shall be payable in Dollars at the Dollar Equivalent of such obligation in the currency in which such Non-Dollar Letter of Credit was issued (determined on the date of payment) and (ii) shall bear interest at a rate per annum equal to the Base Rate plus 2%, for each day from and including the date on which the Applicable Account Party is to reimburse the Issuing Bank pursuant to Section 2.03(a) to but excluding the date such obligation is paid in full. (c) Each Bank agrees that its obligation to pay the Issuing Bank such Bank's Pro Rata Share of the unreimbursed portion of any payment by the Issuing Bank under Section 2.02(e) in respect of a drawing under any Non-Dollar Letter of Credit shall be payable in Dollars at the Dollar -31- Equivalent of such obligation in the currency in which such Non-Dollar Letter of Credit was issued (calculated on the date of payment) (and any such amount which is not paid when due shall bear interest at a rate per annum equal to the Overnight Rate plus, beginning on the third Business Day after such amount was due, 2%). (d) For purposes of determining whether there is availability for the Account Parties to request any Advance or to request the issuance or extension of, or any increase in, any Letter of Credit, the Dollar Equivalent amount of the Available Amount of each Non-Dollar Letter of Credit shall be calculated as of the date such Advance is to be made or such Letter of Credit is to be issued, extended or increased. (e) For purposes of determining the letter of credit fee under Section 2.05(c), the Dollar Equivalent amount of the Available Amount of any Non-Dollar Letter of Credit shall be determined on each of (1) the date of an issuance, extension or change in the Available Amount of such Non-Dollar Letter of Credit, (2) the date of any payment by the Issuing Bank in respect of a drawing under such Non-Dollar Letter of Credit, (3) the last day of each calendar month and (4) each day on which the LC Commitment Amounts are to be reduced pursuant to Section 2.04 (it being understood that no requested reduction shall be permitted to the extent that, after making a calculation pursuant this clause (e), such reduction would be greater than the unused portion of the LC Commitment Amounts). (f) If, on the last day of any calendar month, the sum of the principal amount of all Advances plus the Available Amount of all Letters of Credit (valuing the Available Amount of, and Letter of Credit Advances in respect of, any Non-Dollar Letter of Credit at the Dollar Equivalent thereof as of such day) would exceed the amount of the Committed Facility, then the Account Parties will immediately eliminate such excess by paying Advances and/or causing the Available Amount of one or more Letters of Credit to be reduced. (g) If, for the purposes of obtaining judgment in any court, it is necessary to convert a sum due in respect of any Non-Dollar Letter of Credit in one currency into another currency, the rate of exchange used shall be that at which in accordance with its normal banking procedures the Issuing Bank could purchase the first currency with such other currency on the Letter of Credit Business Day preceding that on which final judgment is given. The obligation of any Account Party in respect of any such sum due from it to the Issuing Bank or any Bank 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 and the applicable Non-Dollar Letter of Credit (the "Agreement Currency"), be discharged only to the extent that on the Letter of Credit Business Day following receipt by the Issuing Bank or such Bank of any sum adjudged to be so due in the Judgment Currency, the Issuing Bank or such Bank 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 the Issuing Bank or such Bank in the Agreement Currency, the Applicable Account Party agrees, as a separate obligation and notwithstanding any such judgment, to indemnify the Issuing Bank or such Bank, as applicable, against such loss. If the amount of the Agreement Currency so purchased is greater than the sum originally due to the Issuing Bank or such Bank in such currency, the Issuing Bank and each Bank agrees to return the amount of any excess to the Applicable Account Party (or to any other Person who may be entitled thereto under applicable law). (h) For purposes of this Section, "Dollar Equivalent" means, in relation to an amount denominated in a currency other than U.S. dollars, the amount of U.S. dollars which could be purchased with such amount by the Issuing Bank in accordance with its customary procedures (and -32- giving effect to any transaction costs) at the quoted foreign exchange spot rate of the Issuing Bank at the time of determination; and "Overnight Rate" means, for any day, the rate of interest per annum at which overnight deposits in the applicable currency, in an amount approximately equal to the amount with respect to which such rate is being determined, would be offered for such day by the Issuing Bank to major banks in the London or other applicable offshore interbank market. The Overnight Rate for any day which is not a Letter of Credit Business Day (or on which dealings are not carried on in the applicable offshore interbank market) shall be the Overnight Rate for the immediately preceding Letter of Credit Business Day. SECTION 2.17. Extensions of Expiration Date. The Parent may, at its option, give the Administrative Agent and the Issuing Bank written notice (an "Extension Request") at any time not more than ninety days, nor less than sixty days, prior to the Expiration Date in effect at such time (the "Current Expiration Date") of the Parent's desire to extend the Expiration Date to a date which is not later than 364 days after the Current Expiration Date. The Administrative Agent shall promptly inform the Banks of such Extension Request. Each Bank which agrees to such Extension Request shall deliver to the Administrative Agent its express written consent thereto no later than thirty days prior to the Current Expiration Date. No extension shall become effective unless the express written consent thereto by the Required Commitment Banks and the Issuing Bank is received by the Administrative Agent on or before the thirtieth day prior to the Current Expiration Date. If the Issuing Bank and the Required Commitment Banks, but not all Commitment Banks, have expressly consented in writing to such Extension Request by such thirtieth day, then the Administrative Agent shall so notify the Parent and the Parent may, effective as of the Current Expiration Date, take one or both of the following actions: (i) replace (as a party to, and for all purposes of, this Agreement) any Commitment Bank which has not agreed to such Extension Request (a "Nonextending Bank") with another commercial lending institution satisfactory to the Issuing Bank (a "Replacement Bank") by giving notice of the name of such Replacement Bank to the Administrative Agent and the Issuing Bank not later than five Business Days prior to the then Current Expiration Date and (ii) elect to implement a Conversion to Tranche System as contemplated by Section 2.18 hereof (or, if the Conversion to Tranche System has previously been implemented, elect to implement a Supplement to Tranche System as contemplated by Section 2.18 hereof). In the event that a Nonextending Bank is to be replaced by a Replacement Bank, such Nonextending Bank shall, upon payment to it of all amounts owing to it on the date of its replacement, assign all of its interests hereunder to such Replacement Bank in accordance with the provisions of Section 9.07(c) hereof. If the Issuing Bank and the Required Commitment Banks shall have consented to such Extension Request, then, on the Current Expiration Date, the Expiration Date shall be deemed to have been extended to, and shall be, the date specified in such Extension Request. The Administrative Agent shall promptly after any such extension advise the Banks of any changes in the LC Commitment Amounts and the Letter of Credit Participating Interest Percentages, as well as any changes effected by the election of the Conversion to Tranche System or a Supplement to Tranche System. SECTION 2.18. Tranches. (a) Certain Definitions. As used in this Agreement the following terms have the meanings ascribed thereto: "Commitment Banks" at any time means Banks which have Letter of Credit Participating Interest Commitments at such time and "Commitment Bank" means any one of them. "Conversion to Tranche System" means the election by the Parent, at a time when the Parent has made an Extension Request pursuant to Section 2.17 hereof and such Extension Request has been consented to in writing by the Issuing Bank and the -33- Required Commitment Banks, but not by all of the Commitment Banks, to classify Letters of Credit as Tranche 1 Letters of Credit and Tranche 2 Letters of Credit, all in accordance with Section 2.18(b) hereof. "L/C Termination Date" means, with respect to a Letter of Credit, the date which is stated therein to be the last day on which the beneficiary thereof may draw thereon. "Pro Rata" means: (i) until the first Special Expiration Date, from and to the Banks in accordance with their respective Letter of Credit Participating Interest Percentages and (ii) thereafter, (x) with respect to Tranche 1 Letters of Credit, from and to the Tranche 1 Banks in accordance with their respective Tranche 1 Letter of Credit Participating Interest Percentages, (y) with respect to Tranche 2 Letters of Credit and Tranche 2 Letter of Credit Participating Interest Commitments, from and to the Tranche 2 Banks in accordance with their respective Tranche 2 Letter of Credit Participating Interest Percentages and (z) with respect to each additional Tranche of Letters of Credit (i.e., Tranche 3 Letters of Credit, Tranche 4 Letters of Credit, and so on), if any, from and to the Banks which have Letter of Credit Participating Interest Commitments or Letter of Credit Participating Interests, as applicable, with respect to such Tranche in accordance with their respective related Letter of Credit Participating Interest Percentages. "Required Commitment Banks" at any time means Commitment Banks which have, in the aggregate, LC Commitment Amounts in excess of 50% of the total outstanding LC Commitment Amounts at such time. "Special Expiration Date" means the Expiration Date which is in effect immediately prior to the occurrence of the event described in the following clause (iii) after the occurrence of the events described in the following clauses (i) and (ii): (i) the Parent has made an Extension Request pursuant to Section 2.17 hereof, (ii) such Extension Request has been consented to in writing by the Issuing Bank and the Required Commitment Banks, but not by all of the Commitment Banks, and (iii) the Parent has elected to implement a Conversion to Tranche System or a Supplement to Tranche System with respect to such Extension Request and Expiration Date. "Supplement to Tranche System" means the election by the Parent, at a time when the Conversion to Tranche System has been previously made and when the Parent has made an Extension Request pursuant to Section 2.17 hereof and such Extension Request has been consented to in writing by the Issuing Bank and the Required Commitment Banks, but not by all of the Commitment Banks, to classify additional Letters of Credit as Tranche X Letters of Credit. "Tranche 1 Bank" shall mean each Bank which is a Bank immediately prior to the first Special Expiration Date. "Tranche 1 Letter of Credit" means each Letter of Credit which is issued prior to the first Special Expiration Date, but shall not include any such Letter of Credit as to which the L/C Termination Date has been extended to a date after the L/C Termination Date which was in effect on such first Special Expiration Date. -34- "Tranche 1 Letter of Credit Participating Interest Percentage" for each Tranche 1 Bank means such Bank's Letter of Credit Participating Interest Percentage immediately prior to the first Special Expiration Date. "Tranche 2 Bank" shall mean each Bank which has a Tranche 2 Letter of Credit Participating Interest Commitment. "Tranche 2 Letter of Credit" means each Letter of Credit which is issued prior to the second Special Expiration Date, but shall not include any such Letter of Credit as to which the L/C Termination Date has been extended to a date after the L/C Termination Date which was in effect on such second Special Expiration Date and shall not include any Tranche 1 Letter of Credit (it being understood that a Letter of Credit may change from a Tranche 1 Letter of Credit to a Tranche 2 Letter of Credit as a result of the extension, after the first Special Expiration Date, of its L/C Termination Date). "Tranche 3 Letter of Credit" and "Tranche 4 Letter of Credit" have the meanings set forth in the definition of the term "Tranche X". "Tranche X" shall mean Tranche 3 if there are existing Tranche 2 Letters of Credit but not Tranche 3 Letters of Credit, Tranche 4 if there are existing Tranche 3 Letters of Credit but not Tranche 4 Letters of Credit, and so on in consecutive integral succession. The terms "Tranche X Bank", "Tranche X Letter of Credit Participating Interest Commitment", "Tranche X LC Commitment Amount" and "Tranche X Letter of Credit Participating Interest Percentage" shall have comparable meanings. The term "Tranche X Letter of Credit" shall have a comparable meaning, but such meaning shall be consistent with the following: (i) the term "Tranche 3 Letter of Credit" means each Letter of Credit which is issued prior to the third Special Expiration Date, but shall not include any such Letter of Credit as to which the L/C Termination Date has been extended to a date after the L/C Termination Date which was in effect on such third Special Expiration Date and shall not include any Tranche 1 Letter or Credit or any Tranche 2 Letter of Credit; (ii) the term "Tranche 4 Letter of Credit" means each Letter of Credit which is issued prior to the fourth Special Expiration Date, but shall not include any such Letter of Credit as to which the L/C Termination Date has been extended to a date after the L/C Termination Date which was in effect on such fourth Special Expiration Date and shall not include any Tranche 1 Letter of Credit, any Tranche 2 Letter of Credit or any Tranche 3 Letter of Credit; (iii) the terms "Tranche 5 Letter of Credit", "Tranche 6 Letter of Credit", and so on shall have comparable meanings (it being understood that a Letter of Credit can change from one Tranche to another as a result of an extension of its L/C Termination Date). (b) Conversion to Tranche System. If the Parent elects the Conversion to Tranche System with respect to an Extension Request, the following shall occur: (i) the Letter of Credit Participating Interest Commitments of Banks which, with respect to such Extension Request, are Nonextending Banks shall terminate as of the Special Expiration Date related to such Extension Request, but such Nonextending Banks (other than Nonextending Banks which have been replaced as contemplated by Section 2.17 hereof) shall remain parties to this Agreement and shall retain all of their respective obligations with respect to Tranche 1 Letters of Credit and shall retain their respective Letter of Credit Participating Interests in and with respect to Tranche 1 Letters of Credit; (ii) from and after the -35- Special Expiration Date related to such Extension Request, the Letter of Credit Participating Interest Commitment of each Bank which has consented in writing to such Extension Request shall be a "Tranche 2 Letter of Credit Participating Interest Commitment" and the LC Commitment Amount of such Bank shall be its "Tranche 2 LC Commitment Amount" (in addition to being its LC Commitment Amount applicable to Tranche 1 Letters of Credit); (iii) the "Tranche 2 Letter of Credit Participating Interest Percentage" for each Tranche 2 Bank shall mean a fraction, expressed as percentage, the numerator of which is such Tranche 2 Bank's Tranche 2 LC Commitment Amount and the denominator of which is the aggregate Tranche 2 LC Commitment Amounts of all of the Tranche 2 Banks. (c) Supplement to Tranche System. If the Parent elects a Supplement to Tranche System with respect to an Extension Request, the following shall occur: (i) the Letter of Credit Participating Interest Commitments of Banks which, with respect to such Extension Request, are Nonextending Banks shall terminate, but such Nonextending Banks shall remain parties to this Agreement and shall retain all of their respective obligations with respect to Letters of Credit under existing Tranches and shall retain their respective Letter of Credit Participating Interests in and with respect to existing Letters of Credit; (ii) from and after the Special Expiration Date related to such Extension Request, the Letter of Credit Participating Interest Commitment of each Bank which has consented in writing to such Extension Request shall be a "Tranche X Letter of Credit Participating Interest Commitment" and the LC Commitment Amount of such Lender shall be its "Tranche X LC Commitment Amount" (in addition to being its LC Commitment Amount applicable to prior Tranches of Letters of Credit); (iii) the "Tranche X Letter of Credit Participating Interest Percentage" for each Tranche X Bank shall mean a fraction, expressed as percentage, the numerator of which is such Tranche X Bank's Tranche X LC Commitment Amount and the denominator of which is the aggregate Tranche X LC Commitment Amounts of all of the Tranche X Banks, all as contemplated by the definition of the term "Tranche X" contained in paragraph (a) of this Section 2.18. SECTION 2.19. Future Amendment to Provide Collateral. It is contemplated that after the Effective Date the Account Parties may (but are not obligated to) propose to the Issuing Bank, the Agents and the Banks amendments to this Agreement to provide for collateral (consisting of securities accounts to which, among other things, security entitlements meeting certain eligibility requirements are credited) with respect to their reimbursement obligations as to certain Letters of Credit issued hereunder and for a reduction of the Applicable Margin hereunder with respect to such Letters of Credit, all as contemplated by the term sheet distributed to the Banks prior to their execution and delivery of this Agreement. The effectiveness of such amendments shall require the written consent of each Agent, the Issuing Bank and all of the Banks. ARTICLE III CONDITIONS OF LENDING AND ISSUANCES OF LETTERS OF CREDIT SECTION 3.01. Conditions Precedent to Initial Extension of Credit. The obligation of the Issuing Bank to issue a Letter of Credit on the occasion of the Initial Extension of Credit hereunder is subject to the satisfaction of the following conditions precedent before or concurrently with the Initial Extension of Credit: (i) The Administrative Agent shall have received on or before the day of the Initial Extension of Credit the following, each dated such day (unless otherwise specified), in form and -36- substance reasonably satisfactory to the Administrative Agent (unless otherwise specified) and in sufficient copies for each Bank: (A) Certified copies of the resolutions of the Board of Directors of each Loan Party approving the transactions contemplated by the Loan Documents and each Loan Document to which it is or is to be a party, and of all documents evidencing other necessary corporate action and governmental and other third party approvals and consents, if any, with transactions contemplated by the Loan Documents and each Loan Document to which it is or is to be a party. (B) A copy of a certificate of the Secretary of State or other appropriate official of the jurisdiction of incorporation of each Loan Party, dated reasonably near the date of the Initial Extension of Credit, certifying as to the good standing (or existence) of such Loan Party. (C) A certificate of each Loan Party, signed on behalf of such Loan Party by its President or a Vice President (or equivalent officer if such Loan Party has no Vice President) and its Secretary or any Assistant Secretary, dated the date of the Initial Extension of Credit (the statements made in which certificate shall be true on and as of the date of the Initial Extension of Credit), certifying as to (1) a true and correct copy of the constitutional documents of such Loan Party as in effect on the date on which the resolutions referred to in Section 3.01(a)(i)(A) were adopted and on the date of the Initial Extension of Credit, (2) the due incorporation and good standing or valid existence of such Loan Party as a corporation organized under the laws of the jurisdiction of its incorporation, and the absence of any proceeding for the dissolution or liquidation of such Loan Party, (3) the truth of the representations and warranties contained in the Loan Documents as though made on and as of the date of the Initial Extension of Credit and (4) the absence of any event occurring and continuing, or resulting from the Initial Extension of Credit, that constitutes a Default. (D) A certificate of the Secretary or an Assistant Secretary of each Loan Party certifying the names and true signatures of the officers of such Loan Party authorized to sign each Loan Document to which it is or is to be a party and the other documents to be delivered hereunder and thereunder. (E) A favorable opinion of (1) Maples and Calder, Cayman Islands counsel for the Parent, in substantially the form of Exhibit D-1 hereto and as to such other matters as any Bank through the Administrative Agent may reasonably request, (2) Mayer, Brown & Platt, New York counsel for the Loan Parties, in substantially the form of Exhibit D-2 hereto and as to such other matters as any Bank through the Administrative Agent may reasonably request, and (3) Conyers Dill & Pearman, Bermuda counsel for ACE Bermuda and Tempest, in substantially the form of Exhibit D-3 hereto and as to such other matters as any Bank through the Administrative Agent may reasonably request. (ii) (x) No development or change occurring after January 11, 1999 and no information becoming known after such date (except as described in information released by the Parent to the public), that results in a material change in the planned post-Acquisition corporate -37- and capitalization structure of the Parent or in the capitalization structure of the Parent's subsidiaries contemplated in the Pre-Commitment Information and (y) the Banks shall be reasonably satisfied with the corporate and legal structure and capitalization of each Loan Party (other than the Parent), including the terms and conditions of the constitutional documents of each such Person and of each material agreement or instrument relating to such structure. (iii) There shall have occurred no material adverse change since September 30, 1998 in the business, financial condition, operations or properties of (i) CIGNAP&C or (ii) the Parent and its Subsidiaries, taken as a whole. (iv) There shall exist no action, suit, investigation, litigation or proceeding affecting any Loan Party or any of its Subsidiaries pending or threatened before any court, governmental agency or arbitrator that (x) could be reasonably expected to have a Material Adverse Effect or (y) would reasonably be expected to materially adversely affect the legality, validity or enforceability of any Loan Document or the other transactions contemplated by the Loan Documents. (v) The Pre-Commitment Information shall be true and correct in all material aspects, and no additional information shall have come to the attention of the Administrative Agent or the Banks that is inconsistent in any material respect with the Pre-Commitment Information or that could reasonably be expected to have a Material Adverse Effect. (vi) No development or change occurring after January 11, 1999, and no information becoming known after such date, that has had or could reasonably be expected to have a Material Adverse Effect. (vii) The Account Parties shall have paid all accrued fees of the Administrative Agents and the Banks and all accrued expenses of the Administrative Agent (including the accrued fees and expenses of counsel to the Administrative Agent and local counsel on behalf of all of the Banks), in each case to the extent then due and payable. SECTION 3.02. Conditions Precedent to Each Issuance, Extension or Increase of a Letter of Credit. The obligation of the Issuing Bank to issue, extend or increase a Letter of Credit (including the initial issuance), shall be subject to the further conditions precedent that on the date of such issuance, extension or increase (a) the following statements shall be true (and each request for issuance, extension, or increase, and the acceptance by the Account Party that requested such issuance, extension or increase shall constitute a representation and warranty by such Account Party that both on the date of such notice and on the date of such issuance, extension or increase such statements are true): (i) the representations and warranties contained in each Loan Document are correct in all material respects on and as of such date, before and after giving effect to such issuance, extension or increase, as though made on and as of such date, other than any such representations or warranties that, by their terms, refer to a specific date other the date of such issuance, extension or increase, in which case as of such specific date; and (ii) no Default has occurred and is continuing, or would result from such issuance, extension or increase; and (b) the Administrative Agent shall have received such other approvals, opinions or documents as any -38- Bank or the Issuing Bank through the Administrative Agent may reasonably request. SECTION 3.03. Determinations Under Section 3.01. For purposes of determining compliance with the conditions specified in Section 3.01, each Bank 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 the Banks unless an officer of the Administrative Agent responsible for the transactions contemplated by the Loan Documents shall have received notice from such Bank prior to the Initial Extension of Credit specifying its objection thereto. SECTION 3.04. Termination of Commitments under Prior Agreement. Upon the consummation of the Initial Extension of Credit, the unused LC Commitment Amounts under and as defined in the Reimbursement Agreement, dated as of July 21, 1999, among the Parent, ACE Bermuda, Tempest, Mellon Bank, N. A. and The Bank of Bermuda Limited shall be terminated, with the result that the no further letters of credit will be issued thereunder. ARTICLE IV REPRESENTATIONS AND WARRANTIES SECTION 4.01. Representations and Warranties of the Account Parties. Each Account Party represents and warrants as follows: (a) Each Loan Party and each of its Subsidiaries (i) is duly organized or formed, validly existing and, to the extent such concept applies, in good standing under the laws of the jurisdiction of its incorporation or formation, (ii) is duly qualified and in good standing as a foreign corporation or other entity in each other jurisdiction in which it owns or leases property or in which the conduct of its business requires it to so qualify or be licensed except where the failure to so qualify or be licensed would not be reasonably likely to have a Material Adverse Effect and (iii) has all requisite power and authority (including, without limitation, all governmental licenses, permits and other approvals) to own or lease and operate its properties and to carry on its business as now conducted and as proposed to be conducted, except where the failure to have any license, permit or other approval would not be reasonably likely to have a Material Adverse Effect. All of the outstanding Equity Interests in each Account Party (other than the Parent) have been validly issued, are fully paid and non-assessable and (except for any Preferred Securities issued after the date of this Agreement) are owned, directly or indirectly, by the Parent free and clear of all Liens. (b) Set forth on Schedule 4.01(b) hereto is a complete and accurate list of all Subsidiaries of each Loan Party. (c) The execution, delivery and performance by each Loan Party of each Loan Document to which it is or is to be a party and the consummation of the transactions contemplated by the Loan Documents, are within such Loan Party's corporate powers, have been duly authorized by all necessary corporate action, and do not (i) contravene such Loan Party's constitutional documents, (ii) violate any law, rule, regulation (including, without limitation, Regulation X of the Board of Governors of the Federal Reserve System), order, writ, judgment, injunction, decree, determination or award, (iii) conflict with or result in the breach of, or constitute a default under, any contract, loan agreement, indenture, mortgage, deed of trust, lease -39- or other instrument binding on or affecting any Loan Party, any of its Subsidiaries or any of their properties or (iv) except for the Liens created under the Loan Documents, result in or require the creation or imposition of any Lien upon or with respect to any of the properties of any Loan Party or any of its Subsidiaries. No Loan Party or any of its Subsidiaries is in violation of any such law, rule, regulation, order, writ, judgment, injunction, decree, determination or award or in breach of any such contract, loan agreement, indenture, mortgage, deed of trust, lease or other instrument, the violation or breach of which could be reasonably likely to have a Material Adverse Effect. (d) No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body or any other third party is required for (i) the due execution, delivery, recordation, filing or performance by any Loan Party of any Loan Document to which it is or is to be a party or the other transactions contemplated by the Loan Documents (other than the Acquisition), or (ii) the exercise by the Administrative Agent or any Bank of its rights under the Loan Documents, except for the authorizations, approvals, actions, notices and filings which have been duly obtained, taken, given or made and are in full force and effect. (e) This Agreement has been, and each other Loan Document when delivered hereunder will have been, duly executed and delivered by each Loan Party party thereto. This Agreement is, and each other Loan Document when delivered hereunder will be, the legal, valid and binding obligation of each Loan Party party thereto, enforceable against such Loan Party in accordance with its terms. (f) There is no action, suit, investigation, litigation or proceeding affecting any Loan Party or any of its Subsidiaries, including any Environmental Action, pending or threatened before any court, governmental agency or arbitrator that (i) could be reasonably likely to have a Material Adverse Effect or (ii) would reasonably be expected to affect the legality, validity or enforceability of any Loan Document or the transactions contemplated by the Loan Documents. (g) The Consolidated balance sheets of the Parent and its Subsidiaries as at September 30, 1998, and the related Consolidated statements of income and of cash flows of the Parent and its Subsidiaries for the fiscal year then ended, accompanied by an unqualified opinion of PricewaterhouseCoopers LLP, independent public accountants, and the Consolidated balance sheets of the Parent and its Subsidiaries as at March 31, 1999, and the related Consolidated statements of income and cash flows of the Parent and its Subsidiaries for the three months then ended, duly certified by the Chief Financial Officer of the Parent, copies of which have been furnished to each Bank, fairly present, subject, in the case of said balance sheet as at March 31, 1999, and said statements of income and cash flows for the three months then ended, to year-end audit adjustments, the Consolidated financial condition of the Parent and its Subsidiaries as at such dates and the Consolidated results of operations of the Parent and its Subsidiaries for the periods ended on such dates, all in accordance with generally accepted accounting principles applied on a consistent basis (subject, in the case of the March 31, 1999 balance sheet and statements, to the absence of footnotes), and since March 31, 1999, there has been no Material Adverse Change. (h) The Consolidated forecasted balance sheet, statements of income and statements of cash flows of the Parent and its Subsidiaries contained in the Information Memorandum were prepared in good faith on the basis of the assumptions stated therein, which assumptions were fair in light of the conditions existing at the time of delivery of such forecasts, and represented, -40- at the time of delivery, the Parent's best estimate of its future financial performance. (i) Neither the Information Memorandum nor any other written information, exhibit or report furnished by or on behalf of any Loan Party to any Agent or any Bank in connection with the negotiation and syndication of the Loan Documents or pursuant to the terms of the Loan Documents contained any untrue statement of a material fact or omitted to state a material fact necessary to make the statements made therein not misleading as at the date it was dated (or if not dated, so delivered). (j) None of the Account Parties is engaged in the business of extending credit for the purpose of purchasing or carrying Margin Stock, and no proceeds of any Advance or drawings under any Letter of Credit will be used to purchase or carry any Margin Stock or to extend credit to others for the purpose of purchasing or carrying any Margin Stock. (k) Neither any Loan Party nor any of its Subsidiaries is an "investment company", or an "affiliated person" of, or "promoter" or "principal underwriter" for, an "investment company", as such terms are defined in the Investment Company Act of 1940, as amended. Neither the making of any Advances, nor the issuance of any Letters of Credit, nor the application of the proceeds or repayment thereof by any Account Party, nor the consummation of the other transactions contemplated by the Loan Documents, will violate any provision of such Act or any rule, regulation or order of the Securities and Exchange Commission thereunder. (l) Neither any Loan Party nor any of its Subsidiaries is a party to any indenture, loan or credit agreement or any lease or other agreement or instrument or subject to any charter or corporate restriction that is reasonably likely to have a Material Adverse Effect. (m) Each Loan Party is, individually and together with its Subsidiaries, Solvent. (n) Except to the extent that any and all events and conditions under clauses (i) through (vi) below of this paragraph (n) in the aggregate are not reasonably expected to have a Material Adverse Effect: (i) Schedule B (Actuarial Information) to the most recent annual report (Form 5500 Series) for each Pension Plan, copies of which have been filed with the Internal Revenue Service, is complete and accurate and fairly presents the funding status of such Pension Plan, and since the date of such Schedule B there has been no material adverse change in such funding status. (ii) Neither any Loan Party nor any ERISA Affiliate has incurred or is reasonably expected to incur any Withdrawal Liability to any Multiemployer Plan. (iii) Neither any Loan Party nor any ERISA Affiliate has been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or has been terminated, within the meaning of Title IV of ERISA, and no such Multiemployer Plan is reasonably expected to be in reorganization or to be terminated, within the meaning of Title IV of ERISA. (iv) With respect to each scheme or arrangement mandated by a government other than the United States (a "Foreign Government Scheme or Arrangement") and -41- with respect to each employee benefit plan that is not subject to United States law maintained or contributed to by any Loan Party or with respect to which any Subsidiary of any Loan Party may have liability under applicable local law (a "Foreign Plan"): (x) Any employer and employee contributions required by law or by the terms of any Foreign Government Scheme or Arrangement or any Foreign Plan have been made, or, if applicable, accrued, in accordance with normal accounting practices. (y) The fair market value of the assets of each funded Foreign Plan, the liability of each insurer for any Foreign Plan funded through insurance or the book reserve established for any Foreign Plan, together with any accrued contributions, is sufficient to procure or provide for the accrued benefit obligations, as of the date hereof, with respect to all current and former participants in such Foreign Plan according to the actuarial assumptions and valuations most recently used to account for such obligations in accordance with applicable generally accepted accounting principles. (z) Each Foreign Plan required to be registered has been registered and has been maintained in good standing with applicable regulatory authorities. (v) To the extent the assets of any Loan Party are or are deemed under applicable law to be "plan assets" within the meaning of Department of Labor Regulation (S) 2510.3-101, the execution, delivery and performance of the Loan Documents and the consummation of the transactions contemplated therein will not result in a non-exempt prohibited transaction within the meaning of Section 406 of ERISA or Section 4975 of the Internal Revenue Code. (vi) During the twelve-consecutive-month period to the date of the execution and delivery of this Agreement and prior to the request for any Letter of Credit to be issued hereunder, no steps have been taken to terminate any Pension Plan, no contribution failure has occurred with respect to any Pension Plan sufficient to give rise to a lien under section 302(f) of ERISA and no minimum funding waiver has been applied for or is in effect with respect to any Pension Plan. No condition exists or event or transaction has occurred or is reasonably expected to occur with respect to any Pension Plan which could result in any Loan Party or any ERISA Affiliate incurring any material liability, fine or penalty. (o) (i) In the ordinary course of its business, each Account Party reviews the effect of Environmental Laws on the operations and properties of such Account Party and its Subsidiaries, in the course of which it identifies and evaluates associated liabilities and costs (including, without limitation, any capital or operating expenditures required for clean-up or closure of properties presently or previously owned, any capital or operating expenditures required to achieve or maintain compliance with environmental protection standards imposed by law or as a condition of any license, permit or contract, any related constraints on operating activities, including any periodic or permanent shutdown of any facility or reduction in the level of or change in the nature of operations conducted thereat, and any actual or potential liabilities -42- to third parties and any related costs and expenses). On the basis of this review, each Account Party has reasonably concluded that such associated liabilities and costs, including the costs of compliance with Environmental Laws, are unlikely to have a Material Adverse Effect. (ii) The operations and properties of each Loan Party and each of its Subsidiaries comply in all material respects with all applicable Environmental Laws and Environmental Permits, except for non-compliances which would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect; Hazardous Materials have not been released, discharged or disposed of on any property currently or formerly owned or operated by any Loan Party or any of its Subsidiaries that would reasonably be expected to have a Material Adverse Effect; and there are no Environmental Actions pending or threatened against any Loan Party or its Subsidiaries, and no circumstances exist that could be reasonably likely to form the basis of any such Environmental Action, which (in either case), individually or in the aggregate with all other such pending or threatened actions and circumstances would reasonably be expected to have a Material Adverse Effect. (p) Each Loan Party and each of its Subsidiaries has filed, has caused to be filed or has been included in all material federal tax returns and all other material tax returns required to be filed and has paid all taxes shown thereon to be due, together with applicable interest and penalties, except to the extent contested in good faith and by appropriate proceedings (in which case adequate reserves have been established therefor in accordance with GAAP). (q) Each Account Party has (i) initiated a review and assessment of all areas within its and each of its Subsidiaries' business and operations (including those affected by suppliers, vendors and customers) that could be adversely affected by the risk that computer applications used by such Account Party or any of its Subsidiaries (or material suppliers, vendors and customers other than those affecting customers that may give rise to claims under insurance policies issued by any Account Party or a Subsidiary) may be unable to recognize and perform properly date-sensitive functions involving certain dates prior to and any date after December 31, 1999 (the "Year 2000 Problem"), (ii) developed a plan and timetable for addressing the Year 2000 Problem on a timely basis and (iii) to date, implemented that plan substantially in accordance with such timetable. Based on the foregoing, each Account Party believes that all computer applications of such Account Party and its Subsidiaries that are material to its or any of its Subsidiaries' business and operations are reasonably expected on a timely basis to be able to perform properly date-sensitive functions for all dates before and after January 1, 2000 ("Year 2000 Compliant"), except to the extent that a failure to do so could not reasonably be expected to have a Material Adverse Effect. ARTICLE V COVENANTS OF THE ACCOUNT PARTIES SECTION 5.01. Affirmative Covenants. So long as any Advance or any other obligation of any Loan Party under any Loan Document shall remain unpaid, any Letter of Credit shall be outstanding or any Bank shall have any Letter of Credit Participating Interest Commitment or commitment to issue a Letter of Credit hereunder, each Account Party will: (a) Compliance with Laws, Etc. Comply, and cause each of its Subsidiaries to comply, in all material respects, with all applicable laws, rules, regulations and orders, such -43- compliance to include, without limitation, compliance with Environmental Laws, Environmental Permits, ERISA and the Racketeer Influenced and Corrupt Organizations Chapter of the Organized Crime Control Act of 1970. (b) Payment of Taxes, Etc. Pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent, (i) all material taxes, assessments and governmental charges or levies imposed upon it or upon its property and (ii) all lawful material claims that, if unpaid, might by law become a Lien upon its property; provided, however, that neither any Account Party nor any of its Subsidiaries shall be required to pay or discharge any such tax, assessment, charge or claim that is being contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained. (c) Maintenance of Insurance. Maintain, and cause each of its Subsidiaries to maintain, insurance with responsible and reputable insurance companies or associations in such amounts and covering such risks as is usually carried by companies engaged in similar businesses and owning similar properties in the same general areas in which the Parent or such Subsidiary operates (it being understood that the foregoing shall not apply to maintenance of reinsurance or similar matters which shall be solely within the reasonable business judgment of the Parent and its Subsidiaries). (d) Preservation of Corporate Existence, Etc. Preserve and maintain, and cause each of its Subsidiaries to preserve and maintain, its existence, legal structure, legal name, rights (charter and statutory), permits, licenses, approvals, privileges and franchises; provided, however, that the Parent and its Subsidiaries may consummate any merger or consolidation permitted under Section 5.02(c) and provided further that neither the Parent nor any of its Subsidiaries shall be required to preserve any right, permit, license, approval, privilege or franchise if the Board of Directors of the Parent or such Subsidiary shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Parent or such Subsidiary, as the case may be, and that the loss thereof is not disadvantageous in any material respect to the Parent, such Subsidiary or the Banks. (e) Visitation Rights. At any reasonable time and from time to time upon prior notice, permit the Administrative Agent (upon request made by any Agent or any Bank), or any agents or representatives thereof, at the expense (so long as no Default has occurred and is continuing) of such Agent or such Bank, as the case may be, to examine and make copies of and abstracts from the records and books of account of, and visit the properties of, the Parent and any of its Subsidiaries, and to discuss the affairs, finances and accounts of the Parent and any of its Subsidiaries with any of their officers or directors and with, so long as a representative of the Parent is present, their independent certified public accountants. (f) Keeping of Books. Keep, and cause each of its Subsidiaries to keep, proper books of record and account, in which full and correct entries shall be made of all financial transactions and the assets and business of the Parent and each such Subsidiary sufficient to permit the preparation of financial statements in accordance with GAAP. (g) Maintenance of Properties, Etc. Maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, all of its properties that are used or useful in the conduct of its business in good working order and condition, ordinary wear and tear excepted. -44- (h) Transactions with Affiliates. Conduct, and cause each of its Subsidiaries to conduct, all transactions otherwise permitted under the Loan Documents with any of their Affiliates (other than any transaction between Loan Parties) on terms that are fair and reasonable and no less favorable than it would obtain in a comparable arm's-length transaction with a Person not an Affiliate. (i) Pari Passu ranking. Each Account Party shall procure that its obligations under the Loan Documents will rank at least pari passu with all its other present and future unsecured and unsubordinated obligations, except for obligations which are mandatorily preferred by law applying to companies generally. SECTION 5.02. Negative Covenants. So long as any Advance or any other obligation of any Loan Party under any Loan Document shall remain unpaid, any Letter of Credit shall be outstanding or any Bank shall have any Letter of Credit Participating Interest Commitment or commitment to issue a Letter of Credit hereunder, each of the Account Parties will not, at any time: (a) Liens, Etc. Create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Lien on or with respect to any of its properties of any character (including, without limitation, accounts) whether now owned or hereafter acquired, or assign or permit any of its Subsidiaries to assign, any accounts or other right to receive income, except: (i) Permitted Liens; (ii) Liens described on Schedule 5.02(a) hereto and other Liens arising in the ordinary course of business of CIGNAP&C; (iii) purchase money Liens upon or in real property or equipment acquired or held by the Parent or any of its Subsidiaries in the ordinary course of business to secure the purchase price of such property or equipment or to secure Debt incurred solely for the purpose of financing the acquisition, construction or improvement of any such property or equipment to be subject to such Liens, or Liens existing on any such property or equipment at the time of acquisition or within 180 days following such acquisition (other than any such Liens created in contemplation of such acquisition that do not secure the purchase price), or extensions, renewals or replacements of any of the foregoing for the same or a lesser amount; provided, however, that no such Lien shall extend to or cover any property other than the property or equipment being acquired, constructed or improved, and no such extension, renewal or replacement shall extend to or cover any property not theretofore subject to the Lien being extended, renewed or replaced; (vi) Liens arising in connection with Capitalized Leases; provided that no such Lien shall extend to or cover any assets other than the assets subject to such Capitalized Leases; (v) (A) any Lien existing on any asset of any Person at the time such Person becomes a Subsidiary and not created in contemplation of such event, (B) any Lien on any asset of any Person existing at the time such Person is merged or consolidated with or into the Parent or any of it Subsidiaries in accordance with Section 5.02(c) and not -45- created in contemplation of such event and (C) any Lien existing on any asset prior to the acquisition thereof by the Parent or any of its Subsidiaries and not created in contemplation of such acquisition; (vi) Liens securing obligations under credit default swap transactions determined by reference to, or Contingent Obligations in respect of, Debt issued by the Parent or one of its Subsidiaries; such Debt not to exceed an aggregate principal amount of $550,000,000; (vii) Liens arising in the ordinary course of its business which (A) do not secure Debt and (B) do not in the aggregate materially detract from the value of its assets or materially impair the use thereof in the operation of its business; (viii) Liens on cash and Approved Investments securing Hedge Agreements arising in the ordinary course of business; (ix) other Liens securing Debt or other obligations outstanding in an aggregate principal or face amount not to exceed at any time 10% of Consolidated Tangible Net Worth; (x) Liens consisting of deposits made by the Parent or any insurance Subsidiary with any insurance regulatory authority or other statutory Liens or Liens or claims imposed or required by applicable insurance law or regulation against the assets of the Parent or any insurance Subsidiary, in each case in favor of policyholders of the Parent or such insurance Subsidiary or an insurance regulatory authority and in the ordinary course of the Parent's or such insurance Subsidiary's business; (xi) Liens on Investments and cash balances of the Parent or any insurance Subsidiary (other than capital stock of any Subsidiary) securing obligations of the Parent or any insurance Subsidiary in respect of (i) letters of credit obtained in the ordinary course of business and/or (ii) trust arrangements formed in the ordinary course of business for the benefit of cedents to secure reinsurance recoverables owed to them by the Parent or any insurance Subsidiary; (xii) the replacement, extension or renewal of any Lien permitted by clause (iii) or (vi) above upon or in the same property theretofore subject thereto or the replacement, extension or renewal (without increase in the amount (other than in respect of fees, expenses and premiums, if any) or change in any direct or contingent obligor) of the Debt secured thereby; (xiii) Liens securing obligations owed by any Loan Party to any other Loan Party or owed by any Subsidiary of the Parent (other than a Loan Party) to the Parent or any other Subsidiary; (xiv) Liens incurred in the ordinary course of business in favor of financial intermediaries and clearing agents pending clearance of payments for investment or in the nature of set-off, banker's lien or similar rights as to deposit accounts or other funds; and -46- (xvi) judgment or judicial attachment Liens, provided that the enforcement of such Liens is effectively stayed. (b) Change in Nature of Business. Make any material change in the nature of the business of the Parent and its Subsidiaries, taken as a whole, as carried on at the date hereof but assuming that the Acquisition had occurred. (c) Mergers, Etc. Merge into or consolidate with any Person or permit any Person to merge into it, or permit any of its Subsidiaries to do so, except that: (i) any Subsidiary of the Parent may merge into or consolidate with any other Subsidiary of the Parent, provided that, in the case of any such merger or consolidation, the Person formed by such merger or consolidation shall be a wholly owned Subsidiary of the Parent, provided further that, in the case of any such merger or consolidation to which an Account Party is a party, the Person formed by such merger or consolidation shall be such Account Party; (ii) any Subsidiary of any Account Party may merge into or consolidate with any other Person or permit any other Person to merge into or consolidate with it; provided that the Person surviving such merger shall be a wholly owned Subsidiary of the Account Party; (iii) in connection with any sale or other disposition permitted under Section 5.02(d) (other than clause (ii) thereof), any Subsidiary of the Parent may merge into or consolidate with any other Person or permit any other Person to merge into or consolidate with it; and (iv) the Parent or any Account Party may merge into or consolidate with any other Person; provided that, in the case of any such merger or consolidation, the Person formed by such merger or consolidation shall be the Parent or such Account Party, as the case may be; provided, however, that in each case, immediately after giving effect thereto, no event shall occur and be continuing that constitutes a Default. (d) Sales, Etc., of Assets. Sell, lease, transfer or otherwise dispose of, or permit any of its Subsidiaries to sell, lease, transfer or otherwise dispose of, any assets, or grant any option or other right to purchase, lease or otherwise acquire any, assets except: (i) sales of inventory in the ordinary course of its business; (ii) in a transaction authorized by Section 5.02(c); (iii) sales of Approved Investments in the ordinary course of business on a basis consistent with past practices; (iv) sales of assets for fair value; -47- (v) sales, leases, transfers or other dispositions of any assets by the Parent or a Subsidiary to the Parent or another Subsidiary; and (vi) so long as no Default shall occur and be continuing, the grant of any option or other right to purchase any asset in a transaction that would be permitted under the provisions of clauses (i) through (iv) above. (e) Restricted Payments. In the case of the Parent, declare or pay any dividends, purchase, redeem, retire, defease or otherwise acquire for value any of its Equity Interests now or hereafter outstanding, return any capital to its stockholders, partners or members (or the equivalent Persons thereof) as such, make any distribution of assets, Equity Interests, obligations or securities to its stockholders, partners or members (or the equivalent Persons thereof) as such or issue or sell any Equity Interests or accept any capital contributions, or permit any of its Subsidiaries to do any of the foregoing, or permit any of its Subsidiaries to purchase, redeem, retire, defease or otherwise acquire for value any Equity Interests in the Parent or to issue or sell any Equity Interests therein, except that, so long as no Default shall have occurred and be continuing at the time of any action described in clause (i) or (ii) below or would result therefrom: (i) the Parent may (A) declare and pay dividends and distributions payable only in common stock of the Parent, (B) issue and sell shares of its capital stock, (C) purchase, redeem, retire, defease or otherwise acquire for value any of its Equity Interests in an aggregate amount during the term of this Agreement not exceeding $300,000,000 and (D) declare and pay cash dividends to its stockholders, (ii) (A) any Loan Party (other than the Parent) may declare and pay cash dividends to another Loan Party and (B) any Subsidiary of the Parent (other than any Loan Party) may (x) declare and pay cash dividends to the Parent or any other wholly owned Subsidiary of the Parent of which it is a Subsidiary and (y) accept capital contributions from its parent, and (iii) the Special Purpose Trust may issue Preferred Securities and pay dividends thereon with the proceeds of payments of interest on the Debentures. (f) Accounting Changes. Make or permit, or permit any of its Subsidiaries to make or permit, any change in accounting policies or reporting practices, except as permitted by GAAP. SECTION 5.03. Reporting Requirements. So long as any Advance or any other obligation of any Loan Party under any Loan Document shall remain unpaid, any Letter of Credit shall be outstanding or any Bank shall have any Letter of Credit Participating Interest Commitment or commitment to issue a Letter of Credit hereunder, the Parent will furnish to the Agents and the Banks: (a) Default Notice. As soon as possible and in any event within two days after the occurrence of each Default or any event, development or occurrence reasonably likely to have a Material Adverse Effect continuing on the date of such statement, a statement of the chief financial officer of the Parent setting forth details of such Default, event, development or occurrence and the action that the Parent or the applicable Subsidiary has taken and proposes to take with respect thereto. -48- (b) Annual Financials. (i) As soon as available and in any event within 90 days after the end of each Fiscal Year, a copy of the annual Consolidated audit report for such year for the Parent and its Subsidiaries, including therein a Consolidated balance sheet of the Parent and its Subsidiaries as of the end of such Fiscal Year and Consolidated statements of income and cash flows of the Parent and its Subsidiaries for such Fiscal Year, all reported on in a manner reasonably acceptable to the Securities and Exchange Commission in each case and accompanied by an opinion of Pricewaterhouse Coopers LLP or other independent public accountants of recognized standing reasonably acceptable to the Required Banks, together with (i) a certificate of the Chief Financial Officer of the Parent stating that no Default has occurred and is continuing, or if a Default has occurred and is continuing, a statement as to the nature thereof and the action that the Parent has taken a proposes to take with respect thereto, and (ii) a schedule in form reasonably satisfactory to the Administrative Agent of the computations used by the Parent in determining, as of the end of such Fiscal Year, compliance with the covenants contained in Section 5.04. (ii) As soon as available and in any event within 120 days after the end of each Fiscal Year, a copy of the annual Consolidated audit report for such year for each Subsidiary Guarantor and its Subsidiaries, including therein a Consolidated balance sheet of such Subsidiary Guarantor and its Subsidiaries as of the end of such Fiscal Year and a Consolidated statement of income and a Consolidated statement of cash flows of such Subsidiary Guarantor and its Subsidiaries for such Fiscal Year, in each case accompanied by an opinion acceptable to the Required Banks of PricewaterhouseCoopers LLP or other independent public accountants of recognized standing acceptable to the Required Banks. (c) Quarterly Financials. As soon as available and in any event within 45 days after the end of each of the first three quarters of each Fiscal Year, Consolidated balance sheets of the Parent and its Subsidiaries as of the end of such quarter and Consolidated statements of income and a Consolidated statement of cash flows of the Parent and its Subsidiaries for the period commencing at the end of the previous fiscal quarter and ending with the end of such fiscal quarter and Consolidated statements of income and a Consolidated statement of cash flows of the Parent and its Subsidiaries for the period commencing at the end of the previous Fiscal Year and ending with the end of such quarter, setting forth in each case in comparative form the corresponding figures for the corresponding date or period of the preceding Fiscal Year, all in reasonable detail and duly certified (subject to the absence of footnotes and normal year-end audit adjustments) by the Chief Financial Officer of the Parent as having been prepared in accordance with GAAP, together with (i) a certificate of said officer stating that no Default has occurred and is continuing or, if a Default has occurred and is continuing, a statement as to the nature thereof and the action that the Parent has taken and proposes to take with respect thereto and (ii) a schedule in form reasonably satisfactory to the Administrative Agent of the computations used by the Parent in determining compliance with the covenants contained in Section 5.04. (d) Litigation. Promptly after the commencement thereof, notice of all actions, suits, investigations, litigation and proceedings before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, affecting any Loan Party or any of its Subsidiaries of the type described in Section 4.01(f). (e) Securities Reports. Promptly after the sending or filing thereof, copies of all -49- proxy statements, financial statements and reports that the Parent sends to its stockholders generally, and copies of all regular, periodic and special reports, and all registration statements, that any Loan Party or any of its Subsidiaries files with the Securities and Exchange Commission or any governmental authority that may be substituted therefor, or with any national securities exchange. (f) ERISA. (i) ERISA Events. Promptly and in any event within 10 days after any Loan Party or any ERISA Affiliate institutes any steps to terminate any Pension Plan or becomes aware of the institution of any steps or any threat by the PBGC to terminate any Pension Plan, or the failure to make a required contribution to any Pension Plan if such failure is sufficient to give rise to a lien under section 302(f) of ERISA, or the taking of any action with respect to a Pension Plan which could result in the requirement that any Loan Party or any ERISA Affiliate furnish a bond or other security to the PBGC or such Pension Plan, or the occurrence of any event with respect to any Pension Plan which could result in any Loan Party or any ERISA Affiliate incurring any material liability, fine or penalty, or any material increase in the contingent liability of any Loan Party or any ERISA Affiliate with respect to any post-retirement Welfare Plan benefit, notice thereof and copies of all documentation relating thereto. (ii) Plan Annual Reports. Promptly upon request of any Agent or any Bank, copies of each Schedule B (Actuarial Information) to the annual report (Form 5500 Series) with respect to each Pension Plan. (iii) Multiemployer Plan Notices. Promptly and in any event within 15 Business Days after receipt thereof by any Loan Party or any ERISA Affiliate from the sponsor of a Multiemployer Plan, copies of each notice concerning (A) the imposition of Withdrawal Liability by any such Multiemployer Plan, (B) the reorganization or termination, within the meaning of Title IV of ERISA, of any such Multiemployer Plan or (C) the amount of liability incurred, or that may be incurred, by such Loan Party or any ERISA Affiliate in connection with any event described in clause (A) or (B); provided, however, that such notice and documentation shall not be required to be provided (except at the specific request of any Agent or any Bank, in which case such notice and documentation shall be promptly provided following such request) if such condition or event is not reasonably expected to result in any Loan Party or any ERISA Affiliate incurring any material liability, fine, or penalty.. (g) Year 2000 Compliance. Promptly after the Parent's discovery or determination thereof, notice (in reasonable detail) that any computer application that is material to its or any of its Subsidiaries' business and operations will not be Year 2000 Compliant (as defined in Section 4.01(q)), except to the extent that such failure could not reasonably be expected to have a Material Adverse Effect. (h) Statutory Statements. As soon as available and in any event within 20 days after submission, each statutory statement of the Loan Parties (or any of them) in the form submitted to The Insurance Division of the Office of Registrar of Companies of Bermuda. (i) Regulatory Notices, Etc. Promptly after any Responsible Officer of the Parent obtains knowledge thereof, (i) a copy of any notice from the Bermuda Minister of Finance or the Registrar of Companies or any other person of the revocation, the suspension or the placing of any restriction or condition on the registration as an insurer of any Account Party under the Bermuda Insurance Act 1978 (and related regulations) or of the institution of any proceeding or -50- investigation which could result in any such revocation, suspension or placing of such a restriction or condition, (ii) copies of any correspondence by, to or concerning any Loan Party relating to an investigation conducted by the Bermuda Minister of Finance, whether pursuant to Section 132 of the Bermuda Companies Act 1981 (and related regulations) or otherwise and (iii) a copy of any notice of or requesting or otherwise relating to the winding-up or any similar proceeding of or with respect to any Loan Party. (j) Other Information. Such other information respecting the business, condition (financial or otherwise), operations, performance, properties or prospects of any Loan Party or any of its Subsidiaries as the Administrative Agent, or any Bank through the Administrative Agent, may from time to time reasonably request. SECTION 5.04. Financial Covenants. So long as any Advance or any other obligation of any Loan Party under any Loan Document shall remain unpaid, any Letter of Credit shall be outstanding or any Bank shall have any Letter of Credit Participating Interest Commitment or commitment to issue a Letter of Credit hereunder, the Parent will: (a) Adjusted Consolidated Debt to Total Capitalization Ratio. Maintain at all times a ratio of Adjusted Consolidated Debt to Total Capitalization of not more than the lesser of (a) 0.50 to 1 or (b) the Specified Ratio. For purposes of the foregoing, the Specified Ratio shall be the greater of 0.35 to 1 or the ratio determined by multiplying 1.25 times the numerator of the lowest ratio of Adjusted Consolidated Debt to Total Capitalization as of the last day of any fiscal quarter of the Parent after completion of the Acquisition. (b) Tangible Net Worth. Maintain at all times Consolidated Tangible Net Worth in an amount equal to the sum of (i) $1,000,000,000 plus (ii) 25% of Consolidated Net Income for each fiscal quarter of the Parent ending on and after June 30, 1999 for which such Consolidated Net Income is positive plus (iii) 75% (or, after the Equity Issuance (so long as the Net Cash Proceeds received by the Parent and its Subsidiaries are at least $500,000,000) 50%) of the aggregate amount by which Consolidated Tangible Net Worth shall have been increased by reason of the issuance and sale of any Equity Interests or Mandatorily Convertible Preferred Securities or, without duplication, the conversion or exchange of any Debt of the Parent into or with Equity Interests of the Parent. ARTICLE VI EVENTS OF DEFAULT SECTION 6.01. Events of Default. If any of the following events ("Events of Default") shall occur and be continuing: (a) (i) any Account Party shall fail to pay any principal of any Advance when the same shall become due and payable or (ii) any Account Party shall fail to pay any interest on any Advance, or any Loan Party shall fail to make any other payment under any Loan Document, in each case under this clause (ii) within five Business Days after the same becomes due and payable; or (b) any representation or warranty made by any Loan Party (or any of its officers) under or in connection with any Loan Document shall prove to have been incorrect in any -51- material respect when made; or (c) any Account Party shall fail to perform or observe any term, covenant or agreement contained in Section 2.10, 5.01(d) (with respect to the Parent) or (e), 5.02 or 5.04; or (d) any Loan Party shall fail to perform or observe any other term, covenant or agreement contained in any Loan Document on its part to be performed or observed if such failure shall remain unremedied for 30 days after the earlier of the date on which (i) a Responsible Officer becomes aware of such failure or (ii) written notice thereof shall have been given to such Loan Party by any Agent or any Bank; or (e) the Parent or any of its Subsidiaries shall fail to pay any Material Financial Obligation (but excluding Debt outstanding hereunder) of the Parent or such Subsidiary (as the case may be), when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Material Financial Obligation; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Material Financial Obligation and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Material Financial Obligation or otherwise to cause, or to permit the holder thereof to cause, such Material Financial Obligation to mature; or any such Material Financial Obligation shall be declared to be due and payable or required to be prepaid or redeemed (other than by a regularly scheduled required prepayment or redemption), purchased or defeased, or an offer to prepay, redeem, purchase or defease such Material Financial Obligation shall be required to be made, in each case prior to the stated maturity thereof; or (f) any Loan Party or any of its Subsidiaries shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against any Loan Party or any of its Subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it) that is being diligently contested by it in good faith, either such proceeding shall remain undismissed or unstayed for a period of 30 days or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or any substantial part of its property) shall occur; or any Loan Party or any of its Subsidiaries shall take any corporate action to authorize any of the actions set forth above in this subsection (f); or (g) any judgment or order for the payment of money in excess of $100,000,000 shall be rendered against any Loan Party or any of its Subsidiaries and either (i) enforcement proceedings shall have been commenced by any creditor upon such judgment or order or (ii) there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or -52- (h) any non-monetary judgment or order shall be rendered against any Loan Party or any of its Subsidiaries that could be reasonably likely to have a Material Adverse Effect, and there shall be any period of 30 consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect; or (i) any provision of any Loan Document after delivery thereof pursuant to Section 3.01 shall for any reason cease to be valid and binding on or enforceable against any Loan Party party to it (other than as a result of a transaction permitted hereunder), or any such Loan Party shall so state in writing; or (j) a Change of Control shall occur; or (k) Any Loan Party or any ERISA Affiliate shall incur or shall be reasonably expected to incur liability in excess of $25,000,000 in the aggregate with respect to any Pension Plan or any Multiemployer Plan in connection with the occurrence of any of the following events or existence of any of the following conditions: (i) Institution of any steps by any Loan Party, any ERISA Affiliate or any other Person, including, without limitation, the PBGC to terminate a Pension Plan if as a result of such termination a Loan Party or any ERISA Affiliate could be required to make a contribution to such Pension Plan, or could incur a liability or obligation; (ii) A contribution failure occurs with respect to any Pension Plan sufficient to give rise to a lien under section 302(f) of ERISA; or (iii) Any condition shall exist or event shall occur with respect to a Pension Plan that is reasonably expected to result in any Loan Party or any ERISA Affiliate being required to furnish a bond or security to the PBGC or such Pension Plan, or incurring a liability or obligation. (l) any Loan Party or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that it has incurred Withdrawal Liability to such Multiemployer Plan; or (m) any Loan Party or any ERISA Affiliate shall have been notified by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in reorganization or is being terminated, within the meaning of Title IV of ERISA, and as a result of such reorganization or termination the aggregate annual contributions of the Loan Parties and the ERISA Affiliates to all Multiemployer Plans that are then in reorganization or being terminated have been or will be increased over the amounts contributed to such Multiemployer Plans for the plan years of such Multiemployer Plans immediately preceding the plan year in which such reorganization or termination occurs; then, and in any such event, the Administrative Agent (i) shall at the request, or may with the consent, of the Required Banks, by notice to the Account Parties, declare the obligation of the Issuing Bank to issue Letters of Credit to be terminated, whereupon the same shall forthwith terminate, and/or (ii) shall at the request, or may with the consent, of the Required Banks, by notice to the Account Parties, declare all amounts payable under this Agreement and the other Loan Documents to be forthwith due and payable, whereupon all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Account -53- Parties; provided, however, that in the event of an actual or deemed entry of an order for relief with respect to any Account Party under the Federal Bankruptcy Code, (x) the obligation of the Issuing Bank to issue Letters of Credit shall automatically be terminated and (y) all such amounts shall automatically become and be due and payable, without presentment, demand, protest or any notice of any kind, all of which are hereby expressly waived by the Account Parties. SECTION 6.02. Actions in Respect of the Letters of Credit upon Default. If any Event of Default shall have occurred and be continuing, the Administrative Agent may, or shall at the request of the Required Banks, after having taken any of the actions described in Section 6.01(ii) or otherwise, make demand upon the Account Party to, and forthwith upon such demand the Account Party will, pay to the Administrative Agent on behalf of the Banks in same day funds at the Administrative Agent's office designated in such demand, an amount equal to the aggregate Available Amount of all Letters of Credit then outstanding as cash collateral. If at any time during the continuance of an Event of Default the Administrative Agent determines that such funds are subject to any right or claim of any Person other than the Administrative Agent and the Banks or that the total amount of such funds is less than the aggregate Available Amount of all Letters of Credit, the Account Party will, forthwith upon demand by the Administrative Agent, pay to the Administrative Agent, as additional cash collateral, an amount equal to the excess of (a) such aggregate Available Amount over (b) the total amount of funds, if any, that the Administrative Agent determines to be free and clear of any such right and claim. Upon the drawing of any Letter of Credit, such funds shall be applied to reimburse the Issuing Bank or Banks, as applicable, to the extent permitted by applicable law. ARTICLE VII THE GUARANTY SECTION 7.01. The Guaranty. (a) Each Account Party hereby jointly and severally, unconditionally, absolutely and irrevocably guarantees the full and punctual payment (whether at stated maturity, upon acceleration or otherwise) of all amounts payable by each of the other Account Parties under the Loan Documents including, without limitation, the principal of and interest on reimbursement obligations owing by such other Account Parties pursuant to this Agreement with respect to Letters of Credit. Upon failure by an Account Party to pay punctually any such amount, each other Account Party agrees to pay forthwith on demand the amount not so paid at the place and in the manner specified in this Agreement. (b) Each Account Party (other than the Parent), and by its acceptance of this Guaranty, the Administrative Agent and each other Bank, hereby confirms that it is the intention of all such Persons that this Guaranty and the obligations of each Account Party hereunder not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar foreign, federal or state law to the extent applicable to this Guaranty and the obligations of each Account Party (other than the Parent) hereunder. To effectuate the foregoing intention, the Administrative Agent, the other Banks and the Account Parties hereby irrevocably agree that the obligations of each Account Party (other than the Parent) under this Article VII at any time shall be limited to the maximum amount as will result in the obligations of such Account Party under this Guaranty not constituting a fraudulent transfer or conveyance. SECTION 7.02. Guaranty Unconditional. The obligations of each Account Party under this Article VII shall be unconditional, absolute and irrevocable and, without limiting the generality of -54- the foregoing, shall not be released, discharged or otherwise affected by: (i) any extension, renewal, settlement, compromise, waiver or release 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 insolvency, bankruptcy, reorganization 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, any Bank 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; or (vii) any other act or omission to act or delay of any kind by any obligor, the Administrative Agent, any Bank or any other corporation or person or any other circumstance whatsoever which might, but for the provisions of this paragraph, constitute a legal or equitable discharge of or defense to an Account Party's obligations under this Article VII. SECTION 7.03. Discharge Only upon Payment in Full; Reinstatement in Certain Circumstances. Each Account Party's obligations under this Article VII shall remain in full force and effect until the commitments of the Banks hereunder shall have terminated, no Letters of Credit shall be outstanding and all amounts payable by the other Account Parties under the Loan Documents shall have been paid in full. If at any time any payment of the principal of or interest on any reimbursement obligation or any other amount payable by an Account Party under the Loan Documents is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of such Account Party or otherwise, each other Account Party's obligations under this Article VII with respect to such payment shall be reinstated as though such payment had been due but not made at such time. SECTION 7.04. Waiver by the Account Parties. Each Account Party 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. SECTION 7.05. Subrogation. Each Account Party hereby unconditionally and irrevocably agrees not to exercise any