-----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, HE++Ca1n+L9GD+DjYhWLrXfNd9Mu92jhQV5qAbnI1VqSOzEiUGT50mvOFj5WJ0iT Tdid4z205W9cHjoOZkltZQ== 0000354396-98-000003.txt : 19980331 0000354396-98-000003.hdr.sgml : 19980331 ACCESSION NUMBER: 0000354396-98-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 SROS: NYSE SROS: PCX FILER: COMPANY DATA: COMPANY CONFORMED NAME: USF&G CORP CENTRAL INDEX KEY: 0000354396 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 521220567 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-08233 FILM NUMBER: 98579456 BUSINESS ADDRESS: STREET 1: 6225 CENTENNIAL WAY CITY: BALTIMORE STATE: MD ZIP: 21209 BUSINESS PHONE: 4105473000 MAIL ADDRESS: STREET 1: 6225 CENTENNIAL WAY CITY: BALTIMORE STATE: MD ZIP: 21209 10-K 1 12/31/97 FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended Commission File Number December 31, 1997 1-8233 USF&G CORPORATION (Exact name of registrant as specified in its charter) Maryland 52-1220567 (State of Incorporation) (IRS Employer Identification No.) 6225 Centennial Way, Baltimore, Maryland 21209 (Address of principal executive offices) (zip code) Telephone: 410-205-3000 Securities registered pursuant to Section 12(b) of the Act: Preferred Share Purchase Rights Registered-New York Stock Exchange Registered-Pacific Stock Exchange Common Stock, Par Value $2.50 Registered-New York Stock Exchange Registered-Pacific 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 twelve (12) months 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 registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x] The aggregate market value of voting and non-voting stock held by non-affiliates of the registrant as of March 13, 1998, was $2,957,380,238. Voting stock held by any persons who may be deemed to be affiliates under Rule 405 would be immaterial. The number of shares outstanding of the issuer's common stock as of March 13, 1998: Common Stock, Par Value $2.50, 117,414,600 shares outstanding. Documents Incorporated by Reference: The Corporation's Form 8-K filed on February 26, 1998 is incorporated by reference into Parts I and II. Portions of the Joint Proxy Statement/Prospectus of the Corporation and The St. Paul Companies, Inc., File No. 0-3021, is incorporated by reference into Part III. Exhibit Index begins on page 20. USF&G CORPORATION Index Part I Item 1. Description of Business 1.1. General 1 1.2. Business segments 1 1.3. Distribution systems 2 1.4. Competition 3 1.5. Investments 3 1.6. Property/casualty loss reserves 3 1.7. Life benefit reserves 6 1.8. Geographical distribution 7 1.9. Executive officers of the Registrant 7 1.10. Government regulations 7 Item 2. Business Properties 7 Item 3. Legal Proceedings 8 Item 4. Submission of Matters to a Vote of Security Holders 8 Part II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters 9 Item 6. Selected Financial Data 9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 7a. Quantitative and Qualitative Disclosures About Market Risk 9 Item 8. Financial Statements and Supplementary Data 9 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 9 Part III Item 10. Directors and Executive Officers of the Registrant 10 Item 11. Executive Compensation 11 Item 12. Security Ownership of Certain Beneficial Owners and Management 18 Item 13. Certain Relationships and Related Transactions 19 Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 20 USF&G CORPORATION Part I In connection with, and because it desires to take advantage of, the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995, USF&G Corporation ("USF&G" or the "Corporation") cautions readers regarding certain forward-looking statements in the following discussion and elsewhere in this Form 10-K and in any other statements made by, or on the behalf of, the Corporation, whether or not in future filings with the Securities and Exchange Commission. Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. In particular, statements using verbs such as "expect", "anticipate", "hope", "believe" or words of similar import generally involve forward-looking statements. Forward-looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the Corporation's control and many of which, with respect to future business decisions, are subject to change, especially in light of the proposed merger with The St. Paul Companies, Inc. ("St. Paul"), discussed in Section 1.5 of Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Corporation's Form 8-K filed on February 26, 1998, incorporated herein by reference. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Corporation. Whether or not actual results differ materially from forward-looking statements may depend on numerous foreseeable and unforeseeable events or developments, some of which may be national or international in scope, such as general economic conditions and interest rates, some of which may be related to the insurance industry generally, such as pricing competition, industry consolidation and regulatory developments, and others of which may relate to the Corporation specifically, such as risks with implementing business realignment strategies and related agency plant or field organization implications, adequacy of reserves, exposure to catastrophe losses, technological risks inherent in developing its technological infrastructure, adequacy of underwriting disciplines, credit and other risks associated with the Corporation's investment portfolio, and other factors. The Corporation disclaims any obligation to update forward-looking information. Item 1. Description of Business 1.1. General USF&G Corporation is a holding corporation organized in 1981 as a Maryland corporation. United States Fidelity and Guaranty Company ("USF&G Company"), organized in 1896 under Maryland law, is the predecessor registrant of the Corporation. The term "Corporation" as used in this Form 10-K refers to USF&G Corporation and all of its subsidiaries. As of December 31, 1997, the Corporation had approximately 6,600 employees. USF&G is primarily engaged in the business of insurance. Property/casualty insurance is written primarily by USF&G Company. Life insurance and annuities are written primarily by Fidelity and Guaranty Life Insurance Company ("F&G Life"). Noninsurance operations are composed primarily of the parent company and asset management services. 1.2. Business segments Financial information about the Corporation's business segments is set forth in Note 16, "Information on Business Segments", of the Notes to Consolidated Financial Statements included in the Corporation's Form 8-K filed on February 26, 1998, incorporated herein by reference. A description of the Corporation's principal business segments begins below with the property/casualty insurance segment, and continues on page 2 of this Form 10-K with the life insurance segment and parent and noninsurance operations. Property/casualty insurance segment USF&G Company currently underwrites most forms of property/casualty insurance. USF&G Company's operations are grouped into the following portfolio of strategic businesses: the Commercial Insurance Group ("CIG"), the Family and Business Insurance Group ("FBIG"), and Specialty Businesses, which include Discover Re Managers, Inc. ("Discover Re"), F&G Re, Inc. ("F&G Re"), and the Surety Group. The property/casualty segment accounted for 88 percent of USF&G's revenues before net realized gains for the year ended December 31, 1997 and 71 percent of its total assets at December 31, 1997. Insurance coverages offered by CIG provide protection related to property loss, liability claims and workers' compensation benefits to businesses and government entities, and fidelity bonds for financial institutions. Property loss and liability claims insurance protects against loss from damage to the insured's covered properties and protects against legal liability for injuries to other persons or damage to their property arising from the insured's business operations. Workers' compensation provides benefits to employees, as mandated by state laws, for employment-related accidents, injuries or illnesses. Fidelity bonds indemnify employers against the dishonesty or default of persons in their employ. FBIG provides homeowners insurance and standard and non-standard automobile insurance, which include aspects of property loss and liability risks. FBIG also provides insurance coverage to small commercial businesses. Homeowners policies protect against loss of dwellings and contents arising from a variety of perils, as well as liability arising from ownership or occupancy. Automobile policies cover liability to third parties for bodily injury and property damage, and cover physical damage to the insured's own vehicle resulting from collision and various other perils. Small commercial business insurance covers property loss, liability claims and workers' compensation, as well as automobile and other coverages. Discover Re provides insurance, reinsurance and related services to the alternative risk transfer market, primarily in the municipalities, transportation, education and retail markets. Through alternative risk transfer, a company self-insures, or reinsures through a captive insurer, the predictable frequency portion of its own losses and purchases insurance for the less predictable, high-severity losses that could have a major financial impact on the company. USF&G Company also operates a separate reinsurance division which underwrites treaty reinsurance and is composed of various wholly-owned subsidiaries. The lead company in this group, F&G Re, acts as the reinsurance underwriting manager and solicits and services assumed reinsurance for USF&G Company. F&G Re markets reinsurance in North America and in specific foreign countries (mainly in Western Europe and Japan). During 1997, F&G Re established a representative office in Hong Kong and expanded its presence in the Lloyd's of London markets through the acquisition of an 80 percent ownership interest in Ashley Palmer, Ltd., a managing general agency, and investments in several Lloyd's of London underwriting syndicates. Reinsurance prices and conditions are not normally subject to the same state regulation applicable to the primary insurance market because reinsurers contract solely with other insurance companies. Surety bonds guarantee the performance of a principal who undertakes contractual or statutory obligations, and indemnify third-party obligees for damages caused by the principal's failure to perform. USF&G Company reinsures portions of its policy risks with other insurance companies or underwriters and remains contingently liable under these contracts (ceded reinsurance). In addition, it assumes policy risks from other insurance companies and through participation in pools and associations (assumed reinsurance). (Refer to Section 4.2, "Reinsurance", of Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 12, "Reinsurance", of the Notes to Consolidated Financial Statements included in the Corporation's Form 8-K filed on February 26, 1998, incorporated herein by reference.) Financial information and further descriptions of the businesses and products discussed above are set forth in Section 2, "Strategic Overview", and Section 3.1, "Property/casualty insurance", of Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Corporation's Form 8-K filed on February 26, 1998, incorporated herein by reference. Life insurance segment F&G Life sells many forms of annuity and life insurance products, including single premium deferred annuities ("SPDAs"), structured settlement annuities, tax sheltered annuities ("TSAs"), single premium immediate annuities and universal life and term life insurance. The life insurance segment accounted for 12 percent of USF&G's revenues before net realized gains for the year ended December 31, 1997 and 28 percent of its total assets at December 31, 1997. Financial information and further descriptions of F&G Life's business and products are set forth in Section 2, "Strategic Overview", and Section 3.2, "Life insurance", of Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Corporation's Form 8-K filed on February 26, 1998, incorporated herein by reference. Parent and noninsurance operations The parent company performs corporate functions including managing the capital requirements of the Corporation and its subsidiaries. The noninsurance operations consist primarily of asset management services. 1.3. Distribution systems Property/casualty insurance USF&G Company's products have been sold primarily by independent agents, which generally represent multiple insurance companies, since its founding in 1896. USF&G Company's products are sold through approximately 2,900 independent agencies in the United States on a commission basis. USF&G's distribution channels include retail, wholesale and surplus lines brokers and agents. As of December 31, 1997, USF&G Company maintained 40 production offices located throughout the United States to service its agents and policyholders. These offices support the administration of underwriting standards and the delivery of policies, primarily for CIG. USF&G also operates three Centers for Agency Services dedicated to underwriting and policy processing for FBIG, and a centralized Claim Reception Center which provides 24-hour, seven-days-a-week claim reporting service to customers and agents throughout the United States. The Surety Group also maintains offices in Mexico and Canada, and F&G Re has offices in London and Hong Kong. In December 1997, USF&G acquired TITAN Holdings, Inc. ("Titan"), a property/casualty insurance company located in San Antonio, Texas. Titan specializes in the non-standard automobile and government entity insurance markets. It distributes insurance through independent agencies and direct response centers ("DRCs"). DRCs are operated from centralized call centers or local retail locations and generate business through media and yellow pages advertising and direct sales calls. At December 31, 1997, Titan had 85 DRCs located in ten states. Life insurance SPDAs are sold primarily through independent agents and insurance brokers. TSAs are sold through a national wholesaler. Structured settlements are annuities sold predominantly to the property/casualty company in settlement of certain of its insurance claims. 1.4. Competition Property/casualty insurance The property/casualty insurance industry is highly competitive with over 2,400 companies nationwide. These insurers are not only stock companies, but also mutual companies and other underwriting organizations. USF&G Company ranked 22nd in the industry based both on 1996 statutory net premiums written and on statutory assets, and 33rd based on 1996 statutory policyholders' surplus. USF&G Company competes with other property/casualty insurance companies whose products are distributed through national, regional and local independent agencies, direct sales and brokers. Consumers may also use self-insurance, which includes captive insurance subsidiaries. Pricing is a primary means of competition in the property/casualty industry. The industry is currently in a period of significant price competition, which adversely affects USF&G Company's profitability. Availability and quality of products, quality and speed of service (including claims service), financial strength, distribution systems and technical expertise are also important elements of competition. In personal and other lines offered by USF&G Company, significant price competition is experienced from direct-writing companies that do not use independent agents and generally have lower policy acquisition costs. Life insurance The Corporation's life insurance subsidiaries operate in a competitive environment, with approximately 1,200 companies nationwide in the industry including stock and mutual companies. F&G Life ranked 148th based on 1996 statutory net premiums written, 121st based on 1996 statutory assets and 160th based on 1996 statutory capital and surplus. In the life insurance industry, interest crediting rates, underwriting philosophy, policy features, financial stability and service quality are important competitive factors. F&G Life's products compete not only with those offered by other life insurance companies, but also with other income accumulation-oriented products offered by other financial institutions. The life insurance industry has experienced considerable competitive pressure in recent periods as a result of fluctuating interest rates. Premium rates Most states have laws requiring that rate schedules and other information be filed with a regulatory authority for substantially all property, casualty and surety lines. Rates for life insurance are generally not regulated. Some states permit insurers to use rates without prior regulatory approval whereas other states prohibit implementation of new rates without such approval. The regulatory authority may disapprove a filing if it finds that the rates are inadequate, excessive or unfairly discriminatory. Rates are not necessarily uniform for all insurers. In states that require prior approval of rates, regulators usually require the submission of historical data to justify rate increases; accordingly, there is often a time lag between identifying the need for rate increases and securing such increases. The effect of this lag is particularly severe in times of rising claims and inflation. 1.5. Investments Investing the net cash flows from operations is a major aspect of the property/casualty and life insurance businesses. The components of the Corporation's investment portfolio and investment performance are discussed in Section 5, "Investments", of Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 2, "Investments", of the Notes to Consolidated Financial Statements included in the Corporation's Form 8-K filed on February 26, 1998, incorporated herein by reference. 1.6. Property/casualty loss reserves General The reserves for property/casualty losses and loss expenses represent estimates of the ultimate net cost of all unpaid losses and loss adjustment expenses incurred through the end of each period. The reserves are determined using adjusters' individual case estimates and actuarially-based statistical projections. USF&G Company's estimates of losses for reported claims are established judgmentally on an individual case basis. Such estimates are based on a claim adjuster's particular expertise with the type of risk involved and knowledge of circumstances surrounding the individual claims. These estimates are reviewed on a regular basis and updated as additional facts become known. The reserves derived from statistical projections are subject to the effects of trends in claim severity and frequency. Statistical projections are employed in three specific areas: (1) to calculate bulk reserves for incurred but not reported ("IBNR") losses and provide for development of case-basis loss reserves; (2) to calculate allocated loss expense reserves; and (3) to calculate unallocated loss expense reserves. IBNR and Case Development Reserves: USF&G Company's estimates of IBNR and case development reserves are derived from analyses of historical patterns of development of paid and reported losses by accident year for each line of business. Further segmentation into the business group components of the current accident year projected losses is evaluated and considered within the aggregate line of business analysis. The loss projection procedures used in this analysis contain explicit provisions for quantifying the effect of inflation on loss payments expected to be made in the future. This process relies on the basic assumption that past experience, adjusted for the effect of current circumstances and likely trends, is an appropriate basis for predicting future events. Allocated Loss Expense: USF&G Company's estimates of unpaid allocated loss adjustment expenses are based on analyses of the long-term relationship of projected ultimate allocated loss expense to projected ultimate losses for each line of business. By using incurred losses as a base, inflation assumptions applicable to loss reserves are applied equally to allocated expense reserves. Unallocated Loss Expense: Unallocated loss expense reserves are based on historical relationships of paid unallocated expenses to paid losses by accident year. As with allocated loss expenses, the inflation assumptions applicable to loss reserves are presumed to apply equally to unallocated expense reserves. The process of estimating the liability for unpaid losses and loss expenses is inherently judgmental. The process is influenced by factors which are subject to significant variation. Possible sources of variation include changing rates of inflation (particularly medical cost inflation) as well as changes in other economic conditions, underwriting practices, the legal system and internal claims-settlement practices, among other variables. In many cases, significant periods of time may elapse between the occurrence of an insured event, the reporting of a claim to USF&G Company and USF&G Company's final settlement of the claim. Approximately 40 percent of USF&G Company's loss and loss expense reserves are provided for claims which have been incurred but not reported and for future development on reported claims. While USF&G Company reports a single amount as the estimate for unpaid losses and loss expenses as of each valuation date, the reported reserves should be considered the best estimate from a range of possible outcomes. It is unlikely that future losses and loss expenses will develop exactly as projected and may in fact vary significantly from projections. These estimates are continually reviewed and updated as experience develops and new information becomes known. Any resulting adjustments are reflected in current operating results. Discounted loss reserves The reserves for permanent-total disability benefits and long-term medical care benefits under workers' compensation insurance, as well as certain reserves for assumed reinsurance coverage, are discounted at rates of interest generally ranging up to four percent. The carrying amount of such reserves, net of reinsurance and net of discount, was $1.3 billion and $1.4 billion at December 31, 1997 and 1996, respectively. The discount is amortized over the expected lives of the claimants. Discounted workers' compensation reserves come from three primary sources: reserves assumed from the Workers' Compensation Reinsurance Bureau ("WCRB"), certain F&G Re assumed reinsurance contracts and reserves for USF&G Company's net retained business. The following table reconciles the changes in the reserve discount for the years presented. (in millions) 1997 1996 1995 ------------------------ Discount, January 1 $401 $394 $441 Accrual 39 41 (21) Amortization (39) (34) (26) ------------------------ Discount, December 31 $401 $401 $394 ------------------------ The positive discount accruals in 1997 and 1996 resulted from the initiation of new assumed reinsurance contracts on workers' compensation business and were offset slightly by negative accruals in USF&G Company's direct business. Reductions in the estimate of ultimate incurred losses in the direct workers' compensation business resulted in negative discount accruals of $9 million, $10 million and $21 million in 1997, 1996 and 1995, respectively. A number of claim initiatives, including managed medical care, structured settlements for workers' compensation medical claims and an acceleration in payment patterns are having a favorable impact on estimates of ultimate incurred losses. Roll-forward of liability for losses and loss expenses The following table reconciles the changes in loss and loss expense reserves for the years presented. (in millions) 1997 1996 1995 ----------------------- Total reserve at beginning of year, gross $6,032 $6,097 $6,158 Less reinsurance recoverables 987 984 1,016 ----------------------- Net balance at January 1 5,045 5,113 5,142 ----------------------- Incurred Related To: Current year 1,933 2,030 1,856 Prior years (139) (162) (54) ----------------------- Total incurred 1,794 1,868 1,802 ----------------------- Paid Related To: Current year 726 764 635 Prior years 1,225 1,190 1,196 ----------------------- Total paid 1,951 1,954 1,831 ----------------------- Net balance at December 31 4,888 5,027 5,113 Plus net reserves acquired* 140 18 -- Plus reinsurance recoverables 1,172 987 984 ----------------------- Total reserve at end of year, gross $6,200 $6,032 $6,097 ======================= *Reserves acquired relate to the purchases of Titan in 1997 and Afianzadora Insurgentes, S.A. de C.V. ("Afianzadora"), in 1996. Analysis of loss and loss expense reserve development The tables on the following page show property/casualty loss reserves including (net) and excluding (gross) the effects of ceded reinsurance as recorded in the indicated years, subsequent payments made with respect to such reserves and re-estimates of such reserves. The top line shows the estimated liability that was recorded at the end of each of the indicated years for all current and prior year unpaid losses and loss expenses. The upper portion of the table shows the cumulative amount subsequently paid in succeeding years. The lower portion of the table shows re-estimations of the original recorded reserve as of the end of each successive year. Such re-estimations result from development of additional facts and circumstances pertaining to unsettled claims. The bottom line shows the dollar amount of the cumulative change through 1997 that is attributable to the original recorded reserve for each prior year. The Analysis of Gross Loss and Gross Loss Expense Reserve Development was added in 1994. The schedule provides data gross of ceded reinsurance for the carried reserve at year-ends 1993 through 1997 and reserve development of the 1993 through 1996 year-ends. Conditions and trends that have affected reserve development in the past have changed and may not necessarily occur in the future. Care should be exercised in extrapolating future reserve redundancies or deficiencies from such development.
Analysis of Net Loss and Net Loss Expense Reserve Development* At December 31 (in millions) 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996** 1997** --------------------------------------------------------------------------------------------------------- Liability for unpaid losses and loss expenses $ 4,744 $ 5,208 $ 5,467 $5,637 $5,716 $5,564 $5,316 $5,142 $5,113 $5,045 $5,028 Cumulative Paid As Of: One year later 1,374 1,539 1,723 1,655 1,575 1,471 1,284 1,196 1,190 1,225 Two years later 2,258 2,614 2,795 2,746 2,534 2,394 2,091 1,947 1,919 -- Three years later 3,033 3,350 3,593 3,418 3,225 3,018 2,630 2,494 -- -- Four years later 3,550 3,939 4,055 3,929 3,692 3,428 3,034 -- -- -- Five years later 3,992 4,265 4,435 4,293 3,995 3,748 -- -- -- -- Six years later 4,240 4,542 4,714 4,528 4,246 -- -- -- -- -- Seven years later 4,456 4,773 4,899 4,738 -- -- -- -- -- -- Eight years later 4,648 4,924 5,075 -- -- -- -- -- -- -- Nine years later 4,776 5,077 -- -- -- -- -- -- -- -- Ten years later 4,905 -- -- -- -- -- -- -- -- -- Liability Re-estimated: One year later 4,884 5,236 5,679 5,767 5,793 5,625 5,308 5,088 4,951 4,906 Two years later 4,943 5,485 5,800 5,907 5,923 5,645 5,264 5,005 4,871 -- Three years later 5,109 5,566 5,960 6,151 5,975 5,620 5,246 4,990 -- -- Four years later 5,287 5,761 6,246 6,216 5,959 5,589 5,252 -- -- -- Five years later 5,442 6,029 6,331 6,209 5,933 5,624 -- -- -- -- Six years later 5,700 6,125 6,319 6,214 5,994 -- -- -- -- -- Seven years later 5,789 6,124 6,352 6,326 -- -- -- -- -- -- Eight years later 5,790 6,175 6,508 -- -- -- -- -- -- -- Nine years later 5,842 6,373 -- -- -- -- -- -- -- -- Ten years later 6,067 -- -- -- -- -- -- -- -- -- Cumulative (deficiency) excess (1,323) (1,165) (1,041) (689) (278) (60) 64 152 242 139 ---------------------------------------------------------------------------------------------------------
Analysis of Gross Loss and Gross Loss Expense Reserve Development* At December 31 (in millions) 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996** 1997** --------------------------------------------------------------------------------------------------------- Liability for unpaid losses and loss expenses $-- $-- $-- $-- $-- $-- $6,370 $6,158 $6,097 $6,032 $6,200 Cumulative Paid As Of: One year later -- -- -- -- -- -- 1,571 1,431 1,387 1,305 Two years later -- -- -- -- -- -- 2,547 2,348 2,205 -- Three years later -- -- -- -- -- -- 3,217 2,953 -- -- Four years later -- -- -- -- -- -- 3,670 -- -- -- Liability Re-estimated: One year later -- -- -- -- -- -- 6,354 6,103 5,977 5,922 Two years later -- -- -- -- -- -- 6,328 6,110 5,957 -- Three years later -- -- -- -- -- -- 6,417 6,145 -- -- Four years later -- -- -- -- -- -- 6,468 -- -- -- Cumulative (deficiency) excess -- -- -- -- -- -- (98) 13 140 110 --------------------------------------------------------------------------------------------------------- *Certain reserves are recorded on a discounted basis to reflect the value of timing differences between the recording of reserves and subsequent payment. The amortization of that discount is included in the reserve deficiencies shown above. **The 1997 and 1996 amounts include reserves acquired in the purchase of Afianzadora and subsequent development thereon. The 1997 amounts also include reserves acquired in the purchase of Titan. The amounts for prior years have not been restated to include Afianzadora's or Titan's reserve activity.
Losses and loss expenses recorded in the current period financial statements are affected by changes in estimates of insured events occurring in prior periods. Losses incurred in 1997, 1996 and 1995 included $116 million, $110 million and $77 million, respectively, of favorable development related to prior years' experience in the assumed reinsurance business. Given the inherent uncertainty in reserving for assumed reinsurance losses, current accident year reserves are established on a conservative basis. Based on actuarial analysis in 1997 and 1996, the favorable development in assumed reinsurance from prior accident years was substantially offset by the establishment of current accident year reserves. The workers' compensation line was the key contributor of the remaining favorable development of $23 million in 1997 and $52 million in 1996. These favorable trends in older accident years are attributable to reform efforts by various states in the early 1990s to contain workers' compensation loss costs, the results of which are emerging in recent calendar years. In addition, favorable development in 1996 included recognition of the effect on reserve estimation models of the increased use of structured settlement annuities to close workers' compensation claims. Prior years' loss reserve decreases in workers' compensation were substantially offset by reserve increases in liability lines for the current accident year. The loss development triangle is also affected by a reallocation of environmental and asbestos bulk reserves between accident years, which had no effect on the overall development. The reserve development of $110 million on prior years' gross reserves is $29 million less favorable than on a net basis. This is primarily driven by approximately $30 million of amortization of discount on servicing carrier workers' compensation business which is one hundred-percent ceded. Most of this amortization occurred in accident years 1994 and prior; therefore, it affects the net to gross difference in all years shown. Loss portfolio transfers Also included in the loss and loss expense reserve development tables are various loss portfolio transfer transactions. These transactions are reinsurance contracts that do not involve the same type of risk as traditional reinsurance. In a loss portfolio reinsurance contract, USF&G Company assumes another insurer's outstanding loss reserves for a price equal to their discounted value plus a fee. These contracts generally provide for fixed loss payments at specified future dates. The financial risk involved is whether the investment income earned on the cash received will cover the discount associated with the losses assumed. This financial risk is controlled by the Corporation's asset/liability management techniques, which involve matching the maturities of the investment portfolio to expected patterns of future claim and benefit payments. Loss portfolio transfers have had no impact on reported reserve deficiencies and no future loss development, either adverse or favorable, is anticipated. Loss portfolio transfers included in outstanding reserves were as follows: (in millions) At December 31 ---------------- 1997 $ 18 1996 34 1995 52 1994 86 1993 110 1992 123 1991 279 1990 324 1989 397 1988 394 ---------------- Structured settlements Structured settlements represent the settlement of claims through the purchase of annuities. While they result in accelerated claim payments, structured settlements generally reduce the ultimate amount of losses paid. Structured settlements are used primarily in the third-party liability and workers' compensation lines of business. These types of settlements were not used extensively on liability lines until 1985. Their use was extended to workers' compensation indemnity claims in 1987. Growth in the number of such settlements accelerated in 1995 when USF&G began using them to resolve medical claims in the workers' compensation lines of business. The growth has since leveled off. USF&G Company continues to develop procedures to ensure that the impact of structured settlements is given appropriate recognition in estimating ultimate reserve liabilities. Reconciliation of liability for losses and loss expenses from statutory accounting practices to generally accepted accounting principles The following table presents the differences between property/casualty insurance claim reserves reported in the combined annual statement filed with state insurance departments in accordance with statutory accounting practices ("SAP") and the reserves reported in accordance with generally accepted accounting principles ("GAAP") in the consolidated financial statements included in the Corporation's Form 8-K filed on February 26, 1998, incorporated herein by reference. At December 31 (in millions) 1997 1996 --------------------- SAP-basis property/casualty reserves $4,589 $4,637 Reserves of foreign subsidiaries (consolidated for GAAP but not SAP) 439 408 --------------------- GAAP-basis property/casualty reserves, net 5,028 5,045 Reinsurance recoverables 1,172 987 --------------------- GAAP-basis property/casualty reserves, gross $6,200 $6,032 --------------------- 1.7. Life benefit reserves Financial information and further descriptions of life benefit reserves are set forth in Note 1.7, "Unpaid losses, loss expenses and policy benefits", and Note 3.2, "Life benefit reserves", of the Notes to Consolidated Financial Statements included in the Corporation's Form 8-K filed on February 26, 1998, incorporated herein by reference. 1.8. Geographical distribution The risks insured by the Corporation's insurance subsidiaries are geographically diversified primarily throughout the United States. The Corporation has a subsidiary to market surety products in Canada, and in December 1996 expanded its surety operations into Mexico with the acquisition of Afianzadora. Reinsurance risks are incurred throughout North America and specific foreign countries (mainly in Western Europe and Japan). Total assets and revenues of foreign operations were not material in 1997. Property/casualty voluntary direct premiums written and F&G Life sales are diversified throughout the United States. 1.9. Executive officers of the Registrant Positions and Office with Registrant or Name Age Significant Subsidiaries - -------------------------------------------------------------------------------- Norman P. Blake, Jr. 56 Chairman of the Board, President, and Chief Executive Officer Glenn W. Anderson 45 Executive Vice President Kenneth E. Cihiy 51 Executive Vice President-Claim Dan L. Hale 53 Executive Vice President-Chief Financial Officer Robert J. Lamendola 53 President-Surety Group Thomas K. Lewis, Jr. 45 Executive Vice President-Chief Information Officer Stephen W. Lilienthal 48 President-Commercial Insurance Group and Executive Vice President-Chief Underwriting Officer John A. MacColl 49 Executive Vice President-General Counsel and Human Resources Kim B. Rich 49 President-Family and Business Insurance Group Andrew A. Stern 40 Executive Vice President-Strategic Planning and Reinsurance Operations Harry N. Stout 45 President-F&G Life and Executive Vice President John C. Sweeney 53 Chairman-Falcon Asset Management, Inc., and Senior Vice President-Chief Investment Officer - -------------------------------------------------------------------------------- All persons in the preceding table are executive officers of the Registrant except Glenn W. Anderson, Kenneth E. Cihiy, Robert J. Lamendola, Stephen W. Lilienthal and Kim B. Rich, who are executive officers of USF&G Company. Harry N. Stout is both an officer of the Registrant and an executive officer of F&G Life. Mr. Blake was Chairman and Chief Executive Officer of Heller International Corporation, a world-wide commercial financial services organization, and joined the Corporation in November 1990. Mr. Anderson was Vice President of Strategic Target Marketing with Fireman's Fund Insurance Company, a domestic insurance company, and joined the Corporation in December 1992. Mr. Cihiy was Resident Vice President of Sacramento Field Operations with Aetna Life and Casualty Company, an insurance and financial services company, and joined the Corporation in May 1993. Mr. Hale was President and Chief Executive Officer of Chase Manhattan Leasing Company, an international leasing company, and joined the Corporation in February 1991. Mr. Lamendola was Managing Director of Marsh & McLennan, Inc., and joined the Corporation in June 1992. Mr. Lewis was Vice President and General Manager for Europe, Middle East and Africa for Seer Technologies, and joined the Corporation in November 1993. Mr. Lilienthal was Vice President at Travelers Insurance Company, an insurance and financial services company, and joined the Corporation in 1993. Mr. MacColl was previously a partner in the Baltimore office of the law firm of Piper & Marbury, and joined the Corporation in January 1989. Mr. Rich was Senior Vice President, Western Region, of EBI Companies, and joined the Corporation in 1992. Mr. Stern was Partner and Vice President of Booz Allen & Hamilton, a national business consulting firm, and joined the Corporation in May 1993. Mr. Stout was Senior Vice President of United Pacific Life Insurance Company, and joined the Corporation in May 1993. Mr. Sweeney was a Principal and Practice Director with Tillinghast/Towers Perrin, an asset management and consulting company, and joined the Corporation in November 1992. 1.10. Government regulations USF&G's insurance subsidiaries are subject to extensive regulatory oversight in the various jurisdictions where they conduct business. From time to time, the insurance regulatory framework has been the subject of increased scrutiny. At any one time there may be numerous initiatives within state legislatures of state insurance departments to alter and, in many cases, increase state authority to regulate insurance companies and their businesses. It is not possible to predict the future impact of increasing regulation on USF&G's operations. For a description of various state initiatives and regulations affecting the insurance industry, refer to Section 9, "Regulation", of Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Corporation's Form 8-K filed on February 26, 1998, incorporated herein by reference. Item 2. Business Properties Real estate owned and used in the regular conduct of business consists of properties located in various cities throughout the United States. The Corporation's Mount Washington Center, located in Baltimore, Maryland, is the principal owned property. This is the headquarters for the property/casualty insurance operations, and the location of the executive offices, information systems, administrative services, and training and development complexes. In addition, the Corporation leases approximately 150 offices and 85 DRCs in various cities in the regular course of business. The principal leased property is an office building in Baltimore, Maryland, which was sold in 1984 and leased back by the Corporation. During 1994, the Corporation developed and committed to a plan to consolidate its home office operations at its Mount Washington facility. (Refer to Section 1.2, "Facilities exit costs/sublease income", of Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Corporation's Form 8-K filed on February 26, 1998, incorporated herein by reference.) Item 3. Legal Proceedings The Corporation's insurance subsidiaries are routinely engaged in litigation in the normal course of their business, including defending claims for punitive damages. As insurers, they defend third-party claims brought against their insureds, as well as defend themselves against first-party coverage claims. In the opinion of management, such litigation and the litigation described in Note 14, "Legal Contingencies", of the Notes to Consolidated Financial Statements included in the Corporation's Form 8-K filed on February 26, 1998, incorporated herein by reference, is not expected to have a material adverse effect on USF&G Corporation's consolidated financial position, although it is possible that the results of operations in a particular quarter or annual period would be materially affected by an unfavorable outcome. Item 4. Submission of Matters to a Vote of Security Holders There were no matters submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the fourth quarter of 1997. USF&G CORPORATION Part II Item 5. Market for Registrant's Common Equity and Related Shareholder Matters Common stock USF&G Corporation's common stock (ticker: FG) is listed on the New York Stock Exchange ("NYSE"). The common stock appears in the NYSE Composite Listing as USFG. The common stock is also listed on the Pacific Stock Exchange, the London Stock Exchange, and the Swiss Stock Exchanges. Stock and dividend information The following table presents 1996 and 1997 data on the sale prices of USF&G Corporation's common stock on the NYSE Composite Listing by quarter, and the dividends paid per share of common stock. At March 13, 1998, there were 18,931 registered shareholders and the closing price was $25 3/16 per share. Sale Price Dividends High Low Paid ------------------------------------------- 1996 First quarter $17 1/2 $14 1/4 $.05 Second quarter 16 5/8 15 .05 Third quarter 18 5/8 15 .05 Fourth quarter 21 3/4 17 3/4 .05 ------------------------------------------- 1997 First quarter $23 1/8 $20 $.05 Second quarter 25 18 1/4 .05 Third quarter 25 1/2 21 1/2 .07 Fourth quarter 23 1/2 17 5/8 .07 ------------------------------------------- Item 6. Selected Financial Data Selected financial data of the Corporation on page 5 of the Form 8-K filed on February 26, 1998 is incorporated herein by reference. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's Discussion and Analysis on pages 30 through 46 of the Form 8-K filed on February 26, 1998 is incorporated herein by reference. Item 7a. Quantitative and Qualitative Disclosures About Market Risk Not applicable. Item 8. Financial Statements and Supplementary Data The consolidated financial statements of the Corporation and notes to such financial statements on pages 6 through 29 of the Form 8-K filed on February 26, 1998 are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable. USF&G CORPORATION Part III Item 10. Directors and Executive Officers of the Registrant Information regarding the Corporation's executive officers can be found on page 7 of this Form 10-K. The following paragraphs present information concerning directors of the Corporation, including their time served as a director of the Corporation (or its predecessor), current membership on committees of the Board of Directors, principal occupations or affiliations during the last five years, and certain other directorships held. H. Furlong Baldwin Mr. Baldwin, age 66, has been a director of the Corporation since 1968, and is a member of the Executive, Finance and Nominating Committees. Mr. Baldwin is Chairman of the Board and Chief Executive Officer of Mercantile Bankshares Corporation. Mr. Baldwin is also a director of Mercantile Bankshares Corporation, GRC International, Inc., Baltimore Gas & Electric Company and Conrail, Inc. Michael J. Birck Mr. Birck, age 60, has been a director of the Corporation since 1993, and is a member of the Audit and Compensation Committees. Mr. Birck is President and Chief Executive Officer of Tellabs, Inc., a designer and manufacturer of voice and data equipment. Mr. Birck is also a director of Tellabs, Inc., Molex, Inc., and Illinois Tool Works, Inc. Norman P. Blake, Jr. Mr. Blake, age 56, has been a director of the Corporation since 1990, and is a member of the Executive Committee. Mr. Blake is Chairman of the Board, President and Chief Executive Officer of the Corporation and USF&G Company, the Corporation's principal subsidiary. Mr. Blake is also a director of Enron Corporation and Owens-Corning Fiberglass Corporation. George L. Bunting, Jr. Mr. Bunting, age 57, has been a director of the Corporation since 1978, and is a member of the Executive, Compensation and Nominating Committees. Mr. Bunting is President and Chief Executive Officer of Bunting Management Group, a private financial management company, and is the former Chairman of the Board and Chief Executive Officer of Noxell Corporation, a consumer products manufacturer. Mr. Bunting is also a director of Crown Central Petroleum Corporation, Mercantile Bankshares Corporation and Guilford Pharmaceuticals, Inc. Robert E. Davis Mr. Davis, age 66, has been a director of the Corporation since 1990, and is a member of the Audit, Compensation and Nominating Committees. Mr. Davis is Managing Director of Axess Corporation, a manufacturer of quality control instrumentation and specialty polymers. Mr. Davis is also a director of H&R Block, Inc. Kenneth M. Duberstein Mr. Duberstein, age 53, has been a director of the Corporation since 1996. Mr. Duberstein is Chairman and Chief Executive Officer of The Duberstein Group, a consulting firm, and is the former Chief of Staff to President Reagan, the former Assistant to the President for Legislative Affairs, and the former Deputy Under Secretary of the Department of Labor. Mr. Duberstein is also a director of the Boeing Corporation and Cinergy Corporation. Dale F. Frey Mr. Frey, age 65, has been a director of the Corporation since 1991, and is a member of the Executive, Audit and Finance Committees. Mr. Frey is the former Vice President of General Electric Company and Chairman of the Board and President of General Electric Investment Corporation and GE Investment Management Incorporated. Mr. Frey is also a director of Praxair, Inc., Promus Hotel Corporation, First American Financial Corporation, Roadway Express, Inc., and After Market Technology Corporation. Robert E. Gregory, Jr. Mr. Gregory, age 55, has been a director of the Corporation since 1988, and is a member of the Executive, Audit and Compensation Committees. Mr. Gregory is Chairman and Chief Executive Officer of London Fog Corporation, an apparel manufacturer, and is the former Chairman and Chief Executive Officer of The Gitano Group, Inc., an apparel marketer, and the former President of VF Corporation, an apparel manufacturer and distributor. Robert J. Hurst Mr. Hurst, age 52, has been a director of the Corporation since 1988, and is a member of the Executive and Nominating Committees. Mr. Hurst is an Executive Committee partner and head of the Investment Banking Division at Goldman, Sachs & Co., an investment banking firm. Mr. Hurst is also a director of VF Corporation. Paul B. Ingrey Mr. Ingrey, age 58, has been a director of the Corporation since 1997, and is a member of the Audit and Finance Committees. Mr. Ingrey formerly served as President of F&G Re from 1983 through 1996. Mr. Ingrey is also a director of E. W. Blanch Holdings, Inc. Wilbur G. Lewellen Dr. Lewellen, age 60, has been a director of the Corporation since 1992, and is a member of the Compensation and Finance Committees. Dr. Lewellen is the Herman C. Krannert Distinguished Professor of Management at the Graduate School of Management at Purdue University. Larry P. Scriggins Mr. Scriggins, age 61, has been a director of the Corporation since 1979, and is a member of the Finance and Nominating Committees. Mr. Scriggins is a partner and member of the Executive Committee of the law firm of Piper & Marbury, L.L.P. Anne Marie Whittemore Ms. Whittemore, age 52, has been a director of the Corporation since 1993, and is a member of the Finance and Nominating Committees. She is a partner in the law firm of McGuire, Woods, Battle & Boothe, L.L.P. Ms. Whittemore is also a director of Albemarle Corporation, Owens & Minor, Inc., Fort James Corporation and T. Rowe Price Associates, Inc. R. James Woolsey Mr. Woolsey, age 56, has been a director of the Corporation since 1995, and is a member of the Audit and Finance Committees. Mr. Woolsey is a partner of the law firm of Shea & Gardner, and is the former Director of Central Intelligence, and the former Ambassador and U.S. Representative to the Negotiation on Conventional Armed Forces in Europe. Mr. Woolsey is also a director of Sun Healthcare Group, Inc., and Yurie Systems, Inc. Item 11. Executive Compensation 11.1. Summary compensation table The following table reflects the compensation for the year 1997 of the Chief Executive Officer and the four highest paid persons who were executive officers of the Registrant at the end of 1997. Annual Compensation Long-Term Compensation Number of Securities Name and Principal Underlying LTIP All Other Position Year Salary Bonus Other (b) Options Granted Payouts (c) Compensation (d) - ---------------------------------------------------------------------------------------------------------------------------- Norman P. Blake, Jr. 1997 $907,614 $1,250,000 $ -- 120,100 $1,032,651 $175,495 President and Chief 1996 858,815 1,100,000 16,901 252,900 952,525 153,223 Executive Officer 1995 805,769 1,499,983(a) 13,970 125,000 -- 154,358 Dan L. Hale 1997 434,112 346,516 -- 25,800 425,118 47,520 Executive Vice President 1996 414,287 287,000 8,100 49,500 371,142 44,860 - - Chief Financial Officer 1995 395,034 479,359(a) 10,065 35,000 -- 42,446 John C. Sweeney 1997 421,739 280,000 -- 24,700 327,150 43,164 Senior Vice President - 1996 394,486 250,000 -- 22,300 185,394 40,221 Chief Investment Officer 1995 367,769 357,789(a) -- 29,700 -- 37,394 John A. MacColl 1997 309,171 215,836 -- 12,900 218,438 22,132 Executive Vice President 1996 295,987 173,000 6,808 25,000 187,607 21,016 and General Counsel 1995 285,262 265,182(a) 3,227 15,000 -- 19,732 Harry N. Stout 1997 294,116 223,263 -- 11,000 170,789 21,643 Executive Vice President, 1996 248,939 135,000 7,097 15,000 144,009 19,869 and President - F&G Life 1995 234,520 194,667(a) 5,953 15,000 -- 18,781 --------------------------------------------------------------------------------------------------
Notes to summary compensation table: (a) Includes cash payments earned for 1995 under the Corporation's Long-Term Cash Incentive Plan of $499,983, $210,759, $118,789, $110,182 and $63,367, respectively, for Messrs. Blake, Hale, Sweeney, MacColl and Stout. Pursuant to the USF&G Executive Deferred Bonus Payment Plan, a participant may elect to defer all or a portion of the annual cash bonus or payments under the Long-Term Cash Incentive Plan, with interest credited on such deferred amounts based on a composite five-year U.S. Treasury rate plus 1%. The Long-Term Cash Incentive Plan was replaced with the stock-based Long-Term Incentive Program (the "LTIP"). Payments under the LTIP are reported under the column entitled "LTIP Payouts". (b) Includes tax reimbursements related to the taxable income reported for the executive in cases where the spouse accompanied the executive on a business trip. (c) Beginning with the three-year cycle started January 1, 1994, the Corporation initiated the Long-Term Incentive Program, which is a stock-based plan approved by shareholders under which payments are based upon three-year cumulative operating income targets established at the beginning of each cycle. The payments reported in this column are the dollar value of the stock awards as of December 31 distributed or to be distributed for the three-year performance cycle. (d) Includes matching contributions made by the Corporation during 1997 to the Corporation's Capital Accumulation Plan (a 401(k) plan) of $4,750 each. Also includes premiums paid for split dollar life insurance policies for Messrs. Blake, Hale, Sweeney, MacColl and Stout, which in 1997 were $170,745, $42,770, $38,414, $17,382 and $16,893, respectively. 11.2. Stock option grants in 1997 The following table provides information on option grants in 1997 to the named executive officers. Number of Securities Percent of Total Underlying Options Granted to Exercise or Base Options Granted Employees Price Grant Date Name in 1997 (a) in Fiscal Year Per Share Expiration Date Present Value (b) - ------------------------------------------------------------------------------------------------------------------------------ Norman P. Blake, Jr. 120,100 5.0% $22.50 03/14/07 $776,700 Dan L. Hale 25,800 1.1 22.50 03/14/07 166,400 John C. Sweeney 24,700 1.0 22.50 03/14/07 159,300 John A. MacColl 12,900 0.5 22.50 03/14/07 83,200 Harry N. Stout 11,000 0.5 22.50 03/14/07 71,000 ------------------------------------------------------------------------------------------------------