rights that it may now have or hereafter acquire against any other -55- Account Party, any other Loan Party or any other insider guarantor that arise from the existence, payment, performance or enforcement of such Account Party's obligations under or in respect of this Guaranty or any other Loan Document, including, without limitation, any right of subrogation, reimbursement, exoneration, contribution or indemnification and any right to participate in any claim or remedy of any Bank against any other Account Party, any other Loan Party or any other insider guarantor or any collateral, whether or not such claim, remedy or right arises in equity or under contract, statute or common law, including, without limitation, the right to take or receive from any other Account Party, any other Loan 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 amounts payable under this Guaranty shall have been paid in full in cash, no Letters of Credit shall be outstanding and the commitments of the Banks hereunder shall have expired or been terminated. If any amount shall be paid to any Account Party in violation of the immediately preceding sentence at any time prior to the latest of (a) the payment in full in cash of all amounts payable under this Guaranty, and (b) the Expiration Date, such amount shall be received and held in trust for the benefit of the Banks, shall be segregated from other property and funds of such Account Party 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) any Account Party shall make payment to any Bank 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 Expiration Date shall have occurred, the Banks will, at such Account Party's request and expense, execute and deliver to such Account Party appropriate documents, without recourse and without representation or warranty, necessary to evidence the transfer by subrogation to such Account Party of an interest in the obligations resulting from such payment made by such Account Party pursuant to this Guaranty. SECTION 7.06. Stay of Acceleration. If acceleration of the time for payment of any amount payable by any Account Party under any of the Loan Documents is stayed upon the insolvency, bankruptcy or reorganization of such Account Party, all such amounts otherwise subject to acceleration under the terms of this Agreement shall nonetheless be payable by the other Account Parties under this Article VII forthwith on demand by the Administrative Agent made at the request of the requisite proportion of the Banks. SECTION 7.07. Continuing Guaranty; Assignments. This Guaranty is a continuing guaranty and shall (a) remain in full force and effect until the latest of (i) the payment in full in cash of all amounts payable under this Guaranty and (ii) the final Expiration Date, (b) be binding upon each Account Party, its successors and assigns and (c) inure to the benefit of and be enforceable by the Banks and their successors, transferees and assigns. Without limiting the generality of clause (c) of the immediately preceding sentence, any Bank may assign or otherwise transfer all or any portion of its rights and obligations under this Agreement (including, without limitation, all or any portion of its Letter of Credit Participating Interest Commitment and the Advances owing to it) to any other Person, and such other Person shall thereupon become vested with all the benefits in respect thereof granted to such Bank herein or otherwise, in each case as and to the extent provided in Section 9.07. No Account Party shall have the right to assign its rights hereunder or any interest herein without the prior written consent of the Required Banks. ARTICLE VIII -56- THE AGENTS SECTION 8.01. Authorization and Action. Each Bank (in its capacity as a Bank) hereby appoints and authorizes each Agent to take such action as agent on its behalf and to exercise such powers and discretion under this Agreement and the other Loan Documents as are delegated to such Agent by the terms hereof and thereof, together with such powers and discretion as are reasonably incidental thereto. As to any matters not expressly provided for by the Loan Documents, no Agent shall be required to exercise any discretion or take any action, but shall be required to act (in the case of the Administrative Agent) or to refrain from acting (and shall be fully protected in so acting or refraining from acting) upon the instructions of the Required Banks or all the Banks where unanimity is required, and such instructions shall be binding upon all Banks; provided, however, that no Agent shall be required to take any action that exposes such Agent to personal liability or that is contrary to this Agreement or applicable law. The Administrative Agent agrees to give to each Bank prompt notice of each notice given to it by any Account Party pursuant to the terms of this Agreement. SECTION 8.02. Agents' Reliance, Etc. Neither any Agent nor any of its respective directors, officers, agents or employees shall be liable for any action taken or omitted to be taken by it or them under or in connection with the Loan Documents, except for its or their own gross negligence or willful misconduct. Without limitation of the generality of the foregoing, each Agent: (a) may consult with legal counsel (including counsel for any Loan Party), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken in good faith by it in accordance with the advice of such counsel, accountants or experts; (b) makes no warranty or representation to any Bank and shall not be responsible to any Bank for any statements, warranties or representations (whether written or oral) made in or in connection with the Loan Documents; (c) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of any Loan Document on the part of any Loan Party or to inspect the property (including the books and records) of any Loan Party; (d) shall not be responsible to any Bank for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of, or the perfection or priority of any lien or security interest created or purported to be created under or in connection with, any Loan Document or any other instrument or document furnished pursuant thereto; and (e) shall incur no liability under or in respect of any Loan Document by acting upon any notice, consent, certificate or other instrument or writing (which may be by telegram or telecopy) reasonably believed by it to be genuine and signed or sent by the proper party or parties. SECTION 8.03. Mellon and Affiliates. With respect to its LC Commitment Amounts, and the Advances, Mellon shall have the same rights and powers under the Loan Documents as any other Bank and may exercise the same as though it were not an Agent; and the term "Bank" or "Banks" shall, unless otherwise expressly indicated, include Mellon in its individual capacity. Mellon and its affiliates may accept deposits from, lend money to, act as trustee under indentures of, accept investment banking engagements from and generally engage in any kind of business with, any Loan Party, any of its Subsidiaries and any Person that may do business with or own securities of any Loan Party or any such Subsidiary, all as if Mellon were not an Agent and without any duty to account therefor to the Banks. SECTION 8.04. Bank Credit Decision. Each Bank acknowledges that it has, independently and without reliance upon any Agent or any other Bank and based on the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it will, independently and without reliance upon any Agent or any other Bank 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 this Agreement. -57- SECTION 8.05. Indemnification. (a) Each Bank severally agrees to indemnify each Agent (to the extent not promptly reimbursed by the Account Parties) from and against such Bank's ratable share (determined as provided below) of any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever that may be imposed on, incurred by, or asserted against such Agent in any way relating to or arising out of the Loan Documents or any action taken or omitted by such Agent under the Loan Documents; provided, however, that no Bank shall be liable for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from such Agent's gross negligence or willful misconduct. Without limitation of the foregoing, each Bank agrees to reimburse each Agent promptly upon demand for its ratable share of any costs and expenses (including, without limitation, fees and expenses of counsel) payable by the Account Parties under Section 9.04, to the extent that such Agent is not promptly reimbursed for such costs and expenses by the Account Parties. (b) For purposes of this Section 8.05, the Banks' respective ratable shares of any amount shall be determined, at any time, according to the sum of (i) the aggregate principal amount of the Advances outstanding at such time and owing to the respective Banks, (ii) their respective Pro Rata Shares of the aggregate Available Amounts of all Letters of Credit outstanding at such time and (iii) their respective Unused LC Commitment Amounts at such time. The failure of any Bank to reimburse any Agent promptly upon demand for its ratable share of any amount required to be paid by the Banks to such Agent as provided herein shall not relieve any other Bank of its obligation hereunder to reimburse such Agent for its ratable share of such amount, but no Bank shall be responsible for the failure of any other Bank to reimburse such Agent for such other Bank's ratable share of such amount. Without prejudice to the survival of any other agreement of any Bank hereunder, the agreement and obligations of each Bank contained in this Section 8.05 shall survive the payment in full of principal, interest and all other amounts payable hereunder and under the other Loan Documents. SECTION 8.06. Successor Administrative Agent. Any Agent may resign at any time by giving written notice thereof to the Banks and the Parent and may be removed at any time with or without cause by the Required Banks. Upon any such resignation or removal of the Administrative Agent, the Required Banks shall have the right to appoint a successor Administrative Agent, subject (so long as no Event of Default exists) to the consent of the Parent (which consent shall not be unreasonably withheld). If no successor Administrative Agent shall have been so appointed by the Required Banks, and shall have accepted such appointment, within 30 days after the retiring Administrative Agent's giving of notice of resignation or the Required Banks' removal of the retiring Administrative Agent, then the retiring Administrative Agent may, on behalf of the Banks, appoint a successor Administrative Agent, which shall be a commercial bank organized under the laws of the United States or of any State thereof and having a combined capital and surplus of at least $250,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent such successor Administrative Agent shall succeed to and become vested with all the rights, powers, discretion, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent shall be discharged from its duties and obligations under the Loan Documents. If within 45 days after written notice is given of the retiring Administrative Agent's resignation or removal under this Section 8.06 no successor Administrative Agent shall have been appointed and shall have accepted such appointment, then on such 45th day (i) the retiring Administrative Agent's resignation or removal shall become effective, (ii) the retiring Administrative Agent shall thereupon be discharged from its duties and obligations under the Loan Documents and (iii) the Required Banks shall thereafter perform all duties of the retiring Administrative Agent under the Loan Documents until such time, if any, as the Required -58- Banks appoint a successor Administrative Agent as provided above. After any retiring Agent's resignation or removal hereunder as Agent shall have become effective, the provisions of this Article VIII shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent under this Agreement. If Deutsche or Fleet ceases to be a Bank hereunder, it shall be deemed to have resigned as a Documentation Agent and no replacement shall be appointed. ARTICLE IX MISCELLANEOUS SECTION 9.01. Amendments, Etc. No amendment or waiver of any provision of this Agreement or any other Loan Document, nor consent to any departure by any Loan Party therefrom, shall in any event be effective unless the same shall be in writing and signed by the Issuing Bank and the Required Banks (and, in the case of an amendment, the Parent), and then any such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no amendment, waiver or consent shall, unless in writing and signed by all of the Banks (other than (A) any Bank that is, at such time, a Defaulting Bank, (B) in the case of clause (v) below, any Bank which is not a Commitment Bank and which is not affected by such amendment, waiver or consent and (C) in the case of clauses (ii), (iii), (vi) and (vii) below, any Bank which is not and will not be (and is not and will not be owed any obligation which is or will be) affected thereby), do any of the following at any time: (i) waive any of the conditions specified in Section 3.01 or, in the case of the Initial Extension of Credit, Section 3.02, (ii) change the number of Banks or the percentage of (x) the LC Commitment Amounts, (y) the aggregate unpaid principal amount of the Advances or (z) the aggregate Available Amount of outstanding Letters of Credit that, in each case, shall be required for the Banks or any of them to take any action hereunder, (iii) reduce or limit the obligations of any Account Party under Section 7.01 or release such Account Party or otherwise limit such Account Party's liability with respect to the obligations owing to the Agents and the Banks, (iv) amend this Section 9.01, (v) increase the LC Commitment Amounts of the Banks, extend the then applicable Expiration Date or subject the Banks to any additional obligations, (vi) reduce the principal of, or interest on, any reimbursement obligation or any fees or other amounts payable hereunder, (vii) postpone any date fixed for any payment of principal of, or interest on, any reimbursement obligation or any fees or other amounts payable hereunder, or (viii) limit the liability of any Loan Party under any of the Loan Documents; provided further that no amendment, waiver or consent shall, unless in writing and signed by an Agent in addition to the Banks required above to take such action, affect the rights or duties of such Agent under this Agreement or the other Loan Documents. SECTION 9.02. Notices, Etc. All notices and other communications provided for hereunder shall be in writing (including telegraphic or telecopy communication) and mailed, telegraphed, telecopied or delivered, if to any Account Party, at its address set forth below on the signature pages hereof; if to any Initial Bank, at its Domestic Lending Office specified opposite its name on Schedule I hereto; if to any other Bank, at its Domestic Lending Office specified in the Assignment and Acceptance pursuant to which it became a Bank; if to the Issuing Bank at its address at One Mellon Bank Center, Pittsburgh, Pennsylvania 15258, attention: Karen McConomy; and if to the Administrative Agent, at its address at One Mellon Bank Center, Pittsburgh, Pennsylvania 15258, attention: Karen McConomy; or, as to any party, at such other address as shall be designated by such party in a written notice to the other parties. All such notices and communications shall, when mailed, telegraphed or telecopied, be effective when deposited in the mails, delivered to the telegraph company or transmitted by telecopier, respectively, except that notices and communications to the Administrative Agent pursuant to Article II, -59- III or VIII shall not be effective until received by the Administrative Agent. Manual delivery by telecopier of an executed counterpart of any amendment or waiver of any provision of this Agreement or of any Exhibit hereto to be executed and delivered hereunder shall be effective as delivery of an original executed counterpart thereof. SECTION 9.03. No Waiver; Remedies. No failure on the part of any Bank or any Agent to exercise, and no delay in exercising, any right hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law. SECTION 9.04. Costs and Expenses. (a) Each of the Account Parties agrees to pay on demand (i) all reasonable costs and expenses of the Administrative Agent and of the Issuing Bank in connection with the preparation, execution, delivery, administration, modification and amendment of the Loan Documents (including, without limitation, (A) all due diligence, collateral review, syndication, transportation, computer, duplication, appraisal, audit, insurance, consultant, search, filing and recording fees and expenses and (B) the reasonable fees and expenses of a single counsel for the Administrative Agent and a single counsel for the Issuing Bank with respect thereto, with respect to advising the Administrative Agent as to its rights and responsibilities, or the perfection, protection or preservation of rights or interests, under the Loan Documents, with respect to negotiations with any Loan Party or with other creditors of any Loan Party or any of its Subsidiaries arising out of any Default or any events or circumstances that may give rise to a Default and with respect to presenting claims in or otherwise participating in or monitoring any bankruptcy, insolvency or other similar proceeding involving creditors' rights generally and any proceeding ancillary thereto) and (ii) all reasonable costs and expenses of each Agent, the Issuing Bank and each Bank in connection with the enforcement of the Loan Documents, whether in any action, suit or litigation, or any bankruptcy, insolvency or other similar proceeding affecting creditors' rights generally (including, without limitation, the reasonable fees and expenses of counsel for the Administrative Agent, the Issuing Bank and each Bank with respect thereto). (b) Each of the Account Parties jointly and severally agrees to indemnify and hold harmless each Agent, the Issuing Bank, each Bank and each of their Affiliates and their respective officers, directors, employees, agents and advisors (each, an "Indemnified Party") from and against any and all claims, damages, losses, liabilities and expenses (including, without limitation, reasonable fees and expenses of counsel) that may be incurred by or asserted or awarded against any Indemnified Party, in each case arising out of or in connection with or by reason of (including, without limitation, in connection with any investigation, litigation or proceeding or preparation of a defense in connection therewith) this Agreement, the actual or proposed use of the proceeds of the Advances, the Loan Documents or any of the transactions contemplated thereby, including, without limitation, any acquisition or proposed acquisition (including, without limitation, the Acquisition and any of the other transactions contemplated by the Loan Documents) by any Account Party or any of its Subsidiaries or Affiliates of all or any portion of the Equity Interests in or Debt securities or substantially all of the assets of CIGNAP&C, except to the extent such claim, damage, loss, liability or expense is found in a final, non- appealable judgment by a court of competent jurisdiction to have resulted from such Indemnified Party's gross negligence or willful misconduct. In the case of an investigation, litigation or other proceeding to which the indemnity in this Section 9.04(b) applies, such indemnity shall be effective whether or not such investigation, litigation or proceeding is brought by any Loan Party, its directors, shareholders or creditors or an Indemnified Party or any Indemnified Party is otherwise a party thereto and whether or not the transactions contemplated by the Loan Documents are consummated. Each of the Account Parties also agrees not to assert any claim against any Agent, any Bank or any of their -60- Affiliates, or any of their respective officers, directors, employees, attorneys and agents, on any theory of liability, for special, indirect, consequential or punitive damages arising out of or otherwise relating to the credit facilities provided hereunder, the actual or proposed use of the proceeds of the Advances or the Letters of Credit, the Loan Documents or any of the transactions contemplated by the Loan Documents. (c) Without prejudice to the survival of any other agreement of any Loan Party hereunder or under any other Loan Document, the agreements and obligations of the Account Parties contained in Section 2.07 and this Section 9.04 shall survive the payment in full of principal, interest and all other amounts payable hereunder and under any of the other Loan Documents. SECTION 9.05. Right of Set-off. Upon (a) the occurrence and during the continuance of any Event of Default and (b) the making of the request or the granting of the consent specified by Section 6.01 to authorize the Administrative Agent to declare amounts owing hereunder to be due and payable pursuant to the provisions of Section 6.01, each Agent and each Bank and each of their respective Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and otherwise apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Agent, such Bank or such Affiliate to or for the credit or the account of any Account Party against any and all of the obligations of such Account Party now or hereafter existing under the Loan Documents, irrespective of whether such Agent or such Bank shall have made any demand under this Agreement and although such obligations may be unmatured. Each Agent and each Bank agrees promptly to notify each Account Party after any such set-off and application; provided, however, that the failure to give such notice shall not affect the validity of such set-off and application. The rights of each Agent and each Bank and their respective Affiliates under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) that such Agent, such Bank and their respective Affiliates may have. SECTION 9.06. Binding Effect. This Agreement shall become effective when it shall have been executed by each Account Party, the Issuing Bank and each Agent and the Administrative Agent shall have been notified by each Initial Bank that such Initial Bank has executed it and thereafter shall be binding upon and inure to the benefit of each Account Party, each Agent and each Bank and their respective successors and assigns, except that no Account Party shall have the right to assign its rights hereunder or any interest herein without the prior written consent of the Banks. SECTION 9.07. Assignments and Participations. (a) Each Bank may, and so long as no Default shall have occurred and be continuing, if demanded by any Account Party (following a demand by such Bank pursuant to Section 2.12) upon at least five Business Days notice to such Bank and the Administrative Agent, will, assign to one or more Eligible Assignee all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its LC Commitment Amount, its Letter of Credit Participating Interest Commitment and the Letter of Credit Advances owing to it); provided, however, that (i) each such assignment shall be of a uniform, and not a varying, percentage of all rights and obligations of such Bank hereunder, except for any non-pro rata assignment made by a Downgraded Bank after a request by the Issuing Bank pursuant to Section 2.14 (and any subsequent non-pro rata assignment of the interest so assigned or by the Downgraded Bank) and any other non-pro rata assignment approved by the Administrative Agent and any Account Party, (ii) except in the case of an assignment to a Person that, immediately prior to such assignment, was a Bank, an Affiliate of any Bank or an Approved Fund of any Bank or an assignment of all of a Bank's rights and obligations under this Agreement, the aggregate amount of the LC Commitment Amounts being assigned to such Eligible Assignee pursuant to such assignment (determined as of the date of the Assignment and Acceptance with respect to such assignment) shall in no event be less than $10,000,000, (iii) each such -61- assignment shall be to an Eligible Assignee, (iv) each assignment made as a result of a demand by any Account Party pursuant to Section 2.12 shall be arranged by such Account Party after consultation with the Administrative Agent and shall be either an assignment of all of the rights and obligations of the assigning Bank under this Agreement or an assignment of a portion of such rights and obligations made concurrently with another such assignment or other such assignments that together cover all of the rights and obligations of the assigning Bank under this Agreement, (v) no Bank shall be obligated to make any such assignment as a result of a demand by any Account Party pursuant to Section 2.12 unless and until such Bank shall have received one or more payments from either such Account Party or other Eligible Assignees in an aggregate amount at least equal to the aggregate outstanding principal amount of the Advances made by such Bank, together with accrued interest thereon to the date of payment of such principal amount and all other amounts payable to such Bank under this Agreement, (vi) as a result of such assignment, no Account Party shall be subject to additional amounts under Section 2.06 or 2.08, (vii) no such assignment shall be permitted without the consent of the Administrative Agent and, so long as no Default shall have occurred and be continuing, the Parent (which consents shall not be unreasonably withheld) and (viii) the parties to each such assignment shall execute and deliver to the Administrative Agent, for its acceptance and recording in the Register, an Assignment and Acceptance, together with a processing and recordation fee of $2,500.00. (b) Upon such execution, delivery, acceptance and recording, from and after the effective date specified in such Assignment and Acceptance, (i) the assignee thereunder shall be a party hereto and, to the extent that rights and obligations hereunder have been assigned to it pursuant to such Assignment and Acceptance, have the rights and obligations of a Bank, hereunder and (ii) the Bank assignor thereunder shall, to the extent that rights and obligations hereunder have been assigned by it pursuant to such Assignment and Acceptance, relinquish its rights (other than its rights under Sections 2.06, 2.08 and 9.04 to the extent any claim thereunder relates to an event arising prior to such assignment) and be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all of the remaining portion of an assigning Bank's rights and obligations under this Agreement, such Bank shall cease to be a party hereto). (c) By executing and delivering an Assignment and Acceptance, each Bank assignor thereunder and each assignee thereunder confirm to and agree with each other and the other parties thereto and hereto as follows: (i) other than as provided in such Assignment and Acceptance, such assigning Bank makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with any Loan Document or the execution, legality, validity, enforceability, genuineness, sufficiency or value of, or the perfection or priority of any lien or security interest created or purported to be created under or in connection with, any Loan Document or any other instrument or document furnished pursuant thereto; (ii) such assigning Bank 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 its obligations under any Loan Document or any other instrument or document furnished pursuant thereto; (iii) such assignee confirms that it has received a copy of this Agreement, together with copies of the financial statements referred to in Section 4.01 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (iv) such assignee will, independently and without reliance upon any Agent, such assigning Bank or any other Bank 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 this Agreement; (v) such assignee confirms that it is an Eligible Assignee; (vi) such assignee appoints and authorizes each Agent to take such action as agent on its behalf and to exercise such powers and discretion under the Loan Documents as are delegated to such Agent by the terms hereof and thereof, together with such -62- powers and discretion as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all of the obligations that by the terms of this Agreement are required to be performed by it as a Bank. (d) The Administrative Agent, acting for this purpose (but only for this purpose) as the agent of the Account Parties, shall maintain at its address referred to in Section 9.02 a copy of each Assignment and Acceptance delivered to and accepted by it and a register for the recordation of the names and addresses of the Banks and the LC Commitment Amount of, and principal amount of the Advances owing to, each Bank from time to time (the "Register"). The entries in the Register shall be conclusive and binding for all purposes, absent manifest error, and the Account Parties, the Agents and the Banks shall treat each Person whose name is recorded in the Register as a Bank hereunder for all purposes of this Agreement. The Register shall be available for inspection by any Account Party or any Agent or any Bank at any reasonable time and from time to time upon reasonable prior notice. (e) Upon its receipt of an Assignment and Acceptance executed by an assigning Bank and an assignee, the Administrative Agent shall, if such Assignment and Acceptance has been completed and is in substantially the form of Exhibit C hereto, (i) accept such Assignment and Acceptance, (ii) record the information contained therein in the Register and (iii) give prompt notice thereof to the Parent. (f) Each Bank may sell participations to one or more Persons (other than any Loan Party or any of its Affiliates) in or to all or a portion of its rights and obligations under this Agreement (including, without limitation, all or a portion of its LC Commitment Amount, its Letter of Credit Participating Interest Commitment and the Advances owing to it; provided, however, that (i) such Bank's obligations under this Agreement (including, without limitation, its Letter of Credit Participating Interest Commitment) shall remain unchanged, (ii) such Bank shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) the Account Parties, the Agents and the other Banks shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement and (iv) no participant under any such participation shall have any right to approve any amendment or waiver of any provision of any Loan Document, or any consent to any departure by any Loan Party therefrom, except to the extent that such amendment, waiver or consent would reduce the principal of, or interest on, reimbursement obligations or any fees or other amounts payable hereunder, in each case to the extent subject to such participation, postpone any date fixed for any payment of principal of, or interest on, the reimbursement obligations or any fees or other amounts payable hereunder, in each case to the extent subject to such participation. Each Bank shall, as agent of the Account Parties solely for the purposes of this Section, record in book entries maintained by such Bank, the name and amount of the participating interest of each Person entitled to receive payments in respect of any participating interests sold pursuant to this Section. (g) Any Bank may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section 9.07, disclose to the assignee or participant or proposed assignee or participant any information relating to any Account Party furnished to such Bank by or on behalf of any Account Party; provided, however, that, prior to any such disclosure, the assignee or participant or proposed assignee or participant shall agree to preserve the confidentiality of any Confidential Information received by it from such Bank. (h) Notwithstanding any other provision set forth in this Agreement, any Bank may at any time create a security interest in all or any portion of its rights under this Agreement (including, without limitation, the Advances owing to it) in favor of any Federal Reserve Bank in accordance with -63- Regulation A of the Board of Governors of the Federal Reserve System. SECTION 9.08. Execution in Counterparts. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by telecopier shall be effective as delivery of an original executed counterpart of this Agreement. SECTION 9.09. No Liability of the Issuing Bank. Each Account Party assumes all risks of the acts or omissions of any beneficiary or transferee of any Letter of Credit with respect to its use of such Letter of Credit. Neither the Issuing Bank nor any of its officers, directors, employees or agents shall be liable or responsible for: (a) the use that may be made of any Letter of Credit or any acts or omissions of any beneficiary or transferee in connection therewith; (b) the validity, sufficiency or genuineness of documents, or of any endorsement thereon, even if such documents should prove to be in any or all respects invalid, insufficient, fraudulent or forged; (c) payment by the Issuing Bank against presentation of documents that do not strictly comply with the terms of a Letter of Credit, including failure of any documents to bear any reference or adequate reference to the Letter of Credit; or (d) any other circumstances whatsoever in making or failing to make payment under any Letter of Credit, except that such Account Party shall have a claim against the Issuing Bank, and the Issuing Bank shall be liable to such Account Party, to the extent of any direct, but not consequential, damages suffered by such Account Party that such Account Party proves were caused by (i) the Issuing Bank's willful misconduct or gross negligence as determined in a final, non-appealable judgment by a court of competent jurisdiction in determining whether documents presented under any Letter of Credit comply with the terms of the Letter of Credit or (ii) the Issuing Bank's willful failure to make lawful payment under a Letter of Credit after the presentation to it of a draft and certificates strictly complying with the terms and conditions of the Letter of Credit. In furtherance and not in limitation of the foregoing, the Issuing Bank may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of any notice or information to the contrary. SECTION 9.10. Confidentiality. Neither any Agent nor any Bank shall disclose any Confidential Information to any Person without the consent of the Parent, other than (a) to such Agent's or such Bank's Affiliates and their officers, directors, employees, agents and advisors and to actual or prospective Eligible Assignees and participants, and then only on a confidential basis, (b) as required by any law, rule or regulation or judicial process, (c) as requested or required by any state, Federal or foreign authority or examiner regulating such Bank and (d) to any rating agency when required by it, provided that, prior to any such disclosure, such rating agency shall undertake to preserve the confidentiality of any Confidential Information relating to the Loan Parties received by it from such Bank. SECTION 9.11. Jurisdiction, Etc. (a) Each of the parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in New York City, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any of the other Loan Documents to which it is a party, 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 any such New York State court or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right -64- that any party may otherwise have to bring any action or proceeding relating to this Agreement or any of the other Loan Documents in the courts of any jurisdiction. (b) Each of the parties hereto irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement or any of the other Loan Documents to which it is a party in any New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. SECTION 9.12. Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York. SECTION 9.13. Waiver of Jury Trial. Each of the Account Parties, the Agents and the Banks irrevocably waives all right to trial by jury in any action, proceeding or counterclaim (whether based on contract, tort or otherwise) arising out of or relating to any of the Loan Documents, the Advances or the actions of any Agent or any Bank in the negotiation, administration, performance or enforcement thereof. [Remainder of page intentionally left blank] -65- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written. ACE LIMITED The Common Seal of ACE Limited was hereunto affixed in the presence of: Director Secretary ACE BERMUDA INSURANCE LTD. The Common Seal of ACE Bermuda Insurance Ltd. was hereunto affixed in the presence of: Director Secretary TEMPEST REINSURANCE COMPANY LIMITED The Common Seal of Tempest Reinsurance Company Limited was hereunto affixed in the presence of: Director Secretary Address for each Account Party: The ACE Building 30 Woodbourne Avenue Hamilton HM08 Bermuda -66- MELLON BANK, N.A., as Administrative Agent, as Issuing Bank and as an Initial Bank By: Title: DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLANDS BRANCHES, as Documentation Agent and as an Initial Bank By: Title: FLEET NATIONAL BANK, as Documentation Agent and as an Initial Bank By: Title: THE BANK OF BERMUDA LIMITED, as an Initial Bank By: Title: THE BANK OF NEW YORK, as an Initial Bank By: Title: BANQUE NATIONALE DE PARIS, as an Initial Bank By: Title: SOCIETE GENERALE, as an Initial Bank By: Title: -67- SCHEDULE I LC COMMITMENT AMOUNTS ---------------------
Mellon Bank, N. A. $ 71,500,000.00 The Bank of Bermuda Limited $ 71,500,000.00 Deutsche Bank AG, New York and/or Cayman Islands Branches $ 71,500,000.00 Fleet National Bank $ 71,500,000.00 The Bank of New York $ 48,000,000.00 Banque Nationale de Paris $ 48,000,000.00 Societe Generale $ 48,000,000.00 --------------- Total $430,000,000.00 ===============
-68- SCHEDULE I - Part 2 Domestic Lending Offices ------------------------ Mellon Bank, N. A. One Mellon Bank Center Room 4440 Pittsburgh, PA 15258-0001 Attn: Karen McConomy The Bank of Bermuda Limited 6 Front Street Hamilton HMII, Bermuda Attn: Hanne Frost Deutsche Bank AG, New York and/or Cayman Islands Branches 31 West 52nd Street New York, NY 10019 Attn: John McGill Fleet National Bank 777 Main Street Hartford, CT 06115-2001 Attn: Anson Harris The Bank of New York 1 Wall Street 17th Floor New York, NY 10286 Attn: Louis DiFranco Banque Nationale de Paris 499 Park Avenue New York, NY 10022 Attn: Phil Truesdale Societe Generale 1221 Avenue of the Americas New York, NY 10020 Attn: Laura Hope -69- SCHEDULE II Existing Letters of Credit -------------------------- 1. Mellon Letter of Credit # S864386 Face Amount: $74,500,000 Account Party: Ace Bermuda Insurance Ltd. Beneficiary: State Industrial Insurance System DBA Employers Insurance Company of Nevada 2. Mellon Letter of Credit # S856602 Face Amount: $427,000 Account Party: Westchester Surpluys Lines Insurance Co. and Westchester Fire Insurance Company (for purposes of the Reimbursement Agreement, the account party for this letter of credit will be deemed to be Ace Limited or, if so desired by the Account Parties on the closing date, another Account Party) Beneficiary: International Insurance Company -70- EX-10.53 17 GBP 290 MILLION CREDIT AGMT. DATED 11/26/1999 EXHIBIT 10.53 DATED NOVEMBER 1999 ACE LIMITED as Account Party ACE BERMUDA INSURANCE LTD. as Guarantor CITIBANK, N.A. as Arranger BARCLAYS BANK PLC and ING BARINGS as Co-Arrangers CITIBANK INTERNATIONAL plc as Agent and Security Trustee and OTHERS ------------------------------------------------- (Pounds)290,000,000 LETTER OF CREDIT FACILITY AGREEMENT ------------------------------------------------- CONTENTS
Clause Page 1. Definitions And Interpretation.................................... 1 2. The Facility...................................................... 17 3. Utilisation Of The Facility....................................... 17 4. Extension Of Letters Of Credit.................................... 19 5. Increase Of The Facility.......................................... 22 6. Notification...................................................... 24 7. The Account Party's Liabilities In Relation To Letters Of Credit.. 24 8. Cancellation And Collateralisation................................ 26 9. Taxes............................................................. 27 10. Tax Receipts...................................................... 28 11. Increased Costs................................................... 29 12. Illegality........................................................ 30 13. Mitigation........................................................ 30 14. Representations................................................... 31 15. Covenants......................................................... 35 16. Events Of Default................................................. 41 17. Commission And Fees............................................... 45 18. Costs And Expenses................................................ 46 19. Default Interest And Break Costs.................................. 48 20. Indemnities....................................................... 48 21. Currency Of Account And Payment................................... 49 22. Payments.......................................................... 50 23. Set-Off........................................................... 52 24. Sharing........................................................... 52 25. The Agent, The Arranger And The Banks............................. 53 26. Assignments And Transfers......................................... 62 27. Economic And Monetary Union....................................... 64 28. Calculations And Evidence Of Debt................................. 65 29. Guarantee And Indemnity........................................... 66 30. Remedies And Waivers, Partial Invalidity.......................... 69 31. Notices........................................................... 69 32. Counterparts...................................................... 70 33. Amendments........................................................ 70 34. Governing Law..................................................... 71
35. Jurisdiction...................................................... 71 Schedule 1 The Banks.................................................. 73 Schedule 2 Form Of Transfer Certificate............................... 74 Schedule 3 Conditions Precedent....................................... 76 Schedule 4 Utilisation Request........................................ 77 Schedule 5 Form Of Extension Request.................................. 79 Schedule 6 Form Of Letter Of Credit................................... 82 Schedule 7 Mandatory Liquid Asset Costs Rate.......................... 90 Schedule 8 Form Of Confidentiality Undertaking........................ 92 Schedule 9 Pricing Schedule........................................... 95 Schedule 10 Existing Liens............................................. 96 Schedule 11 Form Of Charge Agreement................................... 97
THIS AGREEMENT is made on November 1999 BETWEEN (1) ACE LIMITED as the account party (the "Account Party"); (2) ACE BERMUDA INSURANCE LTD. as guarantor (the "Guarantor"); (3) CITIBANK, N.A. as arranger of the Facility (the "Arranger"); (4) BARCLAYS BANK PLC and ING BARINGS as co-arrangers of the Facility (the "Co- Arrangers"); (5) CITIBANK INTERNATIONAL plc as agent and trustee for the banks (when acting in such capacities the "Agent" and the "Security Trustee" respectively); and (6) THE BANKS as defined below. IT IS AGREED as follows. 1. DEFINITIONS AND INTERPRETATION 1.1 Definitions In this Agreement: "ACE INA" means ACE INA Holdings Inc., a Delaware company and its successors. "ACE US" means ACE US Holdings, Inc., a Delaware company and its successors. "Acquisition" means the acquisition by the Account Party or one of its Subsidiaries of the domestic and international property and casualty business (the "CIGNAP&C Business") of Cigna Corporation. "Adjusted Consolidated Debt" means, at any time, an amount equal to (i) the then outstanding Consolidated Debt of the Account Party and its Subsidiaries plus (ii) 50 per cent. of the then issued and outstanding amount of Preferred Securities (other than any Mandatorily Convertible Preferred Securities). "Affiliate" means, as to any Person, any other Person that, directly or indirectly, controls, is controlled by or is under common control with such Person or is a director or officer of such Person. For the purposes of this definition, the term "control" (including the terms "controlling", "controlled by" and "under common control with") of a Person means the possession, direct or indirect, of the power to vote 5 per cent. or more of the Voting Interests of such Person or to direct or cause the direction of the management and policies of such Person, whether through the ownership of Voting Interests, by contract or otherwise. "Applicant" means each of ACE Staff Corporate Member Limited, ACE Capital Limited, ACE Capital II Limited, ACE Capital III Limited, ACE Capital IV Limited and ACE Capital V Limited and their successors and substitutes within the Group from time to time. "Approved Credit Institution" means a credit institution within the meaning of the First Council Directive on the co-ordination of laws, regulations and administrative provisions relating to the taking up and pursuit of the business of credit institutions (No. 77/780/EEC) which has been approved by the Council of Lloyd's for the purpose of providing guarantees and issuing or confirming letters of credit comprising a member's Funds at Lloyd's. "Approved Investment" means any Investment that was made by the Account Party or any of its Subsidiaries pursuant to investment guidelines set forth by the board of directors of the Account Party which guidelines are consistent with past practices of such board. "Authorised Signatory" means, in relation to an Obligor, any person who is duly authorised (in such manner as may be reasonably acceptable to the Agent) and in respect of whom the Agent has received a certificate signed by a director or another Authorised Signatory of such Obligor setting out the name and signature of such person and confirming such person's authority to act. "Available Commitment" means, in relation to a Bank at any time and save as otherwise provided herein its Commitment less its share of the Sterling Amount of Outstandings at such time provided that such amount shall not be less than zero. "Available Facility" means, at any time, the aggregate of the Available Commitments adjusted, in the case of a proposed utilisation pursuant to a Utilisation Request, so as to take into account:- (a) any reduction in the Commitment of a Bank pursuant to the terms hereof; and (b) any Letter of Credit which pursuant to any other Utilisation Request, is to be issued; on or before the proposed Utilisation Date relating to such utilisation. "Availability Period" means the period from the date of this Agreement to 26 November 1999 (or such other date which Lloyd's may specify as the Funds Date for 1999) inclusive. "Bank" means any financial institution: (a) named in Schedule 1 (The Banks); or (b) which has become a party hereto in accordance with Clause 26.4 (Assignments by Banks) or Clause 26.5 (Transfers by Banks), and which has not ceased to be a party hereto in accordance with the terms hereof. "Bermuda Companies Law" means The Companies Act 1981 of Bermuda, as amended, and the regulations promulgated thereunder. "Bermuda Insurance Law" means The Insurance Act 1978 of Bermuda, as amended, and the regulations promulgated thereunder. "Business Day" means a day (other than a Saturday or Sunday) on which banks generally are open for business in London and Bermuda and, in the case of payments to be made in dollars, New York. "Capitalised Leases" means all leases that have been or should be, in accordance with generally accepted accounting principles, recorded as capitalised leases. "Cash Collateral" means, in relation to any Bank's L/C Proportion of any Letter of Credit, a deposit in such interest-bearing account or accounts as such Bank or, as the case may be, the Agent may specify, such deposit and account to be secured in favour of, and on terms and conditions acceptable to, such Bank. "Charge Agreement" means the charge agreement, in substantially the form set out in Schedule 11 (Form of Charge Agreement), that may be required to be entered into by the Account Party as chargor pursuant to sub-clause 17.1.2 of Clause 17.1 (Letter of Credit Commission) and pursuant to which the Account Party charges the Charged Portfolio in favour of the Security Trustee. "Charged Portfolio" has the meaning ascribed to it in the Charge Agreement. "Commitment" means, in relation to a Bank at any time and save as otherwise provided herein, the amount set opposite its name under the heading "Commitment" in Schedule 1 (The Banks). "Consolidated Debt" means at any date the Debt of the Account Party and its Consolidated Subsidiaries, determined on a consolidated basis as of such date. "Consolidated Net Income" means, for any period, the net income of the Account Party and its Consolidated Subsidiaries, determined on a consolidated basis for such period. "Consolidated Subsidiary" means at any date any Subsidiary or other entity the accounts of which would be consolidated with those of the Account Party in its consolidated financial statements if such statements were prepared as of such date. "Consolidated Tangible Net Worth" means at any date the consolidated stockholder's equity of the Account Party and its Consolidated Subsidiaries (plus, to the extent not included in such consolidated stockholder's equity, the outstanding amount of all Mandatorily Convertible Preferred Securities) less their consolidated Intangible Assets all determined as of such date, provided that such determination for the purposes of Clause 14.7 (Adjusted Consolidated Debt to Total Capitalisation Ratio), Clause 14.8 (Tangible Net Worth) and Clause 14.9 (Liens) shall be made without giving effect to adjustments pursuant to Statement No. 115 of the Financial Accounting Standards Board of the United States of America. For the purposes of this definition, "Intangible Assets" means the amount (to the extent reflected in determining such consolidated stockholder's equity) of (i) all write-ups (other than write-ups resulting from foreign currency translations and write-ups of assets of a going concern business made within twelve months after the acquisition of such business) subsequent to 31 March 1999 in the book value of any asset owned by the Account Party or a Consolidated Subsidiary, and (ii) all unamortised debt discount and expense, unamortised deferred charges, deferred acquisition cost relating to the acquisition of the stock or assets of any other Person, goodwill, patents, trademarks, service marks, trade names, anticipated future benefit of tax loss carry-forwards, copyrights, organisation or developmental expense and other intangible assets. "Contingent Obligation" means, with respect to any Person, any obligation or arrangement of such Person to guarantee or indemnify or intended to guarantee or indemnify any Debt, leases, dividends or other payment obligations ("primary obligations") of any other Person (the "primary obligor") in any manner, whether directly or indirectly, including, without limitation, (a) the direct or indirect guarantee, endorsement (other than for collection or deposit in the ordinary course of business), co-making, discounting with recourse or sale with recourse by such Person of the obligation of a primary obligor, (b) the obligation to make take-or-pay or similar payments, if required, regardless of non-performance by any other party or parties to an agreement or (c) 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 (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, assets, securities or services primarily for the purpose 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 holder of such primary obligation against loss in respect thereof; provided, however, that Contingent Obligations shall not include any obligations of any such Person arising under insurance contracts entered into in the ordinary course of business. The amount of any Contingent Obligation shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made (or, if less, the maximum amount of such primary obligation for which such Person may be liable pursuant to the terms of the instrument evidencing such Contingent Obligation) or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof (assuming such person is required to perform thereunder), as determined by such Person in good faith. "Custodian" means Mellon Bank, N.A. or such other entity or entities as may be agreed from time to time between the Account Party and the Security Trustee. "Custodian's Undertaking" means the undertaking delivered to the Security Trustee by the Custodian in respect of the Charged Portfolio as contemplated by the Charge Agreement. "Debenture" means debt securities issued by the Account Party or ACE INA to the Special Purpose Trust in exchange for proceeds of Preferred Securities. "Debt" of any Person means, without duplication for purposes of calculating financial ratios, (a) all indebtedness of such Person for borrowed money, (b) all obligations of such Person for the deferred purchase price of property or services (other than trade payables incurred in the ordinary course of such Person's business), (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (d) all obligations of such Person created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all obligations of such Person as lessee under Capitalised Leases (excluding imputed interest), (f) all obligations of such Person under acceptance, letter of credit or similar facilities, (g) all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Equity Interests in such Person or any other Person or any warrants, rights or options to acquire such capital stock (excluding payments under a contract for the forward sale of ordinary shares of such Person issued in a public offering), valued, in the case of Redeemable Preferred Interests, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends, (h) all Contingent Obligations of such Person in respect of Debt (of the types described above) of any other Person and (i) all indebtedness and other payment obligations referred to in clauses (a) through (h) above of another Person 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 (including, without limitation, accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such indebtedness or other payment obligations; provided, however, that the amount of Debt of such Person under clause (i) above shall, if such Person has not assumed or otherwise become liable for any such Debt, be limited to the lesser of the principal amount of such Debt or the fair market value of all property of such person securing such Debt; provided further that "Debt" shall not include obligations in respect of insurance or reinsurance contracts entered into in the ordinary course of business; provided further that, solely for the purposes of Clause 15.7 (Adjusted Consolidated Debt to Total Capitalisation Ratio) and Clause 15.8 and (Tangible Net Worth) the definitions of "Adjusted Consolidated Debt" and "Total Capitalisation", "Debt" shall not include (x) any contingent obligations of any Person under or in connection with acceptance, letter of credit or similar facilities or (y) obligations of the Account Party or ACE INA under any Debentures or under any subordinated guarantee or any Preferred Securities or obligations of the Special Purpose Trust under any Preferred Securities. "Default" means an Event of Default or a Potential Event of Default. "Derivatives Obligations" of any Person means all obligations of such Person in respect of any rate swap transaction, 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 or other similar transaction (including any option with respect to any of the foregoing transactions) or any combination of the foregoing transactions. "Effective Date" means, in respect of each Letter of Credit, 26 November 1999. "Equity Interests" means, with respect to any Person, shares of capital stock of (or other ownership or profit interests in) such Person, warrants, options or other rights for the purchase or other acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or other acquisition from such Person of such shares (or such other interests), and other ownership or profit interests in such Person (including, without limitation, partnership, member or trust interests therein), whether voting or nonvoting, and whether or not such shares, warrants, options, rights or other interests are authorised or otherwise existing on any date of determination. "Equity Issuance" means one or more issuances by the Account Party and/or ACE INA of Equity Interests and/or equity-linked securities, the Net Cash Proceeds of which shall be at least US$500,000,000. "Event of Default" means any circumstance described as such in Clause 16 (Events of Default). "Existing Facilities" means: (a) the (Pounds)156,000,000 letter of credit facility agreement dated 24 November 1998 between ACE Limited as account party, ACE Bermuda Insurance Ltd. (formerly known as A.C.E. Insurance Company, Ltd.) as guarantor, Citibank International plc as agent and security trustee, Citibank, N.A. as arranger, Barclays Bank plc and ING Baring as co- arrangers and others; and (b) the (Pounds)114,000,000 letter of credit facility agreement dated 24 November 1998 between ACE Limited as account party, ACE Bermuda Insurance Ltd. (formerly known as A.C.E. Insurance Company, Ltd.) as guarantor, Citibank International plc as agent and security trustee, Citibank, N.A. as arranger, Barclays Bank plc and ING Baring as co- arrangers and others. "Expiry Date" means, in relation to any Letter of Credit, the date on which the maximum aggregate liability thereunder is to be reduced to zero. "Facility" means the sterling and dollar letter of credit facility granted to the Account Party in this Agreement. "Facility Office" means, in relation to the Agent, the office identified with its signature below or such other office as it may select by notice and, in relation to any Bank, 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. "Finance Documents" means this Agreement, any Security Document entered into pursuant to sub-clause 17.1.2 of Clause 17.1 (Letter of Credit Commission) and any other document or documents as may be agreed by the Agent and the Account Party. "Finance Parties" means the Agent, the Security Trustee, the Arranger, the Co-Arrangers and the Banks. "Funds at Lloyd's" has the meaning given to it in paragraph 4 of the Membership Bylaw (No. 17 of 1993). "Funds at Lloyd's Requirements" means, in respect of any member, the amount required to be maintained by that member as Funds at Lloyd's. "Funds Date" means the date notified by Lloyd's each year as being the latest date in that year by which Funds at Lloyd's can be placed with Lloyd's in order to satisfy Funds at Lloyd's Requirements in respect of the immediately succeeding calendar year being, in respect of the 1999 calendar year, 26 November 1999 or such other date as may be advised by Lloyd's. "Group" means the Account Party and its Subsidiaries for the time being. "Hedge Agreements" means interest rate swap, cap or collar agreements, interest rate future or option contracts, currency swap agreements, currency future or option contracts and other hedging agreements. "Internal Revenue Code" means the Internal Revenue Code of 1986 of the United States of America, as amended, or any successor statute, and includes regulation promulgated and rulings issued thereunder. "Investment" in any Person means any loan or advance to such Person, any purchase or other acquisition of any Equity Interests or Debt or the assets comprising a division or business unit or a substantial part or all of the business of such Person, and capital contribution to such Person or any other direct or indirect investment in such Person, including, without limitation, any acquisition by way of a merger or consolidation and any arrangement pursuant to which the investor incurs Debt of the types referred to in clause (h) or (i) of the definition of "Debt" in respect of such Person; provided, however, that any purchase by any US Facility Agreement Loan Party or any Subsidiary of any catastrophe-linked instruments which are (x) issued for the purpose of transferring traditional reinsurance risk to the capital markets and (y) purchased by such US Facility Agreement Loan Party or any Subsidiary in accordance with its customary reinsurance underwriting procedures, or the entry by any US Facility Agreement Loan Party or any Subsidiary into swap transactions relating to such instruments in accordance with such procedures, shall be deemed to be the entry by such Person into a reinsurance contract and shall not be deemed to be an Investment by such Person. "L/C Commission Rate" means the rate per annum determined in accordance with Clause 17.1 (Letter of Credit Commission) or Schedule 9 (Pricing Schedule), as the case may be. "L/C Proportion" means, in relation to a Bank in respect of any Letter of Credit and save as otherwise provided herein, the proportion (expressed as a percentage) borne by such Bank's Available Commitment to the Available Facility immediately prior to the issue of such Letter of Credit. "L/C Valuation Date" means the first Business Day which falls six months after the date hereof and each day falling at six monthly intervals thereafter. "Letter of Credit" means a letter of credit issued or to be issued pursuant to Clause 3 (Utilisation of the Facility) substantially in the form set out in Schedule 6 (Form of Letter of Credit) or in such other form requested by the Account Party which is approved by the Banks (such approval not to be unreasonably withheld or delayed). "Letter of Credit Commission" means the letter of credit commission described in Clause 17.1 (Letter of Credit Commission). "LIBOR" means, in relation to any Unpaid Sum on which interest for a given period is to accrue, the percentage rate per annum equal to the offered quotation which appears on the page of the Telerate Screen which displays an average British Bankers Association Interest Settlement Rate for the currency of the relevant amount (being currently "3740" or, as the case may be, "3750") for such period as of 11.00 a.m. on the Quotation Date for such period or, if such page or such service shall cease to be available, such other page or such other service for the purpose of displaying an average British Bankers Association Interest Settlement Rate for such currency as the Agent, after consultation with the Banks and the Account Party, shall select, acting reasonably. "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind, or any other type of preferential arrangement that has the practical effect of creating a security interest, in respect of such asset. For the purposes of this Agreement, the Account Party 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 lease 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. "Mandatorily Convertible Preferred Securities" means units comprised of Preferred Securities and a contract for the sale of ordinary shares of the Account Party (including "Feline PridesTM" or any substantially similar securities). "Mandatory Liquid Asset Costs Rate" in relation to any Unpaid Sum shall bear the meaning given to it in Schedule 7 (Mandatory Liquid Asset Costs Rate). "Majority Banks" means, save as otherwise provided herein: (a) whilst there are no Outstandings, a Bank or Banks whose Commitments amount (or, if each Bank's Commitment has been reduced to zero, did immediately before such reduction to zero, amount) in aggregate to sixty-six and two thirds per cent. or more (or for the purposes of Clause 16.18 (Acceleration and Cancellation) to more than fifty per cent.) of the Total Commitments; and (b) whilst there are Outstandings a Bank or Banks to whom in aggregate more than sixty-six and two thirds per cent. (or for the purposes of Clause 16.18 (Acceleration and Cancellation) more than fifty per cent.) of the Outstandings is owed, provided that, in respect of a Letter of Credit issued by a Declining Bank pursuant to sub-clause 5.7.2 of Clause 5.7 (Replacement Letters of Credit), an amount equal to the amount of its Outstandings in respect thereof multiplied by the Reduction Percentage applicable at that time shall be excluded in determining the amount of Outstandings owed to such Bank for the purposes of this definition only. "Material Debt" means Debt of the Account Party and/or one or more of its Subsidiaries, arising in one or more related or unrelated transactions, in an aggregate principal or face amount exceeding US$25,000,000. "Material Financial Obligations" means a principal amount of Debt and/or current payment obligations in respect of Derivatives Obligations of the Account Party and/or one or more of its Subsidiaries, arising in one or more related or unrelated transactions, exceeding in the aggregate US$25,000,000. "Material Subsidiary" means any Subsidiary having (i) assets (after inter company eliminations) in excess of 10 per cent. of the total assets of the Account Party and its Subsidiaries determined on a consolidated basis, or (ii) annual net income constituting 10 per cent. or more of the total annual net income of the Account Party and its Subsidiaries on a consolidated basis, in each case determined as of the end of the most recently ended fiscal year and in any event ACE UK Limited and Tempest Reinsurance Company Limited shall be construed as Material Subsidiaries. "Net Cash Proceeds" means, with respect to any sale, lease, transfer or other disposition of any asset or the incurrence or issuance of any Debt or the sale or issuance of any Equity Interests or Preferred Securities by any Person, the aggregate amount of cash received from time to time (whether as initial consideration or through payment or disposition of deferred consideration) by or on behalf of such Person in connection with such transaction after deducting therefrom only (without duplication) (a) reasonable and customary brokerage commissions, underwriting fees and discounts, legal fees, finder's fees and other similar fees and commissions, (b) the amount of taxes payable in connection with or as a result of such transaction and (c) the amount of any Debt secured by a Lien on such asset that, by the terms of the agreement or instrument governing such Debt, is required to be repaid upon such disposition, in each case to the extent, but only to the extent, that the amounts so deducted are, at the time of receipt of such cash, actually paid to a Person that is not an Affiliate of such Person or any US Facility Agreement Loan Party or any Affiliate of any US Facility Agreement Loan Party and are properly attributable to such transaction or to the asset that is the subject thereof; provided however, that in the case of taxes that are deductible under clause (b) above but for the fact that, at the time of receipt of such case, such taxes have not been actually paid or are not then payable, such US Facility Agreement Loan Party or such Subsidiary may deduct an amount (the "Reserved Amount") equal to the amount reserved in accordance with generally accepted accounting principles for such US Facility Agreement Loan Party's or such Subsidiary's reasonable estimate of such taxes, other than taxes for which such US Facility Agreement Loan Party or such Subsidiary is indemnified; provided further that, at the time such taxes are paid, an amount equal to the amount, if any, by which the Reserved Amount for such taxes exceeds the amount of such taxes actually paid shall constitute "Net Cash Proceeds" of the type for which such taxes were reserved for all purposes hereunder; provided further that, prior to the date on which the Public Debt Rating of the Account Party falls to BBB/Baa2 or below, Net Cash Proceeds from the sale, lease, transfer or other disposition of any asset or Equity Interests shall not include any amount of cash proceeds received in connection with such transaction to the extent such cash proceeds are reinvested in the same or related line of business as the business of the Account Party. "Notice of Charge" means the notice of charge of Charged Portfolio to be delivered by the Account Party to the Custodian pursuant to the terms of the Charge Agreement. "Obligors" means the Account Party and the Guarantor. "Outstandings" means, at any time the aggregate of the Sterling Amounts of the maximum actual and contingent liabilities of the Banks in respect of each outstanding Letter of Credit. "Original Sterling Amount" means: (a) in relation to a Letter of Credit denominated in sterling, the amount specified as the amount of the Letter of Credit in the Utilisation Request relating thereto; and (b) in relation to a Letter of Credit denominated in dollars, the amount of sterling which could be purchased with the dollar amount of such Letter of Credit at the spot rate of exchange quoted by the Agent at or about 11.00 am London time on the day falling three Business Days before the Utilisation Date for the purchase of sterling with dollars for delivery two business days thereafter. "Permitted Liens" means such of the following as to which no enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced or which are being contested in good faith by appropriate proceedings: (a) Liens for taxes, assessments and governmental charges or levies not yet due and payable; (b) Liens imposed by law, such as materialsmen's, mechanics', carriers', workmen's and repairmen's Liens and other similar Liens arising in the ordinary course of business securing obligations that are not overdue for a period of more than 90 days; (c) pledges or deposits to secure obligations under workers' compensation laws or similar legislation or to secure public or statutory obligations; and (d) easements, rights of way and other encumbrances on title to real property that do not render title to the property encumbered thereby unmarketable or materially adversely affect the use of such property for its present purposes. "Person" means an individual, a company, a corporation, a partnership, an association, a trust or any other entity or organisation, including a government or political subdivision or an agency or instrumentality thereof. "Potential Event of Default" means any event which would reasonably be expected to become (with the passage of time, the giving of notice, the making of any determination hereunder or any combination thereof) an Event of Default. "Preferred Interests" means, with respect to any Person, Equity Interests issued by such Person that are entitled to a preference or priority over any other Equity Interests issued by such Person upon any distribution of such Person's property and assets, whether by dividend or upon liquidation. "Preferred Securities" means (i) preferred securities issued by the Special Purpose Trust which shall provide, among other things, that dividends shall be payable only out of proceeds of interest payments on the Debentures, or (ii) other instruments that may be treated in whole or in part as equity for rating agency purposes while being treated as debt for tax purposes. "Principal Private Residence" has the meaning given to it in Schedule 6 (Form of Letter of Credit). "Proportion" means, in relation to a Bank the proportion borne by its Commitment to the Total Commitments (or, if the Total Commitments are then zero, by its Commitment to the Total Commitments immediately prior to their reduction to zero). "Public Debt Rating" means, as of any date, the lower rating that has been most recently announced by either Standard & Poor's Rating Services (a division of the McGraw Hill Companies, Inc.) or Moody's Investor Services Inc., as the case may be, for any class of non-credit enhanced long-term senior unsecured debt issued by the Account Party. "Qualifying Bank" means an institution which is a bank as defined for the purposes of Section 349 of the Income and Corporation Taxes Act 1988 and such bank is within the charge to United Kingdom corporation tax as respects to interest which is (or which, if it were a Bank, would be) payable to it hereunder. "Quotation Date" means, in relation to any period for which an interest rate is to be determined hereunder, the day on which quotations would ordinarily be given by prime banks in the London Interbank Market for deposits in the currency in relation to which such rate is to be determined for delivery on the first day of that period, provided that, if, for any such period, quotations would ordinarily be given on more than one date, the Quotation Date for that period shall be the last of those dates. "Redeemable" means, with respect to any Equity Interest, any Debt or any other right or obligation, any such Equity Interest, Debt, right or obligation that (a) the issuer has undertaken to redeem at a fixed or determinable date or dates, whether by operation of a sinking fund or otherwise, or upon the occurrence of a condition not solely within the control of the issuer or (b) is redeemable at the option of the holder. "Reduction Percentage" means 20 per cent. x (5 - a); where "a" equals the remaining number of years (and for such purposes any incomplete year shall be treated as one year) for which the relevant Letter of Credit is currently valid. "Representations" means each of the representations set out in Clause 14 (Representations). "Required Value" has the meaning ascribed to it in the Charge Agreement. "Security" means any security granted over the Charged Portfolio by the Account Party in favour of the Security Trustee pursuant to the Charge Agreement. "Security Documents" means the Charge Agreement, the Custodian's Undertaking and the Notice of Charge. "Special Purpose Trust" means a special purpose business trust established by the Account Party or ACE INA of which the Account Party or ACE INA will hold all the common securities, which will be the issuer of the Preferred Securities, and which will loan to the Account Party or ACE INA (such loan being evidenced by the Debentures) the net proceeds of the issuance and sale of the Preferred Securities. "Spot Rate" means the spot rate of exchange quoted by the Agent at or about 11.00 am London time on the day on which the relevant calculation is to be made for the purchase of sterling with dollars or any other relevant currency for delivery two business days thereafter. "Sterling Amount" means: (a) in relation to a Letter of Credit at any time: (i) if such Letter of Credit is denominated in sterling, the maximum actual and contingent liability of the Banks thereunder or in respect thereof at such time; and (ii) if such Letter of Credit is denominated in dollars, the equivalent in sterling of the maximum actual and contingent liability of the Banks thereunder at such time, calculated as at the later of the date which falls (1) two Business Days before its Utilisation Date or (2) the most recent L/C Valuation Date; and (b) in relation to the Outstandings, the aggregate of the Sterling Amounts of each outstanding Letter of Credit. "Subsidiary" means, as to any Person, any corporation or other entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are at the time directly or indirectly owned by such Person; unless otherwise specified, "Subsidiary" means a Subsidiary of the Account Party. "Term" means, save as otherwise provided herein: (a) in relation to any Letter of Credit, the period from its Effective Date until its Expiry Date; and (b) in relation to an Unpaid Sum, any of those periods mentioned in Clause 19 (Default Interest and Break Costs). "Termination Date" means 31 December 2004. "Total Capitalisation" means, at any time, an amount (without duplication) equal to (i) the then outstanding Consolidated Debt of the Account Party and its Subsidiaries plus (ii) stockholders' equity of the Account Party and its Subsidiaries consolidated in accordance with generally accepted accounting principles plus (iii) the then issued and outstanding amount of Preferred Securities and (without duplication) Debentures. "Total Commitments" means, at any time, the aggregate of the Banks' Commitments. "Transfer Certificate" means a certificate substantially in the form set out in Schedule 2 (Form of Transfer Certificate) signed by a Bank and a Transferee under which: (a) such Bank seeks to procure the transfer to such Transferee of all or a part of such Bank's rights, benefits and obligations under the Finance Documents upon and subject to the terms and conditions set out in Clause 26.3 (Assignments and Transfers by Banks); and (b) such Transferee undertakes to perform the obligations it will assume as a result of delivery of such certificate to the Agent as contemplated in Clause 26.5 (Transfers by Banks). "Transfer Date" means, in relation to any Transfer Certificate, the date for the making of the transfer as specified in such Transfer Certificate. "Transferee" means a person to which a Bank seeks to transfer by novation all or part of such Bank's rights, benefits and obligations under the Finance Documents. "Unpaid Sum" means the unpaid balance of any of the sums referred to in Clause 19.1 (Default Interest). "US Facility Agreement Loan Parties" means, at any time, any or all of the Account Party, ACE INA, ACE Bermuda Insurance Ltd. and Tempest Reinsurance Company Limited. "Utilisation Date" means the date on which a Letter of Credit is to be issued. "Utilisation Request" means a notice substantially in the form set out in Schedule 4 (Form of Utilisation Request). "Voting Interests" means shares of capital stock issued by a corporation, or equivalent Equity Interest in any other Person, the holders of which are ordinarily, in the absence of contingencies, entitled to vote for the election of directors (or persons performing similar functions) of such Person, even if the right so to vote has been suspended by the happening of such a contingency. "Wholly-Owned Consolidated Subsidiary" means any Consolidated Subsidiary all of the shares of capital stock or other ownership interests of which (except directors' qualifying shares) are at the time directly or indirectly owned by the Account Party. 