Notes to stock option grants table: (a) Options are exercisable for shares of the Corporation's common stock. One third of the options are exercisable after one year, two thirds are exercisable after two years, and all of the granted options are exercisable after three years. All options vest immediately if any person acquires 30 percent or more of the outstanding shares, if the Corporation's shareholders approve a merger, consolidation or sale of substantially all of the Corporation's assets, or if any shares are acquired pursuant to a tender offer (so-called "fundamental changes"). All of the options granted were non-qualified options and were granted at exercise prices equal to the fair market value of the Corporation's common stock on the date of grant. (b) Based on the Black-Scholes option pricing model assuming expected volatility equal to the one-year average volatility of 0.2113, expected dividend yield equal to the average three-year dividend yield of 1.13%, a risk free interest rate of 6.52%, and an expected option term of five years. The actual value, if any, an executive may realize will depend upon the excess of the stock price over the exercise price on the date the option is exercised; accordingly, there is no assurance that the executive will realize the values set forth above. 11.3. Aggregate option exercises and year-end values The following table provides information on option exercises in 1997 by the named executive officers and the value of such officers' unexercised options. Number of Securities Value of Unexercised Underlying Unexercised In-the-Money Options Options at 12/31/97 at 12/31/97 (a) Name Exercisable Unexercisable Exercisable Unexercisable - ------------------------------------------------------------------------ Norman P. Blake, Jr. 825,980 630,375 $8,600,821 $3,846,320 Dan L. Hale 211,578 70,469 2,173,171 345,870 John C. Sweeney 65,733 49,467 553,542 194,960 John A. MacColl 104,068 34,567 1,002,108 167,152 Harry N. Stout (b) 35,301 9,300 55,125 117,158 ----------------------------------------------------------- Notes to exercised/unexercised options table: (a) The value of in-the-money options was determined by taking the difference between $22.06 per share, which was the closing price of the Corporation's common stock on the last business day of the year, and the exercise price of each option. (b) None of the officers named above exercised any stock options during 1997 except for Mr. Stout who exercised 20,599 options during 1997 realizing a value of $156,032. 11.4. Long-Term Incentive Program awards in 1997 Performance Period Until Estimated Future Payment (a) Name Payout Threshold Target Maximum - --------------------------------------------------------------------- Norman P. Blake, Jr. 3 years 11,032 22,064 41,370 Dan L. Hale 3 years 4,522 9,043 16,956 John C. Sweeney 3 years 4,326 8,652 16,223 John A. MacColl 3 years 3,223 6,446 12,086 Harry N. Stout 3 years 3,207 6,414 12,026 -------------------------------------------------- Note to Long-Term Incentive Program awards table: (a) Number of share units awarded depends upon adjusted three-year cumulative operating income for the period 1997 - 1999, and may be zero if the minimum target is not reached, or, if such threshold is reached, between the threshold and maximum shown. Each share unit is the equivalent of one share of the Corporation's common stock. The Long-Term Incentive Program was established in 1994 by the Compensation Committee of the Board of Directors and approved by the shareholders. The LTIP provides for granting of performance awards that are payable in the Corporation's common stock. Awards are payable based upon performance goals established by the Compensation Committee at the beginning of each successive and overlapping three-year performance period. Performance goals consist of an adjusted three-year cumulative operating income target. The actual award is determined at the end of each three-year cycle based upon actual corporate performance. If actual performance falls below 85 percent of the targeted performance, then no awards will be paid out for that three-year cycle. The maximum award may be paid if actual performance equals or exceeds 115 percent of the three-year target performance. Participants will only receive the designated units, which are payable in shares of the Corporation's common stock, at the end of the three-year cycle (unless there is a "fundamental change", in which case they are prorated). The actual award received at the end of the three-year cycle may be reduced, but not increased, for the participants listed in the table, due to individual performance, business unit performance or overall corporate performance. 11.5. Pension plans The Corporation has a non-contributory, defined benefit pension plan which provides employees of the Corporation and designated subsidiaries with retirement benefits beginning at the normal retirement age of 65. The Corporation also maintains a supplemental retirement plan for senior executives that provides benefits that would otherwise be paid to them under the pension plan but for certain limitations imposed by the Internal Revenue Code. The following table shows the estimated benefits that would be payable at normal retirement age under the pension plan and the supplemental retirement plan if an individual had the specified years of service with the Corporation or designated subsidiaries and levels of average compensation covered by the plans. Estimated Annual Benefit for Years of Average Service Indicated Compensation 15 Years 20 Years 25 Years 30 Years 35 Years - ------------------------------------------------------------------- $ 150,000 $ 32,000 $ 43,000 $ 53,000 $ 64,000 $ 74,000 175,000 38,000 50,000 63,000 75,000 87,000 200,000 43,000 58,000 72,000 86,000 101,000 225,000 49,000 65,000 81,000 97,000 114,000 250,000 55,000 73,000 91,000 109,000 127,000 300,000 66,000 88,000 109,000 131,000 153,000 350,000 77,000 103,000 128,000 154,000 179,000 400,000 88,000 118,000 147,000 176,000 206,000 450,000 100,000 133,000 166,000 199,000 232,000 500,000 111,000 148,000 184,000 221,000 258,000 600,000 133,000 178,000 222,000 266,000 311,000 700,000 156,000 208,000 259,000 311,000 363,000 800,000 178,000 238,000 297,000 356,000 416,000 900,000 201,000 268,000 335,000 401,000 468,000 1,000,000 223,000 298,000 372,000 446,000 521,000 - ------------------------------------------------------------------- Compensation for purposes of computing benefits under these plans is generally an employee's base salary, plus commissions, overtime and annual incentive bonuses paid during an employee's service with the Corporation and its designated subsidiaries. Benefits are computed on the basis of a straight life annuity and are not subject to any deduction or offset for Social Security or other benefits. Mr. Blake is effectively covered under a separate plan described below. For purposes of calculating average annual compensation under these plans, 1997 compensation is as reported under the "Annual Compensation--Salary" and "Bonus" columns in the summary compensation table (refer to Item 11.1), except that payments under the Long-Term Cash Incentive Plan reported under the "Bonus" column for 1995 are excluded. Accordingly, 1997 compensation for calculating benefits for Messrs. Hale, Sweeney, MacColl and Stout was $780,628, $701,739, $525,007 and $517,379, respectively. The estimated credited years of service for each of such individuals is as follows: Mr. Hale, six years; Mr. Sweeney, four years; Mr. MacColl, nine years; and Mr. Stout, four years. A supplemental retirement contract with Mr. Blake provides a retirement benefit which, when combined with benefits from the Corporation's pension plan and his prior employer's pension plan, equals a life annuity beginning at age 65 of 60 percent of his highest consecutive three-year average annual covered compensation. Prior to November 26, 1993, covered compensation was equal to his salary plus annual incentive bonus. Although Mr. Blake voluntarily agreed to waive a substantial portion of his base salary payable after that date as described under Item 11.6, "Employment agreements; special severance arrangements", salary for purposes of the supplemental retirement contract will be determined without regard to that waiver and will be based on his "salary of record" described below. The Long-Term Cash Incentive Plan and the LTIP are excluded for purposes of calculating pension benefits. Estimated annual retirement benefits payable to Mr. Blake at age 65 would be $1,511,220 based upon 1997 covered compensation of $2,518,700, and $1,813,464 if average annual covered compensation increased to $3,022,440. 11.6. Employment agreements; special severance arrangements The Corporation entered into a five-year employment agreement with Mr. Blake in November 1990. In November 1993, the Corporation and Mr. Blake entered into a second employment agreement which extended the term of Mr. Blake's employment until November 1998. At the same time, Mr. Blake agreed to waive salary in excess of $750,000 and $800,000, respectively, for 1994 and 1995 in connection with an overall shift from fixed compensation to compensation tied to the Corporation's performance as measured by its stock price. The new employment agreement continues the effect of the base salary waiver and provides for base salary of $850,000 in 1996, which is the first year of the new term, and $900,000 and $950,000, respectively, in the second and final years. In the event Mr. Blake's employment is terminated by the Corporation for reasons other than serious cause, he is nevertheless entitled to be paid his base salary for the remainder of the extended term and receive benefits under all incentive, profit sharing, certain bonus and other executive and employee benefit plans. Provisions concerning health and other insurance and similar benefits as well as noncompetition arrangements are included in both the initial and the new employment contracts. All other benefits, including bonuses, stock option grants, insurance and retirement benefits, will be determined in accordance with the Corporation's regular programs and policies but will be based on the base salary he would have received without regard to the waiver ("salary of record"). The salary of record for 1997 was $1,268,700. In February 1997, the Board of Directors approved severance arrangements covering Messrs. Blake, Hale, Sweeney, MacColl and Stout and other executive officers in the event of a "change in control". The Corporation also approved separate arrangements for other senior officers in the event of involuntary separation following a change in control. The arrangements for executive officers provide for payments of between 1.5 and 3 times the sum of such executive's base salary and certain annual bonus and long-term incentive compensation amounts. The purpose of these arrangements is to promote stability despite widespread industry consolidation, provide an incentive for executives to stay before, during and after a change in control, and promote objectivity in evaluating strategic alternatives to maximize long-term shareholder value. The payments are made if the executive is terminated without cause or if he or she resigns for "good reason" (as defined in the severance agreement), in each case within two years following a change in control, or if the executive elects to leave within a sixty-day period beginning on the first anniversary of the change in control. For certain executives, these arrangements also provide for continuation of medical benefits for up to three years or until subsequently employed by another employer and for reimbursement of certain excise taxes. Participation in these arrangements is conditioned on the effected executive officers agreeing at the time of a change in control to continue their employment for not less than one year. Severance benefits payable under any of these arrangements are in lieu of any severance which would otherwise be payable. On January 19, 1998, the Corporation signed a definitive merger agreement with St. Paul. The merger contemplated by such agreement will, upon its completion, constitute a change in control for purposes of these severance arrangements. The information provided under the caption "Interests of Certain Persons in the Merger" in the Joint Proxy Statement/Prospectus of the Corporation and St. Paul relating to the merger is incorporated herein by reference, except that the following two sentences should be substituted for the last two sentences under the sub-caption entitled "1993 Stock Plan for Non-Employee Directors": As of February 25, 1998, the non-employee directors held in the aggregate 143,065 Vested Stock Units. Based on a price of St. Paul Common Stock equal to $87.375 and an exchange ratio of .2821, the estimated value of such Vested Stock Units to be paid to the non-employee directors is approximately $3,526,300. By letter agreement dated December 3, 1996, the Corporation entered into a Retention Agreement with Mr. Harry N. Stout. The terms of the agreement provide that, on December 31, 1998, Mr. Stout will be entitled to receive an amount equal to twenty-four months of base salary less withholding taxes. In the event of a sale or change in control of F&G Life, the retention bonus would be accelerated and paid upon the completion of the change in control of F&G Life. In addition, the agreement provides for accelerated vesting of outstanding stock options and LTIP stock awards and a gross-up for any golden parachute excise tax. By letter agreement dated December 1, 1997, the Corporation and Harry Stout confirmed that the retention agreement would not be triggered by a change in control of USF&G Corporation. 11.7. Directors' fees Directors who are not officers of the Corporation or its affiliates ("Directors") are paid $800 per committee meeting attended and $1,000 for attending Board meetings. Annual retainers have been established as follows: Directors of the Corporation, $23,000 each; Chairperson of the Audit Committee, $7,500; Chairperson of the Compensation, Nominating and Finance Committees, $5,000 each; other members of the Audit, Finance, Nominating and Compensation Committees, $3,000 each; and any member of the Executive Committee not serving as Chairperson of any other committee, $3,000 each. Under the 1993 Stock Plan for Non-Employee Directors (the "Stock Plan"), directors receive shares of common stock in lieu of one-half of the regular $23,000 retainer. The number of shares credited per year is the lesser of 1,000 or the number of shares equal to $23,500 divided by the fair market value of the Corporation's common stock on the award date. Directors may elect to defer receipt of these shares, in which event the shares will be credited to the Director's account as stock units which are payable in shares at a later date. Directors may also elect to defer receipt of the remaining portion of the cash retainer and, as a result of amendments adopted in 1996, meeting fees. Deferral amounts are credited to the Director's account as stock units based on the fair market value of the Corporation's common stock on the date the deferred amounts would have otherwise been paid. The amendment also permitted Directors to make a one-time election to transfer amounts previously deferred under the cash deferred plan into stock units based on the fair market value of the Corporation's common stock on the transfer date. The Stock Plan also provides a retirement benefit payable to Directors in stock. The retirement benefit vests incrementally over ten years and the number of shares payable upon retirement after full vesting is equal to $50,000 divided by the fair market value of the stock on the date the Director is first elected to the Board. Directors who elected to waive their right to participate in a prior retirement arrangement will instead receive upon retirement a number of shares valued at the actuarial equivalent of the benefit otherwise payable under the prior arrangement. Under the Stock Incentive Plan of 1997, Directors are eligible to receive stock option grants. On March 13, 1998, each Director was granted 3,000 stock options. The exercise price was $25 3/16 per share, the fair market value of the Corporation's common stock on that date. The stock options vest ratably over three years and the term is ten years. Effective January 1, 1997, the Corporation entered into an Executive Consulting Agreement and Stock Appreciation Rights Plan and Agreement with Paul Ingrey, a director of the Corporation. The term of the Executive Consulting Agreement (the "Consulting Period") is five years unless earlier terminated by either party upon not less than six months prior notice by written agreement of the parties, by the death or disability of Mr. Ingrey, by the Corporation for good cause or upon violation of certain provisions of the Agreement. Under the Executive Consulting Agreement, Mr. Ingrey provides certain consulting services with respect to reinsurance and other matters and agrees not to compete with or solicit or hire any employees of the Corporation during the Consulting Period and further agrees to keep confidential certain trade secrets and other confidential and proprietary information of the Corporation. Under the Stock Appreciation Rights Plan and Agreement, Mr. Ingrey was granted 128,500 stock appreciation rights in consideration of the cancellation of stock options previously granted to him as an employee of the Corporation. Each stock appreciation right entitles Mr. Ingrey to receive a cash payment upon exercise equal to the difference between (i) the closing price of one share of the Corporation's common stock on the New York Stock Exchange for the last business day immediately preceding the date of exercise and (ii) the price specified in the Stock Appreciation Rights Plan and Agreement. The specified price ranges between $13.63 and $14.56. On March 9, 1998, 110,300 stock appreciation rights became fully vested and exercisable and the remaining 18,200 stock appreciation rights will become vested and exercisable on and after March 8, 1999. However, all stock appreciation rights become vested upon a change in control, which would include the pending merger with St. Paul. The stock appreciation rights, once vested, may be exercised at any time during the Consulting Period and for a period of ninety days thereafter provided Mr. Ingrey complies with the noncompetition, nonsolicitation and confidentiality provisions of the Executive Consulting Agreement. 11.8. Compensation Committee report Compensation philosophy It is the philosophy of the Corporation to link executive compensation to sustained improvements in corporate performance and increases in shareholder value as measured by the Corporation's stock price. The following objectives have been adopted by the Compensation Committee as guidelines for compensation decisions: Provide a competitive total compensation package that enables the Corporation to attract and retain the key executive talent needed to accomplish its corporate goals. Integrate compensation programs with the Corporation's annual and long-term business objectives and strategy, and focus executive behavior on the fulfillment of those objectives. Provide variable compensation opportunities that are directly linked with the performance of the Corporation and that align executive remuneration with the interests of the shareholders. In addition, the Compensation Committee also considers the impact of Section 162(m) of the Internal Revenue Code of 1986, which in certain circumstances disallows compensation deductions in excess of $1,000,000. This disallowance provision does not apply to performance-based compensation, commissions and certain other forms of compensation. The Compensation Committee has determined that in the normal course of business the Corporation's incentive compensation plans should comply, to the extent practicable, with the Internal Revenue Code's requirements for performance-based compensation with a view toward ensuring that the Corporation will be entitled to full deductibility of all compensation paid under those plans. Compensation program The Compensation Committee is responsible for reviewing the Corporation's compensation program to ensure that pay levels and incentive opportunities are competitive and reflect the performance of the Corporation. The components of the compensation program for executives are described below. Base Salary: The factors considered in determining the appropriate salary are level of responsibility, prior experience and accomplishments, and the relative importance of the job in terms of achieving corporate objectives. Each executive's salary is reviewed annually. Adjustments may be recommended based upon individual performance, inflationary and competitive factors, and overall corporate results. Annual Incentive Compensation: Cash bonuses are paid annually based upon individual performance and relevant corporate performance measures, including operating income, and loss and expense ratios for the property/casualty and life insurance segments. These performance measures vary depending upon the executive and the related line of business. Bonuses are paid relative to the Corporation's performance as compared to certain performance targets established by the Compensation Committee at the beginning of the year. Target awards are established for each position as a percentage of base salary, and performance is assessed at the end of the year. For the executives named in the summary compensation table, operating income was the principal corporate performance measure used to determine bonus amounts. In addition, the named executives responsible for property/casualty or life insurance business units are also evaluated on additional performance targets such as the combined ratio, direct premiums, after-tax operating income, expenses and other factors for the business unit for which they are responsible. The Compensation Committee has established targets of 35 percent of base salary for possible bonus amounts for senior vice presidents and 40 percent of base salary for possible bonus amounts for executive vice presidents. These amounts are subject to adjustment depending upon actual corporate performance relative to the targets established at the beginning of the year and on individual performance measured against certain objectives tailored to the individual at the beginning of the year. The Compensation Committee awarded bonuses at the high end of the target ranges based on their evaluation of the achievement of performance goals, achievement of important strategic initiatives and individual performance for the named executive officers. Stock Options: Stock options granted under the Corporation's stock incentive plans for executive officers, all of which have previously been approved by shareholders, provide incentive to executives by giving them a strong economic interest in maximizing stock price appreciation, thereby better aligning their interests with the interests of the Corporation's shareholders. Accordingly, each executive's total compensation is highly dependent upon stock performance. Option exercise prices are set at 100 percent of fair market value on the date of grant and the options expire after ten years. The annual options granted by the Compensation Committee generally vest over a period of three years in order to encourage management continuity and to better tie compensation to long-term stock value, although vesting is accelerated in the event of certain events which constitute a "change of control". Executives are generally granted stock options annually. The value of stock options granted to executive officers is fixed at a percentage of salary, using the Black-Scholes option valuation model and the assumptions specified in the notes to the table in this Form 10-K entitled "Stock option grants in 1997" (refer to Item 11.2). This percentage is between 25 and 35 percent of salary for senior vice presidents and 50 percent of salary for executive vice presidents. These percentages are subject to adjustment to as low as zero or as high as 150 percent of the target, depending upon the executive's performance in the prior year and his/her potential for future contribution. The stock option grants made in 1997 were within these target ranges. Long-Term Incentive Program: Beginning with the three-year cycle starting in 1994, and each three-year cycle beginning on each year thereafter, awards are made annually under the Long-Term Incentive Program which was approved by shareholders in 1994. The LTIP ties compensation to three-year cumulative operating income targets established at the beginning of each cycle. Compensation under the LTIP is payable only at the end of each three-year cycle and then payable in shares of the Corporation's common stock. A target amount to be paid to each participant is established as a percentage of the participant's salary. The targeted value is based on the then current value of the Corporation's common stock; accordingly, the ultimate value of the award varies directly with the market price for such shares. For the senior executives named in the summary compensation table (refer to Item 11.1), other than the Chief Executive Officer, the targets range from 35 to 50 percent of salary. The LTIP grants made in 1997 were within these target ranges. Compensation of Chief Executive Officer The Compensation Committee attempts to establish base salary levels consistent with the median base salary for executives in similar positions within a peer group of approximately thirty major insurance companies. Total compensation, however, is weighted more heavily toward incentive compensation by attempting to establish annual bonuses, stock options and long-term compensation at levels within the top quartile of this peer industry group. The increased weighting toward incentive and stock-based compensation reinforces the connection between shareholder interests and executive pay. Mr. Blake joined the Corporation on November 27, 1990. The selection by the Board of Mr. Blake was made in light of the Corporation's circumstances, requiring significant redirection and restructuring of the Corporation, and in light of Mr. Blake's experience, record and reputation in the financial services industry. Mr. Blake's base salary for 1997 was $907,614. This base salary reflects a voluntary waiver of a substantial portion of the salary of record otherwise payable under his employment agreement. The waiver occurred in 1993 in exchange for stock options and other stock-based compensation. In recognition of this waiver and emphasis on stock-based compensation, other components of compensation, including his annual stock option awards, continue to be based on the salary of record. Mr. Blake's salary of record for these purposes was $1,268,700 for 1997. Mr. Blake's employment agreement, including the waiver, is discussed more fully in Item 11.6, "Employment agreements; special severance arrangements". For 1997, Mr. Blake received total cash payments of $2,157,614 in salary and bonus, as well as 46,811 shares of common stock under the 1995-1997 cycle of the LTIP, all as shown in the summary compensation table (refer to Item 11.1). The Compensation Committee considers this level of payment appropriate in view of Mr. Blake's leadership of the Corporation in terms of earnings growth, balance sheet strength, creation of shareholder value and improvement in management processes at the Corporation. In 1997, the Compensation Committee also granted Mr. Blake 120,100 stock options which, in the ordinary course, vest ratably over a three-year period, subject to accelerated vesting in the event of a change of control. The Compensation Committee established Mr. Blake's target annual cash bonus for 1997 at 50 percent of his salary of record, subject to reduction to as little as zero or increase to as much as 100 percent of his salary of record. The Compensation Committee awarded Mr. Blake a cash bonus of $1,250,000 for 1997, representing approximately 99 percent of his salary of record. In determining Mr. Blake's 1997 annual bonus, the Compensation Committee reviewed the Corporation's performance and Mr. Blake's individual performance against a detailed set of performance objectives which were approved by the Compensation Committee. These objectives set forth five principal categories of responsibility, as well as objectives under each category, as briefly described below. Financial Performance: This responsibility consisted of achieving targeted financial objectives without compromising the financial integrity or long-term profit performance of the Corporation. Targets were set for consolidated revenues of $3.4 billion, consolidated after-tax operating income of $194 million, consolidated net income of $183 million, net earnings per share (diluted) of $1.50 and return on equity on a net income basis of 9.7%. Strategy and Business Development: This responsibility consisted of developing and implementing business strategies to leverage the strengths and knowledge base of the Corporation, enhance shareholder value, and provide long-term viability and improved profitability. Targets related to, among other things, reviewing strategic alternatives for mergers and acquisitions and implementation of strategies to emphasize high-margin lines of business and improve marginal lines, including, specifically, increases in the percentage of small commercial business for FBIG and growth in certain aspects of the Specialty Businesses. Strategic Resource Development: This responsibility consisted of developing critical resources to support overall business strategies, and was divided into the categories of financial resources and information systems. Financial resource targets included calling for redemption the Corporation's $4.10 Series A Convertible Exchangeable Preferred Stock ("Series A Preferred Stock"), implementing a stock repurchase program or dividend increase, and improving F&G Life's investment performance through the sale of lower-yield, aged structured settlements. Information systems targets included completing development and implementation of systems to support FBIG and the Claim Reception Center, and full implementation of agency interface capability in the non-standard automobile business and underwriter workstations. Organization and Human Resource Development: This responsibility consisted of developing a plan to ensure the continued strength of management, including a review of existing management strengths, succession plans and incentive and retention plans. Investor, Regulatory and Public Relations: This responsibility consisted of strengthening relationships with constituencies outside of the Corporation, particularly investor groups, financial analysts and regulators. The Corporation's actual performance met or exceeded all targets under the 1997 financial performance objectives. Evaluations of Mr. Blake's performance of the remaining responsibilities were less quantitative, but the Compensation Committee determined that Mr. Blake met or exceeded virtually all of the other targeted objectives. Of major importance, the Compensation Committee noted that significant Strategy and Business Development objectives and Organization and Human Resource Development objectives were realized by virtue of the acquisition of Titan and the pursuit and negotiation of the pending merger with St. Paul. Each of these transactions is expected to result in synergistic value to the Corporation's businesses and enhanced value for the Corporation's shareholders. The Compensation Committee noted significant improvement in the Corporation's overall business mix, with significant growth and expansion of the Corporation's Specialty Businesses. Development and implementation of technology support systems were completed on a timely basis, resulting in improved productivity and service. In addition, the Corporation completed its significant share repurchase program, modestly increased its dividend and improved its balance sheet by calling for redemption the remaining balance of the Series A Preferred Stock and issuing capital securities, significantly reducing the Corporation's financial leverage and improving its liquidity. The Compensation Committee also noted the long-term increase in shareholder value created under Mr. Blake's leadership during his tenure and as reflected in the stock performance graph below. Although the Compensation Committee did not assign specific weights to any of the categories or targeted objectives, it did place greater weight on financial performance and accomplishment of strategic responsibilities, especially the pursuit and negotiation of the pending merger with St. Paul. The Compensation Committee's review and the basis for determining Mr. Blake's compensation was based on an overall assessment of Mr. Blake's performance and contributions to the Corporation. The Compensation Committee concluded that Mr. Blake's compensation was appropriate in light of his performance as Chief Executive Officer. Compensation Committee members George L. Bunting, Jr., Chairperson Michael J. Birck Robert E. Davis Kenneth M. Duberstein Robert E. Gregory, Jr. Wilbur G. Lewellen Stock performance graph The following graph compares cumulative total return of the Corporation's common stock, the S&P 500 Index, and the S&P Property-Casualty Insurance Group over a five-year period beginning December 31, 1992. The companies included in the S&P Property-Casualty Insurance Group are: Allstate Corporation, Chubb Corporation, Cincinnati Financial, General Re Corporation, Progressive Corporation, SAFECO Corporation, St. Paul and USF&G. The cumulative total return is calculated assuming reinvestment of dividends. The stock price performance on this graph is not necessarily indicative of future performance. [GRAPH (caption) Comparison of Five-Year Cumulative Total Return Among USF&G, S&P 500 Index and S&P Property-Casualty Insurance Index (data points are the same as those disclosed in the following table)] December December December December December December 1992 1993 1994 1995 1996 1997 ------------------------------------------------------- USF&G Corporation $100 $121 $113 $142 $177 $189 S&P 500 Index 100 110 112 153 189 252 S&P P-C Insurance Index 100 98 103 140 170 247 ------------------------------------------------------- Item 12. Security Ownership of Certain Beneficial Owners and Management The following table shows the number of shares of the Corporation's common stock beneficially owned by (i) each person known to the Corporation to beneficially own more than five percent of the outstanding common stock, (ii) each director, (iii) each executive named in the summary compensation table shown in Item 11.1, and (iv) all directors and executive officers as a group. None of the beneficial holdings of common stock listed below represents in excess of 1 percent of the total issued and outstanding shares. The directors and executive officers as a group own 1.9 percent of the total issued and outstanding shares. The information set forth below has been calculated as of February 20, 1998. The number of shares beneficially owned is determined under rules of the Securities and Exchange Commission and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which the person has the sole or shared voting or investment power and also any shares which the person has the right to acquire within 60 days through the exercise of any stock option or other right. Unless otherwise indicated, each person has sole investment and voting power (or shares such powers with his or her spouse) with respect to the shares set forth in the following table. Amount and Nature of Beneficial Name of Beneficial Owner Ownership - -------------------------------------------------------- H. Furlong Baldwin 9,000 (a)(b) Michael J. Birck 8,000 (b) Norman P. Blake, Jr. 1,127,060 (c) George L. Bunting, Jr. 16,900 (b) Robert E. Davis 1,500 (b) Kenneth M. Duberstein 2,000 (b) Dale F. Frey 8,762 (d) Robert E. Gregory, Jr. 6,000 (b) Dan L. Hale 285,740 (e) Robert J. Hurst 10,324 (b)(f) Paul B. Ingrey 17,814 Wilbur G. Lewellen 6,800 (b) John A. MacColl 141,246 (g) Larry P. Scriggins 3,234 (b) Harry N. Stout 56,664 (h) John C. Sweeney 63,531 (i) Anne Marie Whittemore 1,500 (b) R. James Woolsey 2,236 (b) All directors and executive officers as a group (25 persons) 2,284,609 (j) ----------------------- Notes to security ownership table: (a) Excludes shares held in various fiduciary capacities by the trust department of Mercantile Safe-Deposit and Trust Company, a wholly-owned subsidiary of Mercantile Bankshares Corporation, of which Mr. Baldwin is a director and executive officer. (b) Includes 1,000 shares subject to outstanding stock options which are exercisable within 60 days. Under the 1993 Stock Plan for Non-Employee Directors, Directors receive a portion of their annual retainer fees and certain retirement benefits in the form of common stock units or shares of common stock of the Corporation. The shareholdings listed in the table do not include the following fully vested common stock units: Mr. Baldwin, 27,130; Mr. Birck, 9,999; Mr. Bunting, 17,539; Mr. Davis, 15,515; Mr. Duberstein, 3,578; Mr. Gregory, 11,306; Mr. Hurst, 18,650; Mr. Lewellen, 6,071; Mr. Scriggins, 25,452; Ms. Whittemore, 6,225; and Mr. Woolsey, 1,600. (c) Includes 83,214 shares directly owned, 991,985 shares subject to outstanding stock options which are exercisable within 60 days, 5,050 shares owned by children of Mr. Blake and 46,811 shares to be issued within 60 days under the LTIP. (d) Excludes shares acquired by Trustees of General Electric Pension Trust and other entities advised by affiliates of General Electric Company pursuant to the Stock Purchase Agreement dated June 3, 1991. (e) Includes 248,347 shares subject to outstanding stock options which are exercisable within 60 days and 19,271 shares to be issued within 60 days under the LTIP. (f) Includes 3,324 shares beneficially owned in charitable trust. (g) Includes 124,700 shares subject to outstanding stock options which are exercisable within 60 days and 9,902 shares to be issued within 60 days under the LTIP. (h) Includes 43,566 shares subject to outstanding stock options which are exercisable within 60 days and 7,742 shares to be issued within 60 days under the LTIP. (i) Includes 41,299 shares subject to outstanding stock options which are exercisable within 60 days and 14,830 shares to be issued within 60 days under the LTIP. (j) Subject to the notes set forth above. Includes 1,905,304 shares subject to outstanding stock options which are exercisable within 60 days and 135,240 shares to be issued within 60 days under the LTIP. Excludes a total of 143,065 fully vested common stock units held by Directors pursuant to the 1993 Stock Plan for Non-Employee Directors. Item 13. Certain Relationships and Related Transactions In the ordinary course of business, USF&G Company has written fidelity, surety, fire and casualty, liability, or other insurance for certain companies of which Directors are officers, and surety bonds on projects that may be financed in whole or in part by loans made by banks of which Directors are officers. All these writings involve insurance premiums for which rate filings are made and premium rates are approved as required by applicable insurance regulations. In addition, the Corporation, in the ordinary course of business, utilizes bank depository, lending, trustee and other banking services provided by banks of which Directors may be officers or directors. Robert J. Hurst, a Director of the Corporation, is a partner of Goldman, Sachs & Co., which performed investment banking services for the Corporation in 1997. Larry P. Scriggins, a Director of the Corporation, is a member of the law firm of Piper & Marbury, L.L.P., which performed legal services for the Corporation in 1997. USF&G CORPORATION Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) (1) Financial Statements The following consolidated financial statements of USF&G Corporation and its subsidiaries, included in the Registrant's Form 8-K filed on February 26, 1998, are incorporated by reference in Item 8. Consolidated Statement of Operations Consolidated Statement of Financial Position Consolidated Statement of Cash Flows Consolidated Statement of Shareholders' Equity Notes to Consolidated Financial Statements Report of Independent Auditors (2) Schedules The following consolidated financial statement schedules of USF&G Corporation and its subsidiaries are included in Item 14. Page 25 Schedule I. Summary of Investments - Other than Investments in Related Parties 26-28 Schedule II. Condensed Financial Information of Registrant 29 Schedule III. Supplementary Insurance Information 30 Schedule IV. Reinsurance 31 Schedule VI. Supplemental Information Concerning Consolidated Property/ Casualty Insurance Operations All other schedules specified by Article 7 of Regulation S-X are not required pursuant to the related instructions or are inapplicable; therefore, they have been omitted. (3) Exhibits The following exhibits are included in Item 14. Page 32 Exhibit 11 Computation of Earnings Per Share 33 Exhibit 12 Computation of Ratio of Consolidated Earnings to Fixed Charges, Distributions on Capital Securities and Preferred Stock Dividends A copy of all other exhibits not included with this Form 10-K may be obtained without charge upon written request to the corporate secretary at the address shown on page 34 of this Form 10-K. Management contracts or compensatory plans or arrangements required to be filed as an exhibit are denoted with an asterisk. Exhibit 2 Agreement and Plan of Merger Among USF&G Corporation, The St. Paul Companies, Inc., and SP Merger Corporation. Incorporated by reference to Annex A to the Joint Proxy Statement/Prospectus filed February 27, 1998, File No. 0-3021. Exhibit 3A Charter of USF&G Corporation. Incorporated by reference to Exhibit 3A to the Registrant's Form 10-K for the year ended December 31, 1996, File No. 1-8233. Exhibit 3B Amended By-laws of USF&G Corporation. Incorporated by reference to Exhibit 3B to the Registrant's Form 10-K for the year ended December 31, 1996, File No. 1-8233. Exhibit 4A Amended and Restated Rights Agreement dated as of March 11, 1997 between USF&G Corporation and The Bank Of New York. Incorporated by reference to the Registrant's Form 8-K and Form 8-A/A as filed on March 13, 1997 and February 25, 1998, respectively, File No. 1-8233. Exhibit 4B Indenture dated January 28, 1994 between USF&G Corporation and Chemical Bank. Incorporated by reference to Exhibit 4E to the Registrant's Form 10-K for the year ended December 31, 1993, File No. 1-8233. Exhibit 4C Indenture dated January 28, 1994 between USF&G Corporation and Signet Bank. Incorporated by reference to Exhibit 4D to the Registrant's Form 10-K for the year ended December 31, 1994, File No. 1-8233. Exhibit 4D Form of Note dated March 3, 1994 for Zero Coupon Convertible Subordinated Notes due 2009. Incorporated by reference to Exhibit 4 to the Registrant's Form 8-K dated March 3, 1994, File No. 1-8233. Exhibit 4E Form of Note dated June 30, 1994 for 8 3/8% Senior Notes due 2001. Incorporated by reference to Exhibit 4 to the Registrant's Form 8-K dated June 30, 1994, File No. 1-8233. Exhibit 4F Form of $250 Million Five-Year Credit and Reimbursement Agreement dated as of December 18, 1997 among USF&G Corporation, the banks listed therein, Morgan Guaranty Trust Company of New York, as administrative agent, and Deutsche Bank AG, New York Branch, as document agent. Exhibit 4G Form of $200 Million 364-Day Credit and Reimbursement Agreement dated as of December 18, 1997 among USF&G Corporation, the banks listed therein, Morgan Guaranty Trust Company of New York, as administrative agent, and Deutsche Bank AG, New York Branch, as documentation agent. Exhibit 4H Letter of Credit Agreement dated as of October 25, 1994 among USF&G Corporation and The Bank Of New York, as agent. Incorporated by reference to Exhibit 4I to the Registrant's Form 10-K for the year ended December 31, 1994, File No. 1-8233. Exhibit 4I Form of 7% Senior Notes due 1998. Incorporated by reference to Exhibit 4A to the Registrant's Form 10-Q for the quarter ended June 30, 1995, File No. 1-8233. Exhibit 4J Form of 7 1/8% Senior Notes due 2005. Incorporated by reference to Exhibit 4B to the Registrant's Form 10-Q for the quarter ended June 30, 1995, File No. 1-8233. Exhibit 4K Documents related to USF&G Capital I. Incorporated by reference to Exhibit 4K to the Registrant's Form 10-K for the year ended December 31, 1996, File No. 1-8233. Exhibit 4L Documents related to USF&G Capital II. Incorporated by reference to Exhibit 4L to the Registrant's Form 10-K for the year ended December 31, 1996, File No. 1-8233. Exhibit 4M Documents related to USF&G Capital III. Incorporated by reference to Exhibit 4 to the Registrant's Form 10-Q for the quarter ended June 30, 1997, File No. 1-8233. Exhibit 10A* Stock Option Plan of 1987. Incorporated by reference to Exhibit 4.1 to the Registrant's Form S-8 Registration Statement dated July 28, 1987, File No. 33-16111. Exhibit 10B* Employment Agreement dated November 20, 1990 between USF&G Corporation and Norman P. Blake, Jr. Incorporated by reference to Exhibit 10A to the Registrant's Form 10-K for the year ended December 31, 1990, File No. 1-8233. Exhibit 10C* USF&G Supplemental Executive Retirement Agreement dated November 20, 1990 between USF&G Corporation and Norman P. Blake, Jr. Incorporated by reference to Exhibit 10B to the Registrant's Form 10-K for the year ended December 31, 1990, File No. 1-8233. Exhibit 10D* Stock Option Plan of 1990. Incorporated by reference to Exhibit 4 to the Registrant's Form S-8 Registration Statement as filed December 7, 1990, File No. 33-38113. Certified Copy of the Board Resolution adopted on December 6, 1990, amending the Stock Option Plan of 1990. Incorporated by reference to Exhibit 10G to the Registrant's Form 10-K for the year ended December 31, 1990, File No. 1-8233. Exhibit 10E* Description of Management Incentive Plan. Incorporated by reference to Exhibit 10J to the Registrant's Form 10-K for the year ended December 31, 1990, File No. 1-8233. Exhibit 10F* Stock Incentive Plan of 1997. Incorporated by reference to Exhibit 10F to the Registrant's Form 10-K for the year ended December 31, 1996, File No. 1-8233. Exhibit 10G* Stock Incentive Plan of 1991. Incorporated by reference to Exhibit 4(a) to the Registrant's Form S-8 Registration Statement as filed February 11, 1992, File No. 33-45664. Exhibit 10H* Form of Stock Option Agreement used in connection with the Stock Option Plan of 1987, Stock Option Plan of 1990 and Stock Incentive Plan of 1991. Incorporated by reference to Exhibit 10I to the Registrant's Form 10-K for the year ended December 31, 1993, File No. 1-8233. Exhibit 10I* Amended and Restated 1993 Stock Plan for Non-Employee Directors. Incorporated by reference to Exhibit 10I to the Registrant's Form 10-K for the year ended December 31, 1996, File No. 1-8233. Exhibit 10J* Employment Agreement dated November 10, 1993 between USF&G Corporation and Norman P. Blake, Jr. Incorporated by reference to Exhibit 10K to the Registrant's Form 10-K for the year ended December 31, 1993, File No. 1-8233. Exhibit 10K* Stock Option Agreement dated November 10, 1993 between USF&G Corporation and Norman P. Blake, Jr. Incorporated by reference to Exhibit 10L to the Registrant's Form 10-K for the year ended December 31, 1993, File No. 1-8233. Exhibit 10L* Stock Option Agreement dated November 10, 1993 between USF&G Corporation and Norman P. Blake, Jr. Incorporated by reference to Exhibit 10M to the Registrant's Form 10-K for the year ended December 31, 1993, File No. 1-8233. Exhibit 10M* Waiver dated November 10, 1993 between USF&G Corporation and Norman P. Blake, Jr. Incorporated by reference to Exhibit 10N to the Registrant's Form 10-K for the year ended December 31, 1993, File No. 1-8233. Exhibit 10N* First Amendment to USF&G Supplemental Executive Retirement Agreement dated November 10, 1993 between USF&G Corporation and Norman P. Blake, Jr. Incorporated by reference to Exhibit 10O to the Registrant's Form 10-K for the year ended December 31, 1993, File No. 1-8233. Exhibit 10O* USF&G Supplemental Retirement Plan. Incorporated by reference to Exhibit 10Q to the Registrant's Form 10-K for the year ended December 31, 1993, File No. 1-8233. Exhibit 10P* Amended and Restated Stock Incentive Plan of 1991. Incorporated by reference to Exhibit 10R to the Registrant's Form 10-K for the year ended December 31, 1994, File No. 1-8233. Exhibit 10Q* Long-Term Incentive Program. Incorporated by reference to Exhibit 10S to the Registrant's Form 10-K for the year ended December 31, 1994, File No. 1-8233. Exhibit 10R* USF&G Executive Deferred Bonus Payment Plan. Incorporated by reference to Exhibit 10T to the Registrant's Form 10-K for the year ended December 31, 1995, File No. 1-8233. Exhibit 10S* Unfunded Deferred Compensation Plan for Non-Employee Directors of USF&G Corporation. Incorporated by reference to Exhibit 10U to the Registrant's Form 10-K for the year ended December 31, 1994, File No. 1-8233. Exhibit 10T* Description of Executive Severance Plan in the Event of a Change in Control. Incorporated by reference to Exhibit 10T to the Registrant's Form 10-K for the year ended December 31, 1996, File No. 1-8233. Exhibit 10U Coinsurance Contract dated as of July 26, 1996 among Fidelity and Guaranty Life Insurance Company and Keyport Life Insurance Company. Incorporated by reference to Exhibit 10U to the Registrant's Form 10-K for the year ended December 31, 1996, File No. 1-8233. Exhibit 10V Material Contracts related to Titan Holdings, Inc. Incorporated by reference to Exhibit 10A to the Registrant's Form 10-Q for the quarter ended June 30, 1997, File No. 1-8233. Exhibit 10W* Material Contracts regarding USF&G executive severance. Incorporated by reference to Exhibit 10B to the Registrant's Form 10-Q for the quarter ended June 30, 1997, File No. 1-8233. Exhibit 10X Stock Option Agreement between The St. Paul Companies, Inc., and USF&G Corporation. Incorporated by reference to Annex B to the Joint Proxy Statement/Prospectus filed February 27, 1998, File No. 0-3021. Exhibit 10Y* Letter Agreements dated December 3, 1996 and December 1, 1997 between Harry N. Stout and USF&G Corporation. Exhibit 10Z* Letter Agreement dated October 14, 1997 between Gary C. Dunton and USF&G Corporation. Exhibit 10AA* Stock Appreciation Rights Agreement dated July 24, 1996 between Paul B. Ingrey and USF&G Corporation. Exhibit 10BB* Consulting Agreement dated July 24, 1996 between Paul B. Ingrey and USF&G Corporation. Exhibit 11 Computation of earnings per share. Exhibit 12 Computation of ratio of consolidated earnings to fixed charges, distributions on capital securities and preferred stock dividends. Exhibit 21 Subsidiaries of the Registrant. Exhibit 23 Consent of Independent Auditors. Exhibit 99 The "Interests of Certain Persons in the Merger" section of the Joint Proxy Statement/Prospectus of USF&G Corporation and The St. Paul Companies, Inc., dated February 27, 1998, File No. 0-3021. Incorporated by reference, except for the modifications noted in Part III, Item 11.6 of this Form 10-K. All other exhibits specified by Item 601 of Regulation S-K are not required pursuant to the related instructions or are inapplicable; therefore, they have been omitted. (b) Reports on Form 8-K The Registrant filed no reports on Form 8-K during the fourth quarter of 1997. USF&G CORPORATION Signatures Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report to be signed on its behalf by the undersigned, thereunto duly authorized. USF&G CORPORATION /s/ NORMAN P. BLAKE, JR. Norman P. Blake, Jr. Chairman of the Board, President, and Chief Executive Officer Dated at Baltimore, Maryland March 30, 1998 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. Principal Executive Officer: /s/ NORMAN P. BLAKE, JR. Norman P. Blake, Jr. Chairman of the Board, President, and Chief Executive Officer Principal Financial Officer and Principal Accounting Officer: /s/ DAN L. HALE Dan L. Hale Executive Vice President and Chief Financial Officer Dated at Baltimore, Maryland March 30, 1998 Directors /s/ H. FURLONG BALDWIN H. Furlong Baldwin /s/ MICHAEL J. BIRCK Michael J. Birck /s/ GEORGE L. BUNTING, JR. George L. Bunting, Jr. /s/ ROBERT E. DAVIS Robert E. Davis /s/ KENNETH M. DUBERSTEIN Kenneth M. Duberstein /s/ DALE F. FREY Dale F. Frey /s/ ROBERT E. GREGORY, JR. Robert E. Gregory, Jr. /s/ ROBERT J. HURST Robert J. Hurst /s/ PAUL B. INGREY Paul B. Ingrey /s/ WILBUR G. LEWELLEN Wilbur G. Lewellen /s/ LARRY P. SCRIGGINS Larry P. Scriggins /s/ ANNE MARIE WHITTEMORE Anne Marie Whittemore /s/ R. JAMES WOOLSEY R. James Woolsey USF&G CORPORATION Schedule I. Schedule of Investments - Other than Investments in Related Parties At December 31, 1997 Amount at which shown in the Market Consolidated Statement (in millions) Cost Value of Financial Position ------------------------------------------------- Fixed Maturities Available for Sale: United States Government agencies and authorities $ 1,872 $1,912 $ 1,912 States, municipalities and political subdivisions 1,209 1,261 1,261 Foreign governments 172 182 182 Public utilities 320 332 332 All other corporate bonds 4,610 4,808 4,808 ------------------------------------------------- Total fixed maturities available for sale 8,183 8,495 8,495 ------------------------------------------------- Total fixed maturities 8,183 8,495 8,495 ------------------------------------------------- Equity Securities: Common Stocks: Banks, trusts and insurance companies 2 3 3 Industrial, miscellaneous and all other 19 16 16 ------------------------------------------------- Total common stocks 21 19 19 Nonredeemable preferred stocks 30 30 30 ------------------------------------------------- Total equity securities 51 49 49 ------------------------------------------------- Short-term investments 571 571 571 Mortgage loans 641 658 641 Real estate acquired in satisfaction of debt (A) 94 94 Other real estate (A) 242 242 Other invested assets (A) 852 852 ------------------------------------------------- Total investments $10,634 $10,944 ------------------------------------------------- (A) Market value not readily available.
USF&G CORPORATION Schedule II. Condensed Financial Information of Registrant - Statement of Financial Position (Parent Company) At December 31 (in millions) 1997 1996 --------------------------------- Assets Cash $ 5 $ -- Short-term investments -- 4 Investment in subsidiaries, at equity 3,396 3,021 Due from subsidiaries 94 99 Other assets 10 8 --------------------------------- Total assets $3,505 $3,132 --------------------------------- Liabilities Debt (short-term and current maturities of long-term, 1997, $180; 1996, $--) $ 812 $ 577 Dividends payable to shareholders 14 10 Due to insurance subsidiaries 44 36 Due to noninsurance subsidiaries 366 386 Other liabilities 192 154 --------------------------------- Total liabilities 1,428 1,163 --------------------------------- Shareholders' Equity Preferred stock -- 200 Common stock 291 286 Paid-in capital 1,126 1,091 Net unrealized gains on investments and foreign currency 167 62 Retained earnings 493 330 --------------------------------- Total shareholders' equity 2,077 1,969 --------------------------------- Total liabilities and shareholders' equity $3,505 $3,132 --------------------------------- See Note to Condensed Financial Information. USF&G CORPORATION Schedule II. Condensed Financial Information of Registrant - Statement of Operations (Parent Company)
Years Ended December 31 (in millions) 1997 1996 1995 ---------------------------- Revenues Net investment income: Dividends from subsidiaries $200 $282 $114 Interest expense on loans from subsidiaries (20) (11) (12) Other 1 (1) (3) Other revenues: From subsidiaries -- 6 7 From others -- -- 1 ---------------------------- Revenues before net realized gains (losses) 181 276 107 Net realized gains (losses) on investments 4 (3) (4) ---------------------------- Total revenues 185 273 103 ---------------------------- Expenses Facilities exit costs/(sublease income) -- (69) (6) Interest expense 47 38 42 Lease expense -- 18 21 Other operating expense 49 9 15 Foreign currency losses -- -- 1 ---------------------------- Total expenses 96 (4) 73 ---------------------------- Income from operations before income taxes and equity in undistributed earnings of subsidiaries 89 277 30 Provision for income taxes (benefit) 1 (3) (15) ---------------------------- Income from operations before equity in undistributed earnings of subsidiaries 88 280 45 Equity in undistributed earnings of subsidiaries 106 (19) 164 ---------------------------- Net income $194 $261 $209 ---------------------------- See Note to Condensed Financial Information.
USF&G CORPORATION Schedule II. Condensed Financial Information of Registrant - Statement of Cash Flows (Parent Company)
Years Ended December 31 (in millions) 1997 1996 1995 ---------------------------- Net Cash (Used in) Provided from Operating Activities $ (45) $ 227 $ 40 ---------------------------- Net Cash (Used in) Provided from Investing Activities (7) (4) 2 ---------------------------- Financing Activities Net borrowings (repayments) of short-term debt 2 -- (215) Intercompany advances, net 164 (21) 21 Long-term borrowings -- -- 228 Repayments of long-term borrowings -- (114) (30) Issuance of junior subordinated deferrable interest debentures 204 98 -- Issuances of common stock 21 11 6 Repurchases of common stock (101) (150) -- Redemption of preferred stock (200) (2) -- Cash dividends paid to shareholders (33) (45) (53) ---------------------------- Net cash provided from (used in) financing activities 57 (223) (43) ---------------------------- Increase (decrease) in cash 5 -- (1) Cash at beginning of year -- -- 1 ---------------------------- Cash at end of year $ 5 $ -- $ -- ---------------------------- See Note to Condensed Financial Information.
Note to Condensed Financial Information The accompanying condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Corporation's Form 8-K filed on February 26, 1998, incorporated herein by reference. Certain amounts have been reclassified to conform to the 1997 presentation. The parent company's provision for income taxes is based on the Corporation's consolidated federal income tax allocation policy. Effective June 1, 1995, USF&G Company declared an extraordinary dividend payable to USF&G Corporation for the amount of its equity in F&G Life. This dividend is excluded from "Dividends from Subsidiaries" in the condensed statement of operations since the transaction represented a change in ownership structure rather than a distribution of earnings from a subsidiary. USF&G CORPORATION Schedule III. Supplementary Insurance Information At December 31 Years Ended December 31 Unpaid losses, loss Other Losses, Amortization Deferred expenses policy- Net loss of deferred policy and holders' investment expenses policy Other acquisition policy Unearned funds Premium income and policy acquisition operating Premiums (in millions) costs benefits premiums (A) revenue (A) benefits costs expenses written -------------------------------------------------------------------------------------------------------------- 1997 Property/Casualty Insurance: CIG $113 $ 2,349 $ 368 $ 936 $ 714 $236 $ 79 $ 923 FBIG 103 1,580 404 932 699 237 74 860 Surety 49 92 117 189 67 64 35 210 Discover Re 6 70 103 29 20 3 3 45 F&G Re 10 937 39 459 294 135 5 414 Reinsurance receivable -- 1,172 117 -- -- -- -- -- -------------------------------------------------------------------------------------------------------------- Property/casualty 281 6,200 1,148 $13 2,545 $443 1,794 675 196 2,452 Life insurance 187 3,816 -- 61 137 253 277 12 34 N/A -------------------------------------------------------------------------------------------------------------- Total $468 $10,016 $1,148 $74 $2,682 $696 $2,071 $687 $230 $2,452 -------------------------------------------------------------------------------------------------------------- 1996 Property/Casualty Insurance: CIG $105 $ 2,508 $ 354 $ 954 $ 708 $249 $100 $ 964 FBIG 122 1,526 436 990 782 265 120 989 Surety 40 79 100 141 55 63 19 160 Discover Re 2 61 72 22 17 2 2 27 F&G Re 21 871 82 479 306 120 2 499 Reinsurance receivable -- 987 69 -- -- -- -- -- ------------------------------------------------------------------------------------------------------------- Property/casualty 290 6,032 1,113 $12 2,586 $441 1,868 699 243 2,639 Life insurance 166 3,552 -- 79 145 269 313 8 43 N/A -------------------------------------------------------------------------------------------------------------- Total $456 $ 9,584 $1,113 $91 $2,731 $710 $2,181 $707 $286 $2,639 -------------------------------------------------------------------------------------------------------------- 1995 Property/Casualty Insurance: CIG $122 $ 2,531 $ 382 $ 876 $ 662 $252 $ 71 $ 921 FBIG 122 1,680 404 982 732 268 126 974 Surety 30 44 61 119 44 53 9 129 Discover Re 2 50 36 25 20 4 5 27 F&G Re 12 808 57 490 344 107 5 512 Reinsurance receivable -- 984 115 -- -- -- -- -- -------------------------------------------------------------------------------------------------------------- Property/casualty 288 6,097 1,055 $ 9 2,492 $438 1,802 684 216 2,563 Life insurance 146 3,719 -- 80 174 306 376 30 41 N/A -------------------------------------------------------------------------------------------------------------- Total $434 $ 9,816 $1,055 $89 $2,666 $744 $2,178 $714 $257 $2,563 -------------------------------------------------------------------------------------------------------------- (A) Other policyholders' funds and net investment income are not allocated to property/casualty categories. N/A - Not applicable to life insurance pursuant to Rule 12-16 of Regulation S-X.
USF&G CORPORATION Schedule IV. Reinsurance Years Ended December 31 Ceded Assumed Percentage Gross to other from other Net of amount (in millions) amount companies companies amount assumed to net* ----------------------------------------------------------------- 1997 Life insurance in force $10,613 $1,785 $134 $ 8,962 1.5% ----------------------------------------------------------------- Premiums Earned: Life insurance $ 143 $ 7 $ 1 $ 136 .4% Accident/health insurance -- -- 1 1 99.1 Property/casualty insurance 2,386 414 573 2,545 22.5 ----------------------------------------------------------------- Total $ 2,529 $ 421 $575 $ 2,682 21.4% ----------------------------------------------------------------- 1996 Life insurance in force $10,580 $1,220 $149 $ 9,509 1.6% ----------------------------------------------------------------- Premiums Earned: Life insurance $ 153 $ 9 $ -- $ 144 .3% Accident/health insurance -- -- 1 1 102.1 Property/casualty insurance 2,346 369 609 2,586 23.5 ----------------------------------------------------------------- Total $ 2,499 $ 378 $610 $ 2,731 22.3% ----------------------------------------------------------------- 1995 Life insurance in force $11,237 $1,305 $154 $10,086 1.5% ----------------------------------------------------------------- Premiums Earned: Life insurance $ 178 $ 5 $ -- $ 173 .2% Accident/health insurance -- -- 1 1 98.4 Property/casualty insurance 2,253 398 637 2,492 25.6 ----------------------------------------------------------------- Total $ 2,431 $ 403 $638 $ 2,666 23.9% ----------------------------------------------------------------- *Certain percentages are calculated from amounts in thousands and may not equal the percentage calculated from amounts reported in millions.
USF&G CORPORATION Schedule VI. Supplemental Information Concerning Consolidated Property/Casualty Insurance Operations At December 31 (in millions) 1997 1996 ---------------------------- Deferred policy acquisition costs $ 281 $ 290 Reserves for unpaid losses and loss expenses 6,200 6,032 Discount deducted from reserves (A) 401 353 Unearned premiums 1,148 1,113 ---------------------------- Years Ended December 31 (in millions) 1997 1996 1995 --------------------------------------------- Premiums earned $2,545 $2,586 $2,492 Net investment income 443 441 438 Losses and Loss Expenses Incurred Related To: Current year 1,933 2,030 1,856 Prior years (139) (162) (54) Amortization of deferred policy acquisition costs 675 699 684 Paid losses and loss expenses 1,951 1,954 1,831 Premiums written 2,452 2,639 2,563 --------------------------------------------- (A) Certain long-term disability payments for workers' compensation are discounted at rates of up to 4%. USF&G CORPORATION Exhibit 11 - Computation of Earnings Per Share Years Ended December 31 (dollars in millions except per share) 1997 1996 1995 ------------------------------------------ Net Income Available to Common Stock Basic: Net income $ 194 $ 261 $ 209 Less preferred stock dividend requirements (2) (20) (28) ------------------------------------------ Net income available to common stock $ 192 $ 241 $ 181 ------------------------------------------ Diluted: Net income $ 194 $ 261 $ 209 Less preferred stock dividend requirements (2) (16) (16) Add interest expense on zero coupon bonds 3 5 6 ------------------------------------------ Net income available to common stock $ 195 $ 250 $ 199 ------------------------------------------ Weighted-Average Shares Outstanding Basic common shares 111,688,100 117,674,384 111,474,129 ------------------------------------------ Diluted (A) (B): Common shares 111,688,100 117,674,384 111,474,129 Common stock equivalents 3,239,470 2,124,569 1,431,267 Assumed conversion of preferred stock -- 2,150,892 9,931,329 Assumed conversion of zero coupon bonds 5,181,588 5,784,211 7,227,255 ------------------------------------------ Total diluted 120,109,158 127,734,056 130,063,980 ------------------------------------------ Earnings Per Share Basic $1.72 $2.05 $1.63 Diluted (A) (B) 1.63 1.95 1.53 ------------------------------------------ (A) Diluted earnings per share amounts are calculated assuming the conversion of all securities whose contingent issuance would have a dilutive effect on earnings. (B) Diluted earnings per share amounts for 1996 and 1995 have been restated in compliance with SFAS No. 128, "Earnings Per Share", which the Corporation adopted effective December 31, 1997.
USF&G CORPORATION Exhibit 12 - Computation of Ratio of Consolidated Earnings to Fixed Charges, Distributions on Capital Securities and Preferred Stock Dividends Years Ended December 31 (dollars in millions) 1997 1996 1995 ------------------------------ Fixed Charges Interest expense $ 34 $ 39 $ 44 Portion of rents representative of interest 9 17 20 ------------------------------ Total fixed charges 43 56 64 Distributions on capital securities 21 -- -- Preferred stock dividend requirements (A) 2 20 28 ------------------------------ Combined fixed charges, distributions on capital securities and preferred stock dividends 66 $ 76 $ 92 ------------------------------ Consolidated Earnings Available Income from operations before income taxes and distributions on capital securities $292 $259 $195 Adjustment: Fixed charges 43 56 64 ------------------------------ Consolidated earnings available for fixed charges, distributions on capital securities and preferred stock dividends $335 $315 $259 ------------------------------ Ratio of consolidated earnings to fixed charges 7.8 5.7 4.0 Ratio of consolidated earnings to combined fixed charges, distributions on capital securities and preferred stock dividends 5.1 4.1 2.8 ------------------------------ (A) Preferred stock dividend requirements of $2 million, $20 million and $28 million in 1997, 1996 and 1995, respectively, divided by 100% less the effective tax rate of 28.9% in 1997 and 0% in 1996 and 1995.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 EXHIBITS TO ANNUAL REPORT ON FORM 10-K USF&G CORPORATION For the Fiscal Year Ended Commission File Number December 31, 1997 1-8233 A copy of all other of the Corporation's Exhibits to the 1997 Form 10-K report not included herein may be obtained without charge upon written request to John F. Hoffen, Jr., corporate secretary, at the corporate headquarters: 6225 Centennial Way Baltimore, Maryland 21209 EX-4 2 FIVE-YEAR CREDIT AND REIMBURSEMENT AGREEMENT [EXECUTION COPY] $250,000,000 FIVE-YEAR CREDIT AND REIMBURSEMENT AGREEMENT dated as of December 18, 1997 among USF&G Corporation The Banks Listed Herein, The Letter of Credit Issuing Banks Named Herein Morgan Guaranty Trust Company of New York, as Administrative Agent and Deutsche Bank AG, New York Branch, as Documentation Agent ----------------------------- J.P. Morgan Securities Inc., Arranger Deutsche Morgan Grenfell Inc., Co-Arranger TABLE OF CONTENTS ---------------------- PAGE ARTICLE 1 DEFINITIONS SECTION 1.01. Definitions.....................................................1 SECTION 1.02. Accounting Terms and Determinations............................17 SECTION 1.03. Types of Borrowings............................................17 ARTICLE 2 THE CREDITS SECTION 2.01. Commitments to Lend............................................18 SECTION 2.02. Notice of Committed Borrowing..................................18 SECTION 2.03. Money Market Borrowings........................................19 SECTION 2.04. Notice to Banks; Funding of Loans..............................23 SECTION 2.05. Notes..........................................................23 SECTION 2.06. Maturity of Loans..............................................24 SECTION 2.07. Interest Rates.................................................24 SECTION 2.08. Fees...........................................................28 SECTION 2.09. Optional Termination or Reduction of Commitments...............29 SECTION 2.10. Mandatory Termination of Commitments...........................29 SECTION 2.11. Method of Electing Interest Rates..............................29 SECTION 2.12. Mandatory or Optional Prepayments..............................31 SECTION 2.13. General Provisions as to Payments..............................32 SECTION 2.14. Funding Losses.................................................33 SECTION 2.15. Computation of Interest and Fees...............................33 SECTION 2.16. Letters of Credit..............................................33 SECTION 2.17. Alternative Currency Advances..................................38 ARTICLE 3 CONDITIONS SECTION 3.01. Closing........................................................39 SECTION 3.02. Borrowing and Issuance of Letters of Credit....................40 ARTICLE 4 REPRESENTATIONS AND WARRANTIES SECTION 4.01. Corporate Existence and Power..................................41 SECTION 4.02. Corporate and Governmental Authorization; No Contravention........................................................41 SECTION 4.03. Binding Effect.................................................42 SECTION 4.04. Financial Information..........................................42 SECTION 4.05. Litigation.....................................................43 SECTION 4.06. Compliance with ERISA..........................................43 SECTION 4.07. Environmental Matters..........................................43 SECTION 4.08. Taxes..........................................................44 SECTION 4.09. Subsidiaries...................................................44 SECTION 4.10. Not an Investment Company......................................44 SECTION 4.11. Full Disclosure................................................44 ARTICLE 5 COVENANTS SECTION 5.01. Information....................................................45 SECTION 5.02. Payment of Obligations.........................................47 SECTION 5.03. Maintenance of Property; Insurance.............................47 SECTION 5.04. Conduct of Business and Maintenance of Existence...............48 SECTION 5.05. Compliance with Laws...........................................48 SECTION 5.06. Negative Pledge................................................48 SECTION 5.07. Consolidations, Mergers and Sales of Assets; Ownership by USF&G Corporation.................................................50 SECTION 5.08. Use of Proceeds................................................50 SECTION 5.09. Ratio of Debt to Adjusted Consolidated Tangible Net Worth................................................................50 SECTION 5.10. Minimum Adjusted Consolidated Tangible Net Worth...............50 SECTION 5.11. Transactions with Affiliates...................................51 ARTICLE 6 DEFAULTS SECTION 6.01. Events of Default..............................................51 SECTION 6.02. Notice of Default..............................................54 SECTION 6.03. Cash Cover.....................................................54 ARTICLE 7 THE AGENTS SECTION 7.01. Appointment and Authorization..................................54 SECTION 7.02. Agents and Affiliates..........................................55 SECTION 7.03. Action by Agents...............................................55 SECTION 7.04. Consultation with Experts......................................55 SECTION 7.05. Liability of Agents............................................55 SECTION 7.06. Indemnification................................................56 SECTION 7.07. Credit Decision................................................56 SECTION 7.08. Successor Agents...............................................56 SECTION 7.09. Agents' Fees...................................................57 ARTICLE 8 CHANGE IN CIRCUMSTANCES SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair.......57 SECTION 8.02. Illegality.....................................................58 SECTION 8.03. Increased Cost and Reduced Return..............................58 SECTION 8.04. Taxes..........................................................60 SECTION 8.05. Base Rate Loans Substituted for Affected Fixed Rate Loans......62 ARTICLE 9 MISCELLANEOUS SECTION 9.01. Notices........................................................63 SECTION 9.02. No Waivers.....................................................63 SECTION 9.03. Expenses; Indemnification......................................63 SECTION 9.04. Sharing; Set-offs..............................................64 SECTION 9.05. Amendments and Waivers.........................................65 SECTION 9.06. Successors and Assigns.........................................65 SECTION 9.07. Collateral.....................................................67 SECTION 9.08. Governing Law; Submission to Jurisdiction......................67 SECTION 9.09. Counterparts; Integration; Effectiveness.......................67 SECTION 9.10. WAIVER OF JURY TRIAL...........................................68 SECTION 9.11. Existing Credit Agreements.....................................68 Pricing Schedule Exhibit A - Note Exhibit B - Money Market Quote Request Exhibit C - Invitation for Money Market Quotes Exhibit D - Money Market Quote Exhibit E - Opinion of the General Counsel of the Borrower Exhibit F - Opinion of Counsel to the Borrower Exhibit G - Opinion of Special Counsel for the Agents Exhibit H - Assignment and Assumption Agreement Exhibit I - Form of Letter of Credit Request Exhibit J - Form of Letter of Credit FIVE-YEAR CREDIT AND REIMBURSEMENT AGREEMENT AGREEMENT dated as of December 18, 1997 among USF&G CORPORATION, the BANKS listed on the signature pages hereof, the Letter of Credit Issuing Banks named herein, MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent, and DEUTSCHE BANK AG, NEW YORK BRANCH, as Documentation Agent. The parties hereto agree as follows: ARTICLE 1 DEFINITIONS SECTION 1.01. Definitions. The following terms, as used herein, have the following meanings: "ABSOLUTE RATE AUCTION" means a solicitation of Money Market Quotes setting forth Money Market Absolute Rates pursuant to Section 2.03. "ADJUSTED CD RATE" has the meaning set forth in Section 2.07(b). "ADJUSTED CONSOLIDATED TANGIBLE NET WORTH" means at any date the consolidated stockholders' equity of the Borrower and its Consolidated Subsidiaries (1) plus any unrealized holding losses (or less any unrealized holding gains), in each case net of relevant adjustments for deferred policy acquisition costs, on account of available-for-sale debt securities to the extent reflected therein (together with other adjustments, all as determined in accordance with Statement of Financial Accounting Standards No. 115 of the Financial Accounting Standards Board, as amended from time to time, or any successor provision thereto) and (2) plus, to the extent Qualified Deferrable Securities Obligations are not included in consolidated stockholders' equity of the Borrower and its Consolidated Subsidiaries, the Equity Portion of Qualified Deferrable Securities Obligations (or, if Qualified Deferrable Securities Obligations are included in consolidated stockholders' equity of the Borrower and its Consolidated Subsidiaries, less the Debt Portion of Qualified Deferrable Securities Obligations) and (3) less their consolidated Intangible Assets, all determined as of such date. For purposes of this definition "Intangible Assets" means the amount (to the extent reflected in determining such consolidated stockholders' equity) of (i) all write-ups (other than write-ups resulting from foreign currency translations, write-ups of assets of a going concern business made within twelve months after the acquisition of such business and changes made in accordance with generally accepted accounting principles in the book value of any Investments in Persons other than the Borrower and its Consolidated Subsidiaries) subsequent to September 30, 1997 in the book value of any asset owned by the Borrower or a Consolidated Subsidiary and (ii) all unamortized debt discount and expense, unamortized deferred charges, goodwill, patents, trademarks, service marks, trade names, copyrights, organization or developmental expenses and other intangible assets (other than deferred policy acquisition costs and net deferred tax assets). "ADJUSTED LONDON INTERBANK OFFERED RATE" has the meaning set forth in Section 2.07(c). "ADMINISTRATIVE AGENT" means Morgan Guaranty Trust Company of New York, in its capacity as administrative agent for the Banks hereunder, and its successors in such capacity. "ADMINISTRATIVE QUESTIONNAIRE" means, with respect to each Bank, an administrative questionnaire in the form prepared by the Administrative Agent and submitted to the Administrative Agent (with a copy to the Borrower) duly completed by such Bank. "AFFILIATE" means (i) any Person that directly, or indirectly through one or more intermediaries, controls the Borrower (a "Controlling Person") or (ii) any Person (other than the Borrower or a Subsidiary) which is controlled by or is under common control with a Controlling Person. As used herein, the term "control" means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "AGENT" means the Administrative Agent or the Documentation Agent, and "Agents" means both of them. "ALTERNATIVE CURRENCIES" means Canadian dollars, French francs, Swiss francs, Australian dollars, Japanese yen, British pounds sterling, Italian lira and German deutsche marks, provided that any other currency (except Dollars) shall also be an Alternative Currency if (i) the Borrower requests, by notice to the Administrative Agent, that such currency be included as an additional Alternative Currency for purposes of this Agreement, (ii) such currency is freely transferable and freely convertible into Dollars, (iii) deposits in such currency are customarily offered to banks in the London interbank market and (iv) each Bank either (x) approves the inclusion of such currency as an additional Alternative Currency for purposes hereof or (y) fails to notify the Administrative Agent that it objects to such inclusion within five Domestic Business Days after the Administrative Agent notifies it of the Borrower's request for such inclusion. "ALTERNATIVE CURRENCY ADVANCE" means an advance made by a Bank to the Borrower in an Alternative Currency pursuant to Section 2.17. "ALTERNATIVE CURRENCY ADVANCE REPORT" has the meaning set forth in Section 2.17(c). "APPLICABLE LENDING OFFICE" means, with respect to any Bank, (i) in the case of its Domestic Loans, its Domestic Lending Office, (ii) in the case of its Euro-Dollar Loans and Alternative Currency Advances, its Euro-Dollar Lending Office and (iii) in the case of its Money Market Loans, its Money Market Lending Office. "ASSESSMENT RATE" has the meaning set forth in Section 2.07(b). "ASSIGNEE" has the meaning set forth in Section 9.06(c). "BANK" means each bank listed on the signature pages hereof, each Assignee which becomes a Bank pursuant to Section 9.06(c), and their respective successors and shall include, unless the context otherwise clearly requires, any Issuing Bank in such capacity. "BASE RATE" means, for any day, a rate per annum equal to the higher of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal Funds Rate for such day. "BASE RATE LOAN" means a Committed Loan which bears interest at the Base Rate pursuant to the applicable Notice of Committed Borrowing or Notice of Interest Rate Election or the provisions of Section 2.11(a) or Article 8. "BENEFIT ARRANGEMENT" means at any time an employee benefit plan within the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which is maintained or otherwise contributed to by any member of the ERISA Group. "BORROWER" means USF&G Corporation, a Maryland corporation, and its successors. "BORROWER'S 1996 FORM 10-K" means the Borrower's annual report on Form 10-K for 1996, as filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. "BORROWER'S LATEST FORM 10-Q" means the Borrower's quarterly report on Form 10-Q for the quarter ended September 30, 1997, as filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. "BORROWING" has the meaning set forth in Section 1.03. "CD BASE RATE" has the meaning set forth in Section 2.07(b). "CD LOAN" means a Committed Loan which bears interest at a CD Rate pursuant to the applicable Notice of Committed Borrowing or Notice of Interest Rate Election. "CD MARGIN" has the meaning set forth in Section 2.07(b). "CD RATE" means a rate of interest determined pursuant to Section 2.07(b) on the basis of an Adjusted CD Rate. "CD REFERENCE BANKS" means Deutsche Bank AG, New York Branch, Morgan Guaranty Trust Company of New York and The Bank of New York. "CLOSING DATE" means the date on which the Documentation Agent shall have received the documents specified in or pursuant to Section 3.01. "CO-APPLICANT" has the meaning set forth in Section 2.16. "COMMITMENT" means, with respect to each Bank, the amount set forth opposite the name of such Bank on the signature pages hereof, as such amount may be reduced from time to time pursuant to Sections 2.09 and 2.10. "COMMITTED LOAN" means a loan made by a Bank pursuant to Section 2.01, provided that, if any such loan or loans (or portions thereof) are combined or subdivided pursuant to a Notice of Interest Rate Election, the term "COMMITTED LOAN" shall refer to the combined principal amount resulting from such combination or to each of the separate principal amounts resulting from such subdivision, as the case may be. "CONSOLIDATED SUBSIDIARY" means at any date any Subsidiary or other entity the accounts of which would be consolidated with those of the Borrower in its consolidated financial statements if such statements were prepared as of such date. "DEBT" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable, agents' commissions and other similar charges and expenses arising in the ordinary course of business, (iv) all obligations of such Person as lessee which are capitalized in accordance with generally accepted accounting principles, (v) all non-contingent obligations (and, for purposes of Section 5.06 and the definitions of Material Debt and Material Financial Obligations, all contingent obligations) of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit or similar instrument, (vi) all Debt secured by a Lien on any asset of such Person, whether or not such Debt is otherwise an obligation of such Person (but excluding any such Debt to the extent such Debt exceeds the fair market value of such assets (such fair market value to be established by the Borrower to the reasonable satisfaction of the Required Banks), unless such Debt is assumed), (vii) all obligations of such Person to purchase securities (or other property) which arise out of or in connection with the sale of the same or substantially similar securities or property and (viii) all Debt of others Guaranteed by such Person, provided that obligations of any Person referred to only in clauses (i) through (iii), inclusive, above shall constitute Debt of such Person only to the extent that they are, or are required to be, recorded on the financial statements of such Person as a liability under generally accepted accounting principles. "DEBT PORTION" of Qualified Deferrable Securities Obligations means at any time the amount thereof (including, without duplication, any subordinated Guarantee of payment of Qualified Preferred Securities) that is not the "Equity Portion" of Qualified Deferrable Securities Obligations. "DEFAULT" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "DERIVATIVES OBLIGATIONS" of any Person means all obligations (other than obligations incurred as a result of investments in or writing of futures, options, swaps or other derivative transactions in respect of, or based upon, insurance products or risks, including the futures and options contracts relating to catastrophic losses traded on the Chicago Board of Trade or otherwise) 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 any other similar transaction (including any option with respect to any of the foregoing transactions) or any combination of the foregoing transactions. "DOCUMENTATION AGENT" means Deutsche Bank AG, New York Branch in its capacity as documentation agent for the Banks hereunder, and its successors in such capacity. "DOLLAR EQUIVALENT" means, as used in each Alternative Currency Advance Report and in respect of any Alternative Currency Advance, the amount of Dollars obtained by converting the outstanding amount of currency of such Alternative Currency Advance, as specified in such Alternative Currency Advance Report, into Dollars at the spot rate for the purchase of Dollars with such currency as quoted by the Administrative Agent at approximately 9:00 A.M. (New York City time) on the date of such Alternative Currency Advance Report (unless another rate or time is agreed to by the Borrower and the Administrative Agent). The Dollar Equivalent of any Alternative Currency Advance at any date shall be the Dollar Equivalent thereof set forth in the Alternative Currency Advance Report most recently delivered on or prior to such date. "DOLLARS" and the sign "$" mean lawful money in the United States of America. "DOMESTIC BUSINESS DAY" means any day except a Saturday, Sunday or other day on which commercial banks in New York City are authorized by law to close. "DOMESTIC LENDING OFFICE" means, as to each Bank, its office located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Domestic Lending Office) or such other office as such Bank may hereafter designate as its Domestic Lending Office by notice to the Borrower and the Administrative Agent; provided that any Bank may so designate separate Domestic Lending Offices for its Base Rate Loans, on the one hand, and its CD Loans, on the other hand, in which case all references herein to the Domestic Lending Office of such Bank shall be deemed to refer to either or both of such offices, as the context may require. "DOMESTIC LOANS" means CD Loans or Base Rate Loans or both. "DOMESTIC RESERVE PERCENTAGE" has the meaning set forth in Section 2.07(b). "ENVIRONMENTAL LAWS" means any and all federal, state, local and foreign statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, plans, injunctions, permits, concessions, grants, franchises, licenses, agreements and other governmental restrictions relating to the environment, the effect of the environment on human health or to emissions, discharges or releases of pollutants, contaminants, Hazardous Substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, Hazardous Substances or wastes or the clean-up or other remediation thereof. "EQUITY PORTION" of Qualified Deferrable Securities Obligations means at any time the amount of Qualified Deferrable Securities Obligations that does not exceed the greater of (i) 15% of Total Capital at such time (including, without duplication, any subordinated Guarantee of payment of the related Qualified Preferred Securities, but only if such Guarantee guarantees payment only to the extent that the Subsidiary issuing the Qualified Preferred Securities has funds on hand available for payment) or (ii) $300,000,000, but only for so long as no event of default exists under, or with respect to, any Qualified Deferrable Securities Obligations and no Qualified Deferrable Securities Obligations have been accelerated or may, with the passage of time or the giving of notice, be accelerated. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute. "ERISA GROUP" means the Borrower, any Subsidiary and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower or any Subsidiary, are treated as a single employer under Section 414 of the Internal Revenue Code. "EURO" means the currency of participating member states of the European Union that adopt a single currency in accordance with the Treaty on European Union signed February 7, 1992. "EURO-DOLLAR BUSINESS DAY" means any Domestic Business Day on which commercial banks are open for international business (including dealings in dollar deposits) in London. "EURO-DOLLAR LENDING OFFICE" means, as to each Bank, its office, branch or affiliate located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Euro-Dollar Lending Office) or such other office, branch or affiliate of such Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice to the Borrower and the Administrative Agent. The Applicable Lending Office for any Alternative Currency Advance shall be the Euro-Dollar Lending Office of the Bank making such advance as so set forth and identified unless another office, branch or affiliate of such Bank is hereafter designated as its Euro-Dollar Lending Office for such Alternative Currency Advance by notice to the Borrower and the Administrative Agent. "EURO-DOLLAR LOAN" means a Committed Loan which bears interest at a Euro-Dollar Rate pursuant to the applicable Notice of Committed Borrowing or Notice of Interest Rate Election. "EURO-DOLLAR RATE" means a rate of interest determined pursuant to Section 2.07(c) on the basis of a London Interbank Offered Rate. "EURO-DOLLAR MARGIN" has the meaning set forth in Section 2.07(c). "EURO-DOLLAR REFERENCE BANKS" means the principal London offices of Deutsche Bank AG, Morgan Guaranty Trust Company of New York and The Bank of New York. "EURO-DOLLAR RESERVE PERCENTAGE" has the meaning set forth in Section 2.07(c). "EVENT OF DEFAULT" has the meaning set forth in Section 6.01. "EXCLUDED SUBSIDIARY" means any Subsidiary or Insurance Company Subsidiary other than any (i) Insurance Company Subsidiary with total admitted assets, as of the date of determination, of $25,000,000 or more and (ii) "Significant Subsidiary", as defined in Section 210.1-02(v) of Regulation S-X, as amended from time to time, promulgated by the Securities and Exchange Commission (17 C.F.R. Section 210.1-02(w)). "EXISTING CREDIT AGREEMENTS" means (i) the Credit and Reimbursement Agreement dated as of March 29, 1996 among USF&G Corporation, the banks party thereto, the Letter of Credit Issuing Banks named therein and Morgan Guaranty Trust Company of New York, as agent, as amended as of June 30, 1997 (the "EXISTING MORGAN CREDIT AGREEMENT") and (ii) the Credit Agreement dated as of March 29, 1996 among USF&G Corporation, the banks party thereto and Deutsche Bank AG, New York and/or Cayman Island Branches, as agent (the "EXISTING DEUTSCHE BANK CREDIT AGREEMENT").. "EXISTING LETTER OF CREDIT" means the three letters of credit issued pursuant to the Existing Morgan Credit Agreement and outstanding on the Closing Date, each of which letters of credit will become a Letter of Credit hereunder pursuant to Section 2.16(a). "FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day, provided that (i) if such day is not a Domestic Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day, and (ii) if no such rate is so published on such next succeeding Domestic Business Day, the Federal Funds Rate for such day shall be the average rate quoted to Morgan Guaranty Trust Company of New York on such day on such transactions as determined by the Administrative Agent. "FIXED RATE LOANS" means CD Loans or Euro-Dollar Loans or Money Market Loans (excluding Money Market LIBOR Loans bearing interest at the Base Rate pursuant to Section 8.01(a)) or any combination of the foregoing. "GROUP OF LOANS" means at any time a group of Committed Loans consisting of (i) all Base Rate Loans which are outstanding at such time, (ii) all Euro-Dollar Loans having the same Interest Period at such time or (iii) all CD Loans having the same Interest Period at such time; provided that, if a Committed Loan of any particular Bank is converted to or made as a Base Rate Loan pursuant to Section 8.02 or 8.05, such Loan shall be included in the same Group or Groups of Loans from time to time as it would have been in if it had not been so converted or made. "GUARANTEE" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of assuring in any other manner the obligee of such Debt or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part), provided that the term Guarantee shall not include (i) endorsements for collection or deposit in the ordinary course of business or (ii) if such Person is an insurance company, surety bonds and insurance contracts (including financial guarantee insurance policies) in each case issued in the ordinary course of such Person's business. The term "Guarantee" used as a verb has a corresponding meaning. "HAZARDOUS SUBSTANCES" means any toxic, radioactive, caustic or otherwise hazardous substance, including petroleum, its derivatives, by-products and other hydrocarbons, or any substance having any constituent elements displaying any of the foregoing characteristics. "INDEMNITEE" has the meaning set forth in Section 9.03(b). "INSURANCE COMPANY SUBSIDIARY" means any Subsidiary domiciled in the United States of America (including the District of Columbia) and its territories and possessions or any State thereof and licensed or authorized to do an insurance business in any of the foregoing. "INTEREST PERIOD" means: (a) with respect to each Euro-Dollar Loan, the period commencing on the date of borrowing specified in the applicable Notice of Committed Borrowing or on the date specified in an applicable Notice of Interest Rate Election and ending one, two, three or six months thereafter, as the Borrower may elect in such notice; provided that: (i) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; (ii) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (iii) below, end on the last Euro-Dollar Business Day of a calendar month; and (iii) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. (b) with respect to each CD Loan, the period commencing on the date of borrowing specified in the applicable Notice of Committed Borrowing or on the date specified in an applicable Notice of Interest Rate Election and ending 30, 60, 90 or 180 days thereafter, as the Borrower may elect in such notice; provided that: (i) any Interest Period (other than an Interest Period determined pursuant to clause (ii) below) which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day; and (ii) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. (c) with respect to each Money Market LIBOR Loan, the period commencing on the date of such Loan and ending such whole number of months thereafter as the Borrower may elect in accordance with Section 2.03; provided that: (i) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; (ii) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall, subject to clause (iii) below, end on the last Euro-Dollar Business Day of a calendar month; and (iii) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. (d) with respect to each Money Market Absolute Rate Loan, the period commencing on the date of such Loan and ending such number of days thereafter (but not less than seven days) as the Borrower may elect in accordance with Section 2.03; provided that: (i) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day; and (ii) any Interest Period which would otherwise end after the Termination Date shall end on the Termination Date. "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended, or any successor statute. "INVESTMENT" means any investment in any Person, whether by means of share purchase, capital contribution, loan, time deposit or otherwise. "ISSUING BANK" means Morgan Guaranty Trust Company of New York and any other Bank acceptable to the Borrower and the Administrative Agent that agrees to issue letters of credit hereunder, in each case in its capacity as the issuer of letters of credit hereunder, provided that no such other Bank shall constitute an Issuing Bank hereunder unless and until this Agreement is amended to reflect the fact that there are two or more Issuing Banks hereunder. "LETTER OF CREDIT" means a standby letter of credit to be issued by an Issuing Bank pursuant to Section 2.16(b), and includes each Existing Letter of Credit. "LETTER OF CREDIT COMMITMENT" means the lesser of (x)$150,000,000 and (y) the aggregate Commitments. "LETTER OF CREDIT LIABILITIES" means, for any Bank and at any time, the sum of (x) the amounts then owing to such Bank (including in its capacity as an Issuing Bank) by the Borrower to reimburse it in respect of amounts drawn under Letters of Credit, including in respect of participations purchased by such Bank pursuant to Section 2.16(b) and (y) such Bank's ratable participation in the aggregate amount then available for drawing under all Letters of Credit. "LIBOR AUCTION" means a solicitation of Money Market Quotes setting forth Money Market Margins based on the London Interbank Offered Rate pursuant to Section 2.03. "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 Borrower or any Subsidiary 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. "LOAN" means a Domestic Loan or a Euro-Dollar Loan or a Money Market Loan and "LOANS" means Domestic Loans or Euro-Dollar Loans or Money Market Loans or any combination of the foregoing. "LONDON INTERBANK OFFERED RATE" has the meaning set forth in Section 2.07(c). "MATERIAL ADVERSE EFFECT" means a material adverse effect on the business, financial position, results of operations or prospects of the Borrower and its Consolidated Subsidiaries, considered as a whole. "MATERIAL DEBT" means Debt (other than the Notes) of the Borrower and/or one or more of its Subsidiaries (other than an Excluded Subsidiary), arising in one or more related or unrelated transactions, in an aggregate principal or face amount exceeding $50,000,000 (or its equivalent in any other currency). "MATERIAL FINANCIAL OBLIGATIONS" means a principal or face amount of Debt and/or the then-owed payment obligations in respect of Derivatives Obligations of the Borrower and/or one or more of its Subsidiaries (other than an Excluded Subsidiary), arising in one or more related or unrelated transactions, exceeding in the aggregate $50,000,000 (or its equivalent in any other currency). "MATERIAL PLAN" means at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $15,000,000. "MONEY MARKET ABSOLUTE RATE" has the meaning set forth in Section 2.03(d). "MONEY MARKET ABSOLUTE RATE LOAN" means a loan to be made by a Bank pursuant to an Absolute Rate Auction. "MONEY MARKET LENDING OFFICE" means, as to each Bank, its Domestic Lending Office or such other office, branch or affiliate of such Bank as it may hereafter designate as its Money Market Lending Office by notice to the Borrower and the Administrative Agent; provided that any Bank may from time to time by notice to the Borrower and the Administrative Agent designate separate Money Market Lending Offices for its Money Market LIBOR Loans, on the one hand, and its Money Market Absolute Rate Loans, on the other hand, in which case all references herein to the Money Market Lending Office of such Bank shall be deemed to refer to either or both of such offices, as the context may require. "MONEY MARKET LIBOR LOAN" means a loan to be made by a Bank pursuant to a LIBOR Auction (including such a loan bearing interest at the Base Rate pursuant to Section 8.01(a)). "MONEY MARKET LOAN" means a Money Market LIBOR Loan or a Money Market Absolute Rate Loan. "MONEY MARKET MARGIN" has the meaning set forth in Section 2.03(d). "MONEY MARKET QUOTE" means an offer by a Bank to make a Money Market Loan in accordance with Section 2.03. "MULTIEMPLOYER PLAN" means at any time an employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions, including for these purposes any Person which ceased to be a member of the ERISA Group during such five year period. "NON-RECOURSE DEBT" means Debt, secured only by real property (including fixtures and personal property used therein or thereon and the rents, profits and proceeds arising therefrom), in respect of which the holder of such Debt has no recourse against the Borrower or any Subsidiary (other than a Subsidiary the only assets of which consist of such real property (including fixtures and personal property used therein or thereon and the rents, profits and proceeds therefrom)) or any asset of the Borrower or any Subsidiary (except such real property (including fixtures and personal property used therein or thereon and the rents, profits and proceeds arising therefrom)). "NOTES" means promissory notes of the Borrower, substantially in the form of Exhibit A hereto, evidencing the obligation of the Borrower to repay the Loans, and "NOTE" means any one of such promissory notes issued hereunder. "NOTICE OF BORROWING" means a Notice of Committed Borrowing (as defined in Section 2.02) or a Notice of Money Market Borrowing (as defined in Section 2.03(f)). "NOTICE OF INTEREST RATE ELECTION" has the meaning set forth in Section 2.11. "NOTICE OF ISSUANCE" has the meaning set forth in Section 2.16(b). "OFFICER'S CERTIFICATE" means a certificate signed by the President, any Vice-President responsible for financial matters, the Treasurer or the Controller of the Borrower. "PARENT" means, with respect to any Bank, any Person controlling such Bank. "PARTICIPANT" has the meaning set forth in Section 9.06(b). "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "PERSON" means an individual, a corporation, a limited liability company, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "PLAN" means at any time an employee pension benefit plan (other than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and either (i) is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained, or contributed to, by any Person which was at such time a member of the ERISA Group for employees of any Person which was at such time a member of the ERISA Group. "PRICING SCHEDULE" means the Schedule attached hereto identified as such. "PRIME RATE" means the rate of interest publicly announced by Morgan Guaranty Trust Company of New York in New York City from time to time as its Prime Rate. "QUALIFIED DEBT SECURITIES" means Debt securities of the Borrower, provided that the terms of any such Debt security (i) permit the deferral of principal and interest payments (other than Tax Interest) for a period of up to five years (but not beyond the maturity date), as elected by the Borrower, (ii) have a maturity for payment of principal of not less than 14 3/4 years after the date of issuance, and (iii) contain subordination terms substantially consistent with (or more favorable to the Banks than) the subordination terms contained in the form of Indenture for Subordinated Debt Securities filed as an exhibit to the Borrower's Registration Statement on Form S-3 (File No. 33-65471) declared effective by the Securities and Exchange Commission on February 20, 1996. "QUALIFIED DEFERRABLE SECURITIES OBLIGATIONS" means at any date, without duplication, the obligations recorded on the consolidated balance sheet of the Borrower and its Consolidated Subsidiaries in respect of Qualified Debt Securities and Qualified Preferred Securities issued by the Borrower or any Subsidiary. "QUALIFIED PREFERRED SECURITIES" means preferred securities issued by a Subsidiary, the sole purpose of which is to issue such securities and invest the proceeds thereof in Qualified Debt Securities, and which preferred securities are payable solely out of the proceeds of payments on account of such Qualified Debt Securities. Securities designated 'capital securities' or by another name shall be deemed 'Qualified Preferred Securities' if they otherwise meet the requirements set forth herein. "REFERENCE BANKS" means the CD Reference Banks or the Euro-Dollar Reference Banks, as the context may require, and "Reference Bank" means any one of such Reference Banks. "REGULATION U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. "REQUIRED BANKS" means at any time Banks having at least 60% of the aggregate amount of the Commitments or, if the Commitments shall have been terminated, holding Notes evidencing at least 60% of the aggregate unpaid principal amount of the Loans and having at least 60% of the aggregate Letter of Credit Liabilities. "REVOLVING CREDIT PERIOD" means the period from and including the Closing Date to and including the Termination Date. "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 Borrower. "TAX INTEREST" means any additional amounts payable in respect of Qualified Debt Securities to reimburse a Subsidiary issuing any related Qualified Preferred Securities for any taxes or impositions payable by such Subsidiary in respect of such Qualified Debt Securities during any period in which interest payments otherwise have been deferred. "TERMINATION DATE" means December 18, 2002 or, if such day is not a Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day. "TOTAL CAPITAL" means at any date, the consolidated debt and stockholders' equity of the Borrower and the Consolidated Subsidiaries at such date, including Qualified Deferrable Securities Obligations. For purposes of determining "stockholders' equity" when calculating Total Capital, there shall be added any unrealized holding losses (or subtracted any unrealized holding gains), in each case net of relevant adjustments for deferred policy acquisition costs, on account of available-for-sale debt securities to the extent reflected therein (together with other adjustments, all as determined in accordance with Statement of Financial Accounting Standards No. 115 of the Financial Accounting Standards Board, as amended from time to time, or any successor provision thereto). "UNFUNDED LIABILITIES" means, with respect to any Plan at any time, the amount (if any) by which (i) the value of all benefit liabilities under such Plan, determined on a plan termination basis using the assumptions prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market value of all Plan assets allocable to such liabilities under Title IV of ERISA (excluding any accrued but unpaid contributions), all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or any other Person under Title IV of ERISA. "UNITED STATES" means the United States of America, including the States and the District of Columbia, but excluding its territories and possessions. SECTION 1.02. 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 United States generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes concurred in by the Borrower's independent public accountants) with the most recent audited consolidated financial statements of the Borrower and its Consolidated Subsidiaries delivered to the Banks; provided that, if the Borrower notifies the Administrative Agent that the Borrower wishes to amend any covenant in Article 5 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 Borrower that the Required Banks wish to amend Article 5 for such purpose), then the Borrower'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, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrower and the Required Banks. SECTION 1.03. Types of Borrowings. The term "BORROWING" denotes the aggregation of Loans of one or more Banks to be made to the Borrower pursuant to Article 2 on a single date and, except in the case of Base Rate Loans, for a single Interest Period. Borrowings are classified for purposes of this Agreement either by reference to the pricing of Loans comprising such Borrowing (e.g., a "EURO-DOLLAR BORROWING" is a Borrowing comprised of Euro-Dollar Loans) or by reference to the provisions of Article 2 under which participation therein is determined (i.e., a "Committed Borrowing" is a Borrowing under Section 2.01 in which all Banks participate in proportion to their Commitments, while a "MONEY MARKET BORROWING" is a Borrowing under Section 2.03 in which the Bank participants are determined on the basis of their bids in accordance therewith). ARTICLE 2 THE CREDITS SECTION 2.01. Commitments to Lend. During the Revolving Credit Period, each Bank severally agrees, on the terms and conditions set forth in this Agreement, to make loans to the Borrower pursuant to this Section from time to time in amounts such that the aggregate principal amount of Committed Loans by such Bank at any one time outstanding plus its Letter of Credit Liabilities shall not exceed the amount of its Commitment. Each Borrowing under this Section 2.01 shall be in an aggregate principal amount of $5,000,000 or any larger multiple of $1,000,000 (except that any such Borrowing may be in the aggregate amount available in accordance with Section 3.02(c)) and shall be made from the several Banks ratably in proportion to their respective Commitments. Within the foregoing limits, the Borrower may borrow under this Section 2.01, repay, or to the extent permitted by Section 2.12, prepay Loans and reborrow at any time during the Revolving Credit Period under this Section 2.01. SECTION 2.02. Notice of Committed Borrowing. The Borrower shall give the Administrative Agent notice (a "NOTICE OF COMMITTED BORROWING") not later than 10:30 A.M. (New York City time) on (x) the date of each Base Rate Borrowing, (y) the second Domestic Business Day before each CD Borrowing and (z) the third Euro-Dollar Business Day before each Euro-Dollar Borrowing, specifying: (a) the date of such Borrowing, which shall be a Domestic Business Day in the case of a Domestic Borrowing or a Euro-Dollar Business Day in the case of a Euro-Dollar Borrowing, (b) the aggregate amount of such Borrowing, (c) whether the Loans comprising such Borrowing are to be CD Loans, Base Rate Loans or Euro-Dollar Loans, and (d) in the case of a Fixed Rate Borrowing, the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period. SECTION 2.03. Money Market Borrowings. (a) The Money Market Option. In addition to Committed Borrowings pursuant to Section 2.01, the Borrower may, as set forth in this Section, request the Banks during the Revolving Credit Period to make offers to make Money Market Loans to the Borrower. The Banks may, but shall have no obligation to, make such offers and the Borrower may, but shall have no obligation to, accept any such offers in the manner set forth in this Section. (b) Money Market Quote Request. When the Borrower wishes to request offers to make Money Market Loans under this Section, it shall transmit to the Administrative Agent by telex or facsimile transmission a Money Market Quote Request substantially in the form of Exhibit B hereto so as to be received no later than 10:30 A.M. (New York City time) on (x) the fifth Euro-Dollar Business Day prior to the date of Borrowing proposed therein, in the case of a LIBOR Auction or (y) the Domestic Business Day next preceding the date of Borrowing proposed therein, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Administrative Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective) specifying: (i) the proposed date of Borrowing, which shall be a Euro-Dollar Business Day in the case of a LIBOR Auction or a Domestic Business Day in the case of an Absolute Rate Auction, (ii) the aggregate amount of such Borrowing, which shall be $5,000,000 or a larger multiple of $1,000,000, (iii) the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period, and (iv) whether the Money Market Quotes requested are to set forth a Money Market Margin or a Money Market Absolute Rate. The Borrower may request offers to make Money Market Loans for more than one Interest Period in a single Money Market Quote Request. No Money Market Quote Request shall be given within five Euro-Dollar Business Days (or such other number of days as the Borrower and the Administrative Agent may agree) of any other Money Market Quote Request. (c) Invitation for Money Market Quotes. Promptly upon receipt of a Money Market Quote Request, the Administrative Agent shall send to the Banks by telex or facsimile transmission an Invitation for Money Market Quotes substantially in the form of Exhibit C hereto, which shall constitute an invitation by the Borrower to each Bank to submit Money Market Quotes offering to make the Money Market Loans to which such Money Market Quote Request relates in accordance with this Section. (d) Submission and Contents of Money Market Quotes. (i) Each Bank may submit a Money Market Quote containing an offer or offers to make Money Market Loans in response to any Invitation for Money Market Quotes. Each Money Market Quote must comply with the requirements of this subsection (d) and must be submitted to the Administrative Agent by telex or facsimile transmission at its offices specified in or pursuant to Section 9.01 not later than (x) 2:00 P.M. (New York City time) on the fourth Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) 9:30 A.M. (New York City time) on the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Administrative Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective); provided that Money Market Quotes submitted by the Administrative Agent (or any affiliate of the Administrative Agent) in the capacity of a Bank may be submitted, and may only be submitted, if the Administrative Agent or such affiliate notifies the Borrower of the terms of the offer or offers contained therein not later than (x) one hour prior to the deadline for the other Banks, in the case of a LIBOR Auction or (y) 15 minutes prior to the deadline for the other Banks, in the case of an Absolute Rate Auction. Subject to Articles 3 and 6, any Money Market Quote so made shall be irrevocable except with the written consent of the Administrative Agent given on the instructions of the Borrower. (ii) Each Money Market Quote shall be in substantially the form of Exhibit D hereto and shall in any case specify: (A) the proposed date of Borrowing, (B) the principal amount of the Money Market Loan for which each such offer is being made, which principal amount (w) may be greater than or less than the Commitment of the quoting Bank, (x) must be $5,000,000 or a larger multiple of $1,000,000, (y) may not exceed the principal amount of Money Market Loans for which offers were requested and (z) may be subject to an aggregate limitation as to the principal amount of Money Market Loans for which offers being made by such quoting Bank may be accepted, (C) in the case of a LIBOR Auction, the margin above or below the applicable London Interbank Offered Rate (the "Money Market Margin") offered for each such Money Market Loan, expressed as a percentage (specified to the nearest 1/10,000th of 1%) to be added to or subtracted from such base rate, (D) in the case of an Absolute Rate Auction, the rate of interest per annum (specified to the nearest 1/10,000th of 1%) (the "Money Market Absolute Rate") offered for each such Money Market Loan, and (E) the identity of the quoting Bank. A Money Market Quote may set forth up to five separate offers by the quoting Bank with respect to each Interest Period specified in the related Invitation for Money Market Quotes. (iii) Any Money Market Quote shall be disregarded if it: (A) is not substantially in conformity with Exhibit D hereto or does not specify all of the information required by subsection (d)(ii); (B) contains qualifying, conditional or similar language; (C) proposes terms other than or in addition to those set forth in the applicable Invitation for Money Market Quotes; or (D) arrives after the time set forth in subsection (d)(i). (e) Notice to Borrower. The Administrative Agent shall promptly notify the Borrower of the terms (x) of any Money Market Quote submitted by a Bank that is in accordance with subsection (d) and (y) of any Money Market Quote that amends, modifies or is otherwise inconsistent with a previous Money Market Quote submitted by such Bank with respect to the same Money Market Quote Request. Any such subsequent Money Market Quote shall be disregarded by the Administrative Agent unless such subsequent Money Market Quote is submitted solely to correct a manifest error in such former Money Market Quote. The Administrative Agent's notice to the Borrower shall specify (A) the aggregate principal amount of Money Market Loans for which offers have been received for each Interest Period specified in the related Money Market Quote Request, (B) the respective principal amounts and Money Market Margins or Money Market Absolute Rates, as the case may be, so offered and (C) if applicable, limitations on the aggregate principal amount of Money Market Loans for which offers in any single Money Market Quote may be accepted. (f) Acceptance and Notice by Borrower. Not later than 10:30 A.M. (New York City time) on (x) the third Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Administrative Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective), the Borrower shall notify the Administrative Agent of its acceptance or non-acceptance of the offers so notified to it pursuant to subsection (e). In the case of acceptance, such notice (a "Notice of Money Market Borrowing") shall specify the aggregate principal amount of offers for each Interest Period that are accepted. The Borrower may accept any Money Market Quote in whole or in part; provided that: (i) the aggregate principal amount of each Money Market Borrowing may not exceed the applicable amount set forth in the related Money Market Quote Request, (ii) the principal amount of each Money Market Borrowing must be $5,000,000 or a larger multiple of $1,000,000, (iii) acceptance of offers may only be made on the basis of ascending Money Market Margins or Money Market Absolute Rates, as the case may be, and (iv) the Borrower may not accept any offer that is described in subsection (d)(iii) or that otherwise fails to comply with the requirements of this Agreement. (g) Allocation by Administrative Agent. If offers are made by two or more Banks with the same Money Market Margins or Money Market Absolute Rates, as the case may be, for a greater aggregate principal amount than the amount in respect of which such offers are accepted for the related Interest Period, the principal amount of Money Market Loans in respect of which such offers are accepted shall be allocated by the Administrative Agent among such Banks as nearly as possible (in multiples of $1,000,000, as the Administrative Agent may deem appropriate) in proportion to the aggregate principal amounts of such offers. Determinations by the Administrative Agent of the amounts of Money Market Loans shall be conclusive in the absence of manifest error. SECTION 2.04. Notice to Banks; Funding of Loans. (a) Upon receipt of a Notice of Borrowing, the Administrative Agent shall promptly notify each Bank of the contents thereof and of such Bank's share (if any) of such Borrowing and such Notice of Borrowing shall not thereafter be revocable by the Borrower. (b) Not later than 12:00 Noon (New York City time) on the date of each Borrowing, each Bank participating therein shall make available its share of such Borrowing, in Federal or other funds immediately available in New York City, to the Administrative Agent at its address referred to in Section 9.01. Unless the Administrative Agent determines that any applicable condition specified in Article 3 has not been satisfied, the Administrative Agent will make the funds so received from the Banks available to the Borrower at the Administrative Agent's aforesaid address. (c) Unless the Administrative Agent shall have received notice from a Bank prior to the date of any Borrowing that such Bank will not make available to the Administrative Agent such Bank's share of such Borrowing, the Administrative Agent may assume that such Bank has made such share available to the Administrative Agent on the date of such Borrowing in accordance with subsection (b) of this Section 2.04 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 Bank shall not have so made such share available to the Administrative Agent, such Bank and the Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent, at (i) in the case of the Borrower, a rate per annum equal to the higher of the Federal Funds Rate and the interest rate applicable thereto pursuant to Section 2.07 and (ii) in the case of such Bank, the Federal Funds Rate. If such Bank shall repay to the Administrative Agent such corresponding amount, such amount so repaid shall constitute such Bank's Loan included in such Borrowing for purposes of this Agreement. Nothing in this subsection (c) shall be deemed to relieve any Bank from its obligation to extend Loans hereunder or to prejudice any rights which the Borrower may have against any Bank as a result of any default by such Bank hereunder. The failure of any Bank to make Loans hereunder shall not relieve any other Bank from its obligation to make the Loans required to be made by it hereunder. SECTION 2.05. Notes. (a) The Loans of each Bank shall be evidenced by a single Note payable to the order of such Bank for the account of its Applicable Lending Office in an amount equal to the aggregate unpaid principal amount of such Bank's Loans. (b) Each Bank may, by notice to the Borrower and the Administrative Agent, request that its Loans of a particular type be evidenced by a separate Note in an amount equal to the aggregate unpaid principal amount of such Loans. Each such Note shall be in substantially the form of Exhibit A hereto with appropriate modifications to reflect the fact that it evidences solely Loans of the relevant type. Each reference in this Agreement to the "Note" of such Bank shall be deemed to refer to and include any or all of such Notes, as the context may require. (c) Upon receipt of each Bank's Note pursuant to Section 3.01(a), the Administrative Agent shall forward such Note to such Bank. Each Bank shall record the date, amount, type and maturity of each Loan made by it and the date and amount of each payment of principal made by the Borrower with respect thereto, and may, if such Bank so elects in connection with any transfer or enforcement of its Note, endorse on the schedule forming a part thereof appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding; provided that the failure of any Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Notes. Each Bank is hereby irrevocably authorized by the Borrower so to endorse its Note and to attach to and make a part of its Note a continuation of any such schedule as and when required. SECTION 2.06. Maturity of Loans. (a) The Committed Loans shall mature, and the principal amount thereof shall be due and payable, together with accrued interest thereon, on the Termination Date. (b) Each Money Market Loan included in any Money Market Borrowing shall mature, and the principal amount thereof shall be due and payable, together with accrued interest thereon, on the last day of the Interest Period applicable to such Money Market Borrowing. SECTION 2.07. Interest Rates. (a) Each Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it becomes due, at a rate per annum equal to the Base Rate for such day. Such interest shall be payable at maturity, quarterly in arrears on the first day of each March, June, September and December prior to maturity, and with respect to the principal amount of any Base Rate Loan converted to a CD Loan or a Euro-Dollar Loan, on the date such amount is so converted. Any overdue principal of or interest on any Base Rate Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the rate otherwise applicable to Base Rate Loans for such day. (b) Each CD Loan shall bear interest on the outstanding principal amount thereof, for each day during each Interest Period applicable thereto, at a rate per annum equal to the sum of the CD Margin for such day plus the Adjusted CD Rate applicable to such Interest Period; provided that if any CD Loan or any portion thereof shall, as a result of clause (b)(ii) of the definition of Interest Period, have an Interest Period of less than 30 days, such portion shall bear interest during such Interest Period at the rate applicable to Base Rate Loans during such period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than 90 days, at intervals of 90 days after the first day thereof. Any overdue principal of or interest on any CD Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the higher of (i) the sum of the CD Margin for such day plus the Adjusted CD Rate applicable to such Loan at the date such payment was due and (ii) the rate applicable to Base Rate Loans for such day. "CD MARGIN" means a rate per annum determined in accordance with the Pricing Schedule. The "ADJUSTED CD RATE" applicable to any Interest Period means a rate per annum determined pursuant to the following formula: [ CDBR ]* ACDR = [ ---------- ] + AR [ 1.00 - DRP ] ACDR = Adjusted CD Rate CDBR = CD Base Rate DRP = Domestic Reserve Percentage AR = Assessment Rate ---------- * The amount in brackets being rounded upward, if necessary, to the next higher 1/100 of 1% The "CD BASE RATE" applicable to any Interest Period is the rate of interest determined by the Administrative Agent to be the average (rounded upward, if necessary, to the next higher 1/100 of 1%) of the prevailing rates per annum bid at 10:00 A.M. (New York City time) (or as soon thereafter as practicable) on the first day of such Interest Period by two or more New York certificate of deposit dealers of recognized standing for the purchase at face value from each CD Reference Bank of its certificates of deposit in an amount comparable to the principal amount of the CD Loan of such CD Reference Bank to which such Interest Period applies and having a maturity comparable to such Interest Period. "DOMESTIC RESERVE PERCENTAGE" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including without limitation any basic, supplemental or emergency reserves) for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of new non-personal time deposits in dollars in New York City having a maturity comparable to the related Interest Period and in an amount of $100,000 or more. The Adjusted CD Rate shall be adjusted automatically on and as of the effective date of any change in the Domestic Reserve Percentage. "ASSESSMENT RATE" means for any day the annual assessment rate in effect on such day which is payable by a member of the Bank Insurance Fund classified as adequately capitalized and within supervisory subgroup "A" (or a comparable successor assessment risk classification) within the meaning of 12 C.F.R. Section 327.4(a) (or any successor provision) to the Federal Deposit Insurance Corporation (or any successor) for such Corporation's (or such successor's) insuring time deposits at offices of such institution in the United States. The Adjusted CD Rate shall be adjusted automatically on and as of the effective date of any change in the Assessment Rate. (c) Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for each day during each Interest Period applicable thereto, at a rate per annum equal to the sum of the Euro-Dollar Margin for such day plus the Adjusted London Interbank Offered Rate applicable to such Interest Period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. "EURO-DOLLAR MARGIN" means a rate per annum determined in accordance with the Pricing Schedule. The "ADJUSTED LONDON INTERBANK OFFERED RATE" applicable to any Interest Period means a rate per annum equal to the quotient obtained (rounded upward, if necessary, to the next higher 1/100 of 1%) by dividing (i) the applicable London Interbank Offered Rate by (ii) 1.00 minus the Euro-Dollar Reserve Percentage. The "LONDON INTERBANK OFFERED RATE" applicable to any Interest Period means the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which deposits in dollars are offered to each of the Euro-Dollar Reference Banks in the London interbank market at approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the first day of such Interest Period in an amount approximately equal to the principal amount of the Euro-Dollar Loan of such Euro-Dollar Reference Bank to which such Interest Period is to apply and for a period of time comparable to such Interest Period. "EURO-DOLLAR RESERVE PERCENTAGE" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of "Eurocurrency liabilities" (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Bank to United States residents). The Adjusted London Interbank Offered Rate shall be adjusted automatically on and as of the effective date of any change in the Euro-Dollar Reserve Percentage. (d) Any overdue principal of or interest on any Euro-Dollar Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the higher of (i) the sum of 2% plus the Euro-Dollar Margin for such day plus the Adjusted London Interbank Offered Rate applicable to the Interest Period for such Loan and (ii) the sum of 2% plus the Euro-Dollar Margin for such day plus the quotient obtained (rounded upward, if necessary, to the next higher 1/100 of 1%) by dividing (x) the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which one day (or, if such amount due remains unpaid more than three Euro-Dollar Business Days, then for such other period of time not longer than six months as the Administrative Agent may select) deposits in dollars in an amount approximately equal to such overdue payment due to each of the Euro-Dollar Reference Banks are offered to such Euro-Dollar Reference Bank in the London interbank market for the applicable period determined as provided above by (y) 1.00 minus the Euro-Dollar Reserve Percentage (or, if the circumstances described in clause (a) or (b) of Section 8.01 shall exist, at a rate per annum equal to the sum of 2% plus the rate applicable to Base Rate Loans for such day). (e) Subject to Section 8.01(a), each Money Market LIBOR Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the sum of the London Interbank Offered Rate for such Interest Period (determined in accordance with Section 2.07(c) as if the related Money Market LIBOR Borrowing were a Committed Euro-Dollar Borrowing) plus (or minus) the Money Market Margin quoted by the Bank making such Loan in accordance with Section 2.03. Each Money Market Absolute Rate Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the Money Market Absolute Rate quoted by the Bank making such Loan in accordance with Section 2.03. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. Any overdue principal of or interest on any Money Market Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the Base Rate for such day. (f) The Administrative Agent shall determine each interest rate applicable to the Loans hereunder. The Administrative Agent shall give prompt notice to the Borrower and the participating Banks of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. (g) Each Reference Bank agrees to use its best efforts to furnish quotations to the Administrative Agent as contemplated by this Section. If any Reference Bank does not furnish a timely quotation, the Administrative Agent shall determine the relevant interest rate on the basis of the quotation or quotations furnished by the remaining Reference Bank or Banks or, if none of such quotations is available on a timely basis, the provisions of Section 8.01 shall apply. SECTION 2.08. Fees. (a) The Borrower shall pay to the Administrative Agent for the account of the Banks ratably a facility fee at the Facility Fee Rate (determined daily in accordance with the Pricing Schedule). Such facility fee shall accrue (i) from and including the date of this Agreement to but excluding the Termination Date (or earlier date of termination of the Commitments in their entirety), on the daily aggregate amount of the Commitments (whether used or unused) and (ii) from and including the Termination Date or such earlier date of termination to but excluding the date the Loans and the Letter of Credit Liabilities shall be repaid in their entirety, on the sum of the daily aggregate outstanding principal amount of the Loans and the daily aggregate amount of Letter of Credit Liabilities. (b) The Borrower shall pay to (i) the Administrative Agent for the account of the Banks ratably a letter of credit fee accruing daily on the aggregate amount then available for drawing under all Letters of Credit at the LC Fee Rate (determined daily in accordance with the Pricing Schedule) and (ii) each Issuing Bank a letter of credit fronting fee accruing daily on the aggregate amount then available for drawing under all Letters of Credit issued by such Issuing Bank at a rate per annum agreed upon by the Borrower and such Issuing Bank. (c) Accrued fees under this Section shall be payable quarterly, commencing on December 31, 1997, on each March 31, June 30, September 30 and December 31 and upon the date of termination of the Commitments in their entirety (and, if later, the date the Loans and the aggregate amount of Letter of Credit Liabilities shall be repaid in their entirety). SECTION 2.09. Optional Termination or Reduction of Commitments. The Borrower may, upon at least three Domestic Business Days' notice to the Administrative Agent, (i) terminate the Commitments at any time, if no Loans, Alternative Currency Advances or Letter of Credit Liabilities are outstanding at such time or (ii) ratably reduce from time to time by an aggregate amount of $10,000,000 or any larger multiple of $5,000,000, the aggregate amount of the Commitments in excess of the sum of (x) the aggregate outstanding principal amount of the Loans, (y) the aggregate Dollar Equivalent of all Alternative Currency Advances outstanding and (z) the aggregate amount of Letter of Credit Liabilities. Upon receipt of any notice pursuant to this Section 2.09, the Administrative Agent shall promptly notify each Bank of the contents thereof. SECTION 2.10. Mandatory Termination of Commitments. The Commitments shall terminate on the Termination Date. SECTION 2.11. Method of Electing Interest Rates. (a) The Loans included in each Committed Borrowing shall bear interest initially at the type of rate specified by the Borrower in the applicable Notice of Committed Borrowing. Thereafter, the Borrower may from time to time elect to change or continue the type of interest rate borne by each Group of Loans (subject to subsection (d) of this Section and the provisions of Article 8), as follows: (i) if such Loans are Base Rate Loans, the Borrower may elect to convert such Loans to CD Loans as of any Domestic Business Day or to Euro-Dollar Loans as of any Euro-Dollar Business Day; (ii) if such Loans are CD Loans, the Borrower may elect to convert such Loans to Base Rate Loans or Euro-Dollar Loans or elect to continue such Loans as CD Loans for an additional Interest Period, subject to Section 2.14 if any such conversion or continuation is effective on any day other than the last day of an Interest Period applicable to such Loans; and (iii) if such Loans are Euro-Dollar Loans, the Borrower may elect to convert such Loans to Base Rate Loans or CD Loans or elect to continue such Loans as Euro-Dollar Loans for an additional Interest Period, subject to Section 2.14 if any such conversion or continuation is effective on any day other than the last day of an Interest Period applicable to such Loans. Each such election shall be made by delivering a notice (a "NOTICE OF INTEREST RATE ELECTION") to the Administrative Agent not later than 10:30 A.M. (New York City time) on the third Euro-Dollar Business Day before the conversion or continuation selected in such notice is to be effective (unless the relevant Loans are to be converted from Domestic Loans of one type to Domestic Loans of the other type or are CD Loans to be continued as CD Loans for an additional Interest Period, in which case such notice shall be delivered to the Administrative Agent not later than 10:30 A.M. (New York City time) on the second Domestic Business Day before such conversion or continuation is to be effective). A Notice of Interest Rate Election may, if it so specifies, apply to only a portion of the aggregate principal amount of the relevant Group of Loans; provided that (i) such portion is allocated ratably among the Loans comprising such Group and (ii) the portion to which such Notice applies, and the remaining portion to which it does not apply, are each at least $5,000,000 or any larger amount in multiples of $1,000,000 (unless such portion is comprised of Base Rate Loans). If no such notice is timely received before the end of an Interest Period for any Group of CD Loans or Euro-Dollar Loans, the Borrower shall be deemed to have elected that such Group of Loans be converted to Base Rate Loans at the end of such Interest Period. (b) Each Notice of Interest Rate Election shall specify: (i) the Group of Loans (or portion thereof) to which such notice applies; (ii) the date on which the conversion or continuation selected in such notice is to be effective, which shall comply with the applicable clause of subsection (a) above; (iii) if the Loans comprising such Group are to be converted, the new type of Loans and, if the Loans resulting from such conversion are to be CD Loans or Euro-Dollar Loans, the duration of the next succeeding Interest Period applicable thereto; and (iv) if such Loans are to be continued as CD Loans or Euro-Dollar Loans for an additional Interest Period, the duration of such additional Interest Period. Each Interest Period specified in a Notice of Interest Rate Election shall comply with the provisions of the definition of Interest Period. (c) Promptly after receiving a Notice of Interest Rate Election from the Borrower pursuant to subsection (a) above, the Administrative Agent shall notify each Bank of the contents thereof and such notice shall not thereafter be revocable by the Borrower. (d) The Borrower shall not be entitled to elect to convert any Committed Loans to, or continue any Committed Loans for an additional Interest Period as, CD Loans or Euro-Dollar Loans if (i) the aggregate principal amounts of any Group of CD Loans or Euro-Dollar Loans created or continued as a result of such election would be less than $5,000,000 or (ii) a Default shall have occurred and be continuing when the Borrower delivers notice of such election to the Administrative Agent. SECTION 2.12. Mandatory or Optional Prepayments. (a) If, on any date the sum of (i) the aggregate outstanding principal amount of the Loans, (ii) the aggregate Dollar Equivalent of all Alternative Currency Advances then outstanding and (iii) the aggregate amount of Letter of Credit Liabilities exceeds 105% of the aggregate amount of the Commitments, then, the Borrower shall within five Euro-Dollar Business Days prepay outstanding Committed Loans or Alternative Currency Advances (as selected by the Borrower and notified to the Banks through the Administrative Agent not less than three Euro-Dollar Business Days prior to the date of prepayment) to the extent necessary to eliminate any such excess. (b) Subject in the case of any Fixed Rate Borrowing to Section 2.14, the Borrower may, upon at least three Domestic Business Days' notice (except in the case of Base Rate Loans, in which case upon one Domestic Business Day's notice) to the Administrative Agent, prepay any Group of Domestic Loans (or Money Market Loans bearing interest at the Base Rate pursuant to Section 8.01(a)) or upon at least three Euro-Dollar Business Days' notice to the Administrative Agent, prepay any Group of Euro-Dollar Loans, in each case in whole at any time, or from time to time in part in amounts aggregating $5,000,000 or any larger multiple of $1,000,000, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment. Each such optional prepayment shall be applied to prepay ratably the Loans of the several Banks included in such Group or Borrowing. (c) Except as provided in Section 2.12(b), the Borrower may not prepay all or any portion of the principal amount of any Money Market Loan prior to the maturity thereof except with the consent of the Bank which made such Loan. (d) Upon receipt of a notice of prepayment pursuant to this Section, the Administrative Agent shall promptly notify each Bank of the contents thereof and of such Bank's ratable share (if any) of such prepayment and such notice shall not thereafter be revocable by the Borrower. SECTION 2.13. General Provisions as to Payments. (a) The Borrower shall make each payment of principal of, and interest on, the Loans and of Letter of Credit Liabilities and interest thereon and of fees hereunder (other than fees payable directly to the Issuing Bank), not later than 12:00 Noon (New York City time) on the date when due, in Federal or other funds immediately available in New York City and without offset or counterclaim, to the Administrative Agent at its address referred to in Section 9.01. The Administrative Agent will promptly distribute to each Bank its ratable share of each such payment received by the Administrative Agent for the account of the Banks. Whenever any payment of principal of, or interest on, the Domestic Loans or of Letter of Credit Liabilities or interest thereon or of fees shall be due on a day which is not a Domestic Business Day, the date for payment thereof shall be extended to the next succeeding Domestic Business Day. Whenever any payment of principal of, or interest on, the Euro-Dollar Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case the date for payment thereof shall be the next preceding Euro-Dollar Business Day. Whenever any payment of principal of, or interest on, the Money Market Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day. If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time. (b) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Banks 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 Bank on such due date an amount equal to the amount then due such Bank. If and to the extent that the Borrower shall not have so made such payment, each Bank shall repay to the Administrative Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Administrative Agent, at the Federal Funds Rate. SECTION 2.14. Funding Losses. If the Borrower makes any payment of principal with respect to any Fixed Rate Loan or any Fixed Rate Loan is continued for an additional Interest Period or converted to a different type of Loan (pursuant to Article 2, 6 or 8 or otherwise) on any day other than the last day of an Interest Period applicable thereto, or the last day of an applicable period fixed pursuant to Section 2.07(d), or if the Borrower fails to borrow, prepay, convert or continue any Fixed Rate Loans after notice has been given to any Bank in accordance with Section 2.04(a), 2.11(c) or 2.12(d), the Borrower shall reimburse each Bank within 15 days after demand for any resulting loss or expense incurred by it (or by an existing or prospective Participant in the related Loan), including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after any such payment, conversion or continuation or failure to borrow, prepay, convert or continue, provided that such Bank shall have delivered to the Borrower a certificate as to the amount of such loss or expense, which certificate shall be conclusive in the absence of manifest error. SECTION 2.15. Computation of Interest and Fees. Interest based on the Prime Rate hereunder shall be computed on the basis of a year of 365 days (or 366 days in a leap year) and paid for the actual number of days elapsed (including the first day but excluding the last day). All other interest and fees shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day). SECTION 