1.2 Interpretation Any reference in this Agreement to: the "Agent", "Security Trustee" or any "Bank" shall be construed so as to include its and any subsequent successors and permitted transferees in accordance with their respective interests; "continuing", in the context of an Event of Default shall be construed as a reference to an Event of Default which has not been remedied or waived in accordance with the terms hereof and in relation to a Potential Event of Default, one which has not been remedied within the relevant grace period or waived in accordance with the terms hereof. the "euro" means the single currency of participating member states of the European Union; a "holding company" of a company or corporation shall be construed as a reference to any company or corporation of which the first-mentioned company or corporation is a subsidiary; 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; a "member" shall be construed (as the context may require) as a reference to an underwriting member of Lloyd's; a "month" is a reference to a period starting on one day in a calendar month and ending on the numerically corresponding day in the next succeeding calendar month save that, where any such period would otherwise end on a day which is not a Business Day, it shall end on the next succeeding Business Day, unless that day falls in the calendar month succeeding that in which it would otherwise have ended, in which case it shall end on the immediately preceding Business Day, provided that, if a period starts on the last Business Day in a calendar month or if there is no numerically corresponding day in the month in which that period ends, that period shall end on the last Business Day in that later month (and references to "months" shall be construed accordingly); a Bank's "participation", in relation to a Letter of Credit, shall be construed as a reference to the rights and obligations of such Bank in relation to such Letter of Credit as are expressly set out in this Agreement; 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; "tax" shall be construed so as to include any tax, levy, impost, duty or other charge 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); "VAT" shall be construed as a reference to value added tax including any similar tax which may be imposed in place thereof from time to time; and the "winding-up", "dissolution" or "administration" of a company or corporation shall be construed so as to include any equivalent or analogous proceedings under the law of the jurisdiction in which such company or corporation is incorporated or any jurisdiction in which such company or corporation carries on business including the seeking of liquidation, winding-up, reorganisation, dissolution, administration, arrangement, adjustment, protection or relief of debtors. 1.3 Currency Symbols 1.3.1 "(Pounds)" and "sterling" denote lawful currency of the United Kingdom for the time being. 1.3.2 "US$" and "dollars" denote lawful currency of the United States of America for the time being. 1.4 Agreements and Statutes Any reference in this Agreement to: 1.4.1 this Agreement or any other agreement or document shall be construed as a reference to this Agreement or, as the case may be, such other agreement or document as the same may have been, or may from time to time be, amended, varied, novated or supplemented; 1.4.2 a statute or treaty shall be construed as a reference to such statute or treaty as the same may have been, or may from time to time be, amended or, in the case of a statute, re-enacted; and 1.4.3 a bylaw shall be construed as a reference to a bylaw made under Lloyd's Acts 1871 to 1982 as the same may have been, or may from time to time be, amended or replaced. 1.5 Headings Clause and Schedule headings are for ease of reference only. 1.6 Time Any reference in this Agreement to a time of day shall, unless a contrary indication appears, be a reference to London time. 1.7 Accounting Terms and Determinations Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all accounting determinations hereunder shall be made, and all financial statements required to be delivered hereunder shall be prepared in accordance with generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes concurred in by the Account Party's independent public accountants) with the most recent audited consolidated financial statements of the Account Party and its Consolidated Subsidiaries delivered to the Banks; provided that, if the Account Party notifies the Agent that the Account Party wishes to amend any covenant in Clause 15 (Covenants) to eliminate the effect of any change in generally accepted accounting principles on the operation of such covenant (or if the Agent notifies the Account Party that the Majority Banks wish to amend Clause 15 (Covenants) for such purpose), then the Account Party's compliance with such covenant shall be determined on the basis of generally accepted accounting principles in effect immediately before the relevant change in generally accepted account principals became effective, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Account Party and the Majority Banks. 2. THE FACILITY 2.1 Grant of the Facility The Banks, upon the terms and subject to the conditions hereof, grant to the Account Party a dual currency letter of credit facility in an aggregate amount of (Pounds)290,000,000. 2.2 Purpose and Application The Facility is intended to support Funds at Lloyd's, and, accordingly, the Account Party shall apply all Letters of Credit issued hereunder in or towards satisfaction of such purpose and none of the Finance Parties shall be obliged to concern themselves with such application. 2.3 Conditions Precedent Save as the Banks may otherwise agree, the Account Party may not deliver any Utilisation Request unless the Agent has confirmed to the Account Party and the Banks that it has received all of the documents and other evidence listed in Schedule 3 (Conditions Precedent) and that each is, in form and substance, satisfactory to the Agent. 2.4 Several Obligations The obligations of each Bank are several and the failure by a Bank to perform its obligations hereunder and/or under any Letter of Credit issued hereunder shall not affect the obligations of either Obligor towards any other party hereto nor shall any other party be liable for the failure by such Bank to perform its obligations hereunder and/or under such Letter of Credit. 2.5 Several Rights The rights of each Finance Party are several and any debt arising hereunder at any time from an Obligor to any Finance Party shall be a separate and independent debt. Each such party shall be entitled to protect and enforce its individual rights arising out of this Agreement independently of any other party (so that it shall not be necessary for any party hereto to be joined as an additional party in any proceedings for this purpose). 2.6 Cancellation of Existing Facilities On and with effect from the Effective Date, the Existing Facilities shall be irrevocably cancelled and all outstanding letters of credit thereunder shall be replaced by the Letters of Credit issued hereunder. 3. UTILISATION OF THE FACILITY 3.1 Utilisation Conditions for the Facility Save as otherwise provided herein, a Letter of Credit will be issued at the request of the Account Party on behalf of an Applicant if: 3.1.1 no later than 10.00 a.m. two Business Days before the proposed Utilisation Date, the Agent has received a duly completed Utilisation Request from the Account Party; 3.1.2 the proposed Utilisation Date is a Business Day falling within the Availability Period; 3.1.3 the proposed Original Sterling Amount of such Letter of Credit is less than or equal to the Available Facility; 3.1.4 the proposed Term of the Letter of Credit is a period ending on or before the Termination Date; 3.1.5 the Letter of Credit is substantially in the form set out in Schedule 6 (Form of Letter of Credit) or in such other form requested by the Account Party which is approved by the Banks (such approval not to be unreasonably withheld or delayed); 3.1.6 the beneficiary of such Letter of Credit is Lloyd's; 3.1.7 on and as of the proposed Utilisation Date (a) no Event of Default or Potential Event of Default has occurred and is continuing and (b) the Representations are true in all material respects; and 3.1.8 (if the Charge Agreement is required to be executed and delivered by the Account Party pursuant to sub-clause 17.1.2 of Clause 17.1 (Letter of Credit Commission)), the Agent has received evidence acceptable to it that the Charged Portfolio has been delivered to the Custodian and the amount of the Charged Portfolio is at least equal to the Required Value. 3.2 Request for Letters of Credit The Account Party may request the issue by the Banks hereunder of one Letter of Credit only in respect of each Applicant (with the exception of ACE Capital V Limited in respect of whom two Letters of Credit may be issued). A single Utilisation Request may be issued in respect of more than one Letter of Credit. 3.3 Completion of Letters of Credit The Agent is authorised to arrange for the issue of any Letter of Credit pursuant to Clause 3.1 (Utilisation Conditions for the Facility) by: 3.3.1 completing the Effective Date and the proposed Expiry Date of such Letter of Credit; 3.3.2 completing the schedule to such Letter of Credit with the percentage participation of each Bank as allocated pursuant to the terms hereof; 3.3.3 executing such Letter of Credit on behalf of each Bank and following such execution delivering such Letter of Credit to Lloyd's on the Utilisation Date; and 3.3.4 executing and delivering a "principal private residence letter" in respect of each such Letter of Credit substantially in the form set out in Appendix 3 to Schedule 6 (Form of Letter of Credit). provided that the Agent shall not deliver any such Letter of Credit to Lloyd's unless the Agent is satisfied that (a) Lloyd's has cancelled (or will contemporaneously with such delivery cancel) the letters of credit issued under the Existing Facilities, and (b) that all amounts outstanding under the Existing Facilities have been paid in full. 3.4 Dollar Option The Account Party may, in a Utilisation Request, request that such Letter of Credit be denominated in dollars in which event such Letter of Credit shall be denominated in dollars. 3.5 Amounts of Letters of Credit The amount of a Letter of Credit shall be: 3.5.1 the Original Sterling Amount of such Letter of Credit, if such Letter of Credit is to be denominated in sterling; and 3.5.2 if such Letter of Credit is to be denominated in dollars, the amount specified in the Utilisation Request relating thereto. 3.6 Each Bank's Participation in Letters of Credit Save as otherwise provided herein, each Bank will participate in each Letter of Credit issued pursuant to this Clause 3 in the proportion borne by its Available Commitment to the Available Facility immediately prior to the issue of such Letter of Credit. 3.7 Cancellation of Commitments On the expiry of the Availability Period the Available Facility and each Bank's Available Commitment shall be reduced to zero. 4. EXTENSION OF LETTERS OF CREDIT 4.1 Bank Notification Each Bank acknowledges that the Account Party may request one or more extensions of a Letter of Credit hereunder, and that pursuant to the terms thereof each Letter of Credit shall be extended automatically for a further year each year unless Lloyd's receives notice to the contrary. Accordingly, each Bank undertakes to notify the Agent in writing as soon as reasonably practicable after it has determined that it will not agree to a requested extension, and in any event by no later than close of business on the date which falls ten weeks prior to the first date which Lloyd's notifies as being the Funds Date of such year and the Agent shall give notice thereof to the Account Party within two Business Days of notification from such Bank. Unless notice is given to the Agent as aforesaid each Bank will be deemed automatically to have agreed to such extension. 4.2 Request for Extension If the Account Party wishes to request the extension of a Letter of Credit, the Account Party shall give the Agent notice, by way of a Letter of Credit extension request in the form of Schedule 5 (Form of Extension Request) by the date which falls thirteen weeks prior to the Funds Date of such year, specifying that the Expiry Date of the applicable Letter of Credit is to be extended to 31 December of the year immediately succeeding the year in which the then current Expiry Date falls (such notice being a "Notice of Extension"). A single Notice of Extension may be delivered in respect of more than one Letter of Credit. 4.3 Non-Delivery of Notice of Extension If the Account Party does not deliver a Notice of Extension in accordance with the provisions of Clause 4.2 (Request for Extension), the Agent shall: 4.3.1 as soon as reasonably practicable after the date which falls ten weeks prior to the Funds Date of such year, notify the Account Party and then notify the Banks thereof; and 4.3.2 as soon as reasonably practicable after the date which falls ten weeks prior to the Funds Date of such year and in any event by no later than close of business on the Business Day immediately preceding the Funds Date of such year, notify Lloyd's that the Term of the relevant Letter of Credit will not be extended beyond its then current Expiry Date. 4.4 Notification to Banks Upon receipt of a Notice of Extension, the Agent shall promptly notify each Bank of the contents thereof and of the amount of such Bank's participation in the applicable Letter of Credit, together with notice of the applicable Funds Date for such year. 4.5 Extension of a Letter of Credit 4.5.1 If all of the Banks agree (or are deemed to have agreed) to the extension of the Letter of Credit in accordance with Clause 4.1 (Bank Notification) the Agent shall notify the Account Party and the Banks thereof and subject to the provisions of Clause 4.8 (Extension Conditions Precedent), the Letter of Credit shall be automatically extended in accordance with the terms thereof. 4.5.2 If a Bank gives notice in accordance with the provisions of Clause 4.1 (Bank Notification) that it does not agree to a requested extension of any Letter of Credit the Agent shall notify the Account Party and Lloyd's accordingly within two Business Days thereafter, and the succeeding provisions of this Clause 4 shall apply. 4.6 Substitute Bank 4.6.1 If any Bank (a "Declining Bank") gives notice in accordance with the provisions of Clause 4.1 (Bank Notification) that it does not agree to a requested extension, then the Account Party may designate by the date which falls four weeks prior to the Funds Date of such year an Approved Credit Institution (the "Substitute Bank") which is willing to assume all of the rights and obligations of the Declining Bank in respect of its participation in the relevant Letter of Credit (the "Old Letter of Credit"). 4.6.2 If the Account Party has found a Substitute Bank it shall promptly notify the Agent and the Declining Bank thereof and shall procure the release by Lloyd's of the Old Letter of Credit from the Funds at Lloyd's of the relevant Applicant. 4.6.3 The Declining Bank shall as soon as reasonably practicable and in any event no later than the date which falls two weeks prior to the Funds Date of such year transfer its rights and obligations hereunder to the Substitute Bank in accordance with the provisions of Clause 26.5 (Transfers by Banks). 4.6.4 The Substitute Bank shall pay to the Declining Bank all amounts then due and owing (and all fees accrued to but excluding the date of such transfer) to the Declining Bank in respect of its participation in the Old Letter of Credit. 4.7 Replacement Letters of Credit 4.7.1 If a Substitute Bank has become party hereto pursuant to Clause 4.6 (Substitute Bank), then subject to the provisions of Clause 4.8 (Extension Conditions Precedent) the Banks who have confirmed their agreement to the extension of the Old Letter of Credit (the "Extending Banks") shall, together with the Substitute Bank, participate in, and issue by the Funds Date of such year, a new Letter of Credit (the "New Letter of Credit") which shall (i) replace the Old Letter of Credit, (ii) be in an amount equal to the Old Letter of Credit and (iii) have an Expiry Date which corresponds with the Expiry Date requested in the Notice of Extension. 4.7.2 If a Substitute Bank has not been found then: (a) the Account Party shall procure the release by Lloyd's of the Old Letter of Credit from the Funds at Lloyd's of the relevant Applicant, (b) subject to the provisions of Clause 4.8 (Extension Conditions Precedent), the Extending Banks shall participate in, and issue by the Funds Date of such year, a new Letter of Credit (the "Reduced Letter of Credit") which shall (1) replace their participation in the Old Letter of Credit, (2) be in an amount equal to the Old Letter of Credit less the amount of the Declining Bank's participation and (3) have an Expiry Date which corresponds with the Expiry Date requested in the Notice of Extension; and (c) the Declining Bank shall participate in a separate Letter of Credit (a "Bilateral Letter of Credit") which shall (1) replace its participation in the Old Letter of Credit, (2) be in an amount equal to the Declining Bank's participation in the Old Letter of Credit and (3) have an Expiry Date which is the same as the Expiry Date specified in the Old Letter of Credit (as the same may have been extended from time to time with the consent of the Declining Bank). 4.8 Extension Conditions Precedent 4.8.1 On or prior to close of business on the Funds Date immediately following the delivery of any Notice of Extension, the Account Party shall promptly notify the Agent if: (a) an Event of Default or Potential Event of Default occurs which is continuing; (b) any of the representations and warranties of the Account Party contained in this Agreement or in the Charge Agreement cease to be correct in all material respects, or become misleading in any material respect; or (c) the Letter of Credit which is the subject of such Notice of Extension ceases solely to be used to support the relevant Applicant's underwriting business at Lloyd's which has been provided in accordance with the requirements of Lloyd's applicable to it. 4.8.2 Subject to due notification to Lloyd's in accordance with the provisions of the relevant Letter of Credit, the Banks shall not be obliged to agree to any extension requested if the Account Party fails to comply with its obligations under Clause 4 (Extension of Letters of Credit) or if any of the events specified in sub-clause 4.8.1 above occurs. 4.9 Cancellation of Bilateral Letters of Credit At any time after the issue of a Bilateral Letter of Credit by a Declining Bank the Account Party may give the Agent and the Declining Bank not less than fourteen days' prior written notice of its intention to procure that the liability of the Declining Bank under such Letter of Credit is reduced to zero (whereupon it shall do so). 4.10 Mandatory Collateralisation If a Letter of Credit is automatically extended in accordance with the terms thereof and, on or prior to the time of such extension the Company had failed to comply with its obligations under Clause 4 (Extension of Letters of Credit) or any of the events specified in sub-clause 4.8.1 thereof had occurred, the Agent may (and if so instructed by the Majority Banks participating in such Letter of Credit shall) require the Account Party to procure that the liabilities of each of the Banks under such Letter of Credit are reduced to zero and/or provide Cash Collateral for each Bank's L/C Proportion under such Letter of Credit. 4.11 Revised Letters of Credit In the event that the Funds at Lloyd's Requirements of an Applicant change at or around the time of any given Funds Date in terms of amount and/or the identity of the Applicant, subject to the approval of Lloyd's and subject to each Bank's Outstandings under the Letters of Credit issued hereunder not being increased other than in accordance with Clause 5 (Increase of the Facility), the Banks shall co-operate with the Account Party to ensure to the extent reasonably possible that the Letters of Credit provide for the revised Funds at Lloyd's Requirements of the Applicants. 5. Increase of the Facility 5.1 Request for Increase In the event that the Funds at Lloyd's Requirements of an Applicant increases at or around the time of any given Funds Date and as a result of such increase the aggregate amount of the Funds at Lloyd's Requirements of the Applicants on such Funds Date would exceed the aggregate amount of the Banks' Outstandings under the Letters of Credit, the Account Party shall be entitled to request an increase of the amount of the Letter of Credit of such Applicant by giving notice to the Agent no later than thirteen weeks prior to the Funds Date of such year (the "Increase Request"). The Increase Request shall be made in writing and shall be unconditional and irrevocable and shall specify: 5.1.1 which Letters of Credit and Applicants the Increase Request relates to; 5.1.2 the additional amount of commitments required by the Account Party from the Banks; and 5.1.3 any other information relevant to the Increase Request. 5.2 Notification of Increase Request The Agent shall forward a copy of the Increase Request to the Banks as soon as practicable, and in any event no later than two Business Days after receipt thereof together with notification of the amount of such Banks' pro rata participation in any such increased Letter of Credit. 5.3 Response to Increase Request If a Bank, in its sole discretion, agrees to the increase requested by the Account Party pursuant to the Increase Request, it shall give notice to the Agent (a "Notice of Increase") accordingly not less than ten weeks prior to the Increase Date. If a Bank does not give such Notice of Increase by such date, then such Bank shall be deemed to have refused such increase. Nothing shall oblige a Bank to agree to the Increase Request. 5.4 Notification of Response to Increase Request The Agent shall notify the Account Party in writing of each Bank's decision in relation to the Increase Request (specifying which Banks have given a Notice of Increase, which Banks have actually refused the Increase Request and which Banks are deemed to have refused the Increase Request) no less than eight weeks prior to the Increase Date. 5.5 Increase 5.5.1 If one or more of the Banks does not give a Notice of Increase (hereinafter referred to as "Refusing Banks"), then the Refusing Banks shall not participate in any increase pursuant to the Increase Request but shall continue to participate in the Letters of Credit to the extent of their existing participation. 5.5.2 If one or more Banks agree to the Increase Request such Banks' participation in the relevant Letter(s) of Credit shall, subject to satisfaction of any conditions precedent which may be specified in connection therewith, be increased in accordance with the terms of the Increase Request. 5.5.3 The Account Party shall co-operate with the Agent, the Banks and Lloyd's with respect to the replacement of any Letters of Credit required as a result of an Increase Request and all parties shall agree on any necessary replacement Letters of Credit in the context of any replacement Letters of Credit required in accordance with Clause 4.7 (Replacement Letters of Credit). 5.5.4 The Facility, save as amended pursuant to the Increase Request, shall continue to operate in accordance with its terms. 6. NOTIFICATION 6.1 Letters of Credit On or before each Utilisation Date the Agent shall notify each Bank of the Letter of Credit that is to be issued by the Agent on behalf of the Banks, the name of the Applicant in respect of whom the Letter of Credit is being issued, the proposed length of the relevant Term and the aggregate principal amount of the relevant Letter of Credit allocated to such Bank pursuant to this Agreement. 6.2 Demands under Letters of Credit If a demand is made by Lloyd's under a Letter of Credit the Agent shall promptly make demand upon the Account Party in accordance with this Agreement and notify the Banks. 7. THE ACCOUNT PARTY'S LIABILITIES IN RELATION TO LETTERS OF CREDIT 7.1 The Account Party's Indemnity to Banks The Account Party shall irrevocably and unconditionally as a primary obligation indemnify (on demand by the Agent) each Bank against: 7.1.1 any sum paid or due and payable by such Bank in accordance with the terms of any Letter of Credit requested by the Account Party; and 7.1.2 all liabilities, costs (including, without limitation, any costs incurred in funding any amount which falls due from such Bank in connection with such Letter of Credit), claims, losses and expenses which such Bank may at any time properly incur or sustain in connection with any Letter of Credit. 7.2 Preservation of Rights Neither the obligations of the Account Party set out in this Clause 7 nor the rights, powers and remedies conferred on any Bank by this Agreement or by law shall be discharged, impaired or otherwise affected by: 7.2.1 the winding-up, dissolution, administration or re-organisation of any Bank or any other person or any change in its status, function, control or ownership; 7.2.2 any of the obligations of any Bank or any other person hereunder or under any Letter of Credit or under any other security taken in respect of the Account Party's obligations hereunder or otherwise in connection with any Letter of Credit being or becoming illegal, invalid, unenforceable or ineffective in any respect; 7.2.3 time or other indulgence being granted or agreed to be granted to any Bank or any other person in respect of its obligations hereunder or under or in connection with any Letter of Credit or under any such other security; 7.2.4 any amendment to, or any variation, waiver or release of, any obligation of any Bank or any other person under any Letter of Credit or this Agreement; or 7.2.5 any other act, event or omission which, but for this Clause 7, might operate to discharge, impair or otherwise affect any of the obligations of the Account Party set out in this Clause 7 or any of the rights, powers or remedies conferred upon any Bank by this Agreement or by law. The obligations of the Account Party set out in this Clause 7 shall be in addition to and independent of every other security which any Bank may at any time hold in respect of the Account Party's obligations hereunder. 7.3 Settlement Conditional Any settlement or discharge between the Account Party and a Bank shall be conditional upon no security or payment to such Bank by the Account Party or any other person on behalf of the Account Party, 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, such Bank shall be entitled to recover the value or amount of such security or payment from the Account Party subsequently as if such settlement or discharge had not occurred. 7.4 Right to make Payments under Letters of Credit Each Bank 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 Account Party or any other investigation or enquiry. The Account Party irrevocably authorises each Bank to comply with any demand under a Letter of Credit which is valid on its face. 7.5 Revaluation of Outstandings On each L/C Valuation Date, the Agent shall calculate the amount of the Outstandings (having regard to changes in the Sterling Amounts of the Letters of Credit which may arise as a result of currency fluctuations), and the Agent shall notify the Account Party of the amount, if any (the "Excess Amount"), by which the Outstandings exceed 105 per cent. of the aggregate Commitments of the Banks on such date, and the Account Party shall secure such Excess Amount by providing Cash Collateral in an amount not less than the Excess Amount provided that if the Account Party provides Cash Collateral as aforesaid and, on any succeeding L/C Valuation Date the Excess Amount as determined on such date (the "New Excess Amount") is: 7.5.1 less than the amount of the Cash Collateral provided at such time, the Agent shall deliver to the Account Party an amount equal to the difference between the amount of such Cash Collateral and the New Excess Amount; or 7.5.2 greater than the amount of Cash Collateral provided at such time, the Account Party shall deliver to the Agent an amount equal to the amount by which the New Excess Amount exceeds the amount of such Cash Collateral. 8. CANCELLATION AND COLLATERALISATION 8.1 Cancellation/Cash Collateralisation of Letters of Credit The Account Party may give the Agent not less than fourteen days' prior notice of its intention to procure that the liability of each Bank under a Letter of Credit requested by it is reduced to zero (whereupon it shall do so) or provide Cash Collateral for each Bank's L/C Proportion under such Letter of Credit (whereupon it shall do so). 8.2 Notice of Cancellation or Collateralisation Any notice of cancellation or collateralisation given by the Account Party pursuant to this Clause 8 shall be irrevocable, shall specify the date upon which such cancellation or collateralisation is to be made and the amount of such cancellation or collateralisation and shall oblige the Account Party to procure such cancellation or collateralisation on such date. 8.3 Notice of Removal of a Bank If: 8.3.1 any sum payable to any Bank by the Account Party is required to be increased pursuant to Clause 9.1 (Tax Gross-up); or 8.3.2 any Bank claims indemnification from the Account Party under Clause 9.2 (Tax Indemnity) or Clause 11.1 (Increased Costs), the Account Party may, whilst such circumstance continues, give the Agent at least ten Business Days' notice (which notice shall be irrevocable) of its intention to cancel, and/or provide Cash Collateral in respect of the Commitment of such Bank. 8.4 Removal of a Bank On the day the notice referred to in Clause 8.3 (Notice of Removal of a Bank) expires the Account Party shall procure either that such Bank's L/C Proportion of each relevant Letter of Credit be reduced to zero (by reduction of the amount of such Letter of Credit in an amount equal to such Bank's L/C Proportion) or that Cash Collateral be provided in an amount equal to such Bank's L/C Proportion of such Letter of Credit. 8.5 No Further Availability A Bank for whose account a repayment is to be made under Clause 8.3 (Notice of Removal of a Bank) shall not be obliged to participate in the making of any Letter of Credit on or after the date upon which the Agent receives the Account Party's notice of its intention to procure the repayment of such Bank's share of the Outstandings, and such Bank's Available Commitment shall be reduced to zero. 8.6 No Other Repayments or Cancellation The Account Party shall not repay or cancel all or any part of the Outstandings except at the times and in the manner expressly provided for in this Agreement. 9. TAXES 9.1 Tax Gross-up All payments to be made by an Obligor to any Finance Party hereunder shall be made free and clear of and without deduction for or on account of tax unless such Obligor is required to make such a payment subject to the deduction or withholding of tax, in which case the sum payable by such Obligor (in respect of which such deduction or withholding is required to be made) shall be increased to the extent necessary to ensure that such Finance Party receives a sum net of any deduction or withholding equal to the sum which it would have received had no such deduction or withholding been made or required to be made. 9.2 Tax Indemnity Without prejudice to Clause 9.1 (Tax Gross-up), if any Finance Party is required to make any payment of or on account of tax on or in relation to any sum received or receivable hereunder (including any sum deemed for purposes of tax to be received or receivable by such Finance Party whether or not actually received or receivable) or if any liability in respect of any such payment is asserted, imposed, levied or assessed against any Finance Party, the Account Party shall, upon demand of the Agent, promptly indemnify the Finance Party which suffers a loss or liability as a result against such payment or liability, together with any interest, penalties, costs and expenses payable or incurred in connection therewith, provided that this Clause 9.2 shall not apply to: 9.2.1 any tax imposed on and calculated by reference to the net income actually received or receivable by such Finance Party by the jurisdiction in which such Finance Party is incorporated; or 9.2.2 any tax imposed on and calculated by reference to the net income of the Facility Office of such Finance Party actually received or receivable by such Finance Party by the jurisdiction in which its Facility Office is located. 9.3 Banks' Tax Status Confirmation Each Bank confirms in favour of the Agent (on the date hereof or, in the case of a Bank which becomes a party hereto pursuant to a transfer or assignment, on the date on which the relevant transfer or assignment becomes effective) that either: 9.3.1 it is a Qualifying Bank; or 9.3.2 it is not resident for tax purposes in the United Kingdom and is beneficially entitled to its share of the Outstandings and any interest thereon. 9.4 Claims by Banks A Bank intending to make a claim pursuant to Clause 9.2 (Tax Indemnity) shall notify the Agent of the event giving rise to the claim, whereupon the Agent shall notify the Account Party thereof. 10. TAX RECEIPTS 10.1 Notification of Requirement to Deduct Tax If, at any time, an Obligor is required by law to make any deduction or withholding from any sum payable by it hereunder (or if thereafter there is any change in the rates at which or the manner in which such deductions or withholdings are calculated), such Obligor shall promptly, upon becoming aware of the same, notify the Agent. 10.2 Evidence of Payment of Tax If an Obligor makes any payment hereunder in respect of which it is required to make any deduction or withholding, it shall pay the full amount required to be deducted or withheld to the relevant taxation or other authority within the time allowed for such payment under applicable law and shall deliver to the Agent for each Bank, within thirty days after it has made such payment to the applicable authority, an original receipt (or a certified copy thereof) issued by such authority evidencing the payment to such authority of all amounts so required to be deducted or withheld in respect of that Bank's share of such payment. 10.3 Tax Credit Payment If an additional payment is made under Clause 9 (Taxes) by an Obligor for the benefit of any Finance Party and such Finance Party, in its sole discretion, determines that it has obtained (and has derived full use and benefit from) a credit against, a relief or remission for, or repayment of, any tax, then, if and to the extent that such Finance Party, in its sole opinion, determines that: 10.3.1 such credit, relief, remission or repayment is in respect of or calculated with reference to the additional payment made pursuant to Clause 9 (Taxes); and 10.3.2 its tax affairs for its tax year in respect of which such credit, relief, remission or repayment was obtained have been finally settled, such Finance Party shall, to the extent that it can do so without prejudice to the retention of the amount of such credit, relief, remission or repayment, pay to such Obligor such amount as such Finance Party shall, in its sole opinion, determine to be the amount which will leave such Finance Party (after such payment) in no worse after-tax position than it would have been in had the additional payment in question not been required to be made by such Obligor. 10.4 Tax Credit Clawback If any Finance Party makes any payment to an Obligor pursuant to Clause 10.3 (Tax Credit Payment) and such Finance Party subsequently determines, in its sole opinion, that the credit, relief, remission or repayment in respect of which such payment was made was not available or has been withdrawn or that it was unable to use such credit, relief, remission or repayment in full, the Obligor shall reimburse such Finance Party such amount as such Finance Party determines, in its sole opinion, is necessary to place it in the same after-tax position as it would have been in if such credit, relief, remission or repayment had been obtained and fully used and retained by such Finance Party. 10.5 Tax and Other Affairs No provision of this Agreement shall interfere with the right of any Finance Party to arrange its tax or any other affairs in whatever manner it thinks fit, oblige any Finance Party to claim any credit, relief, remission or repayment in respect of any payment under Clause 8.1 (Tax Gross-up) in priority to any other credit, relief, remission or repayment available to it nor oblige any Finance Party to disclose any information relating to its tax or other affairs or any computations in respect thereof. 11. INCREASED COSTS 11.1 Increased Costs If, by reason of (a) any change in law or in its interpretation or administration and/or (b) compliance with any request or requirement relating to the maintenance of capital or any other request from or requirement of any central bank or other fiscal, monetary or other authority (being a request or requirement with which banks are accustomed to comply) and/or (c) the introduction of, changeover to or operation of the euro in any participating member state: 11.1.1 a Bank or any holding company of such Bank is unable to obtain the rate of return on its capital which it would have been able to obtain but for such Bank's entering into or assuming or maintaining a commitment, issuing or performing its obligations under this Agreement or any Letter of Credit; 11.1.2 a Bank or any holding company of such Bank incurs a cost as a result of such Bank's entering into or assuming or maintaining a commitment, issuing or performing its obligations under this Agreement or any Letter of Credit; or 11.1.3 there is any increase in the cost to a Bank or any holding company of such Bank of funding or maintaining such Bank's share of any Unpaid Sum or any Letter of Credit, then the Account Party shall, from time to time on demand of the Agent, promptly pay to the Agent for the account of that Bank amounts sufficient to indemnify that Bank or to enable that Bank to indemnify its holding company from and against, as the case may be, (i) such reduction in the rate of return of capital, (ii) such cost or (iii) such increased cost. 11.2 Increased Costs Claims A Bank intending to make a claim pursuant to Clause 11.1 (Increased Costs) shall notify the Agent of the event giving rise to such claim and the amount of such claim and the basis for calculation of such amount in reasonable detail whereupon the Agent shall notify the Account Party thereof. 11.3 Exclusions Notwithstanding the foregoing provisions of this Clause 11, no Bank shall be entitled to make any claim under this Clause 11 in respect of: 11.3.1 any cost, increased cost or liability as referred to in Clause 11.1 (Increased Costs) to the extent the same is compensated by the Mandatory Liquid Asset Costs Rate; or 11.3.2 any cost, increased cost or liability compensated by Clause 9 (Taxes). 12. ILLEGALITY If, at any time, it is or will become unlawful or prohibited pursuant to any request from or requirement of any central bank or other fiscal, monetary or other authority (being a request or requirement with which banks are accustomed to comply) for a Bank to fund, issue, participate in or allow to remain outstanding all or part of its share of the Letters of Credit, then that Bank shall, promptly after becoming aware of the same, deliver to the Account Party through the Agent a notice to that effect and: 12.1.1 such Bank shall not thereafter be obliged to participate in any Letter of Credit or issue any Letter of Credit (whichever shall be so affected) and the amount of its Available Commitment shall be immediately reduced to zero; and 12.1.2 if the Agent on behalf of such Bank so requires, the Account Party shall on such date as the Agent shall have specified ensure that the liabilities of such Bank under or in respect of each affected Letter of Credit are reduced to zero or otherwise secured by providing Cash Collateral in an amount equal to such Bank's L/C Proportion of such Letters of Credit or such Bank's maximum actual or contingent liabilities under such Letter of Credit. 13. MITIGATION If, in respect of any Bank, circumstances arise which would or would upon the giving of notice result in: 13.1.1 an increase in any sum payable to it or for its account pursuant to Clause 8.1 (Tax Gross-up); 13.1.2 a claim for indemnification pursuant to Clause 9.2 (Tax Indemnity) or Clause 11.1 (Increased Costs); or 13.1.3 the reduction of its Available Commitment to zero or any repayment to be made pursuant to Clause 12 (Illegality), then, without in any way limiting, reducing or otherwise qualifying the rights of such Bank or the obligations of the Obligors under any of the Clauses referred to in sub-clauses 13.1.1, 13.1.2 and 13.1.3 such Bank shall promptly upon becoming aware of such circumstances notify the Agent thereof and, in consultation with the Agent and the Account Party and to the extent that it can do so lawfully and without prejudice to its own position, take reasonable steps (including a change of location of its Facility Office or the transfer of its rights, benefits and obligations hereunder to another financial institution which is an Approved Credit Institution and which is acceptable to the Account Party and willing to participate in the Facility) to mitigate the effects of such circumstances, provided that such Bank shall be under no obligation to take any such action if, in the opinion of such Bank, to do so might have any adverse effect upon its business, operations or financial condition (other than any minor costs and expenses of an administrative nature). 14. REPRESENTATIONS The Obligors jointly and severally represent and warrant on each day during the term of this Agreement that: 14.1 Corporate Existence and Power The Account Party is a company limited by shares, and the Guarantor is a limited liability company, and in each case, is duly incorporated and validly existing under the laws of its jurisdiction of incorporation and the Account Party is in good standing under the laws of the Cayman Islands. Each of the Obligors has all corporate powers and all material governmental licenses, authorisations, consents and approvals required to carry on its respective business as now conducted. The Guarantor is a Wholly-Owned Consolidated Subsidiary of the Account Party. 14.2 Corporate and Governmental Authorisation; No Contravention The execution, delivery and performance by each Obligor of this Agreement and the other Finance Documents to which it is a party are within its corporate powers, have been duly authorised by all necessary corporate action, require no action by or in respect of, or filing with, any governmental body, agency or official and do not contravene, or constitute a default under, any provision of applicable law or regulation or of the memorandum of association, articles of association or bye-laws (or any comparable document) of any Obligor or of any agreement, judgment, injunction, order, decree or other instrument binding upon any Obligor or any of their respective Subsidiaries or result in the creation or imposition of any Lien (excluding the provision of Security pursuant to this Agreement) on any asset of any Obligor or any of their respective Subsidiaries. 14.3 Binding Effect Each of this Agreement and the other Finance Documents to which any Obligor is a party constitutes a valid and binding agreement of each Obligor enforceable in accordance with its terms, subject to bankruptcy, insolvency or other laws of general application affecting the enforcement of creditors rights, the application of equitable principles and the non-availability of the equitable remedies of specific performance or injunctive relief. 14.4 Financial Information 14.4.1 The consolidated balance sheet of the Account Party and its Consolidated Subsidiaries as of 30 September 1998 and the related consolidated statements of operations and of cash flows for the fiscal year then ended, reported on by PricewaterhouseCoopers LLP, copies of which have been delivered to each of the Banks, fairly present, in all material respects, in conformity with generally accepted accounting principles, the consolidated financial position of the Account Party and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal year. 14.4.2 The unaudited consolidated balance sheet of the Account Party and its Consolidated Subsidiaries as of 30 June 1999 and the related unaudited consolidated statements of operations and of cash flows for the nine months then ended, copies of which have been delivered to each of the Banks, fairly present, in all material respects, in conformity with generally accepted accounting principles (except for the absence of footnotes) applied on a basis consistent with the financial statements referred to in sub-clause 14.4.1 of Clause 14.4 (Financial Information), the consolidated financial position of the Account Party and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such nine month period (subject to normal year-end adjustments). 14.4.3 Since 30 June 1999 there has been no material adverse change in the business, financial position or results of operations of the Account Party and its Consolidated Subsidiaries, considered as a whole. 14.4.4 The consolidated balance sheet of the Guarantor and its Consolidated Subsidiaries as of 30 September 1998 and the related consolidated statements of operations and retained earnings and of cash flows for the fiscal year then ended, all reported on by PricewaterhouseCoopers LLP, copies of which have been delivered to each of the Banks, fairly present, in all material respects in conformity with generally accepted accounting principles, the consolidated financial position of the Guarantor and its Consolidated Subsidiaries as of such date and their consolidated results of operations and retained earnings and cash flows for such fiscal year. 14.4.5 Since 30 September 1998 there has been no material adverse change in the business, financial position or results of operations of the Guarantor and its Consolidated Subsidiaries, considered as a whole. 14.5 Litigation Except as disclosed in the notes to the financial statements referred to in Clause 14.4.1 (Financial Information) and except for insurance claims made in the context of the ordinary course of business of the Group, there is no action, suit or proceeding pending against, or to the knowledge of the Account Party threatened against or affecting, the Account Party or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official in which there is a reasonable likelihood of an adverse decision which could materially adversely affect the business, consolidated financial position or consolidated results of operations of the Account Party and its Consolidated Subsidiaries, considered as a whole, or which in any manner draws into question the validity or enforceability of this Agreement or any other Finance Document. 14.6 Taxes The Account Party and its Subsidiaries have filed all material income tax returns and all other material tax returns which are required to be filed by them and have paid all taxes due pursuant to such returns or pursuant to any assessment received by the Account Party or any Subsidiary. The charges, accruals and reserves on the books of the Account Party and its Subsidiaries in respect of taxes or other governmental charges are, in the opinion of the Account Party, adequate. 14.7 Written Information All written information supplied by any member of the Group which is factual, is true, complete and accurate in all material respects as at the date it was given and is not misleading in any material respect and all financial projections so supplied have been prepared on the basis of recent historical information and on the basis of reasonable assumptions. 14.8 Compliance with Laws The Account Party and each Subsidiary are in compliance, in all material respects, with all applicable laws, ordinances, rules, regulations, guidelines and other requirements of governmental authorities except where the necessity of compliance therewith is contested in good faith by appropriate proceedings and any reserves required under generally accepted accounting principles with respect thereto have been established and except where any such failure could not reasonably be expected to materially adversely affect the business, consolidated financial position or consolidated results of operations of the Account Party and its Consolidated Subsidiaries, considered as a whole. 14.9 Lien 14.9.1 Upon delivery of the Security to the Custodian as provided in the Charge Agreement, the Account Party will have good and marketable title in and to the Security free and clear of all Liens (except the Lien created under the Finance Documents and subject to the interest of the Custodian under the Finance Documents). 14.9.2 Upon delivery of the Security to the Custodian as provided in the Charge Agreement, the Charge Agreement will create in favour of the Security Trustee for the benefit of the Banks a valid and enforceable first priority Lien on all of the Security, subject to the interest of the Custodian under the Finance Documents. 14.9.3 Upon delivery of the Security to the Custodian as provided in the Charge Agreement, the Account Party will not have outstanding, nor will it be contractually bound to create, any Lien on or with respect to any of the Security, subject to the interest of the Custodian under the Finance Documents. 14.9.4 The Account Party is not subject to any agreement, judgment, injunction, order, decree or other instrument or any law or regulation which would prevent or otherwise interfere with the Account Party's obligations to deliver Security in the amounts, at the times and as otherwise provided in the Charge Agreement, subject to the interest of the Custodian under the Finance Documents. The representations contained in this Clause 14.9 shall only be made on each day commencing on the date on which the Account Party may be required to grant Security pursuant to sub-clause 17.1.2 of Clause 17.1 (Letter of Credit Commission) and for so long as such Security is required to remain in place. 14.10 Validity and Admissibility in Evidence All acts, conditions and things required to be done, fulfilled and performed in order (a) to enable each Obligor lawfully to enter into, exercise its rights under and perform and comply with the obligations expressed to be assumed by it in the Finance Documents to which it is a party, (b) to ensure that the obligations expressed to be assumed by it in the Finance Documents to which it is a party are legal, valid, binding and enforceable and (c) to make the Finance Documents to which it is a party admissible in evidence in its jurisdiction of incorporation have been done, fulfilled and performed (subject to any exception contained in the legal opinions provided as conditions precedent). 14.11 Claims Pari Passu Under the laws of its jurisdiction of incorporation in force at the date of this Agreement, the claims of the Finance Parties against each Obligor under this Agreement will rank at least pari passu with the claims of all its other unsecured and unsubordinated creditors save those whose claims are preferred solely by any bankruptcy, insolvency, liquidation or other similar laws of general application. 14.12 No Filing or Stamp Taxes Under the laws of the jurisdiction of incorporation of each Obligor in force at the date of this Agreement, it is not necessary that the Finance Documents to which it is party be filed, recorded or enrolled with any court or other authority in such jurisdiction or that any stamp, registration or similar tax be paid on or in relation to the Finance Documents to which it is party. 14.13 No Winding-up No Obligor or Material Subsidiary 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 or Material Subsidiary 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, trustee or similar officer of it or of any or all of its assets or revenues. 14.14 No Default No Default has occurred and is continuing. 15. COVENANTS The Account Party agrees that, so long as any Letter of Credit is in effect or any Outstandings remain unpaid: 15.1 Information The Account Party will deliver to the Agent in sufficient copies for the Banks: 15.1.1 as soon as available and in any event within 90 days after the end of each fiscal year of the Account Party, a consolidated balance sheet of the Account Party and its Consolidated Subsidiaries as of the end of such fiscal year and the related consolidated statements of operations and of cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on in a manner acceptable to the Securities and Exchange Commission of the United States of America or otherwise reasonably acceptable to the Majority Banks by PricewaterhouseCoopers LLP or other independent public accountants of internationally recognised standing; 15.1.2 as soon as available and in any event within 45 days after the end of each of the first three quarters of each fiscal year of the Account Party, a consolidated balance sheet of the Account Party and its Consolidated Subsidiaries as of the end of such quarter and the related consolidated statements of operations and of cash flows for such quarter and for the portion of the Account Party's fiscal year ended at the end of such quarter, setting forth in the case of such statements of operations and cash flows in comparative form the figures for the corresponding quarter and the corresponding portion of the Account Party's previous fiscal year, all certified (subject to normal year-end adjustments) as to fairness of presentation, generally accepted accounting principles and consistency by the chief financial officer or the chief accounting officer of the Account Party; 15.1.3 simultaneously with the delivery of each set of financial statements referred to in sub-clauses 15.1.1 and 15.1.2 of this Clause 15.1, a certificate of the chief financial officer or the chief accounting officer of the Account Party (a) setting forth in reasonable detail the calculations required to establish whether the Account Party was in compliance with the requirements of Clauses 15.7 (Adjusted Consolidated Debt to Total Capitalisation Ratio) to 15.9 (Liens), inclusive, on the date of such financial statements and (b) stating whether any Default exists on the date of such certificate and, if any Default then exists, setting forth the details thereof and the action which the Account Party is taking or proposes to take with respect thereto; 15.1.4 within five days after any executive officer of the Account Party obtains knowledge of any Default, if such Default is then continuing, a certificate of the chief financial officer or the chief accounting officer of the Account Party setting forth the details thereof and the action which the Account Party is taking or proposes to take with respect thereto; 15.1.5 promptly upon the mailing thereof to the shareholders of the Account Party generally, copies of all financial statements, reports and proxy statements so mailed; 15.1.6 promptly upon the filing thereof, copies of all registration statements (other than the exhibits thereto and any registration statements on Form S-8 or its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their equivalents) which the Account Party shall have filed with the Securities and Exchange Commission of the United States of America; 15.1.7 as soon as available and in any event within 20 days after submission, each statutory statement of the Guarantor in the form submitted to The Insurance Division of the Office of Registrar of Companies of Bermuda; 15.1.8 as soon as available and in any event within 120 days after the end of each fiscal year of the Guarantor, a consolidated balance sheet of the Guarantor and its Consolidated Subsidiaries as of the end of such fiscal year and the related statements of income and changes in financial position for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by the independent public accountants which reported on the financial statements referred to in sub-clause 15.1.1 of this Clause 15.1; 15.1.9 promptly after any executive officer of the Account Party obtains knowledge thereof, (a) a copy of any notice from the Minister of Finance or the Registrar of Companies or any other Person of the revocation, the suspension or the placing of any restriction or condition on the registration as an insurer of the Guarantor under the Bermuda Insurance Law or of the institution of any proceeding or investigation which could result in any such revocation, suspension or placing of such a restriction or condition, (b) copies of any correspondence by, to or concerning the Guarantor relating to an investigation conducted by the Minister of Finance, whether pursuant to Section 132 of the Bermuda Companies Law or otherwise and (c) a copy of any notice of or requesting or otherwise relating to the winding up or any similar proceeding of or with respect to the Guarantor; and 15.1.10 from time to time such additional information regarding the financial position, results of operations or business of the Account Party or any of its Subsidiaries as the Agent, at the request of any Bank, may reasonably request from time to time. 15.2 Payment of Obligations The Account Party will pay and discharge, and will cause each Subsidiary to pay and discharge, at or before maturity, all their respective material obligations and liabilities, including, without limitation, tax liabilities, except where the same may be contested in good faith by appropriate proceedings, and will maintain, and will cause each Subsidiary to maintain, in accordance with generally accepted accounting principles, appropriate reserves for the accrual of any of the same. 15.3 Maintenance of Property; Insurance. 15.3.1 The Account Party will keep, and will cause each Subsidiary to keep, all property useful and necessary in its business in good working order and condition, ordinary wear and tear excepted. 15.3.2 The Account Party will maintain, and will cause each Subsidiary to maintain, physical damage insurance on all real and personal property on an all risks basis (including the perils of flood and quake), covering the repair and replacement cost of all such property and consequential loss coverage for business interruption and extra expense (but, for the avoidance of doubt, the foregoing shall not apply to maintenance of reinsurance or similar matters which shall be solely within the reasonable business judgement of the Account Party and its Subsidiaries). The Account Party will deliver to the Banks upon request of any Bank through the Agent from time to time, full information as to the insurance carried. 15.4 Conduct of Business and Maintenance of Existence The Account Party will continue, and will cause each Subsidiary to continue, to engage in business of the same general type as now conducted by the Account Party and its Subsidiaries, and will preserve, renew and keep in full force and effect, and will cause each Subsidiary to preserve, renew and keep in full force and effect, their respective existence and their respective rights, privileges and franchises necessary or desirable in the normal conduct of business; provided that nothing in this Clause 15.4 shall prohibit (i) the merger of a Subsidiary (other than the Guarantor) into the Account Party or the merger or consolidation of a Subsidiary (other than the Guarantor) with or into another Person if the corporation surviving such consolidation or merger is a Subsidiary and if, in each case, after giving effect thereto, no Default shall have occurred and be continuing, (ii) any merger of any Obligor permitted by Clause 15.10 (Consolidations, Mergers and Sale of Assets) or (iii) the termination of (x) the corporate existence or (y) any rights, privileges and franchises of any Subsidiary (other than the Guarantor) if the Account Party in good faith determines that such termination is in the best interest of the Account Party and is not materially disadvantageous to the Banks. 15.5 Compliance with Laws The Account Party will comply, and cause each Subsidiary to comply, in all material respects with all applicable laws, ordinances, rules, regulations, guidelines and other requirements of governmental authorities except where the necessity of compliance therewith is contested in good faith by appropriate proceedings and any reserves required under generally accepted accounting principles with respect thereto have been established and except where any such failure to comply could not reasonably be expected to materially adversely affect the business, consolidated financial position or consolidated results of operations of the Account Party and its Consolidated Subsidiaries, considered as a whole. 15.6 Inspection of Property, Books and Records The Account Party will keep, and will cause each Subsidiary to keep, proper books of records and account in accordance with generally accepted accounting principles in which full, true and correct entries shall be made of all dealings and transactions in relation to its business and activities; and will permit, and will cause each Subsidiary to permit, representatives of any Bank at such Bank's expense to visit and inspect any of their respective properties, to examine and make abstracts from any of their respective books and records and to discuss their respective affairs, finances and accounts with their respective officers, employees and independent public accountants, all at such reasonable times on reasonable notice and as often as may reasonably be desired. 15.7 Adjusted Consolidated Debt to Total Capitalisation Ratio The Account Party shall maintain at all times a ratio of Adjusted Consolidated Debt to Total Capitalisation of not more than the lesser of (a) 0.50 to 1 or (b) the Specified Ratio. For the purposes of the foregoing, the Specified Ratio shall be the greater of 0.35 to 1 or the ratio determined by multiplying 1.25 times the numerator of the lowest ratio of Adjusted Consolidated Debt to Total Capitalisation as of the last day of any fiscal quarter of the Account Party after completion of the Acquisition. 15.8 Tangible Net Worth The Account Party shall maintain at all times Consolidated Tangible Net Worth in an amount at least equal to the sum of (i) US$1,000,000,000 plus (ii) 25 per cent. of Consolidated Net Income for each fiscal quarter of the Account Party ending on and after 30 June 1999 for which such Consolidated Net Income is positive plus (iii) 75 per cent. (or, after the Equity Issuance (so long as the Net Cash Proceeds received by the Account Party and its Subsidiaries are at least US$500,000,000), 50 per cent.) of the aggregate amount by which Consolidated Tangible Net Worth shall have been increased by reason of the issuance and sale of any Equity Interests or Mandatorily Convertible Preferred Securities or, without duplication, the conversion or exchange of any Debt of the Account Party into or with Equity Interests of the Account Party. 15.9 Liens Neither the Account Party nor any Subsidiary will create, incur, assume or suffer to exist, or permit any of its Subsidiaries to create, incur, assume or suffer to exist, any Lien on or with respect to any of its properties of any character (including, without limitation, accounts) whether now owned or hereafter acquired, or assign, or permit any of its Subsidiaries to assign, any accounts or other right to receive income, except: 15.9.1 Permitted Liens; 15.9.2 Liens described in Schedule 10 (Existing Liens) and other Liens arising in the ordinary course of business of the CIGNAP&C Business; 15.9.3 purchase money Liens upon or in real property or equipment acquired or held by the Account Party or any of its Subsidiaries in the ordinary course of business to secure the purchase price of such property or equipment or to secure Debt incurred solely for the purpose of financing the acquisition, construction or improvement of any such property or equipment to be subject to such Liens, or Liens existing on any such property or equipment at the time of acquisition or within 180 days following such acquisition (other than any such Liens created in contemplation of such acquisition that do not secure the purchase price), or extensions, renewals or replacements or any of the foregoing for the same or a lesser amount; provided, however, that no such Lien shall extend to or cover any property other than the property or equipment being acquired, constructed or improved, and no such extension, renewal or replacement shall extend to or cover any property not theretofore subject to the Lien being extended, renewed or replaced; 15.9.4 Liens arising in connection with Capitalised Leases; provided that no such Lien shall extend to or cover any assets other than the assets subject to such Capitalised Leases; 15.9.5 (A) any Lien existing on any asset of any Person at the time such Person becomes a Subsidiary and not created in contemplation of such event, (B) any Lien on any asset of any Person existing at the time such Person is merged or consolidated with or into the Account Party or any of its Subsidiaries in accordance with Clause 15.10 (Consolidations, Mergers and Sales of Assets) and not created in contemplation of such event and (C) any Lien existing on any asset prior to the acquisition thereof by the Account Party or any of its Subsidiaries and not created in contemplation of such acquisition; 15.9.6 Liens securing obligations under credit default swap transactions determined by reference to, or Contingent Obligations in respect of, Debt issued by the Account Party or one of its Subsidiaries; such Debt not to exceed an aggregate principal amount of US$550,000,000; 15.9.7 Liens arising in the ordinary course of its business which (A) do not secure Debt and (B) do not in the aggregate materially detract from the value of its assets or materially impair the use thereof in the operation of its business; 15.9.8 Liens on cash and Approved Investments securing Hedge Agreements arising in the ordinary course of business; 15.9.9 other Liens securing Debt or other obligations outstanding in an aggregate principal or face amount not to exceed at any time 10 per cent. of Consolidated Tangible Net Worth; 15.9.10 Liens consisting of deposits made by the Account Party or any insurance Subsidiary with any insurance regulatory authority or other statutory Liens or Liens or claims imposed or required by applicable insurance law or regulation against the assets of the Account Party or any insurance Subsidiary, in each case in favour of policyholders of the Account Party or such insurance Subsidiary or an insurance regulatory authority and in the ordinary course of the Account Party's or such insurance Subsidiary's business; 15.9.11 Liens on Investments and cash balances of the Account Party or any insurance Subsidiary (other than capital stock of any Subsidiary) securing obligations of the Account Party or any insurance Subsidiary in respect of (i) letters of credit obtained in the ordinary course of business and/or (ii) trust arrangements formed in the ordinary course of business for the benefit of cedents to secure reinsurance recoverables owed to them by the Account Party or any insurance Subsidiary; 15.9.12 the replacement, extension or renewal of any Lien permitted by sub-clause 15.9.2 or 15.9.5 of this Clause 15.9 upon or in the same property theretofore subject thereto or the replacement, extension or renewal (without increase in the amount (other than in respect of fees, expenses and premiums, if any) or change in any direct or contingent obligor) of the Debt secured thereby; 15.9.13 Liens securing obligations owed by the Account Party to any Subsidiary or by any Subsidiary to the Account Party or any other Subsidiary; 15.9.14 Liens incurred in the ordinary course of business in favour of financial intermediaries and clearing agents pending clearance of payments for investment or in the nature of set-off, banker's lien or similar rights as to deposit accounts or other funds; 15.9.15 judgement or judicial attachment Liens, provided that the enforcement of such Liens is effectively stayed; and 15.9.16 Liens on any assets of the Account Party created pursuant to the Finance Documents. 15.10 Consolidations, Mergers and Sales of Assets No Obligor will (i) consolidate with or merge into any other Person or (ii) sell, lease or otherwise transfer, directly or indirectly, all or any substantial part of its assets to any other Person, provided that if both immediately before and after giving effect thereto no Default shall have occurred and be continuing, then: (a) the Guarantor may merge or consolidate with any other Person so long as the surviving entity is the Guarantor or a Wholly-Owned Consolidated Subsidiary of the Account Party and, if the Guarantor is not the surviving entity, such surviving entity shall have assumed the obligations of the Guarantor hereunder pursuant to an instrument in form and substance reasonably satisfactory to the Majority Banks and shall have delivered such opinions of counsel with respect thereto as the Agent may reasonably request; and (b) the Account Party may merge with another Person so long as the Account Party is the surviving entity. 15.11 No Amendments The Account Party shall not amend or waive, or utilise or rely on any waiver of, any provision of any Security Document that may be entered into without the written consent of the Agent, the Security Trustee and the Majority Banks. 15.12 Maintenance of Legal Validity Each Obligor shall obtain, comply with the terms of and do all that is necessary to maintain in full force and effect all authorisations, approvals, licences and consents required in or by the laws of its jurisdiction of incorporation to enable it lawfully to enter into and perform its obligations under the Finance Documents to which it is a party and to ensure the legality, validity, enforceability or admissibility in evidence in its jurisdiction of incorporation of the Finance Documents to which it is a party. 15.13 Claims Pari Passu Each Obligor shall ensure that at all times the claims of the Finance Parties against it under this Agreement ranks 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. 16. EVENTS OF DEFAULT Each of Clause 16.1 (Failure to Pay) to Clause 16.17 (Custodian's Undertaking) describes circumstances which constitute an Event of Default for the purposes of this Agreement. 16.1 Failure to Pay The Account Party shall fail to reimburse any drawing under any Letter of Credit when required hereunder or shall fail to pay within five Business Days of the due date thereof any interest or fees or other amounts payable hereunder or under any other Finance Document or the Guarantor shall fail to pay when due any such reimbursement obligations, interest, fees or other amounts payable hereunder provided that, for the purposes of this Clause 16.1, no such payment default by the Account Party shall be continuing if the Guarantor pays the amount thereof at the time and otherwise in the manner provided in Clause 29 (Guarantee and Indemnity). 16.2 Specific Covenants The Account Party shall fail to observe or perform any covenant (a) contained in Clauses 15.7 (Adjusted Consolidated Debt to Total Capitalisation Ratio) to Clause 15.10 (Consolidations, Mergers and Sale of Assets) inclusive or (b) contained in Clause 17.1 (Letter of Credit Commission). 16.3 Other Obligations Any Obligor shall fail to observe or perform any covenant or agreement contained in this Agreement or in any other Finance Document (other than those covered by Clause 16.1 or Clause 16.2 above) and such failure, if, in the reasonable opinion of the Majority Banks, it is capable of remedy, is not remedied within 30 days after notice thereof has been given to the Account Party by the Agent at the request of any Bank. 16.4 Misrepresentation Any representation, warranty, certification or statement made by any Obligor in this Agreement or in any other Finance Document or in any certificate, financial statement or other document delivered pursuant to this Agreement or any other Finance Document shall prove to have been incorrect in any material respect when made (or deemed made). 16.5 Cross-default The Account Party or any Subsidiary shall fail to make any payment in respect of any Material Financial Obligations when due or within any applicable grace period. 16.6 Cross-Acceleration Any event or condition shall occur which results in the acceleration of the maturity of any Material Debt or enables (or, with the giving of notice or lapse of time or both, would enable) the holder of such Material Debt or any Person acting on such holder's behalf to accelerate the maturity thereof. 16.7 Winding-up of the Account Party or the Guarantor 16.7.1 A resolution or other similar action is passed authorising the voluntary winding up of the Account Party or any other similar action with respect to the Account Party or a petition is filed for the winding up of the Account Party or the taking of any other similar action with respect to the Account Party in the Grand Court of the Cayman Islands (except in the case of any frivolous or vexatious steps or proceedings started by any Person who is not a member of the Group where such steps or proceedings are dismissed within 30 days); or 16.7.2 any corporate action is taken authorising the winding up, the liquidation, any arrangement or the taking of any other similar action of or with respect to the Guarantor or authorising any corporate action to be taken to facilitate any such winding up, liquidation, arrangement or other similar action or any petition shall be filed seeking the winding up, the liquidation, any arrangement or the taking of any other similar action of or with respect to the Guarantor by the Registrar of Companies in Bermuda, one or more holders of insurance policies or reinsurance certificates issued by the Guarantor or by any other Person or Persons or any petition shall be presented for the winding up of the Guarantor to a court of Bermuda as provided under the Bermuda Companies Law and in either such case such petition shall remain undismissed and unstayed for a period of 60 days or any creditors' or members' voluntary winding up of the Guarantor as provided under the Bermuda Companies Law shall be commenced or any receiver shall be appointed by a creditor of the Guarantor or by a court of Bermuda on the application of a creditor of the Guarantor as provided under any instrument giving rights for the appointment of a receiver. 16.8 Execution or Distress A proceeding shall be commenced by any Person seeking execution or distress over or possession of the assets of either Obligor or any substantial part thereof or any similar remedy and such proceedings shall remain undismissed and unstayed for a period of 60 days. 16.9 Insolvency and Rescheduling An Obligor or Material Subsidiary shall commence a voluntary case or other proceeding seeking liquidation, reorganisation or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking possession by any such official in an involuntary case or other proceeding commenced against it or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorise any of the foregoing; or an involuntary case or other proceeding shall be commenced against an Obligor or Material Subsidiary seeking liquidation, reorganisation or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of 60 days; or an order for relief shall be entered against an Obligor or Material Subsidiary under the United States federal bankruptcy laws as now or hereafter in effect. 16.10 Analogous Proceedings There occurs, in relation to an Obligor or Material Subsidiary in any country or territory in which any of them carries on business or in any jurisdiction where any part of their assets is subject, any event which corresponds in that country or territory with any of those mentioned in Clause 16.7 (Winding-up of the Account Party or the Guarantor) to Clause 16.9 (Insolvency and Rescheduling) above. 16.11 Failure to comply with Judgment A judgment or order for the payment of money in excess of US$100,000,000 shall be rendered against an Obligor or Material Subsidiary and such judgment or order shall continue unsatisfied and unstayed for a period of 30 days. 16.12 Ownership of the Account Party and the Guarantor 16.12.1 Any Person or two or more Persons acting in concert shall have acquired beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934 of the United States of America, as amended), directly or indirectly, of Voting Interests of the Account Party (or other securities convertible into such Voting Interests) representing 30 per cent. or more of the combined voting power of all Voting Interests of the Account Party; or 16.12.2 during any period of 12 consecutive calendar months, individuals who were directors of the Account Party on the first day of such period shall cease to constitute a majority of the board of directors of the Account Party; or 16.12.3 any Person or two or more Persons acting in concert shall have acquired, by contract or otherwise, or shall have entered into a contract or arrangement that results in its or their acquisition of the power to exercise, directly or indirectly, a controlling influence over the management or policies of the Account Party; or 16.12.4 the Guarantor ceases to be a Wholly-Owned Consolidated Subsidiary of the Account Party. 16.13 Illegality At any time it is or becomes unlawful for either Obligor to perform or comply with any or all of its obligations hereunder or under any of the Finance Documents or any court or arbitrator or any governmental body, agency or official which has jurisdiction in the matter shall decide, rule or order that any provision of any of the Finance Documents is invalid or unenforceable in any material respect, or either Obligor shall so assert in writing. 16.14 Revocation of Registration The registration of the Guarantor as an insurer shall be revoked, suspended or otherwise have restrictions or conditions placed upon it unless, in the case of the placing of any such restrictions or conditions, such restrictions or conditions could not have a material adverse effect on the interests of the Finance Parties under the Finance Documents. 16.15 Security If the Account Party is required to grant security pursuant to sub-clause 17.1.2 of Clause 17.1 (Letter of Credit Commission), the Account Party fails to deliver Security at the times, in the amounts or as otherwise specified in the Finance Documents or the Lien created pursuant thereto on the Security shall at any time or for any reason cease to be a valid, enforceable and first priority Lien on any of the Security or the Account Party shall fail to observe or perform any covenant relating to the delivery of the Security and the perfection of the first priority charge and security interest created therein contained in any other Finance Document, provided that if the market value of the Charged Portfolio falls below the Required Value or the Charged Portfolio fails to satisfy the Security Trustee's Requirements (as defined in the Charge Agreement), such circumstances shall not constitute an Event of Default if the market value of the Charged Portfolio is restored to the Required Value and/or, as the case may be, the Security Trustee's Requirements are satisfied in each case within five Business Days of notification by the Security Trustee on behalf of the Banks of the breach of Clause 4 of the Charge Agreement or, if earlier, within five Business Days of the Account Party becoming aware of such breach. 