2.16. Letters of Credit. (a) Subject to the terms and conditions hereof, each Issuing Bank agrees to issue standby letters of credit (the "Letters of Credit") hereunder from time to time before the tenth day before the Termination Date upon the request, and for the account, of the Borrower or, on a joint and several basis, the Borrower and each Subsidiary signing such request (each, a "Co-Applicant"); provided that, immediately after each Letter of Credit is issued, (i) the aggregate amount of the Letter of Credit Liabilities shall not exceed the Letter of Credit Commitment and (ii) the aggregate amount of the Letter of Credit Liabilities plus the aggregate outstanding amount of all Loans plus the aggregate Dollar Equivalent of all Alternative Currency Advances then outstanding shall not exceed the aggregate amount of the Commitments. Upon the date of issuance by an Issuing Bank of a Letter of Credit (or upon the Closing Date with respect to any Existing Letter of Credit), the Issuing Bank shall be deemed, without further action by any party hereto, to have sold to each Bank, and each Bank shall be deemed, without further action by any party hereto, to have purchased from the Issuing Bank, a participation in such Letter of Credit and the related Letter of Credit Liabilities in the proportion their respective Commitments bear to the aggregate Commitments. (b) (i) The Borrower shall give the Issuing Bank notice, by a Letter of Credit Request in the form of Exhibit I hereto, at least three Domestic Business Days prior to the requested issuance of a Letter of Credit specifying the beneficiary thereof and its address, the conditions under which a drawing may be made thereunder, the date such Letter of Credit is to be issued, the maximum amount thereof, the name and address of each Co-Applicant (if any) therefor and the terms of such Letter of Credit and the nature of the transactions to be supported thereby (such notice, including any such notice given in connection with the extension of a Letter of Credit, a "Notice of Issuance"). (ii) Upon receipt of a Notice of Issuance, the Issuing Bank shall promptly notify the Administrative Agent, and the Administrative Agent shall promptly notify each Bank, of the contents thereof and of the amount of such Bank's participation in such Letter of Credit. The issuance by the Issuing Bank of each Letter of Credit shall, in addition to the conditions precedent set forth in Article 3, be subject to the conditions precedent that (i) such Letter of Credit shall be substantially in the form of Exhibit J hereto or in such other form and contain such other terms as shall be reasonably satisfactory to the Issuing Bank, (ii) the Borrower and each Co-Applicant (if any) shall have executed and delivered such other instruments and agreements relating to such Letter of Credit as the Issuing Bank shall have reasonably requested and (iii) the Administrative Agent shall have received the related Letter of Credit Request signed by such Co-Applicant (if any). (iii) The extension or renewal of any Letter of Credit shall be deemed for all purposes of this Agreement to be an issuance of such Letter of Credit, and if any Letter of Credit contains a provision pursuant to which it is deemed to be extended unless notice of termination is given by the Issuing Bank, the Issuing Bank shall timely give such notice of termination unless it has theretofore timely received a Notice of Issuance and the other conditions to issuance of a Letter of Credit have also theretofore been met with respect to such extension, provided that no failure by the Issuing Bank to give any such notice of termination and no delay in giving any such notice shall affect the obligations of (i) the Borrower or any Co-Applicant to reimburse the Issuing Bank for any drawing under any Letter of Credit or (ii) any Banks to pay to the Issuing Bank an amount in respect of such Bank's ratable share of any such drawing. (iv) No Letter of Credit shall have a term of more than one year; provided that a Letter of Credit may contain a provision pursuant to which it is deemed to be extended on an annual basis unless notice of termination is given by the Issuing Bank; provided further that, notwithstanding any other provision of this Agreement to the contrary, no Letter of Credit shall mature after, or have a term extending or be extendible beyond, the Termination Date. (v) Each Letter of Credit shall be subject to the "Uniform Customs and Practice for Documentary Credits" of the International Chamber of Commerce, to the extent provided for in Exhibit J and (ii) be satisfactory in form to satisfy applicable regulatory requirements. (c) Upon receipt from the beneficiary of any Letter of Credit of any notice of a drawing under such Letter of Credit, the Issuing Bank shall notify the Administrative Agent and the Administrative Agent shall promptly notify the Borrower and each Co-Applicant (if any) and each other Bank as to the amount to be paid as a result of such drawing and the payment date therefor. The Borrower and each such Co-Applicant shall jointly and severally be irrevocably and unconditionally obligated forthwith to reimburse the Issuing Bank for any amounts paid by the Issuing Bank upon any drawing under any Letter of Credit, without presentment, demand, protest or other formalities of any kind. All such amounts paid by the Issuing Bank and remaining unpaid by the Borrower and each such Co-Applicant shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the rate applicable to Base Rate Loans for such day. In addition, each Bank will pay to the Administrative Agent, for the account of the Issuing Bank, immediately upon the Issuing Bank's demand at any time during the period commencing after such drawing until reimbursement therefor in full by the Borrower and each such Co-Applicant, an amount equal to such Bank's ratable share of such drawing (in proportion to its participation therein), together with interest on such amount for each day from the date of the Issuing Bank's demand for such payment (or, if such demand is made after 12:00 Noon (New York City time) on such date, from the next succeeding Domestic Business Day) to the date of payment by such Bank of such amount at a rate of interest per annum equal to the rate applicable to Base Rate Loans for such period. Each Bank shall also be liable for its pro rata share of any amounts paid by the Borrower or any Co-Applicant that are subsequently rescinded or avoided, or must otherwise be restored or returned. Except to the extent attributable to the gross negligence or willful misconduct of the Issuing Bank in honoring a drawing under the relevant Letter of Credit, such liabilities shall be unconditional and without regard to the occurrence of any Default or the compliance by the Borrower or any Co-Applicant with any of its obligations under this Agreement or any related document. The Issuing Bank will pay to each Bank ratably all amounts received from the Borrower for application in payment of its reimbursement obligations in respect of any Letter of Credit, but only to the extent such Bank has made payment to the Issuing Bank in respect of such Letter of Credit pursuant hereto. (d) The obligations of the Borrower and each Co-Applicant (if any) and each Bank under subsection (c) above shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement, under all circumstances whatsoever, including without limitation the following circumstances: (i) any lack of validity or enforceability of this Agreement or any Letter of Credit or any document related hereto or thereto; (ii) any amendment or waiver of or any consent to departure from all or any of the provisions of this Agreement or any Letter of Credit or any document related hereto or thereto; (iii) the use which may be made of the Letter of Credit by, or any acts or omission of, a beneficiary of a Letter of Credit (or any Person for whom the beneficiary may be acting); (iv) the existence of any claim, set-off, defense or other right that the Borrower or any Co-Applicant may have at any time against a beneficiary of a Letter of Credit (or any Person for whom the beneficiary may be acting), the Banks or any of them (including the Issuing Bank) or any other Person, whether in connection with this Agreement or the Letter of Credit or any document related hereto or thereto or any unrelated transaction; (v) any statement or any other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect whatsoever; (vi) payment under a Letter of Credit against presentation to the Issuing Bank of a draft or certificate that does not comply with the terms of the Letter of Credit, provided that the Issuing Bank's determination that documents presented under the Letter of Credit comply with the terms thereof shall not have constituted gross negligence or willful misconduct of the Issuing Bank; or (vii) any other act or omission to act or delay of any kind by any Bank (including the Issuing Bank), the Administrative Agent or any other Person or any other event or circumstance whatsoever that might, but for the provisions of this subsection (vii), constitute a legal or equitable discharge of the Borrower's or the relevant Co-Applicant's or any Bank's obligations hereunder. (e) The Borrower (and each Co-Applicant (if any) to the extent of claims, damages, losses, liabilities, costs and expenses attributable, directly or indirectly, to Letters of Credit issued for its account) hereby indemnifies and holds harmless each Bank (including each Issuing Bank) and the Administrative Agent from and against any and all claims, damages, losses, liabilities, costs or expenses which such Bank or the Administrative Agent may incur (including, without limitation, any claims, damages, losses, liabilities, costs or expenses which the Issuing Bank may incur by reason of or in connection with the failure of any other Bank to fulfill or comply with its obligations to such Issuing Bank hereunder (but nothing herein contained shall affect any rights the Borrower may have against such defaulting Bank)), and none of the Banks (including an Issuing Bank) nor the Administrative Agent nor any of their officers or directors or employees or agents shall be liable or responsible, by reason of or in connection with the execution and delivery or transfer of or payment or failure to pay under any Letter of Credit, including without limitation any of the circumstances enumerated in subsection (d) above, as well as (i) any error, omission, interruption or delay in transmission or delivery of any messages, by mail, cable, telegraph, telex or otherwise, (ii) any error in interpretation of technical terms, (iii) any loss or delay in the transmission of any document required in order to make a drawing under a Letter of Credit, (iv) any consequences arising from causes beyond the control of the Issuing Bank, including without limitation any government acts, or any other circumstances whatsoever in making or failing to make payment under such Letter of Credit; provided that neither the Borrower nor any relevant Co-Applicant shall be required to indemnify the Issuing Bank for any claims, damages, losses, liabilities, costs or expenses, and the Borrower and any such Co-Applicant shall have a claim for direct (but not consequential) damage suffered by it, to the extent found by a court of competent jurisdiction to have been caused by (x) the willful misconduct or gross negligence of the Issuing Bank in determining whether a request presented under any Letter of Credit complied with the terms of such Letter of Credit or (y) the Issuing Bank's failure to pay under any Letter of Credit after the presentation to it of a request strictly complying with the terms and conditions of the Letter of Credit. Nothing in this subsection (e) is intended to limit the obligations of the Borrower under any other provision of this Agreement. To the extent the Borrower does not indemnify an Issuing Bank as required by this subsection, the Banks agree to do so ratably in accordance with their Commitments. (f) The parties hereto agree that in making any payment under any Letter of Credit none of the following shall constitute or be deemed to constitute the wilful misconduct or gross negligence of the Issuing Bank: (i) the Issuing Bank's exclusive reliance on any document (including without limitation any draft) presented to it under such Letter of Credit as to any and all matters set forth therein, including reliance on the amount of any draft presented thereunder, whether or not the amount due to the beneficiary thereof equals the amount of such draft, and whether or not any document presented thereunder proves to be inaccurate or otherwise insufficient in any respect, if such document on its face appears to be in order and whether or not such document or any statement contained therein proves to be forged or invalid or inaccurate or untrue in any respect whatsoever and (ii) any non-material, non-compliance by the documents (including without limitation any draft) presented under any Letter of Credit with the terms thereof. (g) With respect to each Letter of Credit, the Borrower shall pay to the Issuing Bank for its own account fees in the amounts and at the times previously agreed upon between the Borrower and such Issuing Bank. SECTION 2.17. Alternative Currency Advances. (a) Requests for Offers. From time to time after the Closing Date and prior to the Termination Date the Borrower may request any or all of the Banks to make offers to make Alternative Currency Advances to the Borrower. Each Bank may, but shall have no obligation to, make such offers on terms and conditions as are satisfactory to such Bank, and the Borrower may, but shall have no obligation to, accept any such offers. Each Alternative Currency Advance shall be subject to the conditions of clauses (c) through (e), inclusive, of Section 3.02 and to such other conditions as are agreed upon by the Borrower and the Bank making such Alternative Currency Advance, and the making of any Alternative Currency Advance shall be deemed to be a representation and warranty by the Borrower on the date thereof as to the facts specified in such clauses (c) through (e), inclusive. (b) Promissory Notes; Status as Loans. If required by the Bank making such advance, each Alternative Currency Advance shall be evidenced by a single promissory note of the Borrower in an amount equal to the principal amount of such Alternative Currency Advance, such promissory note to be in form mutually satisfactory to the Borrower and such Bank. An Alternative Currency Advance shall not be a Loan (as defined in Section 1.01 hereof) and a promissory note issued pursuant to this subsection (b) shall not be a Note (as defined in such Section 1.01); provided that, for the purposes of Sections 5.08, 6.01, 8.03(a), 8.04, 9.03, 9.04, 9.05 and 9.06 and of the first clause of Article 5, an Alternative Currency Advance shall be a Loan and a promissory note issued in connection therewith shall be a Note; provided further that for the purposes of Sections 2.14, 8.03(a) and 8.04, an Alternative Currency Advance shall be deemed to be a Euro- Dollar Loan. (c) Reports to Administrative Agent. The Borrower shall deliver to the Administrative Agent a report in respect of the Alternative Currency Advances (an "ALTERNATIVE CURRENCY ADVANCE REPORT") on the date on which each Alternative Currency Advance is made, and on the first Euro-Dollar Business Day of each calendar month thereafter on which any Alternative Currency Advance is outstanding, specifying for each Alternative Currency Advance then outstanding: (i) the date on which such advance was or is being made; (ii) the Alternative Currency of such advance; (iii) the Dollar Equivalent of the advance; and (iv) the Dollar Equivalent of all Alternative Currency Advances then outstanding. Each Alternative Currency Advance Report shall be delivered to the Administrative Agent not later than 10:30 A.M. (New York City time) on the date on which it is required to be delivered. (d) Maturity; No Prepayment. Each Alternative Currency Advance shall mature, and the principal amount thereof shall be due and payable on the date agreed upon by the Borrower and the Bank making such Alternative Currency Advance, which date shall be no later than the Termination Date. Except as required by Section 2.12(a), no Alternative Currency Advance may be prepaid without the consent of the Bank making such Alternative Currency Advance. (e) Substitution of Euro for National Currency. If any Alternative Currency is replaced by the Euro, the Euro may be tendered in payment of any outstanding amount denominated in such Alternative Currency at the conversion rate specified in, or otherwise calculated in accordance with, the regulations adopted by the Council of the European Union relating to the Euro. No replacement of an Alternative Currency by the Euro shall discharge, excuse or otherwise affect the performance of any obligation of the Borrower under this Agreement or the Notes. ARTICLE 3 CONDITIONS SECTION 3.01. Closing. The closing hereunder shall occur upon receipt by the Documentation Agent of the following documents, each dated the Closing Date unless otherwise indicated: (a) a duly executed Note for the account of each Bank dated on or before the Closing Date complying with the provisions of Section 2.05; (b) an opinion of the Deputy General Counsel of the Borrower, substantially in the form of Exhibit E hereto and covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request; (c) an opinion of Piper & Marbury, counsel for the Borrower, substantially in the form of Exhibit F hereto and covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request; (d) an opinion of Davis Polk & Wardwell, special counsel for the Agents, substantially in the form of Exhibit G hereto and covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request; (e) evidence satisfactory to it that all fees payable by the Borrower to the Documentation Agent and the Administrative Agent pursuant to Section 7.09 shall have been paid in full; (f) evidence satisfactory to it of the payment of all principal of and interest on any loans outstanding under, and of all other amounts payable under, the Existing Credit Agreements (except as contemplated by Section 2.16(a) hereof with respect to the Existing Letters of Credit); and (g) all documents the Documentation Agent may reasonably request relating to the existence of the Borrower, the corporate authority for and the validity of this Agreement and the Notes, and any other matters relevant hereto, all in form and substance satisfactory to the Documentation Agent. The Documentation Agent shall promptly notify the Borrower, the Banks and the Administrative Agent of the Closing Date, and such notice shall be conclusive and binding on all parties hereto. SECTION 3.02. Borrowing and Issuance of Letters of Credit. The obligation of any Bank to make a Loan on the occasion of any Borrowing, and the obligation of an Issuing Bank to issue (including the renewal or extension of the term of) any Letter of Credit, is subject to the satisfaction of the following conditions: (a) the fact that the Closing Date shall have occurred on or prior to January 1, 1998; (b) receipt by the Administrative Agent of a Notice of Borrowing as required by Section 2.02 or 2.03, as the case may be, or receipt by the Issuing Bank of a Notice of Issuance as required by Section 2.16(b); (c) the fact that, immediately after such Borrowing or issuance of a Letter of Credit, the sum of (x) the aggregate outstanding principal amount of the Loans, (y) the aggregate Dollar Equivalent of all Alternative Currency Advances then outstanding and (z) the aggregate amount of Letter of Credit Liabilities will not exceed the aggregate amount of the Commitments; (d) the fact that, immediately before and after such Borrowing or issuance of a Letter of Credit, no Default shall have occurred and be continuing; (e) the fact that the representations and warranties of the Borrower contained in this Agreement (except the representations and warranties set forth in Sections 4.04(c) or 4.05) shall be true on and as of the date of such Borrowing or issuance of a Letter of Credit. Each Borrowing and issuance of a Letter of Credit hereunder shall be deemed to be a representation and warranty by the Borrower on the date of such Borrowing or issuance (including the renewal or extension) of a Letter of Credit as to the facts specified in clauses (c), (d) and (e) of this Section. ARTICLE 4 REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants that: SECTION 4.01. Corporate Existence and Power. The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Maryland, and has all corporate powers and all governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted, other than such licenses, authorizations, consents and approvals which, if not held or obtained by the Borrower, do not, in the aggregate, have a Material Adverse Effect. SECTION 4.02. Corporate and Governmental Authorization; No Contravention. The execution, delivery and performance by the Borrower of this Agreement and the Notes are within the Borrower's corporate powers, have been duly authorized 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 articles of incorporation or by-laws of the Borrower or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or any of its Subsidiaries or result in the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries. SECTION 4.03. Binding Effect. This Agreement constitutes a valid and binding agreement of the Borrower and each Note, when executed and delivered in accordance with this Agreement, will constitute a valid and binding obligation of the Borrower, in each case enforceable in accordance with its terms. SECTION 4.04. Financial Information. (a) The consolidated statement of financial position and shareholders' equity of the Borrower and its Consolidated Subsidiaries as of December 31, 1996 and the related consolidated statements of operations and cash flows for the fiscal year then ended, reported on by Ernst & Young LLP and set forth in the Borrower's 1996 Form 10-K, a copy of which has been delivered to each of the Banks, fairly present, in conformity with United States generally accepted accounting principles, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal year. (b) The unaudited consolidated statement of financial position and shareholders' equity of the Borrower and its Consolidated Subsidiaries as of September 30, 1997 and the related unaudited consolidated statements of operations and cash flows for the nine months then ended, set forth in the Borrower's Latest Form 10-Q, a copy of which has been delivered to each of the Banks, fairly present, in conformity with United States generally accepted accounting principles applied on a basis consistent with the financial statements referred to in subsection (a) of this Section, the consolidated financial position of the Borrower 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). (c) Except as disclosed in the Borrower's Latest Form 10-Q or in any Form 8-K filed by the Borrower under the Securities Exchange Act of 1934 after the Borrower's Latest Form 10-Q and provided to the Banks prior to the date of this Agreement, since December 31, 1996 there has been no Material Adverse Effect. (d) A copy of a duly completed and signed Annual Statement or other similar report of or for each Insurance Company Subsidiary in the form filed with the governmental body, agency or official which regulates insurance companies in the jurisdiction in which such Insurance Company Subsidiary is domiciled for the year ended December 31, 1996 has been delivered to the Administrative Agent on behalf of each of the Banks and fairly presents, in accordance with statutory accounting principles, the information contained therein. SECTION 4.05. Litigation. Subject to matters disclosed in the financial statements referred to in Sections 4.04(a) and 4.04(b), there is no action, suit or proceeding pending against, or to the knowledge of the Borrower threatened against or affecting, the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official in which there is a reasonable expectation of an adverse decision which reasonably could be expected to have a Material Adverse Effect or which in any manner draws into question the validity of this Agreement or the Notes. SECTION 4.06. Compliance with ERISA. Each member of the ERISA Group has fulfilled its obligations under the minimum funding standards of ERISA and the Internal Revenue Code with respect to each Plan and is in compliance in all material respects with the presently applicable provisions of ERISA and the Internal Revenue Code with respect to each Plan. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code in respect of any Plan, (ii) failed to make any contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, which in either case would trigger the provisions of Section 412(n) or 401(a)(29) of the Internal Revenue Code (or any corresponding provisions of ERISA) or (iii) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. SECTION 4.07. Environmental Matters. In the ordinary course of its business, the Borrower conducts an ongoing review of the effect of Environmental Laws on the business, operations and properties of the 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, any costs or liabilities in connection with off-site disposal of wastes or Hazardous Substances, and any actual or potential liabilities to third parties, including employees, and any related costs and expenses). On the basis of this review, the 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. SECTION 4.08. Taxes. The Borrower and its Subsidiaries have filed all United States Federal 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 Borrower or any Subsidiary, other than any such assessments being contested in good faith by appropriate proceedings and for which any reserves required under generally accepted accounting principles have been established. The charges, accruals and reserves on the books of the Borrower and its Subsidiaries in respect of taxes or other governmental charges are, in the opinion of the Borrower, adequate in all material respects. SECTION 4.09. Subsidiaries. Each of the Borrower's corporate Subsidiaries (other than Excluded Subsidiaries) is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. SECTION 4.10. Not an Investment Company. The Borrower is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended. SECTION 4.11. Full Disclosure. All information heretofore furnished by the Borrower to any Agent or Bank or any Issuing Bank for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all such information hereafter furnished by the Borrower to any Agent or Bank or any Issuing Bank will be, true and accurate in all material respects on the date as of which such information is stated or certified. The Borrower has disclosed to the Banks in writing any and all facts which materially and adversely affect or may affect (to the extent the Borrower can now reasonably foresee), the business, operations or financial condition of the Borrower and its Consolidated Subsidiaries, taken as a whole, or the ability of the Borrower to perform its obligations under this Agreement. ARTICLE 5 COVENANTS The Borrower agrees that, so long as any Bank has any Commitment hereunder or any amount payable under any Note or any Letter of Credit Liability remains unpaid: SECTION 5.01. Information. The Borrower will deliver to each of the Banks: (a) as soon as available and in any event within 95 days after the end of each fiscal year of the Borrower, a consolidated statement of financial position and shareholders' equity of the Borrower and its Consolidated Subsidiaries as of the end of such fiscal year and the related consolidated statements of operations and 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 by Ernst & Young LLP or other independent public accountants of nationally recognized standing; (b) as soon as available and in any event within 60 days after the end of each of the first three quarters of each fiscal year of the Borrower, a consolidated statement of financial position and shareholders' equity of the Borrower and its Consolidated Subsidiaries as of the end of such quarter and the related consolidated statements of operations and cash flows for such quarter and for the portion of the Borrower's fiscal year ended at the end of such quarter, setting forth in the case of such consolidated statements of operations and cash flows in comparative form the figures for the corresponding quarter and the corresponding portion of the Borrower'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 Borrower; (c) simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above, an Officer's Certificate (i) setting forth in reasonable detail the calculations required to establish whether the Borrower was in compliance with the requirements of Sections 5.09 and 5.10 on the date of such financial statements and (ii) 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 Borrower is taking or proposes to take with respect thereto; (d) simultaneously with the delivery of each set of financial statements referred to in clause (a) above, a statement of the firm of independent public accountants which reported on such statements (i) whether anything has come to their attention in the course of their examination of the financial statements of the Borrower and its Subsidiaries to cause them to believe that any Default existed on the date of such statements and (ii) confirming the calculations set forth in the officer's certificate delivered simultaneously therewith pursuant to clause (c) above; (e) within five days after any officer of the Borrower obtains knowledge of any Default, if such Default is then continuing, an Officer's Certificate setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (f) within 120 days after the end of each fiscal year of each Insurance Company Subsidiary, a copy of a duly completed and signed Annual Statement (or any successor form thereto) required to be filed by such Insurance Company Subsidiary with the governmental body, agency or official which regulates insurance companies in the jurisdiction in which such Insurance Company Subsidiary is domiciled, in the form submitted to such governmental body, agency or official; (g) within 60 days after the end of the second fiscal quarter of United States Fidelity and Guaranty Company and Fidelity and Guaranty Life Insurance Company, respectively, a copy of a duly completed and signed Quarterly Statement (or any successor form thereto) required to be filed by each such company with the governmental body, agency or official which regulates insurance companies in the jurisdiction in which such company is domiciled, in the form submitted to such governmental body, agency or official; (h) promptly upon the mailing thereof to the shareholders of the Borrower generally, copies of all financial statements, reports and proxy statements so mailed; (i) 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 Borrower shall have filed with the Securities and Exchange Commission; (j) if and when any member of the ERISA Group (i) gives or is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan, other than a reportable event for which 30-day notice to the PBGC has been waived, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA or notice that any Multiemployer Plan is in reorganization, is insolvent or has been terminated, a copy of such notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code, a copy of such application; (v) gives notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and other information filed with the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails to make any payment or contribution to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement or makes any amendment to any Plan or Benefit Arrangement which in either case would trigger the provisions of Section 412(n)or 401(a)(29) of the Internal Revenue Code (or any corresponding provisions of ERISA), a certificate of the chief financial officer or the chief accounting officer of the Borrower setting forth details as to such occurrence and action, if any, which the Borrower or applicable member of the ERISA Group is required or proposes to take; and (k) from time to time such additional information regarding the financial position or business of the Borrower and its Subsidiaries as the Administrative Agent, at the request of any Bank, may reasonably request. SECTION 5.02. Payment of Obligations. The Borrower will pay and discharge, and will cause each Subsidiary (other than an Excluded 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. SECTION 5.03. Maintenance of Property; Insurance. (a) The Borrower 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. (b) The Borrower will maintain or cause to be maintained with financially sound and reputable insurers or through self-insurance programs appropriate to the type and amount of the risk insured, insurance with respect to its properties and business, and the properties and business of its Subsidiaries, against loss or damage of the kinds customarily insured against by reputable companies in the same or similar businesses, such insurance to be of such types and in such amounts (with such deductible amounts) as is customary for such companies under similar circumstances. The Borrower will furnish to the Banks, upon request from the Administrative Agent, information presented in reasonable detail as to the insurance so carried. SECTION 5.04. Conduct of Business and Maintenance of Existence. The Borrower will continue, and will cause each Subsidiary (other than any Excluded Subsidiary) to continue, to engage in all material respects in business of the same general type as now conducted by the Borrower and its Subsidiaries, and will preserve, renew and keep in full force and effect, and will cause each Subsidiary (other than any Excluded Subsidiary) to preserve, renew and keep in full force and effect, their respective corporate existence and their respective rights, privileges and franchises necessary or desirable in the normal conduct of business, other than such corporate existences, rights, privileges and franchises which, if not preserved, renewed or kept in force, will not have, in the aggregate, a Material Adverse Effect. SECTION 5.05. Compliance with Laws. The Borrower will comply, and cause each Subsidiary to comply, with all applicable laws, ordinances, rules, regulations, and requirements of governmental authorities (including, without limitation, Environmental Laws and ERISA and the rules and regulations thereunder) except where the necessity of compliance therewith is contested in good faith by appropriate proceedings or where the failure to comply with such laws, ordinances, rules, regulations and requirements will not, in the aggregate, have a Material Adverse Effect. SECTION 5.06. Negative Pledge. Neither the Borrower nor any Subsidiary will create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by it, except: (a) Liens existing on the date of this Agreement securing Debt outstanding on the date of this Agreement in an aggregate principal or face amount not exceeding $100,000,000; (b) any Lien existing on any asset of any corporation at the time such corporation becomes a Subsidiary and not created in contemplation of such event; (c) any Lien on any asset securing Debt incurred or assumed for the purpose of financing all or any part of the cost of acquiring such asset, provided that such Lien attaches to such asset concurrently with or within 90 days after the acquisition thereof; (d) any Lien on any asset of any corporation existing at the time such corporation is merged or consolidated with or into the Borrower or a Subsidiary and not created in contemplation of such event; (e) any Lien existing on any asset prior to the acquisition thereof by the Borrower or a Subsidiary and not created in contemplation of such acquisition; (f) any Lien arising out of the refinancing, extension, renewal or refunding of any Debt secured by any Lien permitted by any of the foregoing clauses or clause (j) below of this Section, provided that such Debt is not increased and is not secured by any additional assets; (g) Liens arising in the ordinary course of its business (including Liens arising in the ordinary course of its insurance business) which (i) do not secure Debt or Derivatives Obligations, (ii) do not secure any obligation (except obligations arising in the ordinary course of its insurance business) in an amount exceeding $75,000,000 and (iii) do not in the aggregate materially detract from or impair the use or value of the asset or assets subject thereto in the operation of its business; (h) Liens on cash and cash equivalents securing Derivatives Obligations, provided that the aggregate amount of cash and cash equivalents subject to such Liens may at no time exceed $25,000,000; (i) Liens securing obligations (1) of the type referred to in clause (vii) of the definition of Debt, as long as such Liens arise in the ordinary course of the Borrower's or the Subsidiary's, as the case may be, business and such Liens are in amounts and otherwise are on terms consistent with then existing practices in the repurchase business and (2) of a borrower (or securities lending agent) in any loaned securities, or Liens held by a borrower (or securities lending agent) against collateral such borrower has posted, in either case in securities lending transactions with the Borrower or a Subsidiary (where the Borrower or the Subsidiary is the lender of securities), as long as, in either case, such Liens arise in the ordinary course of the Borrower's or the Subsidiary's, as the case may be, business and such Liens are in amounts and otherwise on terms consistent with then existing practices in the securities lending business; (j) Liens securing Non-Recourse Debt; (k) Liens on securities or cash of any Insurance Company Subsidiary which secure its obligations as a reinsurer (as opposed to a ceding insurance company) under reinsurance contracts entered into with Persons which are licensed or authorized to do an insurance business in any jurisdiction; (l) Any Liens secured by accounts receivable of, and other amounts owed to, Westchester Premium Acceptance Corporation (or any successor), a Subsidiary, securing a principal amount of Debt incurred by such Subsidiary from time to time of not more than $60,000,000; and (m) Liens not otherwise permitted by the foregoing clauses of this Section securing Debt in an aggregate principal or face amount at any date not to exceed 7.5% of Adjusted Consolidated Tangible Net Worth. SECTION 5.07. Consolidations, Mergers and Sales of Assets; Ownership by USF&G Corporation. The Borrower will not (i) consolidate or merge with or into any other Person, other than a merger in which the Borrower is the surviving corporation or a merger solely for the purpose of reincorporating the Borrower in another jurisdiction, in each case provided no Default shall exist at, or immediately after, such merger, or (ii) sell, lease or otherwise transfer, directly or indirectly, all or substantially all of the assets of the Borrower and its Subsidiaries, taken as a whole, to any other Person. The Borrower will at all times own all of the outstanding voting securities, other than directors' qualifying shares, of United States Fidelity and Guaranty Company. SECTION 5.08. Use of Proceeds. The proceeds of the Loans made under this Agreement and of drafts drawn under Letters of Credit issued under this Agreement will be used by the Borrower for general corporate purposes. None of such proceeds will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of buying or carrying any "margin stock" within the meaning of Regulation U, other than "margin stock" issued by the Borrower. SECTION 5.09. Ratio of Debt to Adjusted Consolidated Tangible Net Worth. The aggregate amount of Debt (other than (1) Non-Recourse Debt and (2) the Equity Portion of Qualified Deferrable Securities Obligations, but including the Debt Portion of Qualified Deferrable Securities Obligations) of the Borrower and its Subsidiaries shall at no time exceed 55% of Adjusted Consolidated Tangible Net Worth. SECTION 5.10. Minimum Adjusted Consolidated Tangible Net Worth. Adjusted Consolidated Tangible Net Worth will at no time be less than the sum of (i) $1,300,000,000 plus (ii) 50% of the consolidated net income of the Borrower and its Consolidated Subsidiaries for the period commencing on January 1, 1998 and ending at the end of the Borrower's then most recent fiscal quarter (treated for this purpose as a single accounting period). For purposes of this Section, if consolidated net income of the Borrower and its Consolidated Subsidiaries for any period shall be less than zero, the amount calculated pursuant to clause (ii) above for such period shall be zero. SECTION 5.11. Transactions with Affiliates. The Borrower will not, and will not permit any Subsidiary to, directly or indirectly, pay any funds to or for the account of, make any investment (whether by acquisition of stock or indebtedness, by loan, advance, transfer of property, guarantee or other agreement to pay, purchase or service, directly or indirectly, any Debt, or otherwise) in, lease, sell, transfer or otherwise dispose of any assets, tangible or intangible, to, or participate in, or effect any transaction in connection with any joint enterprise or other joint arrangement with, any Affiliate unless such payment, investment, lease, sale, transfer, disposition, participation or transaction is on terms and conditions at least as favorable to the Borrower or such Subsidiary as the terms and conditions which would apply in a similar transaction with a Person not an Affiliate; provided, however, that the foregoing provisions of this Section shall not prohibit the Borrower from declaring or paying any lawful dividend or distribution so long as, after giving effect thereto, no Default shall have occurred and be continuing. ARTICLE 6 DEFAULTS SECTION 6.01. Events of Default. If one or more of the following events ("Events of Default") shall have occurred and be continuing: (a) the Borrower shall fail (i) to reimburse any drawing under any Letter of Credit when required hereunder, provided that the failure to reimburse the Issuing Bank therefor shall not constitute a Default or an Event of Default hereunder until the beginning of the first Domestic Business Day after the second Domestic Business Day after the Issuing Bank has given notice to the Borrower of such Issuing Bank's demand for reimbursement of such drawing, but only if the Borrower shall, simultaneously with such reimbursement, pay interest accrued thereon for each day from and including the date on which such drawing is honored to the date of reimbursement thereof in full, (ii) to pay when due any principal of any Loan or (iii) to pay within five days of the due date thereof any interest on any Loan or any fees or any other amount (other than the principal of any Loan and the reimbursement obligation with respect to any drawing under any Letter of Credit) payable hereunder; (b) the Borrower shall fail to observe or perform any covenant contained in Sections 5.06 to 5.11, inclusive; (c) the Borrower shall fail to observe or perform any covenant or agreement contained in this Agreement (other than those covered by clause (a) or (b) above) for 30 days after notice thereof has been given to the Borrower by the Administrative Agent at the request of any Bank; (d) any representation, warranty, certification or statement made by the Borrower in this Agreement or in any certificate, financial statement or other document delivered pursuant to this Agreement shall prove to have been incorrect in any material respect when made (or deemed made); (e) the Borrower or any Subsidiary shall fail to make any payment owed by it in respect of any Material Financial Obligations when due or within any applicable grace period; (f) 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 Debt or any Person acting on such holder's behalf to accelerate the maturity thereof; (g) the Borrower or any Subsidiary (other than an Excluded Subsidiary) shall commence a voluntary case or other proceeding seeking rehabilitation, dissolution, conservation, liquidation, reorganization 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, rehabilitator, dissolver, conservator, 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 authorize any of the foregoing; (h) an involuntary case or other proceeding shall be commenced against the Borrower or any Subsidiary (other than an Excluded Subsidiary) seeking rehabilitation, dissolution, conservation, liquidation, reorganization 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, rehabilitator, dissolver, conservator, 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 the Borrower or any Subsidiary (other than an Excluded Subsidiary) under the federal bankruptcy laws as now or hereafter in effect; or any governmental body, agency or official shall apply for, or commence a case or other proceeding to seek, an order for the rehabilitation, conservation, dissolution or other liquidation of the Borrower or any Subsidiary (other than an Excluded Subsidiary) or of the assets or any substantial part thereof of the Borrower or any such Subsidiary or any other similar remedy; (i) any member of the ERISA Group shall fail to pay when due an amount or amounts aggregating in excess of $15,000,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Material Plan shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which could cause one or more members of the ERISA Group to incur a current payment obligation in excess of $15,000,000; (j) enforceable judgments or orders for the payment of money in excess of $50,000,000 (or its equivalent in any other currency) in the aggregate shall be rendered and entered against the Borrower or any Subsidiary (other than an Excluded Subsidiary) and such judgments or orders shall continue unsatisfied and unstayed for a period of 30 days; or (k) any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act) of 30% or more of the outstanding shares of common stock of the Borrower; or, during any period of twelve consecutive calendar months, individuals who were directors of the Borrower on the first day of such period shall cease to constitute a majority of the board of directors of the Borrower; then, and in every such event, the Administrative Agent shall (i) if requested by Banks having more than 50% in aggregate amount of the Commitments, by notice to the Borrower terminate the Commitments and they shall thereupon terminate, and (ii) if requested by Banks holding Notes evidencing more than 50% of the aggregate principal amount of the Loans and having more than 50% of the aggregate amount of Letter of Credit Liabilities, by notice to the Borrower declare the Notes and the Letter of Credit Liabilities (together with accrued interest thereon) to be, and the Notes (together with accrued interest thereon) shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; provided that, in the case of any of the Events of Default specified in clause (g) or (h) above with respect to the Borrower, without any notice to the Borrower or any other act by the Administrative Agent or the Banks, the Commitments shall thereupon terminate and the Notes and the Letter of Credit Liabilities (together with accrued interest thereon, if any) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. SECTION 6.02. Notice of Default. The Administrative Agent shall give notice to the Borrower under Section 6.01(c) promptly upon being requested to do so by any Bank and shall thereupon notify all the Banks thereof. SECTION 6.03. Cash Cover. The Borrower agrees that, in addition to the provisions of Section 6.01, upon the occurrence and during the continuance of any Event of Default, it shall, if requested by the Administrative Agent upon the instruction of the Banks having more than 50% in aggregate amount of the Commitments (or, if the Commitments shall have been terminated, holding Notes evidencing more than 50% of the aggregate principal amount of the Loans and having more than 50% of the Letter of Credit Liabilities), pay to the Administrative Agent an amount in immediately available funds (which funds shall be held as collateral pursuant to arrangements satisfactory to the Administrative Agent) equal to the aggregate amount available for drawing under all Letters of Credit then outstanding at such time, provided that, upon the occurrence of any Event of Default specified in Section 6.01(g) or 6.01(h) with respect to the Borrower, the Borrower shall pay such amount forthwith without any notice or demand or any other act by the Administrative Agent or the Banks. ARTICLE 7 THE AGENTS SECTION 7.01. Appointment and Authorization. Each Bank irrevocably appoints and authorizes each Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the Notes as are delegated to such Agent by the terms hereof or thereof, together with all such powers as are reasonably incidental thereto. SECTION 7.02. Agents and Affiliates. Morgan Guaranty Trust Company of New York and Deutsche Bank AG, New York Branch shall have the same rights and powers under this Agreement as any other Bank and may exercise or refrain from exercising the same as though they were not each an Agent, and Morgan Guaranty Trust Company of New York and Deutsche Bank AG, New York Branch and each of their respective affiliates, may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or affiliate of the Borrower as if they were not each an Agent hereunder. SECTION 7.03. Action by Agents. The obligations of the Agents hereunder are only those expressly set forth herein. Without limiting the generality of the foregoing, neither Agent shall be required to take any action with respect to any Default, except, in the case of the Administrative Agent, as expressly provided in Article 6. SECTION 7.04. Consultation with Experts. The Agents may consult with legal counsel (who may be counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. SECTION 7.05. Liability of Agents. Neither Agent nor any of their respective affiliates nor any of the respective directors, officers, agents or employees of the foregoing shall be liable for any action taken or not taken by it in connection herewith (i) with the consent or at the request of the Required Banks or (ii) in the absence of its own gross negligence or willful misconduct. Neither Agent nor any of their respective affiliates nor any of the respective directors, officers, agents or employees of the foregoing shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this Agreement or any borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements of the Borrower; (iii) the satisfaction of any condition specified in Article 3, except receipt of items required to be delivered to such Agent; (iv) the validity, effectiveness or genuineness of this Agreement, the Notes or any other instrument or writing furnished in connection herewith; or (v) any Alternative Currency Advance or any action or failure to act relating thereto. Neither Agent shall incur any liability by acting in reliance upon any notice, consent, certificate, statement, or other writing (which may be a bank wire, telex, facsimile transmission or similar writing) believed by it to be genuine or to be signed by the proper party or parties. SECTION 7.06. Indemnification. Each Bank shall, ratably in accordance with its Commitment, indemnify each Agent, their respective affiliates and the respective directors, officers, agents and employees of the foregoing (to the extent not reimbursed by the Borrower) against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from such indemnitees' gross negligence or willful misconduct) that such indemnitees may suffer or incur in connection with this Agreement or any action taken or omitted by such indemnitees hereunder. Without limiting the generality of the foregoing, each Bank shall, ratably and in accordance with its Commitment, indemnify the Issuing Bank and its directors, officers, agents and employees (to the extent not reimbursed by the Borrower) against any costs, expense (including counsel fees and disbursements), claim, demand, action, loss or liability that each such indemnitee may suffer or incur and which results from any failure on the part of such Bank to pay to the Issuing Bank such Bank's ratable share of any drawing under any Letter of Credit in accordance with Section 2.16(c). SECTION 7.07. Credit Decision. Each Bank acknowledges that it has, independently and without reliance upon the Agents or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it will, independently and without reliance upon the Agents 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 any action under this Agreement. SECTION 7.08. Successor Agents. Each Agent may resign at any time by giving notice thereof to the Banks and the Borrower. Upon any such resignation, the Required Banks shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Required Banks, and shall have accepted such appointment, within 30 days after the retiring Agent gives notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a commercial bank organized or licensed under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $300,000,000. Upon the acceptance of its appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent. SECTION 7.09. Agents' Fees. The Borrower shall pay to each Agent for its own account fees in the amounts and at the times previously agreed upon between the Borrower and such Agent. ARTICLE 8 CHANGE IN CIRCUMSTANCES SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair. If on or prior to the first day of any Interest Period for any Fixed Rate Borrowing: (a) the Administrative Agent is advised by the Reference Banks that deposits in Dollars (in the applicable amounts) are not being offered to the Reference Banks in the relevant market for such Interest Period, or (b) in the case of a Committed Borrowing, Banks having 50% or more of the aggregate amount of the Commitments advise the Administrative Agent that, by reason of adverse conditions generally affecting either the certificate of deposit market in the United States or the London interbank market, the Adjusted CD Rate or the Adjusted London Interbank Offered Rate (as the case may be) as determined by the Administrative Agent will not adequately and fairly reflect the cost to such Banks of funding their CD Loans or Euro-Dollar Loans, as the case may be, for such Interest Period, the Administrative Agent shall forthwith give notice thereof to the Borrower and the Banks, whereupon until the Administrative Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, (i) the obligations of the Banks to make CD Loans or Euro-Dollar Loans, as the case may be, or to continue or convert outstanding Loans as or into CD Loans or Euro- Dollar Loans shall be suspended and (ii) each outstanding CD Loan or Euro- Dollar Loan, as the case may be, shall be converted into a Base Rate Loan on the last day of the then current Interest Period applicable thereto. Unless the Borrower notifies the Administrative Agent at least two Domestic Business Days before the date of any Fixed Rate Borrowing for which a Notice of Borrowing has previously been given that it elects not to borrow on such date, (i) if such Fixed Rate Borrowing is a Committed Borrowing, such Borrowing shall instead be made as a Base Rate Borrowing and (ii) if such Fixed Rate Borrowing is a Money Market LIBOR Borrowing, the Money Market LIBOR Loans comprising such Borrowing shall bear interest for each day from and including the first day to but excluding the last day of the Interest Period applicable thereto at the Base Rate for such day. Promptly after the Administrative Agent and the Banks reasonably determine that the circumstances giving rise to a notice pursuant to subsection (b) above no longer exists, the Administrative Agent shall notify the Borrower, and the obligation of the Banks to make, convert and continue Euro-Dollar Loans and CD Loans shall be reinstated. SECTION 8.02. Illegality. If, on or after the date of this Agreement, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Euro-Dollar Lending Office) with any request or directive after the date of this Agreement (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for any Bank (or its Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans and such Bank shall so notify the Administrative Agent, the Administrative Agent shall forthwith give notice thereof to the other Banks and the Borrower, whereupon until such Bank notifies the Borrower and the Administrative Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Bank to make Euro-Dollar Loans, or to continue or convert outstanding Loans as or into Euro-Dollar Loans, shall be suspended. Before giving any notice to the Administrative Agent pursuant to this Section, such Bank shall designate a different Euro-Dollar Lending Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. If such notice is given, each Euro-Dollar Loan of such Bank then outstanding shall be converted to a Base Rate Loan either (a) on the last day of the then current Interest Period applicable to such Euro-Dollar Loan if such Bank may lawfully continue to maintain and fund such Loan as a Euro-Dollar Loan to such day or (b) immediately if such Bank shall determine that it may not lawfully continue to maintain and fund such Loan as a Euro-Dollar Loan to such day. SECTION 8.03. Increased Cost and Reduced Return. (a) If on or after (x) the date hereof, in the case of any Committed Loan or Letter of Credit or any obligation to make Committed Loans or issue or participate in any Letter of Credit or (y) the date of the related Money Market Quote, in the case of any Money Market Loan, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Applicable Lending Office) with any request or directive after such date (whether or not having the force of law) of any such authority, central bank or comparable agency shall impose, modify or deem applicable any reserve (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding (i) with respect to any CD Loan any such requirement included in an applicable Domestic Reserve Percentage and (ii) with respect to any Euro-Dollar Loan any such requirement included in an applicable Euro-Dollar Reserve Percentage), special deposit, insurance assessment (excluding, with respect to any CD Loan, any such requirement reflected in an applicable Assessment Rate) or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Bank (or its Applicable Lending Office) or shall impose on any Bank (or its Applicable Lending Office) or on the United States market for certificates of deposit or the London interbank market any other condition affecting its Fixed Rate Loans, its Note or its obligation to make Fixed Rate Loans or its obligations hereunder in respect of Letters of Credit and the result of any of the foregoing is to increase the cost to such Bank (or its Applicable Lending Office) of making or maintaining any Fixed Rate Loan or of issuing or participating in any Letter of Credit, or to reduce the amount of any sum received or receivable by such Bank (or its Applicable Lending Office) under this Agreement or under its Note with respect thereto, by an amount deemed by such Bank to be material, then, within 15 days after demand by such Bank (with a copy to the Administrative Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or reduction. (b) If any Bank shall have determined in good faith that, after the date hereof, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change in any such law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive after the date hereof regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on capital of such Bank (or its Parent) as a consequence of such Bank's obligations hereunder to a level below that which such Bank (or its Parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, within 15 days after demand by such Bank (with a copy to the Administrative Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank (or its Parent) for such reduction. (c) Each Bank will promptly notify the Borrower and the Administrative Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Bank to compensation pursuant to this Section and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall, if submitted in good faith, be conclusive in the absence of manifest error; provided that any certificate delivered pursuant to this Section 8.03(c) shall (i) in the case of a certificate in respect of amounts payable pursuant to Section 8.03(a), set forth in reasonable detail the basis for and the calculation of such amounts, and (ii) in the case of a certificate in respect of amounts payable pursuant to Section 8.03(b), set forth at least the same amount of detail in respect of the calculation of such amounts as such Bank provides in similar circumstances to other similarly situated borrowers and also include a statement by such Bank that it has allocated to its Commitment or outstanding Loans or other obligations hereunder no greater than a substantially proportionate amount of any reduction of the rate of return on such Bank's capital due to the matters described in Section 8.03(b) as it has allocated to each of its other commitments to lend or issue Letters of Credit or to participate therein or any outstanding loans or unreimbursed drawings or participations therein to similarly situated borrowers that are affected similarly by such adoption or change. Subject to the foregoing, in determining such amount, such Bank may use any reasonable averaging and attribution methods. SECTION 8.04. Taxes. (a) For purposes of this Section 8.04, the following terms have the following meanings: "TAXES" means any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings with respect to any payment by the Borrower pursuant to this Agreement or under any Note, and all liabilities with respect thereto, excluding (i) in the case of each Bank and the Administrative Agent, taxes imposed on its income, and franchise or similar taxes imposed on it, by a jurisdiction under the laws of which such Bank or the Administrative Agent (as the case may be) is organized or in which its principal executive office is located or, in the case of each Bank, in which its Applicable Lending Office is located, or, in the case of the Administrative Agent and each Bank, such taxes which would not have been imposed on the Administrative Agent or such Bank but for any present or former connection between the Administrative Agent or such Bank and the jurisdiction imposing such tax (other than any such connection arising from the Administrative Agent or the Bank having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement or the Notes) and (ii) in the case of each Bank, any United States withholding tax imposed on such payments but only to the extent that such Bank (a) is subject to United States withholding tax at the time such Bank first becomes a party to this Agreement or (b) subsequently becomes subject to United States withholding tax solely by reason of the change of its Applicable Lending Office by such Bank. "OTHER TAXES" means any present or future stamp or documentary taxes and any other excise or property taxes, or similar charges or levies (other than franchise taxes or taxes imposed on the net income of a Bank or the Administrative Agent), which arise from any payment made pursuant to this Agreement or under any Note or from the execution or delivery of, or otherwise with respect to, this Agreement or any Note. (b) Any and all payments by the Borrower to or for the account of any Bank or the Administrative Agent hereunder or under any Note shall be made without deduction for any Taxes or Other Taxes; provided that, if the Borrower shall be required by law to deduct any Taxes or Other Taxes from any such payments, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 8.04) such Bank or the Administrative Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law and (iv) the Borrower shall furnish to the Administrative Agent, at its address referred to in Section 9.01, the original or a certified copy of a receipt evidencing payment thereof. (c) The Borrower agrees to indemnify each Bank and the Administrative Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 8.04) paid by such Bank or the Administrative Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be paid within 15 days after such Bank or the Administrative Agent (as the case may be) makes demand therefor. (d) Each Bank organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each Bank listed on the signature pages hereof and on or prior to the date on which it becomes a Bank in the case of each other Bank, and from time to time thereafter if requested in writing by the Borrower (but only so long as such Bank remains lawfully able to do so), shall provide the Borrower with Internal Revenue Service form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Bank is entitled to benefits under an income tax treaty to which the United States is a party which exempts the Bank from United States withholding tax or reduces the rate of withholding tax on payments of interest for the account of such Bank or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States. (e) For any period with respect to which a Bank has failed to provide the Borrower with the appropriate form pursuant to Section 8.04(d) (unless such failure is due to a change in treaty, law or regulation occurring subsequent to the date on which such form originally was required to be provided), such Bank shall not be entitled to indemnification under Section 8.04(b) or (c) with respect to Taxes imposed by the United States; provided that if a Bank, which is otherwise exempt from or subject to a reduced rate of withholding tax, becomes subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Bank shall reasonably request to assist such Bank to recover such Taxes. (f) If the Borrower is required to pay additional amounts to or for the account of any Bank pursuant to this Section 8.04, then such Bank will change the jurisdiction of its Applicable Lending Office if, in the judgment of such Bank, such change (i) will eliminate or reduce any such additional payment which may thereafter accrue and (ii) is not otherwise disadvantageous to such Bank. SECTION 8.05. Base Rate Loans Substituted for Affected Fixed Rate Loans. If (i) the obligation of any Bank to make or to continue or convert outstanding Loans as or to Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation under Section 8.03 or 8.04 with respect to its CD Loans or Euro-Dollar Loans and the Borrower shall, by at least five Euro-Dollar Business Days' prior notice to such Bank through the Administrative Agent, have elected that the provisions of this Section shall apply to such Bank, then, unless and until such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer exist: (a) all Loans which would otherwise be made by such Bank as (or continued as or converted to) CD Loans or Euro-Dollar Loans, as the case may be, shall instead be Base Rate Loans (on which interest and principal shall be payable contemporaneously with the related Fixed Rate Loans of the other Banks), and (b) after each of its CD Loans or Euro-Dollar Loans, as the case may be, has been repaid (or converted), all payments of principal which would otherwise be applied to repay such Fixed Rate Loans shall be applied to repay its Base Rate Loans instead. If such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer exist, the principal amount of each such Base Rate Loan shall be converted into a CD Loan or Euro-Dollar Loan, as the case may be, on the first day of the next succeeding Interest Period applicable to the related CD Loans or Euro-Dollar Loans of the other Banks. ARTICLE 9 MISCELLANEOUS SECTION 9.01. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, facsimile transmission or similar writing) and shall be given to such party: (x) in the case of the Borrower or the Agents, at its address, facsimile number or telex number set forth on the signature pages hereof, (y) in the case of any Bank, at its address, facsimile number or telex number set forth in its Administrative Questionnaire or (z) in the case of any party, at such other address, facsimile number or telex number as such party may hereafter specify for the purpose by notice to the Administrative Agent and the Borrower. Each such notice, request or other communication shall be effective (i) if given by telex, when such telex is transmitted to the telex number specified in this Section and the appropriate answerback is received, (ii) if given by facsimile transmission, when transmitted to the facsimile number specified in this Section and confirmation of receipt is received, (iii) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iv) if given by any other means, when delivered at the address specified in this Section; provided that notices to the Administrative Agent or any Issuing Bank under Article 2 or Article 8 shall not be effective until received. SECTION 9.02. No Waivers. No failure or delay by either Agent or any Bank in exercising any right, power or privilege hereunder or under any Note shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 9.03. Expenses; Indemnification. (a) The Borrower shall pay (i) all out-of-pocket expenses of the Agents, including the reasonable fees and disbursements of special counsel for the Agents, in connection with the preparation and administration of this Agreement (including, without limitation, the issuance of Letters of Credit), any waiver or consent hereunder or any amendment hereof or any Default or alleged Default hereunder and (ii) if an Event of Default occurs, all out-of-pocket expenses incurred by each Agent and each Bank, including (without duplication) the reasonable fees and disbursements of outside counsel in connection with such Event of Default and collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom. (b) The Borrower agrees to indemnify each Agent and each Bank, their respective affiliates and the respective directors, officers, agents and employees of the foregoing (each an "Indemnitee") and hold each Indemnitee harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind, including, without limitation, the reasonable fees and disbursements of counsel, which may be incurred by such Indemnitee in connection with any investigative, administrative or judicial proceeding (whether or not such Indemnitee shall be designated a party thereto) brought or threatened relating to or arising out of this Agreement or any actual or proposed use of proceeds of Loans or Letters of Credit hereunder; provided that no Indemnitee shall have the right to be indemnified hereunder for such Indemnitee's own gross negligence or willful misconduct as determined by a court of competent jurisdiction and provided further, that no Bank shall have the right to be indemnified hereunder in any such proceeding wherein the parties thereto are only such Bank and any other Person (other than a Bank) to whom such Bank shall have granted a participation in, or assigned all or a proportionate part of, its Commitment or its Loans or Notes or its participation in Letters of Credit or its rights or obligations hereunder or under its Notes or under, or in respect of, Letters of Credit. SECTION 9.04. Sharing; Set-offs. Each Bank agrees that if it shall, by exercising any right of set-off or counterclaim or otherwise, receive payment of a proportion of the aggregate amount of principal and interest due with respect to any Note held by it and any Letter of Credit Liability which is greater than the proportion received by any other Bank in respect of the aggregate amount of principal and interest due with respect to any Note and any Letter of Credit Liability held by such other Bank, the Bank receiving such proportionately greater payment shall purchase such participations in the Notes and any Letter of Credit Liability held by the other Banks, and such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Notes and any Letter of Credit Liability held by the Banks shall be shared by the Banks pro rata; provided that nothing in this Section shall impair the right of any Bank to exercise any right of set-off or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of the Borrower other than its indebtedness hereunder. The Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in a Note or a Letter of Credit Liability, whether or not acquired pursuant to the foregoing arrangements, may exercise rights of set-off or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of the Borrower in the amount of such participation. SECTION 9.05. Amendments and Waivers. Any provision of this Agreement or the Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Banks (and, if the rights or duties of either Agent or the Issuing Bank are affected thereby, by such Agent or the Issuing Bank, as relevant); provided that no such amendment or waiver shall, unless signed by all the Banks, (i) increase or decrease the Commitment of any Bank (except for a ratable decrease in the Commitments of all Banks) or subject any Bank to any additional obligation, (ii) reduce or forgive the principal of or rate of interest on any Loan or the amount to be reimbursed in respect of any Letter of Credit or any interest thereon or any fees hereunder, except as provided below, (iii) postpone the date fixed for any payment of principal of or interest on any Loan or the amount to be reimbursed in respect of any Letter of Credit or any interest thereon or any fees hereunder or for the termination of any Commitment or (except as expressly provided in Section 2.16) postpone or extend the expiry date of any Letter of Credit, (iv) release any collateral furnished pursuant to Section 6.03 unless no Default then exists or (v) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Notes and Letter of Credit Liabilities, or the number of Banks, which shall be required for the Banks or any of them to take any action under this Section or any other provision of this Agreement. SECTION 9.06. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all Banks. (b) Any Bank may at any time grant to one or more banks or other institutions (each a "Participant") participating interests in its Commitment or any or all of its Loans and Letter of Credit Liabilities. In the event of any such grant by a Bank of a participating interest to a Participant, whether or not upon notice to the Borrower and the Agents, such Bank shall remain responsible for the performance of its obligations hereunder, and the Borrower, the Issuing Banks and the Agents shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement. Any agreement pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of the Borrower hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement; provided that such participation agreement may provide that such Bank will not agree to any modification, amendment or waiver of this Agreement described in clause (i), (ii), (iii) or (iv) of Section 9.05 without the consent of the Participant. The Borrower agrees that each Participant shall, to the extent provided in its participation agreement, be entitled to the benefits of Article 8 with respect to its participating interest. An assignment or other transfer which is not permitted by subsection (c) or (d) below shall be given effect for purposes of this Agreement only to the extent of a participating interest granted in accordance with this subsection (b). (c) Any Bank may at any time assign to one or more banks or other financial institutions (each an "Assignee") all, or a proportionate part (equivalent to an initial Commitment of not less than $10,000,000, and provided that after giving effect thereto the Commitment of the assigning Bank is equivalent to an initial Commitment of not less than $10,000,000) of all, of its rights and obligations under this Agreement and the Notes, and such Assignee shall assume such rights and obligations, pursuant to an Assignment and Assumption Agreement in substantially the form of Exhibit H hereto executed by such Assignee and such transferor Bank, with (and subject to) the subscribed consent of the Borrower and the Administrative Agent, which in each case shall not be unreasonably withheld, and each Issuing Bank; provided that if an Assignee is an affiliate of such transferor Bank or was a Bank immediately prior to such assignment, no such consent of the Borrower shall be required; and provided further that such assignment may, but need not, include rights of the transferor Bank in respect of outstanding Money Market Loans or Alternative Currency Advances. Upon execution and delivery of such instrument and payment by such Assignee to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Assignee, such Assignee shall be a Bank party to this Agreement and shall have all the rights and obligations of a Bank with a Commitment as set forth in such instrument of assumption, and the transferor Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. Upon the consummation of any assignment pursuant to this subsection (c), the transferor Bank, the Administrative Agent and the Borrower shall make appropriate arrangements so that, if required, a new Note is issued to the Assignee. In connection with any such assignment, the transferor Bank or, in the case of an assignment made pursuant to subsection (f) below, the Borrower shall pay to the Administrative Agent an administrative fee for processing such assignment in the amount of $2,500. If the Assignee is not incorporated under the laws of the United States of America or a state thereof, it shall deliver to the Borrower and the Administrative Agent certification as to exemption from deduction or withholding of any United States federal income taxes in accordance with Section 8.04. (d) Any Bank may at any time assign all or any portion of its rights under this Agreement and its Note to a Federal Reserve Bank. No such assignment shall release the transferor Bank from its obligations hereunder. (e) No Assignee, Participant or other transferee of any Bank's rights shall be entitled to receive any greater payment under Section 8.03 or 8.04 than such Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Borrower's prior written consent or by reason of the provisions of Section 8.02, 8.03 or 8.04 requiring such Bank to designate a different Applicable Lending Office under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist. (f) The Borrower shall have the right to require that any Bank assign all of its rights and obligations under this Agreement and its Notes (including any outstanding Money Market Loans) to a new bank or an existing Bank if (i) in the case of a new bank, such new bank shall be acceptable to the Required Banks and (ii) such new bank or Bank, as the case may be, shall enter into an Assignment and Assumption Agreement therefor with such assigning Bank subject to the provisions of subsection (c) above, pursuant to which such new bank or Bank, as the case may be shall purchase the outstanding Loans of the assigning Bank at par plus accrued interest and shall pay to the assigning Bank all accrued fees and the Borrower shall pay to the assigning Bank all other amounts then owing to it under this Agreement. SECTION 9.07. Collateral. Each of the Banks represents to each Agent and each of the other Banks that it in good faith is not relying upon any "margin stock" (as defined in Regulation U) as collateral in the extension or maintenance of the credit provided for in this Agreement. SECTION 9.08. Governing Law; Submission to Jurisdiction. This Agreement and each Note shall be governed by and construed in accordance with the laws of the State of New York. The Borrower hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York City for purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. The Borrower irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. SECTION 9.09. Counterparts; Integration; Effectiveness. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof. This Agreement shall become effective upon receipt by the Documentation Agent of counterparts hereof signed by each of the parties hereto (or, in the case of any party as to which an executed counterpart shall not have been received, receipt by the Documentation Agent in form satisfactory to it of telegraphic, telex, facsimile or other written confirmation from such party of execution of a counterpart hereof by such party). SECTION 9.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENTS, THE ISSUING BANKS AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. SECTION 9.11. Existing Credit Agreements. The Banks that are parties to the Existing Morgan Credit Agreement or the Existing Deutsche Bank Credit Agreement, comprising the "REQUIRED BANKS", in each case as defined therein, and the Borrower agree that the commitments under the Existing Morgan Credit Agreement or the Existing Deutsche Bank Credit Agreement, as the case may be, shall terminate in their entirety simultaneously with and subject to the occurrence of the Closing Date under this Agreement and that the Borrower shall be obligated to pay the accrued letter of credit fees (in the case of the Existing Morgan Credit Agreement) and facility fees thereunder to but excluding the Closing Date. Each Bank which is a party hereto and to the Existing Morgan Credit Agreement hereby waives the notices required to be given pursuant to Section 2.09 thereof to terminate the "Commitments" (as defined therein) and each Bank which is a party hereto and to the Existing Deutsche Bank Credit Agreement hereby waives the notices required to be given pursuant to Section 2.10 thereof to terminate the "Commitments" (as defined therein). IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. USF&G CORPORATION By /s/ DAN L. HALE Name: Dan L. Hale Title: Executive Vice President and Chief Financial Officer Corporate Center 6225 Centennial Way - A3 Baltimore, MD 21209 Facsimile number: (410)205-6802 MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Issuing Bank By /s/ MARIA H. DELL'AQUILA Name: Maria H. Dell'Aquila Title: Vice President 60 Wall Street New York, New York 10260-0060 Attention: Anthony R. Malloy Telex number: 177615 Facsimile number: (212) 648-5249 MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent By /s/ MARIA H. DELL'AQUILA Name: Maria H. Dell'Aquila Title: Vice President 60 Wall Street New York, New York 10260-0060 Attention: Jerry J. Fall Telex number: 177615 Facsimile number: (212) 648-5249 DEUTSCHE BANK AG, NEW YORK BRANCH, as Documentation Agent By: /s/ JOHN S.MCGILL Name: John S. McGill Title: Vice President By: /s/ LOUIS CALTAVUTURO Name: Louis Caltavuturo Title: Vice President 31 West 52nd Street New York, New York 10019 Attention: Susan A. Maros Telex number: 429166 Facsimile number: (212) 469-8366 Commitments $25,000,000 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By /s/ MARIA H. DELL'AQUILA Name: Maria H. Dell'Aquila Title: Vice President $25,000,000 DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLANDS BRANCHES By /s/ JOHN S. MCGILL Name: John S. McGill Title: Vice President By /s/ LOUIS CALTAVUTURO Name: Louis Caltavuturo Title: Vice President $20,000,000 THE BANK OF NEW YORK By /s/ LIZANNE T. EBERLE Name: Lizanne T. Eberle Title: Vice President $20,000,000 BANKBOSTON, N.A. By /s/ LAWRENCE C. BIGELOW Name: Lawrence C. Bigelow Title: Managing Director $20,000,000 CITIBANK, N.A. By /s/ PETER C. BICKFORD Name: Peter C. Bickford Title: Attorney-In-Fact $20,000,000 THE FIRST NATIONAL BANK OF MARYLAND By /s/ BROOKS W. THROPP Name: Brooks W. Thropp Title: Vice President $20,000,000 MELLON BANK, N.A. By /s/ SUSAN M. WHITEWOOD Name: Susan M. Whitewood Title: Vice President $20,000,000 NATIONSBANK, N.A. By /s/ JIM V. MILLER Name: Jim V. Miller Title: Senior Vice President $10,000,000 ABN AMRO BANK N.V. By /s/ VICTOR J. FENNON Name: Victor J. Fennon Title: Vice President By /s/ JAMES MITCHELL Name: James Mitchell Title: Vice President $10,000,000 BANK ONE, TEXAS, N.A. By /s/ TIMOTHY J. STAMBAUGH Name: Timothy J. Stambaugh Title: Senior Vice President $10,000,000 CRESTAR BANK, a Virginia banking corporation By /s/ ANDREW D. WALLER Name: Andrew D. Waller Title: Assistant Vice President $10,000,000 FIRST UNION NATIONAL BANK By /s/ GAIL M. GOLIGHTLY Name: Gail M. Golightly Title: Senior Vice President $10,000,000 MERCANTILE-SAFE DEPOSIT & TRUST COMPANY By /s/ NICHOLAS C. RICHARDSON Name: Nicholas C. Richardson Title: Vice President $10,000,000 THE NORTHERN TRUST COMPANY By /s/ RICHARD BERGER Name: Richard Berger Title: Vice President $10,000,000 WACHOVIA BANK, N.A. By /s/ M. EUGENE WOOD, III Name: M. Eugene Wood, III Title: Vice President $10,000,000 WELLS FARGO BANK, N.A. By /s/ FRIEDA YOULIOS Name: Frieda Youlios Title: Vice President By /s/ RACHEL UYAMA Name: Rachel Uyama Title: Assistant Vice President - ------------------- Total Commitments $250,000,000 PRICING SCHEDULE The "Euro-Dollar Margin", "CD Margin", "Facility Fee Rate" and "LC Fee Rate" for any day are the respective percentages set forth below in the applicable row under the column corresponding to the Status that exists on such day: Status Level I Level II Level III Level IV Level V Euro-Dollar Margin 0.21% 0.225% 0.24% 0.30% 0.375% CD Margin 0.335% 0.35% 0.365% 0.425% 0.50% Facility Fee Rate 0.09% 0.10% 0.11% 0.15% 0.225% LC Fee Rate 0.21% 0.225% 0.24% 0.30% 0.375% For purposes of this Schedule, the following terms have the following meanings, subject to the final two paragraphs of this Schedule: "Level I Status" exists at any date if, at such date, the Borrower's senior unsecured long-term debt is rated at least A- by S&P or A3 by Moody's. "Level II Status" exists at any date if, at such date, (i) the Borrower's senior unsecured long-term debt is rated at least BBB+ by S&P or Baa1 by Moody's and (ii) Level I Status does not exist. "Level III Status" exists at any date if, at such date, (i) the Borrower's senior unsecured long-term debt is rated at least BBB by S&P or Baa2 by Moody's and (ii) neither Level I Status nor Level II Status exists. "Level IV Status" exists at any date if, at such date, (i) the Borrower's senior unsecured long-term debt is rated at least BBB- by S&P or Baa3 by Moody's and (ii) none of Level I Status, Level II Status and Level III Status exists. "Level V Status" exists at any date if, at such date, no other Status exists. "Moody's" means Moody's Investors Service, Inc., and its successors. "S&P" means Standard & Poor's Ratings Services, and its successors. "Status" refers to the determination of which of Level I Status, Level II Status, Level III Status, Level IV Status or Level V Status exists at any date. The credit ratings to be utilized for purposes of this Schedule are those assigned to the senior unsecured long-term debt securities of the Borrower without third-party credit enhancement, and any rating assigned to any other debt security of the Borrower shall be disregarded. The rating in effect at any date is that in effect at the close of business on such date. If the Borrower is split-rated and the rating differential is one level, the higher of the two ratings will apply (e.g.A-/Baa1 results in Level I Status and BBB+/Baa2 results in Level II Status). If the Borrower is split-rated and the ratings differential is more than one level, the average of the two ratings (or the higher of any two intermediate ratings) shall be used (e.g. A-/Baa2 results in Level II Status, as does A-/Baa3). EXHIBIT A NOTE New York, New York , 19 For value received, USF&G CORPORATION, a Maryland corporation (the "Borrower"), promises to pay to the order of (the "Bank"), for the account of its Applicable Lending Office, the unpaid principal amount of each Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred to below on the maturity date therefor specified in the Credit Agreement. The Borrower promises to pay interest on the unpaid principal amount of each such Loan on the dates and at the rate or rates provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of Morgan Guaranty Trust Company of New York, 60 Wall Street, New York, New York. All Loans made by the Bank, the respective types and maturities thereof and all repayments of the principal thereof shall be recorded by the Bank and, if the Bank so elects in connection with any transfer or enforcement hereof, appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding may be endorsed by the Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof; provided that the failure of the Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Credit Agreement. This note is one of the Notes referred to in the Five-Year Credit and Reimbursement Agreement dated as of December 18, 1997 among the Borrower, the banks listed on the signature pages thereof, the Letter of Credit Issuing Banks party thereto, Morgan Guaranty Trust Company of New York, as Administrative Agent, and Deutsche Bank AG, New York Branch, as Documentation Agent (as the same may be amended from time to time, the "Credit Agreement"). Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the prepayment hereof and the acceleration of the maturity hereof. USF&G CORPORATION By ---------------------------- Title: Vice President Note (cont'd) LOANS AND PAYMENTS OF PRINCIPAL Amount of Amount of Type of Principal Maturity Notation Date Loan Loan Repaid Date Made by - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- - ----------------------------------------------------------------------------- EXHIBIT B Form of Money Market Quote Request [Date] To: Morgan Guaranty Trust Company of New York (the "Administrative Agent") From: USF&G Corporation Re: Five-Year Credit and Reimbursement Agreement (the "Credit Agreement")dated as of December 18, 1997 among the Borrower, the Banks listed on the signature pages thereof, the Letter of Credit Issuing Banks party thereto, the Administrative Agent, and Deutsche Bank AG, New York Branch, as Documentation Agent We hereby give notice pursuant to Section 2.03 of the Credit Agreement that we request Money Market Quotes for the following proposed Money Market Borrowing(s): Date of Borrowing: __________________ Principal Amount(1) Interest Period(2) $ Such Money Market Quotes should offer a Money Market [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.] - -------- (1) Amount must be $5,000,000 or a larger multiple of $1,000,000. (2) Not less than one month (LIBOR Auction) or not less than 7 days (Absolute Rate Auction), subject to the provisions of the definition of Interest Period. Terms used herein have the meanings assigned to them in the Credit Agreement. USF&G CORPORATION By --------------------------- Title: EXHIBIT C Form of Invitation for Money Market Quotes To: [Name of Bank] Re: Invitation for Money Market Quotes to USF&G Corporation (the "Borrower") Pursuant to Section 2.03 of the Five-Year Credit and Reimbursement Agreement dated as of December 18, 1997 among the Borrower, the Banks parties thereto, the Letter of Credit Issuing Banks party thereto, the undersigned, as Administrative Agent, and Deutsche Bank AG, New York Branch, as Documentation Agent, we are pleased on behalf of the Borrower to invite you to submit Money Market Quotes to the Borrower for the following proposed Money Market Borrowing(s): Date of Borrowing: __________________ Principal Amount Interest Period $ Such Money Market Quotes should offer a Money Market [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.] Please respond to this invitation by no later than [2:00 P.M.] [9:30 A.M.] (New York City time) on [date]. MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent By ---------------------------- Authorized Officer EXHIBIT D Form of Money Market Quote To: Morgan Guaranty Trust Company of New York, as Administrative Agent Re: Money Market Quote to USF&G Corporation (the "Borrower") In response to your invitation on behalf of the Borrower dated __________, we hereby make the following Money Market Quote on the following terms: 1. Quoting Bank: ________________________________ 2. Person to contact at Quoting Bank: _________________________________ 3. Date of Borrowing: ____________________(3) 4. We hereby offer to make Money Market Loan(s) in the following principal amounts, for the following Interest Periods and at the following rates: Principal Interest Money Market Amount(4) Period(5) [Margin(6)] [Absolute Rate(7)] ------ ------ ------- ------- $ $ [Provided, that the aggregate principal amount of Money Market Loans for which the above offers may be accepted shall not exceed $____________.]** We understand and agree that the offer(s) set forth above, subject to the satisfaction of the applicable conditions set forth in the Five-Year Credit and Reimbursement Agreement dated as of December 18, 1997 among the Borrower, the Banks listed on the signature pages thereof, the Letter of Credit Issuing Banks party thereto, yourselves, as Administrative Agent, and Deutsche Bank AG, New York Branch, as Documentation Agent, irrevocably obligates us to make the Money Market Loan(s) for which any offer(s) are accepted, in whole or in part. Very truly yours, [NAME OF BANK] Dated:_______________ By:__________________________ Authorized Officer - -------- (3) As specified in the related Invitation. (4) Principal amount bid for each Interest Period may not exceed principal amount requested. Specify aggregate limitation if the sum of the individual offers exceeds the amount the Bank is willing to lend. Bids must be made for $5,000,000 or a larger multiple of $1,000,000. (5) Not less than one month or not less than 7 days, as specified in the related Invitation. No more than five bids are permitted for each Interest Period. (6) Margin over or under the London Interbank Offered Rate determined for the applicable Interest Period. Specify percentage (to the nearest 1/10,000 of 1%) and specify whether "PLUS" or "MINUS". (7) Specify rate of interest per annum (to the nearest 1/10,000th of 1%). EXHIBIT E OPINION OF THE DEPUTY GENERAL COUNSEL OF THE BORROWER To the Banks and the Agents Referred to Below c/o Deutsche Bank AG, New York Branch, as Documentation Agent 31 West 52nd Street New York, New York 10019 Dear Sirs: I am Deputy General Counsel for USF&G Corporation (the "Borrower") and have acted in such capacity in connection with the Five-Year Credit and Reimbursement Agreement (the "Credit Agreement") dated as of December 18, 1997 among the Borrower, the banks parties thereto, the Letter of Credit Issuing Banks party thereto, Morgan Guaranty Trust Company of New York, as Administrative Agent, and Deutsche Bank AG, New York Branch, as Documentation Agent. Terms defined in the Credit Agreement are used herein as therein defined. This opinion is being rendered to you at the request of my client pursuant to Section 3.01(b) of the Credit Agreement. I have examined originals or copies, certified or otherwise identified to my satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as I have deemed necessary or advisable for purposes of this opinion. Upon the basis of the foregoing, I am of the opinion that: 1. The Borrower is a corporation validly existing and in good standing under the laws of Maryland, and has all corporate powers required to carry on its business as now conducted. 2. The Borrower has all governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted, other than such licenses, authorizations, consents and approvals which, if not held or obtained by the Borrower, do not, in the aggregate, have a Material Adverse Effect. 3. The execution, delivery and performance by the Borrower of the Credit Agreement and the Notes are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action, require no action by the Borrower by or in respect of, or filing by the Borrower 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 articles of incorporation or by-laws of the Borrower. 4. To the best of my knowledge after responsible inquiry, the execution, delivery and performance by the Borrower of the Credit Agreement and the Notes do not contravene, or constitute a default under, any provision of any material agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or any of its Subsidiaries or result in the creation or imposition of any material Lien on any asset of the Borrower or any of its Subsidiaries. 5. There is no action, suit or proceeding pending or, to the best of my knowledge, threatened against or affecting the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official, in which there is a reasonable expectation of an adverse decision which reasonably could be expected to materially adversely affect the business, consolidated financial position or consolidated results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole, or which in any manner draws into question the validity of the Credit Agreement or the Notes, except as may have been disclosed in the financial statements referred to in Section 4.04(a) and (b) of the Credit Agreement. 6. Each of the Borrower and the Borrower's corporate Subsidiaries named below is a corporation validly existing and in good standing under the laws of its jurisdiction of incorporation, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted, other than such licenses, authorizations, consents and approvals which, if not held or obtained by the Borrower or such Subsidiary, do not, in the aggregate, have a Material Adverse Effect. The Subsidiaries referred to in this paragraph are United States Fidelity and Guaranty Company and Fidelity and Guaranty Life Insurance Company. Davis Polk & Wardwell may rely on this opinion in connection with the rendering by such firm of an opinion to you dated the date hereof with respect to the Agreement. Very truly yours, EXHIBIT F OPINION OF COUNSEL FOR THE BORROWER To the Banks and the Agents Referred to Below c/o Deutsche Bank AG, New York Branch, as Documentation Agent 31 West 52nd Street New York, New York 10019 Dear Sirs: We have acted as counsel for USF&G Corporation (the "Borrower") in connection with the Five-Year Credit and Reimbursement Agreement (the "Credit Agreement") dated as of December 18, 1997 among the Borrower, the banks parties thereto, the Letter of Credit Issuing Banks party thereto, Morgan Guaranty Trust Company of New York, as Administrative Agent, and Deutsche Bank AG, New York Branch, as Documentation Agent. Terms defined in the Credit Agreement are used herein as therein defined. This opinion is being rendered to you at the request of our client pursuant to Section 3.01(c) of the Credit Agreement. We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as we have deemed necessary or advisable for purposes of this opinion. In rendering this opinion, we have assumed that all documents submitted to us as originals are authentic, all documents submitted to us as certified or photostatic copies conform to the original document, all signatures on all documents submitted to us for examination are genuine, and all public records received are accurate and complete. Upon the basis of the foregoing, we are of the opinion that the Credit Agreement constitutes a valid and binding agreement of the Borrower and each Note constitutes a valid and binding obligation of the Borrower, in each case enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and by general principles of equity (including public policy limitations on the indemnification provisions thereof). You may rely upon this opinion only in connection with the transactions being consummated pursuant to the Credit Agreement and neither you nor any other person may rely upon or use this opinion for any other purpose whatsoever. However, Davis Polk & Wardwell may rely on this opinion in connection with the rendering by such firm of an opinion to you dated the date hereof with respect to the Agreement. Very truly yours, EXHIBIT G OPINION OF DAVIS POLK & WARDWELL, SPECIAL COUNSEL FOR THE AGENTS To the Banks and the Agents Referred to Below c/o Deutsche Bank AG, New York Branch, as Documentation Agent 31 West 52nd Street New York, New York 10019 Dear Sirs: We have participated in the preparation of the Five-Year Credit and Reimbursement Agreement (the "Credit Agreement") dated as of December 18, 1997 among USF&G Corporation, a Maryland corporation (the "Borrower"), the banks parties thereto (the "Banks"), the Letter of Credit Issuing Banks party thereto, Morgan Guaranty Trust Company of New York, as Administrative Agent (the "Administrative Agent") and Deutsche Bank AG, New York Branch, as Documentation Agent (the "Documentation Agent" and together with the Administrative Agent, the "Agents"), and have acted as special counsel for the Agents for the purpose of rendering this opinion pursuant to Section 3.01(d) of the Credit Agreement. Terms defined in the Credit Agreement are used herein as therein defined. We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as we have deemed necessary or advisable for purposes of this opinion. Upon the basis of the foregoing, we are of the opinion that the Credit Agreement constitutes a valid and binding agreement of the Borrower and each Note constitutes a valid and binding obligation of the Borrower, in each case enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and by general principles of equity. We are members of the Bar of the State of New York and the foregoing opinion is limited to the laws of the State of New York and the federal laws of the United States of America. In giving the foregoing opinion, we express no opinion as to the effect (if any) of any law of any jurisdiction (except the State of New York) in which any Bank is located which limits the rate of interest that such Bank may charge or collect. Insofar as the foregoing opinion involves matters governed by the laws of Maryland, we have relied, without independent investigation, upon the opinions of J. Kendall Huber, Deputy General Counsel of the Borrower, and of Piper & Marbury, counsel for the Borrower, a copy of each of which has been delivered to you. This opinion is rendered solely to you in connection with the above matter. This opinion may not be relied upon by you for any other purpose or relied upon by any other Person without our prior written consent. Very truly yours, EXHIBIT H ASSIGNMENT AND ASSUMPTION AGREEMENT AGREEMENT dated as of _________, 19__ among [ASSIGNOR] (the "Assignor"), [ASSIGNEE] (the "Assignee"), USF&G CORPORATION (the "Borrower"), MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent (the "Administrative Agent"), and MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Issuing Bank (the "Issuing Bank"). W I T N E S S E T H WHEREAS, this Assignment and Assumption Agreement (the "Agreement") relates to the Five-Year Credit and Reimbursement Agreement dated as of December 18, 1997 among the Borrower, the Assignor and the other Banks party thereto, as Banks, the Letter of Credit Issuing Banks party thereto, the Administrative Agent, and Deutsche Bank AG, New York Branch, as Documentation Agent (the "Credit Agreement"); WHEREAS, as provided under the Credit Agreement, the Assignor has a Commitment to make Loans to the Borrower and participate in Letters of Credit in an aggregate principal amount at any time outstanding not to exceed $____________; WHEREAS, Committed Loans made to the Borrower by the Assignor under the Credit Agreement in the aggregate principal amount of $__________ are outstanding at the date hereof; WHEREAS, Letters of Credit with a total amount available for drawing thereunder of $__________ are outstanding at the date hereof; and WHEREAS, the Assignor proposes to assign to the Assignee all of the rights of the Assignor under the Credit Agreement in respect of a portion of its Commitment thereunder in an amount equal to $__________ (the "Assigned Amount"), together with a corresponding portion of its outstanding Committed Loans and Letter of Credit Liabilities, and the Assignee proposes to accept assignment of such rights and assume the corresponding obligations from the Assignor on such terms; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows: SECTION 1. Definitions. All capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Credit Agreement. SECTION 2. Assignment. The Assignor hereby assigns and sells to the Assignee without recourse all of the rights of the Assignor under the Credit Agreement to the extent of the Assigned Amount, and the Assignee hereby accepts such assignment from the Assignor and assumes all of the obligations of the Assignor under the Credit Agreement to the extent of the Assigned Amount, including the purchase from the Assignor of the corresponding portion of the principal amount of the Committed Loans made by, and Letter of Credit Liabilities of, the Assignor outstanding at the date hereof. Upon the execution and delivery hereof by the Assignor, the Assignee[, the Borrower], the Issuing Bank and the Administrative Agent and the payment of the amounts specified in Section 3 required to be paid on the date hereof (i) the Assignee shall, as of the date hereof, succeed to the rights and be obligated to perform the obligations of a Bank under the Credit Agreement with a Commitment in an amount equal to the Assigned Amount, and (ii) the Commitment of the Assignor shall, as of the date hereof, be reduced by a like amount and the Assignor released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee. The assignment provided for herein shall be without recourse to the Assignor. SECTION 3. Payments. As consideration for the assignment and sale contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the date hereof in Federal funds the amount heretofore agreed between them.(8) It is understood that commitment and/or facility fees and/or letter of credit fees accrued to the date hereof are for the account of the Assignor and such fees accruing from and including the date hereof in respect of the Assigned Amount are for the account of the Assignee. Each of the Assignor and the Assignee hereby agrees that if it receives any amount under the Credit Agreement which is for the account of the other party hereto, it shall receive the same for the account of such other party to the extent of such other party's interest therein and shall promptly pay the same to such other party. - -------- (8) Amount should combine principal together with accrued interest and breakage compensation, if any, to be paid by the Assignee, net of any portion of any upfront fee to be paid by the Assignor to the Assignee. It may be preferable in an appropriate case to specify these amounts generally or by formula rather than as a fixed sum. [SECTION 4. Consent of the Borrower, the Issuing Bank and the Administrative Agent. This Agreement is conditioned upon the consent of the Borrower, the Administrative Agent and the Issuing Bank pursuant to Section 9.06(c) of the Credit Agreement. The execution of this Agreement by the Borrower, the Issuing Bank and the Administrative Agent is evidence of this consent. Pursuant to Section 9.06(c) the Borrower agrees to execute and deliver a Note payable to the order of the Assignee to evidence the assignment and assumption provided for herein.] SECTION 5. Non-Reliance on Assignor. The Assignor makes no representation or warranty in connection with, and shall have no responsibility with respect to, the solvency, financial condition, or statements of the Borrower, or the validity and enforceability of the obligations of the Borrower in respect of the Credit Agreement or any Note. The Assignee acknowledges that it has, independently and without reliance on the Assignor, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and will continue to be responsible for making its own independent appraisal of the business, affairs and financial condition of the Borrower. SECTION 6. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. SECTION 7. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written. [ASSIGNOR] By _______________________________ Title [ASSIGNEE] By _______________________________ Title: USF&G CORPORATION By _______________________________ Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent By _______________________________ Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Issuing Bank By _________________________________ Title: EXHIBIT I FORM OF LETTER OF CREDIT REQUEST , 19__ Morgan Guaranty Trust Company of New York, as Administrative Agent 60 Wall Street New York, New York 10260 Attention: ____________________ Morgan Guaranty Trust Company of New York, as Issuing Bank c/o J. P. Morgan Services Inc. P.O. Box 6071 Newark, DE 19714-9857 Attention: International Trade Services Re: Five-Year Credit and Reimbursement Agreement dated as of December 18, 1997 (as amended, the "Agreement") among USF&G Corporation (the "Borrower"), the Banks party thereto, the Issuing Banks party thereto, Morgan Guaranty Trust Company of New York, as Administrative Agent, and Deutsche Bank AG, New York Branch, as Documentation Agent Capitalized terms used herein that are defined in the Agreement shall have the meanings therein defined. 1. Pursuant to Section 2.16(b) of the Agreement, the Borrower or, on a joint and several basis, the Borrower and each undersigned wholly owned Subsidiary, ____________ (each a "Co-Applicant"), hereby request that the Issuing Bank issue a Letter of Credit in accordance with the information annexed hereto as Annex A hereto. 2. The Borrower hereby certifies that on the date hereof and on the date of issuance set forth in Annex A, and after giving effect to the Letter of Credit requested hereby: (a) The Borrower is and shall be in compliance with all of the terms, covenants and conditions of the Agreement. (b) No Default exists under the Agreement. (c) Each of the representations and warranties contained in the Agreement is and shall be true and correct (except the representations and warranties set forth in Sections 4.04(c) or 4.05). (d) After giving effect to the Letter of Credit requested to be issued hereby, (i) the aggregate amount of the Letter of Credit Liabilities shall not exceed the Letter of Credit Commitment and (ii) the aggregate amount of the Letter of Credit Liabilities plus the aggregate outstanding amount of all Loans plus the aggregate Dollar Equivalent of all Alternative Currency Advances then outstanding shall not exceed the aggregate amount of the Commitments. (e) Each undersigned Co-Applicant (if any) acknowledges that it has received a copy of the Agreement and acknowledges and agrees that, from and after the date of issuance of the Letter of Credit requested hereby, it shall be jointly and severally liable with the Borrower for all obligations with respect, or related, to such Letter of Credit or the payments to be made thereunder, including, without limitation, all obligations under Sections 2.16, 8.04 and 9.03 of the Agreement. Each undersigned Co-Applicant (if any) will, at the request of the Administrative Agent or the Issuing Bank, execute a copy of the Agreement and such other documents as may be reasonably required by the Administrative Agent or such Issuing Bank. IN WITNESS WHEREOF, the Borrower and each undersigned Co-Applicant (if any) has caused this Certificate to be executed by its duly authorized officer as of the date and year first written above. USF&G CORPORATION By:___________________________ Name:_________________________ Title:________________________ [CO-APPLICANT] By:___________________________ Name:_________________________ Title:________________________ Exhibit J SAMPLE DATE:__________________ Letter of Credit No.___ _____________________________________________________________ *FOR INTERNAL IDENTIFICATION PURPOSES ONLY* *Our Irrevocable Credit No. __________________________________ *Applicant:___________________________________________________ *_____________________________________________________________ MAIL TO: ________________ ________________ BENEFICIARY: ________________ Dear Sirs: We hereby establish this irrevocable standby Letter of Credit in favor of the aforesaid addressee (Beneficiary) for drawings up to __________ AMOUNT __________ (____________ AMOUNT IN WORDS________) effective ______________. This Letter of Credit is issued, presentable and payable at our International Trade Services Department as provided below and expires with our close of business on ___________________. Drafts and documents presented by mail should be mailed to Morgan Guaranty Trust Company of New York, c/o J.P. Morgan Services Inc., P.O. Box 6071 Newark, Delaware, 19714- 9857, Attention: International Trade Services. Courier or physical deliveries should be addressed to Morgan Guaranty Trust Company of New York, c/o J.P. Morgan Services Inc., 500 Stanton Christiana Road, Newark, Delaware, 19713-2107, Attention: International Trade Services. Although we prefer physical presentations be made to our Newark, Delaware location, our 15 Broad Street, New York, New York, 10015 location is also available for your physical presentations. Should you use our 15 Broad Street address for physical presentations, letters of credit/documents must be directed to, the Tellers Department, Ground Floor, 15 Broad Street, Attention: International Trade Services. If the Beneficiary is an insurance company, the term "Beneficiary" includes any successor by operation of law of the named Beneficiary including without limitation any liquidator, rehabilitator, receiver or conservator. We hereby undertake to promptly honor your sight draft(s) drawn on us, indicating our Credit No. ______, for all or any part of this credit upon presentation of your draft drawn on us at our office specified in paragraph one on or before the expiration date or any automatically extended expiry date. CONTINUED SAMPLE DATE:__________________ Letter of Credit No.___ PAGE TWO MAIL TO: _____________ _____________ BENEFICIARY: _____________ Except as expressly stated herein, this undertaking is not subject to any agreement, requirement or qualification. The obligation of Morgan Guaranty Trust Company of New York under this Letter of Credit is the individual obligation of Morgan Guaranty Trust Company of New York and is in no way contingent upon reimbursement with respect thereto. It is a condition of this Letter of Credit that it is deemed to be automatically extended without amendment for one year from the expiry date hereof, or any future expiration date, unless at least sixty days prior to any expiration date, we notify you by registered mail that we elect not to consider this Letter of Credit renewed for any such additional period, provided that under no circumstance shall this Letter of Credit be renewed or extended (automatically or otherwise) if the expiry date would be after December 18, 2002. This Letter of Credit is subject to and governed by the laws of the State of New York and the 1993 Revision of the Uniform Customs and Practice for Documentary Credits of the International Chamber of Commerce (Publication No. 500) and, in the event of any conflict, the Laws of the State of New York will control. If this credit expires during an interruption of business as described in Article 17 of said Publication 500, the Bank hereby specifically agrees to effect payment if this Credit is drawn against within 30 days after the resumption of business. Yours very truly, Authorized Signature Standby/Guarantee Unit (302) 634- Annex A LETTER OF CREDIT INFORMATION 1. Name of Beneficiary: _______________________________________________________________. 2. Address of Beneficiary of the Letter of Credit: ________________________________________________________________ ________________________________________________________________. 3. Conditions under which a drawing under such Letter of Credit may be made (specify the required documentation): ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________. 4. Maximum amount to be available under such Letter of Credit: $_____________. 5. Requested Date of Issuance: _______________ __, 199__. 6. Stated Expiration Date: _______________ __, 199__. 7. Description of Transaction to be supported by such Letter of Credit: ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________ ________________________________________________________________. 8. Name and address of each Co-Applicant (if any): ________________________________________________________________ ________________________________________________________________. EX-4 3 364-DAY CREDIT AND REIMBURSEMENT AGREEMENT [EXECUTION COPY] $200,000,000 364-DAY CREDIT AND REIMBURSEMENT AGREEMENT dated as of December 18, 1997 among USF&G Corporation The Banks Listed Herein, Morgan Guaranty Trust Company of New York, as Administrative Agent and Deutsche Bank AG, New York Branch, as Documentation Agent ----------------------------- J.P. Morgan Securities Inc., Arranger Deutsche Morgan Grenfell Inc., Co-Arranger PAGE TABLE OF CONTENTS ---------------------- PAGE ARTICLE 1 DEFINITIONS SECTION 1.01. Definitions.....................................................1 SECTION 1.02. Accounting Terms and Determinations............................17 SECTION 1.03. Types and Classes of Borrowings................................18 ARTICLE 2 THE CREDITS SECTION 2.01. Commitments to Lend............................................18 SECTION 2.02. Notice of Committed Borrowing..................................19 SECTION 2.03. Money Market Borrowings........................................20 SECTION 2.04. Notice to Banks; Funding of Loans..............................24 SECTION 2.05. Notes..........................................................25 SECTION 2.06. Maturity of Loans..............................................25 SECTION 2.07. Interest Rates.................................................26 SECTION 2.08. Fees...........................................................30 SECTION 2.09. Optional Termination or Reduction of Commitments...............30 SECTION 2.10. Mandatory Termination of Commitments...........................31 SECTION 2.11. Method of Electing Interest Rates..............................31 SECTION 2.12. Mandatory and Optional Prepayments.............................33 SECTION 2.13. General Provisions as to Payments..............................33 SECTION 2.14. Funding Losses.................................................34 SECTION 2.15. Computation of Interest and Fees...............................34 SECTION 2.16. Alternative Currency Advances..................................35 SECTION 2.17. Takeout of Swingline Loans.....................................36 ARTICLE 3 CONDITIONS SECTION 3.01. Closing........................................................37 SECTION 3.02. Borrowings.....................................................38 ARTICLE 4 REPRESENTATIONS AND WARRANTIES SECTION 4.01. Corporate Existence and Power..................................39 SECTION 4.02. Corporate and Governmental Authorization; No Contravention.....39 SECTION 4.03. Binding Effect.................................................40 SECTION 4.04. Financial Information..........................................40 SECTION 4.05. Litigation.....................................................41 SECTION 4.06. Compliance with ERISA..........................................41 SECTION 4.07. Environmental Matters..........................................41 SECTION 4.08. Taxes..........................................................42 SECTION 4.09. Subsidiaries...................................................42 SECTION 4.10. Not an Investment Company......................................42 SECTION 4.11. Full Disclosure................................................42 ARTICLE 5 COVENANTS SECTION 5.01. Information....................................................43 SECTION 5.02. Payment of Obligations.........................................45 SECTION 5.03. Maintenance of Property; Insurance.............................45 SECTION 5.04. Conduct of Business and Maintenance of Existence...............46 SECTION 5.05. Compliance with Laws...........................................46 SECTION 5.06. Negative Pledge................................................46 SECTION 5.07. Consolidations, Mergers and Sales of Assets; Ownership by USF&G Corporation...........................................48 SECTION 5.08. Use of Proceeds................................................48 SECTION 5.09. Ratio of Debt to Adjusted Consolidated Tangible Net Worth......48 SECTION 5.10. Minimum Adjusted Consolidated Tangible Net Worth...............48 SECTION 5.11. Transactions with Affiliates...................................49 ARTICLE 6 DEFAULTS SECTION 6.01. Events of Default..............................................49 SECTION 6.02. Notice of Default..............................................51 ARTICLE 7 THE AGENTS SECTION 7.01. Appointment and Authorization..................................52 SECTION 7.02. Agents and Affiliates..........................................52 SECTION 7.03. Action by Agents...............................................52 SECTION 7.04. Consultation with Experts......................................52 SECTION 7.05. Liability of Agents............................................52 SECTION 7.06. Indemnification................................................53 SECTION 7.07. Credit Decision................................................53 SECTION 7.08. Successor Agents...............................................53 SECTION 7.09. Agents' Fees...................................................54 ARTICLE 8 CHANGE IN CIRCUMSTANCES SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair.......54 SECTION 8.02. Illegality.....................................................55 SECTION 8.03. Increased Cost and Reduced Return..............................55 SECTION 8.04. Taxes..........................................................57 SECTION 8.05. Base Rate Loans Substituted for Affected Fixed Rate Loans......59 ARTICLE 9 MISCELLANEOUS SECTION 9.01. Notices........................................................60 SECTION 9.02. No Waivers.....................................................60 SECTION 9.03. Expenses; Indemnification......................................60 SECTION 9.04. Sharing of Set-offs............................................61 SECTION 9.05. Amendments and Waivers.........................................62 SECTION 9.06. Successors and Assigns.........................................62 SECTION 9.07. Collateral.....................................................64 SECTION 9.08. Governing Law; Submission to Jurisdiction......................64 SECTION 9.09. Counterparts; Integration; Effectiveness.......................64 SECTION 9.10. WAIVER OF JURY TRIAL...........................................65 SECTION 9.11. Existing Credit Agreements.....................................65 Pricing Schedule Exhibit A - Note Exhibit B - Money Market Quote Request Exhibit C - Invitation for Money Market Quotes Exhibit D - Money Market Quote Exhibit E - Opinion of the General Counsel of the Borrower Exhibit F - Opinion of Counsel to the Borrower Exhibit G - Opinion of Special Counsel for the Agents Exhibit H - Assignment and Assumption Agreement 364-DAY CREDIT AND REIMBURSEMENT AGREEMENT AGREEMENT dated as of December 18, 1997 among USF&G CORPORATION, the BANKS listed on the signature pages hereof, MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent, and DEUTSCHE BANK AG, NEW YORK BRANCH, as Documentation Agent. The parties hereto agree as follows: ARTICLE 1 DEFINITIONS SECTION 1.01. Definitions. The following terms, as used herein, have the following meanings: "ABSOLUTE RATE AUCTION" means a solicitation of Money Market Quotes setting forth Money Market Absolute Rates pursuant to Section 2.03. "ADJUSTED CD RATE" has the meaning set forth in Section 2.07(b). "ADJUSTED CONSOLIDATED TANGIBLE NET WORTH" means at any date the consolidated stockholders' equity of the Borrower and its Consolidated Subsidiaries (1) plus any unrealized holding losses (or less any unrealized holding gains), in each case net of relevant adjustments for deferred policy acquisition costs, on account of available-for-sale debt securities to the extent reflected therein (together with other adjustments, all as determined in accordance with Statement of Financial Accounting Standards No. 115 of the Financial Accounting Standards Board, as amended from time to time, or any successor provision thereto) and (2) plus, to the extent Qualified Deferrable Securities Obligations are not included in consolidated stockholders' equity of the Borrower and its Consolidated Subsidiaries, the Equity Portion of Qualified Deferrable Securities Obligations (or, if Qualified Deferrable Securities Obligations are included in consolidated stockholders' equity of the Borrower and its Consolidated Subsidiaries, less the Debt Portion of Qualified Deferrable Securities Obligations) and (3) less their consolidated Intangible Assets, all determined as of such date. For purposes of this definition "Intangible Assets" means the amount (to the extent reflected in determining such consolidated stockholders' equity) of (i) all write-ups (other than write-ups resulting from foreign currency translations, write-ups of assets of a going concern business made within twelve months after the acquisition of such business and changes made in accordance with generally accepted accounting principles in the book value of any Investments in Persons other than the Borrower and its Consolidated Subsidiaries) subsequent to September 30, 1997 in the book value of any asset owned by the Borrower or a Consolidated Subsidiary and (ii) all unamortized debt discount and expense, unamortized deferred charges, goodwill, patents, trademarks, service marks, trade names, copyrights, organization or developmental expenses and other intangible assets (other than deferred policy acquisition costs and net deferred tax assets). "ADJUSTED LONDON INTERBANK OFFERED RATE" has the meaning set forth in Section 2.07(c). "ADMINISTRATIVE AGENT" means Morgan Guaranty Trust Company of New York, in its capacity as administrative agent for the Banks hereunder, and its successors in such capacity. "ADMINISTRATIVE QUESTIONNAIRE" means, with respect to each Bank, an administrative questionnaire in the form prepared by the Administrative Agent and submitted to the Administrative Agent (with a copy to the Borrower) duly completed by such Bank. "AFFILIATE" means (i) any Person that directly, or indirectly through one or more intermediaries, controls the Borrower (a "Controlling Person") or (ii) any Person (other than the Borrower or a Subsidiary) which is controlled by or is under common control with a Controlling Person. As used herein, the term "control" means possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise. "AGENT" means the Administrative Agent or the Documentation Agent, and "AGENTS" means both of them. "ALTERNATIVE CURRENCIES" means Canadian dollars, French francs, Swiss francs, Australian dollars, Japanese yen, British pounds sterling, Italian lira and German deutsche marks, provided that any other currency (except Dollars) shall also be an Alternative Currency if (i) the Borrower requests, by notice to the Administrative Agent, that such currency be included as an additional Alternative Currency for purposes of this Agreement, (ii) such currency is freely transferable and freely convertible into Dollars, (iii) deposits in such currency are customarily offered to banks in the London interbank market and (iv) each Bank either (x) approves the inclusion of such currency as an additional Alternative Currency for purposes hereof or (y) fails to notify the Administrative Agent that it objects to such inclusion within five Domestic Business Days after the Administrative Agent notifies it of the Borrower's request for such inclusion. "ALTERNATIVE CURRENCY ADVANCE" means an advance made by a Bank to the Borrower in an Alternative Currency pursuant to Section 2.16. "ALTERNATIVE CURRENCY ADVANCE REPORT" has the meaning set forth in Section 2.16(c). "APPLICABLE LENDING OFFICE" means, with respect to any Bank, (i) in the case of its Domestic Loans, its Domestic Lending Office, (ii) in the case of its Euro-Dollar Loans and Alternative Currency Advances, its Euro-Dollar Lending Office, (iii) in the case of its Money Market Loans, its Money Market Lending Office and (iv) in the case of its Swingline Loans, its Swingline Lending Office. "ASSESSMENT RATE" has the meaning set forth in Section 2.07(b). "ASSIGNEE" has the meaning set forth in Section 9.06(c). "BANK" means each bank listed on the signature pages hereof, each Assignee which becomes a Bank pursuant to Section 9.06(c), and their respective successors. "BASE RATE" means, for any day, a rate per annum equal to the higher of (i) the Prime Rate for such day and (ii) the sum of 1/2 of 1% plus the Federal Funds Rate for such day. "BASE RATE LOAN" means a Syndicated Loan which bears interest at the Base Rate pursuant to the applicable Notice of Committed Borrowing or Notice of Interest Rate Election or the provisions of Section 2.11(a) or Article 8. "BENEFIT ARRANGEMENT" means at any time an employee benefit plan within the meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and which is maintained or otherwise contributed to by any member of the ERISA Group. "BORROWER" means USF&G Corporation, a Maryland corporation, and its successors. "BORROWER'S 1996 FORM 10-K" means the Borrower's annual report on Form 10-K for 1996, as filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. "BORROWER'S LATEST FORM 10-Q" means the Borrower's quarterly report on Form 10-Q for the quarter ended September 30, 1997, as filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934. "BORROWING" has the meaning set forth in Section 1.03. "CD BASE RATE" has the meaning set forth in Section 2.07(b). "CD LOAN" means a Syndicated Loan which bears interest at a CD Rate pursuant to the applicable Notice of Committed Borrowing or Notice of Interest Rate Election. "CD MARGIN" has the meaning set forth in Section 2.07(b). "CD RATE" means a rate of interest determined pursuant to Section 2.07(b) on the basis of an Adjusted CD Rate. "CD REFERENCE BANKS" means Deutsche Bank AG, New York Branch, Morgan Guaranty Trust Company of New York and The Bank of New York. "CLASS" refers to the determination whether a Loan is a Revolving Credit Loan or a Term Loan. "CLOSING DATE" means the date on which the Documentation Agent shall have received the documents specified in or pursuant to Section 3.01. "COMMITMENT" means, with respect to each Bank, the amount set forth opposite the name of such Bank on the signature pages hereof, as such amount may be reduced from time to time pursuant to Sections 2.09 and 2.10. "COMMITTED LOAN" means a Syndicated Loan or a Swingline Loan. "COMMITMENT TERMINATION DATE" means December 17, 1998 or, if any such day is not a Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day. "CONSOLIDATED SUBSIDIARY" means at any date any Subsidiary or other entity the accounts of which would be consolidated with those of the Borrower in its consolidated financial statements if such statements were prepared as of such date. "DEBT" of any Person means at any date, without duplication, (i) all obligations of such Person for borrowed money, (ii) all obligations of such Person evidenced by bonds, debentures, notes or other similar instruments, (iii) all obligations of such Person to pay the deferred purchase price of property or services, except trade accounts payable, agents' commissions and other similar charges and expenses arising in the ordinary course of business, (iv) all obligations of such Person as lessee which are capitalized in accordance with generally accepted accounting principles, (v) all non-contingent obligations (and, for purposes of Section 5.06 and the definitions of Material Debt and Material Financial Obligations, all contingent obligations) of such Person to reimburse any bank or other Person in respect of amounts paid under a letter of credit or similar instrument, (vi) all Debt secured by a Lien on any asset of such Person, whether or not such Debt is otherwise an obligation of such Person (but excluding any such Debt to the extent such Debt exceeds the fair market value of such assets (such fair market value to be established by the Borrower to the reasonable satisfaction of the Required Banks), unless such Debt is assumed), (vii) all obligations of such Person to purchase securities (or other property) which arise out of or in connection with the sale of the same or substantially similar securities or property and (viii) all Debt of others Guaranteed by such Person, provided that obligations of any Person referred to only in clauses (i) through (iii), inclusive, above shall constitute Debt of such Person only to the extent that they are, or are required to be, recorded on the financial statements of such Person as a liability under generally accepted accounting principles. "DEBT PORTION" of Qualified Deferrable Securities Obligations means at any time the amount thereof (including, without duplication, any subordinated Guarantee of payment of Qualified Preferred Securities) that is not the "Equity Portion" of Qualified Deferrable Securities Obligations. "DEFAULT" means any condition or event which constitutes an Event of Default or which with the giving of notice or lapse of time or both would, unless cured or waived, become an Event of Default. "DERIVATIVES OBLIGATIONS" of any Person means all obligations (other than obligations incurred as a result of investments in or writing of futures, options, swaps or other derivative transactions in respect of, or based upon, insurance products or risks, including the futures and options contracts relating to catastrophic losses traded on the Chicago Board of Trade or otherwise) 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 any other similar transaction (including any option with respect to any of the foregoing transactions) or any combination of the foregoing transactions. "DOCUMENTATION AGENT" means Deutsche Bank AG, New York Branch in its capacity as documentation agent for the Banks hereunder, and its successors in such capacity. "DOLLAR EQUIVALENT" means, as used in each Alternative Currency Advance Report and in respect of any Alternative Currency Advance, the amount of Dollars obtained by converting the outstanding amount of currency of such Alternative Currency Advance, as specified in such Alternative Currency Advance Report, into Dollars at the spot rate for the purchase of Dollars with such currency as quoted by the Administrative Agent at approximately 9:00 A.M. (New York City time) on the date of such Alternative Currency Advance Report (unless another rate or time is agreed to by the Borrower and the Administrative Agent). The Dollar Equivalent of any Alternative Currency Advance at any date shall be the Dollar Equivalent thereof set forth in the Alternative Currency Advance Report most recently delivered on or prior to such date. "DOLLARS" and the sign "$" mean lawful money in the United States of America. "DOMESTIC BUSINESS DAY" means any day except a Saturday, Sunday or other day on which commercial banks in New York City are authorized by law to close. "DOMESTIC LENDING OFFICE" means, as to each Bank, its office located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Domestic Lending Office) or such other office as such Bank may hereafter designate as its Domestic Lending Office by notice to the Borrower and the Administrative Agent; provided that any Bank may so designate separate Domestic Lending Offices for its Base Rate Loans, on the one hand, and its CD Loans, on the other hand, in which case all references herein to the Domestic Lending Office of such Bank shall be deemed to refer to either or both of such offices, as the context may require. "DOMESTIC LOANS" means CD Loans or Base Rate Loans or both. "DOMESTIC RESERVE PERCENTAGE" has the meaning set forth in Section 2.07(b). "ENVIRONMENTAL LAWS" means any and all federal, state, local and foreign statutes, laws, judicial decisions, regulations, ordinances, rules, judgments, orders, decrees, plans, injunctions, permits, concessions, grants, franchises, licenses, agreements and other governmental restrictions relating to the environment, the effect of the environment on human health or to emissions, discharges or releases of pollutants, contaminants, Hazardous Substances or wastes into the environment including, without limitation, ambient air, surface water, ground water, or land, or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, Hazardous Substances or wastes or the clean-up or other remediation thereof. "EQUITY PORTION" of Qualified Deferrable Securities Obligations means at any time the amount of Qualified Deferrable Securities Obligations that does not exceed the greater of (i) 15% of Total Capital at such time (including, without duplication, any subordinated Guarantee of payment of the related Qualified Preferred Securities, but only if such Guarantee guarantees payment only to the extent that the Subsidiary issuing the Qualified Preferred Securities has funds on hand available for payment) or (ii) $300,000,000, but only for so long as no event of default exists under, or with respect to, any Qualified Deferrable Securities Obligations and no Qualified Deferrable Securities Obligations have been accelerated or may, with the passage of time or the giving of notice, be accelerated. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, or any successor statute. "ERISA GROUP" means the Borrower, any Subsidiary and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control which, together with the Borrower or any Subsidiary, are treated as a single employer under Section 414 of the Internal Revenue Code. "EURO" means the currency of participating member states of the European Union that adopt a single currency in accordance with the Treaty on European Union signed February 7, 1992. "EURO-DOLLAR BUSINESS DAY" means any Domestic Business Day on which commercial banks are open for international business (including dealings in dollar deposits) in London. "EURO-DOLLAR LENDING OFFICE" means, as to each Bank, its office, branch or affiliate located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Euro-Dollar Lending Office) or such other office, branch or affiliate of such Bank as it may hereafter designate as its Euro-Dollar Lending Office by notice to the Borrower and the Administrative Agent. The Applicable Lending Office for any Alternative Currency Advance shall be the Euro-Dollar Lending Office of the Bank making such advance as so set forth and identified unless another office, branch or affiliate of such Bank is hereafter designated as its Euro-Dollar Lending Office for such Alternative Currency Advance by notice to the Borrower and the Administrative Agent. "EURO-DOLLAR LOAN" means a Syndicated Loan which bears interest at a Euro-Dollar Rate pursuant to the applicable Notice of Committed Borrowing or Notice of Interest Rate Election. "EURO-DOLLAR RATE" means a rate of interest determined pursuant to Section 2.07(c) on the basis of a London Interbank Offered Rate. "EURO-DOLLAR MARGIN" has the meaning set forth in Section 2.07(c). "EURO-DOLLAR REFERENCE BANKS" means the principal London offices of Deutsche Bank AG, Morgan Guaranty Trust Company of New York and The Bank of New York. "EURO-DOLLAR RESERVE PERCENTAGE" has the meaning set forth in Section 2.07(c). "EVENT OF DEFAULT" has the meaning set forth in Section 6.01. "EXCLUDED SUBSIDIARY" means any Subsidiary or Insurance Company Subsidiary other than any (i) Insurance Company Subsidiary with total admitted assets, as of the date of determination, of $25,000,000 or more and (ii) "Significant Subsidiary", as defined in Section 210.1-02(v) of Regulation S-X, as amended from time to time, promulgated by the Securities and Exchange Commission (17 C.F.R. Section 210.1-02(w)). "EXISTING CREDIT AGREEMENTS" means (i) the Credit and Reimbursement Agreement dated as of March 29, 1996 among USF&G Corporation, the banks party thereto, the Letter of Credit Issuing Banks named therein and Morgan Guaranty Trust Company of New York, as agent, as amended as of June 30, 1997 (the "EXISTING MORGAN CREDIT AGREEMENT") and (ii) the Credit Agreement dated as of March 29, 1996 among USF&G Corporation, the banks party thereto and Deutsche Bank AG, New York and/or Cayman Island Branches, as agent (the "EXISTING DEUTSCHE BANK CREDIT AGREEMENT"). "FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Domestic Business Day next succeeding such day, provided that (i) if such day is not a Domestic Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Domestic Business Day as so published on the next succeeding Domestic Business Day, and (ii) if no such rate is so published on such next succeeding Domestic Business Day, the Federal Funds Rate for such day shall be the average rate quoted to Morgan Guaranty Trust Company of New York on such day on such transactions as determined by the Administrative Agent. "FINAL MATURITY DATE" means the first anniversary of the Commitment Termination Date or, if such day is not a Euro-Dollar Business Day, the next preceding Euro-Dollar Business Day. "FIXED RATE LOANS" means CD Loans or Euro-Dollar Loans or Money Market Loans (excluding Money Market LIBOR Loans bearing interest at the Base Rate pursuant to Section 8.01(a)) or any combination of the foregoing. "GROUP OF LOANS" means at any time a group of Syndicated Loans of the same Class consisting of (i) all Base Rate Loans of such Class outstanding at such time, (ii) all Euro-Dollar Loans of such Class having the same Interest Period at such time or (iii) all CD Loans of such Class having the same Interest Period at such time; provided that, if a Syndicated Loan of any particular Bank is converted to or made as a Base Rate Loan pursuant to Section 8.02 or 8.05, such Loan shall be included in the same Group or Groups of Loans from time to time as it would have been in if it had not been so converted or made. "GUARANTEE" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (ii) entered into for the purpose of assuring in any other manner the obligee of such Debt or other obligation of the payment thereof or to protect such obligee against loss in respect thereof (in whole or in part), provided that the term Guarantee shall not include (i) endorsements for collection or deposit in the ordinary course of business or (ii) if such Person is an insurance company, surety bonds and insurance contracts (including financial guarantee insurance policies) in each case issued in the ordinary course of such Person's business. The term "Guarantee" used as a verb has a corresponding meaning. "HAZARDOUS SUBSTANCES" means any toxic, radioactive, caustic or otherwise hazardous substance, including petroleum, its derivatives, by-products and other hydrocarbons, or any substance having any constituent elements displaying any of the foregoing characteristics. "INDEMNITEE" has the meaning set forth in Section 9.03(b). "INSURANCE COMPANY SUBSIDIARY" means any Subsidiary domiciled in the United States of America (including the District of Columbia) and its territories and possessions or any State thereof and licensed or authorized to do an insurance business in any of the foregoing. "INTEREST PERIOD" means: (a) with respect to each Euro-Dollar Loan, the period commencing on the date of borrowing specified in the applicable Notice of Committed Borrowing or on the date specified in an applicable Notice of Interest Rate Election and ending one, two, three or six months thereafter, as the Borrower may elect in such notice; provided that: (i) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; and (ii) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Euro-Dollar Business Day of a calendar month; (b) with respect to each CD Loan, the period commencing on the date of borrowing specified in the applicable Notice of Committed Borrowing or on the date specified in an applicable Notice of Interest Rate Election and ending 30, 60, 90 or 180 days thereafter, as the Borrower may elect in such notice; provided that any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day; (c) with respect to each Money Market LIBOR Loan, the period commencing on the date of such Loan and ending such whole number of months thereafter as the Borrower may elect in accordance with Section 2.03; provided that: (i) any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Euro-Dollar Business Day; and (ii) any Interest Period which begins on the last Euro-Dollar Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Euro-Dollar Business Day of a calendar month; (d) with respect to each Money Market Absolute Rate Loan, the period commencing on the date of such Loan and ending such number of days thereafter (but not less than seven days) as the Borrower may elect in accordance with Section 2.03; provided that any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day; (e) with respect to each Swingline Loan, the period commencing on the date of borrowing specified in the applicable Notice of Borrowing and ending such number of days thereafter (but not more than 10 days) as the Borrower may elect in such notice; provided that any Interest Period which would otherwise end on a day which is not a Euro-Dollar Business Day shall be extended to the next succeeding Euro-Dollar Business Day; and provided further that: (x) any Interest Period applicable to any Loan which begins before the Commitment Termination Date and would otherwise end after the Commitment Termination Date shall end on the Commitment Termination Date; and (y) any Interest Period applicable to any Loan which would otherwise end after the Final Maturity Date shall end on the Final Maturity Date. "INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as amended, or any successor statute. "INVESTMENT" means any investment in any Person, whether by means of share purchase, capital contribution, loan, time deposit or otherwise. "LIBOR AUCTION" means a solicitation of Money Market Quotes setting forth Money Market Margins based on the London Interbank Offered Rate pursuant to Section 2.03. "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 Borrower or any Subsidiary 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. "LOAN" means a Domestic Loan or a Euro-Dollar Loan or a Money Market Loan or a Swingline Loan and "LOANS" means Domestic Loans or Euro-Dollar Loans or Money Market Loans or Swingline Loans or any combination of the foregoing. "LONDON INTERBANK OFFERED RATE" has the meaning set forth in Section 2.07(c). "MATERIAL ADVERSE EFFECT" means a material adverse effect on the business, financial position, results of operations or prospects of the Borrower and its Consolidated Subsidiaries, considered as a whole. "MATERIAL DEBT" means Debt (other than the Notes) of the Borrower and/or one or more of its Subsidiaries (other than an Excluded Subsidiary), arising in one or more related or unrelated transactions, in an aggregate principal or face amount exceeding $50,000,000 (or its equivalent in any other currency). "MATERIAL FINANCIAL OBLIGATIONS" means a principal or face amount of Debt and/or the then-owed payment obligations in respect of Derivatives Obligations of the Borrower and/or one or more of its Subsidiaries (other than an Excluded Subsidiary), arising in one or more related or unrelated transactions, exceeding in the aggregate $50,000,000 (or its equivalent in any other currency). "MATERIAL PLAN" means at any time a Plan or Plans having aggregate Unfunded Liabilities in excess of $15,000,000. "MONEY MARKET ABSOLUTE RATE" has the meaning set forth in Section 2.03(d). "MONEY MARKET ABSOLUTE RATE LOAN" means a loan to be made by a Bank pursuant to an Absolute Rate Auction. "MONEY MARKET LENDING OFFICE" means, as to each Bank, its Domestic Lending Office or such other office, branch or affiliate of such Bank as it may hereafter designate as its Money Market Lending Office by notice to the Borrower and the Administrative Agent; provided that any Bank may from time to time by notice to the Borrower and the Administrative Agent designate separate Money Market Lending Offices for its Money Market LIBOR Loans, on the one hand, and its Money Market Absolute Rate Loans, on the other hand, in which case all references herein to the Money Market Lending Office of such Bank shall be deemed to refer to either or both of such offices, as the context may require. "MONEY MARKET LIBOR LOAN" means a loan to be made by a Bank pursuant to a LIBOR Auction (including such a loan bearing interest at the Base Rate pursuant to Section 8.01(a)). "MONEY MARKET LOAN" means a Money Market LIBOR Loan or a Money Market Absolute Rate Loan. "MONEY MARKET MARGIN" has the meaning set forth in Section 2.03(d). "MONEY MARKET QUOTE" means an offer by a Bank to make a Money Market Loan in accordance with Section 2.03. "MULTIEMPLOYER PLAN" means at any time an employee pension benefit plan within the meaning of Section 4001(a)(3) of ERISA to which any member of the ERISA Group is then making or accruing an obligation to make contributions or has within the preceding five plan years made contributions, including for these purposes any Person which ceased to be a member of the ERISA Group during such five year period. "NON-RECOURSE DEBT" means Debt, secured only by real property (including fixtures and personal property used therein or thereon and the rents, profits and proceeds arising therefrom), in respect of which the holder of such Debt has no recourse against the Borrower or any Subsidiary (other than a Subsidiary the only assets of which consist of such real property (including fixtures and personal property used therein or thereon and the rents, profits and proceeds therefrom)) or any asset of the Borrower or any Subsidiary (except such real property (including fixtures and personal property used therein or thereon and the rents, profits and proceeds arising therefrom)). "NOTES" means promissory notes of the Borrower, substantially in the form of Exhibit A hereto, evidencing the obligation of the Borrower to repay the Loans, and "NOTE" means any one of such promissory notes issued hereunder. "NOTICE OF BORROWING" means a Notice of Committed Borrowing (as defined in Section 2.02) or a Notice of Money Market Borrowing (as defined in Section 2.03(f)). "NOTICE OF INTEREST RATE ELECTION" has the meaning set forth in Section 2.11. "OFFICER'S CERTIFICATE" means a certificate signed by the President, any Vice-President responsible for financial matters, the Treasurer or the Controller of the Borrower. "PARENT" means, with respect to any Bank, any Person controlling such Bank. "PARTICIPANT" has the meaning set forth in Section 9.06(b). "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to any or all of its functions under ERISA. "PERSON" means an individual, a corporation, a limited liability company, a partnership, an association, a trust or any other entity or organization, including a government or political subdivision or an agency or instrumentality thereof. "PLAN" means at any time an employee pension benefit plan (other than a Multiemployer Plan) which is covered by Title IV of ERISA or subject to the minimum funding standards under Section 412 of the Internal Revenue Code and either (i) is maintained, or contributed to, by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been maintained, or contributed to, by any Person which was at such time a member of the ERISA Group for employees of any Person which was at such time a member of the ERISA Group. "PRICING SCHEDULE" means the Schedule attached hereto identified as such. "PRIME RATE" means the rate of interest publicly announced by Morgan Guaranty Trust Company of New York in New York City from time to time as its Prime Rate. "QUALIFIED DEBT SECURITIES" means Debt securities of the Borrower, provided that the terms of any such Debt security (i) permit the deferral of principal and interest payments (other than Tax Interest) for a period of up to five years (but not beyond the maturity date), as elected by the Borrower, (ii) have a maturity for payment of principal of not less than 14 3/4 years after the date of issuance, and (iii) contain subordination terms substantially consistent with (or more favorable to the Banks than) the subordination terms contained in the form of Indenture for Subordinated Debt Securities filed as an exhibit to the Borrower's Registration Statement on Form S-3 (File No. 33-65471) declared effective by the Securities and Exchange Commission on February 20, 1996. "QUALIFIED DEFERRABLE SECURITIES OBLIGATIONS" means at any date, without duplication, the obligations recorded on the consolidated balance sheet of the Borrower and its Consolidated Subsidiaries in respect of Qualified Debt Securities and Qualified Preferred Securities issued by the Borrower or any Subsidiary. "QUALIFIED PREFERRED SECURITIES" means preferred securities issued by a Subsidiary, the sole purpose of which is to issue such securities and invest the proceeds thereof in Qualified Debt Securities, and which preferred securities are payable solely out of the proceeds of payments on account of such Qualified Debt Securities. Securities designated 'capital securities' or by another name shall be deemed 'Qualified Preferred Securities' if they otherwise meet the requirements set forth herein. "REFERENCE BANKS" means the CD Reference Banks or the Euro-Dollar Reference Banks, as the context may require, and "Reference Bank" means any one of such Reference Banks. "REGULATION U" means Regulation U of the Board of Governors of the Federal Reserve System, as in effect from time to time. "REQUIRED BANKS" means at any time Banks having at least 60% of the aggregate amount of the Commitments or, if the Commitments shall have been terminated, holding Notes evidencing at least 60% of the aggregate unpaid principal amount of the Loans. "REVOLVING CREDIT LOAN" means a loan made or to be made by a Bank pursuant to Section 2.01(a). "REVOLVING CREDIT PERIOD" means the period from and including the Closing Date to and including the Commitment Termination Date. "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 Borrower. "SWINGLINE BANK" means each of Morgan Guaranty Trust Company of New York, Deutsche Bank AG, New York Branch and The Bank of New York. "SWINGLINE LENDING OFFICE" means, as to each Swingline Bank, its office located at its address set forth in its Administrative Questionnaire (or identified in its Administrative Questionnaire as its Swingline Lending Office) or such other office as such Bank may hereafter designate as its Swingline Lending Office by notice to the Borrower and the Administrative Agent. "SWINGLINE LOAN" means a loan made by a Swingline Bank pursuant to Section 2.01(c). "SWINGLINE TAKEOUT LOAN" means a Base Rate Loan made pursuant to Section 2.17. "SWINGLINE LIMIT" means for each of Morgan Guaranty Trust Company of New York and Deutsche Bank AG, New York Branch, the amount of its Commitment and for The Bank of New York, $10,000,000. "SYNDICATED LOAN" means a Revolving Credit Loan or a Term Loan provided that, if any such loan or loans (or portions thereof) are combined or subdivided pursuant to a Notice of Interest Rate Election, the term "SYNDICATED LOAN" shall refer to the combined principal amount resulting from such combination or to each of the separate principal amounts resulting from such subdivision, as the case may be. "TAX INTEREST" means any additional amounts payable in respect of Qualified Debt Securities to reimburse a Subsidiary issuing any related Qualified Preferred Securities for any taxes or impositions payable by such Subsidiary in respect of such Qualified Debt Securities during any period in which interest payments otherwise have been deferred. "TERM LOAN" means a loan made or to be made by a Bank pursuant to Section 2.01(b). "TOTAL CAPITAL" means at any date, the consolidated debt and stockholders' equity of the Borrower and the Consolidated Subsidiaries at such date, including Qualified Deferrable Securities Obligations. For purposes of determining "stockholders' equity" when calculating Total Capital, there shall be added any unrealized holding losses (or subtracted any unrealized holding gains), in each case net of relevant adjustments for deferred policy acquisition costs, on account of available-for-sale debt securities to the extent reflected therein (together with other adjustments, all as determined in accordance with Statement of Financial Accounting Standards No. 115 of the Financial Accounting Standards Board, as amended from time to time, or any successor provision thereto). "UNFUNDED LIABILITIES" means, with respect to any Plan at any time, the amount (if any) by which (i) the value of all benefit liabilities under such Plan, determined on a plan termination basis using the assumptions prescribed by the PBGC for purposes of Section 4044 of ERISA, exceeds (ii) the fair market value of all Plan assets allocable to such liabilities under Title IV of ERISA (excluding any accrued but unpaid contributions), all determined as of the then most recent valuation date for such Plan, but only to the extent that such excess represents a potential liability of a member of the ERISA Group to the PBGC or any other Person under Title IV of ERISA. "UNREFUNDED SWINGLINE LOANS" has the meaning set forth in Section 2.17(b). "UNITED STATES" means the United States of America, including the States and the District of Columbia, but excluding its territories and possessions. SECTION 1.02. 