16.16 Finance Documents Any provision of any Finance Document is repudiated, terminated, amended or waived by any party thereto without the written consent of the Agent, the Security Trustee and the Majority Banks. 16.17 Custodian's Undertaking In the event that the Account Party is required to grant Security pursuant to sub-clause 17.1.2 of Clause 17.1 (Letter of Credit Commission), the Custodian fails to observe or perform any material provision of the Custodian's Undertaking and such failure, if in the reasonable opinion of the Majority Banks it is capable of remedy, is not remedied within 30 days after notice thereof has been given to the Custodian by the Account Party or by the Agent at the request of any Bank. 16.18 Acceleration and Cancellation Upon the occurrence of an Event of Default at any time thereafter while that Event of Default is continuing, the Agent may (and, if so instructed by the Majority Banks shall) by notice to the Account Party: 16.18.1 require the Account Party to procure that the liabilities of each of the Banks under each Letter of Credit are promptly reduced to zero and/or provide Cash Collateral for each Letter of Credit in an amount specified by the Agent (whereupon the Account Party shall do so); and/or 16.18.2 declare that any unutilised portion of the Facility shall be cancelled, whereupon the same shall be cancelled and the Available Commitment of each Bank shall be reduced to zero; and 16.18.3 (in the event that the Account Party has granted Security pursuant to sub-clause 17.1.2 of Clause 17.1 (Letter of Credit Commission), direct the Security Trustee to exercise all rights and remedies of a mortgagee or a secured party at such time including, without limitation, the right to take possession of any or all of the assets subject to the Security Documents and the books and records relating thereto, with or without judicial process. For the purposes of the preceding sentence, the Security Trustee may enter upon any or all of the premises where any of the assets subject to the Security Documents, such other security or books or records may be situated and take possession and remove the same therefrom. 17. COMMISSION AND FEES 17.1 Letter of Credit Commission 17.1.1 The Account Party shall, in respect of each Letter of Credit requested by it, pay to the Agent for the account of each Bank (for distribution in proportion to each Bank's L/C Proportion of such Letter of Credit) a letter of credit commission in sterling at the L/C Commission Rate on the maximum actual and contingent liabilities of the Banks 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 begins during the Term of the relevant Letter of Credit, commencing from the Effective Date of such Letter of Credit, and payable on the first day of each such period thereafter. 17.1.2 If the Pricing Level reaches Level V (each as defined in Schedule 9 (Pricing Schedule)), the Account Party shall execute and deliver a Charge Agreement and grant Security in favour of the Security Trustee in accordance with the terms thereof with a Required Value equal to the aggregate amount of the Letters of Credit issued hereunder or such other amount as may be required by the Security Trustee, and the Account Party shall promptly (and in any event within five Business Days) perform its obligations under Clause 4 of the Charge Agreement. Upon the Security Trustee being satisfied that the Account Party has performed its obligations under Clause 4 of the Charge Agreement, and having received legal opinions in form and substance satisfactory to the Security Trustee (acting reasonably) opining that the Charge Agreement has been executed with the necessary power and authorisation and creates in favour of the Security Trustee on behalf of the Banks a valid and enforceable first priority Lien on all of the Security in respect of the Security (subject to such qualifications and assumptions as are customarily made by leading firms of solicitors in giving legal opinions of that nature), the L/C Commission Rate shall become 0.15 per cent. and the Security Trustee shall notify all parties hereto accordingly. 17.1.3 Any change to the L/C Commission Rate shall take effect on the day on which the event giving rise to such change occurs (whether pursuant to Schedule 9 (Pricing Schedule) or pursuant to Clause 17.1.2). 17.2 Arrangement Fees The Account Party shall pay to the Arranger the fees specified in the letter dated 6 October 1999 from the Arranger to the Account Party at the times, and in the amounts, specified in such letter. 17.3 Agency Fee The Account Party shall pay to the Agent for its own account the agency fees specified in the letter dated 6 October 1999 from the Arranger to the Account Party at the times, and in the amounts, specified in such letter. 17.4 Participation Fees The Account Party shall pay to the Arranger the participation fees specified in the letter dated 6 October 1999 from the Arranger to the Account Party at the times, and in the amounts, specified in such letter. These fees shall be distributed by the Arranger among certain of the Banks in accordance with the arrangements agreed by the Arranger with such Banks prior to the date of this Agreement. 18. COSTS AND EXPENSES 18.1 Transaction Expenses The Account Party shall, from time to time within thirty days of demand of the Agent, reimburse the Agent and the Arranger for all reasonable costs and expenses (including legal fees) together with any VAT thereon incurred by them in connection with the negotiation, preparation and execution of the Finance Documents, any other document referred to in the Finance Documents and the completion of the transactions therein contemplated. 18.2 Preservation and Enforcement of Rights 18.2.1 The Account Party shall, from time to time on demand of the Agent, reimburse the Finance Parties for all costs and expenses (including legal fees) properly incurred on a full indemnity basis together with any VAT thereon incurred in or in connection with the preservation and/or enforcement of any of the rights of the Finance Parties under the Finance Documents and any document referred to in the Finance Documents (including, without limitation, any costs and expenses relating to any investigation as to whether or not an Event of Default might have occurred or is likely to occur or any steps necessary or desirable in connection with any proposal for remedying or otherwise resolving a Default). 18.2.2 In the event that the Account Party has granted Security pursuant to sub-clause 17.1.2 of Clause 17.1 (Letter of Credit Commission) and if, by reason of a subsequent breach of Clause 4 of the Charge Agreement by the Account Party, any Bank incurs a capital cost or is unable to continue to obtain the rate of return obtained by it hereunder at the date the Security is granted or at the date it becomes party hereto as a Bank, the Account Party shall on demand of the Agent, promptly pay to the Agent for the account of the Bank amounts sufficient to indemnify that Bank from and against such cost or loss in return. 18.3 Stamp Taxes The Account Party shall pay all stamp, registration and other taxes to which the Finance Documents, any other document referred to in the Finance Documents or any judgment given in connection therewith is or at any time may be subject and to which it is a party and shall, from time to time on demand of the Agent, indemnify the Finance Parties against any liabilities, costs, claims and expenses resulting from any failure to pay or any delay in paying any such tax. 18.4 Amendment Costs If an Obligor requests any amendment, waiver or consent to any Finance Document then the Account Party shall, within thirty days of demand by the Agent, reimburse the Finance Parties for all reasonable costs and expenses (including legal fees) together with any VAT thereon incurred by such persons in responding to or complying with such request. 18.5 Banks' Liabilities for Costs If the Account Party fails to perform any of its obligations under this Clause 18, each Bank shall, in its Proportion, indemnify each of the Agent and the Arranger against any loss incurred by any of them as a result of such failure. 19. DEFAULT INTEREST AND BREAK COSTS 19.1 Default Interest If any sum due and payable by an Obligor hereunder is not paid on the due date therefor in accordance with Clause 22 (Payments) or if any sum due and payable by an Obligor under any judgment of any court in connection herewith is not paid on the date of such judgment, the period beginning on such due date or, as the case may be, the date of such judgment 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 19) be selected by the Agent. 19.2 Default Interest Rate An Unpaid Sum shall bear interest during each Term in respect thereof at the rate per annum which is the sum from time to time of two per cent. and LIBOR on the Quotation Date therefor. 19.3 Payment of Default Interest Any interest which shall have accrued under Clause 19.2 (Default Interest) in respect of an Unpaid Sum shall be due and payable and shall be paid by the relevant Obligor, together with any Mandatory Liquid Asset Costs Rate in respect thereof on the last day of each Term in respect thereof or on such other dates as the Agent may specify by notice to the relevant Obligor. 19.4 Break Costs If any Bank or the Agent on its behalf receives or recovers all or any part of an Unpaid Sum otherwise than on the last day of a Term relating thereto, the Account Party shall pay to the Agent on demand for the account of such Bank an amount equal to the amount (if any) by which (a) the additional interest which would have been payable on the amount so received or recovered had it been received or recovered on the last day of that Term exceeds (b) the amount of interest which in the opinion of the Agent (acting reasonably) would have been payable to the Agent on the last day of that Term in respect of a deposit in the currency of the amount so received or recovered equal to the amount so received or recovered placed by it with a prime bank in London for a period starting on the first Business Day following the date of such receipt or recovery and ending on the last day of that Term. 20. INDEMNITIES 20.1 Company's Indemnity The Account Party undertakes to indemnify: 20.1.1 each Finance Party against any reasonable cost, claim, loss, expense (including legal fees) or liability together with any VAT thereon, whether or not reasonably foreseeable, which it may sustain or incur as a consequence of the occurrence of any Event of Default or any default by an Obligor in the performance of any of the obligations expressed to be assumed by it in the Finance Documents; 20.1.2 the A gent against any reasonable cost or loss it may suffer or incur as a result of its entering into, or performing, any foreign exchange contract for the purposes of Clause 22 (Payments); 20.1.3 each Bank against any reasonable cost or loss it may suffer under Clause 18.5 (Banks' Liabilities for Costs) or Clause 25.5 (Indemnification); and 20.1.4 each Bank against any reasonable cost or loss it may suffer or incur as a result of its issuing or making arrangements to issue a Letter of Credit requested by the Account Party hereunder but not issued by reason of the operation of any one or more of the provisions hereof. 20.2 Currency Indemnity If any sum (a "Sum") due from an Obligor under the Finance Documents or any order or judgment given or made in relation thereto has to be converted from the currency (the "First Currency") in which such Sum is payable into another currency (the "Second Currency") for the purpose of: 20.2.1 making or filing a claim or proof against such Obligor; 20.2.2 obtaining an order or judgment in any court or other tribunal; or 20.2.3 enforcing any order or judgment given or made in relation thereto, the Account Party shall indemnify each person to whom such Sum is due from and against any loss suffered or incurred as a result of any discrepancy between (a) the rate of exchange used for such purpose to convert such Sum from the First Currency into the Second Currency and (b) the rate or rates of exchange available to such person at its prevailing spot rate at the time of receipt of such Sum. 21. CURRENCY OF ACCOUNT AND PAYMENT 21.1 Currency of Account Sterling is the currency of account and payment for each and every sum at any time due from an Obligor hereunder, provided that: 21.1.1 each sum falling due by an Obligor hereunder in relation to any demand made under a Letter of Credit or in relation to any reimbursement of the Banks pursuant to a demand made under a Letter of Credit shall be made in the currency of the demand; 21.1.2 each payment of interest shall be made in the currency in which the sum in respect of which such interest is payable is denominated; 21.1.3 each payment in respect of costs and expenses shall be made in the currency in which the same were incurred; 21.1.4 each payment pursuant to Clause 9.2 (Tax Indemnity) or Clause 11.1 (Increased Costs) shall be made in the currency specified by the party claiming thereunder; and 21.1.5 any amount expressed to be payable in a currency other than sterling shall be paid in that other currency. 22. PAYMENTS 22.1 Payments to the Agent On each date on which this Agreement requires an amount to be paid by an Obligor, such Obligor shall make the same available to the Agent for value on the due date at such time and in such funds and to such account with such bank as the Agent shall specify from time to time upon reasonable advance notice to such Obligor. 22.2 Payments by the Agent Save as otherwise provided herein, each payment received by the Agent pursuant to Clause 22.1 (Payments to the Agent) shall be made available by the Agent to the person entitled to receive such payment in accordance with this Agreement (in the case of a Bank, for the account of its Facility Office) for value the same day by transfer to such account of such person with such bank in the principal financial centre of the country of the currency of such payment as such person shall have previously notified to the Agent. 22.3 No Set-off All payments required to be made by an Obligor hereunder shall be calculated without reference to any set-off or counterclaim and shall be made free and clear of and without any deduction for or on account of any set-off or counterclaim. 22.4 Clawback Where a sum is to be paid hereunder to the Agent for account of another person, the Agent shall not be obliged to make the same available to that other person or to enter into or perform any exchange contract in connection therewith until it has been able to establish to its satisfaction that it has actually received such sum, but if it does so and it proves to be the case that it had not actually received such sum, then the person to whom such sum or the proceeds of such exchange contract was so made available shall on request refund the same to the Agent together with an amount sufficient to indemnify the Agent against any cost or loss it may have suffered or incurred by reason of its having paid out such sum or the proceeds of such exchange contract prior to its having received such sum. 22.5 Partial Payments If and whenever a payment is made by an Obligor hereunder and the Agent receives an amount less than the due amount of such payment the Agent may apply the amount received towards the obligations of the Obligors under this Agreement in the following order: 22.5.1 first, in or towards payment of any unpaid costs and expenses of each of the Agent and the Arranger; 22.5.2 second, in or towards payment pro rata of any accrued interest, Letter of Credit Commission or fees payable to any Bank hereunder due but unpaid; 22.5.3 third, in or towards payment pro rata of any Outstandings due but unpaid; and 22.5.4 fourth, in or towards payment pro rata of any other sum due but unpaid. 22.6 Variation of Partial Payments The order of partial payments set out in Clause 22.5 (Partial Payments) shall override any appropriation made by the Obligors to which the partial payment relates but the order set out in sub-clauses 22.5.2, 22.5.3 and 22.5.4 of Clause 22.5 (Partial Payments) may be varied if agreed by all the Banks. 22.7 Appropriations of proceeds of enforcement of Security If the Agent recovers any moneys from the enforcement of any Finance Document in its capacity as Agent or Security Trustee thereunder, it shall apply the money recovered in the following order: 22.7.1 first, in payment of all costs, charges, expenses and liabilities (and all interest thereon as provided in the Finance Documents) incurred by or on behalf of the Agent and the Security Trustee and any receiver, attorney or agent in connection with the due performance of its duties and exercise of its powers and discretions under the Finance Documents and the remuneration of the Agent, the Security Trustee and every receiver under the Finance Documents; 22.7.2 secondly, in or towards payment pro rata of any due but unpaid costs and expenses of the Agent, the Arranger and the Banks under the Finance Documents; 22.7.3 thirdly, in or towards payment pro rata of any accrued interest, Letter of Credit Commission or fees due but unpaid under this Agreement; 22.7.4 fourthly, in or towards payment pro rata of any Outstandings due but unpaid under this Agreement; 22.7.5 fifthly, in or towards payment pro rata of any other sum due but unpaid under the Finance Documents; and 22.7.6 sixthly, in payment of the surplus (if any) to the Account Party or any other person entitled thereto. The order of application of money recovered in this Clause may only be varied with the consent of all the Banks. 23. SET-OFF 23.1 Contractual Set-off Each Obligor authorises each Bank at any time after an Event of Default has occurred which is continuing to apply any credit balance to which such Obligor is entitled on any account of such Obligor with such Bank in satisfaction of any sum due and payable from such Obligor to such Bank hereunder (whether by way of collateralisation or otherwise) but unpaid. For this purpose, each Bank is authorised to purchase with the moneys standing to the credit of any such account such other currencies as may be necessary to effect such application. 23.2 Set-off not Mandatory No Bank shall be obliged to exercise any right given to it by Clause 23.1 (Contractual Set-off). 24. SHARING 24.1 Payments to Banks If a Bank (a "Recovering Bank") applies any receipt or recovery from an Obligor to a payment due under this Agreement and such amount is received or recovered other than in accordance with Clause 22 (Payments), then such Recovering Bank shall: 24.1.1 notify the Agent of such receipt or recovery; 24.1.2 at the request of the Agent, promptly 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 such Recovering Bank as its share of any payment to be made in accordance with Clause 22.5 (Partial Payments). 24.2 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 Bank) in accordance with Clause 22.5 (Partial Payments). 24.3 Recovering Bank's Rights The Recovering Bank will be subrogated to the rights of the parties which have shared in a redistribution pursuant to Clause 24.2 (Redistribution of Payments) in respect of the Sharing Payment (and the relevant Obligor shall be liable to the Recovering Bank in an amount equal to the Sharing Payment) in place of any corresponding liability to the parties which have shared in the redistribution. 24.4 Repayable Recoveries If any part of the Sharing Payment received or recovered by a Recovering Bank becomes repayable and is repaid by such Recovering Bank, then: 24.4.1 each party which has received a share of such Sharing Payment pursuant to Clause 24.2 (Redistribution of Payments) shall, upon request of the Agent, pay to the Agent for account of such Recovering Bank an amount equal to its share of such Sharing Payment; and 24.4.2 such Recovering Bank's rights of subrogation in respect of any reimbursement shall be cancelled and the relevant Obligor will be liable to the reimbursing party for the amount so reimbursed. 24.5 Exception This Clause 24 shall not apply if the Recovering Bank would not, after making any payment pursuant hereto, have a valid and enforceable claim against the relevant Obligor. 24.6 Recoveries Through Legal Proceedings If any Bank intends to commence any action in any court it shall give prior notice to the Agent and the other Banks. If any Bank shall commence any action in any court to enforce its rights hereunder and, as a result thereof or in connection therewith, receives any amount, then such Bank shall not be required to share any portion of such amount with any Bank which has the legal right to, but does not, join in such action or commence and diligently prosecute a separate action to enforce its rights in another court. 25. THE AGENT, THE ARRANGER AND THE BANKS 25.1 Appointment of the Agent The Arranger and each of the Banks hereby appoints the Agent to act as its agent in connection herewith and authorises the Agent to exercise such rights, powers, authorities and discretions as are specifically delegated to the Agent by the terms hereof together with all such rights, powers, authorities and discretions as are reasonably incidental thereto. 25.2 Agent's Discretions The Agent may: 25.2.1 assume, unless it has, in its capacity as agent for the Banks, received notice to the contrary from any other party hereto, that (a) any representation made or deemed to be made by an Obligor in connection with the Finance Documents is true, (b) no Event of Default or Potential Event of Default has occurred, (c) no Obligor is in breach of or default under its obligations under the Finance Documents and (d) any right, power, authority or discretion vested therein upon the Majority Banks, the Banks or any other person or group of persons has not been exercised; 25.2.2 assume that the Facility Office of each Bank is that notified to it by such Bank 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) until it has received from such Bank a notice designating some other office of such Bank to replace its Facility Office and act upon any such notice until the same is superseded by a further such notice; 25.2.3 engage and pay for the advice or services of any lawyers, accountants, surveyors or other experts whose advice or services may to it seem necessary, expedient or desirable and rely upon any advice so obtained; 25.2.4 rely as to any matters of fact which might reasonably be expected to be within the knowledge of an Obligor upon a certificate signed by or on behalf of such Obligor; 25.2.5 rely upon any communication or document believed by it to be genuine; 25.2.6 refrain from exercising any right, power or discretion vested in it as agent hereunder unless and until instructed by the Majority Banks as to whether or not such right, power or discretion is to be exercised and, if it is to be exercised, as to the manner in which it should be exercised; 25.2.7 refrain from acting in accordance with any instructions of the Majority Banks to begin any legal action or proceeding arising out of or in connection with the Finance Documents until it shall have received such security as it may require (whether by way of payment in advance or otherwise) for all costs, claims, losses, expenses (including legal fees) and liabilities together with any VAT thereon which it will or may expend or incur in complying with such instructions; and 25.2.8 assume (unless it has specific notice to the contrary) that any notice or request made by the Account Party is made on behalf of both Obligors. 25.3 Agent's Obligations The Agent shall: 25.3.1 promptly inform each Bank of the contents of any notice or document received by it in its capacity as Agent from an Obligor under the Finance Documents and shall promptly deliver to each Bank a copy of each Letter of Credit delivered to Lloyd's pursuant to Clause 3.3 (Completion of Letters of Credit); 25.3.2 promptly notify each Bank of the occurrence of any Event of Default or any default by an Obligor in the due performance of or compliance with its obligations under the Finance Documents of which the Agent has notice from any other party hereto; 25.3.3 save as otherwise provided herein, act as agent under the Finance Documents in accordance with any instructions given to it by an Majority Banks, which instructions shall be binding on the Arranger and the Banks; and 25.3.4 if so instructed by the Majority Banks, refrain from exercising any right, power or discretion vested in it as agent under the Finance Documents. The Agent's duties under the Finance Documents are solely mechanical and administrative in nature. 25.4 Excluded Obligations Notwithstanding anything to the contrary expressed or implied herein, neither the Agent nor the Arranger shall: 25.4.1 be bound to enquire as to (a) whether or not any representation made or deemed to be made by an Obligor in connection with the Finance Documents is true, (b) the occurrence or otherwise of any Default, (c) the performance by an Obligor of its obligations under the Finance Documents or (d) any breach of or default by an Obligor of or under its obligations under the Finance Documents; 25.4.2 be bound to account to any Bank for any sum or the profit element of any sum received by it for its own account; 25.4.3 be bound to disclose to any other person any information relating to any member of the Group if (a) such person, on providing such information, expressly stated to the Agent or, as the case may be, the Arranger, that such information was confidential or (b) such disclosure would or might in its opinion constitute a breach of any law or be otherwise actionable at the suit of any person; 25.4.4 be under any obligations other than those for which express provision is made herein; or 25.4.5 be or be deemed to be a fiduciary for any other party hereto. 25.5 Indemnification Each Bank shall, in its Proportion, from time to time on demand by the Agent, indemnify the Agent against any and all costs, claims, losses, expenses (including legal fees) and liabilities together with any VAT thereon which the Agent may incur, otherwise than by reason of its own gross negligence or wilful misconduct, in acting in its capacity as agent hereunder (other than any which have been reimbursed by the Account Party pursuant to Clause 20.1 (Company's Indemnity). 25.6 Exclusion of Liabilities Except in the case of gross negligence or wilful default, neither the Agent nor the Arranger accepts any responsibility: 25.6.1 for the adequacy, accuracy and/or completeness of any information supplied by the Agent or the Arranger, by an Obligor or by any other person in connection with the Finance Documents or any other agreement, arrangement or document entered into, made or executed in anticipation of, pursuant to or in connection with the Finance Documents; 25.6.2 for the legality, validity, effectiveness, adequacy or enforceability of the Finance Documents or any other agreement, arrangement or document entered into, made or executed in anticipation of, pursuant to or in connection with the Finance Documents; or 25.6.3 for the exercise of, or the failure to exercise, any judgement, discretion or power given to any of them by or in connection with the Finance Documents or any other agreement, arrangement or document entered into, made or executed in anticipation of, pursuant to or in connection with the Finance Documents. Accordingly, neither the Agent nor the Arranger shall be under any liability (whether in negligence or otherwise) in respect of such matters, save in the case of gross negligence or wilful misconduct. 25.7 No Actions Each of the Banks agree that it will not assert or seek to assert against any director, officer or employee of the Agent or the Arranger any claim it might have against any of them in respect of the matters referred to in Clause 25.6 (Exclusion of Liabilities). 25.8 Business with the Group The Agent and the Arranger may accept deposits from, lend money to and generally engage in any kind of banking or other business with any member of the Group. 25.9 Resignation The Agent may resign its appointment hereunder at any time without assigning any reason therefor by giving not less than thirty days' prior notice to that effect to each of the other parties hereto, provided that no such resignation shall be effective until a successor for the Agent is appointed in accordance with the succeeding provisions of this Clause 25. 25.10 Successor Agent If the Agent gives notice of its resignation pursuant to Clause 25.9 (Resignation) then any reputable and experienced bank or other financial institution may be appointed as a successor to the Agent by the Majority Banks during the period of such notice (with the co-operation of the Agent), subject to such entity executing and delivering a confidentiality undertaking substantially in the form set out in Schedule 8 (Form of Confidentiality Undertaking) but, if no such successor is so appointed, the Agent may appoint such a successor itself. 25.11 Rights and Obligations If a successor to the Agent is appointed under the provisions of Clause 25.10 (Successor Agent), then (a) the retiring Agent shall be discharged from any further obligation hereunder but shall remain entitled to the benefit of the provisions of this Clause 25 and (b) its successor and each of the other parties hereto shall have the same rights and obligations amongst themselves as they would have had if such successor had been a party hereto. 25.12 Own Responsibility It is understood and agreed by each Bank that at all times it has itself been, and will continue to be, solely responsible for making its own independent appraisal of and investigation into all risks arising under or in connection with this Agreement including, but not limited to: 25.12.1 the financial condition, creditworthiness, condition, affairs, status and nature of each member of the Group; 25.12.2 the legality, validity, effectiveness, adequacy and enforceability of the Finance Documents and any other agreement, arrangement or document entered into, made or executed in anticipation of, pursuant to or in connection with the Finance Documents; 25.12.3 whether such Bank has recourse, and the nature and extent of that recourse, against an Obligor or any other person or any of its assets under or in connection with the Finance Documents, the transactions therein contemplated or any other agreement, arrangement or document entered into, made or executed in anticipation of, pursuant to or in connection with the Finance Documents; and 25.12.4 the adequacy, accuracy and/or completeness of any information provided by the Agent or the Arranger, an Obligor or by any other person in connection with the Finance Documents, the transactions contemplated therein or any other agreement, arrangement or document entered into, made or executed in anticipation of, pursuant to or in connection with the Finance Documents. Accordingly, each Bank acknowledges to the Agent and the Arranger that it has not relied on and will not hereafter rely on the Agent and the Arranger or either of them in respect of any of these matters. 25.13 Agency Division Separate In acting as agent hereunder for the Banks, 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 and, notwithstanding the foregoing provisions of this Clause 25, any information received by some other division or department of the Agent may be treated as confidential and shall not be regarded as having been given to the Agent's agency division. 25.14 Declaration of Agent as Security Trustee The Agent hereby declares that it shall hold: 25.14.1 all rights, titles and interests that may hereafter be mortgaged, charged, assigned or otherwise secured in favour of the Agent by or pursuant to the Finance Documents; 25.14.2 the benefit of all representations, covenants, guarantees, indemnities and other contractual provisions given in favour of the Agent (other than any such benefits given to the Agent solely for its own benefit) by or pursuant to the Finance Documents (other than this Agreement); and 25.14.3 all proceeds of the security referred to in sub-clause 25.14.1 above and of the enforcement of the benefits referred to in 25.14.2 above, on trust for itself and the other Finance Parties from time to time. Such declaration shall remain valid notwithstanding that the Agent may on the date hereof or at any other time be the sole Finance Party; for the avoidance of doubt, however, such declaration shall, in such case, be deemed repeated on each date on which the Agent ceases to be the sole Finance Party. Each of the parties hereto agrees that the obligations, rights and benefits vested or to be vested in the Agent as trustee as aforesaid by the Finance Documents or any document entered into pursuant thereto shall (as well before as after enforcement) be performed and (as the case may be) exercised by the Agent in accordance with the provisions of this Clause 25. 25.15 Powers and Discretions The Agent shall have all the powers and discretions conferred upon trustees by the Trustee Act 1925 (to the extent not inconsistent herewith) and by way of supplement it is expressly declared as follows: 25.15.1 the Agent shall be at liberty to place any of the Finance Documents and any other instruments, documents or deeds delivered to it pursuant thereto or in connection therewith for the time being in its possession in any safe deposit, safe or receptacle selected by the Agent or with any bank, any company whose business includes undertaking the safe custody of documents or any firm of lawyers of good repute; 25.15.2 the Agent may, whenever it thinks fit, delegate by power of attorney or otherwise to any person or persons or fluctuating body of persons all or any of the rights, trusts, powers, authorities and discretions vested in it by any of the Finance Documents and such delegation may be made upon such terms and subject to such conditions (including the power to sub- delegate) and subject to such regulations as the Agent may think fit and the Agent 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); 25.15.3 notwithstanding anything else herein contained, the Agent may refrain from doing anything which would or might in its opinion be contrary to any law of any jurisdiction or any directive or regulation of any agency of any state or which would or might otherwise render it liable to any person and may do anything which is, in its opinion, necessary to comply with any such law, directive or regulation; 25.15.4 save in the case of gross negligence or wilful misconduct, the Agent and every attorney, agent, delegate, sub-delegate and any other person appointed by any of them under any of the Finance Documents may indemnify itself or himself out of the security held by the Agent against all liabilities, costs, fees, charges, losses and expenses incurred by any of them in relation to or arising out of the taking or holding of any of the security constituted by, or any of the benefits provided by, any of the Finance Documents, in the exercise or purported exercise of the rights, trusts, powers and discretions vested in any of them or in respect of any other matter or thing done or omitted to be done in any way relating to any of the Finance Documents or pursuant to any law or regulation; and 25.15.5 without prejudice to the provisions of any of the Finance Documents, the Agent shall not be under any obligation to insure any property or to require any other person to maintain any such insurance and shall not be responsible for any loss which may be suffered by any person as a result of the lack of or inadequacy or insufficiency of any such insurance. 25.16 Liability The Agent shall not be liable for any failure: 25.16.1 to require the deposit with it of any deed or document certifying, representing or constituting the title of the Account Party to any of the property mortgaged, charged, assigned or otherwise encumbered by or pursuant to any of the Finance Documents; 25.16.2 to obtain any licence, consent or other authority for the execution, delivery, validity, legality, adequacy, performance, enforceability or admissibility in evidence of any of the Finance Documents; 25.16.3 to register or notify any deed or document mentioned at sub- clause 25.16.1 in accordance with the provisions of any of the documents of title of the Account Party; 25.16.4 to effect or procure registration of or otherwise protect any of the security created by any of the Finance Documents by registering the same under any applicable registration laws in any territory or otherwise by registering any notice, caution or other entry prescribed by or pursuant to the provisions of the said Act or laws; 25.16.5 to take or to require the Account Party to take any steps to render the security without limitation, any floating charge) created or purported to be created by or pursuant to any of the Finance Documents effective or to secure the creation of any ancillary charge under the laws of any jurisdiction; or 25.16.6 to require any further assurances in relation to any of the Finance Documents. 25.17 Title to Security etc. The Agent may accept without enquiry, requisition or objection such right and title as the Account Party may have to the property belonging (or purportedly belonging) to it (or any part thereof) which is the subject matter of any of the Finance Documents and shall not be bound or concerned to investigate or make any enquiry into the right or title of the Account Party to such property (or any part thereof) or, without prejudice to the foregoing, to require the Account Party to remedy any defect in the Account Party's right or title as aforesaid. 25.18 New Security Trustee The Agent may at any time appoint any person (whether or not a trust corporation) to act either as a separate trustee or as a co-trustee jointly with the Agent: 25.18.1 if the Agent considers such appointment to be in the interests of the Banks; or 25.18.2 for the purposes of conforming to any legal requirements, restrictions or conditions which the Agent deems relevant for the purposes of the Finance Documents and the Agent shall give prior notice to the Account Party and the Banks of any such appointment. Any person so appointed shall (subject to the provisions of the Finance Documents) have such powers, authorities and discretions and such duties and obligations as shall be conferred or imposed or such person by the instrument of appointment and shall have the same benefits under this Clause 25 as the Agent. The Agent shall have power in like manner to remove any person so appointed. Such reasonable remuneration as the Agent may pay to any person so appointed, and any costs, charges and expenses incurred by such person in performing its functions pursuant to such appointment, shall for the purposes hereof be treated as costs, charges and expenses incurred by the Agent under the Finance Documents. 25.19 Perpetuity Period The perpetuity period under the rule against perpetuities if applicable to the trusts constituted in this Clause 25 and the other Finance Documents shall be the period of eighty years from the date of this Agreement and, subject thereto, if the Agent determines that all of the obligations of the Account Party under any of the Finance Documents have been fully and unconditionally discharged, such trusts shall be wound up. 25.20 Security 25.20.1 In the event that the Account Party grants Security pursuant to sub-clause 17.1.2. of Clause 17.1 (Letter of Credit Commission), as soon as reasonably practicable after each delivery to the Security Trustee of the statement(s) of the Charged Portfolio by the Custodian pursuant to paragraph 3 of the Custodian's Undertaking and in any event within seven Business Days of such delivery, the Security Trustee and the Account Party shall adjust the Required Value to the extent necessary to ensure that the Required Value of the Charged Portfolio is of an amount equal to the aggregate of: (A x Y per cent.) +(B x Y per cent.) +(C x Y per cent.) where: A represents the amount of the Charged Portfolio denominated in sterling B represents the amount of the Charged Portfolio denominated in dollars (converted into sterling at the Spot Rate) C represents the amount of the Charged Portfolio denominated in any currency other than sterling or dollars (converted into sterling at the Spot Rate) Y per cent. means: (a) 10 per cent. in respect of any portion of the Charged Portfolio denominated in sterling; (b) 10 per cent. in respect of any portion of the Charged Portfolio denominated in dollars; and (c) 15 per cent. in respect of any portion of the Charged Portfolio denominated in any currency other than dollars or sterling and shall notify the Custodian of any such adjustments. 25.20.2 The Security Trustee shall not amend the Security Trustee's Requirements without the consent of the Banks. 25.20.3 In the event that the Pricing Level reverts from Level V to level IV or above (each as defined in Schedule 9 (Pricing Schedule), the Security Trustee will release the Security granted to it pursuant to sub-clause 17.1.2 of Clause 17.1 (Letter of Credit Commission) except for a portion of such Security which has a Required Value of US$100. For the avoidance of doubt, if, following any such release, further Security is again required to be granted pursuant to sub-clause 17.1.2 of Clause 17.1 (Letter of Credit Commission), the Required Value of the Security charged pursuant to the Charge Agreement shall be increased to the extent required pursuant to sub-clause 17.1.2 of Clause 17.1 (Letter of Credit Commission). 25.21 Bank Representations Each Bank represents to the Agent on the date of issue of each Letter of Credit that: 25.21.1 the execution and delivery of each Letter of Credit by the Agent on the Bank's behalf has been duly authorised by all necessary action on the part of the Bank; 25.21.2 the obligations of the Bank under each Letter of Credit constitute its legal, valid and binding obligations; and 25.21.3 it has not participated in such Letter of Credit on the basis that the collateral securing the repayment of any amounts payable by it under the Letter of Credit comprises directly or indirectly a security interest over a Principal Private Residence. 25.22 Letters of Credit Each Bank shall (i) in its Proportion, indemnify the Agent against any and all liabilities, costs and expenses which the Agent may incur (in its capacity as Agent) as a result of the execution and delivery of any Letter of Credit and any documents executed and delivered by the Agent in connection therewith; and (ii) inform the Agent promptly if at any time the collateral securing the repayment of any amounts payable under any Letter of Credit comprises directly or indirectly a security interest over a Principal Private Residence. 26. ASSIGNMENTS AND TRANSFERS 26.1 Binding Agreement The Finance Documents shall be binding upon and enure to the benefit of each party hereto and its or any subsequent successors and Transferees. 26.2 No Assignments and Transfers by the Obligors No Obligor shall be entitled to assign or transfer all or any of its rights, benefits and obligations under the Finance Documents. 26.3 Assignments and Transfers by Banks Subject to obtaining the prior written consent of the Account Party (such consent not to be unreasonably withheld or delayed), any Bank may, at any time, assign all or any of its rights and benefits under the Finance Documents or transfer in accordance with Clause 26.5 (Transfers by Banks) all or any of its rights, benefits and obligations under the Finance Documents to a bank or financial institution, provided that: 26.3.1 no such assignment or transfer of the whole or any part of the Commitment may be made unless it is to an Approved Credit Institution; and 26.3.2 the Account Party's consent is not required if such assignment or transfer is: (a) to any subsidiary or holding company, or to any subsidiary of any holding company, of such Bank; or (b) to any other Bank. 26.4 Assignments by Banks If any Bank assigns all or any of its rights and benefits under the Finance Documents in accordance with Clause 26.3 (Assignments and Transfers by Banks), then, unless and until the assignee has delivered a notice to the Agent confirming in favour of the Agent, the Arranger and the Banks that it shall be under the same obligations towards each of them as it would have been under if it had been an original party hereto as a Bank (whereupon such assignee shall become a party hereto as a "Bank"), the Agent, the Arranger, and the Banks shall not be obliged to recognise such assignee as having the rights against each of them which it would have had if it had been such a party hereto. 26.5 Transfers by Banks If any Bank wishes to transfer all or any of its rights, benefits and/or obligations under the Finance Documents as contemplated in Clause 26.3 (Assignments and Transfers by Banks), then such transfer may be effected by the delivery to the Agent of a duly completed Transfer Certificate executed by such Bank and the relevant Transferee in which event, on the later of the Transfer Date specified in such Transfer Certificate and the fifth Business Day after (or such earlier Business Day endorsed by the Agent on such Transfer Certificate falling on or after) the date of delivery of such Transfer Certificate to the Agent: 26.5.1 to the extent that in such Transfer Certificate the Bank party thereto seeks to transfer by novation its rights, benefits and obligations under the Finance Documents, each of the Obligors and such Bank shall be released from further obligations towards one another under the Finance Documents and their respective rights against one another shall be cancelled (such rights and obligations being referred to in this Clause 26.5 as "discharged rights and obligations"); 26.5.2 each of the Obligors and the Transferee party thereto shall assume obligations towards one another and/or acquire rights against one another which differ from such discharged rights and obligations only insofar as such Obligor and such Transferee have assumed and/or acquired the same in place of such Obligor and such Bank; 26.5.3 the Agent, the Arranger, the Security Trustee, the Co- Arrangers, such Transferee and the other Banks shall acquire the same rights and benefits and assume the same obligations between themselves as they would have acquired and assumed had such Transferee been an original party hereto as a Bank with the rights, benefits and/or obligations acquired or assumed by it as a result of such transfer and to that extent the Agent, the Arranger and the relevant Bank shall each be released from further obligations to each other under the Finance Documents; and 26.5.4 such Transferee shall become a party hereto as a "Bank". 26.6 Replacement of Letter of Credit On any transfer pursuant to Clause 26.5 (Transfers by Banks) other than such a transfer upon the designation of a Substitute Bank in accordance with the provisions of Clause 4.6.1 (Substitute Bank) the Bank transferring all or any of its rights, benefits and/or obligations under the Finance Documents shall ensure that the Account Party will procure the release by Lloyd's of each Letter of Credit (an "Old Letter of Credit") with respect to which the transfer is to have effect and its replacement by a new Letter of Credit to be issued by the Transferee and all the other Banks in an amount equal to that of the Old Letter of Credit and having an Expiry Date which corresponds with the Expiry Date thereof. 26.7 Transfer Fees On the date upon which a transfer takes effect pursuant to Clause 26.5 (Transfers by Banks) the relevant Transferee shall pay to the Agent for its own account a fee of (Pounds)1,000. 26.8 Disclosure of Information Any Bank may disclose to any person: 26.8.1 to (or through) whom such Bank assigns or transfers (or may potentially assign or transfer) all or any of its rights, benefits and obligations under the Finance Documents; 26.8.2 with (or through) whom such Bank enters into (or may potentially enter into) any sub-participation in relation to, or any other transaction under which payments are to be made by reference to, this Agreement or any Obligor; or 26.8.3 to whom information may be required to be disclosed by any applicable law, such information about any Obligor or the Group and the Finance Documents as such Bank shall consider appropriate and in the case of (i) and (ii) above, subject to requiring and receiving a confidentiality undertaking substantially in the form set out in Schedule 8 (Form of Confidentiality Agreement). 26.9 Partial Transfers/Assignments Any assignment or transfer by a Bank of part of its Commitment or Outstandings shall be in a minimum amount of (Pounds)10,000,000. 27. ECONOMIC AND MONETARY UNION 27.1 Alternative Currencies during Transition Period On and from the date on which the United Kingdom becomes a Participating Member State, if and to the extent that any EMU Legislation provides that an amount denominated either in the euro or in sterling and payable within that Participating Member State by crediting an account of the creditor can be paid by the debtor either in the euro unit or in sterling, the Borrower shall be entitled to pay or repay any such amount payable hereunder either in the euro unit or in sterling. 27.2 Business Days With effect on and from the date on which the United Kingdom becomes a Participating Member State, the definition of Business Day in Clause 1.1 (Definitions) shall be amended by the addition thereto (at the end) of the following: "and if such reference relates to a date for the payment or purchase of a sum denominated in the euro or in sterling, a day (other than a Saturday or Sunday) on which (a) such clearing or settlement system as is determined by the Agent to be suitable for clearing or settlement of the euro is open for business and (b) banks are generally open for business in London.". 27.3 Rounding and Other Consequential Changes With effect on and from the date on which the United Kingdom becomes a Participating Member State: 27.3.1 without prejudice and in addition to any method of conversion or rounding prescribed by any EMU Legislation, each reference in this Agreement to a fixed amount or fixed amounts in a national currency unit to be paid to or by the Agent shall be replaced by a reference to such comparable and convenient fixed amount or fixed amounts in the euro unit as the Agent may from time to time specify; and 27.3.2 save as expressly provided in this Clause 27, the Finance Documents shall be subject to such changes of construction or interpretation as the Agent and the Security Trustee may from time to time specify to be necessary to reflect the changeover to the euro in the United Kingdom and to put the parties in the same position, so far as possible, that they would have been in if no change in currency had occurred. 28. CALCULATIONS AND EVIDENCE OF DEBT 28.1 Basis of Accrual Interest and Letter of Credit Commission shall accrue from day to day and shall be calculated on the basis of a year of 365 days (or in the case of any such amounts denominated in dollars, 360 days) and the actual number of days elapsed. 28.2 Proportionate Reductions Any collateralisation of Outstandings denominated in dollars shall reduce the amount of such Outstandings by the amount of dollars collateralised and shall reduce the Sterling Amount of such Outstandings proportionately. 28.3 Evidence of Debt Each Bank shall maintain in accordance with its usual practice accounts evidencing the face amount of its participations in Letters of Credit and the amounts from time to time owing to it hereunder. 28.4 Control Accounts The Agent shall maintain on its books a control account or accounts in which shall be recorded (a) the amount of any Unpaid Sum and the face amount of any Letter of Credit issued and each Bank's share therein, (b) the amount of all fees, interest and other sums due or to become due from an Obligor and each Bank's share therein and (c) the amount of any sum received or recovered by the Agent hereunder and each Bank's share therein. 28.5 Prima Facie Evidence In any legal action or proceeding arising out of or in connection with this Agreement, the entries made in the accounts maintained pursuant to Clause 28.3 (Evidence of Debt) and Clause 28.4 (Control Accounts) shall be prima facie evidence of the existence and amounts of the specified obligations of the Obligors. 28.6 Certificates of Banks A certificate of a Bank as to (a) the amount by which a sum payable to it hereunder is to be increased under Clause 9.1 (Tax Gross-up), (b) the amount for the time being required to indemnify it against any such cost, payment or liability as is mentioned in Clause 9.2 (Tax Indemnity) or Clause 11.1 (Increased Costs) or (c) the amount of any credit, relief, remission or repayment as is mentioned in Clause 10.3 (Tax Credit Payment) or Clause 10.4 (Tax Credit Clawback) shall, in the absence of manifest error, be prima facie evidence of the existence and amounts of the specified obligations of the Obligors. 28.7 Agent's Certificates A certificate of the Agent as to the amount at any time due from the Account Party hereunder or the amount which, but for any of the obligations of the Account Party hereunder being or becoming void, voidable, unenforceable or ineffective, at any time would have been due from the Account Party hereunder shall, in the absence of manifest error, be conclusive for the purposes of Clause 29 (Guarantee and Indemnity). 28.8 Letters of Credit A certificate of a Bank as to the amount paid out by such Bank in respect of any Letter of Credit shall, save for manifest error, be prima facie evidence of the payment of such amounts in any legal action or proceedings arising in connection therewith. 29. GUARANTEE AND INDEMNITY 29.1 Guarantee and Indemnity The Guarantor irrevocably and unconditionally: 29.1.1 guarantees to each Finance Party the due and punctual observance and performance of all the terms, conditions and covenants on the part of the Account Party contained in the Finance Documents and agrees to pay from time to time on demand any and every sum or sums of money which the Account Party is at any time liable to pay to any Finance Party under or pursuant to the Finance Documents and which has become due and payable but has not been paid at the time such demand is made; and 29.1.2 agrees as a primary obligation to indemnify each Finance Party from time to time on demand from and against any loss incurred by any Finance Party as a result of any of the obligations of the Account Party under or pursuant to the Finance Documents being or becoming void, voidable, unenforceable or ineffective as against the Account Party for any reason whatsoever, whether or not known to any Finance Party or any other person, the amount of such loss being the amount which the person or persons suffering it would otherwise have been entitled to recover from the Account Party. 29.2 Additional Security The obligations of the Guarantor herein contained shall be in addition to and independent of every other security which any Finance Party may at any time hold in respect of any of the Account Party's obligations under the Finance Documents. 29.3 Continuing Obligations The obligations of the Guarantor herein contained shall constitute and be continuing obligations notwithstanding any settlement of account or other matter or thing whatsoever and shall not be considered satisfied by any intermediate payment or satisfaction of all or any of the obligations of the Account Party under the Finance Documents and shall continue in full force and effect until final payment in full of all amounts owing by the Account Party under the Finance Documents and total satisfaction of all the Account Party's actual and contingent obligations under the Finance Documents. 29.4 Obligations not Discharged Neither the obligations of the Guarantor herein contained nor the rights, powers and remedies conferred in respect of the Guarantor upon any Finance Party by the Finance Documents or by law shall be discharged, impaired or otherwise affected by: 29.4.1 the winding-up, dissolution, administration or re-organisation of the Account Party or any other person or any change in its status, function, control or ownership; 29.4.2 any of the obligations of the Account Party or any other person under the Finance Documents or under any other security taken in respect of any of its obligations under the Finance Documents being or becoming illegal, invalid, unenforceable or ineffective in any respect; 29.4.3 time or other indulgence being granted or agreed to be granted to the Account Party in respect of its obligations under the Finance Documents or under any such other security; 29.4.4 any amendment to, or any variation, waiver or release of, any obligation of the Account Party under the Finance Documents or under any such other security; 29.4.5 any failure to take, or fully to take, any security contemplated hereby or otherwise agreed to be taken in respect of the Account Party's obligations under the Finance Documents; 29.4.6 any failure to realise or fully to realise the value of, or any release, discharge, exchange or substitution of, any security taken in respect of the Account Party's obligations under the Finance Documents; or 29.4.7 any other act, event or omission which, but for this Clause 29.4, might operate to discharge, impair or otherwise affect any of the obligations of the Guarantor herein contained or any of the rights, powers or remedies conferred upon any of the Finance Parties by the Finance Documents or by law. 29.5 Settlement Conditional Any settlement or discharge between the Account Party and any of the Finance Parties shall be conditional upon no security or payment to any Finance Party by the Account Party or any other person on behalf of the Account Party 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, each Finance Party shall be entitled to recover the value or amount of such security or payment from the Account Party subsequently as if such settlement or discharge had not occurred. 29.6 Exercise of Rights No Finance Party shall be obliged before exercising any of the rights, powers or remedies conferred upon them in respect of the Guarantor by the Finance Documents or by law to: 29.6.1 make any demand of the Account Party; 29.6.2 take any action or obtain judgment in any court against the Account Party; 29.6.3 make or file any claim or proof in a winding-up or dissolution of the Account Party; or 29.6.4 enforce or seek to enforce any other security taken in respect of any of the obligations of the Account Party under the Finance Documents. 29.7 Deferral of Guarantor's Rights The Guarantor agrees that, so long as any amounts are or may be owed by the Account Party under the Finance Documents or the Account Party is under any actual or contingent obligations under the Finance Documents, it shall not exercise any rights which it may at any time have by reason of performance by it of its obligations under the Finance Documents: 29.7.1 to be indemnified by the Account Party; and/or 29.7.2 to claim any contribution from any other guarantor of the Account Party's obligations under the Finance Documents; and/or 29.7.3 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 security taken pursuant to, or in connection with, the Finance Documents by all or any of the Finance Parties. 29.8 Suspense Accounts All moneys received, recovered or realised by a Bank by virtue of Clause 29.1 (Guarantee and Indemnity) may, in that Bank's discretion, be credited to an interest bearing suspense or impersonal account and may be held in such account for so long as such Bank thinks fit pending the application from time to time (as such Bank may think fit) of such moneys in or towards the payment and discharge of any amounts owing by the Account Party to such Bank under the Finance Documents. 30. REMEDIES AND WAIVERS, PARTIAL INVALIDITY 30.1 Remedies and Waivers No failure to exercise, nor any delay in exercising, on the part of any Finance Party, any right or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right or remedy prevent any further or other exercise thereof or the exercise of any other right or remedy. The rights and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by law. 30.2 Partial Invalidity If, at any time, any provision of the Finance Documents is or becomes illegal, invalid or unenforceable in any respect under the law of any jurisdiction, neither the legality, validity or enforceability of the remaining provisions thereof nor the legality, validity or enforceability of such provision under the law of any other jurisdiction shall in any way be affected or impaired thereby. 31. NOTICES 31.1 Communications in Writing Each communication to be made under the Finance Documents shall be made in writing and, unless otherwise stated, shall be made by telex, fax or letter. 31.2 Addresses Any communication or document to be made or delivered pursuant to the Finance Documents shall (unless the recipient of such communication or document has, by fifteen days' written notice to the Agent, specified another address or fax number) be made or delivered to the address or fax or telex number: 31.2.1 in the case of the Obligors and the Agent, identified with its name below; and 31.2.2 in the case of each Bank, notified in writing to the Agent 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). 31.3 Delivery Any communication or document to be made or delivered by one person to another pursuant to the Finance Documents shall: 31.3.1 if by way of fax, be deemed to have been received when transmission has been completed; 31.3.2 if by way of letter, be deemed to have been delivered when left at the relevant address or, as the case may be, ten days after being deposited in the post postage prepaid in an envelope addressed to it at such address; and 31.3.3 if by way of telex, be deemed to have been made or delivered when despatched and answerback received provided that any communication or document to be made or delivered to the Agent shall be effective only when received by its agency division and then only if the same is expressly marked for the attention of the department or officer identified with the Agent's signature below (or such other department or officer as the Agent shall from time to time specify for this purpose). 31.4 Notification of Changes Promptly upon receipt of notification of a change of address or fax number pursuant to Clause 31.2 (Addresses) or changing its own address or fax number, the Agent shall notify the other parties hereto of such change. 31.5 English Language Each communication and document made or delivered by one party to another pursuant to the Finance Documents shall be in the English language or accompanied by a translation thereof into English certified (by an officer of the person making or delivering the same) as being a true and accurate translation thereof. 31.6 Deemed Receipt by the Obligors Any communication or document made or delivered to the Account Party in accordance with Clause 31.3 (Delivery) shall be deemed to have been made or delivered to both Obligors. 32. COUNTERPARTS This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument. 33. AMENDMENTS 33.1 Amendments The Agent, if it has the prior consent of the Majority Banks, and the Obligors may from time to time agree in writing to amend this Agreement or to waive, prospectively or retrospectively, any of the requirements of this Agreement and any amendments or waivers so agreed shall be binding on all the Finance Parties, provided that no such waiver or amendment shall subject any Finance Party hereto to any new or additional obligations without the consent of such Finance Party. 33.2 Amendments Requiring the Consent of all the Banks An amendment or waiver which relates to: 33.2.1 Clause 24 (Sharing) or this Clause 33; 33.2.2 a change in the currency or amount of any Letter of Credit; 33.2.3 a change in the Letter of Credit Commission, or the amount or currency of any payment of interest, fees or any other amount payable hereunder to any Finance Party or deferral of the date for payment thereof; 33.2.4 a release of the Guarantor from any of its obligations set out in Clause 29 (Guarantee and Indemnity); 33.2.5 Clause 15.7 (Adjusted Consolidated Debt to Total Capitalisation Ratio), Clause 15.8 (Tangible Net Worth) and Clause 15.9 (Liens); 33.2.6 the definition of Majority Banks; 33.2.7 any provision which contemplates the need for the consent or approval of all the Banks; or 33.2.8 the Security Documents (if any), shall not be made without the prior consent of all the Banks. 33.3 Exceptions Notwithstanding any other provisions hereof, the Agent shall not be obliged to agree to any such amendment or waiver if the same would: 33.3.1 amend or waive this Clause 33, Clause 18 (Costs and Expenses) or Clause 25 (The Agent, the Arranger and the Banks); or 33.3.2 otherwise amend or waive any of the Agent's rights hereunder or subject the Agent or the Arranger to any additional obligations hereunder. 34. GOVERNING LAW This Agreement is governed by English law. 35. JURISDICTION 35.1 English Courts Each of the parties hereto irrevocably agrees for the benefit of each of the Agent, the Arranger and the Banks that the courts of England shall have jurisdiction to hear and determine any suit, action or proceeding, and to settle any disputes, which may arise out of or in connection with this Agreement and the other Finance Documents and, for such purposes, irrevocably submits to the jurisdiction of such courts. 35.2 Convenient Forum The Obligors irrevocably waive any objection which either of them might now or hereafter have to the courts referred to in Clause 35.1 being nominated as the forum to hear and determine any suit, action or proceeding, and to settle any disputes, which may arise out of or in connection with this Agreement and agree not to claim that any such court is not a convenient or appropriate forum. 35.3 Service of Process Each Obligor agrees that the process by which any suit, action or proceeding is begun may be served on it by being delivered in connection with any suit, action or proceeding in England, to ACE UK Limited at Crosby Court, 38 Bishopsgate, London EC2N 4AJ or its other principal place of business for the time being. 35.4 Non-Exclusive Jurisdiction The submission to the jurisdiction of the courts referred to in Clause 35.1 shall not (and shall not be construed so as to) limit the right of the Agent, the Arranger, the Co-Arrangers and the Banks or any of them to take proceedings against the Account Party in any other court of competent jurisdiction nor shall the taking of proceedings in any one or more jurisdictions preclude the taking of proceedings in any other jurisdiction, whether concurrently or not. AS WITNESS the hands of the duly authorised representatives of the parties hereto the day and year first before written. SCHEDULE 1 The Banks
Commitment Bank ((Pounds)) Citibank, N.A. 71,666,667.00 Barclays Bank PLC 71,666,666.50 ING Bank N.V., London Branch 71,666,666.50 ABN Amro Bank N.V., London Branch 30,000,000.00 National Westminster Bank PLC 30,000,000.00 Credit Lyonnais New York Branch 15,000,000.00 -------------- Total 290,000,000.00 --------------
SCHEDULE 2 Form of Transfer Certificate To: Citibank International plc TRANSFER CERTIFICATE relating to the agreement (as from time to time amended, varied, novated or supplemented, the "Credit Agreement") dated November 1999 whereby a (Pounds)290,000,000 letter of credit facility was made available to ACE Limited by a group of banks on whose behalf Citibank International plc acted as agent in connection therewith. 1. Terms defined in the Credit Agreement shall, subject to any contrary indication, have the same meanings herein. The terms Bank, Transferee and Portion Transferred are defined in the schedule hereto. 2. The Bank (a) confirms that the details in the schedule hereto under the heading "Letters of Credit" accurately summarises its participation in the Credit Agreement and the Term of any existing Letters of Credit and (b) requests the Transferee to accept and procure the transfer by novation to the Transferee of the Portion Transferred (specified in the schedule hereto) of its Commitment and/or its participation in such Letters of Credit by counter-signing and delivering this Transfer Certificate to the Agent at its address for the service of notices specified in the Credit Agreement. 3. The Transferee hereby requests the Agent to accept this Transfer Certificate as being delivered to the Agent pursuant to and for the purposes of Clause 26.5 (Transfers by Banks) of the Credit Agreement so as to take effect in accordance with the terms thereof on the Transfer Date or on such later date as may be determined in accordance with the terms thereof. 4. The Transferee confirms that it has received a copy of the Credit Agreement together with such other information as it has required in connection with this transaction and that it has not relied and will not hereafter rely on the Bank to check or enquire on its behalf into the legality, validity, effectiveness, adequacy, accuracy or completeness of any such information and further agrees that it has not relied and will not rely on the Bank to assess or keep under review on its behalf the financial condition, creditworthiness, condition, affairs, status or nature of the Obligors. 5. The Transferee hereby undertakes with the Bank and each of the other parties to the Credit Agreement that it will perform in accordance with their terms all those obligations which by the terms of the Finance Documents will be assumed by it after delivery of this Transfer Certificate to the Agent and satisfaction of the conditions (if any) subject to which this Transfer Certificate is expressed to take effect. 6. The Bank makes no representation or warranty and assumes no responsibility with respect to the legality, validity, effectiveness, adequacy or enforceability of the Finance Documents or any document relating thereto and assumes no responsibility for the financial condition of the Obligors or for the performance and observance by the Obligors of any of their respective obligations under the Finance Documents or any document relating thereto and any and all such conditions and warranties, whether express or implied by law or otherwise, are hereby excluded. 7. The Bank hereby gives notice that nothing herein or in the Finance Documents (or any document relating thereto) shall oblige the Bank to (a) accept a re-transfer from the Transferee of the whole or any part of its rights, benefits and/or obligations under the Finance Documents transferred pursuant hereto or (b) support any losses directly or indirectly sustained or incurred by the Transferee for any reason whatsoever including the non- performance by an Obligor or any other party to the Finance Documents (or any document relating thereto) of its obligations under any such document. The Transferee hereby acknowledges the absence of any such obligation as is referred to in (a) or (b) above. 8. This Transfer Certificate and the rights, benefits and obligations of the parties hereunder shall be governed by and construed in accordance with English law. THE SCHEDULE 1. Bank: 2. Transferee: 3. Transfer Date: 4. Bank's Commitment Portion Transferred 5. Letter(s) of Credit Term and Portion Transferred Bank's L/C Participation Expiry Date [Transferor Bank] [Transferee Bank] By: By: Date: Date: - ------------------------------------------------------------------------------- ADMINISTRATIVE DETAILS OF TRANSFEREE Address Contact Name: Account for Payments in sterling: Fax: Telephone: SCHEDULE 3 Conditions Precedent 1. In relation to each Obligor: (i) a copy, certified as at the date of this Agreement a true and up-to- date copy by an Authorised Signatory of such Obligor, of the constitutional documents of such Obligor; (ii) a copy, certified as at the date of this Agreement a true and up-to- date copy by an Authorised Signatory of such Obligor, of a board resolution of such Obligor approving the execution, delivery and performance of this Agreement and the Finance Documents and the terms and conditions hereof and thereof and authorising a named person or persons to sign this Agreement and any documents to be delivered by such Obligor pursuant hereto or thereto; (iii) a certificate of an Authorised Signatory of such Obligor setting out the names and signatures of the persons authorised to sign, on behalf of such Obligor, this Agreement and the Finance Documents and any documents to be delivered by such Obligor pursuant hereto or thereto. 2. Opinion of Clifford Chance, solicitors to the Agent. 3. An opinion of Maples and Calder, Cayman Islands counsel to the Account Party addressed to the Finance Parties. 4. An opinion of Conyers, Dill and Pearman, Bermudian counsel to the Account Party addressed to the Finance Parties. 5. A copy, certified a true copy by an Authorised Signatory of the Account Party, of the financial statements of the Account Party referred to in Clauses 14.4.1 and 14.4.2 (Financial Information). 6. Evidence satisfactory to the Agent that Lloyd's agrees to accept deeds of substitution in respect of transfers by Banks. 7. Evidence satisfactory to the Agent that the Existing Facilities will be cancelled and all amounts outstanding thereunder paid in full and that all letters of credit issued thereunder will be cancelled by Lloyds contemporaneously with the issue of the Letters of Credit pursuant to the terms of this Agreement. 8. Evidence that ACE UK Limited of Crosby Court, 38 Bishopsgate, London EC2N 4AJ has agreed to act as the agent of each Obligor for the service of process in England. SCHEDULE 4 Utilisation Request From: ACE Limited To: Citibank International plc Dated: Dear Sirs, 1. We refer to the (Pounds)290,000,000 letter of credit agreement (the "Credit Agreement") dated November 1999 and made between inter alia, ACE Limited as account party, Citibank International plc as agent and the financial institutions named therein as Banks. Terms defined in the Credit Agreement shall have the same meaning in this notice. This notice is irrevocable. 2. We hereby give you notice that, pursuant to the Credit Agreement we wish the Banks to issue the following Letters of Credit:
======================================================================================================== Amount Effective Date Expiry Date Beneficiary Applicant - -------------------------------------------------------------------------------------------------------- (Pounds)/US$/1/ 26 November 1999 31 December 2004 Society of Lloyd's - -------------------------------------------------------------------------------------------------------- (Pounds)/US$/1/ 26 November 1999 31 December 2004 Society of Lloyd's - -------------------------------------------------------------------------------------------------------- (Pounds)/US$/1/ 26 November 1999 31 December 2004 Society of Lloyd's - -------------------------------------------------------------------------------------------------------- (Pounds)/US$/1/ 26 November 1999 31 December 2004 Society of Lloyd's - -------------------------------------------------------------------------------------------------------- (Pounds)/US$/1/ 26 November 1999 31 December 2004 Society of Lloyd's - -------------------------------------------------------------------------------------------------------- (Pounds)/US$/1/ 26 November 1999 31 December 2004 Society of Lloyd's ========================================================================================================