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 United States generally accepted accounting principles as in effect from time to time, applied on a basis consistent (except for changes concurred in by the Borrower's independent public accountants) with the most recent audited consolidated financial statements of the Borrower and its Consolidated Subsidiaries delivered to the Banks; provided that, if the Borrower notifies the Administrative Agent that the Borrower wishes to amend any covenant in Article 5 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 Borrower that the Required Banks wish to amend Article 5 for such purpose), then the Borrower'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, until either such notice is withdrawn or such covenant is amended in a manner satisfactory to the Borrower and the Required Banks. SECTION 1.03. Types and Classes of Borrowings. The term "BORROWING" denotes the aggregation of Loans of one or more Banks to be made to the Borrower pursuant to Article 2 on a single date and, except in the case of Base Rate Loans, for a single Interest Period. Borrowings are classified for purposes of this Agreement either by reference to the pricing of Loans comprising such Borrowing (e.g., a "EURO-DOLLAR BORROWING" is a Borrowing comprised of Euro-Dollar Loans) or by reference to the provisions of Article 2 under which participation therein is determined (i.e., a "SYNDICATED BORROWING" is a Borrowing under Section 2.01(a) or (b) in which all Banks participate in proportion to their Commitments, while a "MONEY MARKET BORROWING" is a Borrowing under Section 2.03 in which the Bank participants are determined on the basis of their bids in accordance therewith or by reference to the Class of Loans comprising such Borrowing (e.g. a "TERM BORROWING" is a Borrowing comprised of Term Loans). ARTICLE 2 THE CREDITS SECTION 2.01. Commitments to Lend. (a) Revolving Credit Loans. During the Revolving Credit Period, each Bank severally agrees, on the terms and conditions set forth in this Agreement, to make loans to the Borrower pursuant to this Section from time to time in amounts such that the aggregate principal amount of Committed Loans by such Bank at any one time outstanding, together with its participating interests in any Unrefunded Swingline Loans, shall not exceed the amount of its Commitment. Within the foregoing limits, the Borrower may borrow under this subsection, repay, or to the extent permitted by Section 2.12, prepay Loans and reborrow at any time during the Revolving Credit Period under this subsection. (b) Term Loans. Each Bank severally agrees, on the terms and conditions set forth in this Agreement, to make a loan to the Borrower on the Commitment Termination Date in an aggregate amount up to but not exceeding the amount of its Commitment. (c) Swingline Loans. From time to time on or after the Closing Date and prior to the Commitment Termination Date, each Swingline Bank agrees, on the terms and conditions set forth in this Agreement, to make loans to the Borrower pursuant to this subsection from time to time in amounts such that (i) the aggregate principal amount of its Committed Loans at any one time outstanding shall not exceed the amount of its Commitment, (ii) the aggregate principal amount of its Swingline Loans at any one time outstanding shall not exceed the amount of its Swingline Limit and (iii) the aggregate principal amount of Swingline Loans at any time outstanding shall not exceed $50,000,000. Within the foregoing limits, the Borrower may borrow under this subsection, repay, or to the extent permitted by Section 2.12, prepay Loans and reborrow at any time during the Revolving Credit Period under this subsection. (d) Amounts. Each Borrowing under Section 2.01(a), (b) or (c) (other than a Swingline Takeout Borrowing) shall be in an aggregate principal amount of $5,000,000 or any larger multiple of $1,000,000 (except that any such Borrowing may be in the aggregate amount available in accordance with Section 3.02(c)) and shall, in the case of Borrowings under 2.01(a) or (b), be made from the several Banks ratably in proportion to their respective Commitments. SECTION 2.02. Notice of Committed Borrowing. The Borrower shall give the Administrative Agent notice (a "NOTICE OF COMMITTED BORROWING") not later than (i) 10:30 A.M. (New York City time) on (x) the date of each Base Rate Borrowing (other than a Swingline Borrowing) , (y) the second Domestic Business Day before each CD Borrowing and (z) the third Euro-Dollar Business Day before each Euro-Dollar Borrowing and (ii) 11:00 A.M. (New York City time) on the date of each Swingline Borrowing , specifying: (a) the date of such Borrowing, which shall be a Domestic Business Day in the case of a Domestic Borrowing or a Swingline Borrowing or a Euro-Dollar Business Day in the case of a Euro-Dollar Borrowing, (b) the aggregate amount of such Borrowing, (c) whether the Loans comprising such Borrowing are to be Syndicated Loans or a Swingline Loan and, in the case of Swingline Loans, the applicable Swingline Bank; (d) in the case of a Syndicated Borrowing, whether the Loans comprising such Borrowing are to be CD Loans, Base Rate Loans or Euro-Dollar Loans, and (e) in the case of a Fixed Rate Borrowing or Swingline Borrowing, the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period. SECTION 2.03. Money Market Borrowings. (a) The Money Market Option. In addition to Committed Borrowings pursuant to Section 2.01, the Borrower may, as set forth in this Section, request the Banks during the Revolving Credit Period to make offers to make Money Market Loans to the Borrower. The Banks may, but shall have no obligation to, make such offers and the Borrower may, but shall have no obligation to, accept any such offers in the manner set forth in this Section. (b) Money Market Quote Request. When the Borrower wishes to request offers to make Money Market Loans under this Section, it shall transmit to the Administrative Agent by telex or facsimile transmission a Money Market Quote Request substantially in the form of Exhibit B hereto so as to be received no later than 10:30 A.M. (New York City time) on (x) the fifth Euro-Dollar Business Day prior to the date of Borrowing proposed therein, in the case of a LIBOR Auction or (y) the Domestic Business Day next preceding the date of Borrowing proposed therein, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Administrative Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective) specifying: (i) the proposed date of Borrowing, which shall be a Euro-Dollar Business Day in the case of a LIBOR Auction or a Domestic Business Day in the case of an Absolute Rate Auction, (ii) the aggregate amount of such Borrowing, which shall be $5,000,000 or a larger multiple of $1,000,000, (iii) the duration of the Interest Period applicable thereto, subject to the provisions of the definition of Interest Period, and (iv) whether the Money Market Quotes requested are to set forth a Money Market Margin or a Money Market Absolute Rate. The Borrower may request offers to make Money Market Loans for more than one Interest Period in a single Money Market Quote Request. No Money Market Quote Request shall be given within five Euro-Dollar Business Days (or such other number of days as the Borrower and the Administrative Agent may agree) of any other Money Market Quote Request. (c) Invitation for Money Market Quotes. Promptly upon receipt of a Money Market Quote Request, the Administrative Agent shall send to the Banks by telex or facsimile transmission an Invitation for Money Market Quotes substantially in the form of Exhibit C hereto, which shall constitute an invitation by the Borrower to each Bank to submit Money Market Quotes offering to make the Money Market Loans to which such Money Market Quote Request relates in accordance with this Section. (d) Submission and Contents of Money Market Quotes. (i) Each Bank may submit a Money Market Quote containing an offer or offers to make Money Market Loans in response to any Invitation for Money Market Quotes. Each Money Market Quote must comply with the requirements of this subsection (d) and must be submitted to the Administrative Agent by telex or facsimile transmission at its offices specified in or pursuant to Section 9.01 not later than (x) 2:00 P.M. (New York City time) on the fourth Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) 9:30 A.M. (New York City time) on the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Administrative Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective); provided that Money Market Quotes submitted by the Administrative Agent (or any affiliate of the Administrative Agent) in the capacity of a Bank may be submitted, and may only be submitted, if the Administrative Agent or such affiliate notifies the Borrower of the terms of the offer or offers contained therein not later than (x) one hour prior to the deadline for the other Banks, in the case of a LIBOR Auction or (y) 15 minutes prior to the deadline for the other Banks, in the case of an Absolute Rate Auction. Subject to Articles 3 and 6, any Money Market Quote so made shall be irrevocable except with the written consent of the Administrative Agent given on the instructions of the Borrower. (ii) Each Money Market Quote shall be in substantially the form of Exhibit D hereto and shall in any case specify: (A) the proposed date of Borrowing, (B) the principal amount of the Money Market Loan for which each such offer is being made, which principal amount (w) may be greater than or less than the Commitment of the quoting Bank, (x) must be $5,000,000 or a larger multiple of $1,000,000, (y) may not exceed the principal amount of Money Market Loans for which offers were requested and (z) may be subject to an aggregate limitation as to the principal amount of Money Market Loans for which offers being made by such quoting Bank may be accepted, (C) in the case of a LIBOR Auction, the margin above or below the applicable London Interbank Offered Rate (the "Money Market Margin") offered for each such Money Market Loan, expressed as a percentage (specified to the nearest 1/10,000th of 1%) to be added to or subtracted from such base rate, (D) in the case of an Absolute Rate Auction, the rate of interest per annum (specified to the nearest 1/10,000th of 1%) (the "Money Market Absolute Rate") offered for each such Money Market Loan, and (E) the identity of the quoting Bank. A Money Market Quote may set forth up to five separate offers by the quoting Bank with respect to each Interest Period specified in the related Invitation for Money Market Quotes. (iii) Any Money Market Quote shall be disregarded if it: (A) is not substantially in conformity with Exhibit D hereto or does not specify all of the information required by subsection (d)(ii); (B) contains qualifying, conditional or similar language; (C) proposes terms other than or in addition to those set forth in the applicable Invitation for Money Market Quotes; or (D) arrives after the time set forth in subsection (d)(i). (e) Notice to Borrower. The Administrative Agent shall promptly notify the Borrower of the terms (x) of any Money Market Quote submitted by a Bank that is in accordance with subsection (d) and (y) of any Money Market Quote that amends, modifies or is otherwise inconsistent with a previous Money Market Quote submitted by such Bank with respect to the same Money Market Quote Request. Any such subsequent Money Market Quote shall be disregarded by the Administrative Agent unless such subsequent Money Market Quote is submitted solely to correct a manifest error in such former Money Market Quote. The Administrative Agent's notice to the Borrower shall specify (A) the aggregate principal amount of Money Market Loans for which offers have been received for each Interest Period specified in the related Money Market Quote Request, (B) the respective principal amounts and Money Market Margins or Money Market Absolute Rates, as the case may be, so offered and (C) if applicable, limitations on the aggregate principal amount of Money Market Loans for which offers in any single Money Market Quote may be accepted. (f) Acceptance and Notice by Borrower. Not later than 10:30 A.M. (New York City time) on (x) the third Euro-Dollar Business Day prior to the proposed date of Borrowing, in the case of a LIBOR Auction or (y) the proposed date of Borrowing, in the case of an Absolute Rate Auction (or, in either case, such other time or date as the Borrower and the Administrative Agent shall have mutually agreed and shall have notified to the Banks not later than the date of the Money Market Quote Request for the first LIBOR Auction or Absolute Rate Auction for which such change is to be effective), the Borrower shall notify the Administrative Agent of its acceptance or non-acceptance of the offers so notified to it pursuant to subsection (e). In the case of acceptance, such notice (a "Notice of Money Market Borrowing") shall specify the aggregate principal amount of offers for each Interest Period that are accepted. The Borrower may accept any Money Market Quote in whole or in part; provided that: (i) the aggregate principal amount of each Money Market Borrowing may not exceed the applicable amount set forth in the related Money Market Quote Request, (ii) the principal amount of each Money Market Borrowing must be $5,000,000 or a larger multiple of $1,000,000, (iii) acceptance of offers may only be made on the basis of ascending Money Market Margins or Money Market Absolute Rates, as the case may be, and (iv) the Borrower may not accept any offer that is described in subsection (d)(iii) or that otherwise fails to comply with the requirements of this Agreement. (g) Allocation by Administrative Agent. If offers are made by two or more Banks with the same Money Market Margins or Money Market Absolute Rates, as the case may be, for a greater aggregate principal amount than the amount in respect of which such offers are accepted for the related Interest Period, the principal amount of Money Market Loans in respect of which such offers are accepted shall be allocated by the Administrative Agent among such Banks as nearly as possible (in multiples of $1,000,000, as the Administrative Agent may deem appropriate) in proportion to the aggregate principal amounts of such offers. Determinations by the Administrative Agent of the amounts of Money Market Loans shall be conclusive in the absence of manifest error. SECTION 2.04. Notice to Banks; Funding of Loans. (a) Upon receipt of a Notice of Borrowing, the Administrative Agent shall promptly notify each Bank of the contents thereof and of such Bank's share (if any) of such Borrowing and such Notice of Borrowing shall not thereafter be revocable by the Borrower. (b) Not later than 12:00 Noon (New York City time) on the date of each Syndicated Borrowing and not later than 12:30 P.M. (New York City time) on the date of each Swingline Borrowing, each Bank participating therein shall (except as provided in subsection 2.04(c)) make available its share of such Borrowing, in Federal or other funds immediately available in New York City, to the Administrative Agent at its address referred to in Section 9.01. Unless the Administrative Agent determines that any applicable condition specified in Article 3 has not been satisfied, the Administrative Agent will make the funds so received from the Banks available to the Borrower at the Administrative Agent's aforesaid address. (c) If any Bank makes a Term Loan to the Borrower hereunder on a day on which the Borrower is to repay all or any part of an outstanding Revolving Credit Loan from such Bank, such Bank shall apply the proceeds of its Term Loan to make such repayment and only an amount equal to the difference (if any) between the amount being borrowed and the amount being repaid shall be made available by such Bank to the Administrative Agent as provided in subsection 2.04(b), or remitted by the Borrower to the Administrative Agent as provided in Section 2.12, as the case may be. (d) Unless the Administrative Agent shall have received notice from a Bank prior to the date of any Borrowing that such Bank will not make available to the Administrative Agent such Bank's share of such Borrowing, the Administrative Agent may assume that such Bank has made such share available to the Administrative Agent on the date of such Borrowing in accordance with subsections (b) and (c) of this Section 2.04 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 Bank shall not have so made such share available to the Administrative Agent, such Bank and the Borrower severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Borrower until the date such amount is repaid to the Administrative Agent, at (i) in the case of the Borrower, a rate per annum equal to the higher of the Federal Funds Rate and the interest rate applicable thereto pursuant to Section 2.07 and (ii) in the case of such Bank, the Federal Funds Rate. If such Bank shall repay to the Administrative Agent such corresponding amount, such amount so repaid shall constitute such Bank's Loan included in such Borrowing for purposes of this Agreement. Nothing in this subsection (d) shall be deemed to relieve any Bank from its obligation to extend Loans hereunder or to prejudice any rights which the Borrower may have against any Bank as a result of any default by such Bank hereunder. The failure of any Bank to make Loans hereunder shall not relieve any other Bank from its obligation to make the Loans required to be made by it hereunder. SECTION 2.05. Notes. (a) The Loans of each Bank shall be evidenced by a single Note payable to the order of such Bank for the account of its Applicable Lending Office in an amount equal to the aggregate unpaid principal amount of such Bank's Loans. (b) Each Bank may, by notice to the Borrower and the Administrative Agent, request that its Loans of a particular type or Class be evidenced by a separate Note in an amount equal to the aggregate unpaid principal amount of such Loans. Each such Note shall be in substantially the form of Exhibit A hereto with appropriate modifications to reflect the fact that it evidences solely Loans of the relevant type or Class. Each reference in this Agreement to the "Note" of such Bank shall be deemed to refer to and include any or all of such Notes, as the context may require. (c) Upon receipt of each Bank's Note pursuant to Section 3.01(a), the Administrative Agent shall forward such Note to such Bank. Each Bank shall record the date, amount, type, Class and maturity of each Loan made by it and the date and amount of each payment of principal made by the Borrower with respect thereto, and may, if such Bank so elects in connection with any transfer or enforcement of its Note, endorse on the schedule forming a part thereof appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding; provided that the failure of any Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Notes. Each Bank is hereby irrevocably authorized by the Borrower so to endorse its Note and to attach to and make a part of its Note a continuation of any such schedule as and when required. SECTION 2.06. Maturity of Loans. (a) Each Revolving Credit Loan shall mature, and the principal amount thereof shall be due and payable, together with accrued interest thereon, on the Commitment Termination Date. (b) Each Term Loan shall mature, and the principal amount thereof shall be due and payable, together with accrued interest thereon, on the Final Maturity Date. (c) Each Swingline Loan included in any Swingline Borrowing and each Money Market Loan included in any Money Market Borrowing shall mature, and the principal amount thereof shall be due and payable, together with accrued interest thereon, on the last day of the Interest Period applicable to such Borrowing. SECTION 2.07. Interest Rates. (a) Each Base Rate Loan shall bear interest on the outstanding principal amount thereof, for each day from the date such Loan is made until it becomes due, at a rate per annum equal to the Base Rate for such day. Such interest shall be payable at maturity, quarterly in arrears on the first day of each March, June, September and December prior to maturity, and with respect to the principal amount of any Base Rate Loan converted to a CD Loan or a Euro-Dollar Loan, on the date such amount is so converted. Any overdue principal of or interest on any Base Rate Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the rate otherwise applicable to Base Rate Loans for such day. (b) Each CD Loan shall bear interest on the outstanding principal amount thereof, for each day during each Interest Period applicable thereto, at a rate per annum equal to the sum of the CD Margin for such day plus the Adjusted CD Rate applicable to such Interest Period; provided that if any CD Loan or any portion thereof shall, as a result of clause (x) or (y) of the definition of Interest Period, have an Interest Period of less than 30 days, such portion shall bear interest during such Interest Period at the rate applicable to Base Rate Loans during such period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than 90 days, at intervals of 90 days after the first day thereof. Any overdue principal of or interest on any CD Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the higher of (i) the sum of the CD Margin for such day plus the Adjusted CD Rate applicable to such Loan at the date such payment was due and (ii) the rate applicable to Base Rate Loans for such day. "CD MARGIN" means a rate per annum determined in accordance with the Pricing Schedule. The "ADJUSTED CD RATE" applicable to any Interest Period means a rate per annum determined pursuant to the following formula: [CDBR ]* ACDR = [----------] + AR [1.00 - DRP] ACDR = Adjusted CD Rate CDBR = CD Base Rate DRP = Domestic Reserve Percentage AR = Assessment Rate ---------- * The amount in brackets being rounded upward, if necessary, to the next higher 1/100 of 1% The "CD BASE RATE" applicable to any Interest Period is the rate of interest determined by the Administrative Agent to be the average (rounded upward, if necessary, to the next higher 1/100 of 1%) of the prevailing rates per annum bid at 10:00 A.M. (New York City time) (or as soon thereafter as practicable) on the first day of such Interest Period by two or more New York certificate of deposit dealers of recognized standing for the purchase at face value from each CD Reference Bank of its certificates of deposit in an amount comparable to the principal amount of the CD Loan of such CD Reference Bank to which such Interest Period applies and having a maturity comparable to such Interest Period. "DOMESTIC RESERVE PERCENTAGE" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement (including without limitation any basic, supplemental or emergency reserves) for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of new non-personal time deposits in dollars in New York City having a maturity comparable to the related Interest Period and in an amount of $100,000 or more. The Adjusted CD Rate shall be adjusted automatically on and as of the effective date of any change in the Domestic Reserve Percentage. "ASSESSMENT RATE" means for any day the annual assessment rate in effect on such day which is payable by a member of the Bank Insurance Fund classified as adequately capitalized and within supervisory subgroup "A" (or a comparable successor assessment risk classification) within the meaning of 12 C.F.R. Section 327.4(a) (or any successor provision) to the Federal Deposit Insurance Corporation (or any successor) for such Corporation's (or such successor's) insuring time deposits at offices of such institution in the United States. The Adjusted CD Rate shall be adjusted automatically on and as of the effective date of any change in the Assessment Rate. (c) Each Euro-Dollar Loan shall bear interest on the outstanding principal amount thereof, for each day during each Interest Period applicable thereto, at a rate per annum equal to the sum of the Euro-Dollar Margin for such day plus the Adjusted London Interbank Offered Rate applicable to such Interest Period. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. "EURO-DOLLAR MARGIN" means a rate per annum determined in accordance with the Pricing Schedule. The "ADJUSTED LONDON INTERBANK OFFERED RATE" applicable to any Interest Period means a rate per annum equal to the quotient obtained (rounded upward, if necessary, to the next higher 1/100 of 1%) by dividing (i) the applicable London Interbank Offered Rate by (ii) 1.00 minus the Euro-Dollar Reserve Percentage. The "LONDON INTERBANK OFFERED RATE" applicable to any Interest Period means the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which deposits in dollars are offered to each of the Euro-Dollar Reference Banks in the London interbank market at approximately 11:00 A.M. (London time) two Euro-Dollar Business Days before the first day of such Interest Period in an amount approximately equal to the principal amount of the Euro-Dollar Loan of such Euro-Dollar Reference Bank to which such Interest Period is to apply and for a period of time comparable to such Interest Period. "EURO-DOLLAR RESERVE PERCENTAGE" means for any day that percentage (expressed as a decimal) which is in effect on such day, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the maximum reserve requirement for a member bank of the Federal Reserve System in New York City with deposits exceeding five billion dollars in respect of "Eurocurrency liabilities" (or in respect of any other category of liabilities which includes deposits by reference to which the interest rate on Euro-Dollar Loans is determined or any category of extensions of credit or other assets which includes loans by a non-United States office of any Bank to United States residents). The Adjusted London Interbank Offered Rate shall be adjusted automatically on and as of the effective date of any change in the Euro-Dollar Reserve Percentage. (d) Any overdue principal of or interest on any Euro-Dollar Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the higher of (i) the sum of 2% plus the Euro-Dollar Margin for such day plus the Adjusted London Interbank Offered Rate applicable to the Interest Period for such Loan and (ii) the sum of 2% plus the Euro-Dollar Margin for such day plus the quotient obtained (rounded upward, if necessary, to the next higher 1/100 of 1%) by dividing (x) the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which one day (or, if such amount due remains unpaid more than three Euro-Dollar Business Days, then for such other period of time not longer than six months as the Administrative Agent may select) deposits in dollars in an amount approximately equal to such overdue payment due to each of the Euro-Dollar Reference Banks are offered to such Euro-Dollar Reference Bank in the London interbank market for the applicable period determined as provided above by (y) 1.00 minus the Euro-Dollar Reserve Percentage (or, if the circumstances described in clause (a) or (b) of Section 8.01 shall exist, at a rate per annum equal to the sum of 2% plus the rate applicable to Base Rate Loans for such day). (e) Each Swingline Loan shall bear interest on the outstanding principal amount thereof, for each day during the Interest Period applicable thereto, at a rate per annum equal to the sum of 0.35% plus the New York Interbank Offered Rate applicable to such Interest Period. Interest on each Swingline Loan shall be payable at the maturity of such Loan. Any overdue principal of or interest on any Swingline Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 1% plus the Base Rate for such day. The "NEW YORK INTERBANK OFFERED RATE" applicable to any Interest Period means the average (rounded upward, if necessary, to the next higher 1/16 of 1%) of the respective rates per annum at which deposits in Dollars are offered to each of the CD Reference Banks in the New York interbank market at approximately 12:00 Noon (New York City time) on the first day of such Interest Period in an amount approximately equal to the principal amount of the Swingline Loan to which such Interest Period is to apply and for a period of time comparable to such Interest Period. (f) Subject to Section 8.01(a), each Money Market LIBOR Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the sum of the London Interbank Offered Rate for such Interest Period (determined in accordance with Section 2.07(c) as if the related Money Market LIBOR Borrowing were a Committed Euro-Dollar Borrowing) plus (or minus) the Money Market Margin quoted by the Bank making such Loan in accordance with Section 2.03. Each Money Market Absolute Rate Loan shall bear interest on the outstanding principal amount thereof, for the Interest Period applicable thereto, at a rate per annum equal to the Money Market Absolute Rate quoted by the Bank making such Loan in accordance with Section 2.03. Such interest shall be payable for each Interest Period on the last day thereof and, if such Interest Period is longer than three months, at intervals of three months after the first day thereof. Any overdue principal of or interest on any Money Market Loan shall bear interest, payable on demand, for each day until paid at a rate per annum equal to the sum of 2% plus the Base Rate for such day. (g) The Administrative Agent shall determine each interest rate applicable to the Loans hereunder. The Administrative Agent shall give prompt notice to the Borrower and the participating Banks of each rate of interest so determined, and its determination thereof shall be conclusive in the absence of manifest error. (h) Each Reference Bank agrees to use its best efforts to furnish quotations to the Administrative Agent as contemplated by this Section. If any Reference Bank does not furnish a timely quotation, the Administrative Agent shall determine the relevant interest rate on the basis of the quotation or quotations furnished by the remaining Reference Bank or Banks or, if none of such quotations is available on a timely basis, the provisions of Section 8.01 shall apply. SECTION 2.08. Fees. (a) The Borrower shall pay to the Administrative Agent for the account of the Banks ratably a facility fee at the Facility Fee Rate (determined daily in accordance with the Pricing Schedule). Such facility fee shall accrue (i) from and including the date of this Agreement to but excluding the Commitment Termination Date (or earlier date of termination of the Commitments in their entirety), on the daily aggregate amount of the Commitments (whether used or unused) and (ii) from and including the Commitment Termination Date (or earlier date of termination of the Commitments in their entirety) to but excluding the date the Loans shall be repaid in their entirety, on the daily aggregate outstanding principal amount of the Loans. (b) Accrued fees under this Section shall be payable quarterly, commencing on December 31, 1997, on each March 31, June 30, September 30 and December 31 and upon the Commitment Termination Date and the Final Maturity Date. SECTION 2.09. Optional Termination or Reduction of Commitments. The Borrower may, upon at least three Domestic Business Days' notice to the Administrative Agent, (i) terminate the Commitments at any time, if no Loans or Alternative Currency Advances are outstanding at such time or (ii) ratably reduce from time to time by an aggregate amount of $10,000,000 or any larger multiple of $5,000,000, the aggregate amount of the Commitments in excess of the sum of (x) the aggregate outstanding principal amount of the Loans and (y) the aggregate Dollar Equivalent of all Alternative Currency Advances outstanding. Upon receipt of any notice pursuant to this Section 2.09, the Administrative Agent shall promptly notify each Bank of the contents thereof. SECTION 2.10. Mandatory Termination of Commitments. The Commitments shall terminate on the Commitment Termination Date. SECTION 2.11. Method of Electing Interest Rates. (a) The Loans included in each Syndicated Borrowing shall bear interest initially at the type of rate specified by the Borrower in the applicable Notice of Committed Borrowing. Thereafter, the Borrower may from time to time elect to change or continue the type of interest rate borne by each Group of Loans (subject to subsection (d) of this Section and the provisions of Article 8), as follows: (i) if such Loans are Base Rate Loans, the Borrower may elect to convert such Loans to CD Loans as of any Domestic Business Day or to Euro-Dollar Loans as of any Euro-Dollar Business Day; (ii) if such Loans are CD Loans, the Borrower may elect to convert such Loans to Base Rate Loans or Euro-Dollar Loans or elect to continue such Loans as CD Loans for an additional Interest Period, subject to Section 2.14 if any such conversion or continuation is effective on any day other than the last day of an Interest Period applicable to such Loans; and (iii) if such Loans are Euro-Dollar Loans, the Borrower may elect to convert such Loans to Base Rate Loans or CD Loans or elect to continue such Loans as Euro-Dollar Loans for an additional Interest Period, subject to Section 2.14 if any such conversion or continuation is effective on any day other than the last day of an Interest Period applicable to such Loans. Each such election shall be made by delivering a notice (a "NOTICE OF INTEREST RATE ELECTION") to the Administrative Agent not later than 10:30 A.M. (New York City time) on the third Euro-Dollar Business Day before the conversion or continuation selected in such notice is to be effective (unless the relevant Loans are to be converted from Domestic Loans of one type to Domestic Loans of the other type or are CD Loans to be continued as CD Loans for an additional Interest Period, in which case such notice shall be delivered to the Administrative Agent not later than 10:30 A.M. (New York City time) on the second Domestic Business Day before such conversion or continuation is to be effective). A Notice of Interest Rate Election may, if it so specifies, apply to only a portion of the aggregate principal amount of the relevant Group of Loans; provided that (i) such portion is allocated ratably among the Loans comprising such Group and (ii) the portion to which such Notice applies, and the remaining portion to which it does not apply, are each at least $5,000,000 or any larger amount in multiples of $1,000,000 (unless such portion is comprised of Base Rate Loans). If no such notice is timely received before the end of an Interest Period for any Group of CD Loans or Euro-Dollar Loans, the Borrower shall be deemed to have elected that such Group of Loans be converted to Base Rate Loans at the end of such Interest Period. (b) Each Notice of Interest Rate Election shall specify: (i) the Group of Loans (or portion thereof) to which such notice applies; (ii) the date on which the conversion or continuation selected in such notice is to be effective, which shall comply with the applicable clause of subsection (a) above; (iii) if the Loans comprising such Group are to be converted, the new type of Loans and, if the Loans resulting from such conversion are to be CD Loans or Euro-Dollar Loans, the duration of the next succeeding Interest Period applicable thereto; and (iv) if such Loans are to be continued as CD Loans or Euro-Dollar Loans for an additional Interest Period, the duration of such additional Interest Period. Each Interest Period specified in a Notice of Interest Rate Election shall comply with the provisions of the definition of Interest Period. (c) Promptly after receiving a Notice of Interest Rate Election from the Borrower pursuant to subsection (a) above, the Administrative Agent shall notify each Bank of the contents thereof and such notice shall not thereafter be revocable by the Borrower. (d) The Borrower shall not be entitled to elect to convert any Syndicated Loans to, or continue any Syndicated Loans for an additional Interest Period as, CD Loans or Euro-Dollar Loans if (i) the aggregate principal amounts of any Group of CD Loans or Euro-Dollar Loans created or continued as a result of such election would be less than $5,000,000 or (ii) a Default shall have occurred and be continuing when the Borrower delivers notice of such election to the Administrative Agent. SECTION 2.12. Mandatory and Optional Prepayments. (a) If, on any date the sum of (i) the aggregate outstanding principal amount of the Loans and (ii) the aggregate Dollar Equivalent of all Alternative Currency Advances then outstanding exceeds 105% of the aggregate amount of the Commitments, then, the Borrower shall within five Euro-Dollar Business Days prepay outstanding Committed Loans or Alternative Currency Advances (as selected by the Borrower and notified to the Banks through the Administrative Agent not less than three Euro-Dollar Business Days prior to the date of prepayment) to the extent necessary to eliminate any such excess. (b) Subject in the case of any Fixed Rate Borrowing to Section 2.14, the Borrower may, upon at least three Domestic Business Days' notice (except in the case of Base Rate Loans or Swingline Loans, in which case upon one Domestic Business Day's notice) to the Administrative Agent, prepay any Group of Domestic Loans (or Money Market Loans bearing interest at the Base Rate pursuant to Section 8.01(a)) or upon at least three Euro-Dollar Business Days' notice to the Administrative Agent, prepay any Group of Euro-Dollar Loans, in each case in whole at any time, or from time to time in part in amounts aggregating $5,000,000 or any larger multiple of $1,000,000, by paying the principal amount to be prepaid together with accrued interest thereon to the date of prepayment. Each such optional prepayment shall be applied to prepay ratably the Loans of the several Banks included in such Group or Borrowing. (c) Except as provided in Section 2.12(b) , the Borrower may not prepay all or any portion of the principal amount of any Money Market Loan prior to the maturity thereof except with the consent of the Bank which made such Loan. (d) Upon receipt of a notice of prepayment pursuant to this Section, the Administrative Agent shall promptly notify each Bank of the contents thereof and of such Bank's ratable share (if any) of such prepayment and such notice shall not thereafter be revocable by the Borrower. SECTION 2.13. General Provisions as to Payments. (a) The Borrower shall make each payment of principal of, and interest on, the Loans and of fees hereunder, not later than 12:00 Noon (New York City time) on the date when due, in Federal or other funds immediately available in New York City and without offset or counterclaim, to the Administrative Agent at its address referred to in Section 9.01. The Administrative Agent will promptly distribute to each Bank its ratable share of each such payment received by the Administrative Agent for the account of the Banks. Whenever any payment of principal of, or interest on, the Domestic Loans or the Swingline Loans or of fees shall be due on a day which is not a Domestic Business Day, the date for payment thereof shall be extended to the next succeeding Domestic Business Day. Whenever any payment of principal of, or interest on, the Euro-Dollar Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day unless such Euro-Dollar Business Day falls in another calendar month, in which case the date for payment thereof shall be the next preceding Euro-Dollar Business Day. Whenever any payment of principal of, or interest on, the Money Market Loans shall be due on a day which is not a Euro-Dollar Business Day, the date for payment thereof shall be extended to the next succeeding Euro-Dollar Business Day. If the date for any payment of principal is extended by operation of law or otherwise, interest thereon shall be payable for such extended time. (b) Unless the Administrative Agent shall have received notice from the Borrower prior to the date on which any payment is due to the Banks 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 Bank on such due date an amount equal to the amount then due such Bank. If and to the extent that the Borrower shall not have so made such payment, each Bank shall repay to the Administrative Agent forthwith on demand such amount distributed to such Bank together with interest thereon, for each day from the date such amount is distributed to such Bank until the date such Bank repays such amount to the Administrative Agent, at the Federal Funds Rate. SECTION 2.14. Funding Losses. If the Borrower makes any payment of principal with respect to any Fixed Rate Loan or any Fixed Rate Loan is continued for an additional Interest Period or converted to a different type of Loan (pursuant to Article 2, 6 or 8 or otherwise) on any day other than the last day of an Interest Period applicable thereto, or the last day of an applicable period fixed pursuant to Section 2.07(d), or if the Borrower fails to borrow, prepay, convert or continue any Fixed Rate Loans after notice has been given to any Bank in accordance with Section 2.04(a), 2.11(c) or 2.12(d), the Borrower shall reimburse each Bank within 15 days after demand for any resulting loss or expense incurred by it (or by an existing or prospective Participant in the related Loan), including (without limitation) any loss incurred in obtaining, liquidating or employing deposits from third parties, but excluding loss of margin for the period after any such payment, conversion or continuation or failure to borrow, prepay, convert or continue, provided that such Bank shall have delivered to the Borrower a certificate as to the amount of such loss or expense, which certificate shall be conclusive in the absence of manifest error. SECTION 2.15. Computation of Interest and Fees. Interest based on the Prime Rate hereunder shall be computed on the basis of a year of 365 days (or 366 days in a leap year) and paid for the actual number of days elapsed (including the first day but excluding the last day). All other interest and fees shall be computed on the basis of a year of 360 days and paid for the actual number of days elapsed (including the first day but excluding the last day). SECTION 2.16. Alternative Currency Advances. (a) Requests for Offers. From time to time after the Closing Date and prior to the Commitment Termination Date the Borrower may request any or all of the Banks to make offers to make Alternative Currency Advances to the Borrower. Each Bank may, but shall have no obligation to, make such offers on terms and conditions as are satisfactory to such Bank, and the Borrower may, but shall have no obligation to, accept any such offers. Each Alternative Currency Advance shall be subject to the conditions of clauses (c) through (e), inclusive, of Section 3.02 and to such other conditions as are agreed upon by the Borrower and the Bank making such Alternative Currency Advance, and the making of any Alternative Currency Advance shall be deemed to be a representation and warranty by the Borrower on the date thereof as to the facts specified in such clauses (c) through (e), inclusive. (b) Promissory Notes; Status as Loans. If required by the Bank making such advance, each Alternative Currency Advance shall be evidenced by a single promissory note of the Borrower in an amount equal to the principal amount of such Alternative Currency Advance, such promissory note to be in form mutually satisfactory to the Borrower and such Bank. An Alternative Currency Advance shall not be a Loan (as defined in Section 1.01 hereof) and a promissory note issued pursuant to this subsection (b) shall not be a Note (as defined in such Section 1.01); provided that, for the purposes of Sections 5.08, 6.01, 8.03(a), 8.04, 9.03, 9.04, 9.05 and 9.06 and of the first clause of Article 5, an Alternative Currency Advance shall be a Loan and a promissory note issued in connection therewith shall be a Note; provided further that for the purposes of Sections 2.14, 8.03(a) and 8.04, an Alternative Currency Advance shall be deemed to be a Euro-Dollar Loan. (c) Reports to Administrative Agent. The Borrower shall deliver to the Administrative Agent a report in respect the Alternative Currency Advances (an "ALTERNATIVE CURRENCY ADVANCE REPORT") on the date on which each Alternative Currency Advance is made and on the first Euro-Dollar Business Day of each calendar month thereafter on which any Alternative Currency Advance is outstanding, specifying for each Alternative Currency Advance then outstanding: (i) the date on which such advance was or is being made; (ii) the Alternative Currency of such advance; (iii) the Dollar Equivalent of the advance; and (iv) the Dollar Equivalent of all Alternative Currency Advances then outstanding. Each Alternative Currency Advance Report shall be delivered to the Administrative Agent not later than 10:30 A.M. (New York City time) on the date on which it is required to be delivered. (d) Maturity; No Prepayment. Each Alternative Currency Advance shall mature, and the principal amount thereof shall be due and payable on the date agreed upon by the Borrower and the Bank making such Alternative Currency Advance, which date shall be no later than the Commitment Termination Date. Except as required by Section 2.12(a), no Alternative Currency Advance may be prepaid without the consent of the Bank making such Alternative Currency Advance. (e) Substitution of Euro for National Currency. If any Alternative Currency is replaced by the Euro, the Euro may be tendered in payment of any outstanding amount denominated in such Alternative Currency at the conversion rate specified in, or otherwise calculated in accordance with, the regulations adopted by the Council of the European Union relating to the Euro. No replacement of an Alternative Currency by the Euro shall discharge, excuse or otherwise affect the performance of any obligation of the Borrower under this Agreement or the Notes. SECTION 2.17. Takeout of Swingline Loans. (a) In the event that any Swingline Loan shall not be repaid in full by the maturity thereof, the Administrative Agent shall, on behalf of the Borrower (the Borrower hereby irrevocably directing and authorizing the Administrative Agent so to act on its behalf), give a Notice of Borrowing requesting the Banks, including the Swingline Banks, to make a Base Rate Borrowing on the maturity date of such Swingline Borrowing in an amount equal to the unpaid principal amount of such Swingline Borrowing. Each Bank will make the proceeds of its Base Rate Loan included in such Borrowing available to the Administrative Agent for the account of the Swingline Bank which made such Swingline Loan on such date in accordance with Section 2.04. The proceeds of such Base Rate Borrowing shall be immediately applied to repay such Swingline Borrowing. (b) If, for any reason, a Base Rate Borrowing may not be (as determined by the Administrative Agent in its sole discretion), or is not, made pursuant to subsection (a) above to refund a Swingline Loan as required by said subsection, then, effective on the date such Borrowing would otherwise have been made, each Bank severally, unconditionally and irrevocably agrees that it shall purchase an undivided participating interest in such Swingline Loan (an "UNREFUNDED SWINGLINE LOAN") in an amount equal to the amount of the Loan which otherwise would have been made by such Bank pursuant to subsection (a), which purchase shall be funded by the time such Loan would have been required to be funded pursuant to Section 2.04 by transfer to the Administrative Agent, for the account of such Swingline Bank, in immediately available funds, of the amount of its participation. (c) Whenever, at any time after a Swingline Bank has received from any Bank payment in full for such Bank's participating interest in a Swingline Loan, such Swingline Bank (or the Administrative Agent on its behalf) receives any payment on account thereof, such Swingline Bank (or the Administrative Agent, as the case may be) will promptly distribute to such Bank its participating interest in such payment (appropriately adjusted, in the case of interest payments, to reflect the period of time during which such Bank's participating interest was outstanding and funded); provided, however, that in the event that such payment is subsequently required to be returned, such Bank will return to such Swingline Bank (or the Administrative Agent, as the case may be) any portion thereof previously distributed by such Swingline Bank (or the Administrative Agent, as the case may be) to it. (d) Each Bank's obligation to purchase and fund participating interests pursuant to this Section shall be absolute and unconditional and shall not be affected by any circumstance, including, without limitation: (i) any setoff, counterclaim, recoupment, defense or other right which such Bank or the Borrower may have against a Swingline Bank, or any other Person for any reason whatsoever; (ii) the occurrence or continuance of a Default or the failure to satisfy any of the conditions specified in Article 3; (iii) any adverse change in the condition (financial or otherwise) of the Borrower; (iv) any breach of this Agreement by the Borrower or any Bank; or (v) any other circumstance, happening or event whatsoever, whether or not similar to any of the foregoing. ARTICLE 3 CONDITIONS SECTION 3.01. Closing. The closing hereunder shall occur upon receipt by the Documentation Agent of the following documents, each dated the Closing Date unless otherwise indicated: (a) a duly executed Note for the account of each Bank dated on or before the Closing Date complying with the provisions of Section 2.05; (b) an opinion of the Deputy General Counsel of the Borrower, substantially in the form of Exhibit E hereto and covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request; (c) an opinion of Piper & Marbury, counsel for the Borrower, substantially in the form of Exhibit F hereto and covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request; (d) an opinion of Davis Polk & Wardwell, special counsel for the Agents, substantially in the form of Exhibit G hereto and covering such additional matters relating to the transactions contemplated hereby as the Required Banks may reasonably request; (e) evidence satisfactory to it that all fees payable by the Borrower to the Documentation Agent and the Administrative Agent pursuant to Section 7.09 shall have been paid in full; (f) evidence satisfactory to it of the payment of all principal of and interest on any loans outstanding under, and of all other amounts payable under, the Existing Credit Agreements; and (g) all documents the Documentation Agent may reasonably request relating to the existence of the Borrower, the corporate authority for and the validity of this Agreement and the Notes, and any other matters relevant hereto, all in form and substance satisfactory to the Documentation Agent. The Documentation Agent shall promptly notify the Borrower, the Banks and the Administrative Agent of the Closing Date, and such notice shall be conclusive and binding on all parties hereto. SECTION 3.02. Borrowings. The obligation of any Bank to make a Loan on the occasion of any Borrowing, is subject to the satisfaction of the following conditions; provided that if such Borrowing is a Swingline Takeout Borrowing, only the conditions set forth in clauses 3.02(b) and 3.02(c) must be satisfied: (a) the fact that the Closing Date shall have occurred on or prior to January 1, 1998; (b) receipt by the Administrative Agent of a Notice of Borrowing as required by Section 2.02 or 2.03, as the case may be; (c) the fact that, immediately after such Borrowing, (i) the sum of the aggregate outstanding principal amount of the Loans and the aggregate Dollar Equivalent of all Alternative Currency Advances then outstanding will not exceed the aggregate amount of the Commitments and (ii) the aggregate outstanding principal amount of Swingline Loans will not exceed $50,000,000; (d) the fact that, immediately before and after such Borrowing, no Default shall have occurred and be continuing; (e) the fact that the representations and warranties of the Borrower contained in this Agreement (except the representations and warranties set forth in Sections 4.04(c) or 4.05) shall be true on and as of the date of such Borrowing. Each Borrowing hereunder shall be deemed to be a representation and warranty by the Borrower on the date of such Borrowing as to the facts specified in clauses (c), (d) and (e) of this Section. ARTICLE 4 REPRESENTATIONS AND WARRANTIES The Borrower represents and warrants that: SECTION 4.01. Corporate Existence and Power. The Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Maryland, and has all corporate powers and all governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted, other than such licenses, authorizations, consents and approvals which, if not held or obtained by the Borrower, do not, in the aggregate, have a Material Adverse Effect. SECTION 4.02. Corporate and Governmental Authorization; No Contravention. The execution, delivery and performance by the Borrower of this Agreement and the Notes are within the Borrower's corporate powers, have been duly authorized 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 articles of incorporation or by-laws of the Borrower or of any agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or any of its Subsidiaries or result in the creation or imposition of any Lien on any asset of the Borrower or any of its Subsidiaries. SECTION 4.03. Binding Effect. This Agreement constitutes a valid and binding agreement of the Borrower and each Note, when executed and delivered in accordance with this Agreement, will constitute a valid and binding obligation of the Borrower, in each case enforceable in accordance with its terms. SECTION 4.04. Financial Information. (a) The consolidated statement of financial position and shareholders' equity of the Borrower and its Consolidated Subsidiaries as of December 31, 1996 and the related consolidated statements of operations and cash flows for the fiscal year then ended, reported on by Ernst & Young LLP and set forth in the Borrower's 1996 Form 10-K, a copy of which has been delivered to each of the Banks, fairly present, in conformity with United States generally accepted accounting principles, the consolidated financial position of the Borrower and its Consolidated Subsidiaries as of such date and their consolidated results of operations and cash flows for such fiscal year. (b) The unaudited consolidated statement of financial position and shareholders' equity of the Borrower and its Consolidated Subsidiaries as of September 30, 1997 and the related unaudited consolidated statements of operations and cash flows for the nine months then ended, set forth in the Borrower's Latest Form 10-Q, a copy of which has been delivered to each of the Banks, fairly present, in conformity with United States generally accepted accounting principles applied on a basis consistent with the financial statements referred to in subsection (a) of this Section, the consolidated financial position of the Borrower 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). (c) Except as disclosed in the Borrower's Latest Form 10-Q or in any Form 8-K filed by the Borrower under the Securities Exchange Act of 1934 after the Borrower's Latest Form 10-Q and provided to the Banks prior to the date of this Agreement, since December 31, 1996 there has been no Material Adverse Effect. (d) A copy of a duly completed and signed Annual Statement or other similar report of or for each Insurance Company Subsidiary in the form filed with the governmental body, agency or official which regulates insurance companies in the jurisdiction in which such Insurance Company Subsidiary is domiciled for the year ended December 31, 1996 has been delivered to the Administrative Agent on behalf of each of the Banks and fairly presents, in accordance with statutory accounting principles, the information contained therein. SECTION 4.05. Litigation. Subject to matters disclosed in the financial statements referred to in Sections 4.04(a) and 4.04(b), there is no action, suit or proceeding pending against, or to the knowledge of the Borrower threatened against or affecting, the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official in which there is a reasonable expectation of an adverse decision which reasonably could be expected to have a Material Adverse Effect or which in any manner draws into question the validity of this Agreement or the Notes. SECTION 4.06. Compliance with ERISA. Each member of the ERISA Group has fulfilled its obligations under the minimum funding standards of ERISA and the Internal Revenue Code with respect to each Plan and is in compliance in all material respects with the presently applicable provisions of ERISA and the Internal Revenue Code with respect to each Plan. No member of the ERISA Group has (i) sought a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code in respect of any Plan, (ii) failed to make any contribution or payment to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement, or made any amendment to any Plan or Benefit Arrangement, which in either case would trigger the provisions of Section 412(n) or 401(a)(29) of the Internal Revenue Code (or any corresponding provisions of ERISA) or (iii) incurred any liability under Title IV of ERISA other than a liability to the PBGC for premiums under Section 4007 of ERISA. SECTION 4.07. Environmental Matters. In the ordinary course of its business, the Borrower conducts an ongoing review of the effect of Environmental Laws on the business, operations and properties of the 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, any costs or liabilities in connection with off-site disposal of wastes or Hazardous Substances, and any actual or potential liabilities to third parties, including employees, and any related costs and expenses). On the basis of this review, the 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. SECTION 4.08. Taxes. The Borrower and its Subsidiaries have filed all United States Federal 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 Borrower or any Subsidiary, other than any such assessments being contested in good faith by appropriate proceedings and for which any reserves required under generally accepted accounting principles have been established. The charges, accruals and reserves on the books of the Borrower and its Subsidiaries in respect of taxes or other governmental charges are, in the opinion of the Borrower, adequate in all material respects. SECTION 4.09. Subsidiaries. Each of the Borrower's corporate Subsidiaries (other than Excluded Subsidiaries) is a corporation duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted. SECTION 4.10. Not an Investment Company. The Borrower is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended. SECTION 4.11. Full Disclosure. All information heretofore furnished by the Borrower to any Agent or Bank for purposes of or in connection with this Agreement or any transaction contemplated hereby is, and all such information hereafter furnished by the Borrower to any Agent or Bank will be, true and accurate in all material respects on the date as of which such information is stated or certified. The Borrower has disclosed to the Banks in writing any and all facts which materially and adversely affect or may affect (to the extent the Borrower can now reasonably foresee), the business, operations or financial condition of the Borrower and its Consolidated Subsidiaries, taken as a whole, or the ability of the Borrower to perform its obligations under this Agreement. ARTICLE 5 COVENANTS The Borrower agrees that, so long as any Bank has any Commitment hereunder or any amount payable under any Note remains unpaid: SECTION 5.01. Information. The Borrower will deliver to each of the Banks: (a) as soon as available and in any event within 95 days after the end of each fiscal year of the Borrower, a consolidated statement of financial position and shareholders' equity of the Borrower and its Consolidated Subsidiaries as of the end of such fiscal year and the related consolidated statements of operations and 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 by Ernst & Young LLP or other independent public accountants of nationally recognized standing; (b) as soon as available and in any event within 60 days after the end of each of the first three quarters of each fiscal year of the Borrower, a consolidated statement of financial position and shareholders' equity of the Borrower and its Consolidated Subsidiaries as of the end of such quarter and the related consolidated statements of operations and cash flows for such quarter and for the portion of the Borrower's fiscal year ended at the end of such quarter, setting forth in the case of such consolidated statements of operations and cash flows in comparative form the figures for the corresponding quarter and the corresponding portion of the Borrower'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 Borrower; (c) simultaneously with the delivery of each set of financial statements referred to in clauses (a) and (b) above, an Officer's Certificate (i) setting forth in reasonable detail the calculations required to establish whether the Borrower was in compliance with the requirements of Sections 5.09 and 5.10 on the date of such financial statements and (ii) 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 Borrower is taking or proposes to take with respect thereto; (d) simultaneously with the delivery of each set of financial statements referred to in clause (a) above, a statement of the firm of independent public accountants which reported on such statements (i) whether anything has come to their attention in the course of their examination of the financial statements of the Borrower and its Subsidiaries to cause them to believe that any Default existed on the date of such statements and (ii) confirming the calculations set forth in the officer's certificate delivered simultaneously therewith pursuant to clause (c) above; (e) within five days after any officer of the Borrower obtains knowledge of any Default, if such Default is then continuing, an Officer's Certificate setting forth the details thereof and the action which the Borrower is taking or proposes to take with respect thereto; (f) within 120 days after the end of each fiscal year of each Insurance Company Subsidiary, a copy of a duly completed and signed Annual Statement (or any successor form thereto) required to be filed by such Insurance Company Subsidiary with the governmental body, agency or official which regulates insurance companies in the jurisdiction in which such Insurance Company Subsidiary is domiciled, in the form submitted to such governmental body, agency or official; (g) within 60 days after the end of the second fiscal quarter of United States Fidelity and Guaranty Company and Fidelity and Guaranty Life Insurance Company, respectively, a copy of a duly completed and signed Quarterly Statement (or any successor form thereto) required to be filed by each such company with the governmental body, agency or official which regulates insurance companies in the jurisdiction in which such company is domiciled, in the form submitted to such governmental body, agency or official; (h) promptly upon the mailing thereof to the shareholders of the Borrower generally, copies of all financial statements, reports and proxy statements so mailed; (i) 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 Borrower shall have filed with the Securities and Exchange Commission; (j) if and when any member of the ERISA Group (i) gives or is required to give notice to the PBGC of any "reportable event" (as defined in Section 4043 of ERISA) with respect to any Plan, other than a reportable event for which 30-day notice to the PBGC has been waived, or knows that the plan administrator of any Plan has given or is required to give notice of any such reportable event, a copy of the notice of such reportable event given or required to be given to the PBGC; (ii) receives notice of complete or partial withdrawal liability under Title IV of ERISA or notice that any Multiemployer Plan is in reorganization, is insolvent or has been terminated, a copy of such notice; (iii) receives notice from the PBGC under Title IV of ERISA of an intent to terminate, impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or appoint a trustee to administer any Plan, a copy of such notice; (iv) applies for a waiver of the minimum funding standard under Section 412 of the Internal Revenue Code, a copy of such application; (v) gives notice of intent to terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and other information filed with the PBGC; (vi) gives notice of withdrawal from any Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails to make any payment or contribution to any Plan or Multiemployer Plan or in respect of any Benefit Arrangement or makes any amendment to any Plan or Benefit Arrangement which in either case would trigger the provisions of Section 412(n) or 401(a)(29) of the Internal Revenue Code (or any corresponding provisions of ERISA), a certificate of the chief financial officer or the chief accounting officer of the Borrower setting forth details as to such occurrence and action, if any, which the Borrower or applicable member of the ERISA Group is required or proposes to take; and (k) from time to time such additional information regarding the financial position or business of the Borrower and its Subsidiaries as the Administrative Agent, at the request of any Bank, may reasonably request. SECTION 5.02. Payment of Obligations. The Borrower will pay and discharge, and will cause each Subsidiary (other than an Excluded 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. SECTION 5.03. Maintenance of Property; Insurance. (a) The Borrower 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. (b) The Borrower will maintain or cause to be maintained with financially sound and reputable insurers or through self-insurance programs appropriate to the type and amount of the risk insured, insurance with respect to its properties and business, and the properties and business of its Subsidiaries, against loss or damage of the kinds customarily insured against by reputable companies in the same or similar businesses, such insurance to be of such types and in such amounts (with such deductible amounts) as is customary for such companies under similar circumstances. The Borrower will furnish to the Banks, upon request from the Administrative Agent, information presented in reasonable detail as to the insurance so carried. SECTION 5.04. Conduct of Business and Maintenance of Existence. The Borrower will continue, and will cause each Subsidiary (other than any Excluded Subsidiary) to continue, to engage in all material respects in business of the same general type as now conducted by the Borrower and its Subsidiaries, and will preserve, renew and keep in full force and effect, and will cause each Subsidiary (other than any Excluded Subsidiary) to preserve, renew and keep in full force and effect, their respective corporate existence and their respective rights, privileges and franchises necessary or desirable in the normal conduct of business, other than such corporate existences, rights, privileges and franchises which, if not preserved, renewed or kept in force, will not have, in the aggregate, a Material Adverse Effect. SECTION 5.05. Compliance with Laws. The Borrower will comply, and cause each Subsidiary to comply, with all applicable laws, ordinances, rules, regulations, and requirements of governmental authorities (including, without limitation, Environmental Laws and ERISA and the rules and regulations thereunder) except where the necessity of compliance therewith is contested in good faith by appropriate proceedings or where the failure to comply with such laws, ordinances, rules, regulations and requirements will not, in the aggregate, have a Material Adverse Effect. SECTION 5.06. Negative Pledge. Neither the Borrower nor any Subsidiary will create, assume or suffer to exist any Lien on any asset now owned or hereafter acquired by it, except: (a) Liens existing on the date of this Agreement securing Debt outstanding on the date of this Agreement in an aggregate principal or face amount not exceeding $100,000,000; (b) any Lien existing on any asset of any corporation at the time such corporation becomes a Subsidiary and not created in contemplation of such event; (c) any Lien on any asset securing Debt incurred or assumed for the purpose of financing all or any part of the cost of acquiring such asset, provided that such Lien attaches to such asset concurrently with or within 90 days after the acquisition thereof; (d) any Lien on any asset of any corporation existing at the time such corporation is merged or consolidated with or into the Borrower or a Subsidiary and not created in contemplation of such event; (e) any Lien existing on any asset prior to the acquisition thereof by the Borrower or a Subsidiary and not created in contemplation of such acquisition; (f) any Lien arising out of the refinancing, extension, renewal or refunding of any Debt secured by any Lien permitted by any of the foregoing clauses or clause (j) below of this Section, provided that such Debt is not increased and is not secured by any additional assets; (g) Liens arising in the ordinary course of its business (including Liens arising in the ordinary course of its insurance business) which (i) do not secure Debt or Derivatives Obligations, (ii) do not secure any obligation (except obligations arising in the ordinary course of its insurance business) in an amount exceeding $75,000,000 and (iii) do not in the aggregate materially detract from or impair the use or value of the asset or assets subject thereto in the operation of its business; (h) Liens on cash and cash equivalents securing Derivatives Obligations, provided that the aggregate amount of cash and cash equivalents subject to such Liens may at no time exceed $25,000,000; (i) Liens securing obligations (1) of the type referred to in clause (vii) of the definition of Debt, as long as such Liens arise in the ordinary course of the Borrower's or the Subsidiary's, as the case may be, business and such Liens are in amounts and otherwise are on terms consistent with then existing practices in the repurchase business and (2) of a borrower (or securities lending agent) in any loaned securities, or Liens held by a borrower (or securities lending agent) against collateral such borrower has posted, in either case in securities lending transactions with the Borrower or a Subsidiary (where the Borrower or the Subsidiary is the lender of securities), as long as, in either case, such Liens arise in the ordinary course of the Borrower's or the Subsidiary's, as the case may be, business and such Liens are in amounts and otherwise on terms consistent with then existing practices in the securities lending business; (j) Liens securing Non-Recourse Debt; (k) Liens on securities or cash of any Insurance Company Subsidiary which secure its obligations as a reinsurer (as opposed to a ceding insurance company) under reinsurance contracts entered into with Persons which are licensed or authorized to do an insurance business in any jurisdiction; (l) Any Liens secured by accounts receivable of, and other amounts owed to, Westchester Premium Acceptance Corporation (or any successor), a Subsidiary, securing a principal amount of Debt incurred by such Subsidiary from time to time of not more than $60,000,000; and (m) Liens not otherwise permitted by the foregoing clauses of this Section securing Debt in an aggregate principal or face amount at any date not to exceed 7.5% of Adjusted Consolidated Tangible Net Worth. SECTION 5.07. Consolidations, Mergers and Sales of Assets; Ownership by USF&G Corporation. The Borrower will not (i) consolidate or merge with or into any other Person, other than a merger in which the Borrower is the surviving corporation or a merger solely for the purpose of reincorporating the Borrower in another jurisdiction, in each case provided no Default shall exist at, or immediately after, such merger, or (ii) sell, lease or otherwise transfer, directly or indirectly, all or substantially all of the assets of the Borrower and its Subsidiaries, taken as a whole, to any other Person. The Borrower will at all times own all of the outstanding voting securities, other than directors' qualifying shares, of United States Fidelity and Guaranty Company. SECTION 5.08. Use of Proceeds. The proceeds of the Loans made under this Agreement will be used by the Borrower for general corporate purposes. None of such proceeds will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of buying or carrying any "margin stock" within the meaning of Regulation U, other than "margin stock" issued by the Borrower. SECTION 5.09. Ratio of Debt to Adjusted Consolidated Tangible Net Worth. The aggregate amount of Debt (other than (1) Non-Recourse Debt and (2) the Equity Portion of Qualified Deferrable Securities Obligations, but including the Debt Portion of Qualified Deferrable Securities Obligations) of the Borrower and its Subsidiaries shall at no time exceed 55% of Adjusted Consolidated Tangible Net Worth. SECTION 5.10. Minimum Adjusted Consolidated Tangible Net Worth. Adjusted Consolidated Tangible Net Worth will at no time be less than the sum of (i) $1,300,000,000 plus (ii) 50% of the consolidated net income of the Borrower and its Consolidated Subsidiaries for the period commencing on January 1, 1998 and ending at the end of the Borrower's then most recent fiscal quarter (treated for this purpose as a single accounting period). For purposes of this Section, if consolidated net income of the Borrower and its Consolidated Subsidiaries for any period shall be less than zero, the amount calculated pursuant to clause (ii) above for such period shall be zero. SECTION 5.11. Transactions with Affiliates. The Borrower will not, and will not permit any Subsidiary to, directly or indirectly, pay any funds to or for the account of, make any investment (whether by acquisition of stock or indebtedness, by loan, advance, transfer of property, guarantee or other agreement to pay, purchase or service, directly or indirectly, any Debt, or otherwise) in, lease, sell, transfer or otherwise dispose of any assets, tangible or intangible, to, or participate in, or effect any transaction in connection with any joint enterprise or other joint arrangement with, any Affiliate unless such payment, investment, lease, sale, transfer, disposition, participation or transaction is on terms and conditions at least as favorable to the Borrower or such Subsidiary as the terms and conditions which would apply in a similar transaction with a Person not an Affiliate; provided, however, that the foregoing provisions of this Section shall not prohibit the Borrower from declaring or paying any lawful dividend or distribution so long as, after giving effect thereto, no Default shall have occurred and be continuing. ARTICLE 6 DEFAULTS SECTION 6.01. Events of Default. If one or more of the following events ("Events of Default") shall have occurred and be continuing: (a) the Borrower shall fail (i) to pay when due any principal of any Loan or (ii) to pay within five days of the due date thereof any interest on any Loan or any fees or any other amount (other than the principal of any Loan) payable hereunder; (b) the Borrower shall fail to observe or perform any covenant contained in Sections 5.06 to 5.11, inclusive; (c) the Borrower shall fail to observe or perform any covenant or agreement contained in this Agreement (other than those covered by clause (a) or (b) above) for 30 days after notice thereof has been given to the Borrower by the Administrative Agent at the request of any Bank; (d) any representation, warranty, certification or statement made by the Borrower in this Agreement or in any certificate, financial statement or other document delivered pursuant to this Agreement shall prove to have been incorrect in any material respect when made (or deemed made); (e) the Borrower or any Subsidiary shall fail to make any payment owed by it in respect of any Material Financial Obligations when due or within any applicable grace period; (f) 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 Debt or any Person acting on such holder's behalf to accelerate the maturity thereof; (g) the Borrower or any Subsidiary (other than an Excluded Subsidiary) shall commence a voluntary case or other proceeding seeking rehabilitation, dissolution, conservation, liquidation, reorganization 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, rehabilitator, dissolver, conservator, 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 authorize any of the foregoing; (h) an involuntary case or other proceeding shall be commenced against the Borrower or any Subsidiary (other than an Excluded Subsidiary) seeking rehabilitation, dissolution, conservation, liquidation, reorganization 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, rehabilitator, dissolver, conservator, 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 the Borrower or any Subsidiary (other than an Excluded Subsidiary) under the federal bankruptcy laws as now or hereafter in effect; or any governmental body, agency or official shall apply for, or commence a case or other proceeding to seek, an order for the rehabilitation, conservation, dissolution or other liquidation of the Borrower or any Subsidiary (other than an Excluded Subsidiary) or of the assets or any substantial part thereof of the Borrower or any such Subsidiary or any other similar remedy; (i) any member of the ERISA Group shall fail to pay when due an amount or amounts aggregating in excess of $15,000,000 which it shall have become liable to pay under Title IV of ERISA; or notice of intent to terminate a Material Plan shall be filed under Title IV of ERISA by any member of the ERISA Group, any plan administrator or any combination of the foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to terminate, to impose liability (other than for premiums under Section 4007 of ERISA) in respect of, or to cause a trustee to be appointed to administer any Material Plan; or a condition shall exist by reason of which the PBGC would be entitled to obtain a decree adjudicating that any Material Plan must be terminated; or there shall occur a complete or partial withdrawal from, or a default, within the meaning of Section 4219(c)(5) of ERISA, with respect to, one or more Multiemployer Plans which could cause one or more members of the ERISA Group to incur a current payment obligation in excess of $15,000,000; (j) enforceable judgments or orders for the payment of money in excess of $50,000,000 (or its equivalent in any other currency) in the aggregate shall be rendered and entered against the Borrower or any Subsidiary (other than an Excluded Subsidiary) and such judgments or orders shall continue unsatisfied and unstayed for a period of 30 days; or (k) any person or group of persons (within the meaning of Section 13 or 14 of the Securities Exchange Act of 1934, as amended) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under said Act) of 30% or more of the outstanding shares of common stock of the Borrower; or, during any period of twelve consecutive calendar months, individuals who were directors of the Borrower on the first day of such period shall cease to constitute a majority of the board of directors of the Borrower; then, and in every such event, the dministrative Agent shall (i) if requested by Banks having more than 50% in aggregate amount of the Commitments, by notice to the Borrower terminate the Commitments and they shall thereupon terminate, and (ii) if requested by Banks holding Notes evidencing more than 50% of the aggregate principal amount of the Loans, by notice to the Borrower declare the Notes to be, and the Notes (together with accrued interest thereon) shall thereupon become, immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower; provided that, in the case of any of the Events of Default specified in clause (g) or (h) above with respect to the Borrower, without any notice to the Borrower or any other act by the Administrative Agent or the Banks, the Commitments shall thereupon terminate and the Notes (together with accrued interest thereon, if any) shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrower. SECTION 6.02. Notice of Default. The Administrative Agent shall give notice to the Borrower under Section 6.01(c) promptly upon being requested to do so by any Bank and shall thereupon notify all the Banks thereof. ARTICLE 7 THE AGENTS SECTION 7.01. Appointment and Authorization. Each Bank irrevocably appoints and authorizes each Agent to take such action as agent on its behalf and to exercise such powers under this Agreement and the Notes as are delegated to such Agent by the terms hereof or thereof, together with all such powers as are reasonably incidental thereto. SECTION 7.02. Agents and Affiliates. Morgan Guaranty Trust Company of New York and Deutsche Bank AG, New York Branch shall have the same rights and powers under this Agreement as any other Bank and may exercise or refrain from exercising the same as though they were not each an Agent, and Morgan Guaranty Trust Company of New York and Deutsche Bank AG, New York Branch and each of their respective affiliates, may accept deposits from, lend money to, and generally engage in any kind of business with the Borrower or any Subsidiary or affiliate of the Borrower as if they were not each an Agent hereunder. SECTION 7.03. Action by Agents. The obligations of the Agents hereunder are only those expressly set forth herein. Without limiting the generality of the foregoing, neither Agent shall be required to take any action with respect to any Default, except, in the case of the Administrative Agent, as expressly provided in Article 6. SECTION 7.04. Consultation with Experts. The Agents may consult with legal counsel (who may be counsel for the Borrower), independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts. SECTION 7.05. Liability of Agents. Neither Agent nor any of their respective affiliates nor any of the respective directors, officers, agents or employees of the foregoing shall be liable for any action taken or not taken by it in connection herewith (i) with the consent or at the request of the Required Banks or (ii) in the absence of its own gross negligence or willful misconduct. Neither Agent nor any of their respective affiliates nor any of the respective directors, officers, agents or employees of the foregoing shall be responsible for or have any duty to ascertain, inquire into or verify (i) any statement, warranty or representation made in connection with this Agreement or any borrowing hereunder; (ii) the performance or observance of any of the covenants or agreements of the Borrower; (iii) the satisfaction of any condition specified in Article 3, except receipt of items required to be delivered to such Agent; (iv) the validity, effectiveness or genuineness of this Agreement, the Notes or any other instrument or writing furnished in connection herewith; or (v) any Alternative Currency Advance or any action or failure to act relating thereto. Neither Agent shall incur any liability by acting in reliance upon any notice, consent, certificate, statement, or other writing (which may be a bank wire, telex, facsimile transmission or similar writing) believed by it to be genuine or to be signed by the proper party or parties. SECTION 7.06. Indemnification. Each Bank shall, ratably in accordance with its Commitment, indemnify each Agent, their respective affiliates and the respective directors, officers, agents and employees of the foregoing (to the extent not reimbursed by the Borrower) against any cost, expense (including counsel fees and disbursements), claim, demand, action, loss or liability (except such as result from such indemnitees' gross negligence or willful misconduct) that such indemnitees may suffer or incur in connection with this Agreement or any action taken or omitted by such indemnitees hereunder. SECTION 7.07. Credit Decision. Each Bank acknowledges that it has, independently and without reliance upon the Agents or any other Bank, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Bank also acknowledges that it will, independently and without reliance upon the Agents 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 any action under this Agreement. SECTION 7.08. Successor Agents. Each Agent may resign at any time by giving notice thereof to the Banks and the Borrower. Upon any such resignation, the Required Banks shall have the right to appoint a successor Agent. If no successor Agent shall have been so appointed by the Required Banks, and shall have accepted such appointment, within 30 days after the retiring Agent gives notice of resignation, then the retiring Agent may, on behalf of the Banks, appoint a successor Agent, which shall be a commercial bank organized or licensed under the laws of the United States of America or of any State thereof and having a combined capital and surplus of at least $300,000,000. Upon the acceptance of its appointment as Agent hereunder by a successor Agent, such successor Agent shall thereupon succeed to and become vested with all the rights and duties of the retiring Agent, and the retiring Agent shall be discharged from its duties and obligations hereunder. After any retiring Agent's resignation hereunder as Agent, the provisions of this Article shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Agent. SECTION 7.09. Agents' Fees. The Borrower shall pay to each Agent for its own account fees in the amounts and at the times previously agreed upon between the Borrower and such Agent. ARTICLE 8 CHANGE IN CIRCUMSTANCES SECTION 8.01. Basis for Determining Interest Rate Inadequate or Unfair. If on or prior to the first day of any Interest Period for any Fixed Rate Borrowing: (a) the Administrative Agent is advised by the Reference Banks that deposits in Dollars (in the applicable amounts) are not being offered to the Reference Banks in the relevant market for such Interest Period, or (b) in the case of a Committed Borrowing, Banks having 50% or more of the aggregate amount of the Commitments advise the Administrative Agent that, by reason of adverse conditions generally affecting either the certificate of deposit market in the United States or the London interbank market, the Adjusted CD Rate or the Adjusted London Interbank Offered Rate (as the case may be) as determined by the Administrative Agent will not adequately and fairly reflect the cost to such Banks of funding their CD Loans or Euro-Dollar Loans, as the case may be, for such Interest Period, the Administrative Agent shall forthwith give notice thereof to the Borrower and the Banks, whereupon until the Administrative Agent notifies the Borrower that the circumstances giving rise to such suspension no longer exist, (i) the obligations of the Banks to make CD Loans or Euro-Dollar Loans, as the case may be, or to continue or convert outstanding Loans as or into CD Loans or Euro- Dollar Loans shall be suspended and (ii) each outstanding CD Loan or Euro- Dollar Loan, as the case may be, shall be converted into a Base Rate Loan on the last day of the then current Interest Period applicable thereto. Unless the Borrower notifies the Administrative Agent at least two Domestic Business Days before the date of any Fixed Rate Borrowing for which a Notice of Borrowing has previously been given that it elects not to borrow on such date, (i) if such Fixed Rate Borrowing is a Committed Borrowing, such Borrowing shall instead be made as a Base Rate Borrowing and (ii) if such Fixed Rate Borrowing is a Money Market LIBOR Borrowing, the Money Market LIBOR Loans comprising such Borrowing shall bear interest for each day from and including the first day to but excluding the last day of the Interest Period applicable thereto at the Base Rate for such day. Promptly after the Administrative Agent and the Banks reasonably determine that the circumstances giving rise to a notice pursuant to subsection (b) above no longer exist, the Administrative Agent shall notify the Borrower, and the obligation of the Banks to make, convert and continue Euro-Dollar Loans and CD Loans shall be reinstated. SECTION 8.02. Illegality. If, on or after the date of this Agreement, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Euro-Dollar Lending Office) with any request or directive after the date of this Agreement (whether or not having the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for any Bank (or its Euro-Dollar Lending Office) to make, maintain or fund its Euro-Dollar Loans and such Bank shall so notify the Administrative Agent, the Administrative Agent shall forthwith give notice thereof to the other Banks and the Borrower, whereupon until such Bank notifies the Borrower and the Administrative Agent that the circumstances giving rise to such suspension no longer exist, the obligation of such Bank to make Euro-Dollar Loans, or to continue or convert outstanding Loans as or into Euro-Dollar Loans, shall be suspended. Before giving any notice to the Administrative Agent pursuant to this Section, such Bank shall designate a different Euro-Dollar Lending Office if such designation will avoid the need for giving such notice and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. If such notice is given, each Euro-Dollar Loan of such Bank then outstanding shall be converted to a Base Rate Loan either (a) on the last day of the then current Interest Period applicable to such Euro-Dollar Loan if such Bank may lawfully continue to maintain and fund such Loan as a Euro-Dollar Loan to such day or (b) immediately if such Bank shall determine that it may not lawfully continue to maintain and fund such Loan as a Euro-Dollar Loan to such day. SECTION 8.03. Increased Cost and Reduced Return. (a) If on or after (x) the date hereof, in the case of any Committed Loan or any obligation to make Committed Loans or (y) the date of the related Money Market Quote, in the case of any Money Market Loan, the adoption of any applicable law, rule or regulation, or any change in any applicable law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Bank (or its Applicable Lending Office) with any request or directive after such date (whether or not having the force of law) of any such authority, central bank or comparable agency shall impose, modify or deem applicable any reserve (including, without limitation, any such requirement imposed by the Board of Governors of the Federal Reserve System, but excluding (i) with respect to any CD Loan any such requirement included in an applicable Domestic Reserve Percentage and (ii) with respect to any Euro-Dollar Loan any such requirement included in an applicable Euro-Dollar Reserve Percentage), special deposit, insurance assessment (excluding, with respect to any CD Loan, any such requirement reflected in an applicable Assessment Rate) or similar requirement against assets of, deposits with or for the account of, or credit extended by, any Bank (or its Applicable Lending Office) or shall impose on any Bank (or its Applicable Lending Office) or on the United States market for certificates of deposit or the London interbank market any other condition affecting its Fixed Rate Loans, its Note or its obligation to make Fixed Rate Loans and the result of any of the foregoing is to increase the cost to such Bank (or its Applicable Lending Office) of making or maintaining any Fixed Rate Loan, or to reduce the amount of any sum received or receivable by such Bank (or its Applicable Lending Office) under this Agreement or under its Note with respect thereto, by an amount deemed by such Bank to be material, then, within 15 days after demand by such Bank (with a copy to the Administrative Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank for such increased cost or reduction. (b) If any Bank shall have determined in good faith that, after the date hereof, the adoption of any applicable law, rule or regulation regarding capital adequacy, or any change in any such law, rule or regulation, or any change in the interpretation or administration thereof by any governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or any request or directive after the date hereof regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency (including any determination by any such authority, central bank or comparable agency that, for purposes of capital adequacy requirements, the Commitments hereunder do not constitute commitments with an original maturity of one year or less), has or would have the effect of reducing the rate of return on capital of such Bank (or its Parent) as a consequence of such Bank's obligations hereunder to a level below that which such Bank (or its Parent) could have achieved but for such adoption, change, request or directive (taking into consideration its policies with respect to capital adequacy) by an amount deemed by such Bank to be material, then from time to time, within 15 days after demand by such Bank (with a copy to the Administrative Agent), the Borrower shall pay to such Bank such additional amount or amounts as will compensate such Bank (or its Parent) for such reduction. (c) Each Bank will promptly notify the Borrower and the Administrative Agent of any event of which it has knowledge, occurring after the date hereof, which will entitle such Bank to compensation pursuant to this Section and will designate a different Applicable Lending Office if such designation will avoid the need for, or reduce the amount of, such compensation and will not, in the judgment of such Bank, be otherwise disadvantageous to such Bank. A certificate of any Bank claiming compensation under this Section and setting forth the additional amount or amounts to be paid to it hereunder shall, if submitted in good faith, be conclusive in the absence of manifest error; provided that any certificate delivered pursuant to this Section 8.03(c) shall (i) in the case of a certificate in respect of amounts payable pursuant to Section 8.03(a), set forth in reasonable detail the basis for and the calculation of such amounts, and (ii) in the case of a certificate in respect of amounts payable pursuant to Section 8.03(b), set forth at least the same amount of detail in respect of the calculation of such amounts as such Bank provides in similar circumstances to other similarly situated borrowers and also include a statement by such Bank that it has allocated to its Commitment or outstanding Loans or other obligations hereunder no greater than a substantially proportionate amount of any reduction of the rate of return on such Bank's capital due to the matters described in Section 8.03(b) as it has allocated to each of its other commitments to lend or to participate therein or any outstanding loans or unreimbursed drawings or participations therein to similarly situated borrowers that are affected similarly by such adoption or change. Subject to the foregoing, in determining such amount, such Bank may use any reasonable averaging and attribution methods. SECTION 8.04. Taxes. (a) For purposes of this Section 8.04, the following terms have the following meanings: "TAXES" means any and all present or future taxes, duties, levies, imposts, deductions, charges or withholdings with respect to any payment by the Borrower pursuant to this Agreement or under any Note, and all liabilities with respect thereto, excluding (i) in the case of each Bank and the Administrative Agent, taxes imposed on its income, and franchise or similar taxes imposed on it, by a jurisdiction under the laws of which such Bank or the Administrative Agent (as the case may be) is organized or in which its principal executive office is located or, in the case of each Bank, in which its Applicable Lending Office is located, or, in the case of the Administrative Agent and each Bank, such taxes which would not have been imposed on the Administrative Agent or such Bank but for any present or former connection between the Administrative Agent or such Bank and the jurisdiction imposing such tax (other than any such connection arising from the Administrative Agent or the Bank having executed, delivered or performed its obligations or received a payment under, or enforced, this Agreement or the Notes) and (ii) in the case of each Bank, any United States withholding tax imposed on such payments but only to the extent that such Bank (a) is subject to United States withholding tax at the time such Bank first becomes a party to this Agreement or (b) subsequently becomes subject to United States withholding tax solely by reason of the change of its Applicable Lending Office by such Bank. "OTHER TAXES" means any present or future stamp or documentary taxes and any other excise or property taxes, or similar charges or levies (other than franchise taxes or taxes imposed on the net income of a Bank or the Administrative Agent), which arise from any payment made pursuant to this Agreement or under any Note or from the execution or delivery of, or otherwise with respect to, this Agreement or any Note. (b) Any and all payments by the Borrower to or for the account of any Bank or the Administrative Agent hereunder or under any Note shall be made without deduction for any Taxes or Other Taxes; provided that, if the Borrower shall be required by law to deduct any Taxes or Other Taxes from any such payments, (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 8.04) such Bank or the Administrative Agent (as the case may be) receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrower shall make such deductions, (iii) the Borrower shall pay the full amount deducted to the relevant taxation authority or other authority in accordance with applicable law and (iv) the Borrower shall furnish to the Administrative Agent, at its address referred to in Section 9.01, the original or a certified copy of a receipt evidencing payment thereof. (c) The Borrower agrees to indemnify each Bank and the Administrative Agent for the full amount of Taxes or Other Taxes (including, without limitation, any Taxes or Other Taxes imposed or asserted by any jurisdiction on amounts payable under this Section 8.04) paid by such Bank or the Administrative Agent (as the case may be) and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto. This indemnification shall be paid within 15 days after such Bank or the Administrative Agent (as the case may be) makes demand therefor. (d) Each Bank organized under the laws of a jurisdiction outside the United States, on or prior to the date of its execution and delivery of this Agreement in the case of each Bank listed on the signature pages hereof and on or prior to the date on which it becomes a Bank in the case of each other Bank, and from time to time thereafter if requested in writing by the Borrower (but only so long as such Bank remains lawfully able to do so), shall provide the Borrower with Internal Revenue Service form 1001 or 4224, as appropriate, or any successor form prescribed by the Internal Revenue Service, certifying that such Bank is entitled to benefits under an income tax treaty to which the United States is a party which exempts the Bank from United States withholding tax or reduces the rate of withholding tax on payments of interest for the account of such Bank or certifying that the income receivable pursuant to this Agreement is effectively connected with the conduct of a trade or business in the United States. (e) For any period with respect to which a Bank has failed to provide the Borrower with the appropriate form pursuant to Section 8.04(d) (unless such failure is due to a change in treaty, law or regulation occurring subsequent to the date on which such form originally was required to be provided), such Bank shall not be entitled to indemnification under Section 8.04(b) or (c) with respect to Taxes imposed by the United States; provided that if a Bank, which is otherwise exempt from or subject to a reduced rate of withholding tax, becomes subject to Taxes because of its failure to deliver a form required hereunder, the Borrower shall take such steps as such Bank shall reasonably request to assist such Bank to recover such Taxes. (f) If the Borrower is required to pay additional amounts to or for the account of any Bank pursuant to this Section 8.04, then such Bank will change the jurisdiction of its Applicable Lending Office if, in the judgment of such Bank, such change (i) will eliminate or reduce any such additional payment which may thereafter accrue and (ii) is not otherwise disadvantageous to such Bank. SECTION 8.05. Base Rate Loans Substituted for Affected Fixed Rate Loans. If (i) the obligation of any Bank to make or to continue or convert outstanding Loans as or to Euro-Dollar Loans has been suspended pursuant to Section 8.02 or (ii) any Bank has demanded compensation under Section 8.03 or 8.04 with respect to its CD Loans or Euro-Dollar Loans and the Borrower shall, by at least five Euro-Dollar Business Days' prior notice to such Bank through the Administrative Agent, have elected that the provisions of this Section shall apply to such Bank, then, unless and until such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer exist: (a) all Loans which would otherwise be made by such Bank as (or continued as or converted to) CD Loans or Euro-Dollar Loans, as the case may be, shall instead be Base Rate Loans (on which interest and principal shall be payable contemporaneously with the related Fixed Rate Loans of the other Banks), and (b) after each of its CD Loans or Euro-Dollar Loans, as the case may be, has been repaid (or converted), all payments of principal which would otherwise be applied to repay such Fixed Rate Loans shall be applied to repay its Base Rate Loans instead. If such Bank notifies the Borrower that the circumstances giving rise to such suspension or demand for compensation no longer exist, the principal amount of each such Base Rate Loan shall be converted into a CD Loan or Euro-Dollar Loan, as the case may be, on the first day of the next succeeding Interest Period applicable to the related CD Loans or Euro-Dollar Loans of the other Banks. ARTICLE 9 MISCELLANEOUS SECTION 9.01. Notices. All notices, requests and other communications to any party hereunder shall be in writing (including bank wire, telex, facsimile transmission or similar writing) and shall be given to such party: (x) in the case of the Borrower or the Agents, at its address, facsimile number or telex number set forth on the signature pages hereof, (y) in the case of any Bank, at its address, facsimile number or telex number set forth in its Administrative Questionnaire or (z) in the case of any party, at such other address, facsimile number or telex number as such party may hereafter specify for the purpose by notice to the Administrative Agent and the Borrower. Each such notice, request or other communication shall be effective (i) if given by telex, when such telex is transmitted to the telex number specified in this Section and the appropriate answerback is received, (ii) if given by facsimile transmission, when transmitted to the facsimile number specified in this Section and confirmation of receipt is received, (iii) if given by mail, 72 hours after such communication is deposited in the mails with first class postage prepaid, addressed as aforesaid or (iv) if given by any other means, when delivered at the address specified in this Section; provided that notices to the Administrative Agent under Article 2 or Article 8 shall not be effective until received. SECTION 9.02. No Waivers. No failure or delay by either Agent or any Bank in exercising any right, power or privilege hereunder or under any Note shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 9.03. Expenses; Indemnification. (a) The Borrower shall pay (i) all out-of-pocket expenses of the Agents, including the reasonable fees and disbursements of special counsel for the Agents, in connection with the preparation and administration of this Agreement, any waiver or consent hereunder or any amendment hereof or any Default or alleged Default hereunder and (ii) if an Event of Default occurs, all out-of-pocket expenses incurred by each Agent and each Bank, including (without duplication) the reasonable fees and disbursements of outside counsel in connection with such Event of Default and collection, bankruptcy, insolvency and other enforcement proceedings resulting therefrom. (b) The Borrower agrees to indemnify each Agent and each Bank, their respective affiliates and the respective directors, officers, agents and employees of the foregoing (each an "Indemnitee") and hold each Indemnitee harmless from and against any and all liabilities, losses, damages, costs and expenses of any kind, including, without limitation, the reasonable fees and disbursements of counsel, which may be incurred by such Indemnitee in connection with any investigative, administrative or judicial proceeding (whether or not such Indemnitee shall be designated a party thereto) brought or threatened relating to or arising out of this Agreement or any actual or proposed use of proceeds of Loans hereunder; provided that no Indemnitee shall have the right to be indemnified hereunder for such Indemnitee's own gross negligence or willful misconduct as determined by a court of competent jurisdiction and provided further, that no Bank shall have the right to be indemnified hereunder in any such proceeding wherein the parties thereto are only such Bank and any other Person (other than a Bank) to whom such Bank shall have granted a participation in, or assigned all or a proportionate part of, its Commitment or its Loans or Notes or its rights or obligations hereunder or under its Notes. SECTION 9.04. Sharing of Set-offs. Each Bank agrees that if it shall, by exercising any right of set-off or counterclaim or otherwise, receive payment of a proportion of the aggregate amount of principal and interest due with respect to any Note held by it which is greater than the proportion received by any other Bank in respect of the aggregate amount of principal and interest due with respect to any Note held by such other Bank, the Bank receiving such proportionately greater payment shall purchase such participations in the Notes held by the other Banks, and such other adjustments shall be made, as may be required so that all such payments of principal and interest with respect to the Notes held by the Banks shall be shared by the Banks pro rata; provided that nothing in this Section shall impair the right of any Bank to exercise any right of set-off or counterclaim it may have and to apply the amount subject to such exercise to the payment of indebtedness of the Borrower other than its indebtedness hereunder. The Borrower agrees, to the fullest extent it may effectively do so under applicable law, that any holder of a participation in a Note, whether or not acquired pursuant to the foregoing arrangements, may exercise rights of set-off or counterclaim and other rights with respect to such participation as fully as if such holder of a participation were a direct creditor of the Borrower in the amount of such participation. SECTION 9.05. Amendments and Waivers. Any provision of this Agreement or the Notes may be amended or waived if, but only if, such amendment or waiver is in writing and is signed by the Borrower and the Required Banks (and, if the rights or duties of either Agent or any Swingline Bank are affected thereby, by such Person); provided that no such amendment or waiver shall, unless signed by all the Banks, (i) increase or decrease the Commitment of any Bank (except for a ratable decrease in the Commitments of all Banks) or subject any Bank to any additional obligation, (ii) reduce or forgive the principal of or rate of interest on any Loan or any fees hereunder, except as provided below, (iii) postpone the date fixed for any payment of principal of or interest on any Loan or any fees hereunder or for the termination of any Commitment, (iv) release any collateral furnished pursuant to Section 6.03 unless no Default then exists or (v) change the percentage of the Commitments or of the aggregate unpaid principal amount of the Notes, or the number of Banks, which shall be required for the Banks or any of them to take any action under this Section or any other provision of this Agreement. SECTION 9.06. Successors and Assigns. (a) The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Borrower may not assign or otherwise transfer any of its rights under this Agreement without the prior written consent of all Banks. (b) Any Bank may at any time grant to one or more banks or other institutions (each a "Participant") participating interests in its Commitment or any or all of its Loans. In the event of any such grant by a Bank of a participating interest to a Participant, whether or not upon notice to the Borrower, the Swingline Banks and the Agents, such Bank shall remain responsible for the performance of its obligations hereunder, and the Borrower, the Swingline Banks and the Agents shall continue to deal solely and directly with such Bank in connection with such Bank's rights and obligations under this Agreement. Any agreement pursuant to which any Bank may grant such a participating interest shall provide that such Bank shall retain the sole right and responsibility to enforce the obligations of the Borrower hereunder including, without limitation, the right to approve any amendment, modification or waiver of any provision of this Agreement; provided that such participation agreement may provide that such Bank will not agree to any modification, amendment or waiver of this Agreement described in clause (i), (ii), (iii) or (iv) of Section 9.05 without the consent of the Participant. The Borrower agrees that each Participant shall, to the extent provided in its participation agreement, be entitled to the benefits of Article 8 with respect to its participating interest. An assignment or other transfer which is not permitted by subsection (c) or (d) below shall be given effect for purposes of this Agreement only to the extent of a participating interest granted in accordance with this subsection (b). (c) Any Bank may at any time assign to one or more banks or other financial institutions (each an "Assignee") all, or a proportionate part (equivalent to an initial Commitment of not less than $10,000,000, and provided that after giving effect thereto the Commitment of the assigning Bank is equivalent to an initial Commitment of not less than $10,000,000) of all, of its rights and obligations under this Agreement and the Notes, and such Assignee shall assume such rights and obligations, pursuant to an Assignment and Assumption Agreement in substantially the form of Exhibit H hereto executed by such Assignee and such transferor Bank, with (and subject to) the subscribed consent of the Borrower and the Administrative Agent, which in each case shall not be unreasonably withheld, and the Swingline Banks; provided that if an Assignee is an affiliate of such transferor Bank or was a Bank immediately prior to such assignment, no such consent of the Borrower shall be required; and provided further that such assignment may, but need not, include rights of the transferor Bank in respect of outstanding Money Market Loans or Alternative Currency Advances. Upon execution and delivery of such instrument and payment by such Assignee to such transferor Bank of an amount equal to the purchase price agreed between such transferor Bank and such Assignee, such Assignee shall be a Bank party to this Agreement and shall have all the rights and obligations of a Bank with a Commitment as set forth in such instrument of assumption, and the transferor Bank shall be released from its obligations hereunder to a corresponding extent, and no further consent or action by any party shall be required. Upon the consummation of any assignment pursuant to this subsection (c), the transferor Bank, the Administrative Agent and the Borrower shall make appropriate arrangements so that, if required, a new Note is issued to the Assignee. In connection with any such assignment, the transferor Bank or, in the case of an assignment made pursuant to subsection (f) below, the Borrower shall pay to the Administrative Agent an administrative fee for processing such assignment in the amount of $2,500. If the Assignee is not incorporated under the laws of the United States of America or a state thereof, it shall deliver to the Borrower and the Administrative Agent certification as to exemption from deduction or withholding of any United States federal income taxes in accordance with Section 8.04. (d) Any Bank may at any time assign all or any portion of its rights under this Agreement and its Note to a Federal Reserve Bank. No such assignment shall release the transferor Bank from its obligations hereunder. (e) No Assignee, Participant or other transferee of any Bank's rights shall be entitled to receive any greater payment under Section 8.03 or 8.04 than such Bank would have been entitled to receive with respect to the rights transferred, unless such transfer is made with the Borrower's prior written consent or by reason of the provisions of Section 8.02, 8.03 or 8.04 requiring such Bank to designate a different Applicable Lending Office under certain circumstances or at a time when the circumstances giving rise to such greater payment did not exist. (f) The Borrower shall have the right to require that any Bank assign all of its rights and obligations under this Agreement and its Notes (including any outstanding Money Market Loans) to a new bank or an existing Bank if (i) in the case of a new bank, such new bank shall be acceptable to the Required Banks and (ii) such new bank or Bank, as the case may be, shall enter into an Assignment and Assumption Agreement therefor with such assigning Bank subject to the provisions of subsection (c) above, pursuant to which such new bank or Bank, as the case may be shall purchase the outstanding Loans of the assigning Bank at par plus accrued interest and shall pay to the assigning Bank all accrued fees and the Borrower shall pay to the assigning Bank all other amounts then owing to it under this Agreement. SECTION 9.07. Collateral. Each of the Banks represents to each Agent and each of the other Banks that it in good faith is not relying upon any "margin stock" (as defined in Regulation U) as collateral in the extension or maintenance of the credit provided for in this Agreement. SECTION 9.08. Governing Law; Submission to Jurisdiction. This Agreement and each Note shall be governed by and construed in accordance with the laws of the State of New York. The Borrower hereby submits to the nonexclusive jurisdiction of the United States District Court for the Southern District of New York and of any New York State court sitting in New York City for purposes of all legal proceedings arising out of or relating to this Agreement or the transactions contemplated hereby. The Borrower irrevocably waives, to the fullest extent permitted by law, any objection which it may now or hereafter have to the laying of the venue of any such proceeding brought in such a court and any claim that any such proceeding brought in such a court has been brought in an inconvenient forum. SECTION 9.09. Counterparts; Integration; Effectiveness. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement constitutes the entire agreement and understanding among the parties hereto and supersedes any and all prior agreements and understandings, oral or written, relating to the subject matter hereof. This Agreement shall become effective upon receipt by the Documentation Agent of counterparts hereof signed by each of the parties hereto (or, in the case of any party as to which an executed counterpart shall not have been received, receipt by the Documentation Agent in form satisfactory to it of telegraphic, telex, facsimile or other written confirmation from such party of execution of a counterpart hereof by such party). SECTION 9.10. WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE AGENTS, THE SWINGLINE BANKS AND THE BANKS HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. SECTION 9.11. Existing Credit Agreements. The Banks that are parties to the Existing Morgan Credit Agreement or the Existing Deutsche Bank Credit Agreement, comprising the "REQUIRED BANKS", in each case as defined therein, and the Borrower agree that the commitments under the Existing Morgan Credit Agreement or the Existing Deutsche Bank Credit Agreement, as the case may be, shall terminate in their entirety simultaneously with and subject to the occurrence of the Closing Date under this Agreement and that the Borrower shall be obligated to pay the accrued letter of credit fees (in the case of the Existing Morgan Credit Agreement) and facility fees thereunder to but excluding the Closing Date. Each Bank which is a party hereto and to the Existing Morgan Credit Agreement hereby waives the notices required to be given pursuant to Section 2.09 thereof to terminate the "Commitments" (as defined therein) and each Bank which is a party hereto and to the Existing Deutsche Bank Credit Agreement hereby waives the notices required to be given pursuant to Section 2.10 thereof, to terminate the "Commitments" (as defined therein). IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. USF&G CORPORATION By /s/DAN L. HALE Name: Dan L. Hale Title: Executive Vice President and Chief Financial Officer Corporate Center 6225 Centennial Way - A3 Baltimore, MD 21209 Facsimile number: (410) 205-6802 MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent By /s/MARIA H. DELL'AQUILA Name: Maria H. Dell'Aquila Title: Vice President 60 Wall Street New York, New York 10260-0060 Attention: Jerry J. Fall Telex number: 177615 Facsimile number: (212) 648-5249 DEUTSCHE BANK AG, NEW YORK BRANCH, as Documentation Agent By /s/JOHN S. MCGILL Name: John S. McGill Title: Vice President By /s/LOUIS CALTAVUTURO Name: Louis Caltavuturo Title: Vice President 31 West 52nd Street New York, New York 10019 Attention: Susan A. Maros Telex number: 429166 Facsimile number: (212) 469-8366 Commitments $20,000,000 MORGAN GUARANTY TRUST COMPANY OF NEW YORK By /s/MARIA H. DELL'AQUILA Name: Maria H. Dell'Aquila Title: Vice President $20,000,000 DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLANDS BRANCHES By /s/JOHN S. MCGILL Name: John S. McGill Title: Vice President By /s/LOUIS CALTAVUTURO Name: Louis Caltavuturo Title: Vice President $16,000,000 THE BANK OF NEW YORK By /s/LIZANNE T. EBERLE Name: Lizanne T. Eberle Title: Vice President $16,000,000 BANKBOSTON, N.A. By /s/LAWRENCE C. BIGELOW Name: Lawrence C. Bigelow Title: Managing Director $16,000,000 CITIBANK, N.A. By /s/PETER C. BICKFORD Name: Peter C. Bickford Title: Attorney-In-Fact $16,000,000 THE FIRST NATIONAL BANK OF MARYLAND By /s/BROOKS W. THROPP Name: Brooks W. Thropp Title: Vice President $16,000,000 MELLON BANK, N.A. By /s/SUSAN M. WHITEWOOD Name: Susan M. Whitewood Title: Vice President $16,000,000 NATIONSBANK, N.A. By /s/JIM V. MILLER Name: Jim V. Miller Title: Senior Vice President $8,000,000 ABN AMRO BANK N.V. By /s/VICTOR J. FENNON Name: Victor J. Fennon Title: Vice President By /s/JAMES S. MITCHELL Name: James S. Mitchell Title: Vice President $8,000,000 BANK ONE, TEXAS, N.A. By /s/TIMOTHY J. STAMBAUGH Name: Timothy J. Stambaugh Title: Senior Vice President $8,000,000 CRESTAR BANK, a Virginia banking corporation By /s/ANDREW P. WALLER Name: Andrew P. Waller Title: Assistant Vice President $8,000,000 FIRST UNION NATIONAL BANK By /s/GAIL M. GOLIGHTLY Name: Gail M. Golightly Title: Senior Vice President $8,000,000 MERCANTILE-SAFE DEPOSIT & TRUST COMPANY By /s/NICHOLAS C. RICHARDSON Name: Nicholas C. Richardson Title: Vice President $8,000,000 THE NORTHERN TRUST COMPANY By /s/RICHARD BERGER Name: Richard Berger Title: Vice President $8,000,000 WACHOVIA BANK, N.A. By /s/M. EUGENE WOOD, III Name: M. Eugene Wood, III Title: Vice President $8,000,000 WELLS FARGO BANK, N.A. By /s/FRIEDA YOULIOS Name: Frieda Youlios Title: Vice President By /s/RACHEL UYAMA Name: Rachel Uyama Title: Assistant Vice President - ------------------- Total Commitments $200,000,000 PRICING SCHEDULE The "Euro-Dollar Margin", "CD Margin" and "Facility Fee Rate" for any day are the respective percentages set forth below in the applicable row under the column corresponding to the Status that exists on such day: Status Level I Level II Level III Level IV Level V Euro-Dollar Margin 0.23% 0.245% 0.26% 0.34% 0.45% CD Margin 0.355% 0.37% 0.385% 0.465% 0.575% Facility Fee Rate 0.07% 0.08% 0.09% 0.11% 0.15% For purposes of this Schedule, the following terms have the following meanings, subject to the final two paragraphs of this Schedule: "Level I Status" exists at any date if, at such date, the Borrower's senior unsecured long-term debt is rated at least A- by S&P or A3 by Moody's. "Level II Status" exists at any date if, at such date, (i) the Borrower's senior unsecured long-term debt is rated at least BBB+ by S&P or Baa1 by Moody's and (ii) Level I Status does not exist. "Level III Status" exists at any date if, at such date, (i) the Borrower's senior unsecured long-term debt is rated at least BBB by S&P or Baa2 by Moody's and (ii) neither Level I Status nor Level II Status exists. "Level IV Status" exists at any date if, at such date, (i) the Borrower's senior unsecured long-term debt is rated at least BBB- by S&P or Baa3 by Moody's and (ii) none of Level I Status, Level II Status and Level III Status exists. "Level V Status" exists at any date if, at such date, no other Status exists. "Moody's" means Moody's Investors Service, Inc., and its successors. "S&P" means Standard & Poor's Ratings Services, and its successors. "Status" refers to the determination of which of Level I Status, Level II Status, Level III Status, Level IV Status or Level V Status exists at any date. The credit ratings to be utilized for purposes of this Schedule are those assigned to the senior unsecured long-term debt securities of the Borrower without third-party credit enhancement, and any rating assigned to any other debt security of the Borrower shall be disregarded. The rating in effect at any date is that in effect at the close of business on such date. If the Borrower is split-rated and the rating differential is one level, the higher of the two ratings will apply (e.g. A-/Baa1 results in Level I Status and BBB+/Baa2 results in Level II Status). If the Borrower is split-rated and the ratings differential is more than one level, the average of the two ratings (or the higher of any two intermediate ratings) shall be used (e.g. A-/Baa2 results in Level II Status, as does A-/Baa3). EXHIBIT A NOTE New York, New York , 19 For value received, USF&G CORPORATION, a Maryland corporation (the "Borrower"), promises to pay to the order of (the "Bank"), for the account of its Applicable Lending Office, the unpaid principal amount of each Loan made by the Bank to the Borrower pursuant to the Credit Agreement referred to below on the maturity date therefor specified in the Credit Agreement. The Borrower promises to pay interest on the unpaid principal amount of each such Loan on the dates and at the rate or rates provided for in the Credit Agreement. All such payments of principal and interest shall be made in lawful money of the United States in Federal or other immediately available funds at the office of Morgan Guaranty Trust Company of New York, 60 Wall Street, New York, New York. All Loans made by the Bank, the respective types, Classes and maturities thereof and all repayments of the principal thereof shall be recorded by the Bank and, if the Bank so elects in connection with any transfer or enforcement hereof, appropriate notations to evidence the foregoing information with respect to each such Loan then outstanding may be endorsed by the Bank on the schedule attached hereto, or on a continuation of such schedule attached to and made a part hereof; provided that the failure of the Bank to make any such recordation or endorsement shall not affect the obligations of the Borrower hereunder or under the Credit Agreement. This note is one of the Notes referred to in the 364-Day Credit and Reimbursement Agreement dated as of December 18, 1997 among the Borrower, the banks listed on the signature pages thereof, Morgan Guaranty Trust Company of New York, as Administrative Agent, and Deutsche Bank AG, New York Branch, as Documentation Agent (as the same may be amended from time to time, the "Credit Agreement"). Terms defined in the Credit Agreement are used herein with the same meanings. Reference is made to the Credit Agreement for provisions for the prepayment hereof and the acceleration of the maturity hereof. USF&G CORPORATION By___________________ Title: Vice President Note (cont'd) LOANS AND PAYMENTS OF PRINCIPAL Class and Amount of Amount of Type of Principal Maturity Notation Date Loan Loan Repaid Date Made by ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ EXHIBIT B Form of Money Market Quote Request [Date] To: Morgan Guaranty Trust Company of New York (the "Administrative Agent") From: USF&G Corporation Re: 364- Day Credit and Reimbursement Agreement (the "Credit Agreement") dated as of December 18, 1997 among the Borrower, the Banks listed on the signature pages thereof, the Administrative Agent, and Deutsche Bank AG, New York Branch, as Documentation Agent We hereby give notice pursuant to Section 2.03 of the Credit Agreement that we request Money Market Quotes for the following proposed Money Market Borrowing(s): Date of Borrowing: __________________ Principal Amount(1) Interest Period(2) $ Such Money Market Quotes should offer a Money Market [Margin] [Absolute Rate].[The applicable base rate is the London Interbank Offered Rate.] Terms used herein have the meanings assigned to them in the Credit Agreement. USF&G CORPORATION By_________________ Title: __________ (1) Amount must be $5,000,000 or a larger multiple of $1,000,000. (2) Not less than one month (LIBOR Auction) or not less than 7 days (Absolute Rate Auction), subject to the provisions of the definition of Interest Period. EXHIBIT C Form of Invitation for Money Market Quotes To: [Name of Bank] Re: Invitation for Money Market Quotes to USF&G Corporation (the "Borrower") Pursuant to Section 2.03 of the 364-Day Credit and Reimbursement Agreement dated as of December 18, 1997 among the Borrower, the Banks parties thereto, the undersigned, as Administrative Agent, and Deutsche Bank AG, New York Branch, as Documentation Agent, we are pleased on behalf of the Borrower to invite you to submit Money Market Quotes to the Borrower for the following proposed Money Market Borrowing(s): Date of Borrowing: __________________ Principal Amount Interest Period $ Such Money Market Quotes should offer a Money Market [Margin] [Absolute Rate]. [The applicable base rate is the London Interbank Offered Rate.] Please respond to this invitation by no later than [2:00 P.M.] [9:30 A.M.] (New York City time) on [date]. MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent By__________________________________ Authorized Officer EXHIBIT D Form of Money Market Quote To: Morgan Guaranty Trust Company of New York, as Administrative Agent Re: Money Market Quote to USF&G Corporation (the "Borrower") In response to your invitation on behalf of the Borrower dated __________, we hereby make the following Money Market Quote on the following terms: 1. Quoting Bank: ________________________________ 2. Person to contact at Quoting Bank: ----------------------------- 3. Date of Borrowing: ____________________(3) 4. We hereby offer to make Money Market Loan(s) in the following principal amounts, for the following Interest Periods and at the following rates: Principal Interest Money Market Amount(4) Period(5) [Margin(6)] [Absolute Rate(7)] $ $ [Provided, that the aggregate principal amount of Money Market Loans for which the above offers may be accepted shall not exceed $____________.]** We understand and agree that the offer(s) set forth above, subject to the satisfaction of the applicable conditions set forth in the 364-Day Credit and Reimbursement Agreement dated as of December 18, 1997 among the Borrower, the Banks listed on the signature pages thereof, yourselves, as Administrative Agent, and Deutsche Bank AG, New York Branch, as Documentation Agent, irrevocably obligates us to make the Money Market Loan(s) for which any offer(s) are accepted, in whole or in part. Very truly yours, [NAME OF BANK] Dated:_______________ By:__________________________ Authorized Officer __________ (3) As specified in the related Invitation. (4) Principal amount bid for each Interest Period may not exceed principal amount requested. Specify aggregate limitation if the sum of the individual offers exceeds the amount the Bank is willing to lend. Bids must be made for $5,000,000 or a larger multiple of $1,000,000. (5) Not less than one month or not less than 7 days, as specified in the related Invitation. No more than five bids are permitted for each Interest Period. (6) Margin over or under the London Interbank Offered Rate determined for the applicable Interest Period. Specify percentage (to the nearest 1/10,000 of 1%) and specify whether "PLUS" or "MINUS" (7)Specify rate of interest per annum (to the nearest 1/10,000th of 1%). EXHIBIT E OPINION OF THE DEPUTY GENERAL COUNSEL OF THE BORROWER To the Banks and the Agents Referred to Below c/o Deutsche Bank AG, New York Branch, as Documentation Agent 31 West 52nd Street New York, New York 10019 Dear Sirs: I am Deputy General Counsel for USF&G Corporation (the "Borrower") and have acted in such capacity in connection with the 364-Day Credit and Reimbursement Agreement (the "Credit Agreement") dated as of December 18, 1997 among the Borrower, the banks parties thereto, Morgan Guaranty Trust Company of New York, as Administrative Agent, and Deutsche Bank AG, New York Branch, as Documentation Agent. Terms defined in the Credit Agreement are used herein as therein defined. This opinion is being rendered to you at the request of my client pursuant to Section 3.01(b) of the Credit Agreement. I have examined originals or copies, certified or otherwise identified to my satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as I have deemed necessary or advisable for purposes of this opinion. Upon the basis of the foregoing, I am of the opinion that: 1. The Borrower is a corporation validly existing and in good standing under the laws of Maryland, and has all corporate powers required to carry on its business as now conducted. 2. The Borrower has all governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted, other than such licenses, authorizations, consents and approvals which, if not held or obtained by the Borrower, do not, in the aggregate, have a Material Adverse Effect. 3. The execution, delivery and performance by the Borrower of the Credit Agreement and the Notes are within the Borrower's corporate powers, have been duly authorized by all necessary corporate action, require no action by the Borrower by or in respect of, or filing by the Borrower 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 articles of incorporation or by-laws of the Borrower. 4. To the best of my knowledge after responsible inquiry, the execution, delivery and performance by the Borrower of the Credit Agreement and the Notes do not contravene, or constitute a default under, any provision of any material agreement, judgment, injunction, order, decree or other instrument binding upon the Borrower or any of its Subsidiaries or result in the creation or imposition of any material Lien on any asset of the Borrower or any of its Subsidiaries. 5. There is no action, suit or proceeding pending or, to the best of my knowledge, threatened against or affecting the Borrower or any of its Subsidiaries before any court or arbitrator or any governmental body, agency or official, in which there is a reasonable expectation of an adverse decision which reasonably could be expected to materially adversely affect the business, consolidated financial position or consolidated results of operations of the Borrower and its Consolidated Subsidiaries, considered as a whole, or which in any manner draws into question the validity of the Credit Agreement or the Notes, except as may have been disclosed in the financial statements referred to in Section 4.04(a) and (b) of the Credit Agreement. 6. Each of the Borrower and the Borrower's corporate Subsidiaries named below is a corporation validly existing and in good standing under the laws of its jurisdiction of incorporation, and has all corporate powers and all material governmental licenses, authorizations, consents and approvals required to carry on its business as now conducted, other than such licenses, authorizations, consents and approvals which, if not held or obtained by the Borrower or such Subsidiary, do not, in the aggregate, have a Material Adverse Effect. The Subsidiaries referred to in this paragraph are United States Fidelity and Guaranty Company and Fidelity and Guaranty Life Insurance Company. Davis Polk & Wardwell may rely on this opinion in connection with the rendering by such firm of an opinion to you dated the date hereof with respect to the Agreement. Very truly yours, EXHIBIT F OPINION OF COUNSEL FOR THE BORROWER To the Banks and the Agents Referred to Below c/o Deutsche Bank AG, New York Branch, as Documentation Agent 31 West 52nd Street New York, New York 10019 Dear Sirs: We have acted as counsel for USF&G Corporation (the "Borrower") in connection with the 364-Day Credit and Reimbursement Agreement (the "Credit Agreement") dated as of December 18, 1997 among the Borrower, the banks parties thereto, Morgan Guaranty Trust Company of New York, as Administrative Agent, and Deutsche Bank AG, New York Branch, as Documentation Agent. Terms defined in the Credit Agreement are used herein as therein defined. This opinion is being rendered to you at the request of our client pursuant to Section 3.01(c) of the Credit Agreement. We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as we have deemed necessary or advisable for purposes of this opinion. In rendering this opinion, we have assumed that all documents submitted to us as originals are authentic, all documents submitted to us as certified or photostatic copies conform to the original document, all signatures on all documents submitted to us for examination are genuine, and all public records received are accurate and complete. Upon the basis of the foregoing, we are of the opinion that the Credit Agreement constitutes a valid and binding agreement of the Borrower and each Note constitutes a valid and binding obligation of the Borrower, in each case enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and by general principles of equity (including public policy limitations on the indemnification provisions thereof). You may rely upon this opinion only in connection with the transactions being consummated pursuant to the Credit Agreement and neither you nor any other person may rely upon or use this opinion for any other purpose whatsoever. However, Davis Polk & Wardwell may rely on this opinion in connection with the rendering by such firm of an opinion to you dated the date hereof with respect to the Agreement. Very truly yours, EXHIBIT G OPINION OF DAVIS POLK & WARDWELL, SPECIAL COUNSEL FOR THE AGENTS To the Banks and the Agents Referred to Below c/o Deutsche Bank AG, New York Branch, as Documentation Agent 31 West 52nd Street New York, New York 10019 Dear Sirs: We have participated in the preparation of the 364-Day Credit and Reimbursement Agreement (the "Credit Agreement") dated as of December 18, 1997 among USF&G Corporation, a Maryland corporation (the "Borrower"), the banks parties thereto (the "Banks"), Morgan Guaranty Trust Company of New York, as Administrative Agent (the "Administrative Agent") and Deutsche Bank AG, New York Branch, as Documentation Agent (the "Documentation Agent" and together with the Administrative Agent, the "Agents"), and have acted as special counsel for the Agents for the purpose of rendering this opinion pursuant to Section 3.01(d) of the Credit Agreement. Terms defined in the Credit Agreement are used herein as therein defined. We have examined originals or copies, certified or otherwise identified to our satisfaction, of such documents, corporate records, certificates of public officials and other instruments and have conducted such other investigations of fact and law as we have deemed necessary or advisable for purposes of this opinion. Upon the basis of the foregoing, we are of the opinion that the Credit Agreement constitutes a valid and binding agreement of the Borrower and each Note constitutes a valid and binding obligation of the Borrower, in each case enforceable in accordance with its terms, except as the same may be limited by bankruptcy, insolvency or similar laws affecting creditors' rights generally and by general principles of equity. We are members of the Bar of the State of New York and the foregoing opinion is limited to the laws of the State of New York and the federal laws of the United States of America. In giving the foregoing opinion, we express no opinion as to the effect (if any) of any law of any jurisdiction (except the State of New York) in which any Bank is located which limits the rate of interest that such Bank may charge or collect. Insofar as the foregoing opinion involves matters governed by the laws of Maryland, we have relied, without independent investigation, upon the opinions of J. Kendall Huber, Deputy General Counsel of the Borrower, and of Piper & Marbury, counsel for the Borrower, a copy of each of which has been delivered to you. This opinion is rendered solely to you in connection with the above matter. This opinion may not be relied upon by you for any other purpose or relied upon by any other Person without our prior written consent. Very truly yours, EXHIBIT H ASSIGNMENT AND ASSUMPTION AGREEMENT AGREEMENT dated as of _________, 19__ among [ASSIGNOR] (the "Assignor"), [ASSIGNEE] (the "Assignee"), USF&G CORPORATION (the "Borrower"), MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent (the "Administrative Agent"), and MORGAN GUARANTY TRUST COMPANY OF NEW YORK and DEUTSCHE BANK, NEW YORK BRANCH, as Swingline Banks (the "Swingline Banks"). W I T N E S S E T H WHEREAS, this Assignment and Assumption Agreement (the "Agreement") relates to the 364-Day Credit and Reimbursement Agreement dated as of December 18 1997 among the Borrower, the Assignor and the other Banks party thereto, as Banks, the Administrative Agent, and Deutsche Bank AG, New York Branch, as Documentation Agent (the "Credit Agreement"); WHEREAS, as provided under the Credit Agreement, the Assignor has a Commitment to make Loans to the Borrower in an aggregate principal amount at any time outstanding not to exceed $__________; WHEREAS, Committed Loans made to the Borrower by the Assignor under the Credit Agreement in the aggregate principal amount of $__________ are outstanding at the date hereof; and WHEREAS, the Assignor proposes to assign to the Assignee all of the rights of the Assignor under the Credit Agreement in respect of a portion of its Commitment thereunder in an amount equal to $__________ (the "Assigned Amount"), together with a corresponding portion of its outstanding Committed Loans, and the Assignee proposes to accept assignment of such rights and assume the corresponding obligations from the Assignor on such terms; NOW, THEREFORE, in consideration of the foregoing and the mutual agreements contained herein, the parties hereto agree as follows: SECTION 1. Definitions. All capitalized terms not otherwise defined herein shall have the respective meanings set forth in the Credit Agreement. SECTION 2. Assignment. The Assignor hereby assigns and sells to the Assignee without recourse all of the rights of the Assignor under the Credit Agreement to the extent of the Assigned Amount, and the Assignee hereby accepts such assignment from the Assignor and assumes all of the obligations of the Assignor under the Credit Agreement to the extent of the Assigned Amount, including the purchase from the Assignor of the corresponding portion of the principal amount of the Committed Loans made by the Assignor outstanding at the date hereof. Upon the execution and delivery hereof by the Assignor, the Assignee[, the Borrower], each Swingline Bank and the Administrative Agent and the payment of the amounts specified in Section 3 required to be paid on the date hereof (i) the Assignee shall, as of the date hereof, succeed to the rights and be obligated to perform the obligations of a Bank under the Credit Agreement with a Commitment in an amount equal to the Assigned Amount, and (ii) the Commitment of the Assignor shall, as of the date hereof, be reduced by a like amount and the Assignor released from its obligations under the Credit Agreement to the extent such obligations have been assumed by the Assignee. The assignment provided for herein shall be without recourse to the Assignor. SECTION 3. Payments. As consideration for the assignment and sale contemplated in Section 2 hereof, the Assignee shall pay to the Assignor on the date hereof in Federal funds the amount heretofore agreed between them.(8) It is understood that commitment and/or facility fees accrued to the date hereof are for the account of the Assignor and such fees accruing from and including the date hereof in respect of the Assigned Amount are for the account of the Assignee. Each of the Assignor and the Assignee hereby agrees that if it receives any amount under the Credit Agreement which is for the account of the other party hereto, it shall receive the same for the account of such other party to the extent of such other party's interest therein and shall promptly pay the same to such other party. [SECTION 4. Consent of the Borrower, the Swingline Banks and the Administrative Agent. This Agreement is conditioned upon the consent of the Borrower, the Swingline Banks and the Administrative Agent pursuant to Section 9.06(c) of the Credit Agreement. The execution of this Agreement by the Borrower, the Swingline Banks and the Administrative Agent is evidence of this consent. Pursuant to Section 9.06(c) the Borrower agrees to execute and deliver a Note payable to the order of the Assignee to evidence the assignment and assumption provided for herein.] _________ (8) Amount should combine principal together with accrued interest and breakage compensation, if any, to be paid by the Assignee, net of any portion of any upfront fee to be paid by the Assignor to the Assignee. It may be preferable in an appropriate case to specify these amounts generally or by formula rather than as a fixed sum. _________ SECTION 5. Non-Reliance on Assignor. The Assignor makes no representation or warranty in connection with, and shall have no responsibility with respect to, the solvency, financial condition, or statements of the Borrower, or the validity and enforceability of the obligations of the Borrower in respect of the Credit Agreement or any Note. The Assignee acknowledges that it has, independently and without reliance on the Assignor, and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement and will continue to be responsible for making its own independent appraisal of the business, affairs and financial condition of the Borrower. SECTION 6. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York. SECTION 7. Counterparts. This Agreement may be signed in any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written. [ASSIGNOR] By__________________ Title: [ASSIGNEE] By_________________ Title: USF&G CORPORATION By_________________ Title: MORGAN GUARANTY TRUST COMPANY OF NEW YORK, as Administrative Agent and Swingline Bank By_________________ Title: DEUTSCHE BANK, NEW YORK BRANCH, as Swingline Bank By_________________ Title: EX-10 4 STOUT LETTER AGREEMENT M E M O R A N D U M DATE: November 21, 1996 TO: Harry Stout FROM: Norm Blake RE: F&G Life Executive Retention and Severance Plan CC: November 21, 1996 As you know, USF&G has established a special Retention and Severance Plan for selected members of the F&G Life management team, with the purpose of rewarding those individuals for remaining at F&G Life through a period of uncertainty. Your leadership of F&G Life is critical to the success of F&G Life during this period. In addition, I view you as a vital leadership resource of USF&G, with the capability to assume other and larger leadership roles at USF&G. You have, therefore, been approved as a participant in this plan with provisions reflective of your unique role as President of F&G Life. Retention Bonus As a participant in this program, you are eligible to receive a retention bonus equivalent to twenty-four (24) months of base salary, less applicable withholding and taxes. This cash bonus will be paid on or about December 31, 1998. If a sale or other change in control of F&G Life does occur, payment of the bonus will be at completion of the change in control or December 31, 1998, whichever comes first, and will be calculated on the salary in effect at time of payment. You will be eligible for this bonus as long as you remain actively employed with satisfactory performance through the date of payment. Eligibility for Additional Payments In the event of the sale of all or substantially all of the assets of, or the sale of all or a controlling interest in the stock of F&G Life, or the merger or consolidation of F&G Life into another business entity not wholly owned by USF&G, or any other change in control of F&G Life, you may also be eligible to receive a predetermined severance payment. Subject to the terms and conditions of USF&G's severance plan and provided that no comparable employment opportunities with the acquiring company or USF&G Corporation are offered and accepted, severance equal to twelve months base salary, minus applicable withholding and taxes, will be granted for the period immediately following the sale. Under this plan, "employment" includes any consulting arrangements that may be negotiated with an acquiring company. If you are offered and accept a position with the acquiring company and are subsequently terminated because of job elimination or reduction in force within the first year following the sale, you will be considered protected by this provision. The severance payments may be taken in one of three ways: - Bi-weekly payments, with continuation of benefits per standard severance treatment - Lump-sum payment, with no continuation of benefits - Bi-weekly payments with option to take lump sum at any time during the 12 month period, with benefits stopping when lump sum payment is made Stock Option and LTIP In the event of a sale or other change in control of F&G Life, USF&G will compensate you for the value (i.e. the difference between the option price and the market price of USF&G stock on the date of sale closing) of all USF&G stock options which are unvested at the time of sale, either by permitting exercise of the unvested options or by making an equivalent cash payment. (Method to be determined at the discretion of USF&G.) In addition, previously granted LTIP award cycles will be paid out, according to standard award determination. Transaction Bonus In addition to the above arrangements, if we proceed with a sale or other disposition of F&G Life, we will discuss with you a possible transaction bonus to be paid to you (and possibly other key individuals) upon successful completion of the transaction. While we have not determined the nature or amount of any such transaction bonus, we will do so if a decision is made to proceed with such a sale. Deferral Option Any cash amounts payable to you except the severance payments (i.e. the retention bonus plus cash payment in lieu of unvested stock options, if made) may, at your election, be paid on a deferred basis over a maximum 360 month period. The election to defer would need to be made by December 31, 1996. Terms and conditions and forms for the deferral will be provided to interested participants in time to make the deferral election. Excise Tax In the event that your total compensation in any year exceeds the amount permitted under applicable tax laws, USF&G will gross up your retention bonus to cover the 15% excise tax that is assessed. Provisions covered by this agreement expire 12/31/98. Please understand that this agreement is not intended to create a contract of employment or in any way to alter F&G Life's policy of employment at will. Additionally, details of eligibility and award determination under certain circumstances, such as job change or termination prior to the time of plan payments will be covered by the prevailing plan document. And, of course, we ask that your participation in this plan remain strictly confidential. Please accept this agreement as a reflection of the value which USF&G places on your contributions to F&G Life, a division which has played a critical role in USF&G's return to profitability and financial success. I would appreciate your signing a copy of this letter and returning it to John MacColl by December 1, 1996. NB:mag cc: Dan Hale John MacColl Participant Signature: /s/HARRY N. STOUT Date:___________________________ I am interested in electing deferral. Please provide further information: Yes_____ No_____ USF&G Memorandum To: Harry Stout From: John A. MacColl Date: December 1, 1997 Re: F&G Life Executive Retention and Severance Plans A number of questions have arisen regarding the interaction between the F&G Life Executive Retention and Severance Plan (the "F&G Life Retention Plan") and the USF&G Corporation Key Executive Severance Plan (the "USF&G Severance Plan"). This memorandum is to clarify how these plans interact. The F&G Life Retention Plan is designed to deal with a possible sale of F&G Life by USF&G Corporation, whereas the USF&G Severance Plan is designed to deal with a change of control of USF&G Corporation. The USF&G Severance Plan is not intended to and will not take away any severance or other benefits under the F&G Life Retention Plan. The USF&G Severance Plan will, however, provide severance protection in circumstances where, following a change of control of USF&G Corporation, you are terminated without cause or you terminate your employment with good reason. Standing alone, the F&G Life Retention Plan would not provide you with any protection under these circumstances unless there was also a separate sale of F&G Life. The following should clarify how these two plans interact: 1. The provisions for severance under the F&G Life Retention Plan are not triggered on a change of control of USF&G Corporation, but apply only in the event of a disaffiliation (sale, spin-off, etc.) between USF&G Corporation and F&G Life. Likewise, a sale of F&G Life following a change of control of USF&G Corporation would not in and of itself trigger benefits under the USF&G Severance Plan, although if such a sale occurred before December 31, 1998, it would accelerate the retention bonus. Severance benefits under either plan are triggered only upon a termination of employment with F&G Life and USF&G under the circumstances described under such plans. 2. In the event of circumstances under which you would be entitled to severance payments under either or both of such plans, you would be entitled to receive benefits under whichever plan is more generous. Although Section 3.4.2 of the USF&G Severance Plan provides that such payments "shall be in lieu of any severance or similar payments that otherwise might be payable . . .", the intention was to avoid duplicative payments, not to reduce benefits to which you may already be entitled. In no circumstances will you receive severance benefits under both plans. 3. The retention bonus provided for in the F&G Life Retention Plan is not in the nature of a severance benefit; therefore, such payments are not subject to the limitations of Section 3.4.2 of the USF&G Severance Plan, which prohibits duplication of payments. In other words, payments under the USF&G Severance Plan would not be reduced by the amount of the retention benefit under the F&G Life Retention Plan. Attached as Exhibit A is a schedule which illustrates when the retention bonus or severance benefits would be paid under different scenarios. As you will see, the addition of the USF&G Severance Plan provides you with added protection without taking from the protection provided by the F&G Life Retention Plan. This memorandum and the accompanying schedule are provided as clarification and in all respects the terms of the plans control and remain in full force and effect. If you agree with these interpretations, please countersign this letter where indicated below and return a copy of this letter with the signed letter relating to the USF&G Severance Plan. Please do not hesitate to call Gail Turek (x46520) or me if you have further questions. USF&G CORPORATION By:/s/JOHN A. MACCOLL John A. MacColl Executive Vice President - Human Resources and General Counsel /s/HARRY N. STOUT Participant
Exhibit A - ---------- ------------------------------------------------ -------------------------------------------------------- No. Event Result(1) - ---------- ------------------------------------------------ -------------------------------------------------------- - ---------- ------------------------------------------------ -------------------------------------------------------- 1 Sale of F&G Life by USF&G Corp. Acceleration of "retention bonus" under F&G Life Retention Plan - ---------- ------------------------------------------------ -------------------------------------------------------- - ---------- ------------------------------------------------ -------------------------------------------------------- 2 "Change of Control" of USF&G Corp. Acceleration of long-term incentive plan (LTIP) under USF&G Severance Plan - ---------- ------------------------------------------------ -------------------------------------------------------- - ---------- ------------------------------------------------ -------------------------------------------------------- 3 Termination following Change of Control of Severance under USF&G Severance Plan USF&G Corp. (without any sale of F&G Life) - ---------- ------------------------------------------------ -------------------------------------------------------- - ---------- ------------------------------------------------ -------------------------------------------------------- 4 Termination following sale of F&G Life Severance under F&G Life Retention Plan ("Retention (without any Change of Control of USF&G bonus" would have already been paid under No. 1 above) Corp.) - ---------- ------------------------------------------------ -------------------------------------------------------- - ---------- ------------------------------------------------ -------------------------------------------------------- 5 Termination following sale of F&G Life after Severance under F&G Life Retention Plan or USF&G Change of Control of USF&G Corp. Severance Plan, whichever is more generous ("Retention bonus" would already have been paid under No. 1 above) - ---------- ------------------------------------------------ -------------------------------------------------------- (1) Assumes events happen prior to December 31, 1998, at which time the F&G Life Plan expires. The examples also assume that any termination which triggers severance benefits is under circumstances and within the specified time periods set forth in the respective plans. This Exhibit A is presented for illustration purposes only, and any retention, severance or other benefits payable shall be determined in accordance with the terms of the respective plans.