/1/ Delete where appropriate. 3. Utilisation Date: [ ]. 4. We confirm that, at the date hereof, the Representations are true in all material respects and no Default is continuing. The Letters of Credit should be issued in the form attached and delivered to the recipient at [address of recipient]. The purpose of their issue is to support Funds at Lloyd's in respect of the Applicants. Yours faithfully ............................ Authorised Signatory for and on behalf of ACE LIMITED /1/ Delete where appropriate. SCHEDULE 5 FORM OF EXTENSION REQUEST From: ACE Limited To: Citibank International plc Dated: Re: [Applicant 1] [Applicant 2] Dear Sirs We refer to the (Pounds)290,000,000 letter of credit agreement dated November 1999 (the "Agreement") between, inter alia, ACE Limited (the "Company"), the financial institutions named therein as Banks and Citibank International plc as Agent. Terms defined in the Agreement shall have the same meanings herein. 1. Pursuant to Clause 4 (Extension of Letters of Credit) of the Agreement, the Account Party, on behalf of [ ] (the "Applicant[s]") hereby requests that the Banks extend the Letter[s] of Credit in accordance with the information annexed hereto as Annex A. 2. The Account Party hereby certifies that on the date hereof and on the date of extension set forth in Annex A, in each case both before and after giving effect to the extension requested hereby: (i) no Event of Default or Potential Event of Default has occurred and is continuing; (ii) each of the representations and warranties of the Account Party contained in the Agreement and each other Finance Document is correct in all material respects on the date hereof, except representations and warranties which expressly refer to an earlier date in which case the same shall be true on and as of such earlier date; (iii) after giving effect to the extension requested hereby, the aggregate Sterling Amount of the Outstandings will not exceed the Total Commitments; and (iv) the Letter[s] of Credit requested hereby [is/are] being extended solely as security to support the underwriting business of the Applicant[s] at Lloyd's which has been provided in accordance with the requirements of Lloyd's applicable to [it/them]. IN WITNESS WHEREOF, the Account Party has caused this Certificate to be executed by its duly authorised officer as of the date and year first written above. ACE LIMITED By:......................................... Name:....................................... Title:...................................... Annex A Letter of Credit Information/2/ 1. Name of Beneficiary: ......................................................................... 2. Letter of Credit Number: ......................................................................... 3. Maximum amount available under Letter of Credit: (Pounds)/US$........... 4. Effective Expiry Date: 31 December ...../3/ /2/ A separate "Letter of Credit Information" should be completed for each Letter of Credit covered by the Extension Request. /3/ Insert immediately succeeding year in which the then current Expiry Date falls. SCHEDULE 6 Form Of Letter of Credit Letter of Credit to be issued by the Agent on behalf of the Banks To: The Council of Lloyd's One Lime Street London EC3M 7HA Dear Sirs Irrevocable Standby Letter of Credit No. [ ] Re: [name of corporate member of Lloyd's] (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 Citibank International 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 in 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 Commitment set out in Schedule 1 hereto and the Issuing Banks shall not be obliged to make payments hereunder in aggregate exceeding a maximum amount of [amount in approved currency]. Any payment by an Issuing Bank hereunder shall be made in [approved currency] to Lloyd's account specified in the demand made by Lloyd's pursuant to paragraph 4 below. 3. The initial expiry date of this Credit shall be 31 December 2004. This Credit will be extended automatically for a further year, without written amendment, on the first day of January of every future year from 1 January 2000, so that it is always valid for a minimum period of four years unless at least thirty days prior to 31 December of the first year of the then current validity period, notice is given in writing, sent by registered mail for the attention of the Manager, Members' Funds Department, at the above address, that this Credit will not be extended beyond the then current expiry date. 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 Citibank International plc at P.O. Box 449, Riverdale House, 68 Molesworth Street, Lewisham, London SE13 7EU marked for the attention of Cliff Posner, Loans Agency (and, in copy, at P.O. Box 200, Cottons Centre, Hays Lane, London SE1 2QT marked for the attention of Brian Ellis, Global Insurance) 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. 7. Subject to any contrary indication herein, this Credit is subject to the Uniform Customs and Practice for Documentary Credits (1993 Revision) International Chamber of Commerce Publication No. 500. 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 and conditions of this Credit shall be duly honoured on presentation. Yours faithfully . CITIBANK INTERNATIONAL plc for and on behalf of [Names of all Issuing Banks] APPENDIX 1 Issuing Banks' Commitments Name and Address of Issuing Bank Commitment APPENDIX 2 Form of Demand (Sterling) [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 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 140-00-04026268 P.O. Box 12258 1 Princes Street London EC2R 8AP Please quote Member Code: Yours faithfully for Manager Members' Funds Department Members' Services Unit 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 Credit to our order the amount of (Pounds) . For and on behalf of Authorised Signatory Membership Department To: Citibank International plc as Agent APPENDIX 2 (CONT.) Form of Demand (Approved Currency) [Lloyd's to supply] APPENDIX 3 Form of letter as to principal private residences of the Applicants [Letterhead of Agent] To: The Society incorporated by Lloyd's Act 1871 by the name of Lloyd's Lloyd's of London One Lime Street London EC3M 7HA We, Citibank International plc (the "Agent") acting as agent on behalf of each of [ ] (the "Banks"), hereby confirm the following: 1. We have provided a multi bank letter of credit as agent on behalf of the Banks which will be included in the [Lloyd's deposit/Lloyd's life deposit]/4/ of [ ] /5/(the "Corporate Member"); 2. The execution and delivery by the Agent of the letter of credit has been duly authorised by all necessary action on the part of the Banks and the letter of credit has been duly executed and delivered by the Agent on behalf of the Banks. 3. The obligations of the Banks under the letter of credit constitute legal, valid and bind obligations. 4. We have not issued the letter of credit on behalf of the Banks on the basis that the collateral securing the repayment of any amounts payable under the letter of credit comprises directly or indirectly a security interest over a Principal Private Residence (as defined in paragraph 6 below); 5. We undertake to inform Lloyd's promptly if at any time we become aware that the collateral securing the repayment of any amounts payable under the letter of credit comprises directly or indirectly a security interest over a Principal Private Residence (as so defined); 6. For the purposes of paragraphs 4 and 5 a "Principal Private Residence" is a dwelling house, or any part or share of a dwelling house, which is the only or main residence of any person or their spouse, minor child or adopted child and/or including land for the enjoyment or occupation of that residence. Signature of [ ] [Authorised signatory]/6/ for and on behalf of Citibank International plc as Agent Date: . /4/ Delete as appropriate. /5/ Insert the name of the corporate member in respect of whose Lloyd's deposit of Lloyd's list deposit the letter of credit has been issued. /6/ Specify as appropriate - this letter should not be signed by any person who signed the letter of credit to which this letter relates. SCHEDULE 7 Mandatory Liquid Asset Costs Rate 1. For the purposes of this Agreement, the cost of compliance with existing requirements of the Bank of England and/or the Financial Services Authority will be calculated by the Agent in relation to each Unpaid Sum on the basis of rates supplied by the Agent (or such Bank(s) as it may from time to time determine) by reference to the circumstances existing on the first day of each Term in respect of such Unpaid Sum and, if any such Term of such Unpaid Sum exceeds three months, at three calendar monthly intervals from the first day of such Term during its duration in accordance with the following formula: (a) in relation to Unpaid Sums denominated in Sterling: AB + C(B - D) + E x 0.01 per cent. per annum ------------------------ 100 - (A + C) (b) in relation to Unpaid Sums denominated in dollars: E x 0.01 per cent. per annum -------- --- 300 Where: A is the percentage of eligible liabilities (assuming these to be in excess of any stated minimum) which the Agent (or such Bank as it may determine) is from time to time required to maintain as an interest free cash ratio deposit with the Bank of England to comply with cash ratio requirements. B is the percentage rate per annum at which sterling deposits are offered by the Agent (or such Bank as it may determine) in accordance with its normal practice, for a period equal to (a) the relevant Term (or, as the case may be, remainder of such Term) in respect of the relevant Unpaid Sum or (b) three months, whichever is the shorter, to a leading bank in the London Interbank Market as of 11.00 a.m. in a sum approximately equal to the amount of such Unpaid Sum. C is the percentage of eligible liabilities which the Agent (or such Bank as it may determine) is required from time to time to maintain as interest bearing special deposits with the Bank of England. D is the percentage rate per annum payable by the Bank of England to the Agent (or such Bank as it may determine) on interest bearing special deposits. E is the rate payable by the Agent (or such Bank as it may determine) to the Financial Services Authority pursuant to the Fees Regulations (but, for this purpose, ignoring any minimum fee required pursuant to the Fees Regulations) and expressed in pounds per (Pounds)1,000,000 of the Fee Base of the Agent (or such Bank as it may determine). 2. For the purposes of this Schedule: (i) "eligible liabilities" and "special deposits" shall bear the meanings ascribed to them from time to time under or pursuant to the Bank of England Act 1998 or (as may be appropriate) by the Bank of England; (ii) "Fee Regulations" means the Banking Supervision (Fees) Regulations 1999 or such other regulation as may be in force from time to time in respect of the payment of fees for banking supervision; and (iii) "Fee Base" shall bear the meaning ascribed to it, and shall be calculated in accordance with, the Fees Regulations. 3. The percentages used in A and C above shall be those required to be maintained on the first day of the relevant period as determined in accordance with B above. 4. In application of the above formula, A, B, C and D will be included in the formula as figures and not as percentages e.g. if A is 0.5 per cent. and B is 12 per cent., AB will be calculated as 0.5 x 12 and not as 0.5 per cent. x 12 per cent. 5. Calculations will be made on the basis of a 365 day year (or, if market practice differs, in accordance with market practice). 6. A negative result obtained by subtracting D from B shall be taken as zero. 7. The resulting figures shall be rounded to four decimal places. 8. Additional amounts calculated in accordance with this Schedule are payable on the last day of the Term to which they relate. 9. The determination of the Mandatory Liquid Asset Costs Rate by the Agent in relation to any period shall, in the absence of manifest error, be conclusive and binding on all of the parties hereto. 10. The Agent may from time to time, after consultation with the Account Party and the Banks, determine and notify to all parties any amendments or variations which are required to be made to the formula set out above in order to comply with any requirements from time to time imposed by the Bank of England or the Financial Services Authority in relation to any Unpaid Sum and any such determination shall, in the absence of manifest error, be conclusive and binding on all the parties hereto. SCHEDULE 8 Form of Confidentiality Undertaking [Letterhead of Transferor] [Date] To: [Transferee] Dear Sirs, ACE Limited - (Pounds)290,000,000 Letter of Credit Facility Agreement dated November 1999 Confidentiality Agreement In connection with your possible interest in becoming a bank in the above- captioned facility (the "Transaction") for ACE Limited (the "Company"), we will be providing you with information that is not in the public domain but that is confidential or proprietary in nature. Such information and any other information concerning the Company or the Transaction furnished to you by [Transferor], or by or on behalf of the Company (whether before, on or after the date of this Agreement), together with analyses, compilations or other materials prepared by you or your directors, officers, employees or advisors (collectively, "Representatives") which contain or otherwise reflect such information, are hereinafter collectively referred to as the "Information". In consideration of your receipt of the Information, you agree that: 1. Except as otherwise expressly provided herein, you will not (i) use the Information except in connection with the Transaction or (ii) disclose to any person any terms or conditions of the Transaction or any portion of the Information. 2. Notwithstanding the foregoing, you may disclose the Information: (i) to your Representatives who need to know the Information for purposes of evaluating the Transaction and who are informed by you of the confidential nature of the Information and who agree to be bound by the terms of this Agreement; (ii) as may be required by applicable law or at the request of any regulatory or supervisory authority having jurisdiction over you or at the request of any rating agency for purposes of establishing or maintaining your debt ratings, provided that you request confidential treatment thereof to the extent permitted by law; or (iii) with the prior written consent of the Company and [Transferor]. 3. The reference to the term "Information" contained in paragraphs 1 and 2 shall not include such portions thereof which (i) are or become available to the public through no fault or action by you or your Representatives or (ii) are or hereafter become available to you on a non-confidential basis from a source other than the Company, [Transferor] or their respective Representatives, which source, to the best of your knowledge, is not prohibited from disclosing such Information to you by a contractual, legal or fiduciary obligation to the Company or [Transferor]. 4. In the event that you or any of your Representatives becomes legally compelled to disclose any of the Information or the existence of the Transaction, you will, to the extent permitted by law provide the Company and [Transferor] with prompt notice so that they may seek a protective order or other appropriate remedy. In the event that such protective order or remedy is not obtained, you shall furnish only that portion of the Information that is legally required and shall disclose such Information in a manner reasonably designed to preserve its confidential nature. 5. In the event that discussions with you concerning the Transaction are discontinued or your participation in the Transaction is otherwise terminated, you shall redeliver to [Transferor] any Information that was furnished to you by or on behalf of the Company or the Transferor or shall certify to the Company and [Transferor] that you have destroyed all such Information. 6. You agree to be responsible for any breach of this Agreement by you or your Representatives. 7. You acknowledge that money damages and other remedies at law may be inadequate to protect against breach of this Agreement and you hereby agree to the granting of injunctive or other equitable relief without proof of actual damages. 8. It is further understood and agreed that no failure or delay by the Company or [Transferor] 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. 9. This Agreement shall be governed by and construed in accordance with the laws of England and Wales. If you are prepared to accept the Information on the foregoing terms, please countersign this Agreement in the space provided below and deliver it via telecopier (with the executed original to follow by next-day courier) to: [Transferor] [address] Attention: Telecopier: Your acceptance of this Agreement shall be effective upon our receipt of such fax from you. Yours faithfully, [TRANSFEROR] By: [ ] [ACCEPTED AND AGREED] Title: [ ] As at the date hereof [Name of Transferee] By: [ ] Title: [ ] SCHEDULE 9 Pricing Schedule "L/C Commission Rate" means, for any date, the rates set forth below in the row opposite such term and in the column corresponding to the Pricing Level that applies at such date:
=============================================================================================================== Level I Level II Level III Level IV Level V - --------------------------------------------------------------------------------------------------------------- L/C Commission Rate 0.50 per cent. 0.55 per cent. 0.60 per cent. 0.62.5 per cent 0.65 per cent. ===============================================================================================================
For purposes of this Schedule 9, the following Pricing Levels have the following meanings: "Level I" applies at any date if, at such date, the Guarantor's Financial Strength Rating is rated AA- or higher by S&P. "Level II" applies at any date if, at such date, the Guarantor's Financial Strength Rating is rated A+ by S&P. "Level III" applies at any date if, at such date, the Guarantor's Financial Strength Rating is rated A by S&P. "Level IV" applies at any date if, at such date, the Guarantor's Financial Strength Rating is rated A- by S&P. "Level V" applies at any date if, at such date, the Guarantor's Financial Strength Rating is rated BBB+ or less by S&P. "Financial Strength Rating" means the financial strength rating of a company determined by the method used by S&P. "Pricing Level" refers to the determination of which of Level I, Level II, Level III, Level IV or Level V applies at any date. "S&P" means Standard & Poor's Rating Services (a division of The McGraw-Hill Companies, Inc.). The credit ratings to be utilised for the purposes of this Schedule 9 are those ratings assigned to the Financial Strength Rating of the Guarantor. The rating in effect at any date is that in effect at the close of business on such date. SCHEDULE 10 Existing Liens 1. Liens securing letters of credit issued by Citibank, N.A. for the account of Cigna Europe in an aggregate stated amount not exceeding US$16,000,000 (subject to currency fluctuations). 2. Liens securing letters of credit issued by Citibank, N.A. for the account of INA (UK) in an aggregate stated amount not exceeding US$8,000,000. 3. US$70,000,000 of Cigna Overseas Insurance Company investments are pledged to Domestic Pool companies under a Regulation 114 trust. 4. Lien arising under a Subordination Agreement dated as of 27 October 1998 among ACE US Holdings, Inc., ACE Limited and The Chase Manhattan Bank encumbering ACE US Holdings, Inc.'s rights under the Subordinated Loan Agreement dated as of 27 October 1998 among ACE US Holdings, Inc., ACE Bermuda Insurance Ltd. and United States Trust Company of New York, as trustee under the Indenture dated 17 October 1998 of ACE US Holdings, Inc. SCHEDULE 11 Form of Charge Agreement - ------------------------------------------------------------------ Name of Chargor and address of its registered or principal office: ACE Limited The ACE Building 30 Woodbourne Avenue Hamilton HM08 Bermuda Facsimile no: +441 296 0087 (the "Chargor") - ------------------------------------------------------------------ - ------------------------------------------------------------------ Name of Custodian and address of its registered or principal office: Mellon Bank, N.A. Suite 1570 One Mellon Bank Center Pittsburgh PA15258 Facsimile no: +1 412 234 8725 (the "Custodian") - ------------------------------------------------------------------ - ------------------------------------------------------------------ Date: [Date] - ------------------------------------------------------------------ To: CITIBANK INTERNATIONAL plc (the "Security Trustee") 336 Strand London WC2R 1HB The terms used in this Charge Agreement are defined in Clause 21. 1. PAYMENT AND DISCHARGE We shall pay and discharge in full all of the Obligations at the times and in the manner provided for in the Agreements. 2. CHARGE 2.1 We, acting in the Due Capacity, hereby charge, by way of first charge, in your favour all of the Charged Portfolio for the payment to you and the discharge of all of the Obligations. 2.2 Notwithstanding any provision of the Agreement to the contrary, the Security Trustee's entitlement and recourse against the Charged Portfolio under this Charge Agreement shall not in any circumstances exceed an amount equal to the Required Value. 2.3 We shall deliver, transfer and assign all of the Charged Portfolio to the Custodian by means acceptable to you. 3. CUSTODIAN'S UNDERTAKING We undertake to deliver (or procure the delivery of) the Custodian's Undertaking to you forthwith upon the execution of this Charge Agreement. 4. REQUIRED VALUE We undertake to ensure that with effect from the date of this Charge Agreement and at all times thereafter until the Obligations are discharged in full: 4.1 the market value of the Charged Portfolio shall not be less than the Required Value and without limitation from time to time to pay or transfer to the Custodian (by way of increment to the Charged Portfolio) money and/or securities so that such value shall not be less than the Required Value; and 4.2 each component part of the Charged Portfolio shall satisfy the Security Trustee's Requirements applicable thereto. 5. FURTHER ASSURANCE 5.1 We undertake forthwith upon notice to that effect by you to execute and sign in your favour or your nominees' and to deliver to you all such transfers (or, if you shall so require, partially completed instruments of transfer with the name of the transferee, date and consideration left blank), assignments and notices (including without limitation the notice in the form set out in the First Schedule), and to make all such payments, as you may specify in such notice for the purpose of perfecting your title to all or any part of the Charged Portfolio or for enabling you (as you shall be entitled at any time to do) to vest the same in your name or in the name(s) of your nominees or agents or any purchaser. 5.2 We further undertake forthwith upon notice to that effect by you to execute in your favour or your nominees' or agents' and to deliver to you such legal or other mortgages of the Charged Portfolio or any part thereof for the purpose of securing or further securing the Obligations and being in such form as you shall require (provided that the Obligations are not thereby increased). 6. REPRESENTATIONS AND WARRANTIES We hereby represent and warrant to you and undertake that: 6.1 we are and will, at all times during the subsistence of the security hereby constituted, be the sole beneficial owner of all of the Charged Portfolio free from mortgages or charges in accordance with our undertaking contained in Clause 7 hereof; 6.2 subject to paragraph 5 of the Custodian's Undertaking, we have not sold or agreed to sell or otherwise disposed of or agreed to dispose of the benefit of the Charged Portfolio or any part thereof; 6.3 we have and will at all times have the necessary power to enable us to enter into and perform the obligations expressed to be assumed by us under this Charge Agreement; 6.4 this Charge Agreement constitutes our legal, valid, binding and enforceable obligation (subject to bankruptcy, insolvency or other laws of general application affecting the enforcement of creditors' rights, the application of equitable principles and the non-availability of the equitable remedies of specific performance or injunctive relief) and is a security over the Charged Portfolio and every part thereof effective in accordance with its terms; and 6.5 all necessary authorisations to enable or entitle us to enter into this Charge Agreement have been obtained and are in full force and effect and will remain in such force and effect at all times during the subsistence of the security hereby constituted. 7. NEGATIVE PLEDGE We hereby undertake with you that at no time during the subsistence of the security hereby constituted will we, otherwise than: 7.1 in your favour, or 7.2 with your prior written consent and in accordance with and subject to any conditions which you may attach to such consent, create, grant, extend or permit to subsist any mortgage or other fixed security or any floating charge on or over the Charged Portfolio or any part thereof. The foregoing prohibition shall apply not only to mortgages, other fixed securities and floating charges which rank or purport to rank in point of security in priority to the security hereby constituted but also to any mortgages, securities or floating charges which rank or purport to rank pari passu therewith or thereafter. 8. POWER OF SALE 8.1 Upon the occurrence of an Event of Default which is continuing and which has not been remedied or waived under the Agreement, you shall have and be entitled without prior notice to us to exercise the power to sell or otherwise dispose of, for any consideration (whether payable immediately or by instalments) as you shall think fit, the whole or any part of the Charged Portfolio and may (without prejudice to any right which you may have under any other provision hereof) treat such part of the Charged Portfolio as consists of money as if it were the proceeds of such sale or other disposal. You shall be entitled to apply the proceeds of such sale or other disposal in paying the costs of such sale or other disposal and (subject to the rights or claims of any person entitled in priority to you) in or towards the discharge of the Obligations, the balance (if any) to be paid to us or other persons entitled thereto. Such power of sale or other disposal shall operate as a variation and extension of the statutory power of sale under Section 101 of the Law of Property Act 1925. 8.2 The restriction contained in Section 103 of the Law of Property Act 1925 on the exercise of the statutory power of sale shall not apply to any exercise by you of your power of sale or other disposal which shall arise, as shall the statutory power under the said Section 101 of appointing a receiver of the Charged Portfolio or the income thereof, immediately upon the occurrence of an Event of Default which is continuing and which has not been remedied or waived as is referred to in Clause 8.1. In favour of a purchaser of all or any part of the Charged Portfolio, a certificate in writing by your officer or agent that either or both of such powers has arisen and is exercisable shall be conclusive evidence of that fact. 8.3 Without limitation to the generality of your rights and remedies as set forth in Clause 8.1, you may at any time without prior notice to us:- 8.3.1 after an Event of Default has occurred which is continuing and which has not been remedied or waived, exercise any or all of your rights under or pursuant to the Custodian's Undertaking; and 8.3.2 if any or all of the component parts of the Charged Portfolio (the "Ineligible Property") delivered, transferred or assigned to you under or pursuant to the Custodian's Undertaking do not satisfy the Security Trustee's Requirements, then you may (but shall not be obliged to): (a) convert for our account and at our sole risk all or any part of the Ineligible Property into property which does satisfy all or any of the Security Trustee's Requirements in such manner as you in your sole discretion (acting reasonably) may determine to be appropriate; and/or (b) sell for our account and at our sole risk all or any part of the Ineligible Property in return for payment of such currency or currencies as you in your sole discretion (acting reasonably) determine to be appropriate and pay the same to an account or accounts opened or maintained by you for that purpose pursuant to Clause 13.2. 9. POWER OF ATTORNEY We hereby by way of security for the performance of our obligations hereunder irrevocably (within the meaning of Section 4 of the Powers of Attorney Act 1971) appoint you to be our attorney and in our name and on our behalf and as our act and deed after an Event of Default has occurred which is continuing and which has not been remedied or waived, to sign, seal, execute, deliver, perfect and do all deeds, instruments, mortgages and things as may be, or as you may consider to be, requisite for carrying out any obligations imposed on us under Clause 5, or for enabling you to exercise your power(s) of sale or other disposal or conversion referred to in Clause 8 or for carrying into effect any such sale or other disposal or conversion made under such power(s) by executing instruments of transfer (or completing partially completed instruments executed by us), assignments or notices, or exercising any of the rights and powers from time to time attaching to any part of the Charged Portfolio. We hereby undertake to ratify and confirm all things done and documents executed by you in the exercise of the power of attorney conferred by this Clause. 10. CONSOLIDATION OF SECURITIES Subsection (1) of Section 93 of the Law of Property Act 1925 shall not apply to this Charge Agreement. 11. EFFECTIVENESS OF SECURITY 11.1 This Charge Agreement shall be in addition to and shall be independent of every other security which you may at any time hold for any of the Obligations. No prior security held by you over the whole or any part of the Charged Portfolio shall merge in the security hereby constituted. 11.2 This Charge Agreement shall remain in full force and effect as a continuing security unless and until you discharge it. 11.3 Nothing contained in this Charge Agreement is intended to, or shall operate so as to, prejudice or affect any bill, note, guarantee, mortgage, pledge, charge or other security of any kind whatsoever which you may have for the Obligations or any of them or any right, remedy or privilege of yours thereunder. 12. REMEDIES, TIME OR INDULGENCE 12.1 The rights, powers and remedies provided by this Charge Agreement are cumulative and are not, nor are they to be construed as, exclusive of any right of set-off or other rights, powers and remedies provided by law. 12.2 No failure on your part to exercise, or delay on your part in exercising, any of the rights, powers and remedies provided by this Charge Agreement or by law (each a "Security Trustee Right") shall operate as a waiver thereof, nor shall any single or partial waiver of a Security Trustee Right preclude any further or other exercise of that Security Trustee Right or the exercise of any other Security Trustee Right. 12.3 You may in your discretion grant time or other indulgence or make any other arrangement, variation or release with any person(s) not party hereto (irrespective of whether such person(s) is/are jointly liable with us) in respect of the Obligations or in any way affecting or concerning them or any of them or in respect of any security for the Obligations or any of them, without in any such case prejudicing, affecting or impairing the security hereby constituted, or any Security Trustee Right or the exercise of the same, or any indebtedness or other liability owed by us to you. 13. ACCOUNTS 13.1 If you shall at any time receive notice of any subsequent mortgage, assignment, charge or other interest affecting all or any part of the Charged Portfolio you may open a new account or accounts for us in your books. If you do not do so, then (unless you give to us express written notice to the contrary) as from the time of receipt of such notice by you, all payments made by us to you shall in the absence of any express appropriation by you to the contrary be treated as having been credited to a new account of ours and not as having been applied in reduction of the Obligations at the time when you received the notice. 13.2 All monies received, recovered or realised by you under this Charge Agreement (including the proceeds of any conversion of currency) may in your discretion be credited to any suspense or impersonal account and may be held in such account for so long as you shall think fit (with interest accruing thereon at such rate, if any, as you may deem fit) pending their application from time to time (as you shall be entitled to do in your discretion) in or towards the discharge of any of the Obligations. 13.3 In case you shall have more than one account for us in your books you may at any time after making any demand for payment or other discharge of any of the Obligations, and for so long as all the Obligations remain unpaid, or after you shall have received notice of any subsequent charge or other interest affecting all or any part of the Charged Portfolio, and without prior notice in that behalf, forthwith transfer all or any part of any balance standing to the credit of any such account to any other such account which may be in debit. 14. CURRENCY 14.1 For the purpose of or pending the discharge of any of the Obligations you may convert any monies received, recovered or realised or subject to application by you under this Charge Agreement (including the proceeds of any previous conversion under this Clause) from their existing currency of denomination into the currency of denomination of such Obligations as you may think fit, and any such conversion shall be effected at your then prevailing spot rate of exchange for obtaining such other currency with the existing currency. 14.2 References herein to any currency extend to any funds of that currency and for the avoidance of doubt funds of one currency may be converted into different funds of the same currency. 15. COSTS, CHARGES AND EXPENSES All your reasonable costs, charges and expenses incurred in the exercise of any Security Trustee Right, or in connection with the execution of or otherwise in relation to this Charge Agreement and all your costs, charges and expenses incurred in connection with the perfection or enforcement of the security hereby constituted or any other security held by you for the Obligations or any guarantee to you in respect thereof, shall be reimbursed to you by us on demand on a full indemnity basis together with interest from the date of the same having been incurred (or from the date of demand if such demand is made after unreasonable delay) to the date of payment at such rate or rates as you may determine in relation to the currency involved. 16. LAW AND JURISDICTION This Charge Agreement shall be governed by English law and for your benefit we hereby irrevocably submit to the jurisdiction of the English courts. 17. PROVISIONS SEVERABLE Each of the provisions contained in this Charge Agreement shall be severable and distinct from one another and if at any time any one or more of such provisions is or becomes invalid, illegal or unenforceable, the validity, legality and enforceability of each of the remaining provisions of this Charge Agreement shall not in any way be affected, prejudiced or impaired thereby. 18. NOTICES 18.1 Any notice or demand required to be served on us by you hereunder may be served:- 18.1.1 on any of our officers personally, 18.1.2 by letter addressed to us or to any of our officers and left at our registered office or at any one of our principal places of business, 18.1.3 by posting the same by letter addressed in any such manner as aforesaid to such registered office or any such principal place of business or 18.1.4 by telex or facsimile addressed in any such manner as aforesaid to any then published telex or facsimile number of ours. 18.2 Any notice or demand: 18.2.1 sent by post in accordance with Clause 18.1 to an address in the United Kingdom shall be deemed to have been served on us at 10.00 a.m. (London time) on the second business day next following the date of posting or, in the case of an address outside the United Kingdom, shall be deemed to have been served on us at 10.00 a.m. (London time) on the fifth business day next following and exclusive of the date of posting; or 18.2.2 sent by telex or facsimile in accordance with Clause 18.1 shall be deemed to have been served on us when despatched, provided that an activity report indicates that the document has been so transmitted. 18.3 In proving such service by post it shall be sufficient to show that the letter containing the notice or demand was properly addressed and posted and such proof of service shall be effective notwithstanding that the letter was in fact not delivered or was returned undelivered. 19. THE SECURITY TRUSTEE'S DISCRETIONS Any liberty or power which may be exercised or any determination which may be made hereunder by you may be exercised or made in your absolute and unfettered discretion and you shall not be under any obligation to give reasons therefor, provided that the Security Trustee will so act in good faith and in accordance with Clause 25 of the Agreement). 20. ASSIGNMENT You shall have a full and unfettered right to assign the whole or any part of the benefit of this Charge Agreement to any Person who is appointed as your successor pursuant to Clause 25 of the Agreement and the words "you" and "your" and the expression "the Security Trustee" wherever used herein shall be deemed to include your assignees and other successors, whether immediate or derivative, who shall be entitled to enforce and proceed upon this Charge Agreement in the same manner as if named herein. You shall be entitled to impart any information concerning us to any such assignee or other successor or any participant or proposed assignee, successor or participant subject to such person executing and delivering a confidentiality undertaking substantially in the form set out in Schedule 8 of the Agreement. 21. INTERPRETATION 21.1 Terms not otherwise defined herein shall bear the meaning ascribed to them in the Agreement. In this Charge Agreement:- "Agreement" means the (Pounds)290,000,000 letter of credit facility agreement dated November 1999 and made between ACE Limited as account party, ACE Bermuda Insurance Ltd. as guarantor, Citibank, N.A. as arranger, Barclays Bank PLC and ING Barings as co-arrangers, Citibank International plc as agent and security trustee and the financial institutions defined therein as banks; "Charged Portfolio" means at any time all of the Chargor's right, title and interest in and to: (a) all securities which are held by, to the order, for the account or under the control or direction of, the Custodian; (b) all securities which are held by any clearance system on behalf of, for the account of or to the order of the Custodian; (c) all rights, benefits and proceeds attaching to or arising from or in respect of any of the securities referred to in (a) and (b) above; (d) all sums of money standing to the credit of any account opened or maintained by the Custodian for the Chargor; (e) all sums of money standing to the credit of any account opened or maintained by any clearance system for the Chargor and under the direction or control of the Custodian; (f) all sums of money standing to the credit of any account opened or maintained by any clearance system for the Custodian; and (g) any of the foregoing at any time delivered, transferred or assigned by the Custodian to the Security Trustee; but in each case only to the extent that the same are entered or evidenced in one or more accounts identified in the Custodian's records by express reference to ACE Limited and the Security Trustee (which accounts are, at the date hereof, account number [TRIF 090 2002]), and to the extent that the same meets the Security Trustee's Requirements; "Custodian" means the above-mentioned Custodian or such other person as the Chargor and the Security Trustee may agree to in writing from time to time; "Custodian's Undertaking" means an undertaking in the form set out in the Second Schedule duly executed by the Custodian as the same may be amended or substituted with the prior written consent of the Security Trustee from time to time; "Due Capacity" means capacity as beneficial owner; "Obligations" means any and all of the present or future, actual or contingent, obligations of the Chargor to the Finance Parties hereunder or under the Agreement; "Required Value" means the amount stated in Part A of the Schedule to the Custodian's Undertaking or such other amount determined in accordance with the Agreement as may be notified from time to time by the Security Trustee to the Custodian; and "Security Trustee's Requirements" means the Security Trustee's requirements in respect of the component parts of the Charged Portfolio all as set forth in Part B of the Schedule to the Custodian's Undertaking or as may be agreed from time to time by the Security Trustee and the Chargor and notified to the Custodian (provided that the Security Trustee's Requirements may be adjusted by the Security Trustee without the agreement of the Chargor (but after consultation in good faith with the Chargor) where an adjustment is necessary to ensure that the Banks continue to receive the same regulatory treatment in respect of their Outstandings as they receive at the date hereof and Provided further that, in the event that the "financial strength rating" of the Chargor as determined by Standard and Poor's Rating Services reaches BBB+ or less, the Security Trustee's Requirements shall be amended without the prior agreement of the Chargor by the additional requirement that any fixed income securities comprising the Charged Portfolio issued by or fully and explicitly guaranteed by the central government of an OECD (Organisation for Economic Co-operation and Development) country shall only satisfy the Security Trustee's Requirements if such country is rated AA by Standard and Poor's Rating Services or AA equivalent or better). 21.2 Any reference in this Charge Agreement to:- a "business day" shall be construed as a reference to a day (other than a Saturday or Sunday) on which banks are generally open for business in London, Bermuda and the jurisdiction in which the Custodian's principal or head office is located; a "clearance system" means Cedelbank S.A., the Euro-Clear System, the First Chicago Clearing Centre, The Depository Trust Company and such other clearance system as may from time to time be used in connection with transactions relating to any securities, and any depository for any of the foregoing; a "Clause" is, unless otherwise stated, a reference to a Clause hereof; a "person" shall be construed as a reference to any person, firm, company, corporation, government, state or agency of a state or any association or partnership (whether or not having separate legal personality) of two or more of the foregoing; a "Schedule" is, unless otherwise stated, a reference to a schedule hereto; and "securities" shall be construed as a reference to bonds, debentures, notes, stocks, shares or other securities and all moneys, rights or property which may at any time accrue or be offered (whether by way of bonus, redemption, preference, option or otherwise) in respect of any of the foregoing (and without limitation, shall include any of the foregoing not constituted, evidenced or represented by a certificate or other document but by an entry in the books or other permanent records of the issuer, a trustee or other fiduciary thereof, or a clearance system). 21.3 Any reference in this Charge Agreement to another agreement, arrangement or undertaking shall be construed as a reference to such other agreement, arrangement or undertaking as the same may have been, or may from time to time be, amended, varied, novated or supplemented. 21.4 Clause and Schedule headings are for ease of reference only. THE FIRST SCHEDULE NOTICE OF CHARGE OF CHARGED PORTFOLIO To: Mellon Bank, N.A. Suite 1570 One Mellon Bank Center Pittsburgh PA15258] * _____________________________ (*Contact name at the Custodian) We refer to the Charge Agreement (the "Charge Agreement") dated [ ] entered into by us in favour of Citibank International plc of 336 Strand, London WC2R 1HB (the "Security Trustee"), a copy of which is annexed hereto. Terms defined in the Charge Agreement shall have the same meanings herein. Notice is hereby given by us to you that, by and pursuant to the Charge Agreement, we have charged in favour of the Security Trustee all of the Charged Portfolio. Yours faithfully, For and on behalf of ACE Limited _____________________________ (Signature(s)) Dated _______________________ THE SECOND SCHEDULE Custodian's Undertaking - -------------------------------------------------------------------- Name of Custodian and address of its registered or principal office: Mellon Bank, N.A. Suite 1570 One Mellon Bank Center Pittsburgh PA15258 Attn: Dawn Hood facsimile no: +1 412 234 8725 (the "Custodian") - -------------------------------------------------------------------- - -------------------------------------------------------------------- Name of Chargor and address of its registered or principal office: ACE Limited The ACE Building 30 Woodbourne Avenue Hamilton HM08 Bermuda facsimile no: +441 296 0087 (the "Chargor") - -------------------------------------------------------------------- - -------------------------------------------------------------------- Date of Charge Agreement: [Date] - -------------------------------------------------------------------- To: Citibank International plc (the "Security Trustee") 336 Strand London WC2R 1HB We, the Custodian, refer to the above-mentioned Charge Agreement (the "Charge Agreement") between the Chargor and the Security Trustee. Save where the context otherwise requires, terms defined in the Charge Agreement shall have the same meanings herein. In consideration of the Security Trustee and the other Finance Parties entering into the Agreement and issuing Letters of Credit thereunder and pursuant to instructions received by the Custodian from the Chargor, the Custodian hereby represents and irrevocably undertakes and agrees to and with the Security Trustee as follows: 1. The Custodian will hold the Charged Portfolio to the Security Trustee's order. 2. The Custodian will deliver to the Security Trustee within three business days of the Security Trustee's request therefor an up-to-date statement or statements of the Charged Portfolio, each component thereof and the aggregate value thereof. 3. The Custodian will in any event deliver to the Security Trustee not later than the tenth business day of each calendar month a statement or statements, made up as at the close of business on the last business day of the preceding calendar month, of the Charged Portfolio, each component thereof and the aggregate value thereof. 4. If trades of, or any transactions relating to, a component part of the Charged Portfolio are processed by the Custodian on any Business Day, the Custodian shall notify the Security Trustee as soon as possible (and in any event within one Business Day of such day) of the trades and transactions processed. 5. The Custodian shall be entitled to process trades as it may be directed to do so under the terms of its custodial agreement with the Chargor only to the extent such trades comprise a disposal to a third party in the market of a component part of the Charged Portfolio and the substitution therefor of other securities save that transfers can be made (i) to the Security Trustee in accordance with the terms of this undertaking or (ii) to any person with the Security Trustee's prior written consent or (iii) in respect of any part of the Charged Portfolio representing an excess over the Required Value, to the Chargor or as it may direct, which excess will be determined by the Security Trustee on the date of the request from the Chargor. 6. The Custodian shall deliver, transfer or assign to the Security Trustee on the Security Trustee's first written demand securities and monies in the Charged Portfolio up to the Required Value as directed by the Security Trustee and all certificates and other instruments evidencing title thereto or necessary or desirable in order for the Security Trustee to acquire good and marketable title thereto. The Security Trustee shall indicate the identity of the securities and monies it wishes to receive and the Custodian shall have no discretion in this matter and shall be fully protected in relying upon any direction received from the Security Trustee. 7. All rights and interests of the Custodian in or towards the Charged Portfolio or any part thereof are and shall be subordinated and postponed to the Security Trustee's rights and interests therein under and pursuant to the Charge Agreement, save that the Custodian shall be entitled to debit any account of the Chargor with the Custodian with any reasonable fees or commissions due and owing by the Chargor to the Custodian in respect of the Charged Portfolio or part thereof or to settle any reasonable bank charges due and owing by the Chargor to the Custodian and incurred in the ordinary course of business for the purchase of securities and/or foreign exchange or contracts for foreign exchange. 8. Any notice, demand or other communication required to be served on us by you hereunder may be served by letter properly addressed and deposited with a recognised air express courier or transmitted by facsimile if (a) a telephone call is placed to the officer noted for address purposes on page 1 of this Custodian's Undertaking notifying such officer of the facsimile transmission and (b) the original is properly addressed and mailed. Any notice, demand or other communication shall be deemed to have been served on us on the third business day following if sent by recognised air express courier and when dispatched if sent in accordance with the facsimile procedures. 9. This undertaking shall be governed by, and construed in accordance with, English law. The Custodian and the Security Trustee agree that a proper forum for any dispute would be either the English courts or the federal courts within the United States of America. 10. Save as expressly provided herein, the Custodian shall have no further obligations or liabilities to the Security Trustee in relation to the Charged Portfolio and specifically shall have no liability or responsibility for monitoring or determining the compliance by any party with any other agreement including, without limitation, the Charge Agreement. THE SCHEDULE PART A The initial Required Value is:- (Pounds)[ ] (amount in words) (or such other amount as may be agreed between the Security Trustee and the Chargor and notified to the Custodian by the Security Trustee from time to time). PART B The initial Security Trustee's Requirements are:- To the extent of an aggregate amount not less than the Required Value, the Charged Portfolio shall at all times be comprised of fixed income securities issued by or fully and explicitly guaranteed by the central government of an OECD (Organisation for Economic Co-Operation and Development) country, and fixed income securities issued by US government agencies (whose debt obligations are fully and explicitly guaranteed as to the timely payment of principal and interest by the full faith and credit of the US Government) as used in Appendix A, Section III (C), Category I to Regulation H as promulgated by the Board of Governors of the Federal Reserve System and the same are either (i) uncertificated and governed by the provisions of 31 C.F.R. Part 357 or such similar provisions of the Code of Federal Regulations, applicable to United States agency securities as are acceptable to the Security Trustee; or (ii) certificated. ____________________________________________ (Authorised Signatory) for and on behalf of the Custodian [Date] The COMMON or CORPORATE SEAL of the CHARGOR was hereto affixed to this DEED in the presence of: Director Secretary/Director SIGNATURES The Account Party ACE LIMITED By: Address: The Ace Building 30 Woodbourne Avenue Hamilton HM08 Bermuda Fax: +1 441 296 0087 The Guarantor ACE BERMUDA INSURANCE LTD. By: Address: The Ace Building 30 Woodbourne Avenue Hamilton HM08 Bermuda Fax: +1 441 296 0087 The Arranger CITIBANK, N.A. By: Address: UK Insurance Team, 3rd Floor PO Box 200 Cottons Centre Hays Lane London SE1 2QT Fax: + 44 207 500 5353 The Co-Arrangers BARCLAYS BANK PLC By: Address: 54 Lombard Street London EC3V 9EX Fax: +44 20 7699 2407 ING BARINGS By: Address: 60 London Wall London EC2N 5TQ Fax: +44 20 7767 7507 The Agent and Security Trustee CITIBANK INTERNATIONAL plc By: Address: Riverdale House 3rd Floor 68 Molesworth Street London SE13 7EU Fax: +44 20 7500 4482/3 Attention: Loans Agency The Banks ABN AMRO BANK N.V., LONDON BRANCH By: BARCLAYS BANK PLC By: CITIBANK, N.A. By: CREDIT LYONNAIS NEW YORK BRANCH By: ING BANK N.V., LONDON BRANCH By: NATIONAL WESTMINSTER BANK PLC By: EX-10.54 18 ACE LIMITED 1999 REPLACEMENT STOCK PLAN EXHIBIT 10.54 ACE LIMITED 1999 REPLACEMENT STOCK PLAN ARTICLE 1 GENERAL ------- 1.1 Purpose. The ACE Limited 1999 Replacement Stock Plan (the "Plan") has been established by ACE Limited (the "Company") for the purpose of (i) amending, restating, combining into a single plan, and continuing the Capital Re Corporation Director's Stock Option Plan, the Capital Re Corporation 1992 Stock Option Plan, the Capital Re Corporation 1997 Employee Stock Option Plan and the Capital Re Corporation Performance Share Plan, as in effect immediately prior to the Transaction Date (as described below) (collectively, the "CapRe Plans"); (ii) permitting the grant of Awards to selected individuals in connection with the closing of the transaction (the "Transaction") pursuant to and as of the date (the "Transaction Date") contemplated by the Amended and Restated Agreement and Plan of Merger among the Capital Re Corporation ("CapRe"), the Company and CapRe Acquisition Corporation, dated as of October 26, 1999 (the "Merger Agreement"), including the granting of Replacement Awards in satisfaction of the Company's obligations under Section 6.12 of the Merger Agreement; and (iii) permitting the granting of compensation that is based on the Company's ordinary shares of stock. 1.2 Participation. Subject to the terms and conditions of the Plan, the Committee shall determine and designate, from time to time, from among the Eligible Individuals, those persons who will be granted one or more Awards (including, without limitation, Replacement Awards described in Section 2) under the Plan, and thereby become "Participants" in the Plan. In the discretion of the Committee, a Participant may be granted any Award permitted under the provisions of the Plan, and more than one Award may be granted to a Participant. Awards may be granted as alternatives to or replacement of awards granted or outstanding under the Plan, or any other plan or arrangement of the Company or a Subsidiary (including a plan or arrangement of a business or entity, all or a portion of which is acquired by the Company or a Subsidiary). 1.3 Operation, Administration, and Definitions. The operation and administration of the Plan, including the Awards made under the Plan, shall be subject to the provisions of Section 5 (relating to operation and administration). Capitalized terms in the Plan (excluding any exhibits to the Plan) shall be defined as set forth in the Plan (without regard to such exhibits). ARTICLE 2 REPLACEMENT AWARDS ------------------ The Committee may grant awards under this Plan in replacement of awards granted prior to Transaction Date under any of the CapRe Plans (the "Replacement Awards"). To the extent provided by the Committee, or required by the terms of the Merger Agreement, the Replacement Awards shall be subject to the applicable terms of the CapRe Plans. SECTION 3 OPTIONS AND SARS ----------------- 3.1 Definitions. (a) The grant of an "Option" entitles the Participant to purchase shares of Stock at an Exercise Price established by the Committee. Any Option granted under this Section 3 shall be a non-qualified option (an "NQO"), as determined in the discretion of the Committee. An "NQO" is an Option that is not intended to be an "incentive stock option" as that term is described in section 422(b) of the Code. (b) A stock appreciation right (an "SAR") entitles the Participant to receive, in cash or Stock (as determined in accordance with subsection 4.5), value equal to (or otherwise based on) the excess of: (a) the Fair Market Value of a specified number of shares of Stock at the time of exercise; over (b) an Exercise Price established by the Committee. 3.2 Exercise Price. The "Exercise Price" of each Option and SAR granted under this Section 3 shall be established by the Committee or shall be determined by a method established by the Committee at the time the Option or SAR is granted; except that the Exercise Price shall not be less than 100% of the Fair Market Value of a share of Stock on the date of grant (or, if greater, the par value of a share of Stock). 3.3 Exercise. An Option and an SAR shall be exercisable in accordance with such terms and conditions and during such periods as may be established by the Committee. 3.4 Payment of Option Exercise Price. The payment of the Exercise Price of an Option granted under this Section 3 shall be subject to the following: (a) Subject to the following provisions of this subsection 3.4, the full Exercise Price for shares of Stock purchased upon the exercise of any Option shall be paid at the time of such exercise (except that, in the case of an exercise arrangement approved by the Committee and described in paragraph 3.4(c), payment may be made as soon as practicable after the exercise). (b) The Exercise Price shall be payable in cash or by tendering, by either actual delivery of shares or by attestation, shares of Stock acceptable to the Committee, and valued at Fair Market Value as of the day of exercise, or in any combination thereof, as determined by the Committee. (c) The Committee may permit a Participant to elect to pay the Exercise Price upon the exercise of an Option by irrevocably authorizing a third party to sell shares of Stock (or a sufficient portion of the shares) acquired upon exercise of the Option and remit to the Company a sufficient portion of the sale proceeds to pay the entire Exercise Price and any tax withholding resulting from such exercise. -2- 3.5 Settlement of Award. Shares of Stock delivered pursuant to the exercise of an Option or SAR shall be subject to such conditions, restrictions and contingencies as the Committee may establish in the applicable Award Agreement. Settlement of SARs may be made in shares of Stock (valued at their Fair Market Value at the time of exercise), in cash, or in a combination thereof, as determined in the discretion of the Committee. The Committee, in its discretion, may impose such conditions, restrictions and contingencies with respect to shares of Stock acquired pursuant to the exercise of an Option or an SAR as the Committee determines to be desirable. SECTION 4 OTHER STOCK AWARDS ------------------- 4.1 Definitions. (a) A "Stock Unit" Award is the grant of a right to receive shares of Stock in the future. (b) A "Performance Share" Award is a grant of a right to receive shares of Stock or Stock Units which is contingent on the achievement of performance or other objectives during a specified period. (c) A "Performance Unit" Award is a grant of a right to receive a designated dollar value amount of Stock which is contingent on the achievement of performance or other objectives during a specified period. (d) A "Restricted Stock" Award is a grant of shares of Stock, and a "Restricted Stock Unit" Award is the grant of a right to receive shares of Stock in the future, with such shares of Stock or right to future delivery of such shares of Stock subject to a risk of forfeiture or other restrictions that will lapse upon the achievement of one or more goals relating to completion of service by the Participant, or achievement of performance or other objectives, as determined by the Committee. 4.2 Restrictions on Awards. Each Stock Unit Award, Restricted Stock Award, Restricted Stock Unit Award, Performance Share Award and Performance Unit Award shall be subject to such conditions, restrictions and contingencies as the Committee shall determine. SECTION 5 OPERATION AND ADMINISTRATION ----------------------------- 5.1 Effective Date. This amendment and restatement is effective as of the Closing Date as that term is used in the Merger Agreement (the "Effective Date"). The Plan shall be unlimited in duration and, in the event of Plan termination, shall remain in effect as long as any Awards under it are outstanding; provided, however, that no Awards may be granted under the Plan after the ten-year anniversary of the Effective Date. -3- 5.2 Shares Subject to Plan. The shares of Stock for which Awards may be granted under the Plan shall be subject to the following: (a) The shares of Stock with respect to which Awards may be made under the Plan shall be currently authorized but unissued shares, or shares purchased in the open market by a direct or indirect wholly-owned subsidiary of the Company (as determined by the Chairman or any Executive Vice President of the Company). The Company may contribute to the subsidiary an amount sufficient to accomplish the purchase in the open market of the shares of Stock to be so acquired (as determined by the Chairman or any Executive Vice President of the Company). (b) Subject to this subsection 5.2, the number of shares of Stock available for Awards under the Plan shall be equal to the number of ACE Limited ordinary shares into which the total number of Available Capital Re Corporation Shares would be converted pursuant to the terms of the Merger Agreement if the number of Available Capital Re Corporation Shares were outstanding immediately prior to Transaction Date. For purposes of this paragraph (b), the number of "Available Capital Re Corporation Shares" shall be equal to the aggregate number of shares of Cap Re Corporation stock available for awards under the Cap Re Plans immediately prior to the Transaction Date plus the number of shares of Cap Re Corporation stock under all awards under the Cap Re Plans that were canceled as of that date. (c) To the extent provided by the Committee, any Award may be settled in cash rather than Stock. To the extent any shares of Stock covered by an Award are not delivered to a Participant or beneficiary because the Award is forfeited or canceled, or the shares of Stock are not delivered because the Award is settled in cash or used to satisfy the applicable tax withholding obligation, such shares shall not be deemed to have been delivered for purposes of determining the maximum number of shares of Stock available for delivery under the Plan. (d) If the exercise price of any Option granted under the Plan is satisfied by tendering shares of Stock to the Company (by either actual delivery or by attestation), only the number of shares of Stock issued net of the shares of Stock tendered shall be deemed delivered for purposes of determining the maximum number of shares of Stock available for delivery under the Plan. (e) In the event of a corporate transaction involving the Company (including, without limitation, any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split- up, spin-off, combination or exchange of shares), the Committee may adjust Awards to preserve the benefits or potential benefits of the Awards. Action by the Committee may include: (i) adjustment of the number and kind of shares which may be delivered under the Plan; (ii) adjustment of the number and kind of shares subject to outstanding Awards; (iii) adjustment of the Exercise Price of -4- outstanding Options and SARs; and (iv) any other adjustments that the Committee determines to be equitable. 5.3 General Restrictions. Delivery of shares of Stock or other amounts under the Plan shall be subject to the following: (a) Notwithstanding any other provision of the Plan, the Company shall have no liability to deliver any shares of Stock under the Plan or make any other distribution of benefits under the Plan unless such delivery or distribution would comply with all applicable laws (including, without limitation, the requirements of the United States Securities Act of 1933), and the applicable requirements of any securities exchange or similar entity. (b) To the extent that the Plan provides for issuance of stock certificates to reflect the issuance of shares of Stock, the issuance may be effected on a non-certificated basis, to the extent not prohibited by applicable law or the applicable rules of any stock exchange. 5.4 Tax Withholding. All distributions under the Plan are subject to withholding of all applicable taxes, and the Committee may condition the delivery of any shares or other benefits under the Plan on satisfaction of the applicable withholding obligations. The Committee, in its discretion, and subject to such requirements as the Committee may impose prior to the occurrence of such withholding, may permit such withholding obligations to be satisfied through cash payment by the Participant, through the surrender of shares of Stock which the Participant already owns, or through the surrender of shares of Stock to which the Participant is otherwise entitled under the Plan. 5.5 Use of Shares. Subject to the overall limitation on the number of shares of Stock that may be delivered under the Plan, the Committee may use available shares of Stock as the form of payment for compensation, grants or rights earned or due under any other compensation plans or arrangements of the Company or a Subsidiary, including the plans and arrangements of the Company or a Subsidiary assumed in business combinations. 5.6 Dividends and Dividend Equivalents. An Award (including without limitation an Option or SAR Award) may provide the Participant with the right to receive dividend payments or dividend equivalent payments with respect to Stock subject to the Award (both before and after the Stock subject to the Award is earned, vested, or acquired), which payments may be either made currently or credited to an account for the Participant, and may be settled in cash or Stock as determined by the Committee. Any such settlements, and any such crediting of dividends or dividend equivalents or reinvestment in shares of Stock, may be subject to such conditions, restrictions and contingencies as the Committee shall establish, including the reinvestment of such credited amounts in Stock equivalents. 5.7 Payments. Awards may be settled through cash payments, the delivery of shares of Stock, the granting of replacement Awards, or combination thereof as the Committee shall determine. Any Award settlement, including payment deferrals, may be subject to such -5- conditions, restrictions and contingencies as the Committee shall determine. The Committee may permit or require the deferral of any Award payment, subject to such rules and procedures as it may establish, which may include provisions for the payment or crediting of interest, or dividend equivalents, including converting such credits into deferred Stock equivalents. Each Subsidiary shall be liable for payment of cash due under the Plan with respect to any Participant to the extent that such benefits are attributable to the services rendered for that Subsidiary by the Participant. Any disputes relating to liability of a Subsidiary for cash payments shall be resolved by the Committee. 5.8 Transferability. Except as otherwise provided by the Committee, Awards under the Plan are not transferable except as designated by the Participant by will or by the laws of descent and distribution. 5.9 Form and Time of Elections. Unless otherwise specified herein, each election required or permitted to be made by any Participant or other person entitled to benefits under the Plan, and any permitted modification, or revocation thereof, shall be in writing filed with the Committee at such times, in such form, and subject to such restrictions and limitations, not inconsistent with the terms of the Plan, as the Committee shall require. 5.10 Agreement With Company. An Award under the Plan shall be subject to such terms and conditions, not inconsistent with the Plan, as the Committee shall, in its sole discretion, prescribe. The terms and conditions of any Award to any Participant shall be reflected in such form of written document as is determined by the Committee. A copy of such document shall be provided to the Participant, and the Committee may, but need not require that the Participant sign a copy of such document. Such document is referred to in the Plan as an "Award Agreement" regardless of whether any Participant signature is required. 5.11 Action by Company or Subsidiary. Any action required or permitted to be taken by the Company or any Subsidiary shall be by resolution of its board of directors, or by action of one or more members of the board (including a committee of the board) who are duly authorized to act for the board, or (except to the extent prohibited by applicable law or applicable rules of any stock exchange) by a duly authorized officer of such company. 5.12 Gender and Number. Where the context admits, words in any gender shall include any other gender, words in the singular shall include the plural and the plural shall include the singular. 5.13 Limitation of Implied Rights. (a) Neither a Participant nor any other person shall, by reason of participation in the Plan, acquire any right in or title to any assets, funds or property of the Company or any Subsidiary whatsoever, including, without limitation, any specific funds, assets, or other property which the Company or any Subsidiary, in their sole discretion, may set aside in anticipation of a liability under the Plan. A Participant shall have only a contractual right -6- to the Stock or amounts, if any, payable under the Plan, unsecured by any assets of the Company or any Subsidiary, and nothing contained in the Plan shall constitute a guarantee that the assets of the Company or any Subsidiary shall be sufficient to pay any benefits to any person. (b) The Plan does not constitute a contract of employment, and selection as a Participant will not give any participating employee or other individual the right to be retained in the employ of the Company or any Subsidiary or the right to continue to provide services to the Company or any Subsidiary, nor any right or claim to any benefit under the Plan, unless such right or claim has specifically accrued under the terms of the Plan. Except as otherwise provided in the Plan, no Award under the Plan shall confer upon the holder thereof any rights as a shareholder of the Company prior to the date on which the individual fulfills all conditions for receipt of such rights. 5.14 Benefits Under Qualified Retirement Plans. Except as otherwise provided by the Committee, Awards to a Participant (including the grant and the receipt of benefits) under the Plan shall be disregarded for purposes of determining the Participant's benefits under any Qualified Retirement Plan and other plans maintained by the Participant's employer. The term "Qualified Retirement Plan" means any plan of the Company or a Subsidiary that is intended to be qualified under section 401(a) of the Code. 5.15 Evidence. Evidence required of anyone under the Plan may be by certificate, affidavit, document or other information which the person acting on it considers pertinent and reliable, and signed, made or presented by the proper party or parties. SECTION 6 CHANGE IN CONTROL ------------------ Subject to the provisions of paragraph 5.2(e) (relating to the adjustment of shares), and except as otherwise provided in the Plan or the Award Agreement reflecting the applicable Award, upon the occurrence of a Change in Control: (a) All outstanding Options (regardless of whether in tandem with SARs) shall become fully exercisable. (b) All outstanding SARs (regardless of whether in tandem with Options) shall become fully exercisable. (c) All Stock Units, Restricted Stock, Restricted Stock Units, Performance Shares, and Performance Units shall become fully vested. -7- SECTION 7 COMMITTEE --------- 7.1 Administration. The authority to control and manage the operation and administration of the Plan shall be vested in a committee (the "Committee") in accordance with this Section 6. The Compensation Committee of the Board shall serve as the "Committee" under the Plan, except as otherwise determined by the Board. If the Committee does not exist, or for any other reason determined by the Board, the Board may take any action under the Plan that would otherwise be the responsibility of the Committee. 7.2 Powers of Committee. The Committee's administration of the Plan shall be subject to the following: (a) Subject to the provisions of the Plan, the Committee will have the authority and discretion to select from among the Eligible Individuals those persons who shall receive Awards, to determine the time or times of receipt, to determine the types of Awards and the number of shares covered by the Awards, to establish the terms, conditions, performance criteria, restrictions, and other provisions of such Awards, and (subject to the restrictions imposed by Section 8) to cancel or suspend Awards. (b) To the extent that the Committee determines that the restrictions imposed by the Plan preclude the achievement of the material purposes of the Awards in jurisdictions outside the United States, the Cayman Islands, and Bermuda, the Committee will have the authority and discretion to modify those restrictions as the Committee determines to be necessary or appropriate to conform to applicable requirements or practices of jurisdictions outside of the United States, the Cayman Islands, and Bermuda. (c) The Committee will have the authority and discretion to interpret the Plan, to establish, amend, and rescind any rules and regulations relating to the Plan, to determine the terms and provisions of any Award Agreement made pursuant to the Plan, and to make all other determinations that may be necessary or advisable for the administration of the Plan. (d) Any interpretation of the Plan by the Committee and any decision made by it under the Plan is final and binding on all persons. (e) In controlling and managing the operation and administration of the Plan, the Committee shall take action in a manner that conforms to the Memorandum and Articles of Association of the Company, and applicable corporate law. 7.3 Delegation by Committee. Except to the extent prohibited by applicable law or the applicable rules of a stock exchange, the Committee may allocate all or any portion of its responsibilities and powers to any one or more of its members and may delegate all or any part -8- of its responsibilities and powers to any person or persons selected by it. Any such allocation or delegation may be revoked by the Committee at any time. 7.4 Information to be Furnished to Committee. The Company and Subsidiaries shall furnish the Committee with such data and information as it determines may be required for it to discharge its duties. The records of the Company and Subsidiaries as to an employee's or Participant's employment (or other provision of services), termination of employment (or cessation of the provision of services), leave of absence, reemployment and compensation shall be conclusive on all persons unless determined to be incorrect. Participants and other persons entitled to benefits under the Plan must furnish the Committee such evidence, data or information as the Committee considers desirable to carry out the terms of the Plan. SECTION 8 AMENDMENT AND TERMINATION ------------------------- The Board may, at any time, amend or terminate the Plan, provided that no amendment or termination may, in the absence of written consent to the change by the affected Participant (or, if the Participant is not then living, the affected beneficiary), adversely affect the rights of any Participant or beneficiary under any Award granted under the Plan prior to the date such amendment is adopted by the Board; provided that adjustments pursuant to subject to paragraph 5.2(e) shall not be subject to the foregoing limitations of this Section 8. SECTION 9 DEFINED TERMS ------------- In addition to the other definitions contained herein, the following definitions shall apply: (a) Award. The term "Award" shall mean any award or benefit granted under the Plan, including, without limitation, the grant of Replacement Awards, Options, SARs, Stock Unit Awards, Restricted Stock Awards, Restricted Stock Unit Awards, Performance Share Awards, and Performance Unit Awards. (b) Board. The term "Board" shall mean the Board of Directors of the Company. (c) Change in Control. The term "Change in Control" shall mean the occurrence of any one of the following events: (i) any "person," as such term is used in Sections 3(a)(9) and 13(d) of the United States Securities Exchange Act of 1934, becomes a "beneficial owner," as such term is used in Rule 13d-3 promulgated under that act, of 50% or more of the Voting Stock (as defined below) of the Company; (ii) the majority of the Board consists of individuals other than Incumbent Directors, which term means the members of the Board on the Effective Date; provided that any -9- person becoming a director subsequent to such date whose election or nomination for election was supported by three-quarters of the directors who then comprised the Incumbent Directors shall be considered to be an Incumbent Director; (iii) the Company adopts any plan of liquidation providing for the distribution of all or substantially all of its assets; (iv) all or substantially all of the assets or business of the Company is disposed of pursuant to a merger, consolidation or other transaction (unless the shareholders of the Company immediately prior to such merger, consolidation or other transaction beneficially own, directly or indirectly, in substantially the same proportion as they owned the Voting Stock of the Company, all of the Voting Stock or other ownership interests of the entity or entities, if any, that succeed to the business of the Company); or (v) the Company combines with another company and is the surviving corporation but, immediately after the combination, the shareholders of the Company immediately prior to the combination hold, directly or indirectly, 50% or less of the Voting Stock of the combined company (there being excluded from the number of shares held by such shareholders, but not from the Voting Stock of the combined company, any shares received by Affiliates (as defined below) of such other company in exchange for stock of such other company). For the purpose of this definition of "Change in Control," (I) an "Affiliate" of a person or other entity shall mean a person or other entity that directly or indirectly controls, is controlled by, or is under common control with the person or other entity specified and (II) "Voting Stock" shall mean capital stock of any class or classes having general voting power under ordinary circumstances, in the absence of contingencies, to elect the directors of a corporation. (d) Code. The term "Code" means the United States Internal Revenue Code of 1986, as amended. A reference to any provision of the Code shall include reference to any successor provision of the Code. (e) Dollars. As used in the Plan, the term "dollars" or numbers preceded by the symbol "$" shall mean amounts in United States dollars. (f) Eligible Individual. For purposes of the Plan, the term "Eligible Individual" shall mean any employee of the Company or a Subsidiary, and any consultant, director, or other person providing services to the Company or a Subsidiary. An Award may be granted to an employee or other individual providing services, in connection with hiring, retention or otherwise, prior to the date the employee or service provider first performs services for the Company or the Subsidiaries, provided that such Awards shall not become vested prior to the date the employee or service provider first performs such services. -10- (g) Fair Market Value. Except as otherwise provided by the Committee, the "Fair Market Value" of a share of Stock as of any date shall be the closing market composite price for such Stock as reported for the New York Stock Exchange - Composite Transactions on that date or, if Stock is not traded on that date, on the next preceding date on which Stock was traded. (h) Subsidiaries. For purposes of the Plan, the term "Subsidiary" means any corporation, partnership, joint venture or other entity during any period in which at least a fifty percent voting or profits interest is owned, directly or indirectly, by the Company (or by any entity that is a successor to the Company), and any other business venture designated by the Committee in which the Company (or any entity that is a successor to the Company) has a significant interest, as determined in the discretion of the Committee. (i) Stock. The term "Stock" shall mean ordinary shares of stock of the Company. -11- EX-13.1 19 EXCERPT OF THE 1999 ANNUAL REPORT ACE Limited Selected Financial Data The following table sets forth selected consolidated financial data of the Company as of and for the year ended December 31, 1999 and for each of the years in the four-year period ended September 30, 1998. These selected financial and other data should be read in conjunction with the consolidated financial statements and related notes and with "Management's Discussion and Analysis of Results of Operations and Financial Condition," presented on pages 37 to 79 and 18 to 36 respectively, of this annual report. On July 2, 1999, the Company changed its fiscal year end from September 30 to December 31. This change was implemented retroactively to December 31, 1998 so that the 1999 fiscal year is for the twelve-month period ended December 31, 1999.
For the year For the three For the year For the year For the year For the year ended months ended ended ended ended ended December 31 December 31 September 30 September 30 September 30 September 30 1999 1998 1998 1997 1996 1995 ------------ ------------- ------------ ------------ ------------ ------------ (in thousands of U.S. dollars, except share and per share data and selected other data) Operations data: Net premiums written... $ 2,495,348 $ 154,103 $ 880,973 $ 789,773 $ 781,884 $ 544,880 ============ ============ ============ ============ ============ ============ Net premiums earned.... 2,485,737 218,007 894,303 805,372 755,840 473,133 Net investment income.. 493,337 85,095 324,254 253,440 213,701 184,041 Net realized gains on investments........... 37,916 130,154 188,385 127,702 55,229 50,765 Losses and loss expenses.............. 1,639,543 111,169 516,892 486,140 520,277 366,322 Policy acquisition costs and administrative expenses.............. 833,312 69,030 271,567 153,486 138,343 81,976 Amortization of goodwill.............. 45,350 4,435 12,834 7,325 1,507 (437) Interest expense....... 105,138 4,741 25,459 11,657 10,481 5,036 Income taxes........... 28,684 5,342 20,040 25,181 26,543 7,673 ------------ ------------ ------------ ------------ ------------ ------------ Net income............. $ 364,963 $ 238,539 $ 560,151 $ 502,725 $ 327,619 $ 247,369 ============ ============ ============ ============ ============ ============ Fully diluted earnings per share............. $ 1.85 $ 1.21 $ 2.96 $ 2.69 $ 2.00 $ 1.59 ============ ============ ============ ============ ============ ============ Balance sheet data (at end of period) Total investments and cash.................. $ 12,875,535 $ 6,214,900 $ 6,201,074 $ 4,787,916 $ 4,342,781 $ 3,225,786 Total assets........... 30,122,888 8,834,305 8,788,753 5,647,596 5,077,780 3,514,946 Net unpaid losses and loss expenses......... 8,908,817 2,577,805 2,678,341 2,006,873 1,892,302 1,452,299 Total shareholders' equity................ 4,450,560 3,909,577 3,714,270 2,785,155 2,367,006 1,524,123 Fully diluted book value per share....... $ 20.28 $ 20.19 $ 19.14 $ 15.40 $ 12.46 $ 9.96 Selected other data Loss and loss expense ratio................. 66.0% 51.0% 57.8% 60.4% 68.8% 77.4% Underwriting and administrative expense ratio................. 33.5% 31.7% 30.4% 19.0% 18.3% 17.2% Combined ratio......... 99.5% 82.7% 88.2% 79.4% 87.1% 94.6% Loss reserves to capital and surplus ratio................. 200.2% 65.9% 72.1% 72.1% 79.9% 95.3% Ratio of net premiums written to capital and surplus............... 0.56:1 0.04:1 0.24:1 0.28:1 0.33:1 0.36:1 Weighted average shares outstanding--diluted.. 197,626,354 197,349,356 189,281,175 186,809,023 163,768,894 155,505,028 Cash dividends per share................. $ 0.42 $ 0.09 $ 0.34 $ 0.27 $ 0.21 $ 0.17
F-43 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The following is a discussion of the Company's results of operations, financial condition, liquidity and capital resources. This discussion should be read in conjunction with the consolidated financial statements and related notes, thereto presented on pages 37 to 79 of this annual report. Safe Harbor Disclosure The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements. Any written or oral statements made by or on behalf of the Company may include forward-looking statements which reflect the Company's current views with respect to future events and financial performance. These forward-looking statements are subject to certain uncertainties and other factors that could cause actual results to differ materially from such statements. These uncertainties and other factors (which are described in more detail elsewhere herein and in documents filed by the Company with the Securities and Exchange Commission) include, but are not limited to, (i) uncertainties relating to government and regulatory policies (such as subjecting the Company to insurance regulation or taxation in additional jurisdictions or amending or revoking or enacting any laws, regulations or treaties affecting the Company's current operations), (ii) the occurrence of catastrophic events or other insured or reinsured events with a frequency or severity exceeding the Company's estimates, (iii) legal developments, (iv) the uncertainties of the loss reserving process including the difficulties associated with assessing environmental and latent injuries, (v) the actual amount of new and renewal business and market acceptance of expansion plans, (vi) loss of the services of any of the Company's executive officers, (vii) changing rates of inflation and other economic conditions, (viii) losses due to foreign currency exchange rate fluctuations, (ix) ability to collect reinsurance recoverables, (x) the competitive environment in which the Company operates, related trends and associated pricing pressures and developments, (xi) the impact of mergers and acquisitions, including the ability to successfully integrate acquired businesses and achieve cost savings, competing demands for ACE's capital and the risk of undisclosed liabilities, (xii) the impact of Year 2000 related issues, (xiii) developments in global financial markets which could affect the Company's investment portfolio and financing plans, and (xiv) risks associated with the introduction of new products and services. The words "believe", "anticipate", "estimate", "project", "plan", "expect", "intend", "hope", "will likely result" or "will continue" and variations thereof and similar expressions identify forward- looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. General On July 2, 1999, the Company changed its fiscal year-end from September 30 to December 31. This change was implemented retroactively to December 31, 1998 so that the 1999 fiscal year is the twelve month period ending December 31, 1999. For purposes of the analysis of the Company's results of operations, the Company's December 31, 1999 fiscal year has been compared to the years ended September 30, 1998 and 1997, the two most recent audited fiscal years. For the discussion of financial condition, balance sheet data at December 31, 1999 and 1998 has been used. ACE Limited ("ACE" or "the Company"), through its various subsidiaries, provides a broad range of insurance and reinsurance products to insureds in the United States and almost 50 other countries. In addition, ACE, through ACE Global Markets, provides funds at Lloyd's, primarily in the form of letters of credit, to support underwriting capacity for Lloyd's syndicates managed by Lloyd's managing agencies which are indirect wholly owned subsidiaries of ACE. ACE operates through six main business segments: ACE Bermuda, ACE Global Markets, ACE Global Reinsurance, ACE USA, ACE International and ACE Financial Services. "ACE USA" principally includes the domestic U.S. business of ACE INA together with the original ACE USA division acquired on January 2, 1998 ("ACE US Holdings"). These segments are defined in note 17 of the consolidated financial statements. 1 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued) On July 2, 1999, the Company acquired of the international and domestic property and casualty businesses of CIGNA Corporation ("CIGNA") for $3.45 billion in cash (the "ACE INA Acquisition"). Under the terms of the agreement the Company, through a newly created U.S. holding company, ACE INA, acquired CIGNA's domestic property and casualty insurance operations and also its international property and casualty insurance companies and branches, including most of the accident and health business written through those companies. In connection with the ACE INA Acquisition, National Indemnity Company, a subsidiary of Berkshire Hathaway Inc., is providing $1.25 billion of protection against adverse development with respect to the loss and loss adjustment expense reserves acquired on July 2, 1999. The ACE INA acquisition has been recorded using the purchase method of accounting and, accordingly, the consolidated financial statements include the results of operations and balance sheet of ACE INA and its subsidiaries from July 2, 1999, the date of the acquisition. On December 30, 1999, the Company completed the acquisition of Capital Re Corporation ("Capital Re"). Following the acquisition the name of the Company was changed to ACE Financial Services, Inc. and is referred to herein as Capital Re or ACE Financial Services. This transaction added significant depth and expertise to ACE's financial reinsurance capabilities and represents a strategic complement to the Company's diversified portfolio by establishing ACE as a key financial guaranty reinsurer. The Capital Re acquisition has been recorded using the purchase method of accounting and, accordingly, the consolidated financial statements include the results of operations and balance sheet of Capital Re and its subsidiaries from December 30, 1999, the date of the acquisition. The Company expects to continue evaluating potential new product lines and other opportunities in the insurance and reinsurance markets. In addition, the Company evaluates potential acquisitions of other companies and businesses and holds discussions with potential acquisition candidates. As a general rule, the Company publicly announces such acquisitions only after a definitive agreement has been reached. Results of Operations--Year ending December 31, 1999 and years ending September 30, 1998 and 1997 During 1999 and 1998, the Company made four substantial acquisitions that were accounted for under the purchase method of accounting, which requires that income from the acquired company only be included in the results of the Company from the date of acquisition. This makes it difficult to compare the financial statements as presented. CAT Limited's ("CAT") results are included from April 1, 1998, ACE US Holding's results are included from January 2, 1998 and ACE INA's results are included from July 2, 1999. As Capital Re was acquired on December 30, 1999, its results have no effect on the following analysis. In addition, each year, the Company has increased its percentage of participation in the Lloyd's syndicates it manages. Net Income
Year Ended Year Ended Year Ended December 31 September 30 September 30 1999 1998 1997 ----------- ------------ ------------ (in millions of U.S. dollars) Income excluding net realized gains on investments and non-recurring expenses........................... $330 $418 $381 Non-recurring expenses (net of taxes)............................. (7) (46) (6) Net realized gains on investments (net of taxes)..................... 42 188 128 ---- ---- ---- Net income.......................... $365 $560 $503 ==== ==== ====
Income excluding net realized gains on investments and non-recurring expenses was $330 million or $1.67 per share in 1999 compared to $418 million or $2.21 per share in 1998 and $381 million or $2.04 per share in 1997. Net income, excluding net realized gains and non-recurring expenses, declined by $88 million or 21 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued) percent in 1999 primarily due to the impact of property catastrophe losses which are discussed further in underwriting results. The decline in net income of $195 million from 1998 to 1999 is due in part to the $88 million decline in income excluding net realized gains and non- recurring expenses explained above. In addition, the Company had net realized gains on investments of $42 million in 1999 compared with $188 million in 1998. This decrease contributed $146 million to the decline and is explained later in the discussion of net realized gains (losses) on investments. The Company incurred non-recurring expenses (net of taxes) of $7 million in 1999 with respect to the ACE INA Acquisition compared with $46 million in 1998 with respect to the acquisition of Tarquin, accounting for the remaining difference between 1999 and 1998. Income excluding net realized gains on investments and non-recurring expenses for 1998 increased by $37 million or 9.8 percent compared with 1997. This increase was predominantly the result of the inclusion of the results of ACE US Holdings following the acquisition on January 2, 1998 of ACE USA and the inclusion of the results of CAT following its acquisition on April 1, 1998. Net income increased by $57 million in 1998 over 1997. This increase is the result of the increase of $37 million in income excluding net realized gains on investments and non-recurring expense, together with an increase in net realized gains of $60 million, offset by non-recurring charges incurred in the Tarquin acquisition. Premiums
Year Ended Year Ended Year Ended December 31 Percentage September 30 Percentage September 30 1999 Change 1998 Change 1997 ----------- ---------- ------------ ---------- ------------ (in millions of U.S. dollars) Gross premiums written: ACE Bermuda........... $ 553 6.4 % $ 520 (1.3)% $527 ACE Global Markets.... 635 45.0 % 438 38.3 % 316 ACE Global Reinsurance.......... 182 46.8 % 124 7.2 % 116 ACE USA............... 1,567 877.9 % 160 -- -- ACE International..... 932 -- -- -- -- ------- ----- ------ ----- ---- $ 3,869 211.5 % $1,242 29.5 % $959 ======= ===== ====== ===== ==== Net premiums written: ACE Bermuda........... $ 429 8.5 % $ 395 (12.4)% $452 ACE Global Markets.... 439 38.9 % 314 39.2 % 227 ACE Global Reinsurance.......... 145 55.7 % 94 (16.0)% 111 ACE USA............... 797 914.8 % 78 -- -- ACE International..... 685 -- -- -- -- ------- ----- ------ ----- ---- $ 2,495 182.5 % $ 881 11.8 % $790 ======= ===== ====== ===== ==== Net premiums earned: ACE Bermuda........... $ 510 31.2 % $ 389 (18.8)% $479 ACE Global Markets.... 364 29.0 % 279 35.8 % 207 ACE Global Reinsurance.......... 140 (9.5)% 155 30.6 % 119 ACE USA............... 749 956.7 % 71 -- -- ACE International..... 723 -- -- -- -- ------- ----- ------ ----- ---- $ 2,486 178.0 % $ 894 11.0 % $805 ======= ===== ====== ===== ====
3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued) During 1999 and 1998, most insurance markets continued to face significant competitive pressures as a result of excess capital in both the insurance and reinsurance markets. This has resulted in continuing price pressure in most insurance and reinsurance lines. However, the Company has continued to make strategic acquisitions, increase its participation in the Lloyd's syndicates managed by the Company, and develop new and expand existing product lines while maintaining its focus on underwriting and pricing discipline. This has resulted in increases in gross and net premiums written and net premiums earned in each of the fiscal years ended December 31, 1999 and September 30, 1998. Gross Premiums Written Gross premiums written for the year ended December 31, 1999 increased 212 percent to $3.9 billion compared with $1.2 billion for the year ended September 30, 1998. Premiums for the Company increased primarily due to the inclusion of ACE INA since July 2, 1999. All segments, however, reported increases in gross premiums written compared with last year. During 1998, gross premiums written increased to $1.2 billion compared with $959 million in 1997, an increase of $283 million. The growth in gross premiums written during 1998 was mainly a result of the inclusion of nine months of premiums from ACE US Holdings and six months of premiums from CAT, following their acquisitions on January 2, 1998 and April 1, 1998, respectively. The 1998 growth is also due to the increased participation in the Lloyd's syndicates managed by the Company. ACE Bermuda: Gross premiums written for the year ended December 31, 1999 increased 6 percent over the year ended September 30, 1998. The increase was primarily the result of significant increases in business in the tailored risk solutions division and in new political risk products. This new business was offset by decreases in the satellite, excess liability, and professional lines divisions due to continued market pressures. Gross premiums written decreased by $7 million in 1998 compared with 1997. ACE Bermuda had increases in premium from tailored risk solutions, the satellite program and the joint ventures in which ACE Bermuda participates. These increases were offset by declines in the excess liability and directors and officers lines of business, primarily due to the competitive pressures in the market. ACE Global Markets: The increase in gross premiums written in 1999 of $197 million or 45 percent over 1998 is primarily the result of increased participation over 1998. Throughout 1999 there have been rate reduction pressures, excess capacity, and industry consolidations which have created difficult market conditions. Recently, the divisions have all seen some rate stabilization. It is anticipated that gross premiums written will continue to increase in the year 2000 as the Company has again increased its capacity at Lloyd's. The focus for ACE Global Markets in 1999 has been to protect earnings by restructuring the broad portfolio of specialty business that it writes to both maximize available profitability and to lessen its exposure to less profitable lines. Gross premiums written also increased in 1998 over 1997, again as a result of the Company's increased participation on its syndicates. ACE Global Reinsurance: Gross premiums written by Tempest Re increased 47 percent to $182 million for the year ended December 31, 1999 compared to the year ended September 30, 1998. The Company acquired CAT in April 1998 and therefore 1999 includes a full year of CAT results whereas 1998 only includes six months of results from the CAT business. Although a few areas of business continue to see declines due to consolidation among Tempest Re's insureds, overall the competitive environment is less adverse than it has been in the last couple of years and Tempest Re is seeing opportunities to write new business at firmer rates. In 1998, market conditions were very competitive in the property catastrophe reinsurance business and rates declined in the absence of major loss activity. While the combined Tempest Re and CAT operations recorded gross premiums written of $124 million in 1998 compared with $116 million for Tempest Re alone in 1997, each company on an individual basis showed declines in gross premiums written compared to the 1997 year. 4 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued) ACE USA: Gross premiums written for ACE USA in 1999 include premiums from both ACE US Holdings and the U.S. operations of ACE INA which are included from July 2, 1999, the date of acquisition. As a result, gross premiums written for 1999 have increased by 878 percent over 1998. Gross premiums written of $160 million in 1998 represents nine months of premiums from ACE US Holdings as it was acquired by the Company on January 2, 1998. On a comparable basis, gross premiums written are slightly ahead of 1998 for the combined U.S. operation. Prior to January 2, 1998, the Company had no U.S. based operations. ACE International: Gross premiums written were $932 million for the 1999 period since the date of acquisition which, on a comparable basis, are ahead of 1998. All markets for commercial property and casualty insurance remained highly competitive although ACE International is seeing a slowdown in the rate erosion that has existed for the past two to three years. Net Premiums Written Net premiums written increased by $1.6 billion to $2.5 billion in 1999 compared to 1998. As with gross premiums written, the increase is primarily due to the inclusion of the results of the ACE INA business although increases were experienced in all business segments as discussed above. The increases in net premiums written for ACE Global Reinsurance and ACE Global Markets are explained above in the gross premiums written discussion. Net premiums written increased by $91 million to $881 million in 1998 compared with $790 million in 1997. This increase, as with the increase in gross premiums written, is the result of increases in the Company's participation in the Lloyd's syndicates managed by ACE Global Markets as well as the contributions of ACE US Holdings and CAT during the year. Net premiums written in ACE Bermuda decreased from $452 million in 1997 to $395 million in 1998. This decline was primarily the result of continuing declines in directors and officers liability and excess liability premiums, as described above in the discussion of gross premiums written, offset somewhat by growth in net premiums written from the satellite and tailored risk solutions and in the joint ventures business written by ACE Bermuda. Net premiums written were also affected by an increase in the use of reinsurance during 1998, predominantly in ACE Bermuda where they purchased an excess liability quota share reinsurance treaty and also put in place excess liability excess of loss treaty that limits the retained risk on a single occurrence to $100 million. In addition, during 1998, the satellite division of ACE Bermuda and Tempest Re each purchased additional reinsurance to cover catastrophic events. Net Premiums Earned Net premiums earned increased by $1.6 billion to $2.5 billion compared to $894 million at September 30, 1998, an increase of 178 percent. As with gross premiums written and net premiums written, the increase is due primarily to the inclusion of the results of the newly acquired ACE INA business. ACE Bermuda, ACE Global Markets and ACE Global Reinsurance experienced increases in net premiums earned during the period as well, as discussed for both gross and net premiums written. The tailored risk solutions division at ACE Bermuda contributed significantly to the increase due to the commutation of a tailored risk solutions reinsurance contract and the writing of several significant loss portfolio transfer contracts in the year which generated immediate premiums earned of approximately $150 million. For the year ended September 30, 1998, net premiums earned increased by $89 million to $894 million compared with $805 million for September 30, 1997, an increase of 11 percent. This increase was a result of the contributions from ACE US Holdings and CAT during the year following their acquisitions as well as an increase in net premiums earned resulting from the Company's participation in the Lloyd's syndicates under management. This increase was partially offset by declines in net premiums earned in ACE Bermuda as a result of declines in net premiums written. 5 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued) Underwriting Results The underwriting results of a property and casualty insurer are discussed frequently by reference to its combined ratio, loss and loss expense ratio and underwriting and administrative expense ratio. Each ratio is derived by dividing the relevant expense amounts by net premiums earned. The combined ratio is the sum of the losses and loss expense ratio and the underwriting and the administrative expense ratio. A combined ratio under 100 percent indicates underwriting income and a combined ratio exceeding 100 percent indicates underwriting losses.
Year ended Year ended December 31 September 30 September 30 1999 1998 1997 ----------- ------------ ------------ Loss and loss expense ratio ACE Bermuda........................... 76.5% 75.9% 80.6% ACE Global Markets.................... 56.6 51.8 43.1 ACE Global Reinsurance................ 69.2 22.0 8.8 ACE USA............................... 71.2 60.4 -- ACE International..................... 57.1 -- -- Consolidated........................ 66.0% 57.8% 60.4% Underwriting and administrative expense ratio ACE Bermuda........................... 10.4% 14.9% 11.3% ACE Global Markets.................... 40.9 42.8 24.3 ACE Global Reinsurance................ 23.4 17.5 16.9 ACE USA............................... 33.6 33.5 -- ACE International..................... 40.9 -- -- Consolidated........................ 33.5% 30.4% 19.0% Combined Ratio ACE Bermuda........................... 86.9% 90.8% 91.9% ACE Global Markets.................... 97.5 94.6 67.4 ACE Global Reinsurance................ 92.6 39.5 25.7 ACE USA............................... 104.8 93.9 -- ACE International..................... 98.0 -- -- Consolidated........................ 99.5% 88.2% 79.4%
The process of establishing reserves for property and casualty claims continues to be a complex and uncertain process, requiring the use of informed estimates and judgments. The Company's estimates and judgments may be revised as additional experience and other data become available and are reviewed, as new or improved methodologies are developed or as current laws change. Any such revisions could result in future changes in estimates of losses or reinsurance recoverables, and would be reflected in the Company's results of operations in the period in which the estimates are changed. In addition, catastrophe losses may have a significant effect on the insurance and reinsurance industry. ACE Global Reinsurance and other segments of the group have exposure to windstorm, hail, earthquake and other catastrophic events, all of which are managed using measures including underwriting controls, occurrence caps as well as modeling, monitoring and managing accumulations. The Company uses its retrocessional programs to limit its net losses from catastrophes. However, property catastrophe loss experience is generally characterized as low frequency but high severity short-tail claims which may result in volatility in financial results. 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued) During 1999, there were a significant number of catastrophes that impacted the results of the Company including: a hailstorm in New South Wales, Australia in April 1999; tornadoes in the U.S. midwest in May 1999; from July to September 1999 there were major earthquakes in Taiwan, Turkey, Greece and Mexico, a typhoon in Japan and Hurricane Floyd in the U.S.; and in December 1999 there were several severe windstorms in Europe. Losses and loss expenses increased substantially in the year ended December 31, 1999 to $1.6 billion compared with $517 million in the year ended September 30, 1998. This increase is primarily due to the inclusion of losses and loss expenses for ACE INA following the acquisition as well as the catastrophes discussed above. The Company's losses and loss expense ratio also increased from 57.8 percent in 1998 to 66.0 percent in 1999. This increase is primarily due to the inclusion of the domestic business of ACE INA as well as an increase in insured catastrophes during the year Losses and loss expenses increased for the year ended September 30, 1998 to $517 million compared with $486 million in 1997 due to the inclusion of losses and loss expenses from ACE US Holdings and CAT since their acquisitions as well as the Company's increased participation in the Lloyd's syndicates under management. However, the losses and loss expense ratio decreased to 57.8 percent in 1998 compared with 60.4 percent in 1997. This decrease is the result of the changing mix of premiums written and earned by the Company, highlighted by the inclusion of ACE US Holdings and CAT in the 1998 fiscal year whose loss ratios were generally lower than the majority of the Company's book of business in 1997. ACE Bermuda: The loss ratio for 1999 did not substantially change from 1998. The loss ratio decreased in 1998 to 75.9 percent from 80.6 percent in 1997 primarily due to a change in the mix of business written. ACE Global Markets: The loss ratio has increased over the past two years from 43.1 percent in 1997 to 51.8 percent in 1998 and 56.6 percent in 1999. This increase is primarily the result of the increasing amount of non-Tarquin business written in the syndicates managed by the Company. The Company's participation in the Tarquin syndicate has been relatively flat over the past two years, while the Company's participation on the other syndicates, which historically have had higher loss ratios, continues to increase. ACE Global Reinsurance: The loss ratio for this segment is directly impacted by the level of insured catastrophes in a year. In 1999, there were a significant number of insured catastrophes resulting in a loss ratio of 69.2 percent compared with 22.0 percent in 1998 and 8.8 percent in 1997, a year with very little loss activity. The increase in Tempest Re's loss ratio over last year accounts for $63 million of the total decline of $88 million in income including net realized gains and non-recurring expenses. ACE USA: The loss ratio of ACE USA increased to 71.2 percent in 1999 compared with 60.4 percent in 1998. This increase is primarily because the domestic business of ACE INA has historically had a loss ratio in excess of ACE US Holdings. The loss ratio of ACE USA was also impacted by catastrophes during the year, principally Hurricane Floyd in the third quarter. ACE International: The loss ratio for ACE International was higher than anticipated primarily due to catastrophe activity since July 2, 1999, the date of acquisition. The loss ratio was affected by several earthquakes, a typhoon in the third quarter and European storms in the fourth quarter. 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued) Underwriting and administrative expenses are comprised of the amortization of deferred acquisition costs, which include commissions, premium taxes, underwriting and other costs that vary with and are primarily related to the production of premium, and administrative expenses which include all other operating costs. As with losses and loss expenses, total underwriting and administrative expenses increased significantly from $272 million in 1998 to $833 million in 1999 primarily due to the inclusion of ACE INA following the acquisition. The underwriting and administrative expense ratio increased to 33.5 percent in 1999 from 30.4 percent in 1998. However, underwriting and administrative expenses include non-recurring expenses of $11 million for 1999 with respect to the acquisition of ACE INA and $58 million for 1998 with respect to the acquisition of Tarquin. Excluding these non-recurring expenses in 1999 and 1998, the underwriting and administrative expense ratios would have been 33.1 percent and 25.0 percent respectively. The increase in the ratio is primarily due to the change in mix of business. For example, ACE International, which has an underwriting and administrative expense ratio of 40.9 percent (due mainly to the higher costs associated with accident and health business) accounted for 29 percent of total net premium earned in 1999. These increases were offset by a decline in the underwriting and administrative expense ratio of ACE Bermuda primarily due to ceding commissions generated on their expanded reinsurance programs. Underwriting and administrative expenses increased for the year ended September 30, 1998 to $272 million compared with $153 million in 1997 primarily due to the inclusion of the non-recurring expenses with respect to the Tarquin acquisition as well as the inclusion of underwriting and administrative expenses due to the ACE US Holdings and CAT acquisitions. The increase is also partly due to the increased underwriting and administrative expenses generated by the Company's increased participation in Lloyd's. Excluding the non- recurring expenses, the underwriting and administrative expense ratio would have been 25.0 percent compared to 19.0 percent in 1997. Underwriting results for all segments (except ACE USA in 1999 and ACE Bermuda in 1998) are consistent with the Company's operating objective of achieving an underwriting profit despite the increase in catastrophe activity in 1998 and 1999. Following the acquisition of ACE INA, the Company initiated several cost reduction initiatives at ACE INA. These included staff reductions at ACE INA, outsourcing the IT operations at ACE USA and consolidating numerous ACE USA field offices. ACE believes that these initiatives should assist ACE USA in achieving a combined ratio under 100 percent. Net Investment Income
Year ended Year ended Year ended December 31 Percentage September 30 Percentage September 30 1999 Change 1998 Change 1997 ----------- ---------- ------------ ---------- ------------ (in millions of U.S. dollars) ACE Bermuda............. $174 (17.2)% $211 11.4% $189 ACE Global Markets...... 28 46.1 % 19 20.3% 16 ACE Global Reinsurance.. 60 13.2 % 53 42.3% 37 ACE USA................. 189 368.8 % 40 -- -- ACE International....... 41 -- -- -- -- Other................... 1 -- 1 -- 11 ---- ---- ---- Total investment income................. $493 $324 $253 ==== ==== ====
Net investment income increased by $169 million in the year ended December 31, 1999 compared with the year ended September 30, 1998. The primary reason for this is an increase in the size of investment assets resulting from the ACE INA acquisition on July 2, 1999. In addition, there was a significant rise in U.S. interest rates with U.S. Treasury bond yields closing the year between 150 and 200 basis points higher than at September 30, 1998. This had a marginal impact on the portfolio yield for the year, but as the portfolio is turned over and new money invested, higher market yields should have a positive impact going forward. The average yield on the investment portfolio in 1999 was not significantly different from that generated in 1998. 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued) Net investment income increased by $71 million or 27.9 percent in 1998 compared with 1997. This increase is primarily due to an increase in the investable asset base resulting from the inclusion of the ACE US Holdings and CAT portfolios in 1998 as well as positive cash flows from operations and the reinvestment of funds generated by the portfolio. Consistent with the overall decline in U.S. interest rates during 1998, the average yield earned on the investment portfolio in 1998 was down when compared with the yield generated in 1997. ACE Bermuda: Net investment income decreased by 17 percent to $174 million in 1999 compared with $211 million in 1998 primarily due to a decline in the investable asset base of ACE Bermuda. During 1999, ACE Bermuda paid $650 million in dividends to ACE Limited to partially finance the ACE INA acquisition and to cover other operating expenses of the holding company. Net investment income increased by 11 percent to $211 million in 1998 compared with $189 million in 1997, primarily due to an increase in its investable asset base during 1998. ACE Global Markets: Net investment income increased by 46 percent to $28 million compared with $19 million in 1998 and $16 million in 1997. These increases result from the Company's increased participation on the Lloyd's syndicates it manages. ACE Global Reinsurance: Net investment income increased by 13 percent to $60 million compared with $53 million in 1998 and $37 million in 1997. The investable asset base of Tempest Re declined in 1999 as Tempest Re paid $316 million of dividends to ACE Limited and paid claims related to the 1999 catastrophes. However, 1999 includes a full year of income on the CAT investment portfolio compared with six months of investment income in 1998, offsetting the decline in the asset base. ACE USA: Net investment income increased by 369 percent to $189 million in 1999 compared with $40 million in 1998. Net investment income includes both ACE US Holdings and the U.S. operations of ACE INA which are included from July 2, 1999. Net investment income for 1998 represents nine months of net investment income from ACE US Holdings as it was acquired on January 2, 1998. Prior to January 2, 1998, the Company had no U.S. based operations. ACE International: Net investment income of $41 million represents the net investment income of ACE International since July 2, 1999, the date of acquisition. Net Realized Gains (Losses) on Investments
Year Ended Year Ended Year Ended December 31 September 30 September 30 1999 1998 1997 ----------- ------------ ------------ (in millions of U.S. dollars) Fixed maturities and short-term investments............................ $(82) $ 58 $ 59 Equity securities....................... 47 168 38 Financial futures and option contracts.. 68 (9) 57 Other investments....................... 9 -- -- Currency................................ (4) (29) (26) ---- ---- ---- $ 38 $188 $128 ==== ==== ====
The Company's investment strategy takes a long-term view and the portfolio is actively managed to maximize total return within certain specific guidelines, which minimize risk. The portfolio is reported at fair value. The effect of market movements on the investment portfolio will directly impact net realized gains (losses) on investments when securities are sold. Changes in unrealized appreciation (depreciation) which 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued) result from the revaluation of securities held, are reported as a separate component of accumulated other comprehensive income. The Company uses foreign currency forward and option contracts to minimize the effect of fluctuating foreign currencies on the value of non-U.S. dollar holdings currently held in the portfolio not specifically targeted to match the currency of liabilities. The contracts used are not designated as specific hedges and therefore, realized and unrealized gains and losses recognized on these contracts are recorded as a component of net realized gains (losses) in the period in which the fluctuations occur, together with net foreign currency gains (losses) recognized when non-U.S. dollar securities are sold. Sales proceeds for fixed maturity securities were generally lower than their amortized cost during the year. This resulted in net realized losses of $82 million being recognized on fixed maturities and short-term investments during the year ended December 31, 1999 compared to net realized gains of $58 million for the year ended September 30, 1998. Continued positive returns in the international equity markets and the liquidation of two domestic stock portfolios contributed to net realized gains on the sale of equity securities of $47 million in fiscal 1999 and $168 million in fiscal 1998. Certain of the Company's external managers of fixed income securities use fixed income futures contracts to manage duration exposure, and losses of $18 million were recognized on these during the year ended December 31, 1999. Net realized gains generated by the Company's equity index futures contracts amounted to $86 million during the period. Total net realized gains attributable to the financial futures and option contracts amounted to $68 million, compared to losses of $9 million for the year ended September 30, 1998. Other Expenses
Year Ended Year Ended Year Ended December 31 Percentage September 30 Percentage September 30 1999 Change 1998 Change 1997 ----------- ---------- ------------ ---------- ------------ (in millions of U.S. dollars) Goodwill........... $ 45 253.4% $13 75.2% $ 7 ==== === === Interest expense... $105 313.0% $25 118.4% $12 ==== === ===
The increase in goodwill amortization in 1999 is primarily the result of the amortization of goodwill with respect to the ACE INA acquisition on July 2, 1999. The increase in goodwill in 1998 over 1997 is a result of amortization of goodwill with respect to the acquisition of CAT. The increase in interest expense in 1999 is a result of the additional debt taken on by the Company in connection with the acquisition of ACE INA. For further information on the Company's outstanding debt, see note 8 of the consolidated financial statements. CONSOLIDATED FINANCIAL POSITION At December 31, 1999, total assets were $30.1 billion compared with $8.8 billion at December 31, 1998. The $21.3 billion increase is primarily due to the acquisition of ACE INA and Capital Re during the year. On July 2, 1999, ACE INA added $20.7 billion in assets and on December 30, 1999, Capital Re added $1.5 billion. These additions were offset by the use of $1.1 billion in assets to complete the ACE INA and Capital Re acquisitions. 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued) At December 31, 1999, total investments and cash amounted to approximately $12.9 billion, compared to $6.2 billion at December 31, 1998. The increase is due primarily to the inclusion of ACE INA's cash and investment portfolio of $7.2 billion acquired by the Company on July 2, 1999 and Capital Re's investments and cash of $1.1 billion acquired by the Company on December 30, 1999. The Company used $1.0 billion and $110 million of available cash and investments in the ACE INA and Capital Re acquisitions, respectively. The Company's investment portfolio is structured to provide a high level of liquidity to meet insurance related or other obligations. The consolidated investment portfolio is externally managed by independent professional investment managers and is invested primarily in high quality investment grade marketable fixed income and equity securities, the majority of which trade in active, liquid markets. The Company maintains loss reserves for the estimated unpaid ultimate liability for losses and loss expenses under the terms of its policies and agreements. The reserve for unpaid losses and loss expenses of $16.5 billion at December 31, 1999 includes $8.9 billion of case and loss expense reserves. While the Company believes that its reserve for unpaid losses and loss expenses at December 31, 1999 is adequate, future developments may result in ultimate losses and loss expenses significantly greater or less than the reserve provided. One of the ways the Company manages its loss exposure is through the use of reinsurance. While reinsurance arrangements are designed to limit losses from large exposures and to permit recovery of a portion of direct losses, reinsurance does not relieve the Company of its liability to its insureds. Accordingly, the Company's loss reserves represent total gross losses and reinsurance recoverables represent anticipated recoveries of a portion of those losses as well as amounts recoverable from reinsurers with respect to claims which have already been paid by the Company. The Company's reinsurance recoverables were approximately $8.8 billion and $1.2 billion at December 31, 1999 and 1998, net of allowances for unrecoverable reinsurance of $758 million and $85 million, respectively. The increase is primarily due to the inclusion of reinsurance recoverables of ACE INA which amounted to $7.1 billion at July 2, 1999, the date of acquisition. The allowance for unrecoverable reinsurance is required principally due to the failure of reinsurers to indemnify the Company, primarily because of disputes under reinsurance contracts and insolvencies. Reinsurance disputes continue to be significant, particularly on larger and more complex claims, such as those related to asbestos and environmental pollution (discussed in more detail below) and London reinsurance market exposures. Allowances have been established for amounts estimated to be uncollectible. Included in the Company's liabilities for losses and loss expenses are liabilities for asbestos environmental and latent injury damage claims and expenses ("A&E claims"). These claims are principally related to claims arising from remediation costs associated with hazardous waste sites and bodily injury claims related to asbestos products and environmental hazards. These amounts include provision for both reported and IBNR claims. The table below presents loss reserve details for A&E exposures as of December 31, 1999 and 1998. The substantial increase year over year is due to the A&E exposures assumed by the Company as a result of the acquisition of ACE INA.