EX-10 5 DUNTON LETTER AGREEMENT USF&G MEMORANDUM TO: Gary C. Dunton FROM: Norman P. Blake, Jr. DATE: October 14, 1997 RE: Agreement and General Release This memorandum will confirm our agreement concerning your separation from employment with USF&G. We hope that your separation can occur as smoothly as possible and on an amicable basis, and this memorandum will describe the terms we are prepared to offer in order to accomplish the above objectives. 1. Our records will reflect that your employment with USF&G will terminate effective October 15, 1997, your last day of employment. From the date of this Agreement until October 15, 1997, you shall continue with your present assignment and assist with an orderly transition of your duties to Kim Rich. Of course, during this period, you must abide by all standard policies and procedures of USF&G including, but not limited to, USF&G's Code of Conduct. Thereafter, and until December 31, 1998 or such time as you begin new employment, you shall be available to consult with USF&G on such matters as shall be required from time to time. You agree to notify us, in writing, as soon as you have obtained new employment. 2. Provided that you have complied with all terms of this Agreement, on or about your last day of employment, or otherwise as indicated below, USF&G shall provide you with the following severance payments: a. From October 15, 1997 until December 31, 1998, you shall receive, on a bi-weekly basis, an amount equal to your present bi-weekly base salary; b. Health and dental insurance for 60 days after your last day of employment at the applicable employee rate to the extent permitted by law and consistent with the terms and conditions of the applicable benefit plans, as if you were still employed. Thereafter, you may continue your health and dental benefits in accordance with COBRA. Should you elect to continue these benefits under COBRA, you shall only be required to pay the applicable employee rate for such benefits until the earlier of December 31, 1998, or the date you begin new employment. After the date you have begun new employment or in the event you have not secured other employment by December 31, 1998, you nevertheless will be able to continue the balance of COBRA continuation, but at the full COBRA rate; c. USF&G will arrange for you to apply for a personal disability insurance policy comparable to the current USF&G Long Term Disability policy. Under this arrangement, you will pay the required premiums, on a quarterly basis, and USF&G will reimburse you, on a grossed-up basis, for such payment(s). USF&G's reimbursement to you for such disability insurance payment(s) shall end on the earlier of December 31, 1998, or the date you begin new employment; d. Your automobile allowance, physical examination reimbursement, and personal financial planning and tax preparation benefits will continue until the earlier of December 31, 1998, or the date you begin new employment; e. An amount equal to $18,465.00 to compensate you for 401(K) company contributions which you are forfeiting. Payment of this amount will be made on or before December 31, 1997; f. Subject to adjustments as set forth below, an amount equal to what you would have received under the MIP and LTIP Plans for the 1997 calendar year and 1995-1997 plan cycle, respectively, had your employment continued, based upon the target amounts for grade 23, the actual bonus pool, and the cumulative operating results of USF&G. Such amounts shall be prorated based on the period January 1 through October 15, 1997 (with respect to the 1997 MIP Plan), and based on the period January 1, 1995 through October 15, 1997 (with respect to the LTIP Plan). Payment of severance amounts which are based on the LTIP Plan shall be converted on an equivalent basis into cash based on LTIP stock valuation on the grant date. Payment of such severance amounts will be made in equal monthly installments, plus simple interest of 7% of the undistributed balance, beginning on bonus day 1998, and ending December 31, 1998. In all other respects, the amount, time and other terms of such severance payments shall correspond to the terms and conditions of the MIP and LTIP bonus plans in effect; g. Effective March 31, 1998, USF&G will provide you with a 90 day window (ending June 30, 1998) in which you can receive the cash value of 10,000 stock options with an exercise price of $13.63 per share, 14,965 stock options with an exercise price of $14.56 per share, and 7,800 stock options with an exercise price of $22.50 per share, which is equivalent to your stock options previously granted which would have vested in the ordinary course in March 1998. To calculate the value of this severance amount, we will compare the exercise prices of these options with the USF&G common stock closing share price on your "designation date." To engage your designation date, you must deliver a written notice of designation to the Corporate Secretary by the close of regular business on any business day you choose during this 90 day period; the date you deliver such notice will be deemed your designation date; h. The USF&G Executive Split Dollar Plan Agreement between you and USF&G will remain in effect until December 22, 1997, at which time you will have attained 5 years of participation and will be 25% vested in the cash value of the policy. As of December 22, 1997, pursuant to the terms of the Split Dollar Agreement, you will no longer be entitled to participate in the Split Dollar Plan. USF&G will arrange for you to apply for a personal term life insurance policy which, when combined with the death benefits payable under the Split Dollar Plan, will provide a net death benefit amount comparable to the amount you would have received under the Split Dollar Plan as of December 22, 1997. Under this arrangement, you will pay the required premiums, on a quarterly basis, and USF&G will reimburse you, on a grossed-up basis, for such payments. USF&G shall only reimburse you for such term life insurance payments(s) for coverage beginning December 22, 1997 (provide that, prior to this date, you have not begun new employment); in any event, such reimbursement shall end on the earlier of December 31, 1998, or the date you begin new employment; i. USF&G, through its relocation vendor, agrees to direct an offer to purchase your current Katesford Road residence, in the amount of $850,475.69. USF&G shall pay the customary amounts for brokerage commissions and closing costs (including transfer and recordation taxes to the extent customarily paid by the seller) and customary adjustments will be made at closing for proration of real estate taxes and homeowner's association assessments. This directed offer will be made consistent with USF&G's policies regarding such matters (as modified by this paragraph), including, but not limited to, its policies requiring you to maintain the condition of your residence, keep it fully insured, and assist in selling efforts in all respects. This directed offer will occur at a time reasonably satisfactory to you on or before December 31, 1998; provided, however, if you fail to notify USF&G within such time frame of your desire for such offer, this provision 2(i) shall terminate and be of no further effect. USF&G's obligation hereunder to make this directed offer will not apply if, prior to USF&G's directed offer being implemented, you accept a new employment opportunity from an employer that either offers or customarily provides to new executive hires a similar directed offer program or some other method (such as an enhanced hiring bonus) to cover any loss on sale of your residence. In addition, if a directed offer is made and you subsequently accept a new employment opportunity from an employer which either offers or customarily provides to new executive hires a similar program or a sign-on bonus to cover loss on sale, then you agree to remit any amount or participate in such program, as the case may be; and j. Individual Executive outplacement service, subject to the approval of the Executive Vice President Human Resources, to begin immediately. 3. You also will be eligible for the following other payments: a. In accordance with the Executive Deferred Bonus Payment Plan, in February 1998, you will receive your deferred MIP bonuses totaling $220,500.00 (plus interest accrued and vested under the terms of the deferred compensation plan), paid in a lump sum; and b. Any USF&G stock options which are vested as of October 15, 1997 must e exercised on or prior to January 13, 1998; otherwise, such unexercised options shall be canceled. Naturally, you will be permitted to participate in USF&G's cashless stock options exercise program, to the same extent as other USF&G employees. 4. The severance payments provided in paragraph 2, above, and the other payments provided in paragraph 3, above, shall be subject to deductions for applicable taxes and withholdings, and for amounts owed by you to USF&G. Where a payment is being made subject to being grossed-up, the gross-up percentage shall be 53.16% 5. Attached hereto is a document entitled "Pay and Benefit Procedures Upon Separation." Except as provided for above or in the attached document, you will be entitled to no other or further compensation, remuneration, MIP, LTIP, or other bonuses, payments or benefits of any kind. The parties recognize that you are vested in USF&G's pension plan, and therefore are entitled to no annuity or other similar payments intended to provide or supplement retirement benefits. The parties also understand and agree that the severance payments provided under paragraph 2 and its sub parts will not count toward pensionable earnings. Nothing in this paragraph is intended to divest you of any retirement benefit or stock options in which you have a vested right, nor is it intended to affect any rights and entitlements you have to health insurance continuation under COBRA. You further acknowledge that the benefits provided in this Agreement exceed the benefits you would normally receive and that those extra benefits are provided by USF&G in exchange for your signing this Agreement. 6. Naturally, there are some things that we expect from you: a. You agree to return, on or before October 15, 1997, all of USF&G's property including, but not limited to, all correspondence, drawings, blue prints, manuals, letters, notes, notebooks, reports, flow-charts, programs, proposals, and any other documents concerning USF&G's customers, products, agents, accounts, software or processes, including any copies of such property; b. You agree to submit, by October 15, 1997, any expense account reports. Your ordinary and necessary reasonable business expenses incurred prior to your last day of employment will be paid by USF&G, in accordance with USF&G's expense reimbursement policies, upon submission by you of proper documentation; c. You agree to keep confidential any trade secret and any business, proprietary, confidential, or copyrighted information of USF&G or its Licensors which you acquired in connection with your employment, and otherwise agree to comply with the USF&G Information Resources Use, Nondisclosure and Ownership Agreement (copy attached). This is intended to cover any information of a nature not normally disclosed by USF&G to the general public; d. You agree not to communicate any adverse or derogatory information concerning USF&G, including its directors, officers, employees, or agents, to any persons, corporations, or other entities; and e. You agree to cooperate with USF&G in any matters relating to any claim, administrative hearing, suit, or other administrative or judicial hearings, including, if requested by USF&G, providing information for interrogatories, testifying in depositions, court or administrative hearings and providing such other information and assistance as USF&G may from time to time request. USF&G shall pay all reasonable out-of-pocket costs which may be incurred by you in carrying out your obligations hereunder. 7. In keeping with our mutual intention to allow for an amicable separation, and to resolve any and all outstanding issues relating to your employment, it is agreed that you hereby release USF&G, its directors, officers, employees, agents, and all related or affiliated persons or entities of and from any and all liability, claims, causes, demands, obligations, severance payments (including but not limited to any rights in any executive severance plans), attorneys fees, actions, contracts, torts, promises, damages, and rights which you have or may have arising out of or related to your employment, including the termination of your employment. This waiver and release includes all rights and obligations under any federal, state, or local laws pertaining to employment, including all employment discrimination laws, such as the Age Discrimination in Employment Act ("ADEA"). Subject to applicable law, you agree that you have not filed, and will not file, any complaints or charges against USF&G or its directors, officers, employees or agents, with any administrative agency or court. Obviously, nothing in this paragraph will affect the ability of either party to enforce rights or entitlements specifically provided for under this Agreement, and nothing in this paragraph affects any rights or claims under the ADEA that may arise after the date this Agreement is executed. 8. The parties recognize and agree that this Agreement shall not be in any way construed as an admission by USF&G or its directors, officers, employees, or agents of any liability, wrongdoing, discrimination, fault, or breach, the same being specifically denied. 9. You agree that during your period of employment and continuing through December 31, 1998, you shall not, without the prior written consent of the Chief Executive Officer of USF&G, directly or indirectly solicit for employment or hire, or cause to be solicited or hired, any current USF&G employee. You further agree that during your period of employment and continuing through December 31, 1999, you will not solicit or initiate the solicitation of current agents or accounts of USF&G unless and to the extent your new employer has existing business agreements with such agent or account, and in no event will you solicit or cause any such USF&G agents or accounts of USF&G to transfer any USF&G business to your new employer. You also agree that, during these periods, if a USF&G employee or agent contacts you to inquire about prospective employment, appointment, or transfer of accounts, you will inform the employee or agent that you cannot discuss the matter further without informing USF&G. In the event of your breach of any of the provisions of this paragraph, you agree that: a. you will immediately cease receiving any further payments or perquisites under this Agreement; and b. you will promptly return any severance payments based upon the MIP or LTIP Plans made to you under this Agreement. The parties recognize that damages in the event of breach of this paragraph would be difficult, if not impossible to determine, and it therefore is agreed that USF&G shall have the right to an injunction or other equitable relief in any court of competent jurisdiction, enjoining any such breach. Nothing in the preceding sentence is intended to limit in any way any other rights or remedies USF&G may have regarding such a breach. 10. Please read the above provisions carefully. Feel free to consult with family members or counsel, if you believe that is appropriate. In accordance with current legal requirements under the Older Workers' Benefit Protection Act, we will hold this offer open for twenty-one (21) days from the date of this memorandum, although we would hope to conclude this matter as quickly as possible. In addition, you may revoke this Agreement any time within seven (7) days after it is signed by you. Any revocation must be in writing and delivered to us within seven (7) days in order to be effective. 11. If our offer is acceptable, please sign below and return this Agreement or a copy to me. Your signature will confirm that you are entering into this Agreement voluntarily and with the full understanding of all the above terms, and that you are not relying upon any representations, statements or agreements of USF&G as a basis for entering into this Agreement except for those expressly set forth in this Agreement. In addition, once signed, this Agreement will set forth the entire agreement between USF&G and you. It will supersede any previous agreements or discussions concerning your employment or the termination thereof, including, without limitation, the term sheet dated September 10, 1997, initialed by you and John MacColl. No changes in this Agreement will be valid unless in writing and signed by both parties. Any need for interpretation or enforcement of this Agreement will be in accordance with Maryland law. Any disputes relating to this Agreement, its enforceability, or any other disputes between the parties shall be decided solely by final and binding arbitration held in the jurisdiction where the branch office of USF&G is located which is nearest to your principal address. The arbitration shall be conducted by JAMS/ENDISPUTE, Inc. in accordance with its Arbitration Rules and Procedures then in effect. The arbitrator will be chosen from JAMS/ENDISPUTE's panel of retired judges. Judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction. AGREED and ACCEPTED: UNITED STATES FIDELITY AND EMPLOYEE GUARANTY COMPANY By: __________________________ __________________________ NORMAN P. BLAKE, JR. GARY C. DUNTON Chief Executive Officer -------------------------- -------------------------- Witness Witness -------------------------- -------------------------- Date Date PAY AND BENEFIT PROCEDURES UPON SEPARATION Outlined below are some specifics on the benefits and some special procedures that may apply to you. Please understand that this is only a summary, and this summary does not replace the official company plan documents, which govern all rights and benefits. In addition, this summary is not part of the official company plan documents, and if there is any conflict between this summary and a plan document, the plan document will control. Since there may be occasions when USF&G must change the benefits described in this summary, USF&G reserves the right to add to, delete, or amend any policies or benefits at any time without prior notice. I. COMPENSATION AND SEVERANCE A. PAY You will be paid through your last day of employment. You will also be paid for any unused vacation days, floating holidays, and personal days. The Company will pay severance benefits as outlined in your Severance Agreement and General Release. B. STOCK OPTIONS Under USF&G's Stock Option Plan, you are entitled to exercise your options on USF&G stock options granted to you which have vested on or before your last day of employment. You must, however, exercise such options within 90 days of your last day of employment, unless you retire, in which case you have up to one year from your last day of employment to exercise such options. Options not vested on or prior to your last date of employment are automatically canceled. To exercise your option, or to obtain further information, contact Jack Hoffen at (410) 205-6329. II. BENEFITS A. ACCIDENTAL DEATH AND DISMEMBERMENT PLAN and BUSINESS TRAVEL ACCIDENT PLAN Coverage under these Plans will cease on your last day of employment. B. CAPITAL ACCUMULATION PLAN (CAP) Your participation (if any) in the Capital Accumulation Plan will end on your last day of employment. Within a few weeks, CAP Direct will send you a letter describing your distribution options under the plan. If you do not respond, and your vested account balance is $3,500 or less, you will automatically receive a taxable distribution of your balance within 3 months of CAP Direct being notified of termination. If you do not respond, and your vested balance is greater than $3,500, your balance will remain in the plan until you are 65 years old. If you wish to apply for your final distribution prior to receiving the mailing from CAP Direct, you should call CAP Direct (1-800-258-9212) for the final distribution information and elections. You will then be directed to key your social security number and PIN #. If you have an outstanding loan balance, the loan will become taxable unless you repay it. For information on repaying your loan, call CAP Direct (1-800-258-9212). C. EMPLOYEE PERSONAL INSURANCE PROGRAM If you are participating in the Employee Personal Insurance Program, any personal policy, including Auto and Homeowners, will be continued until the policy expiration date, provided that all outstanding premiums are paid within 30 days of your last day of employment. After the expiration date of the policy, you will no longer be eligible for the employee discount. Assuming you are otherwise eligible, any USF&G independent agent can make arrangements to renew coverage. Retirees continue to be eligible for the Program and upon separation should arrange for renewal. If you have an individual Life Policy, you may continue the policy by changing to a premium-paying method other than payroll deduction -- i.e., pre-authorized monthly check, monthly, quarterly, semi-annual, or annual payments -- subject to minimum premium requirements and payment of full annual rate. D. EMPLOYEE SAVINGS BOND PROGRAM If you are currently enrolled in the USF&G Employee Savings Bond Program, upon separation, you will receive the cash value in the account or a bond if there is enough money in the account. E. FLEXIBLE SPENDING ACCOUNTS (FSA) If you are enrolled in the health care spending account or the dependent day care spending account, deductions from your pay for these accounts will terminate on the last day of your employment. You may continue to submit claims for up to 60 days from your last day of employment for expenses incurred on or before your last day of employment. Claims incurred after this date are not reimbursable unless you pay the remaining balance of your goal amount as described below. If you wish to have your health care flexible spending account available for reimbursement for the remainder of the year, you may elect to continue to pay, on an after tax basis, your elected contribution under the "Continuation Coverage" provision of the Plan (also known as COBRA Coverage). Electing COBRA coverage keeps you active in the plan for the remainder of the calendar year and allows you to submit claims for eligible expenses incurred at any time during the year, beginning with the effective date of your coverage under the plan, provided you pay the required premium. Further information may be obtained by calling Desmond Cliett of Corporate Human Resources at 410-578-2309. The IRS requires any funds left in the accounts after the last date for which claims can be submitted to be forfeited. If you need to file a reimbursement claim, please complete form HMRE 0500 for Health Care or HMRE 0499 for Dependent Day Care and submit to the address on the form. If you should have further questions, please contact the administrator directly at 1-800-274-0329. F. LEGAL SERVICES Your coverage under this plan ends on your last day of employment. G. LIFE INSURANCE PLANS Coverages under the Core Life Insurance Plan (Basic Life and Life Plus) will end on your last day of employment. You may be converted to an individual policy with CIGNA by completing a Conversion Application within 31 days of your termination date and including the first premium with your application. Contact your Human Resources Generalist, or the Home Office Benefits Department to obtain a Conversion Application (HMRE 0465). If you are participating in the Group Universal Life Plan (GULP) and want to continue coverage, you must contact CIGNA directly at 1-800-828-3485 (Pennsylvania residents call 1-800-635-3485). H. SHORT-TERM DISABILITY PLAN Coverage under the Short-Term Disability Plan will end on your last day of employment. If you are receiving benefits under the Plan at the time of separation, benefits will continue until the earlier of: 1) The date the disability ceases; 2) the date which marks the end of the normal recovery time for the disability, as determined pursuant to generally accepted medical practices; 3) the date you refuse to undergo medically necessary treatment or a required medical evaluation; 4) the date you or your physician does not provide required medical or other information; or 5) The completion of the maximum benefit period. I. LONG-TERM DISABILITY PLAN Coverage under the Long-Term Disability Plan will end on your last day of employment, unless on that date you are disabled due to illness or injury. If you remain continuously disabled, upon completion of the 180-day elimination period, you may file for Long-Term Disability benefits. If you are receiving Long-Term Disability benefits as of your last day of employment or subsequently become eligible after completion of an elimination period which began on or before that date, you will receive Long-Term Disability benefits: 1) Until the disability ceases, or 2) The completion of the Maximum Disability Period. J. LONG TERM CARE You may continue your Long-Term care coverage by paying premiums directly to Aetna. For information about continuing your coverage, call 1-800-537-8521. K. MEDICAL/HMO (IF OFFERED)/DENTAL PLANS Unless otherwise agreed or retire directly from active service, coverage you are receiving under the Plans at the date of termination will continue up to 60 consecutive days after your last day of employment, at the current active employee contributory rate, provided you pay the premium. Following is the total cost of this extension for you based on the coverage you have elected for yourself and any covered dependents: 1) Medical/HMO: $323.78 2) Dental: $48.62 Attached is a Continuation of Benefits Election Form which must be completed and returned with your signed separation agreement. This will allow USF&G to automatically deduct the above stated premiums from your lump sum severance check for your continuation of coverage. If you elect to continue your benefits for the 60 day extension period, you may thereafter continue your coverage under the COBRA provisions of the plan. Under COBRA you will pay the full cost of the plan (Company plus employee contributions), plus a 2% administration charge, for an additional 18 months following the 60 day extension. COBRA continuation for employees and dependents generally will cease on the earliest of the following dates: - 18 months from the date the 60 day extension period ends, - the date a covered person becomes covered under another group health plan, if the new group health plan does contain a limitation regarding pre-existing conditions, - the date the covered person becomes entitled to Medicare, - the date the plan terminates, or - the date you fail to pay any required contributions. Please take note: If you elect not to have these premiums for the 60 day extension of benefits automatically deducted or If you fail to return the Continuation of Benefits form with your signed separation agreement, your option to extend your benefits at the current active employee contributory rate for the 60 day period will be permanently waived. If you waive your extension period, you may only continue your coverage under the COBRA continuation coverage provisions of the plan. Under COBRA, you will pay the full cost (Company plus employee), plus a 2% administration charge, for up to 18 MONTHS FOLLOWING YOUR TERMINATION DATE FROM USF&G. If COBRA continuation coverage is elected, approximately 60 days prior to the termination of the 18 month COBRA extension period, you will receive conversion information from CIGNA for the Medical Coverage. There is no conversion under the Dental Plan. L. PENSION PLAN Consistent with the existing Plan, a vested employee is eligible for an accrued benefit from the Company's Pension Plan at age 65, or at any time after age 55, if he or she has 10 years of service under the Plan. M. PERSONAL FINANCIAL PLANNING Any services you have elected under this plan will remain in effect until the end of the calendar year, and you will be billed for any balance due. N. SCHOLARSHIP PROGRAMS Dependent children currently receiving monies through the National Merit Scholarship Program or the USF&G Foundation Scholarship Program will continue to receive their scholarship awards as long as they maintain their grade averages and send in transcripts as required by the Programs. O. TUITION REFUND If a previously approved course is begun prior to your last day of employment but completed AFTER that date, you will be reimbursed 100% for the course regardless of the final grade. If you received an advance, we will reimburse that portion of the advance that you have repaid through payroll deduction. (You will then be effectively 100% reimbursed for the course.) You will need to show proof of enrollment and payment for the course in order to receive the tuition reimbursement. However, in this case, proof of the final grade need not be submitted. If a course is completed BEFORE your last day of employment, you will be reimbursed for all or part of the tuition depending on the final grade. To receive reimbursement for a course completed BEFORE your last day of employment, you must submit an Application for Tuition Reimbursement (Hum. Res. 256), receipts for tuition, and a grade report. If you cancel your enrollment in a course as a result of being separated, any money not refunded by the educational institution will be reimbursed by the Company. P. MATCHING GIFTS Under the Company's Matching Gifts program, the Company will only match contributions made prior to your last day of employment. Under the current program, however, retirees continue to be eligible to have their gifts matched by the Company. Q. VACATION/FLOATING HOLIDAYS/PERSONAL DAY As indicated above, any unused vacation time, floating holidays, and personal days as of your last day of employment will be paid, subject to applicable withholdings and taxes. Employees electing retirement will also be eligible for the Retiree Vacation Allowance. R. UNEMPLOYMENT INSURANCE You may be eligible for Unemployment Benefits. It is important to contact the appropriate State Unemployment Office to apply for benefits. III. MISCELLANEOUS A. CONDITION TO REHIRE If after your last day of termination and after receipt of severance pay you accept a job within the Company, on the first day back to work, you must pay the Company for any outstanding severance. For example, an employee who worked 10 years for the Company separates and receives 20 weeks' severance pay, but 3 weeks after receipt of the payment another job is accepted within the Company. On the employee's first day of rehire, he or she owes the Company 17 weeks' severance. Also upon rehire, you must either pay back payment for vacation days, floating holidays, and/or personal days and be credited with the days, or choose to keep the payment and lose the credit for vacation, floating holidays, and personal days for that period of time. B. BRIDGING OF SERVICE With the exception of the Pension, Capital Accumulation, and Stock Option Plans, service will be bridged only if you are rehired within 60 days of separation. In that case, the original date of hire will be used for all Benefit Plans and the time away from the office will be counted as a LEAVE OF ABSENCE. If you are not rehired within the 60 day period, an adjusted hire date is established. Consistent with the Retirement Pension Plan and Capital Accumulation Plans, if you have a break in service before you become vested and are later re-employed, your prior service may be reinstated. Whether or not your service will be reinstated will depend on the length of your break in service and the number of years of prior service. If you are later re-employed, please contact the Human Resources Service Center (HRSC) at 1-800-695-HRHR for more information on the service crediting rules. Unvested stock options will be canceled following a break in service longer than 60 days. C. EMPLOYEE REFERRAL PLAN You are only eligible to receive an employee referral award as long as you and the referred employee are still on payroll. Therefore, once an employee separates, even if the referral was made prior to separation, he or she will not be eligible for the award. D. INDEBTEDNESS TO COMPANY If you owe any monies to the Company (loans, travel advances, etc.) you must make arrangements to settle this debt. You also must make arrangements to return your USF&G identification card and all other company property (such as keys, credit cards, equipment, and files) before your last day of employment. E. ADDRESS CHANGE The Company may need to contact you or forward mail after your last day of employment, and retains current addresses for employees who are vested in the Pension Plan. Notice of any change of address should be addressed to USF&G Corporation, Human Resources Benefits, Founders Building, 6225 Centennial Way, Baltimore, Maryland 21209. CONTINUATION OF BENEFITS ELECTION FORM If you have elected to continue the Benefit Plans you are currently participating in after your termination with the Company, please mark the "yes" column. USF&G will automatically deduct the total premium amount listed below from your lump sum severance check on a POST-TAX basis. If you were participating in both the Medical and Dental plans at the time of your termination, please note that you must continue both your Medical and Dental benefits for the 60 day continuation. You cannot choose one without the other. Yes, I plan to extend my (our) benefits for 60 days and agree to have the total premium listed below deducted from my lump sum severance check: Medical Plan: $323.78 Dental Plan: $48.62 TOTAL PREMIUM: $372.40 |_| If you do NOT intend to continue your Benefit Plans , please mark the space below. PLEASE NOTE THAT BY MARKING THE SPACE BELOW YOU ARE WAIVING THE 60 DAY EXTENSION OF COVERAGE AT THE CURRENT ACTIVE EMPLOYEE RATE, BUT YOU ARE NOT WAIVING YOUR RIGHT TO ELECT COBRA CONTINUATION COVERAGE. YOU ARE STILL ELIGIBLE FOR COBRA BENEFITS AND WILL RECEIVE A COBRA NOTIFICATION AND ELECTION FORM UNDER SEPARATE COVER. No, I do not plan to extend my benefits for 60 days |_| Once received at USF&G this election is irrevocable. If you have any questions, please contact Desmond Cliett at (410) 578-2309. NAME: GARY C. DUNTON SOCIAL SECURITY NO.: ________________ DATE: OCTOBER 14, 1997 EX-10 6 INGREY STOCK APPRECIATION RIGHTS AGREEMENT USF&G CORPORATION STOCK APPRECIATION RIGHTS PLAN AND AGREEMENT FOR PAUL B. INGREY STOCK APPRECIATION RIGHTS PLAN AND AGREEMENT, entered into this 24th day of July, 1996, between USF&G CORPORATION, a Maryland corporation (the "Corporation"), and PAUL B. INGREY (the "Grantee"). 1. PURPOSE. This grant of Stock Appreciation Rights is intended to advance the interests of the Corporation by providing Paul B. Ingrey (the "Grantee") an incentive to expend maximum effort for the growth and success of the Corporation and its subsidiaries. 2. CANCELLATION OF STOCK OPTIONS. In consideration of the Stock Appreciation Rights granted hereunder, Grantee hereby surrenders and agrees to the cancellation of the stock options previously granted to him by the Corporation on February 26, 1993, February 28, 1994, March 9, 1995 and March 8, 1996, said stock options being all of the outstanding and unexercised stock options previously granted to him under the Corporation's Stock Incentive Plan of 1991, Amended and Restated Stock Incentive Plan of 1991, and all other stock option plans maintained by the Corporation, other than 31,000 stock options granted on February 25, 1992, which if not exercised prior to the date hereof, are not to be surrendered and canceled under this Agreement. 3. GRANT OF STOCK APPRECIATION RIGHTS. In consideration of the Grantee's entering into an Executive Consulting Agreement of even date herewith and the Grantee's agreement to cancel the stock options as described in Section 2 above, the Corporation hereby grants to the Grantee as of the date hereof the following Stock Appreciation Rights which shall entitle the Grantee to receive cash payments upon exercise equal to the product of (1) the number of Units for which the Stock Appreciation Right is exercised (which may be less than the total number of Units subject to such Stock Appreciation Right) multiplied by (2) the difference between (i) the closing price of one share of Common Stock of the Corporation on the New York Stock Exchange for the last business day immediately preceding the date on which the Stock Appreciation Right is exercised and (ii) the Unit Price for the Stock Appreciation Right being exercised: STOCK APPRECIATION RIGHT NO. 1 Number of Units: 26,300 Unit Price: $13.75 Stock Appreciation Right No. 1 shall be fully vested and exercisable as of the date hereof. STOCK APPRECIATION RIGHT NO. 2 Number of Units: 24,300 Unit Price: $14.38 Stock Appreciation Right No. 2 shall be vested and exercisable as to 16,200 Units as of the date hereof and shall be fully vested and exercisable on and after February 28, 1997. STOCK APPRECIATION RIGHT NO. 3 Number of Units: 23,300 Unit Price: $13.63 Stock Appreciation Right No. 3 shall be vested and exercisable as to 7,766 Units as of the date hereof, shall be vested and exercisable as to an additional 7,766 Units on and after March 9, 1997, and shall be fully vested and exercisable on and after March 9, 1998. STOCK APPRECIATION RIGHT NO. 4 Number of Units: 54,600 Unit Price: $14.56 Stock Appreciation Right No. 4 shall be vested and exercisable as to 18,200 Units on and after March 8, 1997, shall be vested and exercisable as to an additional 18,200 Units on and after March 8, 1998, and shall be fully vested and exercisable on and after March 8, 1999. 4. LIMITATIONS ON EXERCISE. Stock Appreciation Rights shall be exercisable to the extent provided in Section 3 only during the period commencing on the date this Plan and Agreement is executed and ending on the last day of the Consulting Period (as defined in the Executive Consulting Agreement) and for a period of 90 days following the expiration of such Consulting Period; provided, however, that if the Grantee violates the provisions of paragraph 4 of the Executive Consulting Agreement, all unexercised Stock Appreciation Rights, whether vested or unvested, shall be immediately canceled and forfeited, and provided further, that in the event of the death or disability of the Grantee, all unexercised Stock Appreciation Rights which are vested and exercisable as of the date of death or disability shall continue to be vested and exercisable for a period of one year after death or disability. No Stock Appreciation Rights shall first become vested and exercised after the termination of the Consulting Period. Any Units of Stock Appreciation Rights which are exercised shall be canceled immediately upon exercise. Notwithstanding anything in the Agreement to the contrary, Stock Appreciation Rights may be exercised only at such times as the purchase and sale of the Corporation's Common Stock is allowed under the Corporation's Insider Trading Policy. 5. EFFECT OF FUNDAMENTAL CORPORATE TRANSACTION. Notwithstanding the limitations on exercisability of Stock Appreciation Rights set forth in Section 3 of this Agreement, in the event of a Fundamental Corporate Transaction which occurs prior to the commencement of or during the Consulting Period, all unexercised Stock Appreciation Rights shall become immediately vested and exercisable. For purposes of this Section, a "Fundamental Corporate Transaction" shall be and be deemed to occur on the date (i) of the first purchase of shares of the Corporation's Common Stock pursuant to a tender offer or an exchange offer (other than one made by the Corporation or holding company for the Corporation) for all or any part of the Corporation's Common Stock, (ii) of approval of the stockholders of the Corporation of a merger, consolidation, sale, statutory or other share exchange, or disposition of all or substantially all of the Corporation's assets in which the Corporation (or holding company for the Corporation) will not survive as a publicly-owned corporation operating the business it operated prior to such transaction or (iii) on which any entity, person or group acquires beneficial ownership of shares of the Corporation's Common Stock (whether in one or a series of transactions), directly or indirectly, amounting to 30% or more of the outstanding shares of such class. A "holding company for the Corporation" means, in the foregoing, an entity that becomes a holding company for the Corporation without altering or planning to alter in any material respect the stockholders of the Corporation or the business of the Corporation and its subsidiaries as a whole, other than a case in which an acquisition of another company by the Corporation or the holding company is being accomplished concurrently. 6. EXERCISE OF STOCK APPRECIATION RIGHT. A Stock Appreciation Right which is vested and exercisable may be exercised by delivery to the Corporation on any business day, at its principal office addressed to the attention of the Corporate Secretary, a written notice of exercise. Such notice shall specify the number of Units for which the Stock Appreciation Right is being exercised and note which Stock Appreciation Rights are being exercised. 7. EFFECT OF CHANGES IN CAPITALIZATION. In the event of changes in the Common Stock of the Corporation by reason of stock dividends, split-ups, recapitalizatons, mergers, consolidations, combinations or exchanges of shares and the like, the Compensation Committee of the Board of Directors shall make appropriate adjustments in the Stock Appreciation Rights which are outstanding, so that the value of the Stock Appreciation Rights immediately following such event shall, to the extent practicable, be proportionate to the value of the Stock Appreciation Rights immediately prior to such event. No fractional Units of Stock Appreciation Rights shall be recognized pursuant to any such adjustment, and any fractions resulting from any such adjustment shall be eliminated in each case by rounding downward to the nearest whole Unit. 8. MISCELLANEOUS. 8.1 NOT A CONTRACT FOR SERVICES. Nothing in this Agreement shall be deemed to be a contract for employment or for other services to be provided by the Grantee. Nothing in this Agreement shall affect the rights of the Corporation or the Grantee under the Executive Consulting Agreement or any other agreement entered into between the Corporation and the Grantee. 8.2 STOCK APPRECIATION RIGHT NOT A DERIVATIVE SECURITY. The Stock Appreciation Rights granted hereunder shall in all events be interpreted in a manner which will not cause them to be deemed "derivative securities" for purposes of Rule 16a-1(c) under the Securities Exchange Act of 1934 (the "1934 Act") or otherwise subject to Section 16 of the 1934 Act. Stock Appreciation Rights granted hereunder may be redeemed or exercised only for cash and shall not permit receipt of equity securities of the Corporation in lieu of cash. For this purpose, this Plan and Agreement shall be deemed to be a plan pursuant to which only the Grantee is eligible to participate and pursuant to which no securities may be offered other than those which may be deemed to result from the grant of the Stock Appreciation Rights to the Grantee as provided in Section 3 of this Plan and Agreement. No Stock Appreciation Rights granted hereunder are transferable by the Grantee other than by will or laws of descent and distribution. This Agreement shall be a formula award for purposes of Rule 16b-3(c)(2)(ii), and the provisions of this Agreement which state the amount and price of securities to be awarded to the Grantee and the timing of such Grant may not be amended more than once every six months, other than to comport with changes in the Internal Revenue Code, the Employee Retirement Income Security Act, or the rules thereunder. The Compensation Committee of the Board of Directors will, in all respects, be responsible for administration of the plan evidenced by this Plan and Agreement and any matter or interpretation determined by the Compensation Committee shall be final and binding. 8.3 APPROVAL. This Plan and Agreement and the grant of Stock Appreciation Rights hereunder has been approved by the Compensation Committee of the Board of Directors, by action taken on July 23, 1996. 8.4 TAX WITHHOLDING. Upon exercise of any Stock Appreciation Right, the Corporation is authorize to withhold in accordance with applicable law any taxes required to be withheld by federal, state or local law as a result of such exercise. 8.5 BINDING AGREEMENT. This Agreement shall be binding upon the Grantee and the Corporation as of the date of this Agreement. 8.6 GOVERNING LAW. This Agreement shall be governed by the laws of the State of Maryland, other than the conflicts of law provisions thereof. 8.7 ENTIRE AGREEMENT. This Agreement constitutes the entire understanding of the Grantee and the Corporation with respect to the subject matter hereof and supersedes any and all prior understandings, written or oral. This Agreement may not be changed, modified, or discharged orally, but only by a written instrument signed by the parties. The invalidity or unenforceability of any provisions hereof shall in no way affect the validity or enforceability of any of the other provisions. IN WITNESS WHEREOF, the parties have executed and delivered this Plan and Agreement as of the date first above written. ATTEST USF&G CORPORATION By: /s/NORMAN P. BLAKE, JR. Norman P. Blake, Jr., Chief Executive Officer WITNESS GRANTEE /s/PAUL B. INGREY Paul B. Ingrey EX-10 7 INGREY CONSULTING AGREEMENT EXECUTIVE CONSULTING AGREEMENT EXECUTIVE CONSULTING AGREEMENT, entered into this 24th day of July, 1996, effective January 2, 1997, between USF&G CORPORATION, a Maryland corporation (the "Corporation"), and PAUL B. INGREY (the "Consultant"). W I T N E S S E T H The Corporation and the Consultant have reached an agreement to enter into a working arrangement whereby the Consultant shall serve as an executive consultant to the Corporation and its Subsidiaries with respect to reinsurance and such other matters as requested from time to time by the Chief Executive Officer ("CEO") or other officers of the Corporation or its Subsidiaries, and as agreed to from time to time by the Consultant. Accordingly, in consideration of the mutual covenants and representations contained herein, the parties hereto agree as follows: 1. STATUS AND DUTIES. 1.1 STATUS. The Corporation hereby engages the Consultant as an executive consultant for the period specified in paragraph 3 (the "Consulting Period"), and the Consultant accepts such arrangement on the terms and conditions set forth in this Agreement. During the Consulting Period, the Consultant shall not be treated as an employee of the Corporation for any purpose. 1.2 DUTIES. During the Consulting Period, the Consultant shall provide to the Corporation executive consultative services exclusively to the Corporation and its Subsidiaries with respect to reinsurance and other matters as needed and as agreed to by the Consultant. The foregoing shall not preclude the Consultant from devoting a reasonable amount of his time to civic and charitable affairs or to the supervision of his personal investments, nor from serving on boards of directors of companies other than insurance or insurance holding companies, and otherwise in accordance with policies which may be established by the Board of Directors of the Corporation (the "Board") from time to time, provided such activities do not interfere with the performance of the Consultant's duties under this Agreement. 2. COMPENSATION. For services rendered by the Consultant pursuant to this Agreement, during the Consulting Period, the Consultant shall be compensated as follows: 2.1 The Corporation shall pay the Consultant an annual consulting fee of One Hundred Thousand Dollars ($100,000), payable in such installments as shall be convenient for the Corporation but not less frequently than monthly. 2.2 Subject to the discretion of the CEO, additional fees may be negotiated for special projects. 2.3 The Consultant shall be entitled to receive additional cash compensation under the Stock Appreciation Rights Plan and Agreement entered into as of the date hereof. 3. CONSULTING PERIOD; TERMINATION. The Consulting Period shall commence on January 1, 1997, and shall continue for five (5) years, unless earlier terminated by (i) either party hereto after not less than six (6) months prior written notice to the other, (ii) written agreement of the parties, (iii) the death or disability of the Consultant, or (iv) the Corporation for good cause or upon violation by the Consultant of the provisions of paragraph 4 of this Agreement. 4. NON-COMPETITION; CONFIDENTIALITY. The Consultant and the Corporation recognize that due to the nature of his employment with a Subsidiary of the Corporation, his engagements hereunder and the relationship of the Consultant to the Corporation and its Subsidiaries, the Consultant has access to, and has acquired, and will acquire, and will assist in developing, confidential and proprietary information relating to the business and operations of the Corporation and its Subsidiaries. The Consultant acknowledges that such information has been and will continue to be of central importance to the business of the Corporation and its Subsidiaries and that disclosure of such information or its use by others could cause substantial loss to the Corporation and its Subsidiaries. The Consultant and the Corporation also recognize that an important part of the Consultant's duties will be to develop good will for the Corporation and its Subsidiaries through his personal contact with customers and others having business relationships with the Corporation and its Subsidiaries and that there is a danger that this good will, a proprietary asset of the Corporation and its Subsidiaries, may follow the Consultant if and when his relationship with the Corporation is terminated. The Consultant acknowledges that the Corporation and its Subsidiaries in some respects have, and other respects are developing, a significant international business and that in light of the Corporation's and such Subsidiaries' business and plans, a worldwide restriction on certain activities of the Consultant is fair and reasonable to protect the interests of the Corporation and its Subsidiaries. The Consultant accordingly agrees as follows: 4.1 NON-COMPETITION. On and after the date this Agreement is entered into, and during the Consulting Period, the Consultant will not, anywhere in the world, directly or indirectly, either individually or as owner, partner, agent, director, employee, consultant, broker or otherwise, except for the account of and on behalf of the Corporation or its Subsidiaries, engage in any activity which is in any way competitive with the business of the Corporation or its Subsidiaries, nor will he, in direct or indirect competition with the Corporation or its Subsidiaries, solicit or otherwise attempt to establish for himself or any other person, firm or entity, any business relationships with any person, firm or entity which was, at any time during the Consulting Period or during any of the Consultant's previous employment with the Corporation or its Subsidiaries, a customer or reinsurer of the Corporation or its Subsidiaries. Notwithstanding the foregoing, the Consultant may continue as a passive investor in Service Insurance Company and as a non-employee director of E.W. Blanch Co., Inc. 4.2 NON-SOLICITATION. On and after the date this Agreement is entered into, and during the Consulting Period, the Consultant will not, on behalf of himself or any other person or entity whatsoever, directly or indirectly, solicit, hire, induce or arrange to hire any person who at the time of such hire or other action, or within 24 months prior to the time of such hire or other action, was an employee of the Corporation or its Subsidiaries and was not involuntarily terminated by the Corporation or its Subsidiaries or otherwise interfere with the retention of employees that the Corporation or its Subsidiaries desire to retain as such. 4.3 CONFIDENTIALITY. On and after the date this Agreement is entered into and without time or geographic limitation, the Consultant will keep confidential any trade secrets or confidential or proprietary information of the Corporation or its Subsidiaries which are now known to him or which hereafter may become known to him as a result of his prior employment or continued association with the Corporation or its Subsidiaries and shall not directly or indirectly disclose any such information to any person, firm or entity, or use the same other than in connection with the business of the Corporation or its Subsidiaries. For the purposes of this Agreement, "trade secrets or confidential or proprietary information" includes information unique to the Corporation or any of its Subsidiaries which has a significant business purpose and is not known or generally available from sources outside the Corporation or any of its affiliates or typical of industry practice or other information which the Corporation or its Subsidiaries regards as confidential or proprietary. 4.4 CORPORATION'S REMEDIES FOR BREACH. It is recognized that damages in the event of breach of this paragraph 4 would be difficult, if not impossible, to ascertain. It is therefore agreed that the Corporation and its Subsidiaries, in addition to and without limiting any other remedy or right they may have, shall have the right to an injunction or other equitable relief in any court of competent jurisdiction, enjoining any such breach, and the Consultant hereby waives any and all defenses he may have on the grounds of lack of jurisdiction or competence of the court to grant such an injunction or other equitable relief. The existence of this right shall not preclude any other rights or remedies at law or in equity which the Corporation and its Subsidiaries may have. 5. MISCELLANEOUS. 5.1 BINDING AGREEMENT. This Agreement shall be binding upon the Consultant and the Corporation as of the date of this Agreement. The rights and obligations of the Corporation under this Agreement shall inure to the benefit of, and shall be binding upon, the Corporation and its Subsidiaries and any successor of the Corporation or its Subsidiaries as defined in the Maryland General Corporation Law, as now in effect. 5.2 SUBSIDIARY DEFINED. For purposes of this Agreement, "Subsidiary" shall mean any corporation of which the Corporation, directly or indirectly, owns greater than thirty percent (30%) of the issued and outstanding voting shares, or any partnership, trust or other entity with respect to which the Corporation, directly or indirectly, has the power to determine fifty percent or more of the board of directors thereof or other similar governing group. 5.3 GOVERNING LAW. This Agreement shall be governed by the laws of the State of Maryland other than the conflicts of law provisions thereof. 5.4 ENTIRE AGREEMENT. This Agreement constitutes the entire understanding of the Consultant and the Corporation with respect to the subject matter hereof and supersedes any and all prior understandings, written or oral. This Agreement may not be changed, modified, or discharged orally, but only by a written instrument, signed by the parties. The invalidity or unenforceability of any provisions hereof shall in no way affect the validity or enforceability of any other provision, and to the extent that any provision hereof is not enforceable, the parties to this Agreement agree that that provision shall be enforced to the maximum extent allowed by law and that this Agreement shall be deemed to be modified to such extent without any further action by the parties to this Agreement. IN WITNESS WHEREOF, the parties have executed and delivered this Agreement as of the date first above written ATTEST USF&G CORPORATION By: /s/NORMAN P. BLAKE, JR. Norman P. Blake, Jr., Chief Executive Officer WITNESS CONSULTANT /s/PAUL B. INGREY Paul B. Ingrey EX-21 8 EXHIBIT 21 - SUBSIDIARIES OF THE REGISTRANT USF&G CORPORATION Exhibit 21 - Subsidiaries of the Registrant Name of Subsidiary State of Incorporation United States Fidelity and Guaranty Company Maryland Fidelity & Guaranty Life Insurance Company Maryland The names of other subsidiaries have been omitted because, when considered in the aggregate as a single subsidiary, they would not constitute a significant subsidiary as defined by Regulation S-X. EX-23 9 CONSENT OF INDEPENDENT AUDITORS USF&G CORPORATION Exhibit 23 - Consent of Independent Auditors USF&G Corporation We consent to the incorporation by reference in this Annual Report (Form 10-K) of USF&G Corporation of our report dated February 20, 1998, included in USF&G Corporation's Current Report on Form 8-K dated February 26, 1998. Our audits also included the financial statement schedules of USF&G Corporation listed in Item 14(a). These schedules are the responsibility of the Corporation's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth herein. We consent to the incorporation by reference in the Registration Statement Number 33-20449, 33-9405, 33-33271, 33-21132, 33-51859, 33-65471 and 333-13685 on Form S-3, and Number 2-72026, 2-61626, 2-98232, 33-16111, 33-38113, 33-35095, 33-43132, 33-45664, 33-45665, 33-61965, 33-55667, 33-55669, 33-55671, 33-59535, 33-64839, 333-04359, 333-42489, 333-42491, and 333-42493 on Form S-8, of USF&G Corporation, of our report dated February 20, 1998, with respect to the consolidated financial statements and schedules of USF&G Corporation included or incorporated by reference in this Annual Report (Form 10-K) for the year ended December 31, 1997. /s/ERNST & YOUNG LLP Baltimore, Maryland March 30, 1998 EX-27 10 RESTATED FINANCIAL DATA SCHEDULE (FOR SFAS NO.128)
7 1000000 12-MOS 12-MOS DEC-31-1996 DEC-31-1995 DEC-31-1996 DEC-31-1995 8164 9458 0 0 0 0 16 65 406 254 554 653 10076 11107 73 119 1576 604 456 434 14407 14651 9573 9805 1113 1055 11 11 91 89 482 607 100 0 200 213 286 299 1383 1472 14307 14651 2731 2666 705 733 44 7 18 53 2181 2178 707 714 337 334 259 195 (2) (14) 261 209 0 0 0 0 0 0 261 209 2.05 1.63 1.95 1.53 5113 5142 2030 1856 (162) (54) 764 635 1190 1196 5027 5113 (162) (54)
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