1999 1998 ----------- ---------- Gross Net Gross Net ------ ---- ----- ---- (in millions of U.S. dollars) Asbestos................................................ $ 897 $291 $113 $ 41 Environmental and Other................................. 2,197 676 173 110 ------ ---- ---- ---- Total................................................... $3,094 $967 $286 $151 ====== ==== ==== ====
11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued) The Company continuously estimates its liabilities and related reinsurance recoverable for A&E claims. While most of these liabilities for such claims arise from exposures in North America, the Company has also provided for international A&E exposures. A&E exposures do not lend themselves to traditional methods of loss development determination and therefore reserves related to these exposures may be considered less reliable than reserves for other lines of business. The liability for A&E claims is management's best estimate of future claims and claim expense payments and recoveries which are expected to develop over the next several decades. The Company continuously monitors evolving case law and its effect on environmental and latent injury claims. Changing governmental regulations, newly identified toxins, newly reported claims, new theories of liability, new contract interpretations and other factors could significantly affect future claim development. While the Company has recorded its current best estimate of its liabilities for unpaid claims and claim expenses, it is reasonably possible that these estimated liabilities, net of estimated reinsurance recoveries, may increase in the future and that the increase may be material to the Company's results from operations, cash flows and financial position. It is not possible to estimate reliably the amount of additional net loss, or the range of net loss, that is reasonably possible. At December 31, 1999, the total of the Company's short and long-term debt, including trust preferred securities was $3.1 billion compared with $250 million at December 31, 1998. Of the total increase of $2.8 billion, $175 million relates to debt and trust preferred securities assumed with the acquisition of Capital Re. The remaining $2.7 billion is short and long-term debt incurred in connection with the ACE INA acquisition and, at December 31, 1999 includes approximately $1.0 billion of commercial paper, $500 million of trust preferred securities and $1.2 billion in long-term debt. The following table analyzes the movements in shareholders' equity for the year ended December 31, 1999, the three months ended December 31, 1998 and the year ended September 30, 1998:
Year Ended Three Months Ended Year Ended December 31 December 31 September 30 1999 1998 1998 ----------- ------------------ ------------ (in millions of U.S. dollars) Balance, beginning of period...... $3,910 $3,714 $2,785 Net income........................ 365 239 560 Change in net unrealized appreciation (depreciation) on investments...................... (186) (26) (69) Repurchase of ordinary shares..... -- -- (108) Dividends declared................ (84) (17) (60) Shares issued in respect to Capital Re transaction........... 367 -- -- Shares issued in ACE INA transaction...................... 73 -- -- Value of ordinary shares issued in share offering................... -- -- 606 Other............................. 6 -- -- ------ ------ ------ Balance, end of period............ $4,451 $3,910 $3,714 ====== ====== ======
Fully diluted book value per share was $20.28 at December 31, 1999, compared with $20.18 at December 31, 1998. LIQUIDITY AND CAPITAL RESOURCES As a holding company, ACE's assets consist primarily of the stock of its subsidiaries as well as other investments. In addition to investment income, its cash flows currently depend primarily on dividends or other 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued) statutorily permissible payments from its Bermuda-based operating subsidiaries (the "Bermuda subsidiaries"). There are currently no legal restrictions on the payment of dividends from retained earnings by the Bermuda subsidiaries as the minimum statutory capital and surplus requirements are satisfied by the share capital and additional paid-in capital of each of the Bermuda subsidiaries. However, the payment of dividends or other statutorily permissible distributions by the Bermuda subsidiaries is subject to the need to maintain shareholder's equity at a level adequate to support the level of insurance and reinsurance operations. During the year ended December 31, 1999, ACE Bermuda and Tempest Re declared dividends of $726 million and $316 million, respectively. The majority of these funds were used to complete the ACE INA Acquisition. The payment of any dividends from ACE Global Markets or its subsidiaries would be subject to applicable United Kingdom insurance law including those promulgated by the Society of Lloyd's. No dividends were received from ACE Global Markets during fiscal 1998 or fiscal 1999 and the Company does not anticipate receiving dividends from ACE Global Markets during fiscal 2000. ACE INA has issued debt to provide partial financing for the ACE INA Acquisition and for other operating needs. Cash flow requirements to service this debt are expected to be met primarily by upstreaming dividend payments from ACE INA's insurance subsidiaries. Under various U.S. insurance laws to which ACE INA's U.S. insurance subsidiaries are subject, ACE INA's U.S. insurance subsidiaries may pay a dividend only from earned surplus subject to the maintenance of a minimum capital requirement, without prior regulatory approval. ACE INA's international subsidiaries are also subject to various insurance laws and are also subject to regulations in the countries in which they operate. These regulations include restrictions that limits the amount of dividends that can be paid without prior approval of the insurance regulatory authorities. No dividends have been received from ACE INA through December 31, 1999. The Company's consolidated sources of funds consist primarily of net premiums written, investment income, and proceeds from sales and maturities of investments. Funds are used primarily to pay claims, operating expenses and dividends and for the purchase of investments. The Company's insurance and reinsurance operations provide liquidity in that premiums are normally received substantially in advance of the time claims are paid. For the year ended December 31, 1999, the Company's consolidated net cash flow from operating activities was $(460) million, compared with $67 million for the year ended September 30, 1998. Cash flows are affected by claim payments, which due to the nature of the Company's operations, may comprise large loss payments on a limited number of claims and therefore can fluctuate significantly from year to year. The irregular timing of these loss payments, for which the source of cash can be from operations, available net credit facilities or routine sales of investments, can create significant variations in cash flows from operations between periods. For the year ended December 31, 1999 and years ended September 30, 1998 and 1997, net losses and loss expense payments amounted to $2.4 billion, $584 million and $422 million respectively. Approximately $140 million for the year ended December 31, 1999; $100 million for the three months ended December 31, 1998; $120 million and $250 million for the years ended September 30, 1998 and 1997, respectively, related to breast implant payments. The majority of markets in which the Company currently operates are experiencing softness in pricing and expanding coverage terms. This may result in reduced premium volumes and to some extent increases in the combined ratios. The Company continues to maintain its underwriting discipline in these markets and focus on profitable underwriting. This underwriting discipline together with the Company's increased use of reinsurance may result in lower underwriting and operating income for the Company's current books of business if the current insurance market environment remains unchanged. The Company anticipates that the impact of this situation, if unchanged, will be lower operating income than the level otherwise expected from our current books of business for fiscal 2000. In addition, the use of $1.025 billion of available cash from the Bermuda companies' investment portfolios on July 2, 1999 to partially fund the ACE INA Acquisition has resulted in reduced investment income from the Bermuda operations. 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued) As previously noted, on July 2, 1999, the Company completed the ACE INA Acquisition for $3.45 billion in cash. The Company financed the transaction as follows: (a) $1.025 billion of available cash; (b) $400 million from a hybrid trust preferred security. The interest rate on this security is LIBOR plus 125 basis points. ACE simultaneously entered into an agreement relating to the future issuance of $400 million of ACE ordinary shares in a public offering prior to June 30, 2002; (c) and the remainder with commercial paper issuance with a current annualized cost in the range of 5.3 to 6.2 percent. The commercial paper offerings are backed by line of credit facilities, which were arranged in connection with the ACE INA Acquisition. In August 1999, commercial paper outstanding in (c) above was reduced by $794 million using the net proceeds from a senior debt issuance. In December 1999, the commercial paper outstanding was reduced further, by an additional $400 million, using the proceeds from the issuance of $300 million in aggregate principal amount of unsecured subordinated notes maturing in December 2009, and the proceeds of the trust preferred securities amounting to $100 million. These trust preferred securities mature on December 31, 2029, but the due date may be extended through December 31, 2048. Distributions on the preferred securities are payable quarterly at a rate of 8.875 percent. The preferred securities are backed by subordinated debentures of ACE INA. The Company has guaranteed the payment obligations with respect to the trust preferred securities and underlying subordinated indenture. The interest payments on the senior debt, the unsecured subordinated notes and the trust preferred securities, which were all issued by ACE INA, are tax deductible. Ultimately, it is anticipated that the balance of the commercial paper noted in (c) above will be replaced with a combination of newly issued ACE ordinary shares, trust preferred securities and or mandatorily convertible securities at the time when ACE considers market conditions to be suitable for issuance. The Company and certain of its subsidiaries and related trusts have an effective shelf registration statement covering up to $3.2 billion of equity and debt securities that may be issued from time to time. On December 30, 1999, the Company completed the acquisition of Capital Re for aggregate consideration of $110 million in cash and approximately 20.8 million ACE ordinary shares. The cash used to finance the acquisition was generated from internal sources. On October 16, 1998, January 15, 1999, and April 16, 1999, the Company paid quarterly dividends of 9 cents per share to shareholders of record on September 30, 1998, December 15, 1998 and March 31, 1999. On July 16, 1999, October 15, 1999 and January 14, 2000, the Company paid quarterly dividends of 11 cents per share to shareholders of record on June 30, 1999, September 30, 1999 and December 31, 1999. The declaration and payment of future dividends is at the discretion of the Board of Directors and will be dependent upon the profits and financial requirements of the Company and other factors, including legal restrictions on the payment of dividends and such other factors as the Board of Directors deems relevant. The Company's financial condition, results of operations and cash flows are influenced by both internal and external forces. Claim settlements, premium levels and investment returns may be impacted by changing rates of inflation and other economic conditions. In many cases, significant periods of time, ranging up to several years or more, may elapse between the occurrence of an insured loss, the reporting of the loss to the Company and the settlement of the Company's liability for that loss. The Company believes that its cash balances, cash flow from operations, routine sales of investments and the liquidity provided by its credit facilities (discussed below) are adequate to meet the Company's expected cash requirements. 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued) Credit facilities In June 1999, the Company arranged certain syndicated credit facilities. Each facility requires that the Company and/or certain of its subsidiaries maintain specific covenants, including a consolidated tangible net worth covenant and a maximum leverage covenant. At December 31, 1999, the Company and its relevant subsidiaries were in compliance with all convenants. The facilities provide: . A $750 million, 364-day revolving credit facility with ACE, ACE Bermuda, Tempest Re and ACE INA as borrowers and guarantors. The initial purpose of this facility was to provide interim financing for the ACE INA Acquisition, however, after certain conditions were met, up to $500 million of this facility could remain in place for general corporate purposes. These conditions have been met and a $500 million facility remains in place. . A $250 million, five-year revolving credit facility with ACE, ACE Bermuda, Tempest Re and ACE INA as borrowers and guarantors. This facility is for general corporate purposes and has a letter of credit sub-limit of $250 million. . A $2.05 billion, 364-day revolving credit facility with a one-year term out option with ACE INA as borrower and ACE Ltd., ACE Bermuda and Tempest Re as guarantors. This facility was arranged to provide interim financing for the ACE INA Acquisition and availability is decreased as permanent financing is raised and is applied to borrowings and/or commercial paper. As of December 31, 1999, $618 million remains available under this facility. Each of the above facilities may be used as commercial paper recourse facilities. Tempest Re also maintains an uncollateralized, syndicated revolving credit facility in the amount of $72.5 million. At December 31, 1999, no amounts have been drawn down under this facility. The facility requires that Tempest Re comply with specific covenants. The Company added its guarantee to this facility in June 1999. Capital Re is party to a credit facility with and a syndicate of banks pursuant to which the syndicate provides up to $100 million specifically designed to provide rating agency qualified capital to further support Capital Re's claims-paying resources. This agreement expires in January 2006. Capital Re has not borrowed under this credit facility. Capital Re also maintains a $5 million revolving credit facility which was guaranteed by the Company in December 1999. In August 1996, Capital Re entered into a credit agreement for the provision of a $25 million credit facility. As of December 31, 1999, $25 million remains outstanding under this facility. The Company expects to refinance this facility in conjuction with the ultimate renewal of its revolving credit facilities. In June 1999, the Company arranged certain commercial paper programs. The programs use revolving credit facilities (as discussed above) as recourse facilities and provide for up to $2.8 billion in commercial paper issuance (subject to the availability of recourse facilities) for ACE and for ACE INA. At December 31, 1999, short-term debt consisted of $425 million and $625 million of commercial paper issued by ACE and ACE INA respectively. The commercial paper rates are currently in the 5.6 to 6.2 percent range, depending on maturity. On July 2, 1999, $425 million and $1.65 billion were drawn down under these programs by ACE and ACE INA respectively to partially finance the ACE INA Acquisition. In June 1999, the Company and ACE INA arranged a short-term money market facility in the amount of $225 million for general corporate purposes. In July 1999, a portion of the facility was used to finance certain liabilities of an ACE INA subsidiary. In November 1999, this facility was cancelled and repaid with proceeds from the commercial paper programs described above. 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued) In November 1998, the Company arranged a syndicated, partially collateralized, five-year LOC facility in the amount of (Pounds)270 million (approximately $437 million) to fulfill the requirements of Lloyd's for the 1999 year of account. This LOC facility requires that the Company and/or certain of its subsidiaries continue to maintain certain covenants, including a minimum consolidated tangible net worth covenant and a maximum leverage covenant. On June 30, 1999, certain terms of this LOC facility were renegotiated and the facility is now uncollateralized. The facility was renewed in November 1999 in the amount of (Pounds)290 million (approximately $470 million) to fulfill the requirements of Lloyd's for the 2000 year of account. MARKET SENSITIVE INSTRUMENTS AND RISK MANAGEMENT Market Sensitive Instruments and Risk Management In accordance with the Securities and Exchange Commission's Financial Reporting Release No. 48, the following analysis presents hypothetical losses in cash flows, earnings and fair values of derivative instruments and other market sensitive instruments used in the Company's portfolio as at December 31, 1999. The Company uses investment derivative instruments such as futures, options and foreign currency forward and option contracts for duration management and management of foreign currency exposures. These instruments are sensitive to changes in interest rates and foreign currency exchange rates. The portfolio includes other market sensitive instruments which are subject to changes in market values, with changes in interest rates. Duration Management and Market Exposure Management The Company uses financial futures and option contracts for the purpose of managing certain investment portfolio exposures. Futures contracts are not recognized in the financial statements as assets or liabilities and any changes in fair value of these instruments due to changes in market interest rates would be recognized in the statement of operations as realized gains or losses in accordance with the Company's accounting policy. Option contracts are utilized in the portfolio for the purposes of duration management and to provide protection against any unexpected shifts in interest rates. At December 31, 1999, the fair value of the option contracts held and written was $728,000 and $(461,000) respectively, compared with $3,673,000 and $(715,000) at December 31, 1998. The market value of mortgage-backed securities, another category of market sensitive instruments, was $2.1 billion, or approximately 16 percent of the total investment portfolio, compared with $1.6 billion or 28 percent at December 31, 1998. Mortgage-backed securities include pass through mortgage bonds and collateralized mortgage obligations. The aggregate hypothetical loss generated by the fixed income portfolio from an adverse parallel shift in the treasury yield curve of 100 basis points would be a decrease in total return of 4.3 percent. This equates to a decrease in market value of approximately $490 million on a fixed income portfolio valued at $11 billion at December 31, 1999. An immediate time horizon was used as this presents the worse case scenario. IMPACT OF THE YEAR 2000 ISSUE General The management of ACE Limited recognized that the Year 2000 issue, if left untreated, could have had a material adverse effect on the Company's business, results of operations or financial condition and instituted a project to address this issue. 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued) The Year 2000 issue stems from the inability, in some cases, of computer programs and embedded microchips to correctly process certain data. The issue might be experienced because dates that fall in the range of years from 2000- 2099 might not be properly distinguished from those in corresponding years which fell in the range of years from 1900-1999. Although all ACE Group companies had individually taken steps earlier towards alleviating the Year 2000 issue, a formal group-wide project was established in March 1998. At that time, a "Group Year 2000 coordinator" was appointed for the ACE Group and an executive steering committee was formed to oversee the project. This committee met on a monthly basis to review progress and took corrective action when necessary. In each of the ACE subsidiary companies, a senior member of the management was appointed as Year 2000 coordinator. Each Year 2000 coordinator had responsibility for that part of the Year 2000 plan relevant to its company. Detailed quarterly reports on the status of the Year 2000 project have been delivered to the audit committee of the Board of Directors. A consultant who is an experienced project manager was retained to assist the Year 2000 coordinator. In addition, certain subsidiaries engaged external consultants to assist in monitoring their plans. The Company's Year 2000 project was divided into four sections: Underwriting; Information Technology; Trading Partners; and Physical Plant. The project is complete except for (a) a small residual number of known corrections to a few items of hardware and software, none of which is critical to the business, (b) response to possible future issues with hardware, software physical plant or suppliers which have not yet manifested themselves, (c) response to Year 2000 claims. ACE's management believes that this project was successful in reducing the impact of the Year 2000 issue to an immaterial level. The Year 2000 projects of those parts of CIGNA acquired by ACE on July 2, 1999 were incorporated into ACE's Year 2000 project as were those of Capital Re which was acquired on December 30, 1999. Underwriting Underwriting teams within each ACE Group subsidiary considered the risks with respect to the Year 2000 issue that might be associated with underwriting their various lines of business and developed internal guidelines which sought to minimize these risks. Compliance with these guidelines was the subject of internal audits and/or peer reviews. These guidelines were regularly reviewed. In some cases, exclusionary language was added to policies and in all cases there was a requirement for underwriters to consider information about ACE's clients and potential clients that was relevant to the Year 2000 issue and, based on that, risks were prudently underwritten or declined. Information Technology Each ACE subsidiary developed a plan intended to ensure that all information technology components such as hardware, software and network equipment that would be in use in the Year 2000 (and beyond) by any business-critical function would not suffer from the Year 2000 issue. Inventories were prepared of all such components, and appropriate action was decided. Apart from a very small number of "clean-up" items to non-critical components these are complete. All business-critical applications in the ACE Group are Year 2000 compliant and are running routinely and without errors. Testing of hardware and network components was completed before the end of 1999 with a few minor items remaining outstanding. Testing of other software, such as operating systems and PC desktop applications was completed on schedule, though in a few cases the Company relied on assurances from established software manufacturers that their systems would operate correctly. 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION--(Continued) Very few problems have been experienced on or since January 1, 2000 with any of ACE's IT components and all of the problems have been dealt with easily and expeditiously. ACE continues to be vigilant for possible problems in the future. Trading Partners and Physical Plant The trading partners' section of the project focused on Year 2000 issues relating to the Company's trading partners. Examples of the Company's trading partners are: insurance brokers, banks, reinsurance companies, vendors and service providers in information technology and general suppliers. The physical plant section of the project focused on items such as elevators, fire suppression systems, security systems and building management systems (which may control air-conditioning, heating and lighting systems) which may be controlled by software programs or embedded chips, and might thus fail or act unpredictably in, or after the year 2000. Furthermore, supply of electrical power and telecommunications services were considered here. All material trading partners and those vendors and service providers connected with physical plant were inventoried and questionnaires were sent to them soliciting information about their Year 2000 readiness. Responses were provided in almost all cases. ACE assessed those responses that were forthcoming. Most of these responses appeared to give evidence of satisfactory progress and a few did not. In those cases where additional follow-up failed to provide satisfactory responses, contingency plans were developed to minimize the effect of potential failure of a trading partner. ACE has not experienced any significant problems with trading partners or physical plant on or since January 1, 2000, nor had any need to execute contingency plans. Costs The total cost of the Year 2000 project is not expected to be material to the Company's financial position. The total estimated cost was approximately $6.55 million. Total expenditure to date on the whole project was $3.5 million. Although some of the unused budget will be used for settling expected expenses for making IT systems Year 2000 compliant, and some might still be used for execution of actions in contingency plans, it now appears that the project will be completed well under its originally estimated cost. Risks Although it is premature to dismiss the possibility that problems could occur, there now appears to be little remaining risk to ACE associated with the Year 2000 issue. 18 ACE LIMITED AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1999 F-1 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS Management is responsible for the preparation, integrity and objectivity of the consolidated financial statements and other financial information presented in this annual report. The accompanying consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States, applying certain estimates and judgments as required. The Company's internal controls are designed to provide reasonable assurance as to the integrity and reliability of the financial statements and to adequately safeguard, verify and maintain accountability of assets. Such controls are based on established policies and procedures and are implemented by trained, skilled personnel with an appropriate segregation of duties. The Company's internal audit department performs independent audits on the Company's internal controls. The Company's policies and procedures prescribe that the Company and all its employees are to maintain the highest ethical standards and that its business practices are to be conducted in a manner, which is above reproach. PricewaterhouseCoopers LLP, independent accountants, are retained to audit the Company's financial statements. Their accompanying report is based on audits conducted in accordance with auditing standards, generally accepted in the United States which includes the consideration of the Company's internal controls to establish a basis for reliance thereon in determining the nature, timing and extent of audit tests to be applied. The Board of Directors exercises its responsibility for these financial statements through its Audit Committee, which consists entirely of independent non-management Board members. The Audit Committee meets periodically with the independent accountants, both privately and with management present, to review accounting, auditing, internal controls and financial reporting matters. /s/ Brian Duperreault __________________________________ /s/ Christopher Z. Marshall __________________________________ Brian Duperreault Christopher Z. Marshall Chairman and Chief Executive Officer Chief Financial Officer F-2 REPORT OF INDEPENDENT ACCOUNTANTS To The Board of Directors and Shareholders of ACE Limited In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, comprehensive income, shareholders' equity and cash flows present fairly, in all material respects, the financial position of ACE Limited and its subsidiaries at December 31, 1999 and 1998, and the results of their operations and their cash flows for the year ended December 31, 1999, the three months ended December 31, 1998 and the years ended September 30, 1998 and 1997 in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP New York, New York February 16, 2000 F-3 ACE LIMITED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1999 and 1998
1999 1998 ----------- ---------- (in thousands of U.S. dollars) (except share and per share data) Assets Investments and cash Fixed maturities available for sale, at fair value (amortized cost--$10,080,402 and $4,784,412)....... $ 9,849,803 $4,866,366 Equity securities, at fair value (cost--$780,558 and $196,375).......................................... 933,314 220,843 Short-term investments, at fair value (amortized cost--$1,194,956 and $757,788)..................... 1,192,875 757,804 Other investments, at fair value (cost--$303,714 and $128,119).......................................... 300,311 129,331 Cash................................................ 599,232 240,556 ----------- ---------- Total investments and cash......................... 12,875,535 6,214,900 Accrued investment income........................... 170,755 54,491 Insurance and reinsurance balances receivable....... 2,018,788 347,810 Accounts and notes receivable....................... 533,863 -- Reinsurance recoverable............................. 8,840,081 1,159,270 Deferred policy acquisition costs................... 514,425 67,502 Prepaid reinsurance premiums........................ 580,244 201,529 Goodwill............................................ 2,822,718 535,920 Deferred tax assets................................. 916,184 42,796 Other assets........................................ 850,295 210,087 ----------- ---------- Total assets....................................... $30,122,888 $8,834,305 =========== ========== Liabilities Unpaid losses and loss expenses....................... $16,460,247 $3,678,269 Unearned premiums..................................... 2,428,828 705,712 Premiums received in advance.......................... 63,759 62,671 Insurance and reinsurance balances payable............ 1,735,956 72,993 Contract holder deposit funds......................... 201,079 -- Accounts payable, accrued expenses and other liabilities.......................................... 1,684,725 137,383 Dividend payable...................................... 23,921 17,700 Short-term debt....................................... 1,074,585 -- Long-term debt........................................ 1,424,228 250,000 Trust preferred securities............................ 575,000 -- ----------- ---------- Total liabilities.................................. 25,672,328 4,924,728 ----------- ---------- Commitments and contingencies Shareholders' equity Ordinary Shares ($0.041666667 par value, 300,000,000 shares authorized; 217,460,515 and 193,687,126 shares issued and outstanding).............................. 9,061 8,070 Additional paid-in capital............................ 2,214,989 1,767,188 Unearned stock grant compensation..................... (28,908) (15,087) Retained earnings..................................... 2,321,570 2,040,664 Accumulated other comprehensive (loss) income......... (66,152) 108,742 ----------- ---------- Total shareholders' equity......................... 4,450,560 3,909,577 ----------- ---------- Total liabilities and shareholders' equity......... $30,122,888 $8,834,305 =========== ==========
See accompanying notes to consolidated financial statements F-4 ACE LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the year ended December 31, 1999, the three months ended December 31, 1998 and the years ended September 30, 1998 and 1997
Three Months Year Ended Ended Year Ended Year Ended December 31 December 31 September 30 September 30 1999 1998 1998 1997 ----------- ------------ ------------ ------------ (in thousands of U.S. dollars, except per share data) Revenues Gross premiums written... $ 3,869,157 $254,068 $1,242,159 $ 959,349 Reinsurance premiums ceded................... (1,373,809) (99,965) (361,186) (169,576) ----------- -------- ---------- ---------- Net premiums written..... 2,495,348 154,103 880,973 789,773 Change in unearned premiums................ (9,611) 63,904 13,330 15,599 ----------- -------- ---------- ---------- Net premiums earned...... 2,485,737 218,007 894,303 805,372 Net investment income.... 493,337 85,095 324,254 253,440 Net realized gains on investments............. 37,916 130,154 188,385 127,702 ----------- -------- ---------- ---------- Total revenues......... 3,016,990 433,256 1,406,942 1,186,514 ----------- -------- ---------- ---------- Expenses Losses and loss expenses................ 1,639,543 111,169 516,892 486,140 Policy acquisition costs................... 338,076 27,812 105,654 85,762 Administrative expenses.. 495,236 41,218 165,912 67,724 Amortization of goodwill................ 45,350 4,435 12,834 7,325 Interest expense......... 105,138 4,741 25,459 11,657 ----------- -------- ---------- ---------- Total expenses......... 2,623,343 189,375 826,751 658,608 ----------- -------- ---------- ---------- Income before income taxes..................... 393,647 243,881 580,191 527,906 Income tax expense......... 28,684 5,342 20,040 25,181 ----------- -------- ---------- ---------- Net income................. $ 364,963 $238,539 $ 560,151 $ 502,725 =========== ======== ========== ========== Basic earnings per share... $ 1.88 $ 1.23 $ 3.03 $ 2.73 =========== ======== ========== ========== Diluted earnings per share..................... $ 1.85 $ 1.21 $ 2.96 $ 2.69 =========== ======== ========== ==========
See accompanying notes to consolidated financial statements F-5 ACE LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY For the year ended December 31, 1999, the three months ended December 31, 1998, and the years ended September 30, 1998 and 1997
Year Ended Three Months Ended Year Ended Year Ended December 31 December 31 September 30 September 30 1999 1998 1998 1997 ----------- ------------------ ------------ ------------ (in thousands of U.S. dollars) Ordinary Shares Balance--beginning of period.............. $ 8,070 $ 8,066 $ 7,508 $ 7,868 Shares issued in Capital Re transaction......... 867 -- -- -- Shares issued in ACE INA transaction..... 108 -- -- -- Exercise of stock options............. 15 4 16 8 Issued under Employee Stock Purchase Plan (ESPP).............. 1 -- 1 1 Shares issued........ -- -- 688 -- Issued under Stock Appreciation Right (SAR) Plan.......... -- -- -- 9 Repurchase of Shares.............. -- -- (147) (378) ----------- ----------- ----------- ----------- Balance--end of period............ 9,061 8,070 8,066 7,508 ----------- ----------- ----------- ----------- Additional paid-in capital Balance--beginning of period.............. 1,767,188 1,765,261 1,177,954 1,231,324 Ordinary Shares issued in Capital Re transaction......... 366,009 -- -- -- Ordinary Shares issued in ACE INA transaction......... 72,484 -- -- -- Options issued in Capital Re transaction......... 2,500 -- -- -- Exercise of stock options............. 5,658 1,927 4,225 2,182 Ordinary Shares issued under ESPP... 1,150 -- 954 228 Ordinary Shares issued.............. -- -- 605,211 -- Cancellation of restricted stock awards.............. -- -- -- (87) Ordinary Shares issued under SAR Plan................ -- -- -- 3,919 Repurchase of Ordinary Shares..... -- -- (23,083) (59,612) ----------- ----------- ----------- ----------- Balance--end of period............ 2,214,989 1,767,188 1,765,261 1,177,954 ----------- ----------- ----------- ----------- Unearned stock grant compensation Balance--beginning of period.............. (15,087) (6,181) (1,993) (1,299) Stock grants awarded............. (21,706) (9,924) (8,551) (3,244) Stock grants forfeited........... 312 -- -- 79 Amortization......... 7,573 1,018 4,363 2,471 ----------- ----------- ----------- ----------- Balance--end of period............ (28,908) (15,087) (6,181) (1,993) ----------- ----------- ----------- ----------- Retained earnings Balance--beginning of period.............. 2,040,664 1,819,554 1,403,463 1,068,389 Net income........... 364,963 238,539 560,151 502,725 Dividends declared... (84,057) (17,429) (59,646) (44,993) Repurchase of Ordinary Shares..... -- -- (84,414) (122,658) ----------- ----------- ----------- ----------- Balance--end of period............ 2,321,570 2,040,664 1,819,554 1,403,463 ----------- ----------- ----------- ----------- Accumulated other comprehensive income Net unrealized appreciation (depreciation) on investments Balance--beginning of period.............. 102,271 127,845 196,655 61,281 Change in period, net of tax.............. (185,598) (25,574) (68,810) 135,374 ----------- ----------- ----------- ----------- Balance--end of period............ (83,327) 102,271 127,845 196,655 ----------- ----------- ----------- ----------- Cumulative translation adjustments Balance--beginning of period.............. 6,471 (275) 1,568 (560) Net adjustment for period, net of tax.. 10,704 6,746 (1,843) 2,128 ----------- ----------- ----------- ----------- Balance--end of period............ 17,175 6,471 (275) 1,568 ----------- ----------- ----------- ----------- Accumulated other comprehensive income.. (66,152) 108,742 127,570 198,223 ----------- ----------- ----------- ----------- Total shareholders' equity.......... $ 4,450,560 $ 3,909,577 $ 3,714,270 $ 2,785,155 =========== =========== =========== ===========
See accompanying notes to consolidated financial statements F-6 ACE LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the year ended December 31, 1999, the three months ended December 31, 1998 and the years ended September 30, 1998 and 1997
Year Ended Three Months Ended Year Ended Year Ended December 31 December 31 September 30 September 30 1999 1998 1998 1997 ----------- ------------------ ------------ ------------ (in thousands of U.S. dollars) Net income.............. $ 364,963 $ 238,539 $ 560,151 $ 502,725 Other comprehensive income (loss) Net unrealized appreciation (depreciation) on investments Unrealized appreciation (depreciation) on investments.......... (130,832) (4,158) 257,292 135,374 Less: reclassification adjustment for net realized gains included in net income............... (60,145) (25,319) (316,820) -- --------- --------- --------- --------- (190,977) (29,477) (59,528) 135,374 Cumulative translation adjustments.......... 18,008 6,746 (1,843) 2,128 --------- --------- --------- --------- Other comprehensive income (loss), before income taxes........... (172,969) (22,731) (61,371) 137,502 Income tax recovery (expense) related to other comprehensive income items........... (1,925) 3,903 (9,282) -- --------- --------- --------- --------- Other comprehensive income................. (174,894) (18,828) (70,653) 137,502 --------- --------- --------- --------- --------- --------- --------- --------- Comprehensive income.... $ 190,069 $ 219,711 $ 489,498 $ 640,227 ========= ========= ========= =========
See accompanying notes to consolidated financial statements F-7 ACE LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS For the year ended December 31, 1999, the three months ended December 31, 1998, and the years ended September 30, 1998 and 1997
Year Ended Year Ended Year Ended December 31 Three Months Ended September 30 September 30 1999 December 31 1998 1998 1997 ------------ ------------------ ------------ ------------ (in thousands of U.S. dollars) Cash flows from operating activities Net income............. $ 364,963 $ 238,539 $ 560,151 $ 502,725 Adjustments to reconcile net income to net cash provided by operating activities: Unearned premiums..... 71,658 (67,990) 18,168 (5,731) Unpaid losses and loss expenses, net of reinsurance recoverables......... (1,098,795) (102,117) (96,361) 114,571 Prepaid reinsurance premiums............. (65,068) 3,493 (111,188) (2,881) Deferred income taxes................ (46,853) (17,532) 52,240 17,494 Net realized gains on investments.......... (37,916) (130,154) (188,385) (127,702) Amortization of premium/discounts on fixed maturities..... (8,712) (1,958) (22,530) (6,104) Amortization of goodwill............. 45,350 4,435 12,834 7,325 Deferred policy acquisition costs.... (7,282) 8,943 (8,025) 5,122 Insurance and reinsurance balances receivable........... (41,199) 29,497 (52,709) (49,977) Premiums received in advance.............. 1,088 8,877 28,823 6,366 Insurance and reinsurance balances payable.............. 440,607 (2,905) 62,153 11,245 Accounts payable, accrued expenses and other liabilities.... (89,171) (28,144) (145,872) (42,078) Net change in contract holder deposit funds................ (3,814) -- -- -- Other................. 14,292 (14,375) (42,529) (6,892) ------------ ----------- ----------- ----------- Net cash flows from (used for) operating activities.......... $ (460,852) $ (71,391) $ 66,770 $ 423,483 ------------ ----------- ----------- ----------- Cash flows from investing activities Purchases of fixed maturities........... (17,853,323) (3,169,088) (7,865,794) (6,796,843) Purchases of equity securities........... (368,923) (29,015) (221,952) (603,598) Sales of fixed maturities........... 18,553,593 3,032,461 7,625,861 6,817,944 Sales of equity securities........... 421,365 25,338 688,261 385,552 Maturities of fixed maturities........... 437,665 4,310 147,093 5,000 Net realized gains (losses) on financial future contracts..... 68,311 121,542 (9,287) 57,076 Other investments..... (139,034) 26,103 (60,735) (52,080) Acquisitions of subsidiaries, net of cash acquired........ (2,679,216) -- (967,758) (27,098) ------------ ----------- ----------- ----------- Net cash from (used for) investing activities.......... $ (1,559,562) $ 11,651 $ (664,311) $ (214,047) ------------ ----------- ----------- ----------- Cash flows from financing activities Dividends paid........ $ (77,836) $ (17,422) $ (54,389) $ (43,028) Repayment of bank debt................. (198,816) (250,000) (385,000) -- Proceeds from long- term debt............ 1,099,334 250,000 250,000 -- Proceeds from short- term debt............ 1,049,585 -- 385,000 -- Proceeds from issuance of trust preferred securities........... 500,000 -- -- -- Proceeds from exercise of options for ordinary shares...... 5,672 4 4,243 2,191 Proceeds from shares issued under Employee Stock Purchase Plan.. 1,151 -- 955 -- Proceeds from shares issued under Stock Appreciation Rights Plan................. -- -- -- 4,156 Net proceeds from issuance of ordinary shares............... -- -- 605,899 -- Repurchase of ordinary shares............... -- -- (107,644) (182,648) ------------ ----------- ----------- ----------- Net cash from (used for) financing activities.......... $ 2,379,090 $ (17,418) $ 699,064 $ (219,329) ------------ ----------- ----------- ----------- Net increase (decrease) in cash............... 358,676 (77,158) 101,523 (9,893) Cash--beginning of period................ 240,556 317,714 216,191 226,084 ------------ ----------- ----------- ----------- Cash--end of period.... $ 599,232 $ 240,556 $ 317,714 $ 216,191 ============ =========== =========== =========== Supplemental cash flow information Taxes paid (received).. $ 29,532 $ 168 $ (48,848) $ 3,975 Interest paid.......... $ 73,021 $ 3,073 $ 41,513 $ 5,700
See accompanying notes to consolidated financial statements F-8 ACE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. General ACE Limited ("ACE" or the "the Company") is a holding company incorporated with limited liability under the Cayman Islands Companies Law and maintains its business office in Bermuda. The Company provides property and casualty insurance and reinsurance for a diverse group of customers world wide. ACE International also provides accident and health insurance products that are designed to meet the insurance needs of individuals and groups outside of the U.S. insurance markets. In addition, through ACE Global Markets, the Company provides funds at Lloyd's to support underwriting by Lloyd's syndicates managed by Lloyd's managing agencies, which are indirect wholly owned subsidiaries of ACE. ACE operates through six business segments: ACE Bermuda, ACE Global Markets, ACE Global Reinsurance, ACE USA, ACE International and ACE Financial Services. ACE USA principally includes the domestic U.S. business of ACE INA which was acquired on July 2, 1999 and ACE US Holdings which was acquired on January 2, 1998 ("ACE US Holdings"). These segments are described in note 17. On July 2, 1999, the Company changed its fiscal year-end from September 30 to December 31. This change has been implemented retroactively to December 31, 1998. 2. Significant accounting policies a) Basis of presentation The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and include the accounts of the Company and its subsidiaries. The Company records its proportionate share of the results of the Lloyd's syndicates in which it participates. All significant intercompany accounts and transactions have been eliminated. Certain items in the prior year financial statements have been reclassified to conform with the current year presentation. It is impractical to calculate the information required for the "reclassification adjustment for net realized gains included in net income" in the statement of comprehensive income for the year ended September 30, 1997 and therefore, the reclassification from "net unrealized appreciation (depreciation) on investments" in 1997 has not been presented. The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company's principal estimates include property and casualty loss and loss expense reserves and estimated premiums for situations where the Company has not received ceding company reports. Actual results may differ from these estimates. b) Investments The Company's investments are considered to be "available for sale" under the definition included in the Financial Accounting Standard Board's ("FASB") Statement of Financial Accounting Standards No. 115 "Accounting for Certain Investments in Debt and Equity Securities". Except for certain "other investments" where there is no quoted market value, the Company's investment portfolio is reported at fair value, being the quoted market price of these securities provided by either independent pricing services, or when such prices are not available, by reference to broker or underwriter bid indications. Realized gains or losses on sales of investments are determined on a first-in, first-out basis and include adjustments to the net realizable value of investments for declines in value that are considered to be other than temporary. Unrealized appreciation (depreciation) on investments are included as other comprehensive income in shareholders' equity. F-9 ACE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Short-term investments comprise securities due to mature within one year of date of issue. Short-term investments include certain cash and cash equivalents which are part of investment portfolios under the management of external investment managers. A portion of the other investments comprise investments in entities for which there is no quoted market value. In such cases, the investments are carried at estimated fair value which does not exceed original cost. The Company utilizes financial futures and option contracts and foreign currency forward and option contracts for the purpose of managing certain investment portfolio exposures (see note 7(a) for additional discussion of the objectives and strategies employed). Futures contracts are not recognized as assets or liabilities in the accompanying consolidated financial statements. Changes in the market value of futures contracts produce daily cash flows, which are included in net realized gains or losses on investments in the consolidated statements of operations. Collateral held by brokers equal to a percentage of the total value of open futures contracts is included in short-term investments. Option contracts that are designated as hedges of securities are marked-to- market. Unrealized appreciation (depreciation) on forward currency and option contracts which are designated as specific hedges are recognized in the financial statements as comprehensive income and accumulated as a separate component of shareholders' equity. Gains and losses resulting from currency fluctuations on transactions which are not designated as specific hedges against any single security or group of securities are recognized as a component of income in the period in which the fluctuations occur. Premiums paid or received on option contracts that have expired, been closed out or exercised, are recognized as realized gains and losses on investments in the consolidated statements of operations. Net investment income includes interest and dividend income together with amortization of market premiums and discounts and is net of investment management and custody fees. For mortgage-backed securities, and any other holdings for which there is a prepayment risk, prepayment assumptions are evaluated and revised as necessary. Any adjustments required due to the resultant change in effective yields and maturities are recognized in current income. c) Premiums Premiums are generally recognized as written upon inception of the policy. For multi-year policies written which are payable in annual installments, due to the ability of the insured/reinsured to commute or cancel coverage within the term of the policy, only the annual premium is included as written at policy inception. The remaining annual premiums are included as written at each successive anniversary date within the multi-year term. Premiums written are primarily earned on a daily pro rata basis over the terms of the policies to which they relate. Accordingly, unearned premiums represent the portion of premiums written which is applicable to the unexpired portion of the policies in force. Premium estimates for retrospectively rated policies are recognized within the periods in which the related losses are incurred. Reinsurance premiums assumed are estimated based on information provided by ceding companies. The information used in establishing these estimates is reviewed and subsequent adjustments are recorded in the period in which they are determined. These premiums are earned over the terms of the related reinsurance contracts. F-10 ACE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) d) Earnings per share Basic earnings per share is calculated utilizing the weighted average shares outstanding. All potentially dilutive securities including stock options, warrants and convertible securities are excluded from the basic earnings per share calculation. In calculating diluted earnings per share, the weighted average shares outstanding is increased to include all potentially dilutive securities. Basic and diluted earnings per share are calculated by dividing net income by the applicable weighted average number of shares outstanding during the year. e) Policy acquisition costs Policy acquisition costs consist of commissions, premium taxes, underwriting and other costs that vary with and are primarily related to the production of premium. Acquisition costs are deferred and amortized over the period in which the related premiums are earned. Deferred policy acquisition costs are reviewed to determine if they are recoverable from future income, including investment income. If such costs are estimated to be unrecoverable, they are expensed. f) Unpaid losses and loss expenses A liability is established for the estimated unpaid losses and loss expenses of the Company under the terms of, and with respect to, its policies and agreements. The methods of determining such estimates and establishing the resulting reserve are reviewed continuously and any adjustments are reflected in operations in the period in which they become known. Future developments may result in losses and loss expenses significantly greater or less than the reserve provided. In accordance with industry standards, the financial guaranty unpaid losses and loss expenses have been discounted using an average rate of 6 percent in 1999. g) Contract holder deposit funds Contract holder deposit funds represents a liability for an investment contract sold that does not meet the definition of an insurance contract under FAS 97. The investment contracts are sold with a guaranteed rate of return. The proceeds are then invested with the intent of realizing a greater return than is called for in the investment contract. h) Goodwill Goodwill represents the excess of the cost of acquisitions over the tangible net assets acquired. The Company amortizes goodwill recorded in connection with its business combinations on a straight-line basis over the estimated useful lives which range from twenty-five to forty years. i) Reinsurance In the ordinary course of business, the Company's insurance subsidiaries assume and cede reinsurance with other insurance companies. These arrangements provide greater diversification of business and minimize the net loss potential arising from large risks. Ceded reinsurance contracts do not relieve the Company of its obligation to its insureds. Reinsurance recoverables include the balances due from reinsurance companies for paid and unpaid losses and loss expenses that will be recovered from reinsurers, based on contracts in force. A reserve for uncollectible reinsurance has been determined based upon a review of the financial condition of the reinsurers and an assessment of other available information. F-11 ACE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Prepaid reinsurance premiums represent the portion of premiums ceded to reinsurers applicable to the unexpired terms of the reinsurance contracts in force. j) Translation of foreign currencies Financial statements of subsidiaries expressed in foreign currencies are translated into U.S. dollars in accordance with Statement of Financial Accounting Standards No. 52 "Foreign Currency Translation" ("SFAS 52"). Under SFAS 52, functional currency assets and liabilities are translated into U.S. dollars generally using period end rates of exchange and the related translation adjustments are recorded as a separate component of accumulated other comprehensive income. Functional currencies are generally the currencies of the local operating environment. Statement of operations amounts expressed in functional currencies are translated using average exchange rates. Gains and losses resulting from foreign currency transactions are recorded in current income. k) Income taxes Income taxes have been provided in accordance with the provisions of SFAS No. 109, "Accounting for Income Taxes" on those operations which are subject to income taxes (see note 12). Deferred tax assets and liabilities result from temporary differences between the amounts recorded in the consolidated financial statements and the tax basis of the Company's assets and liabilities. Such temporary differences are primarily due to the tax basis discount on unpaid losses, adjustment for unearned premiums, uncollectible reinsurance, and tax benefits of net operating loss carryforwards. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance against deferred tax assets is recorded if it is more likely than not, that all or some portion of the benefits related to deferred tax assets will not be realized. l) Stock split On March 2, 1998, the Company effected a three for one split of the Company's Ordinary Shares. The par value of the Company's Ordinary Shares and all per share data presented in the consolidated financial statements and the notes thereto have been retroactively adjusted to reflect the effects of the stock split. m) Cash flow information Purchases and sales or maturities of short-term investments are recorded net for purposes of the statements of cash flows and are included with fixed maturities. n) Segment reporting In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 131, ("SFAS 131") "Disclosures about Segments of an Enterprise and Related Information." SFAS 131 established new standards for defining operating segments and requires more comprehensive disclosures about the Company's reportable operating segments. The Company's segment information is reported in note 17. o) New accounting pronouncements In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133 establishes accounting and F-12 ACE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. SFAS 133 is effective beginning in the first quarter of fiscal 2001. The Company is currently assessing the effect of adopting this statement on its financial position and operating results, which as yet, has not been determined. In 1998, the American Institute of Certified Public Accountants issued Statement of Position 98-7 ("SOP 98-7"), "Deposit Accounting: Accounting for Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk." SOP 98-7 provides guidance on the deposit method of accounting for insurance and reinsurance contracts that do not transfer insurance risk. Implementation is required by the first quarter of 2000, with the cumulative effect of adopting the SOP reflected in net income in the year of adoption. The Company has evaluated the impact of SOP 98-7 and feels that it currently complies with all aspects of the SOP. 3. Acquisitions On January 2, 1998, the Company acquired ACE USA, through a U.S. holding company, ACE US Holdings, Inc ("ACE US"). Under the terms of the agreement, the Company purchased all of the outstanding capital stock of ACE USA for aggregate cash consideration of $338 million. No goodwill was generated in the transaction. In connection with the acquisition, National Indemnity Company, a subsidiary of Berkshire Hathaway Inc., has provided $750 million (75 percent quota share of $1 billion) of reinsurance protection to ACE USA with respect to its loss reserves for the 1996 and prior accident years. The Company financed the acquisition with $250 million of bank debt (see note 8e Debt) and the remainder with available cash. The acquisition was recorded using the purchase method of accounting. Accordingly, the consolidated financial statements of the company include the results of ACE USA and its subsidiaries from January 2, 1998, the date of acquisition (see note 16 for pro forma financial information with respect to the ACE USA acquisition). On April 1, 1998, the Company acquired CAT Limited ("CAT"), a privately held, Bermuda-based property catastrophe reinsurer, for aggregate cash consideration of approximately $641 million. The acquisition was financed with $385 million of short-term bank debt and the remainder from available cash. The acquisition was recorded using the purchase method of accounting. Accordingly, the consolidated financial statements of the Company include the results of CAT from April 1, 1998, the date of acquisition (see note 16 for pro forma financial information with respect to the CAT acquisition). Approximately $224 million of goodwill was generated as a result of the acquisition. On July 9, 1998, the Company acquired Tarquin Limited ("Tarquin"), a UK- based holding company which owns Lloyd's managing agency Charman Underwriting Ltd. ("Charman") and Tarquin Underwriting Limited, its corporate capital provider. The Charman managed syndicates, 488 and 2488, are leading international underwriters of short-tail marine, aviation, political risk and specialty property-casualty insurance and reinsurance. Under the terms of the acquisition, the Company issued approximately 14.3 million Ordinary Shares to the shareholders of Tarquin. The acquisition was accounted for on a pooling-of- interests basis. Accordingly, in 1998, all prior period consolidated financial statements presented was restated to include the combined results of operations, financial position and cash flows of Tarquin as though it had always been a part of the Company. On July 2, 1999, the Company acquired the international and domestic property and casualty businesses of CIGNA Corporation ("CIGNA") for $3.45 billion in cash (the "ACE INA Acquisition"). Under the terms of the agreement the Company, through a U.S. holding company, ACE INA Holdings, Inc. ("ACE INA"), acquired CIGNA's domestic property and casualty insurance operations including its run-off business and also F-13 ACE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) its international property and casualty insurance companies and branches, including most of the accident and health business written through those companies. The ACE INA Acquisition has been recorded using the purchase method of accounting and accordingly, the consolidated financial statements include the results of ACE INA and its subsidiaries from July 2, 1999, the date of acquisition. Approximately $1.75 billion of goodwill was generated as a result of the acquisition. Under the terms of the ACE INA Acquisition agreement, CIGNA agreed to provide a guarantee to ACE to indemnify against unanticipated increases in recorded reserves for losses and loss adjustment expenses of certain subsidiaries being acquired by ACE. CIGNA had the option to replace its guarantee with reinsurance obtained from a mutually agreed upon third party reinsurer. Contemporaneous with the consummation of the ACE INA Acquisition, CIGNA exercised its option and replaced its guarantee with reinsurance by directing certain subsidiaries being acquired to transfer $1.25 billion of investments to National Indemnity Company, a subsidiary of Berkshire Hathaway Inc., for aggregate coverage of $2.5 billion. This coverage attaches at an amount equal to the net recorded reserves of the certain subsidiaries acquired, on the closing date, minus $1.25 billion. On December 30, 1999, ACE completed the acquisition of Capital Re which is engaged in the financial guaranty reinsurance business. Following the acquisition the name of the Company was changed to ACE Financial Services, Inc. and is referred to herein as Capital Re or ACE Financial Services. Under the terms of the acquisition, the Company paid aggregate consideration of $110.3 million in cash and issued approximately 20.8 million ACE ordinary shares. These shares were capitalized at a value of $17.625 per share, which was determined in accordance with the EITF 95-19 consensus that deals with the value of equity securities issued to effect a purchase combination. The total value of the acquisition amounted to $588 million, which includes the value of stock options and restricted stock of Capital Re that were converted into stock options and restricted stock of ACE and transaction costs. The Capital Re acquisition has been recorded using the purchase method of accounting and accordingly, the consolidated financial statements include the results of Capital Re and its subsidiaries from December 30, 1999, the date of acquisition. As Capital Re was acquired on December 30, 1999, the Company has not reflected any operations from this segment during 1999. Approximately $105 million of goodwill was generated as a result of the acquisition. The Company expects to continue evaluating potential new product lines and other opportunities in the insurance and reinsurance markets. In addition, the Company evaluates potential acquisitions of other companies and businesses and holds discussions with potential acquisition candidates. As a general rule, the Company publicly announces such acquisitions only after a definitive agreement has been reached. 4. Investments a) Fixed maturities The fair values and amortized costs of fixed maturities at December 31, 1999 and 1998 are as follows:
1999 1998 ------------------------ ----------------------- Amortized Amortized Fair Value Cost Fair Value Cost ----------- ------------ ----------- ----------- (in thousands of U.S. dollars) U.S. Treasury and agency..... $ 982,417 $ 1,007,797 $ 880,542 $ 868,906 Non-U.S. governments......... 681,770 682,679 97,662 94,716 Corporate securities......... 4,688,341 4,829,052 2,241,954 2,198,181 Mortgage-backed securities... 2,067,137 2,107,397 1,611,589 1,588,999 States, municipalities and political subdivisions...... 1,430,138 1,453,477 34,619 33,610 ----------- ------------ ----------- ----------- Fixed maturities........... $ 9,849,803 $ 10,080,402 $ 4,866,366 $ 4,784,412 =========== ============ =========== ===========
F-14 ACE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The gross unrealized appreciation (depreciation) related to fixed maturities at December 31, 1999 and 1998 is as follows:
1999 1998 ------------------------- ------------------------- Gross Gross Gross Gross Unrealized Unrealized Unrealized Unrealized Appreciation Depreciation Appreciation Depreciation ------------ ------------ ------------ ------------ (in thousands of U.S. dollars) U.S. Treasury and agency.. $ 4,725 $ (30,156) $15,897 $ (3,675) Non-U.S. governments...... 9,940 (10,849) 3,430 (484) Corporate securities...... 27,041 (167,634) 51,361 (7,630) Mortgage-backed securities............... 8,999 (49,325) 25,486 (3,525) States, municipalities and political subdivisions... 6,270 (29,610) 1,279 (185) ------- --------- ------- -------- $56,975 $(287,574) $97,453 $(15,499) ======= ========= ======= ========
Mortgage-backed securities issued by U.S. government agencies are combined with all other mortgage derivatives held and are included in the category "mortgage-backed securities". Approximately 69 percent of the total mortgage holdings at December 31,1999 and 85 percent at December 31, 1998 are represented by investments in GNMA, FNMA and FHLMC bonds. The remainder of the mortgage exposure consists of CMO's (Collaterialized Mortgage Obligations) and non-government mortgage-backed securities, the majority of which provide a planned structure for principal and interest payments and carry a "AAA" rating by the major credit rating agencies. Fixed maturities at December 31, 1999, by contractual maturity, are shown below. Expected maturities could differ from contractual maturities because borrowers may have the right to call or prepay obligations, with or without call or prepayment penalties.
Fair Value Amortized Cost ---------- -------------- (in thousands of U.S. dollars) Maturity period Less than 1 year...................................... $ 681,686 $ 684,193 1--5 years............................................ 2,654,807 2,685,408 5--10 years........................................... 2,613,372 2,705,165 Greater than 10 years................................. 1,832,801 1,898,239 ---------- ----------- 7,782,666 7,973,005 Mortgage-backed securities............................ 2,067,137 2,107,397 ---------- ----------- Total fixed maturities.............................. $9,849,803 $10,080,402 ========== ===========
b) Equity securities The gross unrealized appreciation (depreciation) on equity securities at December 31, 1999 and 1998 is as follows:
1999 1998 -------- -------- (in thousands of U.S. dollars) Equity securities--cost..................................... $780,558 $196,375 Gross unrealized appreciation............................... 224,232 48,202 Gross unrealized depreciation............................... (71,476) (23,734) -------- -------- Equity securities--fair value............................... $933,314 $220,843 ======== ========
F-15 ACE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) c) Net realized gains (losses) and change in net unrealized appreciation (depreciation) on investments The analysis of net realized gains on investments and the change in net unrealized appreciation (depreciation) on investments for the year ended December 31, 1999, the three months ended December 31, 1998 and the years ended September 30, 1998 and 1997 is as follows:
Three Months Year Ended Ended Year Ended Year Ended December 31 December 31 September 30 September 30 1999 1998 1998 1997 ----------- ------------ ------------ ------------ (in thousands of U.S. dollars) Fixed Maturities Gross realized gains...... $ 113,129 $ 21,822 $ 78,825 $ 83,957 Gross realized losses..... (195,496) (7,274) (20,512) (25,200) --------- -------- -------- -------- (82,367) 14,548 58,313 58,757 Equity securities Gross realized gains...... 59,384 4,705 210,512 70,453 Gross realized losses..... (12,149) (2,658) (42,037) (32,379) --------- -------- -------- -------- 47,235 2,047 168,475 38,074 Other investments........... 8,696 (7,374) -- -- Currency losses............. (3,959) (363) (29,116) (26,204) Financial futures and option contract-net realized (losses) gains............. 68,311 121,296 (9,287) 57,075 --------- -------- -------- -------- Net realized gains on investments............ 37,916 130,154 188,385 127,702 --------- -------- -------- -------- Change in net unrealized appreciation (depreciation) on investments Fixed maturities.......... (311,614) (64,062) 81,944 68,397 Equity securities......... 127,350 33,198 (141,434) 67,097 Short-term investments.... (2,442) 62 74 (120) Other investments......... (4,271) 1,325 (112) -- Deferred income taxes..... 5,379 3,903 (9,282) -- --------- -------- -------- -------- Change in net unrealized appreciation (depreciation) on investments.............. (185,598) (25,574) (68,810) 135,374 --------- -------- -------- -------- Total net realized gains (losses) and change in net unrealized appreciation (depreciation) on investments................ $(147,682) $104,580 $119,575 $263,076 ========= ======== ======== ========
F-16 ACE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) d) Net investment income Net investment income for the year ended December 31, 1999, the three months ended December 31, 1998 and the years ended September 30, 1998 and 1997 was derived from the following sources:
Three Months Year Ended Ended Year Ended Year Ended December 31 December 31 September 30 September 30 1999 1998 1998 1997 ----------- ------------ ------------ ------------ (in thousands of U.S. dollars) Fixed maturities and short- term investments.......... $495,078 $82,778 $325,308 $251,570 Equity securities.......... 8,731 1,231 5,920 7,385 Other investments.......... 22,481 4,027 2,954 2,300 Other...................... -- -- 1,853 2,364 -------- ------- -------- -------- Gross investment income.. 526,290 88,036 336,035 263,619 Investment expenses........ (32,953) (2,941) (11,781) (10,179) -------- ------- -------- -------- Net investment income.... $493,337 $85,095 $324,254 $253,440 ======== ======= ======== ========
e) Securities on deposit Fixed maturity securities carried at fair value and cash totalling $1.6 billion at December 31, 1999 was on deposit with various regulatory authorities to comply with various state (U.S.), Lloyd's (UK) and other international requirements. 5. Unpaid losses and loss expenses The Company establishes reserves for unpaid losses and loss expenses, which are estimates of future payments of reported and unreported claims for losses and related expenses, with respect to insured events that have occurred. The process of establishing reserves for property and casualty claims continues to be a complex and uncertain process, requiring the use of informed estimates and judgments. The Company's estimates and judgments may be revised as additional experience and other data become available and are reviewed, as new or improved methodologies are developed or as current laws change. Any such revisions could result in future changes in estimates of losses or reinsurance recoverables, and would be reflected in the Company's results of operations in the period in which the estimates are changed. F-17 ACE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The reconciliation of unpaid losses and loss expenses for the year ended December 31, 1999, the three months ended December 31, 1998 and the years ended September 30, 1998 and 1997 is as follows:
Three Months Year Ended Ended Year Ended Year Ended December 31 December 31 September 30 September 30 1999 1998 1998 1997 ----------- ------------ ------------ ------------ (in thousands of U.S. dollars) Gross unpaid losses and loss expenses at beginning of period...... $ 3,678,269 $3,737,869 $2,111,670 $1,977,680 Reinsurance recoverable... (1,100,464) (1,059,528) (104,797) (85,378) ----------- ---------- ---------- ---------- Net unpaid losses and loss expenses at beginning of period................... 2,577,805 2,678,341 2,006,873 1,892,302 Unpaid losses and loss expenses assumed in respect of acquired companies (net of reinsurance recoverables of $6,345,679 in 1999 and $761,618 in 1998)........ 6,940,593 -- 731,949 -- Unpaid losses and loss expenses assumed in respect of reinsurance business acquired........ 183,774 -- 6,403 50,326 ----------- ---------- ---------- ---------- Total................... 9,702,172 2,678,341 2,745,225 1,942,628 =========== ========== ========== ========== Net losses and loss expenses incurred in respect of losses occurring in: Current period.......... 1,601,278 126,139 534,021 486,140 Prior periods........... 38,265 (14,970) (17,129) -- ----------- ---------- ---------- ---------- Total................. 1,639,543 111,169 516,892 486,140 ----------- ---------- ---------- ---------- Net losses and loss expenses paid in respect of losses occurring in: Current period.......... 916,848 24,977 246,354 63,182 Prior periods........... 1,516,050 186,728 337,422 358,713 ----------- ---------- ---------- ---------- Total................. 2,432,898 211,705 583,776 421,895 ----------- ---------- ---------- ---------- Net unpaid losses and loss expenses at end of period................... 8,908,817 2,577,805 2,678,341 2,006,873 Reinsurance recoverable on unpaid losses............ 7,551,430 1,100,464 1,059,528 104,797 ----------- ---------- ---------- ---------- Gross unpaid losses and loss expenses at end of period................... $16,460,247 $3,678,269 $3,737,869 $2,111,670 ----------- ---------- ---------- ----------
Losses and loss expenses for 1999 include incurred losses for ACE INA from July 2, 1999, the date of acquisition. With respect to the analysis of incurred and paid losses for ACE INA for the 1999 period, all losses incurred and paid, on losses occurring in the period January 1, 1999 through December 31, 1999 have been included as current period activity. Incurred losses for the 15 month period ended December 31, 1999 were affected by adverse development on property catastrophe losses occurring prior to September 30, 1998 resulting from additional information with respect to the total value of certain losses becoming available to the market. In addition, ACE Bermuda had adverse development on certain excess liability and satellite claims. This development was somewhat offset by favorable development in the tailored risk solutions division, primarily the result of earnings generated by a large multi-year contract that expired and was not renewed during the period. Incurred losses during the period were also impacted by favorable development on ACE INA's prior period loss reserves. The Company has considered asbestos and environmental claims and claims expenses in establishing the liability for unpaid losses and loss expenses. The estimation of ultimate losses arising from asbestos and F-18 ACE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) environmental exposures has presented a challenge because traditional actuarial reserving methods, which primarily rely on historical experience, are inadequate for such estimation. The problem of estimating reserves for asbestos and environmental exposures resulted in the development of reserving methods which incorporate new sources of data with historical experience. The Company believes that the reserves carried for these claims are adequate based on known facts and current law. The following table presents selected data on the unpaid losses and loss expenses for asbestos and environmental and other latent exposures as at December 31, 1999 and 1998.
1999 1998 ----------- ---------- Gross Net Gross Net ------ ---- ----- ---- (in millions of U.S. dollars) Asbestos................................................ $ 897 $291 $113 $ 41 Environmental and other latent exposures................ 2,197 676 173 110 ------ ---- ---- ---- $3,094 $967 $286 $151 ====== ==== ==== ====
During the year ended December 31, 1999 and the three months ended December 31, 1998, the Company made payments of $186.4 million and $2.6 million respectively with respect to latent claims. During the nine month period to September 30, 1998 the Company made payments of $11.2 million, which is comprised entirely of ACE US Holdings business. At December 31, 1999, the Company's reinsured financial guaranty portfolio was broadly diversified by bond type, geographic location and maturity schedule, with no single risk representing more than 1.9 percent of Company's net par in force. The Company limits its exposure to losses from reinsured financial guarantees by underwriting primarily investment grade obligations and retroceding a portion of its risks to other insurance companies. Net financial guaranty par in force was approximately $59.3 billion at December 31, 1999. The composition at December 31, 1999, by type of issue and the range of final maturities, was as follows:
Range of Net par final Type of Issue in force maturities - ------------- -------- ---------- (in billions of U.S. dollars) Tax-backed.................................................. $16.3 1-40 years Utility..................................................... 15.2 1-40 years Non-municipal............................................... 13.9 1-35 years Special revenue............................................. 6.3 1-40 years Health care................................................. 6.9 1-40 years Housing..................................................... 0.7 1-40 years ----- Total..................................................... $59.3 =====
As part of its financial guaranty business, the Company participates in credit default swap transactions whereby one counterparty pays a periodic fee in fixed basis points on a notional amount in return for a contingent payment by the other counterparty in the event one or more defined credit events occurs with respect to one or more third party reference securities or loans. A credit event is defined as a failure to pay, bankruptcy, cross acceleration (generally accompanied by a failure to pay), repudiation, restructuring or similar nonpayment event. The total notional amount of credit default swaps outstanding at December 31, 1999, and included in the Company's financial guaranty exposure above was $7.8 billion. F-19 ACE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) At December 31, 1999, the Company's net mortgage guaranty insurance in force (representing the current principal balance of all mortgage loans that are currently reinsured) and direct primary net risk in force was approximately $7.7 billion and $2.6 billion, respectively. 6. Reinsurance The Company purchases reinsurance to manage various exposures including catastrophic risks. Although reinsurance agreements contractually obligate the Company's reinsurers to reimburse it for the agreed upon portion of its gross paid losses, they do not discharge the primary liability of the Company. The amounts for net premiums written and net premiums earned in the statements of operations are net of reinsurance. Direct, assumed and ceded amounts for these items for the year ended December 31, 1999, the three months ended December 31, 1998 and the years ended September 30, 1998 and 1997 are as follows:
Year Ended Three Months Ended Year Ended Year Ended December 31 December 31 September 30 September 30 1999 1998 1998 1997 ----------- ------------------ ------------ ------------ (in thousands of U.S. dollars) Premiums written Direct............. $ 3,015,176 $ 208,501 $ 864,529 $ 849,328 Assumed............ 853,981 45,567 377,630 110,021 Ceded.............. (1,373,809) (99,965) (361,186) (169,576) ----------- --------- --------- --------- Net................ $ 2,495,348 $ 154,103 $ 880,973 $ 789,773 =========== ========= ========= ========= Premiums earned Direct............. $ 2,917,301 $ 233,567 $ 875,154 $ 754,577 Assumed............ 835,966 97,850 303,586 121,842 Ceded.............. (1,267,530) (113,410) (284,437) (71,047) ----------- --------- --------- --------- Net................ $ 2,485,737 $ 218,007 $ 894,303 $ 805,372 =========== ========= ========= =========
The Company's provision for reinsurance recoverables at December 31, 1999 and 1998 is as follows:
1999 1998 ---------- ---------- (in thousands of U.S. dollars) Reinsurance recoverable on paid losses and loss expenses............................................. $1,288,651 $ 58,806 Reinsurance recoverable on unpaid losses and loss expenses............................................. 8,309,014 1,184,978 Provision for uncollectible balances on reinsurance recoverable on unpaid losses and loss expenses....... (757,584) (84,514) ---------- ---------- Reinsurance recoverable............................. $8,840,081 $1,159,270 ========== ==========
7. Commitments and contingencies a) Financial instruments with off-balance sheet risk The Company's investment guidelines permit, subject to specific approval, investments in derivative instruments such as futures, options and foreign currency forward contracts for purposes other than trading. Their use is limited to yield enhancement, duration management, foreign currency exposure management or to obtain an exposure to a particular financial market. (i) Foreign currency exposure management The Company uses foreign currency forward and option contracts to minimize the effect of fluctuating foreign currencies on the value of non-U.S. dollar securities currently held in the portfolio for those securities that are not specifically targeted to match the currency of liabilities. Approximately $244 million is invested in non-U.S. dollar fixed maturity and equity securities falling into this category. The forward currency contracts F-20 ACE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) purchased are not specifically identifiable against any single security or group of securities denominated in those currencies and therefore do not qualify as hedges for financial reporting purposes. All contract gains and losses, realized and unrealized, are reflected in the statements of operations. At December 31, 1999, no foreign currency forward contract had a maturity of more than six months. The table below summarizes the notional amounts, the current fair values and the unrealized gain or loss of the Company's foreign currency forward contracts as at December 31, 1999.
Contractual/Notional Fair Unrealized Amount Value Gain -------------------- ----- ---------- (in thousands of U.S. dollars) Forward contracts...................... $ 59 $ 466 $ 407
The fair value of the forward contracts represents the estimated cost to the Company at December 31, 1999, of obtaining the specified currency to meet the obligation of the contracts. The unrealized gain is a measure of the net exposure to the Company of its use of forward contracts after any netting agreements given current rates of exchange. The credit risk associated with the above derivative financial instruments relates to the potential for non-performance by counterparties. Non-performance is not anticipated; however, in order to minimize the risk of loss, management monitors the creditworthiness of its counterparties. For forward contracts, the counterparties are principally banks which must meet certain criteria according to the Company's investment guidelines. (ii) Duration management and market exposure Futures A portion of the Company's investment portfolio is managed as synthetic equity funds, whereby equity index futures contracts are held in an amount equal to the market value of an underlying portfolio comprised of short-term investments and fixed maturities. This creates an equity market exposure equal in value to the total amount of funds invested in this strategy. Each index futures contract held by the Company is rolled over quarterly into a new contract with a later maturity, thereby maintaining a constant equity market exposure. The value of the funds invested in this strategy was $371 million and $804 million at December 31, 1999 and 1998, respectively. Exchange traded bond and note futures contracts may be used in fixed maturity portfolios as substitutes for ownership of the physical bonds and notes without significantly increasing the risk in the portfolio. Investments in financial futures contracts may be made only to the extent that there are assets under management, not otherwise committed. Futures contracts give the holder the right and obligation to participate in market movements, determined by the index or underlying security on which the futures contract is based. Settlement is made daily in cash by an amount equal to the change in value of the futures contract times a multiplier that scales the size of the contract. The contract amounts of $475 million and $1,152 million reflect the net extent of involvement the Company had in these financial instruments at December 31, 1999 and 1998, respectively. Options Option contracts may be used in the portfolio as protection against unexpected shifts in interest rates, which would thereby affect the duration of the fixed maturity portfolio. By using options in the portfolio, the overall interest rate sensitivity of the account can be reduced. An option contract conveys to the holder the right, but not the obligation, to purchase or sell a specified amount or value of an underlying security at a fixed F-21 ACE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) price. The price of an option is influenced by the underlying security, expected volatility, time to expiration and supply and demand. For long option positions, the maximum loss is the premium paid for the option. To minimize the risk of non-performance, all brokers and dealers used as counterparties must be approved. Additional performance assurance is required where deemed necessary. The maximum credit exposure is represented by the fair value of the options held. For short option positions, the potential loss is the same as having taken a position in the underlying security. Short call options are backed in the portfolio with the underlying, or highly correlated, securities and short put options are to be backed by uncommitted cash for the in-the-money portion. Summarized below are the notional amounts, the current fair values and the unrealized gains of the options in the portfolio as at December 31, 1999.
Contractual/Notional Unrealized Amount Fair Value Gain/(Loss) -------------------- ---------- ----------- (in thousands of U.S. dollars) Options held..................... $ 800 $ 728 $(72) Options written.................. (506) (461) 45
The fair value of the options represents the market price of the options at December 31, 1999. The unrealized gain or loss represents the difference between the fair value and the premium paid (received). The notional amounts summarized in the above tables are not representative of amounts exchanged by parties and, therefore, do not measure the exposure to the Company of its use of derivatives. b) Concentrations of credit risk The investment portfolio is managed following prudent standards of diversification. Specific provisions limit the allowable holdings of a single issue and issuers. The Company believes that there are no significant concentrations of credit risk associated with its investments. c) Credit facilities In June 1999, the Company arranged certain syndicated credit facilities. Each facility requires that the Company and/or certain of its subsidiaries maintain specific covenants, including a consolidated tangible net worth covenant and a maximum leverage covenant. The facilities provide: . A $750 million, 364-day revolving credit facility with ACE Limited, ACE Bermuda, Tempest Re and ACE INA as borrowers and guarantors. The initial purpose of this facility was to provide interim financing for the ACE INA Acquisition, however, after certain conditions were met, up to $500 million of this facility could remain in place for general corporate purposes. These conditions have been met and a $500 million facility remains in place. . A $250 million, five-year revolving credit facility with ACE Limited, ACE Bermuda, Tempest Re and ACE INA as borrowers and guarantors. This facility is for general corporate purposes and has a letter of credit sub-limit of $250 million. . A $2.05 billion, 364-day revolving credit facility with a one-year term out option with ACE INA as borrower and ACE Limited, ACE Bermuda and Tempest Re as guarantors. This facility was arranged to provide interim financing for the ACE INA Acquisition and availability is decreased as permanent financing is raised and is applied to borrowings and/or commercial paper. As of December 31, 1999, $618 million remains available under this facility. F-22 ACE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Each of the above facilities may be used as commercial paper recourse facilities (see note 8 for a further description). Tempest Re also maintains an uncollateralized, syndicated revolving credit facility in the amount of $72.5 million. At December 31, 1999, no amounts have been drawn down under this facility. The facility requires that Tempest Re comply with specific covenants. The Company added its guarantee to this facility in June 1999. Capital Re is party to a credit facility with a syndicate of banks pursuant to which the syndicate provides up to $100.0 million specifically designed to provide rating agency qualified capital to further support Capital Re claims- paying resources. This agreement expires in January 2006. Capital Re has not borrowed under this credit facility. Capital Re also maintains a $5 million revolving credit facility which was guaranteed by the Company in December 1999. In August 1996, Capital Re entered into a credit agreement for the provision of a $25 million credit facility which is available for general corporate purposes. As of December 31, 1999, $25 million remains outstanding under this facility. The Company expects to refinance this facility in conjunction with the ultimate renewal of its revolving credit facilities. Interest on the facility is payable quarterly in arrears. In December 1997, the Company had arranged certain syndicated credit facilities totaling approximately $912 million of which $262 million was secured. During fiscal 1998/99 each of the facilities under this arrangement have been cancelled and replaced by the above noted facilities. d. Letters of Credit In November 1998, the Company arranged a syndicated, partially collateralized, five-year LOC facility in the amount of (Pounds)270 million (approximately $437 million) to fulfill the requirements of Lloyd's for the 1999 year of account. This LOC facility requires that the Company and/or certain of its subsidiaries continue to maintain certain covenants, including a minimum consolidated tangible net worth covenant and a maximum leverage covenant. On June 30, 1999, certain terms of this LOC facility were renegotiated and the facility is now uncollateralized. The facility was renewed in November 1999 at an increased amount of (Pounds)290 million (approximately $470 million) to fulfill the requirements of Lloyd's for the 2000 year of account. In September 1999, the Company along with ACE Bermuda and Tempest Re as Account Parties and Guarantors arranged a syndicated, one-year LOC facility in the amount of $430 million for general business purposes, including the issuance of (re)insurance letters of credit. This LOC facility requires that the Company and/or certain of its subsidiaries continue to maintain certain covenants, including a minimum consolidated tangible net worth covenant and a maximum leverage covenant. Letters of Credit under this Facility may be issued on a collateralized or an uncollateralized basis. As of December 31, 1999 letter of credit issuance under this facility was approximately $160 million. Capital Re maintains a (Pounds)48 million (approximately $78 million) unsecured letter of credit facility with a bank to fulfill the requirements of Lloyd's for 1998/99 years of account. The Company maintains various bilateral letter of credit facilities, both secured and unsecured, for general business purposes. At December 31, 1999, the aggregate exposure under these facilities was approximately $280 million. F-23 ACE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) e) Lease commitments The Company and its subsidiaries lease office space in the countries in which they operate under operating leases which expire at various dates through January 2017. The Company renews and enters into new leases in the ordinary course of business as required. Total rent expense with respect to these operating leases for the year ended December 31, 1999 and the years ended September 30, 1998 and 1997 were approximately $63 million, $5 million and $5 million respectively. Future minimum lease payments under the leases are expected to be as follows (in thousands of U.S. dollars):
Year ending December 31, ------------ 2000......................................................... $ 69,500 2001......................................................... 64,400 2002......................................................... 55,400 2003......................................................... 51,500 2004......................................................... 48,100 Later years.................................................. 141,000 --------- Total minimum future lease commitments..................... $ 429,900 =========
8. Debt
December 31, December 31, 1999 1998 ------------ ------------ (in millions of U.S. dollars) Short-term debt ACE Limited commercial paper........................ $ 425 $ -- ACE INA commercial paper............................ 625 -- Capital Re Note..................................... 25 -- ------- ----- $ 1,075 $ -- ======= ===== Long-term debt Capital Re Debentures due 2002...................... 75 -- ACE INA Notes due 2004.............................. 400 -- ACE INA Notes due 2006.............................. 299 -- ACE US Holdings Senior Notes due 2008............... 250 250 ACE INA Subordinated Notes due 2009................. 300 -- ACE INA Debentures due 2029......................... 100 -- ------- ----- $ 1,424 $ 250 ======= =====
a) Commercial paper and money market facilities In June 1999, the Company arranged certain commercial paper programs. The programs use revolving credit facilities as recourse facilities and provide for up to $2.8 billion in commercial paper issuance (subject to the availability of recourse facilities as outlined in Note 7) for ACE and for ACE INA. At December 31, 1999, short-term debt consisted of $425 million and $625 million of commercial paper issued by ACE and ACE INA respectively. On July 2, 1999, $425 million and $1.65 billion were drawn down under these programs by ACE and ACE INA, respectively to partially finance the ACE INA Acquisition. The commercial paper rates during 1999 were in the 5.6-6.2 percent range, depending on maturity. F-24 ACE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) In June 1999, ACE and ACE INA arranged a short-term money market facility in the amount of $225 million for general corporate purposes. In July 1999, a portion of the facility was used to finance certain liabilities of an ACE INA subsidiary. In November 1999, this facility was cancelled and repaid with proceeds from the commercial paper programs described above. b) ACE INA senior debt As part of the permanent financing plan for the ACE INA Acquisition, in August 1999, ACE INA issued $400 million of 8.2 percent notes due August 15, 2004, $300 million of 8.3 percent notes due August 15, 2006 and $100 million of 8.875 percent debentures due August 15, 2029. Proceeds of the senior debt issue were used to repay commercial paper. Interest on the notes and debentures is payable on February 15 and August 15 of each year beginning February 15, 2000. The notes and debentures are not redeemable before maturity and do not have the benefit of any sinking fund. These unsecured notes and debentures are guaranteed on a senior basis by the Company and they rank equally with all of ACE INA's other senior indebtedness. c) ACE INA RHINO Trust Preferred Securities As part of the permanent financing plan for the ACE INA Acquisition, on June 30, 1999 ACE RHINOS Trust, a Delaware statutory business trust (the "Trust"), sold in a private placement $400 million of Auction Rate Reset Preferred Securities (the "Rhino Preferred Securities"). All of the common securities of the Trust are owned by ACE INA. The Rhino Preferred Securities mature on September 30, 2002. Distributions on the Rhino Preferred Securities are payable quarterly at LIBOR plus 125 basis points, adjusted quarterly, provided that the Trust may defer such payments (but no later than September 30, 2002, or, if there is a remarketing, the maturity date of the remarketed securities), with such deferred payments accruing interest compounded quarterly, if ACE INA defers interest on the Subordinated Notes (as defined below). If the trading price of ACE's Ordinary Shares declines to 66-2/3 percent of the closing price of the Ordinary Shares on June 30, 1999, or approximately $18.83 per Ordinary Share, the holders of a majority of the Rhino Preferred Securities will have the option to require Banc of America Securities LLC as the Remarketing Agent to remarket the Rhino Preferred Securities. If remarketed, the maturity of the remarketed securities will be reset as the later of September 30, 2001 or one year from the date on which the remarketed securities are issued. The coupon will be reset pursuant to a bid process to value the remarketed securities at 100.25 percent of the face amount thereof. If Banc of America were unable to remarket the securities, the holders of a majority of the Rhino Preferred Securities would have the right to require ACE INA to repurchase them at a purchase price equal to the face amount of the securities plus accrued and unpaid distributions, which obligations would be guaranteed by ACE Limited. ACE's Ordinary Shares have traded below the trigger price described above during and after the quarter ended December 31, 1999, although the holders of the Rhino Preferred Securities did not exercise their remarketing rights at that time. The sole assets of the Trust consist of $412,372,000 principal amount of Auction Rate Reset Subordinated Notes Series A (the "Subordinated Notes") issued by ACE INA. The Subordinated Notes mature on September 30, 2002. Interest on the Subordinated Notes is payable quarterly at LIBOR plus 125 basis points, adjusted quarterly, provided that ACE INA may defer such interest payments (but no later than September 30, 2002, or, if there is a remarketing, the maturity date of the remarketed securities), with such deferred payments accruing interest compounded quarterly. If under certain circumstances the Trust is dissolved and the holders of the Rhino Preferred Securities directly hold the Subordinated Notes, then the remarketing provisions described above will be applicable to the Subordinated Notes. F-25 ACE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) In connection with the issuance of the Rhino Preferred Securities, the Company has agreed with Banc of America Securities to use its reasonable best efforts to complete one or more firm commitment underwritings with an aggregate public offering price of $400 million on or before June 30, 2002. The Company has agreed to maintain an effective shelf registration statement with availability for the issuance of up to $400 million Ordinary Shares. d) ACE INA trust preferred securities On December 20, 1999, ACE Capital Trust I, a Delaware statutory business trust ("ACE Capital Trust I") issued and sold in a public offering $100 million of 8.875 percent Trust Originated Preferred Securities (the "Trust Preferred Securities"). All of the common securities of ACE Capital Trust I (the "ACE Capital Trust I Common Securities") are owned by ACE INA. The Trust Preferred Securities mature on December 31, 2029. This may be extended for one or more periods but not later than December 31, 2048. Distributions on the Trust Preferred Securities are payable quarterly at a rate of 8.875 percent, however, ACE Capital Trust I may defer these payments for up to 20 consecutive quarters (but no later than December 31, 2029, unless the maturity date is extended). Any deferred payments would accrue interest quarterly in a compounded basis if ACE INA defers interest on the Subordinated Debentures (as defined below). The sole assets of ACE Capital Trust I consist of $103,092,800 principal amount of 8.875 percent Junior Subordinated Deferrable Interest Debentures (the "Subordinated Debentures") issued by ACE INA. The Subordinated Debentures mature on December 31, 2029. Interest on the Subordinated Debentures is payable quarterly at a rate of 8.875 percent, however, ACE INA may defer such interest payments (but no later than December 31, 2029, unless the maturity date is extended), with such deferred payments accruing interest compounded quarterly. ACE INA may redeem the Subordinated Debentures at 100 percent of the principal amount thereof, plus accrued and unpaid interest to the redemption date, in whole or in part at any time on or after December 31, 2004, and in whole but not in part prior to December 31, 2004 in the event certain changes in tax or investment company law occur. The Trust Preferred Securities and the ACE Capital Trust I Common Securities will be redeemed upon repayment of the Subordinated Debentures. The Company has guaranteed, on a subordinated basis, ACE INA's obligations under the Subordinated Debentures and distributions and other payments due on the Trust Preferred Securities (the "Guarantees"). The Guarantees, when taken together with the Company's obligations under an expense agreement entered into with ACE Capital Trust I, provide a full and unconditional guarantee of amounts due on the Trust Preferred Securities. e) ACE US Holdings senior notes On October 27, 1998, ACE US Holdings refinanced an outstanding $250 million bank term loan with the proceeds from the issuance of $250 million in aggregate principal amount of unsecured senior notes maturing in October 2008. Interest payments, based on the initial fixed rate coupon on these notes of 8.63 percent, are due semi-annually in arrears. The indenture related to these notes includes certain events of default for ACE US Holdings. The senior notes are callable subject to certain call premiums, however, ACE US Holdings has no current intention of calling the debt. Simultaneously, the Company entered into a notional $250 million swap transaction that has the economic effect of reducing the cost of debt to the consolidated group, excluding fees and expenses, to 6.47 percent for 10 years. Certain assets totaling approximately $90 million are pledged as collateral in connection with the swap transaction. In the event that the Company terminates the swap prematurely, the Company would be liable for certain transaction costs. However, the Company has no current F-26 ACE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) intention of terminating the swap. The swap counter-party is a highly rated major financial institution and the Company does not anticipate non- performance. f) ACE INA subordinated notes On December 6, 1999, ACE INA issued $300 million in aggregate principal amount of unsecured subordinated notes maturing in December 2009. Interest payments, based on the fixed rate coupon on these notes of 11.2 percent, are due semi-annually in arrears. The indenture related to these notes includes certain events of default for ACE INA. The subordinated notes are callable subject to certain call premiums, however, ACE INA has no current intention of calling the debt. Simultaneously, the Company entered into a notional $300 million swap transaction that has the economic effect of reducing the cost of debt to the consolidated group, excluding fees and expenses, to 8.41 percent for 10 years. Certain assets totaling approximately $105 million are pledged as collateral in connection with the swap transaction. In the event that the Company terminates the swap prematurely, the Company would be liable for certain transaction costs. However, the Company has no current intention of terminating the swap. The swap counter-party is a highly rated major financial institution and the Company does not anticipate non-performance. g) Capital Re debentures In November 1992, Capital Re issued $75 million in 10 year debentures maturing in November 2002. The 7.75 percent coupon on these debentures is payable in arrears on May 1 and November 1 of each year. h) Capital Re LLC monthly income preferred securities In January 1994, Capital Re formed and capitalized, through the purchase of common shares, Capital Re LLC. Capital Re LLC exists solely for the purpose of issuing preferred and common shares and lending the proceeds of such issuance to the Company to fund its business operations. In January 1994, Capital Re LLC issued $75 million of company obligated mandatorily redeemable preferred securities, the proceeds of which were loaned to the Company. The Company has, among other undertakings, unconditionally guaranteed all legally declared and unpaid dividends of Capital Re LLC. The company obligated mandatorily redeemable preferred securities were issued at $25 par value per share, pay monthly dividends at a rate of 7.65 percent per annum, are callable as of January 1999 at par and are mandatorily redeemable in January 2044. F-27 ACE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 9. Shareholders' equity a) Shares issued and outstanding Following is a table of changes in Ordinary Shares issued and outstanding for the year ended December 31, 1999, the three months ended December 31, 1998 and the years ended September 30, 1998 and 1997:
Year Ended Year Ended Year Ended Three Months Ended September September December 31 December 31 30 30 1999 1998 1998 1997 ----------- ------------------ ----------- ----------- Opening balance......... 193,687,126 193,592,519 180,207,664 188,840,275 Shares issued in Capital Re acquisition.......... 20,815,677 -- -- -- Shares issued in ACE INA acquisition...... 2,581,043 -- -- -- Shares issued under employee stock purchase plan........ 25,697 20,753 27,517 29,403 Exercise of stock options.............. 356,472 73,854 378,438 254,394 Cancellation of non- vested restricted stock................ (5,500) -- -- (7,500) Shares issued under SAR Replacement plan................. -- -- -- 184,092 Repurchase of shares.. -- -- (3,521,100) (9,093,000) Shares issued......... -- -- 16,500,000 -- ----------- ----------- ----------- ----------- 217,460,515 193,687,126 193,592,519 180,207,664 =========== =========== =========== ===========
On April 14, 1998, the Company sold 16.5 million Ordinary Shares for net proceeds of approximately $606 million. b) Share repurchases The Board of Directors had authorized the repurchase from time to time of the Company's Ordinary Shares in open market and private purchase transactions. On July 6, 1998 the Executive Committee of the Board of Directors rescinded all existing authorizations for the repurchase of the Company's Ordinary Shares. During the first two quarters of fiscal 1998, the Company repurchased 3,521,100 Ordinary Shares under the share repurchase program for an aggregate cost of $107.6 million. No shares were repurchased after March 31, 1998. During 1997, the Company repurchased 9,093,000 Ordinary Shares under share repurchase programs for an aggregate cost of $182.6 million. c) General restrictions The holders of the Ordinary Shares are entitled to receive dividends and are allowed one vote per share provided that, if the controlled shares of any shareholder constitute 10 percent or more of the outstanding Ordinary Shares of the Company, only a fraction of the vote will be allowed so as not to exceed 10 percent. Generally, the Company's directors have absolute discretion to decline to register any transfer of shares. All transfers are subject to the restriction that they may not increase to 10 percent or higher the proportion of issued Ordinary Shares owned by any shareholder. d) Dividends declared Dividends declared amounted to $0.42, $0.09, $0.34 and $0.27 per Ordinary Share for the year ended December 31, 1999, the three months ended December 31, 1998 and the years ended September 30, 1998 and 1997. F-28 ACE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 10. Employee benefit plans (a) Pension plans The Company provides pension benefits to eligible employees and agents, spouses and other eligible dependents through various plans sponsored by the Company. Pension benefits are provided through plans sponsored by ACE covering most U.S. and Bermuda based employees and by separate pension plans for various non-U.S. subsidiaries and employees. Pension expenses totaled $11 million, $5 million and $2.2 million for the year ended December 31, 1999 and the years ended September 30, 1998 and 1997. (b) Capital accumulation plans ACE sponsors a capital accumulation plan in the U.S. in which employee contributions on a pre-tax basis (401(k)) are supplemented by ACE matching contributions. These contributions are invested, at the election of the employee, in one or more of several investment portfolios. In addition, ACE may provide additional matching contributions, depending on its annual financial performance. Expenses for the plan totaled $19 million for the year ended December 31, 1999. (c) Options and stock appreciation rights In February 1996 and November 1998, shareholders of the Company approved the ACE Limited 1995 Long-Term Incentive Plan and the ACE Limited 1998 Long-Term Incentive Plan, respectively (the "Incentive Plans") which incorporates stock options, stock appreciation rights, restricted stock awards and stock purchase programs. There are 7,800,000 Ordinary Shares of the Company available for award under these Incentive Plans. Prior to the adoption of the Incentive Plans, the Company adopted the Equity Linked Incentive Plan, which incorporated both a Stock Appreciation Rights Plan ("SAR Plan") and a Stock Option Plan ("Option Plan") which will continue to run off. Under the Option Plan, generally, options expire ten years after the award date and are subject to a vesting period of four years. Stock options granted under the Incentive Plan may be exercised for Ordinary Shares of the Company upon vesting. Under the Incentive Plans, generally, options expire ten years after the award date and vest in equal portions over three years. During 1999, the Company established the ACE Limited 1999 Replacement Stock Plan. This plan was established to replace existing Capital Re employee benefits in connection with the Capital Re acquisition, as well as to permit additional grants to employees of the Company. At December 31, 1999, 4,770,555 shares were available for grant under this plan. (d) Options (i) Options outstanding Following is a summary of options issued and outstanding for the year ended December 31, 1999, the three months ended December 31, 1998 and the years ended September 30, 1998 and 1997: F-29 ACE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Options Average for Year of Exercise Ordinary Expiration Price Shares ---------- -------- ---------- Balance at September 30, 1996................... 4,514,367 Options granted............................... 2006-2007 $19.74 2,231,550 Options issued under SAR Plan................. 2002-2003 $21.33 950,400 Options exercised............................. 2003-2004 $ 9.33 (254,394) Options forfeited............................. 2003-2007 $10.09 (307,500) ---------- Balance at September 30, 1997................... 7,134,423 Options granted............................... 2007-2008 $31.64 2,489,900 Options exercised............................. 2003-2007 $11.21 (378,438) Options forfeited............................. 2006-2008 $27.51 (261,155) ---------- Balance at September 30, 1998................... 8,984,730 Options granted............................... 2008 $29.62 2,012,200 Options exercised............................. 2004-2007 $17.11 (73,854) Options forfeited............................. 2006-2008 $29.58 (115,150) ---------- Balance at December 31, 1998.................... 10,807,926 Options granted............................... 2009 $27.86 4,058,190 Options exercised............................. 2005-2007 $15.91 (356,472) Options forfeited............................. 2005-2008 $29.02 (544,884) ---------- Balance at December 31, 1999.................... 13,964,760 ==========
The following table summarizes the range of exercise prices for outstanding options at December 31, 1999:
Weighted Average Weighted Weighted Range of Remaining Average Average Exercise Options Contractual Exercise Options Exercise Prices Outstanding Life Price Exercisable Price -------- ----------- ----------- -------- ----------- -------- $ 7.45--$15.00 3,508,653 5.55 years $ 9.02 3,508,653 $ 9.02 $15.00--$30.00 8,506,757 8.77 years $ 22.20 2,785,173 $ 22.01 $30.00--$41.00 1,949,350 7.97 years $ 31.27 1,137,433 $ 30.98 ---------- --------- 13,964,760 7,431,259 ========== =========
(ii) SFAS 123 pro forma disclosures In October 1995, FASB issued Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123"). SFAS 123 establishes accounting and reporting standards for stock-based employee compensation plans which include stock option and stock purchase plans. SFAS 123 provides employers a choice: adopt SFAS 123 accounting standards for all stock compensation arrangements which requires the recognition of compensation expense for the fair value of virtually all stock compensation awards; or continue to account for stock options and other forms of stock compensation under Accounting Principles Board Opinion No. 25 ("APB 25"), while also providing the disclosure required under SFAS 123. The Company continues to account for stock-based compensation plans under APB 25. The following table outlines the Company's net income and earnings per share had the compensation cost been determined in accordance with the fair value method recommended in SFAS 123.
December 31 September 30 1999 1998 ----------- ------------ (in thousands of U.S. dollars, except per share data) Net Income As reported......................................... $ 364,963 $ 560,151 Pro Forma........................................... $ 351,067 $ 550,894 Diluted earnings per share As reported......................................... $ 1.85 $ 2.96 Pro Forma........................................... $ 1.78 $ 2.91
F-30 ACE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The fair value of the options issued is estimated on the date of grant using the Black-Scholes option-pricing model, with the following weighted-average assumptions used for grants in 1999 and 1998, respectively: dividend yield of 1.47 percent and 1.41 percent; expected volatility of 38.7 percent and 24.9 percent; risk free interest rate of 5.11 percent and 5.61 percent and an expected life of 4.0 years for both 1999 and 1998. With respect to the SAR plan, certain stock appreciation rights were forfeited in return for cash during 1997. All remaining stock appreciation rights were exercised in return for options and cash and/or shares of the Company under the terms of the Replacement Plan which was implemented in 1997 pursuant to the Equity Linked Incentive Plan. Total expenses incurred during 1997 relating to the SAR plan, including those incurred under the Replacement Plan, amounted to $5,500,000. e) Employee stock purchase plan The Company maintains an employee stock purchase plan. Participation in the plan is available to all eligible employees. Maximum annual purchases by participants are limited to the number of whole shares that can be purchased by an amount equal to 10 percent of the participant's compensation or $25,000, whichever is less. Participants may purchase shares at a purchase price equal to 85 percent of the closing market price of the Company's shares on the last day of each subscription period. Subscription periods run for six months. With respect to the year ending December 31, 1999, the three months ended December 31, 1998 and the year ended September 30, 1998 , the Company incurred expenses of $156,000, $93,000 and $143,000 respectively. f) Restricted stock awards Under the Company's long-term incentive plans, 1,084,175 restricted Ordinary Shares were awarded during the year ended December 31, 1999, to officers of the Company and its subsidiaries. These shares vest at various dates through November 2003. In addition, during the period, 23,618 restricted Ordinary Shares were awarded to outside directors under the terms of the 1995 Outside Directors Plan. These shares vest at various dates through June 2000. During the three months ended December 31, 1998, 335,000 restricted Ordinary Shares were awarded to officers of the Company and its subsidiaries. These shares vest at various dates through November 2003. During 1998, 264,000 restricted Ordinary Shares were awarded to officers of the Company and its subsidiaries. These shares vest at various dates through November 2002. In addition, 14,952 restricted Ordinary Shares were awarded to outside directors of the Company under the terms of the 1995 Outside Directors Plan ("the Plan"). These shares vested in February 1999. During fiscal 1997, 149,175 restricted Ordinary Shares were awarded to officers of the Company and its subsidiaries. These shares vested at various dates through November 1999. Also, during fiscal 1997, 15,084 restricted Ordinary Shares were awarded to outside directors of the Company under the terms of the Plan. These shares vested in February 1998. Also during 1997, 7,500 restricted Ordinary Shares were forfeited due to resignations by officers of the Company and its subsidiaries. At the time of grant the market value of the shares awarded under these grants is recorded as unearned stock grant compensation and is presented as a separate component of shareholders' equity. The unearned compensation is charged to operations over the vesting period. g) Shares issued in ACE INA acquisition During 1999, the ACE Limited 1999 Replacement Long-Term Incentive Plan ("Replacement Plan") was established to award substitute restricted stock awards and substitute restricted stock unit awards in satisfaction of the Company's obligations under the ACE INA Acquisition Agreement and to provide selected individuals substitute restricted stock awards and substitute restricted stock unit awards in replacement of certain equity-based awards which terminated or expired in connection with the closing of the ACE INA transaction. During 1999, 2,581,043 restricted Ordinary Shares were granted in connection with the 1999 Replacement Plan. The costs associated with issuing these awards were included as a cost of the ACE INA acquisition. F-31 ACE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 11. Earnings per share The following table sets forth the computation of basic and diluted earnings per share for the year ended December 31, 1999, the three months ended December 31, 1998 and the years ended September 30, 1998 and 1997.
Year Ended Three Months Ended Year Ended Year Ended December 31 December 31 September 30 September 30 1999 1998 1998 1997 ------------ ------------------ ------------ ------------ (in thousands of U.S. dollars, except share and per share data) Numerator: Net Income............ $ 364,963 $ 238,539 $ 560,151 $ 502,725 Denominator: Denominator for basic earnings per share-- Weighted average share outstanding.... 194,028,374 193,642,270 185,130,479 184,148,641 Effect of dilutive securities........... 3,597,980 3,707,086 4,150,696 2,660,382 ------------ ------------ ------------ ------------ Denominator for diluted earnings per share--Adjusted weighted average shares outstanding and assumed conversions.......... 197,626,354 197,349,356 189,281,175 186,809,023 ============ ============ ============ ============ Basic earnings per share.................. $ 1.88 $ 1.23 $ 3.03 $ 2.73 ============ ============ ============ ============ Diluted earnings per share.................. $ 1.85 $ 1.21 $ 2.96 $ 2.69 ============ ============ ============ ============
12. Taxation Under current Cayman Islands law, the Company is not required to pay any taxes in the Cayman Islands on its income or capital gains. The Company has received an undertaking that, in the event of any taxes being imposed, the Company will be exempted from taxation in the Cayman Islands until the year 2013. Under current Bermuda law, the Company and its Bermuda subsidiaries are not required to pay any taxes in Bermuda on its income or capital gains. The Company has received an undertaking from the Minister of Finance in Bermuda that, in the event of any taxes being imposed, the Company will be exempt from taxation in Bermuda until March 2016. Income from the Company's operations at Lloyd's are subject to United Kingdom corporation taxes. Lloyd's is required to pay U.S. income tax on U.S. connected income ("U.S. income") written by Lloyd's syndicates. Lloyd's has a closing agreement with the IRS whereby the amount of tax due on this business is calculated by Lloyd's and remitted directly to the IRS. These amounts are then charged to the personal accounts of the Names/Corporate Members in proportion to their participation in the relevant syndicates. The Company's Corporate Members are subject to this arrangement but, as UK domiciled companies, will receive UK corporation tax credits for any U.S. income tax incurred up to the value of the equivalent UK corporation income tax charge on the U.S. income. ACE INA, ACE US Holdings and ACE Financial Services are subject to income taxes imposed by U.S. authorities and will file U.S. tax returns. Certain international operations of the Company are also subject to income taxes imposed by the jurisdictions in which they operate. F-32 ACE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The Company is not subject to taxation other than as stated above. There can be no assurance that there will not be changes in applicable laws, regulations or treaties which might require the Company to change the way it operates or become subject to taxation. The income tax provision for the year ended December 31, 1999, the three months ended December 31, 1998 and the years ended September 30, 1998 and 1997 is as follows:
Year Ended Three Months Ended Year Ended Year Ended December 31 December 31 September 30 September 30 1999 1998 1998 1997 ----------- ------------------ ------------ ------------ (in thousands of U.S. dollars) Current tax expense (benefit).............. $ 8,439 $ (476) $ 3,265 $ 8,451 Deferred tax expense.... 20,245 5,818 16,775 16,730 -------- ------- -------- -------- Provision for income taxes.................. $ 28,684 $ 5,342 $ 20,040 $ 25,181 ======== ======= ======== ========
The weighted average expected tax provision has been calculated using pre- tax accounting income (loss) in each jurisdiction multiplied by that jurisdiction's applicable statutory tax rate. A reconciliation of the difference between the provision for income taxes and the expected tax provision at the weighted average tax rate for the year ended December 31, 1999 is provided below. The provision for income taxes with respect to the three months ended December 31, 1998 and the years ended September 30, 1998 and 1997 is calculated at rates equal to the statutory income tax rate in each jurisdiction.
Year Ended December 31, 1999 ---------------- (in thousands of U.S. dollars) Expected tax provision at weighted average rate.......... $ 19,721 Permanent differences Tax-exempt interest.................................... (9,017) Goodwill............................................... 9,805 Other.................................................. 602 Net withholding taxes.................................... 7,573 -------- Total provision for income taxes......................... $ 28,684 ========
F-33 ACE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The components of the net deferred tax asset as of December 31, 1999 and 1998 is as follows:
1999 1998 ---------- -------- (in thousands of U.S. dollars) Deferred tax assets Loss reserve discount.................................... $ 677,459 $ 47,649 Foreign tax credits...................................... 116,829 -- Uncollectible reinsurance................................ 24,413 6,685 Net operating loss carry forward......................... 164,993 33,849 Other.................................................... 305,647 36,626 Unrealized appreciation on investments................... 12,557 -- ---------- -------- Total deferred tax assets.............................. 1,301,898 124,809 ---------- -------- Deferred tax liabilities Deferred policy acquisition costs........................ 87,691 3,753 Unrealized appreciation on investments................... -- 5,379 Other.................................................... 164,699 46,247 ---------- -------- Total deferred tax liabilities......................... 252,390 55,379 ---------- -------- Valuation allowance........................................ 133,324 26,634 ---------- -------- Net deferred tax asset..................................... $ 916,184 $ 42,796 ========== ========
13. Statutory financial information The Company's insurance and reinsurance subsidiaries are subject to insurance laws and regulations in the jurisdictions in which they operate. These regulations include restrictions that limit the amount of dividends or other distributions, such as loans or cash advances, available to shareholders without prior approval of the insurance regulatory authorities. Statutory capital and surplus of the Bermuda subsidiaries was $2.2 billion, $2.8 billion and $2.3 billion at December 31, 1999, September 30, 1998 and 1997 and statutory net income was $373 million, $592 million and $489 million for the years ended December 31, 1999, September 30, 1998 and 1997 respectively. There are no statutory restrictions on the payment of dividends from retained earnings by any of the Bermuda subsidiaries as the minimum statutory capital and surplus requirements are satisfied by the share capital and additional paid-in capital of each of the Bermuda subsidiaries. The Company's U.S. subsidiaries file financial statements prepared in accordance with statutory accounting practices prescribed or permitted by insurance regulators. Statutory accounting differs from generally accepted accounting policies in the reporting of certain reinsurance contracts, investments, subsidiaries, acquisition expenses, fixed assets, deferred income taxes and certain other items. Combined statutory surplus of the Company's U.S. subsidiaries was $2.2 billion and $252 million at December 31, 1999 and September 30, 1998, respectively. The combined statutory net loss of these operations was $277 million, and $98 million for the year ended December 31, 1999 and the nine months ended September 30, 1998, respectively. The Company's international subsidiaries prepare statutory financial statements based on local laws and regulations. Some jurisdictions impose complex regulatory requirements on insurance companies while other jurisdictions impose fewer requirements. In some countries, the Company must obtain licenses issued by governmental authorities to conduct local insurance business. These licenses may be subject to reserves and minimum capital and solvency tests. Jurisdictions may impose fines, censure, and/or criminal sanctions for violation of regulatory requirements. F-34 ACE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 14. Condensed unaudited quarterly financial data
Quarter Ended Quarter Ended Quarter Ended Quarter Ended March 31, 1999 June 30, 1999 September 30, 1999 December 31, 1999 -------------- ------------- ------------------ ----------------- (in thousands of U.S. dollars, except per share data) 1999 Net premiums earned..... $285,267 $300,271 $ 952,951 $ 947,248 Net investment income... 86,484 84,794 163,060 158,999 Net realized gains (losses) on investments............ 17,254 25,307 (58,493) 53,848 -------- -------- ---------- ---------- Total revenues........ $389,005 $410,372 $1,057,518 $1,160,095 ======== ======== ========== ========== Losses and loss expenses............... $156,881 $255,471 $ 632,910 $ 594,281 ======== ======== ========== ========== Net income.............. $129,019 $ 69,122 $ 14,793 $ 152,029 ======== ======== ========== ========== Basic earnings per share.................. $ 0.67 $ 0.36 $ 0.08 $ 0.78 ======== ======== ========== ========== Diluted Earnings per share.................. $ 0.65 $ 0.35 $ 0.08 $ 0.78 ======== ======== ========== ==========
Quarter Ended Quarter Ended Quarter Ended Quarter Ended Quarter Ended December 31, 1997 March 31, 1998 June 30, 1998 September 30, 1998 December 31, 1998 ----------------- -------------- ------------- ------------------ ----------------- (in thousands of U.S. dollars, except per share data) 1998 Net premiums earned..... $205,330 $221,475 $246,350 $221,148 $218,007 Net invested income..... 63,672 78,283 93,011 89,288 85,095 Net realized gains (losses) on investments............ 27,493 145,616 69,448 (54,172) 130,154 -------- -------- -------- -------- -------- Total revenues........ $296,495 $445,374 $408,809 $256,264 $433,256 ======== ======== ======== ======== ======== Losses and loss expenses............... $122,255 $129,780 $146,233 $118,624 $111,169 ======== ======== ======== ======== ======== Net income.............. $122,210 $247,901 $176,528 $ 13,512 $238,539 ======== ======== ======== ======== ======== Basic earnings per share.................. $ 0.68 $ 1.40 $ 0.92 $ 0.07 $ 1.23 ======== ======== ======== ======== ======== Diluted Earnings per share.................. $ 0.67 $ 1.37 $ 0.90 $ 0.07 $ 1.21 ======== ======== ======== ======== ========
F-35 ACE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 15. Summarized financial information The following is consolidated summarized financial information for ACE INA and Capital Re, both wholly owned subsidiaries of the Company. Selected Financial Data ACE INA December 31, 1999 (in thousands of U.S. dollars) Selected Statement of Operation Data (since date of acquisition) Total revenues................................................... $ 1,629,369 Net income....................................................... 24,426 Selected Balance Sheet Data Total investments and cash....................................... $ 7,710,202 Total assets..................................................... 22,553,446 Unpaid losses and loss expenses.................................. 13,762,062 Total shareholders' equity....................................... $ 1,142,520
Selected Financial Data Capital Re December 31, 1999 (in thousands of U.S. dollars) Selected Balance Sheet Data Total investments and cash..................................... $1,158,243 Total assets................................................... 1,483,781 Unpaid losses and loss expenses................................ 168,698 Total shareholders' equity..................................... $ 588,389
Separate financial statements of ACE INA and Capital Re have not been presented as management has determined that such information is not material to holders of ACE INA's or Capital Re's debt securities. 16. Condensed unaudited pro forma information relating to the acquisitions of Capital Re, ACE INA, CAT and ACE USA. The following pro forma information assumes the acquisitions occurred at the beginning of each year presented. The pro forma financial information is presented for informational purposes only and is not necessarily indicative of the operating results that would have occurred had the acquisition been consummated at the beginning of each year presented, nor is it necessarily indicative of future operating results.
December 31 September 30 1999 1998 ----------- ------------ (in millions of U.S. dollars, except per share data) Pro forma: Net premiums earned.............................. $4,054 $4,114 Net investment income............................ 753 846 Net income....................................... 10 562 Diluted earnings per share....................... $ 0.05 $ 2.64
F-36 ACE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 17. Segment information a) ACE's operations are organized into the following segments: ACE Bermuda; ACE Global Markets; ACE Global Reinsurance; ACE USA; ACE International; ACE Financial Services and other. Each of these segments operates as an autonomous unit and is managed by a Chief Executive Officer ("CEO") who reports to the CEO of ACE, the chief operating decision maker in the group. ACE Bermuda, which primarily encompasses the ACE Bermuda Insurance group of companies, primarily provides property and casualty insurance coverage, including excess liability insurance, directors and officers liability insurance, satellite insurance, aviation insurance, excess property insurance and financial lines products, to a diverse group of industrial, commercial and other enterprises. ACE Global Markets primarily encompasses the Company's operations in the Lloyds market. ACE Global Markets provides funds at Lloyd's to support underwriting by Lloyd's syndicates managed by four Lloyd's managing agencies which are owned by the Company. These managing agencies receive fees and profit commissions in respect of the underwriting and administrative services they provide to the syndicates they manage. ACE Global Reinsurance, which primarily comprises the operations of Tempest Re, provides catastrophe reinsurance worldwide to insurers of commercial and personal property. Tempest Re's property catastrophe reinsurance contracts cover unpredictable natural or man-made disasters, such as hurricanes, windstorms, hail storms, earthquakes, volcanic eruptions, conflagrations, freezes, floods, fires and explosions. The predominant exposure under such coverage is property damage. ACE USA primarily comprises the domestic U.S. operations of ACE INA which was acquired on July 2, 1999 and the operations of ACE US Holdings which were acquired on January 2, 1998. These operations provide specialty property and casualty products and services including: aerospace, diversified products, marine, professional risk services, property, special risk, U.S. International, warranty, Westchester Specialty, Brandywine and "other" operations. ACE International primarily comprises the international operations of ACE INA which were acquired on July 2, 1999. ACE International provides property and casualty insurance to individuals, mid-sized firms and large commercial clients. In addition, ACE International provides customized and comprehensive insurance policies and services to multinational firms and their cross-boarder subsidiaries. Major lines of business underwritten by ACE International include accident and health, fire, marine, casualty, auto, energy and technology insurance. ACE International operates in almost 50 countries and is organized into four geographic locations: ACE Europe, ACE Far East, ACE Asia Pacific, and ACE Latin America. Each region reports to the CEO of ACE International. ACE Financial Services is primarily comprised of the Capital Re companies acquired on December 30, 1999. ACE Financial Services provides value-added reinsurance products in several specialty insurance markets. ACE Financial Services has two principal divisions: financial guaranty and financial risks. The financial guaranty division is composed of municipal and non-municipal financial guaranty reinsurance and credit default swaps. Financial guaranty insurance is a type of credit enhancement in the form of a surety or insurance which is regulated under the insurance laws of various jurisdictions. The insurance provides an unconditional and irrevocable guaranty which indemnifies the insured debt obligation. The financial risks division is composed of mortgage guaranty reinsurance, trade credit reinsurance, title reinsurance and financial solutions. As ACE Financial Services was acquired on December 30, 1999, the Company has not reflected any operations from this segment during 1999. F-37 ACE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The "other" segment includes the operations of ACE Limited, certain unallocated amounts in ACE INA Holdings including interest income, interest expense and amortization of goodwill, and certain eliminations required to reconcile the segment data to the consolidated statement of operations. a) The following table summarizes the operations by segment for the year ended December 31, 1999, the three months ended December 31, 1998, and the years ended September 30, 1998 and 1997. b) For segment reporting purposes, certain items have been presented in a different manner than in the consolidated financial statements. For segment reporting purposes, items considered non-recurring in nature have been aggregated and shown separately net of related taxes, and net realized gains (losses) have been presented net of related taxes. ACE Limited Supplemental Information by Segment For the year ended December 31, 1999 (in thousands of U.S. Dollars)
ACE ACE Global ACE Global ACE ACE Bermuda Markets Reinsurance ACE USA International Other(1) Consolidated ---------- ---------- ----------- ----------- ------------- ----------- ------------ Operations Data: Gross premiums written.. $ 553,365 $ 634,689 $ 182,267 $ 1,566,584 $ 932,252 $ -- $ 3,869,157 Net premiums written.... 428,953 438,769 145,673 796,892 685,061 -- 2,495,348 Net premiums earned..... 510,013 363,887 140,094 748,635 723,108 -- 2,485,737 Losses and loss expenses............... 390,385 205,811 96,935 533,275 413,137 -- 1,639,543 Policy acquisition costs.................. 14,862 94,419 20,809 68,993 138,993 -- 338,076 Administrative expenses............... 38,233 54,636 11,927 176,524 152,165 51,071 484,556 ---------- ---------- ---------- ----------- ---------- ----------- ----------- Underwriting income (loss)................. 66,533 9,021 10,423 (30,157) 18,813 (51,071) 23,562 Net investment income... 174,647 28,489 60,015 188,688 40,664 834 493,337 Amortization of goodwill............... (834) 4,204 14,011 469 -- 27,500 45,350 Interest expense ....... 4,705 3,944 -- 34,563 -- 61,926 105,138 Income tax expense (benefit).............. 2,129 6,006 -- 34,693 20,199 (26,403) 36,624 ---------- ---------- ---------- ----------- ---------- ----------- ----------- Income (loss) excluding net realized gains (losses) and non recurring expenses .... 235,180 23,356 56,427 88,806 39,278 (113,260) 329,787 Non-recurring expenses (net of income tax).... -- -- -- (3,900) (3,042) -- (6,942) ---------- ---------- ---------- ----------- ---------- ----------- ----------- Income (loss) excluding net realized gains (losses)............... 235,180 23,356 56,427 84,906 36,236 (113,260) 322,845 Net realized gains (losses)(net of income tax)................... 63,752 (4,373) (3,771) (3,529) (608) (9,353) 42,118 ---------- ---------- ---------- ----------- ---------- ----------- ----------- Net income (loss)....... $ 298,932 $ 18,983 $ 52,656 $ 81,377 $ 35,628 $ (122,613) $ 364,963 ========== ========== ========== =========== ========== =========== =========== Total Assets........... $2,867,138 $1,521,535 $1,328,687 $16,240,045 $3,904,755 $4,260,728 (2) $30,122,888 ========== ========== ========== =========== ========== =========== ===========
- -------- (1) Includes ACE Limited, ACE INA Holdings and intercompany eliminations (2) Includes ACE Financial Services assets of $1,483,781 F-38 ACE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ACE Limited Supplemental Information by Segment For the three months ended December 31, 1998 (in thousands of U.S. Dollars)
ACE ACE Global ACE Global ACE(1) ACE Bermuda Markets Reinsurance USA Other(2) Consolidated ---------- ---------- ----------- ---------- -------- ------------ Operations Data: Gross premiums written.. $ 124,836 $ 87,891 $ 6,425 $ 34,916 $ -- $ 254,068 Net premiums written.... 89,525 39,723 3,318 21,537 -- 154,103 Net premiums earned..... 84,337 65,059 46,676 21,935 -- 218,007 Losses and loss expenses............... 24,401 36,131 36,967 13,670 -- 111,169 Policy acquisition costs.................. 4,462 18,266 5,549 (465) -- 27,812 Administrative expenses............... 9,228 8,509 3,299 8,994 11,188 41,218 ---------- ---------- ---------- ---------- -------- ---------- Underwriting income (loss)................. 46,246 2,153 861 (264) (11,188) 37,808 Net investment income... 47,920 7,291 15,762 13,270 852 85,095 Amortization of goodwill............... (209) 1,048 3,528 68 -- 4,435 Interest expense (income)............... 107 1,301 -- 6,178 (2,845) 4,741 Income tax expense...... 307 2,530 -- 2,505 -- 5,342 ---------- ---------- ---------- ---------- -------- ---------- Income (loss) excluding net realized gains (losses) .............. 93,961 4,565 13,095 4,255 (7,491) 108,385 Net realized gains (losses) (net of income tax)................... 130,483 432 (1,246) 489 (4) 130,154 ---------- ---------- ---------- ---------- -------- ---------- Net income (loss)....... $ 224,444 $ 4,997 $ 11,849 $ 4,744 $ (7,495) $ 238,539 ========== ========== ========== ========== ======== ========== Total Assets.......... $3,828,757 $1,144,402 $1,634,776 $1,822,439 $403,931 $8,834,305 ========== ========== ========== ========== ======== ==========
- -------- (1) Prior to acquisition of ACE INA (2) Includes ACE Limited and intercompany eliminations F-39 ACE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ACE Limited Supplemental Information by Segment For the year ended September 30, 1998 (in thousands of U.S. Dollars)
ACE ACE Global ACE Global ACE(1) ACE Bermuda Markets Reinsurance USA Other(2) Consolidated ---------- ---------- ----------- ---------- -------- ------------ Operations Data: Gross premiums written... $ 520,018 $ 437,809 $ 124,129 $ 160,203 $ -- $1,242,159 Net premiums written..... 395,331 315,832 93,583 78,529 -- 883,275 Net premiums earned...... 388,812 282,076 154,871 70,846 -- 896,605 Losses and loss expenses................ 294,963 144,991 34,146 42,792 -- 516,892 Policy acquisition costs................... 26,676 62,540 16,154 284 -- 105,654 Administrative expenses................ 31,263 24,043 11,012 23,419 28,603 118,340 ---------- ---------- ---------- ---------- -------- ---------- Underwriting income (loss).................. 35,910 50,502 93,559 4,351 (28,603) 155,719 Net investment income.... 210,936 19,502 53,029 40,245 542 324,254 Amortization of goodwill................ (834) 4,042 9,538 88 -- 12,834 Interest expense......... 1,021 4,782 -- 11,536 -- 17,339 Income tax expense....... 794 19,007 -- 11,555 -- 31,356 ---------- ---------- ---------- ---------- -------- ---------- Income (loss) excluding net realized gains and non-recurring expenses.. 245,865 42,173 137,050 21,417 (28,061) 418,444 Non-recurring expenses (net of income tax)..... -- (32,166) -- -- (14,512) (46,678) ---------- ---------- ---------- ---------- -------- ---------- Income (loss) excluding net realized gains...... 245,865 10,007 137,050 21,417 (42,573) 371,766 Net realized gains (net of income tax).......... 183,745 1,302 3,224 114 -- 188,385 ---------- ---------- ---------- ---------- -------- ---------- Net income (loss)........ $ 429,610 $ 11,309 $ 140,274 $ 21,531 $(42,573) $ 560,151 ========== ========== ========== ========== ======== ========== Total Assets........... $4,041,442 $1,142,758 $1,671,874 $1,833,407 $ 99,272 $8,788,753 ========== ========== ========== ========== ======== ==========
- -------- (1) Prior to acquisition of ACE INA (2) Includes ACE Limited and intercompany eliminations F-40 ACE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) ACE Limited Supplemental Information by Segment For the year ended September 30, 1997 (in thousands of U.S. Dollars)
ACE ACE Global ACE Global ACE Bermuda Markets Reinsurance Other(1) Consolidated ---------- -------- ----------- -------- ------------ Operations Data: Gross premiums written.. $ 527,030 $316,524 $115,795 $ -- $ 959,349 Net premiums written.... 451,495 226,858 111,420 -- 789,773 Net premiums earned..... 479,047 207,723 118,602 -- 805,372 Losses and loss expenses............... 386,127 89,582 10,431 -- 486,140 Policy acquisition costs.................. 34,027 39,180 12,555 -- 85,762 Administrative expenses............... 20,169 11,216 7,488 28,851 67,724 ---------- -------- -------- -------- ---------- Underwriting income (loss)................. 38,724 67,745 88,128 (28,851) 165,746 Net investment income... 189,364 16,205 37,263 10,608 253,440 Amortization of goodwill............... -- 1,703 5,622 -- 7,325 Interest expense........ -- 5,602 -- -- 5,602 Income tax expense...... -- 25,181 -- -- 25,181 ---------- -------- -------- -------- ---------- Income (loss) excluding net realized gains (losses) and non- recurring expenses .... 228,088 51,464 119,769 (18,243) 381,078 Non-recurring expenses (net of income tax).... -- (6,055) -- -- (6,055) ---------- -------- -------- -------- ---------- Income (loss) excluding net realized gains (losses)............... 228,088 45,409 119,769 (18,243) 375,023 Net realized gains (losses) (net of income tax)................... 127,079 (280) 919 (16) 127,702 ---------- -------- -------- -------- ---------- Net income (loss)....... $ 355,167 $ 45,129 $120,688 $(18,259) $ 502,725 ========== ======== ======== ======== ========== Total Assets.......... $3,921,806 $771,579 $875,902 $ 78,309 $5,647,596 ========== ======== ======== ======== ==========
- -------- (1) Includes ACE Limited and intercompany eliminations c. The following table summarizes the Company's gross premiums written by geographic region. Allocations have been made on the basis of location of risk.
Australia North & New Asia Latin America Europe Zealand Pacific America Other - ------- ------ --------- ------- ------- ----- 59.4% 17.6% 7.6% 5.0% 2.7% 7.7%
F-41 ACE LIMITED AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 18. Discontinued Operations In accordance with Emerging Issues Task Force ("EITF") 87-11 "Allocation of Purchase Price to Assets to Be Sold," and ("EITF") 90-6, "Accounting for Certain Events Not Addressed in Issue No. 87-11 Relating to an Acquired Operating Unit to Be Sold", the Company has presented Commercial Insurance Services ("CIS"), a division of ACE INA, as a discontinued operation. The Company planned, as part of its July 2, 1999 acquisition of the CIGNA P&C business, to dispose of the CIS operations. Following the July 2, 1999 ACE INA acquisition, the company sold the renewal rights for all of its CIS business going forward. The Company still owns the assets and liabilities pertaining to the historical book of business as well as the in-force book of business. This portion of CIS is still for sale. In accordance with EITF 87-11, the Company recorded a net liability as of July 2, 1999 of approximately $170 million which was recorded in accounts payable, accrued expenses and other liabilities. At that time the Company reduced the consolidated balance sheet for the following items that pertained specifically to CIS: $900 million in investments and cash, $100 million in insurance balances receivable, $30 million of net assets comprised of various assets and liabilities, $1.1 billion in net loss reserves, and $100 million in unearned premiums. The historical and in force business, including the estimated proceeds on sale and estimated operating results over the twelve months from July 2, 1999, was represented by the net liability of approximately $170 million. Any income items pertaining to CIS through July 1, 2000 will not appear in the consolidated income of the Company, but will be posted against the $170 million net liability. When the CIS business is sold, any gain or loss on sale would reduce or increase goodwill accordingly. If the remaining CIS business is not sold prior to July 2, 2000, the Company will be required to expand the net liability into each of its constituent parts in the balance sheet and any resulting income or loss from that book of business from that point forward would be included in income. F-42 EX-21.1 20 SUBSIDIARIES OF THE COMPANY Exhibit 21.1 Subsidiaries of the Registrant
Jurisdiction of Percentage Name Organization Ownership - ---- --------------- -------------- ACE Limited Cayman Islands Publicly Held ACE Bermuda Insurance Ltd Bermuda 100% Paget Reinsurance International Ltd Bermuda 100% ACE Capital Re International, Ltd. Bermuda 50% ACE KRE Holdings International, Ltd. Barbados 100% ACE Capital Re USA Holding Incorporated USA (Delaware) 100% ACE Capital Re Overseas Ltd. Bermuda 100% ACE Capital Mortgage Reinsurance Company USA (New York) 100% ACE Capital Title Reinsurance Company USA (New York) 100% ACE Capital Re Inc. USA (New York) 100% Lenders Residential Asset Co LLC USA (Delaware) 50% ACE Capital Re Managers Ltd. Bermuda 50% ACE Capital Re Managers Ltd Bermuda 50% ACE Insurance Management Ltd Bermuda 100% ACE European Markets Reinsurance Ltd Ireland 100% ACE European Markets Insurance Ltd Ireland 100% Corporate Officers & Directors Assurance Ltd Bermuda 100% Tripar Partnership Bermuda 2% Intrepid Re Holdings Limited Bermuda 40% Oasis Real Estate Company Limited Bermuda 100% Scarborough Property Holdings Limited Bermuda 40% Sovereign Risk Insurance Limited Bermuda 40.5% Tripar Partnership Bermuda 98% ACE Realty Holdings Limited Bermuda 100% Oasis Personnel Limited Cayman Islands 100% Shipowners Insurance and Guaranty Co. Limited Bermuda 10% Series A 8% Series B ACE Global Markets Limited United Kingdom 100% ACE Group Holdings Limited United Kingdom 100% ACE Tarquin (Unlimited) United Kingdom 100% ACE Capital V Limited United Kingdom 100% ACE (CG) Limited United Kingdom 100% ACE Underwriting Agencies Limited United Kingdom 100% ACE Trustees Limited United Kingdom 100% ACE London Group Limited United Kingdom 100% ACE Capital Limited United Kingdom 100% ACE Capital III Limited United Kingdom 100% ACE Capital IV Limited United Kingdom 100% ACE London Holdings Limited United Kingdom 100% ACE Capital II Limited United Kingdom 100% ACE London Investments Limited United Kingdom 100% ACE London Aviation Limited United Kingdom 100% ACE London Underwriting Limited United Kingdom 100% ACE London Underwriting Services Limited United Kingdom 100% ACE London Services Limited United Kingdom 100% ACE Staff Capital VI Limited United Kingdom 100%
Jurisdiction of Percentage Name Organization Ownership - ---- --------------- ---------- ACE UK Limited United Kingdom 77% ACE UK Holdings Limited United Kingdom 100% ACE (M) Limited United Kingdom 100% ACE (ME) Limited United Kingdom 100% ACE (MI) Investments Limited United Kingdom 100% ACE (MS) Limited United Kingdom 100% ACESYS Limited United Kingdom 100% ACE UK Underwriting Limited United Kingdom 100% Underwriting Systems Limited United Kingdom 100% ACE (PM) Limited United Kingdom 100% ACE UK Limited United Kingdom 23% ACE Services Limited Cayman Islands 100% ACE US Holdings Inc. USA (Delaware) 100% ACE Strategic Advisors Inc. USA (Delaware) 100% ACE USA Inc. USA (Delaware) 100% Blackthorn Insurance Services, Inc. USA (Delaware) 80% CRC Creditor Resources Canada Limited Canada (British 60% Columbia) Industrial Excess & Surplus Insurance Brokers USA (California) 100% Industrial Underwriters Insurance Co. USA (Texas) 100% Rhea International Marketing (L,) Inc. Malaysia 60% Westchester Fire Insurance Company USA (New York) 100% Westchester Surplus Lines Insurance Co USA (Georgia) 100% Westchester Specialty Services, Inc USA (Florida) 100% Westchester Specialty Insurance Services Inc. USA (Nevada) 100% SCS Net LLC USA (Delaware) 60% Ameriguard Corporation USA (Ohio) 80% WDH Corporation USA (Ohio) 80% Dimension Services Corporation USA (Ohio) 80% Dimension Holdings Inc USA (Ohio) 80% CGA Group Limited Bermuda 10.71% CGA Investment Management, Inc. USA (Delaware) 100% Commercial Guaranty Assurance Limited Bermuda 100% Oasis Insurance Services Limited Bermuda 100% Oasis Investments Limited Bermuda 100% Tempest Reinsurance Company Limited Bermuda 100% Hamilton Services Limited Bermuda 100% Oasis US Inc. Delaware 100% St George Holdings Limited Cayman Islands 10.71% St George Investments Limited Cayman Islands 100% ACE INA Holdings Inc. USA (Delaware) 20% ACE RHINOS Trust USA (Delaware) 100% ACE Capital Trust I USA (Delaware) 100% Tempest Re USA, Inc. USA (Delaware) 100% ACE Prime Holdings Inc. USA (Delaware) 100% ACE INA Holdings Inc. USA (Delaware) 80% ACE Seguros S.A. (Argentina) Argentina 99/9% INA Corporation USA (Pennsylvania) 100% ACE INA Properties Inc. USA (Delaware) 100% Conference Facilities, Inc. USA (Pennsylvania) 100% INA Tax Benefits Reporting. Inc. USA (Delaware) 100%
Jurisdiction of Percentage Name Organization Ownership - ---- --------------- ---------- INA Financial Corporation USA (Delaware) 100% Brandywine Holdings Corporation USA (Delaware) 100% Brandywine Run-Off Services, Inc. USA (Delaware) 100% ASSUREX Development Corporation USA (Ohio) 11.011% International Surplus Adjusting Services USA (California) 100% Western Agency Management, Inc. USA (California) 100% Cravens, Dargan & Company Pacific Coast USA (Delaware) 100% Cravens, Dargan & Company Pacific Coast of Illinois USA (Illinois) 100% Century Indemnity Company USA (Pennsylvania) 100% Century Reinsurance Company USA (Pennsylvania) 100% ACE American Reinsurance Company USA (Pennsylvania) 100% Brandywine Reinsurance Company S.A--N.V. Belgium 100% The 1792 Company USA (Delaware) 100% Century International Reinsurance Company Ltd. Bermuda 100% Brandywine International Brokers Ltd. Bermuda 100% INA Holdings Corporation USA (Delaware) 100% INA Reinsurance Company Ltd. Bermuda 100% ACE INA Financial Institution Solutions, Inc. USA (Delaware) 100% ESIS, Inc. USA (California) 100% ACE INA Excess and Surplus Insurance Services, Inc. (GA) USA (Georgia) 100% ACE INA Excess and Surplus Insurance Services, Inc. (PA) USA (Pennsylvania) 100% NewMarkets Insurance Agency, Inc. USA (Delaware) 100% ACE INA Excess and Surplus Insurance Services, Inc. (CA) USA (California) 100% ACE INA Excess and Surplus Insurance Services, Inc. (IL) USA (Illinois) 100% Excess and Surplus Insurance Services, Inc. USA (Texas) 100% INAC Corp. USA (Delaware) 100% INAC Corp. of California USA (California) 100% Global Surety Network, Inc. USA (Delaware) 100% Marketdyne International, Inc. USA (Delaware) 100% ACE INA Railroad Insurance Brokers, Inc. USA (California) 100% Recovery Services International, Inc. USA (Delaware) 100% RSI Health Care Recovery Inc. USA (Delaware) 100% Indemnity Insurance Company of North America USA (Pennsylvania) 100% ACE Indemnity Insurance Company USA (Pennsylvania) 100% Allied Insurance Company USA (California) 100% ACE American Insurance Company USA (Pennsylvania) 100% Pacific Employers Insurance Company USA (Pennsylvania) 100% ACE Insurance Company of Texas USA (Texas) 100% Illinois Union Insurance Company USA (Illinois) 100% INAMAR Insurance Underwriting Agency, Inc. USA (New Jersey) 100% INAMAR Insurance Underwriting Agency of Massachusetts USA (Massachusetts) 100% INAMAR Insurance Underwriting Agency of Texas USA (Texas) 100% INAMAR Insurance Underwriting Agency of Ohio USA (Ohio) 100% Insurance Company of North America USA (Pennsylvania) 100% Bankers Standard Insurance Company USA (Pennsylvania) 100% Bankers Standard Fire and Marine Company USA (Pennsylvania) 100% ACE Property and Casualty Insurance Company USA (Connecticut)) 100% ACE Employers Insurance Company USA (Pennsylvania) 100% ACE Insurance Company of Ohio USA (Ohio) 100%
Jurisdiction of Percentage Name Organization Ownership - ---- --------------- ---------- INA Surplus Insurance Company USA (Pennsylvania) 100% ACE Fire Underwriters Insurance Company USA (Pennsylvania) 100% Atlantic Employers Insurance Company USA (New Jersey) 100% Cover-All Technologies, Inc. USA (Delaware) 7.41% ALIC, Incorporated USA (Texas) 100% ACE American Lloyds Insurance Company USA (Texas) 100% ACE Insurance Company of Illinois USA (Illinois) 100% ACE Insurance Company of the Midwest USA (Indiana) 100% INAPRO, Inc. USA (Delaware) 100% Reinsurance Solutions Internation, LLC USA (Delaware) 50% American Adjustment Company, Inc. USA (Delaware) 100% American Lenders Facilities, Inc. USA (California) 100% ACE INA International Holdings, Ltd. USA (Delaware) 100% ACE Synergy Insurance Berhad Malaysia 51% ACE Insurance S.A. (Macau) Macau 100% Chilena Consolidata Seguros Generales, S.A. Chile .65% INACAN Holdings, Ltd. Canada 100% ACE INA Insurance (Canada) Canada 100% ACE Insurance Limited (S. Africa) South Africa 100% Seguros CIGNA, S.A. Mexico 99.9% ACE Insurance Limited (New Zealand) New Zealand 100% Cover Direct, Inc. USA (Delaware) 100% Victoria Hall Company Ltd. Bermuda 20% ACE INA G.B. Holdings, Ltd. USA (Delaware) 100% Brandywine Reinsurance Co. (UK) Ltd United Kingdom 100% ACE INA Services UK Limited United Kingdom 100% ACE INA UK Retirement Savings Plan United Kingdom 100% Insurance Company of North America (UK) Ltd United Kingdom 100% INACAP Sociedad Anonima Nicaragua 100% INACAP Reaseguros, Sociedad Anonima Nicaragua 100% Century Inversiones, SA Panama 100% ACE INA de Venezuela Intermediaros de Reaseguros SA Venezuela 100% ARABIA ACE Insurance Co. Limited EC Bahrain 25% ACE Insurance Limited (Australia) Australia 100% ACE Insurance Limited (Singapore) Singapore 100% ACE INA Superannuation Pty. Limited Australia 100% ACE Seguros SA (Chile) Chile 99.13% ACE INA Overseas Insurance Co. Ltd Bermuda 100% ACE Insurance (Japan) Japan 100% ACE INA Marketing Group C.A. Venezuela 100% ACE INA Overseas Holdings Inc. USA (Delaware) 100% ACE Insurance S.A.--N.V. Belgium 100% ACE Insurance Company (Puerto Rico) Puerto Rico 100% ACE Insurance Ltd. (Hong Kong) Hong Kong 100% ACE INA Bermuda Ins. Managers Ltd Bermuda 100% DELPANAMA S.A. Panama 100% INAMEX S.A. Mexico 100% Maritime General Ins Company Ltd Trinidad 8.06% AFIA Finance Corporation USA (Delaware) 100% AFIA Sociedad Anonima Mexico 100%
Jurisdiction of Percentage Name Organization Ownership - ---- ------------ ---------- AFIA Venezolana C.A. Venezuela 100% ACE ICNA--Italy Societa a Responsabilita Limitata Italy 100% ACE INA Thai Company Limited Thailand 55% ACE Servicios, S.A. (Argentina) Argentina 100% ESIS International Asesorias Limitada Chile 100% Fire, Equity & General Ins Co. Ltd. Nigeria 6.25% INDI Servicios C. Ltda. Ecuador 100% Inversiones Continental S.A. de C.V. Honduras 1.29% P.T. ACE INA Insurance (Indonesia) Indonesia 53.51% RIYAD Insurance Co. Ltd Bermuda 80% Safire Private Ltd. Singapore 100% AFIA (INA) Corporation Limited USA (Delaware) 100% AFIA Unincorporated association 60% AFIA (ACE) Corporation Limited USA (Delaware) 100% AFIA Unincorporated association 40% Compania Anonima de Seguros "Avila" Venezuela 5.6% ACE Seguros S.A. (Colombia) Colombia 85.763% INAVEN, C.A. "Venezuela" Venezuela 100% La Positiva Co Nacional de Seguros Sociedad Anonima Peru 10.79% Seguros Azteca, S.A. Mexico 1.36% Seguros Comercial America, S.A. de C.V. Mexico .031% Reaseguradora Nuevo Mundo S.A. Panama 3.7246% Amazonas Co. Anonima de Seguros Ecuador 1.423% ACE (Barbados) Holdings Limited Barbados 100% ACE Financial Services, Inc. Delaware 100% Capital Re Financial Products Corporation Delaware 100% Capital RE LLC Turks & Caicos 100% Capital RE (UK) Holdings United Kingdom 100% CRC Capital, Ltd. United Kingdom 100% RGB Holdings, Ltd. United Kingdom 100% C.I. de Rougemont & Co. Ltd United Kingdom 100% RGB Underwriting Services Limited United Kingdom 100% RGB Underwriting Agencies Limited United Kingdom 100% ACE Financial Solutions, Inc. USA (Delaware) 100% ACE Guaranty Re, Inc. Maryland 100% ACE Risk Assurance Company Maryland 100%
EX-23.1 21 CONSENT OF PRICEWATERHOUSECOOPERS LLP Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the registration statements of ACE Limited on Form S-3 (File Nos. 333-78841, 333-60985), Form S-4 (File No. 333-90927) and Form S-8 (File Nos. 33-86146, 333-1400, 333-1402, 333-1404, 33- 46301, 333-72299, 333-82175, 333-93867, 333-72301) of our reports dated February 16, 2000, on our audits of the consolidated financial statements and financial statement schedules of ACE Limited as of December 31, 1999 and 1998, and for the year ended December 31, 1999, the three months ended December 31, 1998 and the years ended September 30, 1998 and 1997, which reports are included and incorporated by reference in this Annual Report on Form 10-K. PricewaterhouseCoopers LLP New York, New York March 24, 2000 EX-27.1 22 FINANCIAL DATA SCHEDULE
7 Year DEC-31-1999 JAN-01-1999 DEC-31-1999 9,849,803 0 0 933,314 0 0 12,276,303 599,232 1,288,651 514,425 30,122,888 16,460,247 2,428,828 1,799,715 201,079 2,498,813 75,000 500,000 9,061 4,441,499 30,122,888 2,485,737 493,337 37,916 0 1,639,543 338,076 0 393,647 28,684 364,963 0 0 0 364,963 1.88 1.85 2,577,805 1,601,278 38,265 916,848 1,516,050 8,908,817 0
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